MARGARET M. MORROW, UNITED STATES DISTRICT JUDGE
UMG Recordings, Inc., Capital Records, LLC, Universal Music Corp. (the "record company plaintiffs"), Songs of Universal, Inc., Universal-Polygram International Publishing, Inc., Universal-Polygram International Tunes, Inc., Universal Music-MGA NA, LLC, Universal Music-Tunes, LLC, and Rondor Music International, Inc., (the "music composer plaintiffs") (collectively, "plaintiffs") filed this action against Global Eagle Entertainment, Inc. ("Global Eagle"), d/b/a Inflight Productions, Inflight Entertainment Alliance, and IFP, Inflight Productions USA Inc./AAEC Inc., for itself and d/b/a Inflight Productions, Inflight Entertainment Alliance, and IFP, Inflight Productions Ltd., (collectively, "Inflight"), and certain fictitious defendants on May 5, 2014.
On June 16, 2014, defendants moved to dismiss plaintiffs' third and fourth claims for state law copyright infringement and unfair competition.
On March 10, 2015, Global Eagle, Inflight, and Inflight Ltd. (collectively, "counterclaimants") filed counterclaims for intentional misrepresentation, fraudulent concealment, negligent misrepresentation, intentional interference with contractual relations, intentional interference with prospective business advantage, and negligent interference with prospective business advantage against all plaintiffs and also against Universal Music Group International Ltd.
Plaintiffs are various record companies and music publishers.
The record company plaintiffs allegedly hold copyrights in numerous sound recordings identified on an exhibit attached to the complaint.
The record company plaintiffs also allege they possess exclusive ownership interests in thousands of other sound recordings under California Civil Code § 980(a)(2).
Counterclaimants allege that Inflight has contracts with various domestic and international airlines to provide in-flight audio entertainment for airline passengers.
Counterclaimants also assert that plaintiffs interfered with Inflight's current contractual relationships with airlines, as well as its prospective business relationships.
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory," or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995).
The court need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ("While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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"). Thus, a plaintiff's complaint must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.' . . . 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ("Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)" (citations omitted)); Moss v. United States Secret
Plaintiffs first contend that counterclaimants' fraud claims must be dismissed because they are based entirely on the alleged breach of an oral agreement.
The rule generally bars tort claims based on contract breaches, "thereby limiting contracting parties to contract damages." United Guar. Mortg. Indem. Co. v. Countrywide Financial Corp., 660 F.Supp.2d 1163, 1180 (C.D.Cal.2009) (citing Aas v. Superior Court, 24 Cal.4th 627, 643, 101 Cal.Rptr.2d 718, 12 P.3d 1125 (2000), superseded by statute on other grounds as recognized in Rosen v. State Farm General Ins. Co., 30 Cal.4th 1070, 1079-80, 135 Cal.Rptr.2d 361, 70 P.3d 351 (2003)); Fieldstone Co. v. Briggs Plumbing Products, Inc., 54 Cal.App.4th 357, 367, 62 Cal.Rptr.2d 701 (1997) ("It is also well settled that [the economic loss rule] ordinarily precludes recovery for economic losses under a negligence theory"); see also RESTATEMENT (THIRD) OF TORTS: Economic Harm, § 3 (2012) ("The economic loss rule states that there is no liability in tort for economic loss caused by negligent performance of a contract").
"A breach of contract is tortious only when some independent duty arising from tort law is violated." Erlich v. Menezes, 21 Cal.4th 543, 554, 87 Cal.Rptr.2d 886, 981 P.2d 978 (1999); see also JMP Securities LLP v. Altair Nanotechnologies Inc., 880 F.Supp.2d 1029, 1042 (N.D.Cal. 2012) ("The economic loss rule [states] that no tort cause of action will lie where the breach of duty is nothing more than a violation of a promise which undermines the expectations of the parties to an agreement" (internal quotation marks omitted)); North American Chemical Co. v. Superior Court, 59 Cal.App.4th 764, 774, 69 Cal.Rptr.2d 466 (1997) ("the general rule [is] that where the `negligent' performance of a contract amounts to nothing more than a failure to perform the express terms of the contract, the claim is one for contract breach, not negligence").
The California Supreme Court has noted that the economic loss rule is necessary to "prevent[] the law of contract and the law of tort from dissolving into one another." Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 988, 22 Cal.Rptr.3d 352, 102 P.3d 268 (2004) (internal
Here, counterclaimants' fraud and negligent misrepresentation claims are based entirely on an alleged oral agreement.
