Accuimage Diagnostics Corp v. Terarecon, Inc., C 02-5029 MHP.

• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
• Writing for the Court: Patel
• Citation: 260 F.Supp.2d 941
• Parties: ACCUIMAGE DIAGNOSTICS CORP., a Nevada corporation, Plaintiff, v. TERARECON, INC., a Delaware corporation; Robert Taylor, an individual; Douglas Boyd, an individual; Motoaki Saito, an individual; and Does 1 to 100. inclusive, Defendants.
• Docket Number: No. C 02-5029 MHP.,C 02-5029 MHP.
• Decision Date: 18 April 2003

260 F.Supp.2d 941 ACCUIMAGE DIAGNOSTICS CORP., a Nevada corporation, Plaintiff,
v.
TERARECON, INC., a Delaware corporation; Robert Taylor, an individual; Douglas Boyd, an individual; Motoaki Saito, an individual; and Does 1 to 100. inclusive, Defendants. No. C 02-5029 MHP. United States District Court, N.D. California. April 18, 2003.

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Roderick A. McLeod, Esq., Brett M. Schuman, Esq., Morgan Lewis & Brockius LLP, San Francisco, CA, for Plaintiff Acculmage Diagnostics Corp.

Beth H. Parker, Esq., Deborah A. Adler, Esq., Brian C. Rocca, Esq., Bingham McCutchen LLP, San Francisco, CA, for Defendants TeraRecon, Inc., Robert Taylor and Motoaki Saito.

Crista M. Anderson, Esq., Steven K. Taylor, Esq., Keker & Van Nest, LLP, San Francisco, CA, for Defendant Douglas Boyd.

MEMORANDUM & ORDER RE MOTION TO DISMISS

PATEL, Chief Judge.

Plaintiff Acculmage Diagnostics Corp. ("Acculmage") brought this action against defendants TeraRecon, Inc. ("TeraRecon"), Robert Taylor ("Taylor"), Douglas Boyd ("Boyd"), Motoaki Saito ("Saito"),

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and others alleging false advertising and trade dress infringement in violation of the Lanham Act, unfair competition, common law and statutory misappropriation of trade secrets, conspiracy, breach of fiduciary duty, breach of contract, intentional and negligent interference with economic advantage, and unjust enrichment. Defendants TeraRecon, Boyd and Saito filed a joint motion to dismiss and defendant Boyd filed a separate motion to dismiss all claims against him. Now before the court are defendants' motions to dismiss.

BACKGROUND¹

Plaintiff Acculmage and defendant TeraRecon are corporations engaged in the development of software for the medical imaging applications business.

In 1996, Acculmage began developing its AccuView Diagnostic Imaging Workstation ("AccuView"), which is a computer software system for the management and post-processing of medical imaging data from various devices, including CT scans and other imaging modalities. In 1999, Acculmage received FDA approval for the Accuview Workstation. AccuView utilizes plug-in software modules to expand its capabilities to provide advanced processing functions. One such module developed by Acculmage, the AccuScore program, enables physicians to analyze and generate reports detailing the amount of calcium in patients' coronary arteries in minutes. This capability and AccuScore's comprehensive, user-configurable report generation and database package purportedly gives Acculmage a competitive advantage over other companies in the medical imaging application business, such as defendant TeraRecon. The source code for the AccuScore application, patient database, and report generator is the intellectual property of Acculmage.

Defendant Taylor worked on the AccuScore program as a consultant and employee of Acculmage and later became Acculmage's Chief Executive Officer. In these capacities with Acculmage, Taylor executed an Employment Agreement, which contained a "Non-Solicitation and Non-Competition" provision, in addition to a "Confidentiality, Trade Secrets, and Assignment of Inventions" provision. In late October 2000, Taylor began having disagreements with the Acculmage Board of Directors. Although Taylor resigned from his position as CEO in November 2000, he asked to remain an Acculmage employee while he began circulating his resume to other companies because of concerns about his immigration status. Acculmage complied with Taylor's request and appointed him Chief Technology Officer pursuant to the terms of a two-month employment agreement. While still an Acculmage employee, Taylor allegedly assisted TeraRecon at an industry trade show in late November 2000.

Defendant Saito is the founder, President, Chief Executive Officer and Chairman of the Board of TeraRecon. In this capacity, Saito expressed an interest in hiring Taylor to defendant Boyd, who plaintiff claims was then both an Acculmage board member and a major TeraRecon shareholder. When Acculmage expressed concern to Boyd about Saito's interest in hiring Taylor, Boyd allegedly assured Acculmage there was no need for concern because TeraRecon was not going to hire Taylor.

