Factory Connection Racing, Inc. v. Radiate Grp., Inc., Civil No. 3:12-cv-1586-JAH (BLM)

FACTORY CONNECTION RACING, INC., A New Hampshire Corporation, Plaintiff,

v. RADIATE GROUP, INC., A Delaware Corporation;and DOES 1 through 20, inclusive, Defendant.

Civil No. 3:12-cv-1586-JAH (BLM)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

Dated: March 21, 2013

ORDER GRANTING

DEFENDANT'S MOTION TO DISMISS

[Doc. No. 6]

INTRODUCTION

Currently pending before this Court is the motion to dismiss Factory Connection Racing, Inc.'s ("Plaintiff" or "FCR") complaint filed by Radiate Group, Inc. ("Defendant"). The motion has been fully briefed by the parties. After careful review of the parties' submissions, and for the following reasons, this Court GRANTS Defendant's motion to dismiss.

BACKGROUND

I. Procedural Background

On June 6, 2012, Plaintiff filed a complaint against Defendant alleging the following causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) violation of the Miller-Ayala Athlete Agents Act ("Act"); (4) Unjust Enrichment; and (5) Declaratory Relief. See Doc. No. 1. On August 1, 2012, Defendant filed the instant motion to dismiss Plaintiff's third cause of action for violation of the Act pursuant to the Federal Rule of Civil Procedure 12(b)(6) [Doc. No.6].¹ On September 3, 2012, Plaintiff filed a response in opposition to the motion, including a request for leave to amend. See Doc. No. 11. On September 10, 2012, Defendant filed a reply. See Doc. No. 14.

After a careful review of the parties' submissions, and for the following reasons, this Court GRANTS Defendant's motion to dismiss.

II. Factual Background²

FCR, a manufacturer of performance motorcycle parts and operator of a professional motorcycle racing team, alleges in its complaint that, on July 26, 2006, the parties entered into a one-year written Representation Agreement ("Agreement"). Under the Agreement, Defendant, a marketing agency, agreed to negotiate and solicit sponsorship opportunities on behalf of FCR. See Doc. No. 1 at 2. FCR appointed Defendant as its "exclusive sales agency for the purpose of acquiring all non-endemic (outside the motorcycle industry) sponsorships" for FCR's teams in an "exclusive, worldwide basis for the term hereof." See Doc. No. 1-2 at 2. Plaintiff is required to pay commission fees, during and after the expiration of the term of the Agreement, from any sponsorship that Defendant secures for Plaintiff. Id. at 3. Plaintiff alleges that on July 17, 2007, Defendant and FCR agreed in writing to extend the Agreement until July 26, 2008. See Doc. No. 1 at 3. In 2009, Defendant became the agent for one of FCR's motocross racers, Trey Canrad ("Canrad"). See Doc. No. 1 at 5. FCR advised Defendant that because of its representation of Canrad, Defendant created a conflict of interest, and as such, no further commissions or obligations are owed to Defendant. Id. at 6. Plaintiff maintains that the Agreement is void and unenforceable because Defendant did not comply with the Act by failing to file a disclosure statement with the California Secretary of State and post a surety bond in connection with its relationship with FCR. Id. at 4-6. It is undisputed that Defendant did not at any relevant time satisfy the requirements of the Act. See Doc. No. 6-1 at 8.

DISCUSSION

Defendant moves to dismiss Plaintiff's complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. [Doc. No. 6].

I. Legal Standard

A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law."). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give "detailed factual allegations," he must plead sufficient facts that, if true, "raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially plausible when the factual allegations permit "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In other words, "the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950.

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However,legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss, the Court may consider the facts alleged in the complaint, documents attached to the complaint, documents relied upon but not attached to the complaint when authenticity is not contested, and matters of which the Court takes judicial notice. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). If a court determines that a complaint fails to state a claim, the court should grant leave to amend unless it determines that the pleading could not possibly be cured by the allegation of other facts. See Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995).

II. Analysis

Defendant argues that Plaintiff lacks standing to pursue a claim under the Act.³ ,⁴ See Doc. No. 6-1. Specifically, Defendant argues that Plaintiff lacks standing because it has not alleged sufficient facts to establish FCR has been adversely affected as a result of Defendant's violation of the Act. See Doc. No. 6-1 at 15, 18-20. Defendant notes that while the complaint alleges that Defendant violated the Act by failing to comply with its disclosure obligations and by failing to obtain a surety bond, FCR has not alleged how it or any individual athlete has been adversely affected by Defendant's violation of the Act.See Doc. No. 6-1 at 15, 18-20 (citing Cal. Bus. & Prof. Code § 18897.8(a)). Defendant points out that the complaint alleges FCR suffered damages due to Defendant's representation of Canrad. See Doc. No. 6-1 at 19. Defendant argues, however, that its representation of Canrad does not constitute a violation of the Act. Id. Defendant, therefore, claims that based on the allegations in the complaint, FCR does not have standing to bring this action because it has not suffered any injury as a result of the alleged violation. See Doc. No. 6-1 at 19-10.

In opposition, Plaintiff argues that Defendant's failure to comply with the Act adversely affected FCR because it was unable to determine whether Defendant was simultaneously representing competitors seeking the same motosport sponsorships. See Doc. No. 11 at 20. Plaintiff contends that based on Defendant's failure to comply with the Act, Plaintiff paid Defendant $808,683.56 in commissions that it was not entitled to receive. Id. Plaintiff also contends that the Act is a strict liability statute, and that under section 18897.8(b), even if there are no actual damages, a plaintiff may recover $50,000, as well as punitive damages, fees and costs. See Doc. No. 11 at 20.

In reply, Defendant argues that the alleged "adverse effect" -that FCR was unable to determine whether Defendant was simultaneously representing competitors seeking the same sponsorships- show that FCR does not have a viable claim under the Act because FCR's assertion is a hypothetical about Defendant possibly representing a competitor. See Doc. No. 14 at 4. Defendant argues that FCR's assertion at most gives rise to a theoretical breach of contract claim. Id. In addition, Defendant notes that FCR does not allege how it suffered because Defendant did not secure a surety bond pursuant to the Act. Id.

Section 18897.8(a) states: Any professional athlete ... or any other person may bring a civil action for recovery of damages from an athlete agent, if that professional athlete ... or that other person is adversely affected by the acts of the athlete agent or of the athlete agent's representative or employee in violation of this chapter. In regards to damages, section 18897.8(b) states: A plaintiff that prevails in a civil action broughtunder this section may recover actual damages, or fifty thousand dollars ($50,000), whichever is higher; punitive damages; court costs; and reasonable attorneys' fees.

Under section 18897.8(a), Plaintiff must allege it was adversely affected by Defendant's violations of the Act in order to bring an action pursuant to the Act. As such, the Act is not a strict liability statute. Furthermore, this Court finds Plaintiff's argument that FCR was damaged because it paid Defendant $808,683.56 in commissions that it was not entitled to receive does not establish actual damage resulting from Defendant failing to file a disclosure statement and to secure a surety bond pursuant to the Act. While Plaintiff alleges that because Defendant failed to file a disclosure...