United States District Court, S.D. California
ORDER DENYING IN PART AND GRANTING IN PART
DEFENDANTS' MOTION TO DISMISS [ECF NO. 12.]
TED MOSKOWITZ, CHIEF JUDGE UNITED STATES DISTRICT COURT.
March 21, 2017, Defendants Youngevity International, Inc.,
Steve Wallach, Michelle Wallach, and David Briskie filed a
motion to dismiss and/or strike Plaintiff William
Andreoli's First Amended Complaint (“FAC”).
(Def.s' Mot. to Dismiss (“Def.s' MTD”),
ECF No. 12.) For the reasons discussed below, the Court
grants in part and denies in part their motion.
August 2011, Youngevity purchased a series of companies, FDI
entities, from Plaintiff. (FAC ¶¶ 20-22.)
The parties executed a purchase agreement in which Plaintiff
agreed to sell all of his ownership interests in the FDI
entities to Youngevity. (Id. ¶ 22.) A few
months later, in October 2011, the parties executed the
Amended and Restated Equity Purchase Agreement which
superseded the original purchase agreement. (Id.
¶ 23.) The Amended Purchase Agreement contained a set of
payment terms that commenced on October 25, 2011.
(Id. ¶ 30.) In acquiring the FDI entities,
Youngevity also assumed one of the FDI entities' mortgage
obligations, which as of December 31, 2014 was approximately
$1, 986, 000. (Id. ¶ 26.) The property owned by
FDIR was a commercial building in New Hampshire which was
occupied by FDI. (Id. ¶ 45.) The Amended
Purchase Agreement provided for a separate closing date for
the property because Defendants were not able to finance the
property until a later date. (Id. ¶ 46.)
However, Defendants agreed to pay the rent and monthly
expenses until the deal closed. (Id. ¶ 47.)
Immediately after the acquisition, Youngevity's Board of
Directors appointed Plaintiff as Youngevity's president.
(Id. ¶ 28.) Plaintiff remained in that position
until November 30, 2015. (Id. ¶ 29.)
2014, while Plaintiff remained employed by Youngevity,
Defendants allegedly coerced Plaintiff into signing the First
Amendment to the Amended Purchase Agreement, which changed
the previous acquisition purchase price and payment terms
from $20, 000, 000 to $6, 000, 000. (Id.
¶¶ 36-43.) Plaintiff also claims that Defendants
refused to close on the FDIR transaction and only paid rent
and related expenses until December 2015, leaving Plaintiff
with the burden and cost of running the FDIR operation.
(Id. ¶ 58.) Additionally, Plaintiff alleges
that Defendants coerced him into resigning on November 30,
2015. (Id. ¶ 67.) Since February 2016,
Defendants have defaulted on their obligations under the
Amended Purchase Agreements, as well as having stopped making
commission payments for his distributorships and eventually
terminated them. (Id. ¶¶ 82, 95-99.)
March 2016, Youngevity and Dr. Joel D. Wallach, founder of
Youngevity, filed an action against numerous individuals,
including Plaintiff, who left Youngevity to form a competing
multi-level marketing corporation, Wakaya Perfection, LLC.
That action, Youngevity, et al. v. Smith, et al.,
No. 16-cv-704-BTM-JLB (“Youngevity action”),
remains before the Court. Before an answer was due in the
Youngevity action, Plaintiff initiated this action on
November 30, 2016. Plaintiff alleges the following causes of
action: (1) breach of contract; (2) breach of employment
contract; (3) breach of the implied covenant of good faith
and fair dealing; (4) unjust enrichment/ restitution; (5)
wrongful termination; (6) fraud; (7) civil conspiracy; (8)
breach of fiduciary duty; (9) conversion; and (1) violations
of California's Unfair Competition Laws
First to File
argue that Plaintiff's complaint should be dismissed
under the first-to-file rule because the Youngevity action
was filed before Plaintiff initiated this action.
first-to-file rule is recognized as a doctrine of federal
comity, which allows a district court to decline jurisdiction
over an action when a complaint involving the same parties
and issues has already been filed in another district.
