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Spice Jazz LLC v. Youngevity International, Inc.

United States District Court, S.D. California

September 19, 2019

SPICE JAZZ LLC, Plaintiff,
v.
YOUNGEVITY INTERNATIONAL, INC. et al., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS [ECF NO. 13]

          HON. CYNTHIA BASH ANT LIMITED STATES DISTRICT JUDGE

         Plaintiff Spice Jazz LLC was once a successful multi-level marketing operation with profits in the millions of dollars. (First Amended Complaint, “FAC, ” ECF No. 10, ¶¶ 1, 3.) Plaintiff is now bankrupt, and in a nutshell, it alleges this downfall occurred as a result of the actions of Colleen Walters and Defendant Youngevity International, Inc. Plaintiff has filed a complaint against Youngevity as well as Plaintiff’s former employee Bianca Reyne Djafar-Zade. Youngevity moved to dismiss the complaint. (“Mot., ” ECF No. 13.) The Court finds this Motion suitable for determination on the papers and without oral argument. Civ. L. R. 7.1(d)(1). For the reasons stated below, the Court GRANTS IN PART the Motion.

         I. FACTUAL ALLEGATIONS

         Plaintiff sold culinary recipes and spices to customers, using a multi-level marketing (“MLM”) sales force composed of individual sales representatives. (FAC ¶ 1.) Sales force members were recruited, provided with marketing materials and strategies, entrusted with secret recipes, and encouraged to sell the products throughout Australia and the United States. (Id.) Plaintiff hired Colleen Walters to be its CEO, and Walters successfully recruited sales team members and ran the company’s operation. (Id. ¶ 14.) But during her employment with Plaintiff, Walters worked with Defendant Youngevity, a direct competitor also running an MLM sales force. (Id. ¶ 24.) Walters “hatched a scheme” to steal Plaintiff’s business and bring it to Youngevity, who offered her “a sweeter deal for her spices.” (Id. ¶ 16.) Walters then left Plaintiff’s company, taking with her all of Plaintiff’s sales force and “a treasure trove of proprietary recipes and products.” (Id. ¶ 17.) Youngevity allegedly “look[ed] the other way” when Walters brought over a wealth of valuable information, or maybe conspired with her in a plan to “sabotage Plaintiff’s business operation.” (Id. ¶¶ 26, 29.)

         Although the complaint is filled with salty allegations against Walters, Walters is not named as a Defendant. Instead, Plaintiff brings claims against Youngevity and against Bianca Reyne Djafar-Zade. Ms. Djafar-Zade was an employee on Plaintiff’s payroll but “never actually” did any work, by virtue of being Walters’ daughter. (Id. ¶ 52.) Djafar-Zade is not a part of the pending motion.

         II. LEGAL STANDARDS

         A. Rule 12(b)(7)

         A party may move to dismiss a complaint for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). A three-step analysis is used to determine if a party is required to be joined under Rule 19. E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779 (9th Cir. 2005). First, a court must determine whether a nonparty is necessary under Rule 19(a). Id. This is a two-pronged inquiry. White v. Univ. of Cal., 765 F.3d 1010, 1026 (9th Cir. 2014) (citing Confederated Tribes of Chehalis Indian Reservation v. Lujan, 928 F.2d 1496, 1498 (9th Cir. 1991)). The court must initially determine “whether complete relief can be afforded if the action is limited to the existing parties.” Id. (citations omitted). The court must next determine “whether the absent party has a legally protected interest in the subject of the action and, if so, whether the party’s absence will impair or impede the party’s ability to protect that interest or will leave an existing party subject to multiple, inconsistent legal obligations with respect to that interest.” Id. (citation and internal quotation marks omitted). “If the answer to either of those questions is affirmative, then the party is necessary and ‘must be joined.’” Id. (citing Fed.R.Civ.P. 19(a)(1)). The Rule 19(a) inquiry “is a practical one and fact specific.” Id. (citing Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990)).

         Second, a court must determine if it is feasible for the absentee party to be joined such that subject matter and personal jurisdiction exist and venue is proper. Peabody, 400 F.3d at 779 (citing Fed.R.Civ.P. 19(a)). Finally, if it is not feasible to join the absent party, a court must decide “whether the case can proceed without the absentee, or whether the absentee is an ‘indispensable party’ such that the action must be dismissed.” Id.; Fed.R.Civ.P. 19(b). An indispensable party is one which “not only [has] an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience.” Id. at 780 (quoting Shields v. Barrow, 58 U.S. 130, 139 (1855)); see also Fed. R. Civ. P. 19(b).

         The factors to be considered by a court in its Rule 19(b) analysis include: (1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided by protective provisions in the judgment, shaping the relief, or other measures; (3) whether a judgment rendered in the person’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action was dismissed for nonjoinder. Fed.R.Civ.P. 19(b).

         B. Rule 12(b)(6)

         A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it must plead “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 has “facial plausibility when the plaintiff pleads factual content that allows 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) (citing Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it stops short of the line between possibility and plausibility of ‘entitlement to relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).