Other district courts applying California law have similarly found tort claims barred in cases in which one party breached a purported contract that it allegedly never intended to perform. In JMP Securities LLP v. Altair Nanotechnologies Inc., 880 F.Supp.2d 1029, 1032 (N.D.Cal.2012), Altair hired JMP as its financial advisor in connection with an anticipated sale or merger. The contract provided that JMP would be paid a retainer and that there would be a contingent fee payable on completion of a transaction. The amount of the contingent fee was to be determined based on the type of transaction consummated and the identity of the party involved. Id. Although Altair completed a transaction covered by the agreement, it failed to pay JMP the contingent fee. Id. at 1033. JMP sued for breach of contract, promissory estoppel, fraud, and negligent misrepresentation. Id. It alleged that Altair had misrepresented it would pay certain fees, knowing it would not. Id. at 1042. The court held that California's economic loss rule barred JMP's tort claims, concluding that "JMP has taken the allegations underpinning a straightforward claim for breach of a commercial contract and recast them as torts. The tort claims consist of nothing more than Altair's alleged failure to make good on its contractual promises." Id. at 1042-43.
Similarly, in Oracle USA, Inc., 2009 WL 2084154, at *1, Oracle contracted with XL
Courts have also applied the economic loss rule to bar negligent misrepresentation claims where the purportedly negligent conduct is conceptually indistinct from a contract breach. See United Guar. Mortg. Co., 660 F.Supp.2d at 1184-85 ("For the negligence and negligent misrepresentation claims, Countrywide's allegedly tortious conduct and representations were all made pursuant to a purely contractual duty. The bases for these claims are the representations about its underwriting standards and the specific data about individual loans, made in Exhibit B to the Commitment Letters. By the Master Policy's terms, these representations as to each loan became part of the policy for that loan only. Any breach based on these misrepresentations is therefore a breach of the contract that governs them (and in which they were made). . . . Here, all the representations were made prior to, or at the moment of, contract formation. Nor were the representations collateral to the contract. Such representations might give rise to fraudulent inducement, but not negligence or negligent misrepresentations" (internal citations omitted)); Lincoln General Ins. Co. v. Access Claims Adm'rs, Inc., No. CIV. S-07-1015 LKK/ EFB, 2007 WL 2492436, at *8 (E.D.Cal. Aug. 30, 2007) ("Here, two of Lincoln's claims—negligence and negligent misrepresentation—are barred by the economic loss rule. The allegations made with regard to the breach of contract claim closely parallel those made with regard to the negligence and negligent misrepresentation claims. For example, in the breach of contract claim, Lincoln alleges that Access failed to properly investigate liability, prepare reports, handle claims in accordance with established claims procedures, and coordinate litigation activity. In the negligence claim, Lincoln alleges that Access failed to respond to Dias' demand letter, notify Lincoln of the Dias claim, and obtain legal counsel to adequately represent Lincoln. In short, the breach of contract claim subsumes the negligence and negligent misrepresentation claims" (internal citations omitted)).
This case is factually similar to Altair and Oracle. Like the plaintiffs in those cases, counterclaimants' promissory fraud and fraudulent concealment claims allege that plaintiffs had no intention of honoring their promise to permit counterclaimants to continue to reproduce the copyrighted sound recordings. Their negligent misrepresentation claim is based on the same
Accordingly, the fraud claims are deficiently pled and must be dismissed under the economic loss rule.
"Claims for fraud and negligent misrepresentation must meet the heightened pleading requirements of Rule 9(b)." Glen Holly Entertainment, Inc. v. Tektronix, Inc., 100 F.Supp.2d 1086, 1093 (C.D.Cal.1999); see also U.S. Concord, Inc. v. Harris Graphics Corp., 757 F.Supp. 1053, 1058 (N.D.Cal.1991). Under Rule 9(b), "a party must state with particularity the circumstances constituting fraud or mistake." FED. R. CIV. PROC. 9(b). "Rule 9(b) demands that, when averments of fraud are made, the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge[.]" Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (emphasis added and internal citations omitted). Under Rule 9(b), fraud allegations must include the "time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." See Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citing Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir.2004)); see also Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir.1986) ("[T]he pleader must state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation"); Miscellaneous Serv. Workers Local # 427 v. Philco-Ford Corp., 661 F.2d 776, 782 (9th Cir.1981) (holding that Rule 9(b) requires a pleader to set forth the "time, place and specific content of the false representations as well as the identities of the parties to the misrepresentation").
