Compu-Link Corp. v. PHH Mortg. Corp.

Compu-Link Corporation, doing business as Celink, a Michigan Corporation, Plaintiff, v. PHH Mortgage Corporation, a New Jersey Corporation, Defendant.

No. 2:22-cv-00983-KJM-KJN

United States District Court, E.D. California

December 27, 2022

ORDER

Plaintiff Compu-Link Corporation, which does business as “Celink,” services reverse mortgages. It describes a reverse mortgage as “a loan available to seniors aged 62 or older that allows them to borrow money against the value of their home.” Compl. ¶ 27, ECF No. 1. Celink alleges its competitor, defendant PHH Mortgage Corporation, breached a contract the two companies had previously entered and also interfered with Celink's clients' contracts, among other claims. PHH moves to dismiss Celink's complaint. See generally Mot ECF No. 12. The court received full briefing and submitted the matter without hearing oral arguments. See generally Opp'n, ECF No. 17; Reply, ECF No. 18; Min Order, ECF No. 27. As explained in the first section below the court grants the motion in part with leave to amend. The parties also request leave to file several documents under seal. As explained in the second section below, the court denies that request without prejudice to renewal.

I. MOTION TO DISMISS

PHH moves to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). The parties are familiar with the legal standard for motions filed under that Rule, which the court applies here without restating it in full. See Mem. at 7, ECF No. 12-1 (discussing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009)); Opp'n at 6-7 (same). Compu-Link's complaint includes nine claims:

1. Breach of Contract. Celink alleges PHH breached an agreement not to solicit Celink's clients. See Compl. ¶¶ 77, 119-35. It is undisputed, however, that Celink's complaint misquotes a key term of the relevant agreement. See Mem. at 5; Opp'n at 9 & n.4; Errata, ECF No. 21. Celink now relies on a different theory of breach in its opposition brief than it did in its complaint. Compare, e.g., Opp'n at 11 (alleging “scrivener's error” and similar mistakes) with,, e.g., Compl. ¶¶ 126-27 (alleging breach of express terms). Celink does not allege PHH breached the non-solicitation provision as written in the agreement. Given this disconnect, the court dismisses the first claim with leave to amend.

2. Breach of the Implied Covenant of Good Faith. The covenant of good faith and fair dealing “is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement.” Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 36 (1995). Celink alleges PHH used its agreement with Celink as cover for a scheme to steal Celink's confidential information and clients. See, e.g., Compl. ¶¶ 142-44. These allegations allow a plausible inference that PHH wrongfully frustrated Celink's rights under the agreement. The court denies the motion to dismiss this claim.

3. Tortious Interference with Contract. The elements of a claim for tortious interference with contract are “(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” hiQ Labs, Inc. v. LinkedIn Corp., 31 F.4th 1180, 1191 (9th Cir. 2022) (quoting Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990)). Celink alleges it had contracts with two specific third parties (MAM and WAM), Compl. ¶¶ 150-57, PHH knew Celink had contracted with these third parties, id. ¶¶ 160, the third parties ended their contractual relationships with Celink at PHH's urging, id. ¶¶ 88, 91, 161, 164, Celink was deprived of contract rights to make bids to the same third parties for future business, id. ¶¶ 105-16, 162-63, and Celink suffered financial harms as a result, id. ¶¶ 164-65. When read in the light most favorable to Celink, these allegations support a claim for tortious interference with contract. The court denies the motion to dismiss this claim.

4. Inducement of Breach of Contract. The elements of a claim for an induced breach of contract are the same as the elements of a claim for tortious interference with a contract, but to prevail, a plaintiff must also prove a “contract was in fact breached.” Shamblin v. Berge, 166 Cal.App.3d 118, 123 (1985) (quoting Dryden v. Tri-Valley Growers, 65 Cal.App.3d 990, 995 (1977)). Celink alleges the third parties noted above breached their agreement to work exclusively with Celink. See Compl. ¶¶ 91, 179-181. However, in its opposition, Celink addresses only the breach of contract by one of the third parties (MAM). Opp'n at 16-17. Celink does not defend its claim about a different breach by the other third party (WAM). See id. The court thus dismisses this claim in part, with leave to amend.

