YVONNE GONZALEZ ROGERS, UNITED STATES DISTRICT COURT JUDGE.
Now before the Court is defendants' motion to dismiss certain claims in the Fourth Amended Complaint (Dkt. No. 244 ("4AC") of plaintiff AngioScore, Inc. ("AngioScore") pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 262 ("Motion").) The Motion is fully briefed. (Dkt. Nos. 264 ("Opp'n"), 279 ("Reply").) Pursuant to Civil Local Rule 7-1(b), the Court deems the Motion suitable for decision without oral argument and therefore has vacated the hearing set for September 9, 2014. (Dkt. No. 287.) As set forth below, the Motion is
AngioScore is a corporation organized under Delaware law with its corporate headquarters and principal place of business in Fremont, California. (¶ 2.)
Konstantino and AngioScore share a history which goes beyond that of mere competitors, however. Before he founded TriReme, Quattro, or QT, Konstantino "was a founder of AngioScore in about March of 2003 and served as its first president, a position he held until about November 10, 2005 when he became Executive Vice President and Chief Scientific Officer of AngioScore." (¶ 16.) Konstantino stepped down from his position as an executive officer of AngioScore on October 17, 2006, and scaled back his employment to part-time. (¶ 17.) About six months later, on March 31, 2007, Konstantino finally terminated his employment with AngioScore. (¶ 17.) However, Konstantino remained on AngioScore's board until February 5, 2010. (¶ 18.)
As alleged in the 4AC, Konstantino's work with AngioScore was not his only activity in the angioplasty device business. In "about mid-2005," during his affiliation with AngioScore, Konstantino founded TriReme. (¶ 20.) Konstantino offered AngioScore the opportunity to participate in the TriReme business opportunity. (Id.) AngioScore, however, declined: TriReme was represented as intending to pursue a line of business AngioScore did not wish to enter, namely, the commercialization of "endovascular bifurcation stents and delivery systems for bifurcation stents." (See id.) AngioScore's board "authorized Konstantino to pursue the [TriReme] business opportunity on a restricted basis with respect to developing proprietary information for `bifurcation applications.'" (Id.)
AngioScore alleges that no later than October 2009, Konstantino, notwithstanding the limited scope of his permission from AngioScore's board to develop only "bifurcation applications" with TriReme, "secretly conceived of and began development of the Chocolate device," which "competed directly with AngioScore's primary product" and "is not an endovascular bifurcation stent." (¶¶ 22, 30.) By January 2010 Konstantino and his co-inventor, Tanhum Feld, had made substantial progress toward bringing Chocolate to market, having designed and produced prototypes, engaged in animal testing, and created a business model and begun obtaining financing. (¶¶ 23-26.) AngioScore alleges that Konstantino never disclosed either the creation of the Quattro company or the Chocolate device, and that Konstantino in fact actively concealed their existence by directly denying, on three different, specifically alleged occasions, having developed any products that competed with those of AngioScore. (¶ 27.)
In January 2011, Quattro announced that it had received clearance from European regulatory bodies to bring Chocolate to market in Europe. (¶ 33.) In December 2011, TriReme received clearance as to the United States from the U.S. Food and Drug Administration. (¶ 34.) No later than 2012, TriReme and Quattro had begun selling the Chocolate device. (See ¶ 45.)
On June 29, 2012, AngioScore filed the instant lawsuit, asserting a single claim of patent infringement against Konstantino, TriReme, and Quattro. (Dkt. No. 1.) Substantial litigation in the patent case followed. A new wrinkle developed, however, when, on July 11, 2013, a press release announced that Quattro and TriReme had merged to form QT. (¶ 36.) Also around this time, original defendant TriReme Medical, Inc. became current defendant TriReme Medical, LLC. (Id.) On November 13, 2013, the Court entered an order which, among other things, permitted AngioScore to file a Supplemental and
On December 9, 2013, TriReme and Konstantino filed a narrowly tailored motion for summary judgment of non-infringement. (Dkt. No. 131.) During the pendency of that motion, discovery continued. Further, and of note, on April 28, 2014, QT "closed an initial public offering of its stock in Singapore generating gross proceeds in the amount of $(US)44,000,000.00." (¶ 45.)
On May 6, 2014, AngioScore sought leave to file a Third Amended Complaint which, for the first time, asserted state-law business-tort claims against defendants. (Dkt. No. 202.) On June 25, 2014, the Court issued orders granting in part and denying in part defendants' summary judgment motion (Dkt. No. 218) and granting in part and denying in part AngioScore's motion for leave to file its Third Amended Complaint (Dkt. No. 219). In sum, AngioScore's patent infringement claim survived, though certain arguments were closed off to it, and AngioScore was permitted to assert all but one of its proposed state-law business-tort claims.