Conclusory allegations are insufficient, and facts constituting the fraud must be alleged with specificity. See Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir.1989) ("A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer to the allegations. While statements of the time, place and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient" (citation omitted)); see also Swartz, 476 F.3d at 764 ("Federal Rule of Civil Procedure 9(b) requires more specificity including an account of the `time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.' `To comply with Rule 9(b), allegations of fraud must be specific enough to give defendants notice of the particular misconduct which
Where a fraudulent omission is at issue, the requirements of Rule 9(b) are relaxed, but not eliminated. Waldrup v. Countrywide Financial Corp., No. 2:13-cv-08833-CAS (CWx), 2014 WL 3715131, at *5 (C.D.Cal. July 23, 2014). See also Huntair, Inc. v. Gladstone, 774 F.Supp.2d 1035, 1044 (N.D.Cal.2011) (stating that the Rule 9(b) standard is somewhat relaxed when a claim rests on an alleged fraudulent omission because "a plaintiff cannot plead either the specific time of [an] omission or the place, as he is not alleging an act, but a failure to act"); In re Apple & AT & TM Antitrust Litig., 596 F.Supp.2d 1288, 1310 (N.D.Cal.2008) ("Where the claim is one of fraud by omission . . ., the pleading standard is lowered on account of the reduced ability in an omission suit `to specify the time, place, and specific content' relative to a claim involving affirmative misrepresentations").
Plaintiffs contend that counterclaimants' fraud allegations are not sufficiently particular under Rule 9(b) because counterclaimants fail to link any specific misrepresentation to a specific defendant or person who spoke or acted on that defendant's behalf. Nor do they allege the authority of that person to bind the defendant.
As a threshold matter, counterclaimants do not adequately plead the specific content of the fraudulent representations they contend were made. See Rosado v. eBay Inc., 53 F.Supp.3d 1256, 1262 (N.D.Cal. 2014) ("To that end, the allegations must contain `an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations,'" quoting Swartz, 476 F.3d at 764 (emphasis added)). Rather, they state, in conclusory fashion, that plaintiffs promised Inflight that its "continued reproduction and distribution of [their] works in the United States for use on airlines was acceptable and that a contract would follow to document the agreement between the parties."
Nor do counterclaimants adequately allege why plaintiffs' promise was false when made. See Smith v. Allstate Ins. Co., 160 F.Supp.2d 1150, 1152
Counterclaimants also fail adequately to plead who made the fraudulent/negligent statements and/or who concealed material facts. Rule 9(b) "does not allow a complaint to merely lump multiple defendants together but `require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud'" Swartz, 476 F.3d at 764-65 (quoting Haskin v. R.J. Reynolds Tobacco Co., 995 F.Supp. 1437, 1439 (M.D.Fla.1998)); see also Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir.2011) (same); Moore, 885 F.2d at 541 (holding that in the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, "identif[y] the role of [each] defendant[] in the alleged fraudulent scheme").
Where fraud has allegedly been perpetrated by a corporation, moreover, plaintiffs must allege the names of the employees or agents who purportedly made the fraudulent representations or omissions, or at a minimum identify them by their titles and/or job responsibilities. See, e.g., United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir.2001) (holding that Rule 9(b) was not satisfied, inter alia, because plaintiff did not "identify the [defendant's] employees who performed the tests, or provide any dates, times, or places the tests were conducted"); Arch Ins. Co. v. Allegiant Profl Bus. Servs., Inc., No. CV 11-1675 CAS (PJWx), 2012 WL 1400302, at *3 (C.D.Cal. Apr. 23, 2012) ("The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written"); Dooms v. Fed. Home Loan Mortgage Corp., No. CV F 11-0352 LJO DLB, 2011 WL 1232989, at *14 (E.D.Cal. Mar. 31, 2011) ("In a fraud action against a corporation, a plaintiff must `allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written'"); Flowers, 2011 WL 2748650, at *6 (same).
For all of these reasons, counterclaimants have failed to plead the "who," "what," and "why" of the alleged fraud and negligent misrepresentations with sufficient particularity. Their fraud and negligent misrepresentation claims must be dismissed for this reason as well.
