GONZALO P. CURIEL, District Judge.
Pending before the Court are four motions to dismiss, to strike, or, in the alternative, stay this action. The sole original Defendant, Windstream Communications, Inc. ("Wind. Inc."), moves to dismiss both the Complaint and First Amended Complaint (sometimes, "FAC"), and two newly joined defendants, PAETEC Communications, Inc. ("PAETEC"), and Windstream Corporation ("Wind. Corp."), move to dismiss the First Amended Complaint. All Defendants move to strike the First Amended Complaint or, in the alternative, to stay this action pending resolution of a separate action in the Western District of New York. Also pending before the Court is Plaintiff No Cost Conference, Inc.'s ("No Cost" or "Plaintiff"), motion for leave to file under seal two exhibits to the First Amended Complaint. The Court decides the motions on the papers pursuant to Local Civil Rule 7.1.d.1. As explained below, the Court (1)
No Cost is a California corporation that provides conference calling services to the public through its conferencing equipment located in California. [FAC, Doc. No. 15 at ¶¶ 6, 14.] To use these services, individuals, nonprofit organizations, government agencies, and businesses throughout the country can register for a long-distance telephone number and access code that provides them access to No Cost's service. [Id. ¶ 14.] Then, when multiple individuals dial the same phone number and enter the same access code, they are placed into their conference call. [Id.] In order to provide these services to the public at no
In March 2010, No Cost and PAETEC negotiated and entered into a Wholesale Master Services Agreement (the "Agreement") whereby PAETEC agreed to provide No Cost with certain telecommunications services. [Id. ¶¶ 17, 18.] Specifically, PAETEC agreed to pay No Cost commissions based on the "[a]ccess compensation ... collected ... from the interconnecting carriers for the Access Traffic." [FAC ¶ 18.] Access Traffic was defined to include "[t]oll calls routed from various interexchange carriers to PAETEC's network and delivered to [No Cost's] telecommunications system for completion." [Id.] The Agreement obligated PAETEC to calculate the commission on a monthly basis. [Id. ¶ 19.] PAETEC also committed itself to using its "best efforts to collect all funds" from the interexchange carriers, and, in the event any dispute arose, PAETEC was contractually obligated to "promptly notify [No Cost] in writing, indicating carrier in question [and] showing percentage of traffic." [Id. ¶ 20.] During the course of contract negotiations, PAETEC, through its agent Jay Perreault, was informed that No Cost was concerned about ensuring that PAETEC had a high access charge collection rate. [Id. ¶ 27.] PAETEC represented to No Cost that it maintained greater than 90% rate of collections on its traffic. [Id. ¶ 28.] No Cost agreed to proceed with the Agreement with PAETEC based partly on this representation. [Id. ¶ 29.]
No Cost subsequently installed its conference bridge equipment in PAETEC's facilities in Oakland, California. [Id. ¶ 30.] For many months, PAETEC paid No Cost the commissions due on the access traffic in conformity with the terms of the Agreement. [Id. ¶ 31.] Based on the terms of the Agreement, No Cost alleges it understood those payments to accurately reflect commissions for the access charges PAETEC "collected" on its No Cost-bound traffic. [Id.] At no time during this period did PAETEC inform No Cost that its collection rates were reduced or that carriers had filed any disputes with PAETEC. [Id. ¶ 32.]
In August 2011, Wind. Corp. announced that it would acquire PAETEC through a "merger." [Id. ¶ 33.] This announcement described the merger as resulting in a "combined company," and that the "combination [created] a new Fortune 500 company with the financial strength and scale to compete and win against any other provider in the industry." [Id. ¶ 34.] In December 2011, Wind. Corp. announced that it had completed the merger, claiming that the merger would "enhance Windstream's capabilities" because "Windstream"
Following the merger announcement, No Cost alleges Defendants set about on a course of action aimed at causing PAETEC's customers, including No Cost, to believe that PAETEC had become part of Wind. Inc. [Id. ¶ 35.] For example, the PAETEC employees with whom No Cost had previously communicated began using
On December 1, 2011, Windstream sent a second letter to No Cost stating that "PAETEC is now part of Windstream Communications." [Ex. C to FAC.] In addition, invoices received by No Cost began to include the following statement:
[Ex. D. to FAC (bold typeface in original).] Moreover, No Cost alleges that Defendants have, since the date of the merger, operated as a single entity. [Id. ¶¶ 39-42.] As a result of the merger and the publicity surrounding it, No Cost alleges it believed that the Windstream Defendants had assumed all rights and responsibilities with regard to PAETEC, including PAETEC's obligations under the Agreement. [Id. ¶ 39.]
