United States District Court, N.D. California
ORDER REGARDING MOTION TO DISMISS Re: Dkt. No.
WILLIAM H. ORRICK UNITED STATES DISTRICT JUDGE
defendants whiteCryption Corporation and Intertrust
Technologies Corporation seek to dismiss Arxan Technologies
Inc.’s counterclaims for interference with contractual
relations, prospective economic advantage, and violation of
California’s Unfair Competition Law because Arxan
failed to plausibly allege facts sufficient to state a claim
against either counter defendant. whiteCryption also seeks to
dismiss the claim for declaratory judgment as simply a mirror
of its own causes of action. Intertrust further seeks
dismissal because Arxan has not pleaded viable alter ego and
agency theories of liability, and does not assert direct
allegations against Intertrust in its breach of contract
cause of action.
most part, Arxan’s counterclaims mush the counter
defendants’ alleged actions together. For the reasons
stated below, I agree with Intertrust that the alter ego and
agency allegations are insufficient and STRIKE the legal
conclusions asserting them from the counterclaims. I also
find that the breach of contract, interference with the Moss
Adams contract and declaratory relief causes of action are
not plausibly stated against Intertrust, and dismiss
Intertrust from them. And I DENY the motion to dismiss
concerning the claims against whiteCryption and the remaining
claims against Intertrust.
principal business is providing application protection and
anti-tamper solutions for a variety of commercial software.
First Amended Counterclaims (“FACC”) ¶ 18.
Among other things, Arxan provides a product commonly
referred to as “code-hardening” software which
enables developers and security engineers to protect an
application by inserting “guards” into the code.
Id. Arxan’s software is often licensed to
customers for periods of time with the goal that the customer
will be interested in renewing the license. Id.
mid-2011, Arxan began negotiations with Intertrust regarding
a reseller relationship whereby Arxan would sell
Intertrust’s recently acquired software protection
technology, whiteCryption’s White Box Cryptography
product, to its customers under one of Arxan’s own
labels, TransformIT. Id. ¶¶ 24, 27. After
a few test transactions, Arxan and whiteCryption entered into
a reseller agreement (the “Reseller Agreement”)
under which Arxan obtained a nonexclusive distribution
license for the White Box Cryptography product. Id.
¶ 29. The Reseller Agreement was drafted, negotiated,
and Dated: behalf of whiteCryption by William Rainey, the
Senior Vice President, General Counsel, and Secretary for
Intertrust, as Secretary for whiteCryption. Id.
¶ 30. Arxan sold the whiteCryption security software
under its TransformIT label from June 2011 to June 2013.
Id. ¶ 35.
alleges that whiteCryption breached various obligations under
the Reseller Agreement. One “critical” component
of the Reseller Agreement was whiteCryption’s
obligation to provide software maintenance and support
services as defined by the agreement. Id. ¶ 48.
In July 30, 2013, approximately two months after the Reseller
Agreement ended, Tala Shamoon, Intertrust’s Chief
Executive Officer, informed Arxan that whiteCryption would no
longer honor its obligation to provide ongoing maintenance
and support for remaining customers for the length of their
existing contracts with Arxan. Id. ¶ 52. Arxan
contends that this constituted a violation of the express
terms of the Reseller Agreement that affected Arxan as well
as over twenty of its customers. Id. ¶ 54.
Reseller Agreement also allegedly prohibited whiteCryption
from unauthorized direct contact with Arxan’s
customers. Id. ¶ 55. In contravention of this
agreement, whiteCryption contacted at least three of
Arxan’s customers and “demanded that they stop
using whiteCryption’s products that were properly
provided by Arxan.” Id. ¶ 56.
whiteCryption and Intertrust also breached the agreement by
publically disclosing that the White Box Cryptography product
sold under Arxan’s brand was actually
whiteCryption’s technology. Id. ¶¶
59, 62. As a result, at least one customer asked for pricing
information to determine whether to purchase from counter
defendants directly and another customer began to negotiate a
non-disclosure agreement with Intertrust so that it could
discuss its needs directly with Intertrust. Id.
November 2013, whiteCryption retained Moss Adams LLP to
conduct an audit pursuant to the Reseller Agreement which
provided certain limited inspection rights. Id.
¶ 77. Arxan and Moss Adam executed an Auditor
Non-disclosure Agreement (the “NDA”) that
provided that Moss Adams would not disclose any confidential
information it received from Arxan to whiteCryption or third
parties. Id. ¶ 80. Thereafter Arxan provided
confidential customer information to Moss Adams in order to
facilitate the audit process. Id. ¶ 83. Despite
the requirements of the NDA, Moss Adams did not provide Arxan
with its final report five days before providing the report
to whiteCryption so that it could insure that none of its
confidential information was included. Id. ¶
91. Instead, Moss Adams emailed whiteCryption and Arxan at
the same time with a copy of the final report that contained
highly confidential information belonging to Arxan, including
customer names and pricing. Id. ¶¶ 89, 92.