On July 7, 2014, defendants moved to dismiss certain of AngioScore's business-tort claims pursuant to Rule 12(b)(6). (Dkt. No. 230.) On July 15, 2014, AngioScore amended its complaint as of right pursuant to Rule 15, filing the operative 4AC. The Court denied the pending motion to dismiss as moot. (Dkt. No. 253.) The 4AC names Konstantino, TriReme, Quattro, and QT as defendants, and asserts the following claims: (1) patent infringement, against all defendants; (2) breach of fiduciary duty under California law, against Konstantino; (3) breach of fiduciary duty under Delaware law, against Konstantino; (4) aiding and abetting a breach of fiduciary duty, against TriReme, Quattro, and QT; and (5) violation of California's Unfair Competition Law, California Business and Professions Code Section 17200 et seq. ("UCL"), against all defendants.
On July 31, 2014, defendants filed the motion now at bar, which seeks dismissal only of the 4AC's aiding and abetting and UCL claims.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims for relief alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir.2003). Either "the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory" will justify dismissal. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1990). As to the sufficiency of facts, the Court must regard all allegations of material fact as true and construe them in the light most favorable to the plaintiff. Johnson v. Lucent Techs., Inc., 653 F.3d 1000, 1010 (9th Cir.2011). Thus construed, the facts must "`state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). So long as the complaint states a plausible claim, it survives a Rule 12(b)(6) motion unless the defendant offers an alternative explanation "so convincing" as to render plaintiff's claim "im plausible." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.2011) (emphasis in original).
As a threshold matter, the Court observes that its jurisdiction over the aiding
Under California and Delaware law, to state a cause of action against a corporate entity for aiding and abetting a fiduciary's breach of his or her duty of loyalty, a plaintiff must allege (1) knowledge of the fiduciary's breach and (2) substantial participation in the breach. See Casey v. U.S. Bank Nat'l Ass'n, 127 Cal.App.4th 1138, 1144, 26 Cal.Rptr.3d 401 (2005); Malpiede v. Townson, 780 A.2d 1075, 1096 (Del.2001).
Under both California and Delaware law, the requirement of knowing participation means plaintiff must plead that the defendant had actual knowledge that the acts of the fiduciary constituted a breach. See In re First Alliance Mortgage Co., 471 F.3d 977, 993 (9th Cir.2006) ("[T]o satisfy the knowledge prong, the defendant must have `actual knowledge of the specific primary wrong the defendant substantially assisted.'" (quoting Casey, 127 Cal.App.4th at 1148, 26 Cal.Rptr.3d 401)); Malpiede, 780 A.2d at 1097 ("Knowing participation in a board's fiduciary breach requires that the third party act with the knowledge that the conduct advocated or assisted constitutes such a breach."). It is not sufficient merely to have "a vague suspicion of wrongdoing," in the nature of a hunch that "something fishy was going on." First Alliance Mortgage, 471 F.3d at 993 n. 4 (quoting Casey, 127 Cal.App.4th at 1149, 26 Cal.Rptr.3d 401 (emphasis omitted)). But "[a] plaintiff may prove actual knowledge through inference or circumstantial evidence." Simi Mgmt. Corp. v. Bank of Am., N.A., 930 F.Supp.2d 1082,
Here, Konstantino allegedly breached his fiduciary duty of loyalty to AngioScore by developing the Chocolate device and failing to offer it as a business opportunity to AngioScore. (¶¶ 56, 61.) Assuming arguendo for purposes of this Motion that such conduct constitutes a breach of fiduciary duty, the question under both California and Delaware law is whether each individual defendant knew that its acts contributed to Konstantino's alleged breach of developing and commercializing Chocolate without offering AngioScore the opportunity to do so. The analysis is different for QT than for TriReme and Quattro, owing to its later date of incorporation.
Turning first to TriReme and Quattro, the Court concludes that the facts alleged amply support an inference of knowledge on their part. AngioScore alleges that Konstantino himself was a "founder, officer, and/or ... member of" the respective boards of directors of TriReme and Quattro (as well as QT). (¶ 43.) AngioScore alleges that, given this relationship, those corporations "knew or should have known of Konstantino's service until February 2010 on AngioScore's Board of Directors." (Id.) That is plausible. Indeed, defendant supplies no reason why Konstantino's own personal knowledge of his fiduciary obligations to AngioScore cannot be imputed to TriReme and Quattro for pleading purposes. When speaking of what corporations "know," courts necessarily speak in terms of a legal fiction; corporations know things through the persons that work for them. See 9A FLETCHER CYC. CORP. § 4589 ("[C]orporations, being artificial legal entities, can have only the knowledge that is imputed to them under principles of agency law."). AngioScore alleges that Konstantino served as an officer and/or board member for TriReme and Quattro. That suffices to allege TriReme and Quattro's knowledge of Konstantino's alleged breach.