Church of Scientology of California v. United States
Dep't of the Army, 611 F.2d 738, 749 (9th Cir.
1979). The first-to-file rule is meant to “serve the
purpose of promoting efficiency well and should not be
disregarded lightly.” Id. at 750. While it
generally applies to actions that are filed in separate
district, courts have applied it to actions filed within the
same district. See Wallerstein v. Dole Dresh Vegetables,
Inc., 967 F.Supp.2d 1289, 1294 (N.D. Cal. 2013); see
also Keen v. Omni Limousine, No. 16-cv-01903-JCM-GWF,
2016 WL 6828199, at *2 (D. Nev. Nov. 18, 2016.) This case was
originally filed before Judge Anthony J. Battaglia, but it
was transferred to this Court pursuant to this district's
low-number rule. Thus, the same concerns of judicial
efficiency and uniformity are not present. The Court,
therefore, follows the lead of several courts in this circuit
in declining to apply the first-to-file rule where the two
actions at issue are pending before the same judge. See,
e.g., Rodriguez v. Taco Bell Corp., No.
13-cv-01498-SAB, 2013 WL 5877788, at *6-7 (E.D. Cal. Oct. 30,
2013); Henderson v. JPMorgan Chase Bank, No.
11-cv-3428-PSG-PLAX, 2011 WL 4056004, at *2 (C.D. Cal. Sept.
13, 2011); Sheehy v. Santa Clara Valley Transp.
Auth., No. 14-cv-01325-PSG, 2014 WL 2526968, at *2 (N.D.
Cal. June 4, 2014).
also argue that the claims should be dismissed because they
would have been compulsory counterclaims in the Youngevity
action but for Plaintiff filing this action before filing a
responsive pleading. Federal Rule of Civil Procedure 13(a)
requires a party to assert a counterclaim when it
“arises out of the transaction or occurrence that is
the subject matter of the opposing party's claim.”
Fed.R.Civ.P. 13(a). “If a party fails to plead a
compulsory counterclaim, he is held to waive it and is
precluded by res judicata from ever suing upon it
again.” Int'l Bhd. Of Elec. Workers v. G.P.
Thompson Electric, Inc., 363 F.2d 181, 184 (9th Cir.
1966). Here, Plaintiff filed this action before a responsive
pleading was required to be served, as there was a pending
motion to dismiss. While the Ninth Circuit has not
specifically addressed this issue, other circuits as well as
district courts within this circuit have held that Rule 13(a)
requires a compulsory counterclaim only if the party who
desires to assert a claim has served a responsive pleading.
See MRW, Inc. v. Big-O Tires, LLC, No. S-08-1732,
2008 WL 5113782, at * 10 (E.D. Cal. Nov. 26, 2008) (citing to
fifth, sixth, and seventh circuit cases holding that Rule
13(a) only requires a compulsory counterclaim to be pled if
the party asserting the claim has served a pleading); see
also Luis v. Metro Life Ins. Co., 142 F.Supp.3d 873, 878
(N.D. Cal. 2015) (“Rule 13 does not apply to every
claim that could or should have been asserted in prior
litigation. Indeed, the language of the rule denotes that
preclusion will only apply to claims that should have been
asserted in a ‘pleading.'”) Accordingly, the
Court denies Defendants' motion to dismiss on this
California Code of Civil Procedure § 425.16, Anti-SLAPP
Defendants move to strike count ten under California's
Anti-SLAPP statute, California Code of Civil Procedure §
425.16. Defendants argue that count ten, a claim for
violations of California's UCL, arises from protected
activity-the filing of the Youngevity action.