Shortly after the merger, Defendants stopped making payments to No Cost for the commissions due under the Agreement. [Id. ¶ 44.] In reliance on the new contact information given to it, No Cost contacted the Windstream Defendants to resolve the payment issues. [Id. ¶ 45.] Between February and June of 2012 No Cost communicated with the Windstream Defendants on a consistent basis regarding the payment dispute. [Id. ¶¶ 45-52.]
On April 24, 2012, Dan Cobb, Vice President-Wholesale Sales for the generic "Windstream," provided No Cost with a spreadsheet that was described as "a reconciliation of [No Cost's] commission payments with PAETEC's collection history for 2011 traffic." [Id. ¶ 49.] Windstream claimed that the document reflected "a significant difference in the revenue that PAETEC used to calculate commissions and the actual revenue collected," and that, as a result, PAETEC had overpaid No Cost in the past by $808,769.00. [Id.]
Through this spreadsheet, Windstream disclosed for the first time that it or PAETEC had a purported collection rate of as little as 55% of the access charges billed on the traffic terminating to No Cost, rather than the 90% that PAETEC had assured No Cost it was collecting. [Id. ¶ 50.] These lower collection rates, which went back to at least the time of the merger, were not previously disclosed to No Cost. [Id.] Then, on May 16, 2012, Dorinda Foos, Manager, Contracts & Sales Administration, Wholesale Markets for the generic Windstream, forwarded a letter to No Cost providing further information about the billing disputes. [Id. ¶ 51.] Ms. Foos included a spreadsheet authored by Windstream purporting to be a settlement offer. [Id.]
On June 29, 2012, Windstream provided No Cost with what it described as "a different version of the reconciliation" that it had previously provided to No Cost on April 24, 2012. [Id. ¶ 52.] According to this new reconciliation, Windstream appeared to represent that, without any notice to No Cost, it or PAETEC had failed
On July 9, 2012, No Cost filed suit in this District against a single defendant, Wind. Inc., asserting claims for breach of contract, "fraud/negligent misrepresentation," accounting, and declaratory judgment. [Compl., Doc. No. 1.]
On August 13, 2012, PAETEC filed suit against No Cost in the United States District Court for the Western District of New York. [W.D.N.Y. Compl., Doc. No. 8-7.] PAETEC's claims against No Cost were largely based on the same events and transactions as the instant action, except PAETEC sought return of alleged overpayment of commissions it paid to No Cost pursuant to the Agreement. The complaint in the New York action also alleged that "PAETEC's immediate parent holding company, PAETEC Holding Corp., became a subsidiary of Windstream Corporation, but following that transaction, PAETEC remained a separate legal entity...." [Id. ¶ 2.] PAETEC claimed at least $900,000 in net damages for alleged commission overpayments made to No Cost. [Id. ¶¶ 12, 15.]
On August 15, 2012, Wind. Inc. filed a motion to dismiss in the instant case partly on the basis that No Cost's contract was with PAETEC, not Wind Inc. [Doc. No. 8.] Wind. Inc. argued that PAETEC remained a "viable entity" after the merger and, as a result, no basis existed to sue Wind. Inc. Further, Wind. Inc. argued that the action in this District should be dismissed based on PAETEC's suit in the Western District of New York.
On August 29, 2012, in response to the W.D.N.Y. action and Wind. Inc.'s motion to dismiss, No Cost filed a First Amended Complaint that asserted No Cost's original claims against Wind. Inc. and two new defendants, Wind. Corp. and PAETEC. [FAC, Doc. No. 15.] No Cost additionally asserted claims for tortious interference and "fraud/negligent misrepresentation" against "Windstream," which referred to Wind. Inc., Wind. Corp., or both.
In September 2012, Defendants filed separate motions to dismiss, strike, or stay. All three Defendants moved the Court to strike the First Amended Complaint on the basis that Federal Rule of Civil Procedure 15(a)
A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir.1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir.1998).
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). "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "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.'" Id. (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955).
As an initial matter, Defendants have filed four separate requests that the Court take judicial notice of various documents. No Cost has not opposed any of these requests.
