Andreoli v. Youngevity International, Inc.

          ORDER DENYING IN PART AND GRANTING IN PART DEFENDANTS' MOTION TO DISMISS [ECF NO. 12.]

          BARRY TED MOSKOWITZ, CHIEF JUDGE UNITED STATES DISTRICT COURT.

         On 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.

         I. BACKGROUND

         In August 2011, Youngevity purchased a series of companies, FDI entities^[1], 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 A few months later, in October 2011, the parties executed the Amended and Restated Equity Purchase Agreement which superseded the original purchase agreement.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.)

         In 2014, while Plaintiff remained employed by Youngevity, Defendants allegedly coerced Plaintiff into signing the First Amendment to the Amended Purchase Agreement^[2], 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.)

         In 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 (“UCL”).

         II. DISCUSSION

         A. First to File

         Defendants 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.

         The 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).

         Defendants 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 ground.

         B. California Code of Civil Procedure § 425.16, Anti-SLAPP Motion

         Alternatively, 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.

         California 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.

         Courts 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).

         1. Step One: “Arising From” Requirement

         First, 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 interest.

Cal. Civ. Proc. Code § 425.16(e).

         “A 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.

         Here, 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).

         2. Step Two: Possibility of Success on the Merits

         Having 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.

         Defendants 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 pleaded.”).

         3. Attorneys' Fees Award

         Both parties move for attorneys' fees related to the filing and defense of the anti-SLAPP motion.

         Under 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 ...