Treefrog Devs., Inc. v. Seidio, Inc.

TREEFROG DEVELOPMENTS, INC. doing business as LIFEPROOF Plaintiff and Counterclaim Defendant, v. SEIDIO, INC., Defendant and Counterclaim Plaintiff.

CASE NO. 13cv0158 - IEG (KSC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

DATED: August 6, 2013

ORDER GRANTING IN PART

AND DENYING IN PART

PLAINTIFF'S MOTION TO

DISMISS

[Doc. No. 19]

Presently before the Court is Plaintiff TreeFrog Developments, Inc. doing business as LifeProof ("LifeProof")'s motion to dismiss counterclaims of Defendant Seidio, Inc. [Doc. No. 19, Pl.'s Mot.] For the following reasons, the Court GRANTS IN PART and DENIES IN PART Plaintiff's motion to dismiss.

BACKGROUND

This case arises from a patent infringement dispute. LifeProof holds United States Patent No. 8,342,325 (the "'325 Patent") which involves a case capable of protecting a smartphone from contact with water and other environmental hazards. [Id. at 6-7.] LifeProof filed suit alleging that Seidio's "OBEX" smartphone case infringes the '325 Patent. [Doc. No. 1, Pl.'s Complaint, ¶ 12.]

In its Answer, Defendant counterclaims for declaratory judgment of non-infringement, breach of contract, unfair competition, breach of fiduciary duty and partnership, and promissory estoppel. [Doc. No. 9, Def.'s Ans. & Counterclaim ("Def.'s CC"), at ¶¶ 17-38.¹] In support of these counterclaims, Defendant alleges that high-level executives from both Seidio and LifeProof met in Hong Kong on or around October 17, 2012, to discuss deal points for a partnership and contract for the co-branding of mobile cell phone accessories. [Id. ¶ 9.] This meeting resulted in a partnership (the "L-S Partnership") and contract (the "Partnership Agreement") between the parties with terms confirmed by the parties on or around the same date. [Id.] Terms of the Partnership Agreement included "the co-branding of certain products including, but not limited to, a particular water-proof mobile phone case for the Samsung Galaxy S3" (the "Goods") and "equally splitting the costs of manufacture, production, delivery, administration and, ultimately, the profits received from the sales of the Goods." [Id.]

Defendant further alleges that the parties exchanged emails "confirming that Seidio was to commence its performance of the terms of the Partnership Agreement in order to meet critical deadlines." [Id. at ¶ 10.] This performance by Seidio included "tooling the factory (i.e., providing the factory with machinery in preparation for production)" in furtherance of the agreed upon production output. [Id.] Defendant contends that it "started to perform its duties . . . in furtherance of the Partnership, including the purchase of machinery to prepare its factory" and "expend[ed] considerable sums of money in reliance upon Plaintiff's representations." [Id. at ¶ 12.] Then, Defendant alleges, Plaintiff "attempted to breach the partnership and contractual obligations" and "requested that its performance obligations should be excused because Plaintiff's bank supposedly would not extend Plaintiff's line of credit and/or cash assets to an entity that is not wholly owned by LifeProof." [Id. at ¶ 13.] Defendant claims that "this was apretext to justify breach," [id.], and that Plaintiff "breached the Partnership Agreement by refusing to pay for half of the tooling costs in preparing Seidio's factory for production of the Goods, as well as failing to abide by any other terms of the Partnership Agreement, including continuing the business of the L-S Partnership itself, and sharing half of the profits therefrom," [id. at ¶ 23]. Finally, Defendant asserts that Plaintiff came to view Defendant as a competitor rather than a partner, and filed the case at bar in an attempt to "gain a tactical advantage in the marketplace" over Defendant. [Id. at ¶ 16.]

By the present motion, Plaintiff moves to dismiss Defendant's counterclaims for (1) breach of contract, (2) unfair competition, (3) breach of fiduciary duty and partnership, (4) promissory estoppel, and (5) Defendant's prayer for exemplary and punitive damages in connection with its second, third, and fourth counterclaims. [Doc. No. 19, Pl.'s Mot., at 6.]