"Judicial notice" is a court's recognition of the existence of a fact without the necessity of formal proof. See Castillo-Villagra v. I.N.S., 972 F.2d 1017, 1026 (9th Cir.1992). Facts proper for judicial notice are those not subject to reasonable dispute and either "generally known" in the community or "capable of accurate and ready determination" by reference to sources whose accuracy cannot be reasonably questioned. Fed.R.Evid. 201. For example, courts may take judicial notice of public records. Cachil Dehe Band of Wintun Indians of Colusa Indian Cmty. v. Cal., 536 F.3d 1034, 1039-40 & n. 4 (9th Cir.2008). Judicial notice is particularly appropriate for the court's own records in prior litigation related to the case before it. Amphibious Partners, LLC v. Redman, 534 F.3d 1357, 1361-62 (10th Cir. 2008) (district court was entitled to take judicial notice of its memorandum of order and judgment from previous case involving same parties); see also United States v. Howard, 381 F.3d 873, 876 n. 1 (9th Cir. 2004) (taking judicial notice of court records in another case). Moreover, courts may take judicial notice of some public records, including the "records and reports of administrative bodies." United States v. Ritchie, 342 F.3d 903, 909 (9th Cir.2003).
Here, Wind. Inc. seeks judicial notice of the Wholesale Master Services Agreement between PAETEC and No Cost, a printout from the California Secretary of State's website showing PAETEC's
Next, PAETEC and Wind. Corp. request that the Court take judicial notice of the same document: an "Application and Request for Ex Parte Relief" filed with the California Public Utilities Commission. [Doc. No. 22-3; Doc. No. 27-3.] The Court
Finally, Defendants collectively ask the Court to take judicial notice of an order of the United States District Court for the Western District of New York. [Doc. No. 43-1.] The Court
Defendants move to strike the First Amended Complaint on the basis that No Cost added PAETEC and Wind. Corp. without leave of Court in violation of Rule 21. No Cost counters that its amended complaint is valid because Rule 15 grants it the ability to amend the Complaint as a matter of course within twenty-one days of a motion to dismiss. Except for joining PAETEC and Wind. Corp. as parties to this action, no dispute exists that No Cost had the right to otherwise amend the Complaint given that No Cost filed the First Amended Complaint within twenty-one days of Wind. Inc.'s first motion to dismiss. The Court concludes that No Cost's First Amended Complaint was properly amended to join PAETEC and Wind. Corp.
The addition of new parties is governed by Rule 21, which states, in pertinent part, that "[o]n motion or on its own, the court may at any time, on just terms, add or drop a party." Accordingly, pursuant to Rule 21, new parties seemingly may only be added by order of the court. Rule 15, however, provides that "a party may amend its pleading once as a matter of course" within "21 days after service of a motion under Rule 12(b)." Fed.R.Civ.P. 15(a)(1)(B). Therefore, Rule 15 arguably provides an exception to Rule 21. Although the Ninth Circuit Court of Appeals has not had occasion to address this discrete issue, other Courts of Appeals have done so and have come to different conclusions. Defendants rely on Moore v. State of Indiana, 999 F.2d 1125, 1128 (7th Cir. 1993), in which the court noted: "Although Rule 15(a) generally permits the plaintiff to amend his complaint once as a matter of course before a responsive pleading is served, here, the plaintiff's requested amendment required leave from the court because it sought to assert claims against additional defendants."
However, as No Cost indicates, Moore appears to be the minority rule, as at least four other Courts of Appeals have concluded — or at least discussed in dicta — that Rule 15 allows parties to be added as a matter of course. See, e.g., Galustian v. Peter, 591 F.3d 724, 730 (4th Cir.2010) ("While some courts have concluded that Rule 15(a) does not apply to amendments
Because none of the authorities either side cites is controlling on this Court, the Court must determine which outcome is more appropriate in this case. The Court finds the analysis and conclusions set forth in the opinions of the Second, Fourth, Fifth, and Tenth Circuits most persuasive. The language of Rule 15 appears to establish an exception to the strict requirements of Rule 21. Moreover, Defendants will not be prejudiced by their inclusion in this action at this stage of the proceedings given that the W.D.N.Y. action remains in its preliminary stages and that PAETEC can assert its claims against No Cost in this action as counterclaims. Finally, even if the Court were to find that Rule 15 does not control and leave of Court is required, the Court would find, given the early stage of the proceedings and the apparent relationship between the three Defendants, that No Cost should be given leave to join PAETEC and Wind. Corp. as a defendants pursuant to Rule 21.