To plead a fraud claim, a party must allege (1) a knowingly false representation or fraudulent omission by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages. See, e.g., Small v. Fritz Cos., Inc., 30 Cal.4th 167, 173, 132 Cal.Rptr.2d 490, 65 P.3d 1255 (2003) (stating that in California, fraud claims have five elements: "(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or `scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage"); Croeni v. Goldstein, 21 Cal.App.4th 754, 758, 26 Cal.Rptr.2d 412 (1994) ("To plead a cause of action for fraud the plaintiff must allege (1) a knowingly false representation by the defendant, (2) an intent to defraud or to induce reliance, (3) justifiable reliance, and (4) resulting damages"); see also City Solutions Inc. v. Clear Channel Communications, Inc., 365 F.3d 835, 839 (9th Cir. 2004).
Promissory fraud is a subspecies of fraud. A plaintiff asserting a promissory fraud claim must plead and prove that the defendant made a promise to him that it had no intention of performing. See Lazar v. Superior Court, 12 Cal.4th 631, 638, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996) ("A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud"); see also Cedars Sinai Med. Ctr. v. Mid-W. Nat. Life Ins. Co., 118 F.Supp.2d 1002, 1013 (C.D.Cal.2000) ("A suit for fraud and deceit will only lie when one makes a promise of future conduct with no intention, at the time of the promise, of actually performing that promise," citing Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.App.4th 153, 159, 2 Cal.Rptr.2d 861 (1991)). As noted, intent not to perform cannot be proved simply by showing a subsequent failure to perform. See Tenzer, 39 Cal.3d at 30-31, 216 Cal.Rptr. 130, 702 P.2d 212; Magpali, 48 Cal.App.4th at 481, 55 Cal.Rptr.2d 225.
Counterclaimants fail to allege any false representation or promise. They merely plead that plaintiffs' "representations and promises were false when they were made," and that they "knew [their] representations were false when they were made." Although allegations of scienter need not meet Rule 9(b)'s specificity requirement, these allegations are insufficient even to satisfy Rule 8(a). See Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ("While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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"). "Although intent can be averred generally under Rule 9(b), a plaintiff must point to facts which show
Because counterclaimants allege insufficient facts to support an inference that plaintiffs' purported promise to permit them to continue reproducing the sound recordings was made with no intention of performing, they have not alleged a plausible promissory fraud claim. For this reason as well, his claim must be dismissed.
Counterclaimants' fraudulent concealment claim is linked to their promissory fraud claim. They assert that plaintiffs "represented that [Inflight's] continued reproduction and distribution of [plaintiffs'] works in the United States for use on airlines was acceptable, but [] intentionally failed to disclose that [they] secretly intended to maintain the right . . . to seek to impose liability, including statutory damages, on [Inflight] and its airline customers (i.e., in an amount in excess of the license fee that [plaintiffs] agreed to accept from [Inflight] for its activities)."
"To maintain a cause of action for fraud through nondisclosure or concealment of facts, there must be allegations demonstrating that the defendant was under a legal duty to disclose those facts." Los Angeles Mem'l Coliseum Comm'n v. Insomniac, Inc., 233 Cal.App.4th 803, 831, 182 Cal.Rptr.3d 888 (2015) (citing OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., 157 Cal.App.4th 835, 845, 68 Cal.Rptr.3d 828 (2007)). "There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts." LiMandri v. Judkins, 52 Cal.App.4th 326, 336, 60 Cal.Rptr.2d 539 (1997)
Counterclaimants argue that plaintiffs made partial representations because they agreed to permit counterclaimants to engage in continued reproduction and distribution of the sound recordings while secretly harboring the intention of suing for damages in excess of the agreed royalty. "Even where no duty to disclose would otherwise exist, where one does speak he must speak the whole truth to the end that he does not conceal any facts which materially qualify those stated." Vega v. Jones, Day, Reavis & Pogue, 121 Cal.App.4th 282, 292, 17 Cal.Rptr.3d 26 (2004). Counterclaimants' allegations nonetheless fail, however, because they do not plausibly plead that plaintiffs had no intention of honoring the purported agreement to permit continued reproduction of the sound recordings; the only allegation that supports this assertion in any way is plaintiffs' purported non-performance. See Smith, 160 F.Supp.2d at 1153-54 (merely alleging that defendant breached a contract did not adequately plead that it entered into the agreement with no intent to perform). For that reason, they have not plausibly alleged a partial representation sufficient to support imposition of a duty to disclose.