Arxan alleges Intertrust and whiteCryption
“intentionally induced” Moss Adams to breach the
NDA to obtain Arxan’s confidential customer information
and gain a competitive advantage in the marketplace.
Id. ¶ 95.
counterclaims encompass six causes of action: (1) breach of
contract; (2) intentional interference with contractual
relations- relationships with customers; (3) intentional
interference with contractual relations - Moss Adams
Contract; (4) intentional interference with prospective
economic advantage; (5) violation of California Business and
Professions Code § 17200 et. seq. (the
“UCL”); and (6) a claim declaratory judgment
claim. Arxan asserts that Intertrust should be held liable
not only for its own actions but also for
whiteCryption’s conduct on the basis of an alter ego or
agent theory of liability. Id. ¶¶ 102-113.
MOTION TO DISMISS
survive a motion under Federal Rule of Civil Procedure
12(b)(6), 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, 570
(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.
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).
HEIGHTENED PLEADING STANDARD FOR FRAUD OR MISTAKE
sounding in fraud or mistake are subject to the heightened
pleading standard of Federal Rule of Civil Procedure 9(b),
which requires that such claims “state with
particularity the circumstances constituting fraud or
mistake.” Fed.R.Civ.P. 9(b). To satisfy this standard,
a plaintiff must identify “the time, place, and content
of [the] alleged misrepresentation[s], ” as well as the
“circumstances indicating falseness” or
“manner in which the representations at issue were
false and misleading.” In re GlenFed, Inc. Sec.
Litig., 42 F.3d 1541, 1547-48 (9th Cir. 1994) (internal
quotation marks and modifications omitted). The allegations
“must be specific enough to give defendants notice of
the particular misconduct which is alleged to constitute the
fraud charged so that they can defend against the charge and
not just deny that they have done anything wrong.”
Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.
defendants argue that all claims against Intertrust and that
all but one claim, the breach of contract claim, against
whiteCryption should be dismissed. Intertrust contends that it
cannot be held liable under an alter ego or agency theory,
but does not otherwise attempt to differentiate its arguments
about the insufficiency of the complaint from
INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS -CUSTOMER
state a claim for intentional interference with contractual
relations, a plaintiff must show: (1) a valid contract
between plaintiff and a third party; (2) defendant’s
knowledge of this contract; (3) defendant’s intentional
acts designed to induce breach or disruption of the
contractual relationship; (4) actual breach or disruption of
the contractual relationship; and (5) resulting damage.
Pac. Gas & Elec. Co. v. Bear Stearns & Co.,
50 Cal.3d 1118, 1126 (1990).
defendants’ motion regarding the Second Cause of Action
focuses on the fourth element. They argue Arxan has failed to
allege facts demonstrating an actual breach or disruption of
any then existing contractual relationships. Mot. at 4 [Dkt.
No. 66]. Under California law, an express breach is
unnecessary to state a claim for the tort of inducing breach
of contract. Ramona Manor Convalescent Hosp. v. Care
Enters., 177 Cal.App.3d 1120, 1131 (Ct. App. 1986).
“Rather, liability may be imposed where the defendant
does not literally induce a breach of contract, but makes
plaintiff’s performance of the contract more expensive
or burdensome.” Solyndra Residual Trust, by &
through Neilson v. Suntech Power Holdings Co., 62
F.Supp.3d 1027, 1048 (N.D. Cal. 2014) (internal quotation
claims that “Counter-Defendants contacted key decision
makers of [Arxan’s] customers and demanded that they
terminate existing contracts with Arxan or not renew their
Arxan contracts.” FACC ¶ 70. The complaint
provides several examples of the counter defendants’
alleged interference. For example, in March 2013, Oliver
Mills, General Manager of Intertrust Europe, “directly
approached Arxan customers in an effort to convince them to
replace Arxan products with Intertrust product(s).”
Id. ¶ 71. A month later “a representative
of Intertrust approached an officer of one of Arxan’s
customers, in an effort to pressure it to purchase white-box
cryptography directly from Intertrust.” Id.
¶ 72. The customer later informed Arxan that he was
“confused and extremely offended by Intertrust’s
conduct.” Id. “Indeed, after informing
one Arxan customer about the reseller relationship, that
customer began to negotiate a non-disclosure agreement with
Intertrust so that the customer could discuss their needs and
pricing directly with Intertrust.” Id. ¶
64. Similarly, in or around the third quarter of 2013,
“whiteCryption threatened several of Arxan’s
customers and demanded that they stop using whiteCryption
products” and “further demanded that
Arxan’s customers sign a new contract with
whiteCryption in order to keep using the white-box
cryptography product that was provided by Arxan.”
Id. ¶ 73. As a result of counter
defendants’ interference, a number of existing Arxan
customers either terminated existing contracts, did not renew
their contracts, or chose not to enter into contracts with
Arxan. Id. ¶ 5.
allegations are sufficient to support a reasonable inference
that such actions constituted a disruption of Arxan’s
contracts with its customers. Counter ...