Wind. Inc. and Wind. Corp. argue that all claims against them in the First Amended Complaint should be dismissed
"It is the general rule that a parent corporation and its subsidiary will be treated as separate legal entities." Pantoja v. Countrywide Home Loans, Inc., 640 F.Supp.2d 1177, 1192 (N.D.Cal. 2009) (citations omitted). However, the alter ego doctrine is one exception to this general rule. Id. The Ninth Circuit applies the law of the forum state, which in this case is California. SEC v. Hickey, 322 F.3d 1123, 1128 (9th Cir.2003) (citations omitted). In California, "[b]efore the doctrine [of alter ego liability] may be invoked, two elements must be alleged: `First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.'" Neilson v. Union Bank of Cal., N.A., 290 F.Supp.2d 1101, 1116 (C.D.Cal.2003) (quoting Sonora Diamond Corp. v. Sup.Ct., 83 Cal.App.4th 523, 99 Cal.Rptr.2d 824, 836 (2000)). To pursue this theory of liability, a plaintiff must allege the elements of the doctrine; conclusory allegations are insufficient. Hokama v. E.F. Hutton & Co., Inc., 566 F.Supp. 636, 647 (C.D.Cal.1983).
Here, an in-depth discussion of this theory is unnecessary because, as Defendants note, No Cost only addresses the first element of the alter ego test. No Cost neither alleges in the First Amended Complaint, nor argues in its papers, that fraud or injustice would result if Wind. Corp. or Wind. Inc. were not party to this suit. It appears No Cost seeks to bring Wind. Inc. and Wind. Corp. into this action for purposes of being able to collect an eventual judgment, if any. However, such purpose is insufficient to establish the injustice or fraud element of the alter ego test. See NuCal Foods, Inc. v. Quality Egg LLC, 887 F.Supp.2d 977, 992 (E.D.Cal.2012) (stating, with respect to the inequitable result element the alter ego test, that a plaintiff "must be more than just a creditor attempting to recover on unsatisfied debts; it must show that a defendant's conduct amounted to bad faith." (citing United States v. Standard Beauty Supply Stores, Inc., 561 F.2d 774, 777-78 (9th Cir.1977))); see also Calvert v. Huckins, 875 F.Supp. 674, 678 (E.D.Cal. 1995) ("[T]he plaintiff must make allegations of fact from which it appears that recognition of the corporate entity would sanction a fraud or promote injustice.") (citations omitted). Consequently, because No Cost has not established both elements of the alter ego test, the Court finds that No Cost cannot rely on this theory to bring its contracts-based claims against Wind. Corp. and Wind. Inc.
No Cost also argues that Wind. Inc. and Wind. Corp. are potentially liable based on their status as PAETEC's successors-in-interest by operation of Wind. Corp.'s acquisition of PAETEC. The Court finds No Cost has established potential successor liability based on Wind. Corp.'s acquisition by merger of PAETEC's parent company, PAETEC Holding Corporation, and its named subsidiaries. However, because PAETEC did not merge with Wind. Inc., successor-in-interest liability does not supply No Cost a basis to bring its contract-based claims against Wind. Inc.
Generally, "when a corporation purchases all or most of the assets of another corporation, the purchasing corporation does not assume the debts and liabilities of the selling corporation." Me. State Retirement Sys. v. Countrywide Fin. Corp., No. 10-CV-302, 2011 WL 1765509, *5, 2011 U.S. Dist. LEXIS 53359, at *17 (C.D.Cal. Apr. 20, 2011). There are, however exceptions to this general rule. Id. "Successor liability is governed by state law under the Erie doctrine." Id. at *2, 2011 U.S. Dist. LEXIS 53359, at *10. Under California law, "a successor company has liability for a predecessor's actions if: (1) the successor expressly or impliedly agrees to assume the subject liabilities ... [;] (2) the transaction amounts to a consolidation or merger of the successor and the predecessor[;] (3) the successor is a mere continuation of the predecessor[;] or (4) the transfer of assets to the successor is for the fraudulent purpose of escaping liability for the predecessor's debts." CenterPoint Energy, Inc. v. Sup. Ct., 157 Cal.App.4th 1101, 69 Cal.Rptr.3d 202, 218 (2007). Furthermore, "the liberal requirements of Rule 8(a)(2) apply to ... successor-in-interest allegations...." Pac. Rollforming, LLC v. Trakloc Int'l, LLC, No. 07-CV-1897, 2008 WL 4183916, at *3, 2008 U.S. Dist. LEXIS 69522, at *10 (S.D.Cal. Sept. 8, 2008).
