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Whitecryption Corporation v. Arxan Technologies, Inc.

United States District Court, N.D. California

June 18, 2015

WHITECRYPTION CORPORATION, Plaintiff,
v.
ARXAN TECHNOLOGIES, INC., Defendant.

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIMS WITH LEAVE TO AMEND, Re: Dkt. No. 23

WILLIAM H. ORRICK, District Judge.

INTRODUCTION

Counter-defendant Intertrust Technologies Corporation moves to dismiss defendant and counterclaimant Arxan Technologies, Inc.'s breach of contract counterclaims on the grounds that it is not liable for the contractual obligations of its subsidiary, plaintiff and counter-defendant whiteCryption Corporation, the party to the contract. Because Arxan did not allege sufficient facts to show that whiteCryption was acting as Intertrust's agent with respect to the conduct at issue, that Intertrust and whiteCryption were alter egos, or that Intertrust ratified whiteCryption's conduct, its breach of contract counterclaims against Intertrust are DISMISSED WITH LEAVE TO AMEND.

BACKGROUND

whiteCryption and Arxan provide data protection solutions. In February 2015, whiteCryption sued Arxan for breach of contract, copyright infringement, and related business torts. Compl. [Dkt. No. 1]. Arxan filed counterclaims against whiteCryption and its parent company, Intertrust for (i) breach of contract - software license agreement; (ii) breach of contract - reseller agreement; (iii) copyright infringement; (iv)-(v) intentional interference with contractual relations; (vi) intentional interference with prospective economic advantage; and (vii) unfair competition. Counterclaims [Dkt. No. 18].

Only the first two counterclaims for breach of contract are at issue here. They arise from two contracts between Arxan and whiteCryption-a software license agreement entered into on December 13, 2011 and a reseller agreement entered into on June 2, 2011. Id. ¶ 2. Arxan alleges that whiteCryption breached the software licensing agreement by improperly using the licensed technology to "develop, market and deploy a competing product under [whiteCryption's] brand." Id. ¶ 3. Arxan contends that whiteCryption breached the reseller agreement by failing to provide ongoing support and maintenance to customers in accordance with the contract, directly communicating with and soliciting Arxan's customers, and improperly disclosing that the software product distributed by Arxan was made by whiteCryption. Id. ¶ 4. Arxan names both whiteCryption and its parent company, Intertrust, as counter-defendants, alleging that Intertrust is liable for whiteCryption's conduct because "whiteCryption was, at all relevant times, acting under Intertrust's directions when it carried out the unlawful acts alleged in this Counterclaim." Id. ¶ 12.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). A claim is facially plausible when the plaintiff pleads facts that "allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must be "more than a sheer possibility that a defendant has acted unlawfully." Id. While courts do not require "heightened fact pleading of specifics, " a plaintiff must allege facts sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 570.

In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court accepts the plaintiff's allegations as true and draws all reasonable inferences in favor of the plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

If the court dismisses the complaint, it "should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making this determination, the Court should consider factors such as "the presence or absence of undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party and futility of the proposed amendment." Moore v. Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989).

DISCUSSION

Intertrust moves to dismiss Arxan's breach of contract counterclaims on the grounds that it is not a party to either the license agreement or the reseller agreement and there is no theory under which it can be liable.[1] In opposition, Arxan argues that Intertrust is liable under an agency theory.

I. LIABILITY OF PARENT COMPANIES UNDER AGENCY THEORY

It is "a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation... is not liable for the acts of its subsidiaries." United States v. Bestfoods, 524 U.S. 51, 61 (1998) (internal citations and quotations omitted). Accordingly, parent corporations are held directly or indirectly liable under California law for the acts of their ...


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