         “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986) (alteration in original). A court need not accept “legal conclusions” as true. Iqbal, 556 U.S. at 678. Despite the deference the court must pay to the plaintiff’s allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that [he or she] has not alleged or that defendants have violated the . . . laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

         III. ANALYSIS

         A. Failure to Join an Indispensable Party

         Defendant first moves to dismiss counts three and four for failure to join Walters. These counts for negligent and intentional interference with existing contractual relationships are based, in part, on Defendant’s alleged interference with Walters’ employment agreement. Plaintiff has already filed suit against Walters in Texas, and the case has been sent to arbitration. (Mot. 3.)[1]

         The Court finds in this Order that there is no cause of action in California for negligent interference with existing contractual relations (third cause of action). See infra Section III.B.1. Therefore, the Court only analyzes whether Walters is a necessary party for the fourth cause of action (intentional interference with contracts).

         1. Walters Is a Necessary Party

         The relevant question under Rule 19 is whether Walters has a legally protected interest in the subject of the action and, if so, whether her absence will impair or impede her ability to protect that interest or will leave Plaintiff or Defendant subject to multiple, inconsistent legal obligations with respect to that interest.

         Defendant argues Walters has an interest in this action because Plaintiff is asking the Court to determine the validity of the employment agreement between Plaintiff and Walters. (Mot. 6.) The Court agrees. The elements for intentional interference with contracts are: (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 a 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). To rule for Plaintiff on this cause of action, the Court would need to analyze each element.

         The Court cannot determine the validity of Walters’ and Plaintiff’s contract without Walters. It is a “fundamental principle” that “a party to a contract is necessary, and if not susceptible to joinder, indispensable to litigation seeking to decimate that contract.” Dawavendewa v. Salt River Project Agric. Improvement & Power Dist., 276 F.3d 1150, 1157 (9th Cir. 2002). Plaintiff is not asking the Court to “decimate” the contract, nor is it directly moving for declaratory judgment as to the status of the contract. But Plaintiff is implicitly seeking a determination of the validity of Walters’ contract, and this would affect Walters. See Camacho v. Major League Baseball, 297 F.R.D. 457, 462 (S.D. Cal. 2013) (holding a determination of the validity of a contract may impair and impede a party’s legally protected interest when they are a party to the contract). Therefore, Walters has a legally protected interest in this action.[2] Her absence would impair her ability to protect this interest.

         The Court also finds that Walters’ absence could leave Plaintiff with multiple inconsistent obligations. For example, if this Court determined Plaintiff and Walters’ employment contract was enforceable, and the arbitrator held otherwise, this would leave Plaintiff with an inconsistent understanding of its obligations under the contract. And if Plaintiff declined to enforce the contract due to one decision, this would be violating the other decision in which it was determined the contract was valid. See Cachil Dehe Band of Wintun Indians of the Colusa Indian Cmty. v. California, 547 F.3d 962, 976 (9th Cir. 2008) (“Inconsistent obligations occur when a party is unable to comply with one court’s order without breaching another court’s order concerning the same incident.”).

         Therefore, Walters is a necessary party.

         2. Walters Cannot Be Joined

         “If an absentee is a necessary party under Rule 19(a), the second stage is for the court to determine whether it is feasible to order that the absentee be joined.” Equal Emp. Opportunity Comm’n v. Peabody W. Coal Co., 400 F.3d 774, 779 (9th Cir. 2005). Rule 19(a) sets forth three circumstances in which joinder is not feasible: (1) when venue is improper; (2) when the absentee is not subject to personal jurisdiction; and (3) when joinder would destroy subject matter jurisdiction. See Id . (citing Fed.R.Civ.P. 19(a)). Defendant points out that Walters cannot be joined because all claims arising from her employment relationship with Spice Jazz are subject to binding arbitration in Texas. (Mot. at 7.) Plaintiff does not address the issue of feasibility of joinder in its opposition brief. The Court agrees that Walters cannot be joined in this matter because any “disputes . . . relating to the meaning, interpretation, enforcement or application” of Walters’ and Plaintiff’s Employment Agreement must be resolved in arbitration. (“Employment Agreement, ” Exhibit A to Exhibit 3 to Request for Judicial Notice, ECF No. 13-4, at ¶ 8.) A determination of the validity of the Employment Agreement is an issue that must be arbitrated. See Meyer v. Kalanick, 291 F.Supp.2d 526, 535 (S.D.N.Y. 2018) (holding absent party Uber could not be joined because any dispute involving Uber was subject to mandatory arbitration); LST Fin., Inc. v. Four Oaks Fincorp, Inc., No. 14 Civ. 435, 2014 WL 3672982, at *4 (W.D. Tex. July 24, 2014) (dismissing an action where “mandatory arbitration provisions” made joinder of necessary parties “unfeasible”). And Plaintiff and Walters have already agreed to resolve the issue in arbitration. Because Walters is a necessary party and she cannot be joined, the Court must determine whether Walters is an “indispensable” party such that certain claims must be dismissed in this case.

         3. Walters Is ...


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