Here, No Cost argues it has satisfied the first prong of the successor liability test. However, although No Cost alleges in paragraph 39 of its First Amended Complaint that, "as a result of the merger, the Windstream Defendants assumed all right and responsibilities with regard to the [contract with No Cost] as the successor in interest [to PAETEC]," such a conclusory allegation is insufficient, as No Cost must "plead the `existence of a contract [and] its terms which establish the obligation [in] issue.'" Winner Chevrolet, Inc. v. Universal Underwriters Ins. Co., No. S-08-539, 2008 WL 2693741, at *4, 2008 U.S. Dist. LEXIS 111530, at *11 (E.D.Cal. July 1, 2008) (quoting FPI Dev., Inc. v. Nakashima, 383, 231 Cal.App.3d 367, 282 Cal.Rptr. 508, 517 (1991)). Moreover, although No Cost references Wind. Corp.'s website, which states that "Windstream Corp. assumed PAETEC's net debt of approximately $1.4 billion," [FAC ¶ 42], this statement alone does not satisfy the requirement that No Cost identify the terms of an assumption of liability or identify factual circumstances that give rise to such an assumption.
However, No Cost satisfactorily alleges that Wind. Corp. and PAETEC consolidated or merged for purposes of the successor-in-interest test. On December 1, 2011, Wind. Corp. announced: "Today we officially combine with PAETEC and welcome thousands of great customers and associates into the fold." Windstream PAETEC Merger, http://www.windstreambusiness.com/blog/2011/12/paetec-windstream-merger; FAC ¶ 34. After the merger, No Cost alleges Wind. Corp. "set about on a course of actions aimed at causing PAETEC's customers ... to believe that PAETEC was now part of Windstream Communications." [FAC ¶ 35.] Wind. Corp. sent No Cost a letter stating that "PAETEC is now part of Windstream Communications." [FAC ¶ 37.] The invoices sent to No Cost confirmed that PAETEC was part of Wind. Corp. Moreover, as part of the merger, "PAETEC shareholders received 0.460 shares of Windstream Corp. stock for each PAETEC share owned at closing." [FAC ¶ 41.] Wind. Corp.'s Form 8-K also confirms the completed merger between PAETEC's parent company, PAETEC Holding Corp., and Wind. Corp.
The foregoing notwithstanding, insufficient basis exists to find that No Cost has stated a claim against Wind. Inc. such that Wind. Inc. is a proper party to this action based on the successor liability theory. Although No Cost alleges that PAETEC merged with Wind. Inc. and Wind. Corp., the November 30, 2011, SEC filing cited above makes clear that PAETEC merged with Wind. Corp. only:
Consequently, and for purposes of this Order only, the Court finds that potential successor liability exists as to Wind. Corp. only.
Although PAETEC seemingly acknowledges that it could have been a proper party to this action had No Cost named it in the original Complaint, PAETEC avers that No Cost "cannot bring PAETEC into its misguided complaint against" Wind. Inc. [PAETEC Oppo., Doc. No. 22-1 at 6.] PAETEC asks the Court to dismiss the First Amended Complaint against it on the basis that No Cost's original Complaint named Wind. Inc. only and because PAETEC later filed its own action against No Cost in New York federal court. As the Court discussed above, No Cost's amendment of the Complaint to join PAETEC was proper under Rule 15. Moreover, PAETEC is a proper party in this case, as the company is potentially directly liable to No Cost based on the written contract between PAETEC and No Cost. As for PAETEC's argument that the New York action "renders this case moot," the Court disagrees as explained below. Accordingly, the Court
Defendants separately advance the same argument against No Cost's second claim for "Fraud/Negligent Misrepresentation." They aver this claim is barred as a matter of law because "[c]ourts have long held that fraud with respect to a misrepresentation is non-actionable if based on the terms of the contract."
In Erlich, the California Supreme Court generally discussed the differences between tort and contract claims in the context of "whether a negligent breach of a contract will support an award of damages for emotional distress — either as tort damages or as consequential or special contract damages." Erlich, 87 Cal.Rptr.2d at 891, 981 P.2d 978. The lower appellate court had concluded that emotional distress damages were properly awarded in a contract-based action because "the same wrongful conduct may constitute a breach of contract and an invasion of an interest protected by the laws of tort." Id. (citation and internal quotations omitted). However, the California Supreme Court
Likewise, in Applied Equipment Corp., the California Supreme Court laid out the fundamental differences between contract and tort actions to answer the narrow question whether "a contracting party can be held liable in tort for conspiracy to interfere with its own contract." Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 28 Cal.Rptr.2d 475, 869 P.2d 454, 455 (1994). The Court answered this narrow question in the negative, and in doing so stated the general principles, which the court in Erlich later repeated, that "an omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty." Id. at 460 (citation and quotations omitted).