Code of Civil Procedure § 425.16, the Anti-Strategic
Lawsuits Against Public Participation
(“Anti-SLAPP”) law, provides in relevant part:
(b)(1) A cause of action against a person arising from any
act of that person in furtherance of the person's right
of petition or free speech under the United States
Constitution or the California Constitution in connection
with a public issue shall be subject to a special motion to
strike, unless the court determines that the plaintiff has
established that there is a probability that the plaintiff
will prevail on the claim.
(2) In making its determination, the court shall consider the
pleadings, and supporting and opposing affidavits stating the
facts upon which the liability or defense is based.
apply a two-part test to determine whether an action is
subject to an anti-SLAPP special motion to strike.
Navellier v. Sletten, 29 Cal.4th 82, 88 (2002).
First, the defendant must establish that “the
challenged cause of action is one arising from protected
activity.” Id. Once a defendant makes a
threshold showing that the act in question is protected, the
burden shifts to the plaintiff. Id. To resist the
special motion to strike, the plaintiff must establish
“a probability of prevailing on the claim.”
Id. In federal court, “the claim should be
dismissed if the plaintiff presents an insufficient legal
basis for it, or if, on the basis of the facts shown by the
plaintiff, ‘no reasonable jury could find for the
plaintiff.'” Makaeff v. Trump Univ., LLC,
715 F.3d 254, 261 (9th Cir. 2013) (citing Metabolife
Int'l, Inc. v. Wornick, 264 F.3d 832, 840 (9th Cir.
2001)). For a “mixed cause of action, ” a court
may rule on a plaintiff's specific allegations of
protected activity “rather than reward artful pleading
by ignoring such claims if they are mixed with assertions of
unprotected activity.” Baral v. Schnitt, 1
Cal.5th 376, 393 (2016).
Step One: “Arising From” Requirement
Defendants must demonstrate that the challenged cause of
action “‘arise[s] from' protected activity in
which the defendant has engaged.” Park v. Bd. of
Trs. of Cal. State Univ., 2 Cal.5th 1057, 1061 (2017)
(quoting Cal. Civ. Proc. Code § 425.16(b)). The
anti-SLAPP statute defines protected activity as:
(1) any written or oral statement or writing made before a
legislative, executive, or judicial proceeding, or any other
official proceeding authorized by law, (2) any written or
oral statement or writing made in connection with an issue
under consideration or review by a legislative, executive, or
judicial body, or any other official proceeding authorized by
law, (3) any written or oral statement or writing made in a
place open to the public or a public forum in connection with
an issue of public interest, or (4) any other conduct in
furtherance of the exercise of the constitutional right of
petition or the constitutional right of free speech in
connection with a public issue or an issue of public
Cal. Civ. Proc. Code § 425.16(e).
claim arises from protected activity when that activity
underlies or forms the basis for the
claim.” Park, 2 Cal.5th at 1062 (emphasis
added). Courts ruling on anti-SLAPP motions must determine
“what the defendant's activity is that gives rise
to his or her asserted liability-and whether that activity
constitutes protected speech or petitioning.”
Id. at 1063 (citations omitted). The mere fact that
an action was triggered by protected activity does not mean
that it “arose from that activity for the purposes of
the anti-SLAPP statute.” Id. at 1063; see
City of Cotati v. Cashman, 29 Cal.4th 69, 78 (2002)
(“[A] claim filed in response to, or in retaliation
for, threatened or actual litigation is not subject to the
anti-SLAPP statute simply because it may be viewed as an
oppressive litigation tactic.”). Thus, the only means
by which a defendant can meet its burden under the anti-SLAPP
statute is by demonstrating “that the
defendant's conduct by which plaintiff claims to have
been injured falls within one of the four categories
described in [Cal. Civ. Proc. Code § 425.16(e)].”
Parks, 2 Cal.5th at 1063.
