CHRISTINA A. SNYDER, District Judge.
Plaintiffs Dreamstone Entertainment Ltd. ("Dreamstone") and Tigris Entertainment LLC ("Tigris") filed this action on March 18, 2014, against defendants Nour Khrais ("Khrais"), Maysalward Inc. ("Maysalward"), and Does 1 through 10.
On June 25, 2014, the defendants (hereinafter "defendants and counterclaimants") filed an answer and asserted counterclaims for (1) fraud; (2) libel per se; and (3) breach of contract. Dkt. #17. Defendants and counterclaimants also named as third-party defendants Lewis Sarmed Alsamari ("Alsamari") as to all three counterclaims, and The Siegel Law Group PLLC ("SLG") and Jack Siegel ("Siegel") as to the libel per se counterclaim.
The complaint alleges that Maysalward breached a contract and committed various torts by withholding accounting information, profits, and intellectual property relating to a mobile video game called "GHUL: 1001 Arabian Nights" (the "Game"). Compl. ¶¶ 10, 26. Tigris and Dreamstone entered into essentially identical contracts with Maysalward on May 3, 2013 and August 15, 2013, respectively, under which Maysalward was to develop and distribute the Game. Countercl. Exs. A, B;
Defendants and counterclaimants allege that Alsamari induced them to develop the Game through false representations. Countercl. ¶ 38. Specifically, defendants and counterclaimants aver that Alsamari "represented to Khrais in April 2013" that a film based on the same concept as the proposed game "was in preproduction and that the shooting . . . was scheduled to begin in September 2013."
Defendants and counterclaimants contend that these representations were false and made with the intent to induce them to "design and develop [the Game] and . . . waive the initial fee" that they usually charge for mobile game development.
Defendants and counterclaimants also allege a claim against plaintiffs and counterdefendants, SLG, and Siegel based on an allegedly defamatory press release issued on March 25, 2014 and posted on SLG's website.
Finally, defendants and counterclaimants allege that plaintiffs and counterdefendants breached contracts entered into by the parties on May 3 and August 15, 2013, by filing a lawsuit and "refusing to participate in at least four hours of mediation" despite a clause requiring mediation of any dispute between the parties and a demand by defendants and counterclaimants that plaintiffs and counterdefendants mediate.
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a complaint or counterclaim. "While a [pleading] attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a [claimant's] obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."
In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the pleading, as well as all reasonable inferences to be drawn from them.
Furthermore, unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment, a court cannot consider material outside of the counterclaim (
For all of these reasons, it is only under extraordinary circumstances that dismissal is proper under Rule 12(b)(6).
As a general rule, leave to amend should be freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when "the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency."
Federal Rule of Civil Procedure 9(b) requires that the circumstances constituting a claim or counterclaim for fraud be pled with particularity. A pleading is sufficient under Rule 9(b) if it "[identifies] the circumstances constituting fraud so that the [counter-defendant] can prepare an adequate answer from the allegations."
Plaintiffs and counterdefendants have moved to dismiss each counterclaim. Each of these counterclaims is addressed in turn.
To establish a claim for fraud, the claimant must allege facts demonstrating "(1) misrepresentation of a material fact (consisting of false representation, concealment or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damages."
In support of this claim, defendants and counterclaimants allege that plaintiffs and counterdefendants misrepresented that a GHUL film was "in preproduction" with filming "scheduled to begin in September 2013." Countercl. ¶ 35. Defendants and counterclaimants contend that these misrepresentations induced Maysalward to develop the Game at significant cost and without charging fees it otherwise would have charged.
Plaintiffs and counterdefendants first argue that this claim fails because it is not pled with the particularity required by Federal Rule of Civil Procedure 9(b). In particular, they contend that the allegations do not provide enough detail as to the representation that filming was "scheduled to begin" in September 2013, or as to the media through which some of the alleged misrepresentations were communicated. The Court disagrees.
As discussed above, a pleading is sufficient under Fed. R. Civ. P. 9(b) if it "[identifies] the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations."
Additionally, "Rule 9(b) may be relaxed with respect to matters within the [counterdefendants'] knowledge."
Plaintiffs and counterdefendants also argue that the claim should be dismissed because the allegations concern nonactionable predictions of future events. They point out that Alsamari is alleged to have represented that filming "was scheduled to begin" in September 2013 and that the film "would be" a big production starring well-known actors. Therefore, they argue, there was no misrepresentation of a past or existing fact as required to state a fraud claim. The Court disagrees with this argument as well.
With regard to fraud claims, "predictions as to future events are ordinarily non-actionable expressions of opinion."
Viewed in the light most favorable to defendants and counterclaimants, the alleged statements about the planned production of the motion picture are not predictions; rather, they are statements of fact as to what had occurred and would be occurring. Moreover, even if it could be said that the statements were predictions, a reasonable person having been told that a film was "scheduled to begin" filming with well-known actors in approximately five months, for example, could assume that presently existing facts supported the prediction. Moreover, Alsamari could reasonably have been presumed to have possessed superior knowledge or special information regarding the progress of the GHUL film plans. Accordingly, the Court finds that defendants and counterclaimants have adequately pled a fraud counterclaim.
Defamation "involves (a) a publication that is (b) false, (c) defamatory, and (d) unprivileged, and that (e) has a natural tendency to injure or that causes special damage."
Whether an allegedly defamatory statement is a fact or opinion is ordinarily a question of law for the court.