In early 2001, TeraRecon purchased the Real Time Visualization division of Mitsubishi Electric, whose IiVS workstation performed medical image processing. Plaintiff claims, however, that the IiVS workstation had no calcium scoring capabilities whatsoever, nor did TeraRecon

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have such capabilities as of the beginning of 2001.

In February 2001, Taylor resigned his position with Acculmage and immediately started working for TeraRecon as its Chief Operating Officer and Executive Vice-President. Plaintiff claims that when Taylor resigned, Boyd allowed Taylor to keep his Acculmage laptop computer, which contained highly confidential and sensitive proprietary and trade secret information. At the same time, TeraRecon hired away several other key Acculmage employees who had knowledge and possession of Acculmage's source code and proprietary information.

Plaintiff claims that less than two months after Taylor's arrival, TeraRecon publicly demonstrated a new product called the Aquarius Workstation, which was a renamed version of the IiVS workstation with a calcium scoring capability. TeraRecon was granted FDA approval for the Aquarius Workstation in May 2001. Acculmage claims that TeraRecon's Aquarius workstation utilizes the source code for the AccuScore software program.

Based on the above conduct, Acculmage alleges that TeraRecon, Taylor, Saito and Boyd conspired to steal Acculmage's trade secrets and proprietary information. Beginning in November 2000, plaintiff claims that defendants created a plan to obtain a calcium scoring capability because defendants realized that such capability would improve TeraRecon's sales prospects. Acculmage also claims that TeraRecon previously expressed an interest in acquiring Acculmage, but that when this plan did not work out, Taylor's departure from Acculmage provided defendants with the opportunity it needed to obtain the calcium scoring capability.

In addition, plaintiff claims that defendants competed unfairly against Acculmage by making false representations about Acculmage's products to actual and potential Acculmage customers around the country. Given TeraRecon's use of the look and feel of the AccuScore program's reports in its Aquarius workstation, plaintiff maintains that defendants are intentionally trying to confuse and win over Acculmage's customers by persuading them to buy TeraRecon's product instead. Specifically, plaintiff claims that defendants have intentionally misled existing and potential Acculmage customers by telling them that Acculmage's products are not FDA approved.

On October 17, 2002, Acculmage filed a complaint alleging twelve causes of action against TeraRecon, Taylor, Saito and Boyd for: 1) false advertising in violation of the Lanham Act; 2) trade dress infringement in violation of the Lanham Act; 3) unfair competition; 4) violation of California Business and Professions Code section 17500; 5) trade secret misappropriation in violation of California Civil Code section 3426 et seq.; 6) common law misappropriation; 7) conspiracy; 8) breach of fiduciary duty; 9) breach of contract; 10) intentional interference with economic advantage; 11) negligent interference with economic advantage; and 12) unjust enrichment. Many of plaintiffs claims are brought against both TeraRecon and against Saito or Boyd in their capacity as directors, officers or shareholders of Acculmage and TeraRecon. In the complaint, Acculmage maintains that the conduct of TeraRecon, Taylor, Saito and Boyd has and will cause injury to Acculmage in an amount to be proven at trial, but in excess of $3,000,000.

On December 13, 2002, Boyd filed a motion to dismiss claims five, six, seven, eight and twelve. On December 20, 2002, TeraRecon, Taylor and Saito filed a joint motion to dismiss the following claims: TeraRecon moved to dismiss claims one, two, six, seven, ten and eleven; Taylor moved to dismiss claims one, six, seven, ten and

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eleven; and Saito moved to dismiss claims four, five, six, seven and twelve.

LEGAL STANDARD

I. Motion to Dismiss

A motion to dismiss for failure to state a claim will be denied unless it appears that the plaintiff can prove no set of facts which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Fidelity Fin. Corp. v. Fed. Home Loan Bank of S.F., 792 F.2d 1432, 1435 (9th Cir.1986), cert. denied, 479 U.S. 1064, 107 S.Ct. 949, 93 L.Ed.2d 998 (1987). All material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1152 (9th Cir.1989). Indeed, "[t]he issue is not whether the plaintiff will ultimately prevail, but whether [the plaintiff] is entitled to offer evidence to support [the plaintiffs] claim." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987).

Finally, while Rule 8(f) of the Federal Rules of Civil Procedure requires a liberal reading of complaints, Yamaguchi v. United States Dept. of the Air Force, 109 F.3d 1475, 1480-81 (9th Cir.1997), "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996).

DISCUSSION

Each ground for dismissal will be considered in turn.

I. Claim Seven—Conspiracy

As a threshold matter, civil conspiracy is not a separate and distinct cause of action under California law. Entm't Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228 (9th Cir. 1997), cert denied, 523 U.S. 1021,118 S.Ct. 1302, 140 L.Ed.2d 468 (1998)....