"The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage." Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal.App.4th 226, 243, 70 Cal.Rptr.3d 199 (2007) (citing Shamsian v. Atlantic Richfield Co., 107 Cal.App.4th 967, 983, 132 Cal.Rptr.2d 635 (2003)); see also CAL. CIV. CODE § 1710(2) (defining "[d]eceit" as including "[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true").
Unlike fraud, "negligent misrepresentation does not require knowledge of falsity." Apollo Capital Fund, 158 Cal.App.4th at 243, 70 Cal.Rptr.3d 199. "Instead, a person who makes false statements, honestly believing that they are true, may still be liable for negligent misrepresentation if he or she has no reasonable grounds for such belief. Also unlike fraud, negligent misrepresentation requires a positive assertion to show a misrepresentation of material fact; an omission or an implied assertion will not suffice." Cutler v. Rancher Energy Corp., No. CV 13-00906 DOC, 2014 WL 1153054, at *7 (C.D.Cal. Mar. 11, 2014).
The parties agree that counterclaimants' negligent misrepresentation claim "is essentially identical to . . . [the] intentional misrepresentation claim."
Plaintiffs next contend that counterclaimants' interference claims are barred by the Noerr-Pennington doctrine and the competition privilege.
"Under the Noerr-Pennington doctrine, those who petition any department of the government for redress are generally immune from statutory liability for their petitioning conduct." Sosa v. DIRECTV, Inc., 437 F.3d 923, 929 (9th Cir. 2006). The doctrine derives from two Supreme Court cases holding that the First Amendment Petition Clause immunizes acts of petitioning the legislature from antitrust liability. Id. (citing Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961), and United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965)). "The doctrine has since been applied to actions petitioning each of the three branches of government, and has been expanded
The litigation privilege provides that any "publication" or "broadcast" made in any "judicial proceeding" is privileged. Cal. Civ. Code § 47(b). The privilege "has been given broad application," and "is now held applicable to any communication, whether or not it amounts to a publication . . . and [to] all torts except malicious prosecution." Silberg v. Anderson, 50 Cal.3d 205, 211-12, 266 Cal.Rptr. 638, 786 P.2d 365 (1990). "Further, it applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved." Id. at 212, 266 Cal.Rptr. 638, 786 P.2d 365. "The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that ha[s] some connection or logical relation to the action." Id.
Counterclaimants' interference claims are based, in part, on a November 20, 2013 cease-and-desist letter sent to Inflight.
A "sham" lawsuit is one that is both "objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits," and "an attempt to interfere directly with the business relationship of a competitor through the use of the governmental process - as opposed to the outcome of that process." Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 60-61, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993) (alteration, citation and internal quotation marks omitted); EcoDisc Tech. AG v. DVD Format/Logo Licensing Corp., 711 F.Supp.2d 1074, 1083 (C.D.Cal.2010) ("To establish DVDFLLC's conduct here was a `sham,' Plaintiff must prove (1) DVDFLLC's alleged threats were objectively baseless in the sense that it could not have reasonably expected to prevail in litigation and (2) DVDFLLC's subjective motivation was to interfere with Plaintiffs business relationships").
Counterclaimants dispute this. They cite eBay, Inc. v. Bidder's Edge, Inc., No. CV 99-21200 RMW, 2000 WL 1863564, at *2 (N.D.Cal. July 25, 2000), for the proposition that whether the Noerr-Pennington doctrine applies is a fact-bound inquiry that is not appropriate for resolution in the context of a motion to dismiss. In eBay, the court declined to dismiss plaintiff's claims "under the Noerr-Pennington doctrine because at least some of eBay's allegedly anti-competitive conduct, . . . [was] unrelated to any protected activity." Id. Although it "appear[ed] that some of the conduct complained of in the counterclaims [might] fall under . . . Noerr-Pennington immunity," including a cease-and-desist letter, the court concluded that the "appropriate means for eliminating insufficient theories of liability [wa]s a motion for partial summary adjudication." Id. The court is unpersuaded by the eBay court's apparent conclusion that it was not appropriate to dismiss certain aspects of a claim under the Noerr-Pennington doctrine because the doctrine did not apply to other aspects of the same claim. To the extent counterclaimants' interference claim is based on the cease-and-desist letter, they fail plausibly to allege that the letter falls outside the ambit of the Noerr-Pennington doctrine because it threatened sham litigation. As alleged, any claim based on the cease-and-desist letter lacks facial plausibility, and must be dismissed under Rule 8 and the Supreme Court's decisions in Twombly and Iqbal.