"To determine whether a statement implies an assertion of fact" or is instead nonactionable opinion, the "Ninth Circuit applies a three-factor test."
Defendants and counterclaimants argue that the press release defamed them through Siegel's statement that "Maysalward and Nour Khrais have maliciously absconded with my clients' valuable intellectual property and hard earned money." Countercl. ¶ 30. Defendants and counterclaimants allege that this statement was made without basis in fact and was not privileged;
Plaintiffs and counterdefendants argue that the statement is nonactionable opinion when read in the context of the press release as a whole. They also argue that defendants and counterclaimants fail to allege that Tigris, DreamStone, or Alsamari published the statement or caused it to be published. The Court agrees that the allegedly libelous statement is nonactionable opinion, and therefore need not decide the issue of vicarious liability.
The first factor to be considered is "the broad context" of the statements, with particular attention paid to the "setting, subject, format, and tenor" of the publication.
For example, in
Here, the press release was issued by the law firm representing plaintiffs and counterdefendants, and republished on the law firm's website. It is clear from the press release that the author is an interested party in contentious litigation, so that the audience would be unlikely to read the press release as a neutral statement of facts. Moreover, the complained-of language is clearly attributed to co-counsel for plaintiffs and counterdefendants. Overall, the broad context of the statement suggests that the average reader would expect the press release to relate a predictably one-sided account of the circumstances giving rise to the litigation, and favors plaintiffs and counterdefendants.
The second factor to be considered is the specific content, including "the extent of extent of figurative or hyperbolic language used and the reasonable expectations" of the readers.
Here, although the particular passage cited by defendants and counterclaimants might appear to be factual in isolation, the press release as a whole makes clear that Spiegel was expressing his opinion. Through the use of cautionary language like "[t]he federal suit accuses" and "[t]he Complaint contends that," the press release signals that it contains allegations, not proven facts. Moreover, because the complained-of sentence is attributed to plaintiffs and counterdefendants' counsel, a reasonable mind would expect the statement to be one-sided and even hyperbolic. This expectation would likely be reinforced by the dramatic and figurative language used in the conclusion of Siegel's quotation, including a vow to "fight tooth and nail" on behalf of his clients. In a different context, "maliciously absconded" could well be read as a factual accusation that Maysalward had committed a serious crime. But in the context of this press release, it is unlikely that the average reader would interpret it in such a way.
The final factor to be considered is whether the statement is "susceptible of being proved true or false."
Read as an accusation of theft, Siegel's accusation that Maysalward "maliciously absconded" with his clients' property could eventually be proven true or false at trial. But Siegel's statement also speaks to his opinion of defendants and counterclaimants' subjective state of mind, which is less susceptible to being proven true or false. Further, the colorful rhetoric of Siegel's statement makes its truth or falsity more difficult to pin down.
A claim for breach of contract "is comprised of the following elements: (1) the [existence of a] contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff."
In support of this claim, defendants and counterclaimants point to paragraphs 11 of the agreements between Maysalward and both Tigris and Dreamstone. This paragraph provides that "in the event a dispute shall arise between the parties . . . the parties agree to participate in at least four hours of mediation in accordance with the mediation procedures of United States Arbitration and Mediation," with mediation costs to be shared equally. Countercl. Ex. B. Defendants and counterclaimants allege that plaintiffs and counterdefendants breached this portion of the contract by filing this lawsuit and refusing to mediate for at least four hours "despite a demand by Maysalward that they do so."
Plaintiffs and counterdefendants argue that this claim fails because it does not specify the parties' obligations "with sufficient specificity for judicial enforcement." They claim that, absent an explicit statement that mediation was a condition precedent for filing suit or procedures or time parameters for mandatory mediation, they were not required to mediate before filing suit or at defendants and counterclaimants' request. Defendants and counterclaimants respond that despite the lack of a time frame for mediation, plaintiffs and counterdefendants have breached the contract because mediation was "capable of being done instantly" or, in the alternative, by failing to mediate within a reasonable period of time.
After reviewing the parties' papers, the contracts in question, and the procedures of United States Arbitration and Mediation, the Court finds that mediation was not a condition precedent for filing suit. Moreover, even if the contract were construed as requiring mediation before either party filed suit, the Court finds that the resulting breach would not be material and could not result in an award of damages. Accordingly, the Court finds that defendants and counterclaimants have failed to plead a breach of contract and resulting damages based on the alleged failure to mediate this dispute.
In accordance with the foregoing, plaintiffs and counterdefendants' motion to dismiss is hereby GRANTED IN PART and DENIED IN PART. Specifically, the motion is GRANTED as to the libel per se counterclaim and the breach of contract counterclaim and is otherwise DENIED. Defendants and counterclaimants shall have leave to file an amended counterclaim no later than
Additionally, as stated above, the Court has stayed all claims and counterclaims as to Tigris for 60 days.
For a corporate entity, the capacity to sue and be sued is determined by the law of the state under which the entity is organized. Fed. R. Civ. P. 17(b). At least under certain circumstances, the cancellation of a California limited liability company immediately terminates the entity's "powers, rights, and privileges," including the capacity to sue and be sued.
This motion was noticed for hearing on August 18, 2014. Thus, the deadline for filing defendants and counterclaimants' opposition was July 28, 2014. Defendants and counterclaimants filed their opposition on August 4, 2014. Dkt. #21. The Court declines to grant this motion or to refuse to consider defendants and counterclaimants' opposition because of this delay.