Neither Erlich nor Applied Equipment Corp. stand for the rigid proposition that fraud and misrepresentation claims are never permissible when the gravamen of a lawsuit is breach of contract. Rather, as the California Supreme Court made clear, a plaintiff may assert a tort claim, in addition to contract claims, if he bases the tort claim on conduct independent of the mere act of breach of contract. See also Lazar v. Sup. Ct., 12 Cal.4th 631, 49 Cal.Rptr.2d 377, 909 P.2d 981, 985 (1996) ("In [cases of promissory fraud], the plaintiff's claim does not depend upon whether the defendant's promise is ultimately enforceable as a contract. `If it is enforceable, the [plaintiff] ... has a cause of action in tort as an alternative at least, and perhaps in some instances in addition to his cause of action on the contract.'") (citation omitted); see generally McGuire v. Recontrust Co., N.A., No. S-11-2787, 2012 WL 4510675, at *4, 2012 U.S. Dist. LEXIS 141874, at *12-13 (E.D.Cal. Sept. 30, 2012) ("To the extent that plaintiff alleges misrepresentation, misrepresentation of fact meant to induce a party to contract is actionable fraud."). With the above principles in mind, the Court finds that No Cost's claim is not barred as a matter of law on the basis Defendants assert. No Cost alleges that PAETEC induced assent to contract by promising a more than 90% access charge collection rate when PAETEC knew that its actual collection rate was not so high. [FAC ¶¶ 28-29.] No Cost further alleges that the Windstream Defendants continued this alleged deception after the merger. [Id. ¶¶ 47-50, 56.]
The foregoing notwithstanding, Defendants are correct that No Cost has failed to meet the heightened pleading standard for fraud claims under Rule 9. See generally Global Acquisitions Network v. Bank of Am. Corp., No. CV-12-8758,
Wind. Inc. and Wind. Corp. challenge No Cost's tortious interference claim on four separate grounds: (1) No Cost refers to Wind. Inc. and Wind. Corp. as "Windstream" and fails to differentiate the two companies; (2) No Cost does not allege that Wind. Inc. or Wind. Corp. "intended to cause harm and, engaged in conduct that was wrongful by some legal measure other than the fact of interference itself."; (3) if No Cost alleges that PAETEC and Wind. Inc. or Wind. Corp. are the same company, No Cost cannot state a claim against Wind. Inc. or Wind. Corp. because they cannot interfere with their own contract; and (4) No Cost is unable to demonstrate that Wind. Corp. is a "stranger-interloper" to the contract due to the parent-subsidiary relationship between Wind. Corp. and PAETEC. The Court addresses each argument in turn.
First, Wind. Inc. and Wind. Corp. fault No Cost for failing to differentiate between the two companies and assert, without authority, that the tortious interference claim should be dismissed on this basis alone because neither company knows whether the claim is brought specifically against it. However, this contention is unpersuasive because the first page of the First Amended Complaint makes clear that "Windstream" refers collectively to both Wind. Corp. and Wind. Inc. Thus, when No Cost refers to "Windstream," both Wind. Corp. and Wind. Inc. are on notice that a claim or allegation is against them. Moreover, in light of the fact that Wind. Corp. and Wind. Inc. apparently sometimes interchangeably referred to themselves as "Windstream," any confusion about which entity committed particular acts will ideally be clarified once discovery begins. On balance, No Cost's allegations are sufficient for purposes of Rule 8.
Wind. Corp. and Wind. Inc. next argue that No Cost's claim is barred as a matter of law because a party to a contract cannot interfere with its own contract under California law. Moreover, Wind. Corp.'s final argument — that Wind. Corp. cannot be liable for tortious interference as PAETEC's parent company — is closely-related to this argument. No Cost invites the Court to "ignore" this argument because its tortious interference claim is an alternative to its contract-based claims and applies only if Wind. Inc. or Wind. Corp. did not gain all of the legal rights and responsibilities under the Agreement.