The court reaches the same result respecting application of the California litigation privilege. Counterclaimants assert that the litigation privilege does not apply to communications made in "bad faith." As they concede in a parenthetical description of the case they cite for this proposition, however, the exception concerns anti-SLAPP motions - not the litigation privilege. See Bailey v. Brewer, 197 Cal.App.4th 781, 790, 128 Cal.Rptr.3d 380 (2011) (concluding that an interference claim survived an anti-SLAPP motion because the sender of a cease-and-desist letter could not, in good faith, have believed he had a legally viable claim as asserted in the letter). In contrast to the anti-SLAPP context, there is no exception to the litigation privilege for communications made in bad faith. See Adobe Sys. Inc. v. Coffee Cup Partners, Inc., No. CV 11-02243 CW, 2012 WL 3877783, at *12 (N.D.Cal. Sept. 6, 2012) ("[T]he presence or absence of malice or good or bad faith is irrelevant to the inquiry whether the litigation privilege is applicable," quoting Mansell v. Otto, 108 Cal.App.4th 265, 279 n. 47, 133 Cal.Rptr.2d 276 (2003) (collecting cases)); see also Collins v. Allstate Indem. Co., 428 Fed.Appx. 688, 689 (9th Cir.2011) (Unpub.Disp.)
To state a claim for intentional interference with contractual relations, a plaintiff must allege: "(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." Quelimane Co. v. Stewart Title Guar. Co., 19 Cal.4th 26, 55, 77 Cal.Rptr.2d 709, 960 P.2d 513 (1998) (quoting Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126, 270 Cal.Rptr. 1, 791 P.2d 587 (1990) (internal quotation marks omitted)). "Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage, it is not necessary that the defendant's conduct be wrongful apart from the interference with the contract itself." Id. (citing LiMandri v. Judkins, 52 Cal.App.4th 326, 344, 60 Cal.Rptr.2d 539 (1997)).
Plaintiffs argue that counterclaimants fail to plead facts that identify the specific contractual relationships with which they purportedly interfered. Counterclaimants allege that they had "Airline Contracts," and that they were attempting to enter into additional contracts; they supply no facts concerning the identity of any third party with whom they had contracted, however. This requires dismissal of the claim, because "to understand whether [counterclaimants'] performance was disrupted require[s] the district court to determine what contractual rights [they] possess[ed]." See United National Maintenance, Inc. v. San Diego Convention Center, Inc., 766 F.3d 1002, 1009 (9th Cir.2014); In re Centerstone Diamonds, Inc., No. 09 BK 23945 PC, 2014 WL 1330186, at *6 (Bankr.C.D.Cal. Apr. 2, 2014) ("In pleading his Third Claim for Relief, Leslie simply recites in the Complaint the elements of a cause of action for intentional interference with contractual relations with little supporting facts. Leslie does not allege facts identifying a specific contract, the parties thereto, or the substance and date thereof. The Complaint states only that `there were valid contractual relationships that existed between the Debtors and multiple customers and consignees.' In his opposition, Leslie argues that such contracts and customers are sufficiently alleged in paragraph 71 of the Complaint, which refers to a `Consignment Agreement with FCC' and identifies an alleged overlap between customers and consignees of the debtors and Beaudry's non-debtor entities. These facts standing alone are insufficient to state a plausible claim for relief for alleged intentional interference with contractual relations").