5. Tortious Interference with Prospective Economic Advantage. To state a claim for tortious interference with prospective economic advantage, a plaintiff must allege “the defendant knowingly interfered with an economic relationship between the plaintiff and some third party, which carries the probability of future economic benefit to the plaintiff.” IxchelPharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1141 (2020) (quotation marks and alterations omitted) (quoting Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1153 (2003)). The defendant must have committed some “independently wrongful” act, i.e., a wrongful act independent of the interference itself. Id. at 1142. “[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” Id. (quoting Korea Supply, 29 Cal.4th at 1159). Celink does not allege PHH's actions were independently wrongful in this sense. Celink alleges only that PHH “acted in a manner designed to disrupt Celink's relationship with WAM and MAM and divert WAM and MAM's subservicing business to itself.” Compl. ¶ 197. The court dismisses this claim, with leave to amend.

6. Indemnification. Celink alleges its contract with PHH requires PHH to indemnify Celink for losses incurred as a result of a “material breach” of their agreement or as a result of PHH's “gross negligence, willful misfeasance, or bad faith.” Compl. ¶ 203. This claim thus rests in part on Celink's dismissed claim for breach of contract. To that extent, the court dismissed it in part with leave to amend. The court denies the motion to dismiss to the extent the indemnification claim rests on Celink's viable claim that PHH intentionally frustrated Celink's rights under their agreement in violation of the implied covenant of good faith. See Compl. ¶¶ 142-48.

7. Unfair Competition. Celink alleges PHH violated California's Unfair Competition Law, which forbids “any unlawful, unfair or fraudulent business act or practice.” Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 180 (1999) (quoting Cal. Bus. & Prof. Code § 17200). Celink first appears to argue PHH's conduct was “fraudulent” because it was “deceptive,” but Celink does not explain which of PHH's alleged actions support this claim. See Opp'n at 18. The complaint, in turn, simply incorporates all of its previous allegations, which span more than 200 paragraphs. See Compl. ¶ 211. Such a broad and generic assertion does not satisfy the requirements of Federal Rule of Civil Procedure 9(b), which requires a plaintiff to “state with particularity the circumstances constituting fraud.” Celink's generalized crossreference does not give PHH “notice of the particular misconduct” or allow it to “defend against the charge” rather than “just deny that [it has] done anything wrong.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). Celink also argues PHH's conduct was “unlawful” under the Business and Professions Code because PHH violated unspecified state and federal antitrust laws. Compl. ¶¶ 214-16. This simple legal conclusion does not suffice to support Celink's claim, especially in the antitrust context. See Twombly, 550 U.S. at 555. The court dismisses this claim, with leave to amend.

8. Unjust Enrichment. Celink asserts an independent claim for unjust enrichment. See Compl. ¶¶ 224-30. PHH argues California courts do not recognize independent claims for unjust enrichment. Mot. at 20. This court has interpreted California law as allowing independent claims for unjust enrichment as quasi-contract claims for restitution. See, e.g., Obertman v. Electrolux Home Care Prod., Inc., 482 F.Supp.3d 1017, 1027-28 (E.D. Cal. 2020). California law remains uncertain, but that uncertainty is usually unnecessary to resolve when, as is true in this case, Celink can assert an equivalent equitable claim in any event. See, e.g., Stark v. Patreon, Inc., __F.Supp.3d__, No. 22-03131, 2022 WL 7652166, at *10 & n.6 (N.D. Cal. Oct. 13, 2022). The court denies the motion to dismiss this claim.

9. Attorneys' Fees and Costs. Celink asserts a claim for attorneys' fees and costs under its contract with PHH. Compl. ¶¶ 231-33. It also seeks attorneys' fees and costs as a remedy. See id. at 36. Federal district courts do not ordinarily permit independent claims for attorneys' fees and costs. See, e.g., Mull v. Motion Picture Indus. Health Plan, 937 F.Supp.2d 1161, 1181 (C.D. Cal. 2012). The court thus dismisses Celink's claim for fees and costs, without leave to amend. Celink may request attorneys' fees and costs as a remedy if it ultimately prevails.

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