As to QT, the analysis is different in light of the undisputed fact that QT did not exist as a corporate entity at the time of Konstantino's alleged breach. The 4AC provides no date of incorporation for QT, alleging only that its formation was announced by press release on July 11, 2013. (¶ 36.) However, AngioScore does not contend that QT came into existence as a distinct corporate entity much earlier than the announcement of its existence or that it existed during the period of Konstantino's alleged breach. (See generally Opp'n at 6.) Rather, AngioScore relies on a theory of successor liability. (Id.) AngioScore does not engage carefully with the standard for successor liability, which under applicable state law generally is limited to specific circumstances. See, e.g., Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 361-63 (9th Cir.1997).
Further, defendant offers no compelling reason why such liability would be unavailable
Also unavailing is defendants' argument that the 4AC's own allegations prove fatal to its aiding and abetting claim. (Motion at 8; Reply at 4-5.) AngioScore alleges that "[t]here exists ... a unity of interest between Konstantino and TriReme, Quattro, and/or QT such that any individuality and separateness between them have ceased to exist." (¶ 47; see also id. ¶ 48 (alleging that TriReme and Quattro are "mere shell[s]" for Konstantino and that treating them as distinct from Konstantino "would permit abuse of the corporate privilege").) Seizing on this, defendants argue, in essence, that AngioScore has pleaded its aiding and abetting claims out of court "because it is axiomatic that an individual (or entity as the case here) cannot aid and abet himself." (Motion at 3.) AngioScore responds that the 4AC simply pleads two alternative theories: aiding and abetting on the one hand and, on the other, an alter-ego theory. (Opp'n at 6-8.) Defendants reply that this cannot be so because the 4AC's aiding and abetting claim incorporates all of the foregoing factual allegations, i.e., it fails to exclude those allegations now identified as pertaining to the alter-ego theory, and because the 4AC does not assert the alter-ego allegations "as separate or alternative claims." (Reply at 5.)
Defendants' focus on formal technicalities does little to undermine the well-pleaded factual allegations of the complaint. Even post-Twombly, federal pleading requires plaintiffs to set forth only their "claims for relief, not causes of action, statutes or legal theories." See Alvarez v. Hill, 518 F.3d 1152, 1157 (9th Cir. 2008); see also Self Directed Placement Corp. v. Control Data Corp., 908 F.2d 462, 466 (9th Cir.1990) (inferring claim from facts alleged); Holman v. Indiana, 211 F.3d 399, 407 (7th Cir.2000) (plaintiffs "need not use particular words to plead in the alternative," only "a formulation from which it can be reasonably inferred that this is what they were doing"); cf. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (recognizing that "Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era"). The 4AC alleges the essentials of an alter-ego theory, perhaps with less than ideal clarity, but plainly enough. (¶¶ 47-48.)
The Court turns now to the second aspect of knowing participation, the requirement of an act performed in furtherance of the breach of fiduciary duty. AngioScore alleges that Quattro and TriReme participated in the alleged breach in six ways: "(1) drafting engineering drawings; (2) production and testing of Chocolate prototypes; (3) development of a business model, a development team, and partnerships for developing the Chocolate device; (4) performance of finite element analysis of the Chocolate design; (5) animal testing of a Chocolate prototype; and (6) seeking financing for the development of the Chocolate device." (Opp'n at 5 (citing ¶¶ 22-23, 28, 32, 44).) The issue is whether these activities constitute substantial participation. Defendants contend that they do not because (i) they are merely activities any company would conduct to provide support to its CEO, (ii) they suggest, at most, only that TriReme and Quattro were involved in developing Chocolate, and (iii) they do not support an inference that they were undertaken "for the purpose of" assisting the alleged breach. (Reply at 3.)
Courts have found the standard for testing "substantial participation" to be less than abundantly clear. First Alliance Mortgage, 471 F.3d at 994 (citing Casey, 127 Cal.App.4th at 1145, 26 Cal.Rptr.3d 401). The focus of a challenge to an aiding-and-abetting claim generally is whether participation was knowing, as opposed to whether it occurred at all. Cf. Casey, 127 Cal.App.4th at 1145, 26 Cal.Rptr.3d 401 (finding no California case directly addressing "substantial participation" in banking context but observing that "[k]nowledge is the crucial element"). Nevertheless, at least one principle emerges from the cases cited to the Court: provided that an entity takes some action, even routine operations may constitute substantial participation if done with knowledge that the action will further a breach of fiduciary duty. See id. (observing, in banking context, that "common sense tells us that even `ordinary business transactions' a bank performs for a customer can satisfy the substantial assistance element of an aiding and abetting claim if the bank actually knew those transactions were assisting the customer in committing a specific tort"); see also Austin B. v. Escondido Union Sch. Dist., 149 Cal.App.4th 860, 879, 57 Cal.Rptr.3d 454 (2007) ("Mere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting."); Malpiede, 780 A.2d at 1098 (in merger context, a bidder's attempt to reduce sales price through arm's-length negotiations does not create liability for aiding and abetting but "attempts to create or exploit conflicts of interest in the board" do).