DISCUSSION

A. Motion to Dismiss and Leave to Amend

Under Federal Rule of Civil Procedure 8(a)(2), "[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of this showing. New Mexico State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1094 (9th Cir. 2011). In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint for additional facts, United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003), and must accept all factual allegations pleaded in the pleading as true, drawing all reasonable inferences therein in favor of the nonmoving party, Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1159 (9th Cir. 2012) (internal citationomitted). To avoid a Rule 12(b)(6) dismissal, a pleading need not contain detailed factual allegations;² it need only plead "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) (citing Twombly, 550 U.S. at 556).

Where dismissal is appropriate, "[t]he court should freely give leave [to amend] when justice so requires." Fed. R. Civ. P. 15(a). Doing so allows courts to "facilitate decision on the merits, rather than on the pleadings or technicalities." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). Courts generally grant leave to amend unless doing so "would unduly prejudice the opposing party, cause undue delay, or be futile, or if the moving party has acted in bad faith." In re iPhone Application Litig., 844 F. Supp. 2d 1040, 1053 (N.D. Cal. 2012) (citing Leadsinger, Inc. v. BMG Music Publ'g., 512 F. 3d 522, 532 (9th Cir. 2008). Furthermore, "a district court should grant leave to amend even if no request to amend the pleadings was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. U.S., 58 F.3d 494, 497 (9th Cir. 1995).

B. Defendant's Counterclaims

1. Breach of Contract

Under California law, breach of contract requires sufficient allegation of the following elements: the existence of a contract; the pleading party's performance or excuse for nonperformance; the nonpleading party's breach, and; resulting damage to the pleading party. See Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d 822, 830 (1968). Plaintiff challenges the sufficiency of Defendant's allegations of existence of a contract, performance, and breach. [Doc. No. 19, Pl.'s Mot., 8-10.]

a. Existence of a Contract

Under California law, existence of a contract "may be pleaded either by its terms-set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference-or by its legal effect. In order to plead a contract by its legal effect, plaintiff must allege the substance of its relevant terms." Frontier Contracting, Inc. v. Allen Eng'g Contractor, Inc., CV F 11-1590 LJO DLB, 2012 WL 1601659, at *4 (E.D. Cal. May 7, 2012) (quoting McKell v. Washington Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2006)).

Here, Defendant alleges that "[i]n or around October 17, 2012, high-level executive representatives from both Seidio and Plaintiff met in Hong Kong to discuss deal points which created a partnership and contract between the parties wherein they agreed to co-brand mobile cell phone accessories." [Doc. No. 9, Def.'s CC, ¶ 9.] Furthermore, that confirmed terms of the "partnership and contract between the parties" included a "co-branding of certain products, including, but not limited to, a particular water-proof mobile phone case for the Samsung Galaxy S3" and "equally splitting the costs of manufacture, production, delivery, administration and, ultimately, the profits received from the sales" of such products. [Id.]

Plaintiff disputes whether these allegations suffice. [Doc. No. 19, Pl.'s Mot., at 8-9; Doc. No. 28, Pl.'s Reply, at 5.] Taking these allegations as true, Davis, 691 F.3d at 1159, Defendant sufficiently pleads the substance of the contract's relevantterms. See Mortgage Indus. Solutions, Inc. v. Collabera, Inc., CIV-S-2636-KJM, 2011 WL 1135907, at *2-3 (E.D. Cal. Mar. 25, 2011) (finding sufficient allegation of existence of a contract where claimant "alleged that [the parties] entered into a contract . . . for the development of a search engine for mortgage information" and that "[f]ederal procedural rules do not require that the contract at issue be attached to the complaint"); cf. N. Cnty. Commc'ns Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112, 1122 (S.D. Cal. 2010) (finding failure to plead existence of a contract by its legal effect where the claimant "has not explained why it cannot plead, among other things, the nature of the contract, dates pertinent to the contract, and other relevant terms that would put North County on notice of the basis of [the claim]."). Accordingly, Defendant sufficiently alleges the existence of a contract.³

b. Defendant's Performance

Performance, or an offer to perform, is generally required as a condition precedent to a party bringing an action to recover on a contract. See Cal. Civ. Code § 1439. Therefore, the relaxed pleading standard of Federal Rule of Civil Procedure 9(c) applies to the element of performance, providing that "[i]n pleading conditions precedent, it suffices to allege generally that all the conditions have occurred or been performed." See Kiernan v. Zurich Co., 150 F.3d 1120, 1124 (9th Cir. 1998) (holding that a plaintiff...