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McGraw Co. v. Aegis General Insurance Agency, Inc.

United States District Court, N.D. California, San Francisco Division

July 13, 2016

THE MCGRAW COMPANY, et al., Plaintiffs,




         This is an unfair-competition suit between rival insurance companies. The plaintiffs claim, in short, that the defendants disparaged them in the marketplace, took proprietary information from their computers, and poached their employees. The defendants move to dismiss the entire First Amended Complaint (“FAC”). (ECF No. 33.)[1] Their main argument is that the plaintiffs charge them with a “unified course of fraudulent conduct, ” so that the “entire complaint” is subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b). The defendants contend that the FAC's allegations are not “particular” enough to satisfy Rule 9(b), and that the whole complaint must therefore be dismissed. The defendants make additional arguments against discrete parts of the FAC. (ECF No. 33 at 22-28.)

         The parties have consented to magistrate jurisdiction. (ECF Nos. 6, 19, 21.) This matter can be determined without oral argument. See Civil L.R. 7-1(b). For the reasons given below, and as more fully described below, the court partly grants and partly denies the defendants' motion.


         1. The Plaintiffs’ Allegations & Claims

         For present purposes, it will do to identify three central grievances in the FAC, three discrete sets of facts from which the plaintiffs' various legal claims grow. The first is trade libel. It is grounded in allegations of fraud. Specifically, the plaintiffs allege that defendant Billen falsely told one of their customers that the plaintiffs would stop providing a certain type of insurance (“powersports” insurance) - and that the defendants could provide this service.[2] Second, the plaintiffs claim that defendants Billen and Preininger wrongfully accessed the plaintiffs' computers and took proprietary information for the defendants to exploit.[3] Third, the plaintiffs claim that the defendants systematically poached their employees.[4] (All three individual defendants formerly worked for the plaintiffs.[5]) This three-part description is not meant to limit the plaintiffs' legal theories. The point of this list is only to reach an accurate working description of the plaintiffs' most salient grievances for use in this particular analysis.

         From these basic allegations of wrongdoing the plaintiffs extrude eight legal claims. They are: (1) violation of the federal Computer Fraud and Abuse Act (18 U.S.C. § 1030); (2) misappropriation of trade secrets (Cal. Civ. Code § 3426); (3) common-law unfair competition; (4) violation of California's Unfair Competition Law (Cal. Bus. & Profs. Code § 17200); (5) trade libel; (6) unjust enrichment; (7) civil conspiracy; and (8) aiding and abetting.[6]

         2. The Defendants’ Arguments

         The defendants contend that all this amounts to a “unified course of fraudulent conduct, ” so that the “entire complaint is subject to the heightened pleading standard under Rule 9(b).” (ECF No. 33 at 9.) They argue that the plaintiffs consequently “must . . . allege all facts in their complaint with particularity.” (Id. at 12.) And they argue that the plaintiffs have failed to do so. The whole complaint should thus be dismissed, in the defendants' view, without leave to amend. The defendants also make other arguments under Rule 8(a) and certain substantive doctrines. These are set out and addressed where appropriate in the Analysis, below.


         A claim will normally survive a motion to dismiss if it offers a “short and plain statement . . . showing that the pleader is entitled to relief.” See Fed. R. Civ. P. 8(a)(2). This statement “must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Fraud allegations, however, elicit a more demanding standard. Procedural Rule 9(b) provides: “In alleging fraud . . ., a party must state with particularity the circumstances constituting fraud . . . . Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). This means that “[a]verments of fraud must be accompanied by the 'who, what, when, where, and how' of the misconduct charged.” Vess v. Ciba- Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). Like the basic “notice pleading” demands of Rule 8, a driving concern of Rule 9(b) is that defendants be given fair notice of the charges against them. See, e.g., In re Lui, 2016 WL1212113, *1 (9th Cir. Mar. 29, 2016) (“Rule 9(b) demands that allegations of fraud be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.”) (quotation omitted); Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (Rule 9(b) requires particularity “so that the defendant can prepare an adequate answer”).

         Rule 9(b) does not govern non-fraud assertions. “Where fraud is not an essential element of a claim, only those allegations of a complaint which aver fraud are subject to Rule 9(b)'s heightened pleading standard.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (citing Vess, 317 F.3d at 1105). The Ninth Circuit further explained in Vess:

In some cases, the plaintiff may allege a unified course of fraudulent conduct and rely entirely on that course of conduct as the basis of a claim. In that event, the claim is said to be “grounded in fraud” or to “sound in fraud, ” and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).

Vess, 317 F.3d at 1103-04 (citing cases) (emphases added) (quoted in Kearns, 567 F.3d at 1125). “In other cases, ” Vess continued,

a plaintiff may choose not to allege a unified course of fraudulent conduct in support of a claim, but rather to allege some fraudulent and some non-fraudulent conduct. In such cases, only the allegations of fraud are subject to Rule 9(b)'s heightened pleading requirements. . . . The rule does not require that allegations supporting a claim be stated with particularity when those allegations describe non-fraudulent conduct.
To require that non-fraud allegations be stated with particularity merely because they appear in a complaint alongside fraud averments . . . would impose a burden on plaintiffs not contemplated by the notice pleading requirements of Rule 8(a).

Id. at 1104 (emphasis added). This whole passage could be underlined for its impact on this analysis. It refutes the defendants' core argument, that the “entire complaint” must be stated with particularity (ECF No. 33 at 9), essentially because fraud and non-fraud claims and allegations occur alongside one another.


         1. Rule 9(b) Does Not Require the Whole Complaint to be Pleaded With Particularity

         The bulk of the defendants' motion rests on what the court thinks is a mistaken premise. A mistaken application of Rule 9(b) - in particular, of the subsidiary rule regarding “unified courses of fraudulent conduct.” The defendants also misread the plaintiffs' complaint. The plaintiffs do not allege a “unified course of fraudulent conduct” within the meaning of Rule 9(b), as explicated in Kearns and Vess. That rule does not apply to all their claims, much less to all aspects of the complaint, and does not require the plaintiffs to plead every fact and claim with heightened particularity. Rule 9(b) does apply to parts of the complaint. To the extent that it does, the complaint mostly satisfies that rule's heightened pleading standard.

         1.1 How Fraud Arises in the Complaint

         We should first clarify how fraud arises in the complaint. Where do the plaintiffs allege fraud? What role does it play? This will show that, as a matter of raw ...

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