Defendants argue that count ten, at least in part, arises
from a protected activity because it is based on the filing
of the Youngevity lawsuit. Apart from incorporating by
reference the preceding allegations, Plaintiff's tenth
cause of action under the UCL is based on numerous alleged
violations including violations of California Business and
Professions Code Section 16600, Youngevity's fraudulent
accounting practices, Youngevity's assertion of
groundless claims against Plaintiff, and Youngevity's
filing of a “sham lawsuit against [Plaintiff] in an
attempt to deny further payments to [Plaintiff] for
commissions and for payments for his companies.” (FAC
¶¶ 219-28.) While Plaintiff appears to argue that
his tenth cause of action is based solely on a violation of
section 166600, on its face, the FAC states that
“Youngevity violated the UCL in several ways”
including filing its lawsuit and asserting groundless claims.
(Id. ¶¶ 223, 225, 228.) The filing of a
civil action qualifies as a protected activity under the
anti-SLAPP statute. Rusheen v. Cohen, 37 Cal.4th
1048, 1056 (2006). Thus, Plaintiff's tenth cause of
action arises from protected activity as it is in part based
on protected activity that is not “merely incidental to
the unprotected activity.” See Salma v. Capon,
161 Cal.App.4th 1275, 1287 (2008).
Step Two: Possibility of Success on the Merits
determined that Plaintiff's tenth cause of action is
based in part on protected activity, the Court next turns to
Plaintiff's probability of prevailing on the merits. As
the Supreme Court of California has held, a plaintiff cannot
defeat an anti-SLAPP motion by merely establishing a
probability of prevailing on any part of a pleaded
cause of action. Baral, 1 Cal.5th at 392. Instead,
“the plaintiff must make the requisite showing as to
each challenged claim that is based on allegations of
protected activity.” Id. Though how a
plaintiff meets this standard varies with every case,
“when the defendant seeks to strike particular claims
supported by allegations of protected activity that appear
alongside other claims within a single cause of action, the
motion cannot be defeated by showing a likelihood of success
on the claims arising from unprotected activity.”
Id. Because count ten is based on both protected and
unprotected activity, the Court focuses on the sufficiency of
the claims arising from protected activity.
argue that Plaintiff cannot prevail on his UCL claim on this
ground because it is barred by California's litigation
privilege under California Civil Code section 47. The
litigation privilege renders communications made as part of a
“judicial or quasi-judicial proceeding”
absolutely privileged. Cal. Civ. Code § 47(b). The
Supreme Court of California has clearly stated that the
filing of a legal action is protected by the litigation
privilege. Action Apartment Ass'n Inc. v. City of
Santa Monica, 41 Cal.4th 1232, 1249 (2007). District
courts within this circuit have similarly found that the
litigation privilege bars UCL claims that are based on the
filing of a legal action. See MGA Entm't, Inc. v.
Mattel, Inc., No. 05-2727 NM, 2005 U.S. Dist. LEXIS
18594, at *36-37 (C.D. Cal. Aug. 26, 2005); see also B-K
Lighting, Inc. v. Vision3 Lighting, 2008 U.S. Dist.
LEXIS 113021, at *33 (C.D. Cal. May 23, 2008). Here, to the
extent that Plaintiff's UCL claim is based on the
assertion of groundless claims and the filing of a
“sham lawsuit, ” the claims are barred by the
litigation privilege. As such, Defendants' anti-SLAPP
motion is granted in part and paragraphs 225 and 228 are
ordered stricken. See Baral, 1 Cal.5th at 393
(“We agree . . . that the Legislature's choice of
the term ‘motion to strike' reflects the
understanding that an anti-SLAPP motion, like a conventional
motion to strike, may be used to attack parts of a count as
Attorneys' Fees Award
parties move for attorneys' fees related to the filing
and defense of the anti-SLAPP motion.
the anti-SLAPP statute, “a prevailing defendant on a
special motion to strike shall be entitled to recover his or
her attorney's fees and costs.” Cal Civ. Proc. Code
§ 425.16(c)(1). However, “[i]f the court finds
that a special motion to strike is frivolous or is solely
intended to cause unnecessary delay, the court shall award
costs and ...