As the court in Applied Equipment Corp. held, a party to an agreement cannot interfere with its own contract. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 28 Cal.Rptr.2d 475, 869 P.2d 454, 461-62 (1994); see also Mintz v. Blue Cross of Cal., 172 Cal.App.4th 1594, 92 Cal.Rptr.3d 422, 429 (2009); PM Grp., Inc. v. Stewart, 154 Cal.App.4th 55, 64 Cal.Rptr.3d 227, 235 (2007). However, Rule 8(d)(3) allows a party to "state as many separate claims or defenses as it has, regardless of consistency." Cases in which the principle in Applied Equipment Corp. barred tortious interference claims as a matter of law include where a party was a direct signatory to the contract at issue, see, e.g., Wynn v. NBC, 234 F.Supp.2d 1067, 1123 (C.D.Cal. 2002), or involved dispositive motions, see, e.g., Fresno Motors, LLC v. Mercedes-Benz USA, LLC, 852 F.Supp.2d 1280, 1293-1303 (E.D.Cal.2012) (granting converted motion for summary judgment); ViChip Corp. v. Lee, 438 F.Supp.2d 1087, 1097-98 (N.D.Cal.2006) (granting motion for summary judgment); Cavanaugh v. Unisource Worldwide, Inc., No. CIV-F-06-119, 2007 WL 915223, at *11-12, 2007 U.S. Dist. LEXIS 25907, at *35-37 (E.D.Cal. Mar. 26, 2007) (same).
At the current stage of this case, No Cost may state a tortious interference claim against Wind. Inc. and Wind. Corp. in the alternative to any contract-based claim. By arguing that this claim is an alternate claim that applies if Wind. Corp. and Wind. Inc. did not gain all of the legal rights and responsibilities under the Agreement, No Cost implicitly acknowledges that a tortious interference claim cannot lie against a direct party to a contract or a party that has an interest in the contract. However, whether Wind. Corp. or Wind. Inc. actually are interested parties to the PAETEC contract, or whether they are "strangers" or "interlopers," is an issue more properly addressed in later stages of this case and is better suited for
Based on the foregoing, the Court
Finally, Defendants briefly ask the Court to enter a stay in this action "to allow the properly filed matter in the Western District of New York be adjudicated." They invoke the "first-filed" doctrine, stating that the New York action should proceed because the complaint in that case was filed before the First Amended Complaint in the instant matter. No Cost counters that the First Amended Complaint in the instant action is the first-filed pleading because its filing relates back to the date of the filing of the Complaint under Rule 15(c). While neither side provides the Court much guidance on this issue, the Court declines to apply the relation-back doctrine in conjunction with the first-filed rule and concludes that the instant action should proceed as the first-filed action.
"The first-filed rule is a comity rule for resolving conflicts of jurisdiction where parallel actions are filed in different federal district courts. It provides that where substantially identical actions are proceeding in different courts, the court of the later-filed action should defer to the jurisdiction of the court of the first-filed action by either dismissing, staying, or transferring the later-filed suit." SAES Getters S.p.A. v. Aeronex, Inc., 219 F.Supp.2d 1081, 1089 (S.D.Cal.2002) (citations omitted). "While the determination of which case was first-filed is a necessary starting point, other considerations come into play in determining which of two parallel... actions must yield." Id. For example, "courts will permit the subsequently-filed action to proceed where the first one was an anticipatory suit or where forum shopping was the only motive for filing the suit." Id.
The first filed doctrine is not "a rigid or inflexible rule to be mechanically applied" and which mandates stay or dismissal. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir.1982) (citing Church of Scientology of Cal. v. U.S. Dept. of Army, 611 F.2d 738, 750 (9th Cir.1979)). Rather, the Court retains "ample" discretion and may consider matters beyond the chronology of filings. Id.; Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 628 (9th Cir.1991) ("The most basic aspect of the first-to-file rule is that it is discretionary; an ample degree of discretion, appropriate for disciplined and experienced judges, must be left to the lower courts.") (citation and quotations omitted); Barnes & Noble, Inc. v. LSI Corp., 823 F.Supp.2d 980, 987 (N.D.Cal. 2011). Thus, even if the first-filed rule applies, the second-filed court "has discretion to transfer, stay, or dismiss the second
Federal Rule 15 provides that an amended complaint adding a new defendant will relate back to the original complaint if it "asserts a new claim or defense that arose out of the conduct, transaction, or occurrence set out ... in the original pleading" and if, within 120 days of the initial complaint, the party to be added "received such notice of the action that it will not be prejudiced in defending on the merits" and "knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity." Fed.R.Civ.P. 15(c)(1)(C).
The necessary starting point in the Court's analysis is the relationship between first-filed rule and the relation back doctrine. Although the parties combine the two doctrines, they are actually distinct principles that serve different purposes and may not necessarily operate in tandem. Indeed, courts are split on whether the relation-back doctrine applies in the context of the first-filed rule, and controlling, on-point caselaw does not exist in the Ninth Circuit.