That principle alone proves dispositive of defendants' arguments. AngioScore
The Court concludes that the 4AC adequately pleads the knowing participation of TriReme and Quattro in Konstantino's alleged breach of fiduciary duty, and that it adequately alleges the successor liability of QT. The Court therefore
The UCL proscribes three categories of business practices: the unlawful, the unfair, and the fraudulent. CAL. BUS. & PROF. CODE § 17200; Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999). These three "prongs" of the UCL are analytically distinct and have their own separate requirements for stating a claim. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir.2009) (citing S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal.App.4th 861, 886, 85 Cal.Rptr.2d 301 (1999)). Only the first two, the unlawful and the unfair, are relevant here because AngioScore disavows reliance on the third. (See Opp'n at 10 (characterizing itself as having alleged claims under only the unlawful and unfair prongs).) As to unlawfulness, the UCL "permits violations of other laws to be treated as unfair competition that is independently actionable." Kasky v. Nike, Inc., 27 Cal.4th 939, 949, 119 Cal.Rptr.2d 296, 45 P.3d 243 (2002). As to unfairness, in the competitor context applicable here,
Defendants challenge AngioScore's UCL claim on both standing and the merits. The Court addresses those issues in turn.
A claim may be brought under the UCL "by a person who has suffered injury in fact and has lost money or property as a result of unfair competition." CAL. BUS. & PROF. CODE § 17204. This standard requires some form of economic loss. See Kwikset Corp. v. Superior
Here, defendants argue that AngioScore cannot demonstrate UCL standing because it merely alleges "lost business." (Motion at 10; Reply at 6-7; see also ¶ 79.) However, an injury to market share suffered as a result of a competitor's unfair business practice is a cognizable injury under the UCL. See Law Offices of Mathew Higbee, 214 Cal. App.4th at 556-61, 153 Cal.Rptr.3d 865 (surveying UCL competitor cases where injuries to market share were deemed sufficient). The Court concludes that the allegation of lost business, in the overall context of the complaint and its allegations of a wrongfully denied offer of a business opportunity, suffices to plead standing under the UCL's expansive standing doctrine.
The UCL's "unlawfulness" prong permits a plaintiff to "borrow" a violation of a separate law and treat it as an unlawful practice "that the unfair competition law makes independently actionable." Cel-Tech, 20 Cal.4th at 180, 83 Cal.Rptr.2d 548, 973 P.2d 527. Here, as set forth in Section IV.A supra, AngioScore asserts a violation of the law against each defendant named in the UCL claim — namely, an aiding and abetting claim against TriReme, Quattro, and QT, and the unchallenged breach of fiduciary duty claims against Konstantino. That suffices to plead a UCL claim against them. The Court therefore need not and does not reach AngioScore's claim regarding unfair practices. Fed.R.Civ.P. 8(d)(2).
"[N]onrestitutionary disgorgement of profits is not an available remedy in an individual action under the UCL." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1152, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003). Neither are damages. Id. at 1144, 131 Cal.Rptr.2d 29, 63 P.3d 937. Here, AngioScore seeks both. (4AC, Prayer, ¶¶ (g), (h).)
As to AngioScore's request for injunctive relief, the Motion is
The pleading challenged by the motion at bar is AngioScore's Fourth Amended Complaint. Given the imminent trial of this matter and that the state-law claims now at bar have been subject to one motion to dismiss already, to which AngioScore responded by amending, the Court is disinclined to grant further leave. To the extent that the Court has dismissed AngioScore's 4AC, the dismissal is
For the foregoing reasons, the Court grants defendants' Motion in part and denies it in part. The Motion is
Defendants shall answer the Fourth Amended Complaint within 21 days of the signature date of this Order.
This Order terminates Docket No. 262.
As for Delaware law, its cause of action for aiding and abetting treats knowledge and participation as a single element, and formally includes three other elements. In re Del Monte Foods Co. Shareholders Litig., 25 A.3d 813, 836 (Del.Ch.2011). However, "knowing participation" is the "critical element." Id. The other elements — the existence of a fiduciary duty, a breach thereof, and damages proximately caused by the breach — have not been put in issue here.