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Trc & Associates v. Nuscience Corporation

United States District Court, Ninth Circuit

January 13, 2014

TRC & ASSOCIATES, Plaintiff/Counterdefendant,
v.
NUSCIENCE CORPORATION; LUMINA HEALTH PRODUCTS, INC., and DOES 1-20, inclusive Defendants/Counterclaimants. NUSCIENCE CORPORATION, Third-Party Plaintiff,
v.
JOHN CLARK; DAVID McKINNEY; and STEPHEN E. ABRAHAM Third-Party Defendants.

ORDER DISMISSING NUSCIENCE'S THIRD-PARTY COMPLAINT [71] AND DISCHARGING ORDER TO SHOW CAUSE RE NUSCIENCE'S COUNTERCLAIMS [81]

OTIS D. WRIGHT, II, District Judge.

I. INTRODUCTION

On December 19, 2013, the Court ordered Defendants NuScience Corporation ("NuScience") and Lumina Health Products, Inc. ("Lumina") to show cause why the Counterclaims and Third-Party Complaints filed in this action should not be dismissed for lack of jurisdiction. (ECF No. 81.) While Lumina agreed to voluntarily dismiss its Third-Party Complaint in response to the Order (ECF Nos. 82, 85.), NuScience did not. Instead, NuScience contends that its Third-Party Complaint is proper under Federal Rule of Civil Procedure 14, warranting the exercise of supplemental jurisdiction. (ECF No. 83.) The Court disagrees. NuScience's Third-Party Complaint contains claims against three Third-Party Defendants, including counsel for Plaintiff TRC & Associates ("TRC"). For the reasons discussed below, the Court DISMISSES the Third-Party Complaint WITHOUT LEAVE TO AMEND. (ECF No. 71.) As to NuScience's Counterclaims, the Court hereby DISCHARGES the Order to Show Cause. (ECF No. 81.) The Counterclaims are now subject to regular motion practice.

II. FACTUAL BACKGROUND

The original Complaint in this action was filed by TRC on September 18, 2013. (ECF No. 1.) The Complaint asserts the following four claims against NuScience and Lumina: (1) fraud; (2) violation of California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code §§ 17200; (3) violation of California's False Advertising Law (FAL), Cal. Bus. & Prof. Code §§ 17500; and (4) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961. TRC is a retailer of nutritional supplements. (Compl. ¶ 17.) NuScience develops and manufactures a supplement known as CELLFOOD, and Lumina is the domestic distributor of the product. ( Id. ¶¶ 26, 63.) TRC's claims are based on alleged misrepresentations by NuScience and Lumina regarding CELLFOOD's ingredients, safety, and effects. Specifically, the Complaint alleges that NuScience and Lumina actively concealed a key ingredient in CELLFOOD that poses a "severe health hazard" and misrepresented compliance with federal regulations. ( Id. ¶¶ 49-62.)

While this case is still at the pleadings stage, the Court has already had the opportunity to rule on several matters. The Court has denied multiple applications to place filings under seal, including an attempt by NuScience to have the entire Complaint sealed. (ECF Nos. 18, 21, 33, 60.) The Court has also denied two Motions to Disqualify Plaintiff's Counsel Stephen Abraham filed by NuScience and Lumina. (ECF No. 63.) Two Motions to Dismiss were denied as well. (ECF No. 64.)

On December 2, 2013, NuScience answered TRC's Complaint. (ECF No. 66.) An Amended Answer was filed on December 18, 2013, adding counterclaims against TRC that include misappropriation of trade secrets and unfair business practices. (ECF No. 80.) Along with the Amended Answer and Counterclaims, NuScience also filed a Third-Party Complaint against David McKinney, Stephen Abraham, and John Clark. (ECF No. 71.) McKinney is a former employee of NuScience. Abraham is TRC's counsel in this action. Clark is allegedly the controlling shareholder of TRC. The Third-Party Complaint asserts eight claims including breach of contract, fraud, misappropriation of trade secrets, aiding and abetting, interference with contractual relations, and unfair business practices. All of the claims do not necessarily apply to every Third-Party Defendant. Lumina also filed counterclaims against TRC and a Third-Party Complaint against Clark. (ECF Nos. 73, 74.)

On December 19, 2013, the Court issued an Order to Show Cause regarding the Counterclaims and Third-Party Complaints filed by NuScience and Lumina. (ECF No. 81.) Of particular concern to the Court was whether Federal Rule of Civil Procedure 14 permitted the impleader of the parties named in the Third-Party Complaints. The Court also expressed concern over the exercise of supplemental jurisdiction, since none of the new claims are based on federal law. Lumina filed a response to the Order on December 23, 2013, stating that it would voluntarily dismiss its Third-Party Complaint.[1] (ECF No. 82, Ex. A.) Based on this representation, the Court discharged the Order to Show Cause as to Lumina, leaving Lumina's Counterclaims subject to regular motion practice. (ECF No. 84.) On December 27, 2013, NuScience filed a response to the Order. (ECF No. 83.) Unlike Lumina, NuScience maintains that its Third-Party Complaint is proper under the Federal Rules of Civil Procedure.

III. LEGAL STANDARD

Third-party practice is governed by Federal Rule of Civil Procedure 14. "A defending party may, as a third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it for all or part of the claim against it." Fed.R.Civ.P. 14(a)(1). It is not sufficient that a third-party claim is related or arises out of the same set of facts. United States v. One 1977 Mercedes Benz, 708 F.2d 444, 452 (9th Cir. 1983), cert. denied, 464 U.S. 1071 (1984). "[A] third-party claim may be asserted only when the third party's liability is in some way dependent on the outcome of the main claim and the third party's liability is secondary or derivative." Id. (emphasis added); see also Stewart v. American Intern. Oil & Gas Co., 845 F.2d 196, 199-200 (9th Cir. 1988); Krainski v. Mill, 356 Fed.Appx. 951, 952 (9th Cir. 2009). The decision to permit the impleader of a third-party defendant rests within the sound discretion of the trial court. Sw. Adm'rs, Inc. v. Rozay's Transfer, 791 F.2d 769, 777 (9th Cir. 1986); see also Fed.R.Civ.P. 14 advisory committee notes.

IV. DISCUSSION

NuScience's Third-Party Complaint contains claims against three Third-Party Defendants-David McKinney, Stephen Abraham, and John Clark. NuScience raises distinct arguments in support of impleader for each of these Third-Party Defendants.

Accordingly, the Court addresses ...


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