CSPC Dophen Corp. v. Hu

CSPC DOPHEN CORPORATION, Plaintiff, v. ZHIXIANG HU, Defendant.

No. 2:17-cv-1895 MCE DB PS

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

November 26, 2018

ORDER

Defendant and counterclaimant, Dr. Zhixiang Hu, Ph.D., is proceeding in this action pro se. (ECF No. 68.) Accordingly, this action has been referred to the undersigned pursuant to Local Rule 302(c)(21) and 28 U.S.C. § 636(b)(1). Pending before the undersigned are defendant's motion to disqualify plaintiff's counsel, plaintiff's partial motion to dismiss and strike defendant's amended counterclaim, and motions to dismiss for lack of personal jurisdiction and insufficient service of process filed by counter-defendants CSPC Pharmaceutical Group Limited, Yingui Li, Jinxu Wang, Jumin Sun, and Dongchen Cai.

For the reasons explained below, defendant's motion to disqualify is denied, the motions to dismiss filed by plaintiff and counter-defendants are granted, and defendant is granted leave to file a second amended counterclaim and effect proper service.

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BACKGROUND

Plaintiff CSPC Dophen Corporation ("CSPC Dophen") commenced this action on September 11, 2017. (ECF No. 1.) Plaintiff filed an amended complaint on October 13, 2017. (ECF No. 14.) According to the amended complaint, plaintiff is a pharmaceutical and development company based in Sacramento, California. (Am. Compl. (ECF No. 14) at 2.¹) Plaintiff hired defendant, Dr. Sean Hu, in October of 2011, as Director of CSPC Dophen's Research Laboratory. (Id. at 3.)

The amended complaint alleges that on April 24, 2014, defendant incorporated a competing entity named Dophen Biomed, Inc., with the same address as CSPC Dophen, and took trade secrets and personal property belonging to plaintiff. (Id. at 4.) The amended complaint alleges causes of action for breach of contract, breach of the duty of loyalty, violation of the Defend Trade Secrets Act, 18 U.S.C. § 1832(a)(1), violation of the Lanham Act, 15 U.S.C. § 1125(a), conversion, violation of the California Comprehensive Computer Data Access and Fraud Act, California Penal Code § 502, and unfair competition. (Id. at 6-13.) On November 1, 2017, defendant filed an answer to the amended complaint, along with counterclaims.² (ECF No. 22.) Defendant filed an amended counterclaim on December 6, 2017. (ECF No. 39.)

On May 30, 2018, plaintiff filed a motion to dismiss and a motion to strike defendant's amended counterclaim. (ECF No. 70.) Defendant filed an opposition on June 14, 2018. (ECF No. 74.) On June 22, 2018, plaintiff filed a reply. (ECF No. 79.) On June 26, 2018, the undersigned took the motion to dismiss under submission. (ECF No. 81.)

On July 13, 2018, defendant filed a motion to disqualify plaintiff's counsel. (ECF No. 84.) Plaintiff filed an opposition on July 27, 2018. (ECF No. 87.) Defendant filed a reply on August 3, 2018. (ECF No. 91.) On August 6, 2018, the undersigned took the motion to disqualify under submission. (ECF No. 92.)

On August 13, 2018, counter-defendant CSPC Pharmaceutical Group Limited filed a motion to dismiss Dr. Hu's counterclaims for lack of personal jurisdiction and insufficient service of process. (ECF No. 95.) Counter-defendants Yingui Li, Jinxu Wang, Jumin Sun, and Dongchen Cai filed the same motion on August 16, 2018. (ECF No. 96.) Counterclaimant Dr. Hu filed oppositions on August 31, 2018. (ECF Nos. 97 & 99.) Counter-defendants filed replies on September 7, 2018. (ECF Nos. 100 & 101.) On September 10, 2018, the undersigned took counter-defendants' motions to dismiss under submission. (ECF No. 102.)

ANALYSIS

I. Defendant's Motion to Disqualify Plaintiff's Counsel

Defendant's motion argues that the law firm representing plaintiff—Morrison & Foerster LLP—previously represented plaintiff, "obtained confidential information" as a result of that representation, and now "stands in the middle of the dispute" between the firm's current client and a former client. (Def.'s Mot. Disq. (ECF No. 84-1) at 2.) Defendant contends that attorneys with Morrison & Foerster "have become witnesses in this current litigation[.]" (Id.) Accordingly, defendant's motion seeks to have "Morrison [&] Foerster . . . removed from this litigation in order to protect the confidential and privileged information with their client, Dr. Hu and Dophen Biomed Inc." (Id.)