To plead the claim adequately, counterclaimants must identify the third party or parties with whom they contracted, and the nature and extent of their relationship with that party or parties. Compare Brian Lichtenberg, LLC v. Alex & Chloe, Inc., No. CV 13-06837 DDP (PJWx), 2014 WL 585436, at *7 (C.D.Cal. Feb. 13, 2014) ("Defendants argue that Plaintiffs do not identify any specific third parties with whom Plaintiffs had an economic relationship or any specific contracts with those
To plead a claim for intentional interference with prospective business advantage, a plaintiff must allege "(1) a specific economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff; (2) knowledge by defendant of the existence of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) damages proximately caused by the defendant's acts." Panavision Int'l, L.P. v. Toeppen, 945 F.Supp. 1296, 1305 (C.D.Cal.1996) (citing Eichman v. Fotomat Corp., 871 F.2d 784, 800 (9th Cir. 1989); Youst v. Longo, 43 Cal.3d 64, 71 n. 6, 233 Cal.Rptr. 294, 729 P.2d 728 (1987); Buckaloo v. Johnson, 14 Cal.3d 815, 826-29, 122 Cal.Rptr. 745, 537 P.2d 865 (1975)), aff'd, 141 F.3d 1316 (9th Cir.1998).
Plaintiffs assert this claim is barred by the competition privilege. It was once "settled that a affirmative defense to the tort of interference with prospective economic advantage [wa]s the privilege of competition." San Francisco Design Ctr. Associates v. Portman Companies, 41 Cal.App.4th 29, 40, 50 Cal.Rptr.2d 716 (1995). It was equally settled that, to "defeat the privilege the defendant's conduct [had to] be unlawful or illegitimate." Id. at 42, 50 Cal.Rptr.2d 716; A-Mark Coin Co. v. General Mills, Inc., 148 Cal.App.3d 312, 324, 195 Cal.Rptr. 859 (1983) ("`[I]t is no tort to beat a business rival to prospective customers. Thus, in the absence of prohibition by statute, illegitimate means, or some other unlawful element, a defendant seeking to increase his own business may cut rates or prices, allow discounts or rebates, enter into secret negotiations behind the plaintiff's back, refuse to deal with him or threaten to discharge employees who do, or even refuse to deal with third parties unless they cease dealing with the plaintiff, all without incurring liability'").
In Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 45 Cal.Rptr.2d 436, 902 P.2d 740 (1995), however, the California Supreme Court "disapproved of treating the defendant's justification, or privilege to interfere with prospective economic relations as an affirmative defense. Rather, `[i]n light of the particular importance of free competition in the area of noncontractual business relations, it held instead that . . . `a plaintiff seeking to recover for an alleged interference with prospective contractual or economic relations must plead and prove as part of its case-in-chief that the defendant not only knowingly interfered with the plaintiff's expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself.'" Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1256, 116 Cal.Rptr.2d 358 (2002) (quoting Westside Ctr. Associates v. Safeway Stores 23, Inc., 42 Cal.App.4th 507, 521 n. 16, 49 Cal.Rptr.2d 793 (1996) (in turn citing Della Penna, 11 Cal.4th at 393, 45 Cal.Rptr.2d 436, 902 P.2d 740 (emphasis in Gemini removed)).
Plaintiffs contend that counterclaimants have failed to allege any conduct that is "wrongful `by some measure beyond the fact of the interference itself.'" Della Penna, 11 Cal.4th at 393, 45 Cal.Rptr.2d 436, 902 P.2d 740. To satisfy this element, counterclaimants must plead conduct "proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1159, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003).
In their opposition, counterclaimants assert that their fraud claims plead independently wrongful acts that render the competition privilege inapplicable.
Plaintiffs also maintain the claim must be dismissed because counterclaimants do not identify any prospective business relationship with which they interfered. "Courts have held that, in order to state a claim for intentional interference with prospective business advantage, it is essential that the [claimant] allege facts showing that [d]efendant interfered with [a] relationship with a particular individual." Damabeh v. 7-Eleven, Inc., No. 12-CV-01739 LHK, 2013 WL 1915867, at *10 (N.D.Cal. May 8, 2013); see also Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. CV 10-5696 CRB, 2013 WL 3460707, at *7 (N.D.Cal. July 9, 2013) ("Amaretto argues that Ozimals was `well aware that Amaretto had economic relationships with Second Life customers' and that Ozimals intentionally disrupted Amaretto's business during the holiday season by publishing defamatory statements and committing trade libel. But, in order to state a claim for intentional interference with prospective business advantage, it is essential that the plaintiff allege facts showing that the defendant interfered with the plaintiff's relationship with a particular individual"). Allegations that a defendant interfered with a relationship with an "as yet unidentified" customer will not suffice. See, e.g., Westside Ctr. Associates v. Safeway Stores 23, Inc., 42 Cal.App.4th 507, 527, 49 Cal.Rptr.2d 793 (1996) ("Without an existing relationship with an identifiable buyer, [plaintiffs] expectation of a future sale was `at most a hope for an economic relationship and a desire for future benefit'").