A sister court recently provided a thorough analysis of the differing manner in which federal courts have applied the relation-back doctrine in the context of the first-filed rule. See Barnes & Noble, Inc. v. LSI Corp., 823 F.Supp.2d 980, 986-95 (N.D.Cal.2011). In LSI Corp., the district court first explained that "[a] number of courts have held that the filing of a complaint triggers the first-filed rule, regardless of whether the plaintiff later amends the complaint." Id. at 987 (citing cases). However, the court acknowledged that although "[t]he relation back doctrine is designed for circumstances in which the timeliness of an amendment is at issue, for example, with respect to the statute of limitations," id. at 988-89, "[o]ther courts have applied the relation back doctrine to determine which case is filed first," id. at 987. These latter courts find that "[a]n action is considered to have been the first filed, even if it was not chronologically first, if the claims relate back to an original complaint that was chronologically filed first." Id. (citation and quotations omitted). Although the court thoroughly identified the split in authority above, the court ultimately did not come down on either side of the debate, instead finding that the amended complaint in that case would have related back even if the plaintiffs were required to show relation back. Id. at 989 ("If Plaintiffs were required to show relation back, Plaintiffs' FAC would relate back in the instant case. As the Supreme Court recently affirmed, the relation back doctrine under Rule 15(c) is appropriate in a case of mistaken identity."). The court in LSI Corp. aptly explained the different purposes the two doctrines serve and cogently explained the split among courts in applying them in tandem.
Given the differing manner in which courts have applied the first-filed rule and relation-back doctrine, the Court must determine which approach is best suited under the circumstances of this case. Based on the circumstances of this case, the Court declines to apply the relation-back doctrine in conjunction with the first-filed rule. Thus, once No Cost filed the original Complaint on July 9, 2012, this Court became "the court which first acquired jurisdiction" and should therefore be the court in which the parties' dispute is litigated. See Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 95 (9th Cir.1982). Moreover, as in LSI Corp., even if No Cost is required to show that the First Amended
Finally, even if the Court were to find that the New York action was filed first, the Court would exercise its discretion and would not stay this matter under the circumstances of this case. The Ninth Circuit has noted that justification exists for departing from the first-filed rule when a party files an anticipatory filing after the opposing party gives notice of its intent to sue. See Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 628 (9th Cir.1991). Here, while Defendants accuse No Cost of forum shopping, the sequence of events related to the filing of the action in New York and the mooted motion to dismiss in this District more convincingly suggest that Defendants, not No Cost, are shopping for a more convenient forum. Wind. Inc. filed its first motion to dismiss in this case just two days after PAETEC filed suit in New York, which suit then allowed Defendants to argue for a stay of the instant action to allow the New York suit to proceed. Moreover, despite Defendants' bare assertion to the contrary, No Cost stood to gain no strategic advantage by not naming PAETEC in the original Complaint. Based on the record before the Court, Defendants' assertions of forum shopping and strategic failure to name PAETEC and Wind. Corp. in the original Complaint are meritless. Defendants' respective motions to stay are
Finally, No Cost moves the Court to file two exhibits to the First Amended Complaint under seal. The first document is the contract at issue in this case, the Wholesale Master Services Agreement between PAETEC and No Cost. The second document is a single-page email and accompanying attachment with commission calculations. Defendants oppose the motion on the bases that they have not been served with copies of the proposed sealed documents and that No Cost has failed to explain the need for filing them under seal.
There is a presumptive right of public access to court records based upon the common law and the first amendment. See Nixon v. Warner Comm., Inc., 435 U.S. 589, 597, 98 S.Ct. 1306, 55 L.Ed.2d 570 (1978); Phillips ex rel. Estates of Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1212-13 (9th Cir.2002). Nonetheless, public access may be denied to protect sensitive confidential information. Parties seeking to seal documents in a dispositive motion must meet the high threshold requiring "compelling reasons" with specific factual findings to support a sealing. Kamakana v. City and Cnty. of Honolulu, 447 F.3d 1172, 1178-80 (9th Cir.2006) (citing Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1136 (9th Cir.2003)). However, for non-dispositive motions, the parties must show a lesser "particularized showing" under the "good cause" standard pursuant to Rule 26(c). Id. at 1180. The "compelling reasons" test requires showing more than just "good cause." Id.
With respect to the Agreement, No Cost's motion is moot, as Wind. Inc.
Based on the foregoing discussion, the Court resolves the motions pending in this case as follows:
First Amended Complaint is