The court applies "state law in determining matters of disqualification[.]" In re County of Los Angeles, 223 F.3d 990, 995 (9th Cir. 2000). "The authority of a trial court to disqualify an attorney derives from the power inherent in every court to control in furtherance of justice, the conduct of its ministerial officers." City & Cnty. of S.F. v. Cobra Solutions, Inc., 38 Cal.4th 839, 846 (Cal. 2006) (citation and quotations omitted). However, "disqualification, as a prophylactic device for protecting the attorney-client relationship, is a drastic measure which courts should hesitate to impose except when absolutely necessary." Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721 (7th Cir. 1982). Nevertheless, "the paramount concern must be the preservation of public trust both in the scrupulous administration of justice and in the integrity of the bar." State Farm Mut. Auto. Ins. Co. v. Fed. Ins. Co., 72 Cal.App.4th 1422, 1428 (1999).

//// Defendant's motion relies on California Rule of Professional Conduct 3-310(E), which provides that "[a] member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment." In this regard, "[w]here an attorney successively represents clients with adverse interests, and where the subjects of the two representations are substantially related, the need to protect the first client's confidential information requires that the attorney be disqualified from the second representation." People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., 20 Cal.4th 1135, 1146 (Cal. 1999); see also Trone v. Smith, 621 F.2d 994, 998 (9th Cir. 1980) ("The relevant test for disqualification is whether the former representation is 'substantially related' to the current representation.").

Here, attorneys with Morrison & Foerster never represented the defendant, thus the defendant is not a former client of Morrison & Foerster. Defendant's motion argues that "[o]n March 29, 2013, Morrison Foerster sent [defendant] Dr. Hu an engagement letter outlining the terms of Morrison Foerster's performance of legal services on behalf of Dophen Biomedical and [defendant] Dr. Hu." (Def.'s Mot. Disq. (ECF No. 84-1) at 4.) The March 29, 2013 engagement letter, however, states only that "Morrision & Foerster LLP . . . has been engaged to represent Dophen Biomedical[.]"³ (Def.'s Mot. Disq., Ex. 10 (ECF No. 84-12) at 2.) The letter does not state that Morrison & Foerster would represent the defendant, Dr. Hu.

Although Dr. Hu signed the engagement letter, he did so as "Director" so that the engagement could be "APPROVED AND AGREED TO" by "DOPHEN BIOMEDICAL." (Id. at 5.) And, the engagement letter explicitly states that Morrison & Foerster's engagement was "solely with the individuals specifically identified as clients in [the] letter" and that Morrison & Foerster did "not represent any other individuals or entities not named as clients" in the letter. (Id. at 4.) The only client identified in the letter is Dophen Biomedical. (Id. at 2.)

//// Moreover, the scope of Morrison & Foerster's engagement concerned only "advice on patent prosecution." (Id.) It is not clear that patent prosecution is substantially related to the claims at issue here, i.e., breach of contract, trade secrets, unfair competition, etc. See Jessen v. Hartford Casualty Ins. Co., 111 Cal.App.4th 698, 713 (2003) ("successive representations will be 'substantially related' when the evidence before the trial court supports a rational conclusion that information material to the evaluation, prosecution, settlement or accomplishment of the former representation given its factual and legal issues is also material to the evaluation, prosecution, settlement or accomplishment of the current representation given its factual and legal issues").

Accordingly, for the reasons stated above, defendant's motion to disqualify plaintiff's counsel is denied.

II. Plaintiff's Partial Motion to Dismiss

As noted above, on December 6, 2017, defendant filed an amended counterclaim. (ECF No. 39.) The amended counterclaim contains eleven discrete counterclaims. (Id. at 10-22.) Plaintiff's motion seeks dismissals of six of those amended counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule"). (Pl.'s MTD (ECF No. 70) at 2.) Plaintiff's motion also seeks to strike the amended counterclaim's request for punitive damages with respect to some of those counterclaims pursuant to Rule 12(f). (Id. at 8.)

A. Standards

The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "The rule applies equally to a counterclaim." Hana Financial, Inc. v. Hana Bank, 500 F.Supp.2d 1228, 1232 (C.D. Cal. 2007). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A party is required to allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "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 (2009).

In determining whether a counterclaim states a claim on which...