Here, none of the purported prospective relationships is identified. Counterdefendants' intentional interference with prospective business advantage claim must be dismissed for this reason as well. See Damabeh, 2013 WL 1915867, at *10
The tort of negligent interference with prospective business advantage has many of the same elements as an intentional interference with prospective business advantage claim. To plead such a claim adequately, a plaintiff must allege that "(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship." North American Chemical Co., 59 Cal.App.4th at 786, 69 Cal.Rptr.2d 466.
As with a claim for intentional interference with prospective business advantage, "a plaintiff alleging negligent interference with prospective business advantage must identify with particularity the relationships or opportunities with which [d]efendant is alleged to have interfered." Damabeh, 2013 WL 1915867, at *10; Blue Dolphin Charters, Ltd. v. Knight & Carver Yachtcenter, Inc., No. 11-CV-565-L-WVG, 2011 WL 5360074, at *5 (S.D.Cal. Nov. 3, 2011) (finding an "allegation that the defendant interfered with `speculative' future customers [was] insufficient" to plead negligent interference with prospective business advantage). Because no specific relationships are alleged, the court must dismiss this claim as deficiently pled.
Plaintiffs maintain that the court should dismiss the counterclaim without leave to amend. "Dismissal without leave to amend is improper unless it is clear . . . that the [claims] could not be saved by . . . amendment." In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005); see Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir.2008) ("Dismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendment"); California ex rel. California Department of Toxic Substances Control v. Neville Chemical Co., 358 F.3d 661, 673 (9th Cir.2004) ("[D]enial of leave to amend is appropriate if the amendment would be futile," citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). This is the first time the court has had occasion to pass on the sufficiency of the counterclaim. While counterclaimants failed to allege viable claims, it appears they may be able to amend to plead plausible claims for relief. This is especially true given their assertion that a "rich discovery record" supports the claims.
For the reasons stated, the court grants plaintiffs' motion to dismiss the counterclaim with leave to amend. Counterclaimants may file an amended counterclaim within twenty (20) days of the date of this order if they are able to remedy the deficiencies the court has noted.
Counterclaimants may not plead additional claims or add allegations that are not intended to cure the specific defects the court has noted. Should any amended counterclaim exceed the scope of leave to amend granted by this order, the court will strike the offending portions under Rule 12(f). See FED. R. CIV. PROC. 12(f) ("The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter. The court may act: (1) on its own; or (2) on motion made by a party either before responding to the pleading or, if a response is not allowed, within 21 days after being served with the pleading"); see also Barker v. Avila, No. 2:09-cv-00001-GEB-JFM, 2010 WL 3171067, at *1-2 (E.D.Cal. Aug. 11, 2010) (striking an amendment to a federal law claim where the court had granted leave to amend only state law claims).
Plaintiffs maintain that counterclaimants were in direct competition with them, such that there can be no duty as a matter of law. This is not clear from the allegations in the counterclaim, however. Inflight supplies airlines with inflight entertainment, while plaintiffs are record labels and music composers. While there is some degree of overlap between the parties' businesses, neither the complaint nor the counterclaim suggests that plaintiffs would supply, or have supplied airlines with content directly. There are no allegations in the counterclaim that suggest plaintiffs and counterclaimants are in competition, direct or otherwise. Cf. Singman v. NBA Properties, Inc., No. CV 13-05675 ABC (SHx), 2014 WL 7892049, at *5 (C.D.Cal. Jan. 17, 2014) ("Here, Plaintiff has alleged that he and NBA Properties were competitors. This allegation forecloses Plaintiff's negligent interference claim against NBA Properties."); Stolz v. Wong Communications Limited Partnership, 25 Cal.App.4th 1811, 1825, 31 Cal.Rptr.2d 229 (1994) (holding that a "[negligent interference claim] arises only when the defendant owes the plaintiff a duty of care" and stating that plaintiff's complaint "did not allege such a duty, nor could it, since it was plain that plaintiff and defendant were competitors"). At this stage of the proceedings, given counterclaimants' failure to allege any facts suggesting a duty of care, the court declines to address whether they cannot allege a duty as a matter of law.