Ready 4 A Change, LLC v. Sourcis, Inc.

• Decision Date: 08 May 2019
• Docket Number: No. 2:19-cv-143 WBS EFB,2:19-cv-143 WBS EFB
• Parties: READY 4 A CHANGE, LLC, Plaintiff, v. SOURCIS, INC., a California corporation d/b/a Sourcis; and SHAHRAM ELLI, a/k/a Ron Elli, Defendants.
• Court: U.S. District Court — Eastern District of California

READY 4 A CHANGE, LLC, Plaintiff, v. SOURCIS, INC., a California corporation d/b/a Sourcis;and SHAHRAM ELLI, a/k/a Ron Elli, Defendants.

No. 2:19-cv-143 WBS EFB

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

May 8, 2019

MEMORANDUM & ORDER RE: MOTION TO DISMISS FIRST AMENDED COMPLAINT

Plaintiff Ready 4 A Change, LLC ("R4AC") brings this action against defendants Sourcis, Inc. ("Sourcis") and Sharam Elli, alleging that defendants breached an agreement between the parties and misappropriated plaintiff's confidential information and intellectual property. R4AC asserts seven different causes of action against defendants all under state law. Defendants move to dismiss plaintiff's First Amended Complaint ("FAC")¹.

I. Factual and Procedural Background

Plaintiff R4AC is a limited liability company organized under Minnesota law and based in Minnesota. (FAC ¶ 1 (Docket No. 41).) R4AC was formed in August 2003 to provide medical tourism services to individuals seeking medical care outside of the United States. (Id. ¶ 6.) Defendant Sourcis is a corporation organized under California law and based in California. (Id. ¶ 2.) Sourcis provides web development and search engine optimization services. (Id. ¶ 7.) Defendant Shahram Elli is a resident of California and an officer, director, and shareholder of Sourcis. (Id. ¶ 3.)

R4AC alleges that in August 2007² it contracted with Sourcis for the provision of web development and search optimization services. (Id. ¶ 8.) R4AC claims that pursuant to this agreement, Sourcis required R4AC to provide defendants with certain intellectual property, including R4AC's databases, domains, and websites. (Id. ¶ 9.) R4AC alleges that defendants then fraudulently converted plaintiff's intellectual property to directly compete with R4AC in the medical tourism industry. (Id. ¶ 13.) Plaintiff believes that defendants used R4AC's copywritten photographs, advertisements, scripts, website language, marketing ideas, and other proprietary information toestablish a competing business. (Id. ¶ 14.) R4AC alleges that these actions breached the agreement between the two companies. (Id. ¶ 19.)

Plaintiff filed its original complaint against defendants in the United States District Court for the District of Minnesota on May 16, 2018. (Docket No. 1.) A few months later, plaintiff filed its amended complaint. (Docket No. 7.) On October 17, 2018, defendants moved to dismiss that complaint or transfer venue to this district. (Docket No. 13.) After holding a hearing on the motion, Judge Eric Tostrud of the District of Minnesota determined that his court lacked personal jurisdiction over defendants and ordered that the matter be transferred to the Eastern District of California. (Docket No. 33.) After the matter was transferred to this district, plaintiff filed the FAC on February 26, 2019, alleging the following causes of action: (1) breach of contract; (2) unjust enrichment; (3) intentional inference with contractual relationship; (4) interference with prospective business advantage; (5) civil conspiracy; (6) conversion; and (7) breach of fiduciary duty. Defendants now move to dismiss the FAC. (Docket No. 42.)

II. Motion to Dismiss

A. Legal Standard

On a Rule 12(b)(6) motion, the inquiry before the court is whether, accepting the allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor, the plaintiff has stated a claim to relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "Theplausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "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." Id. A complaint that offers mere "labels and conclusions" will not survive a motion to dismiss. Id. (internal quotation marks and citations omitted).

B. Statute of Limitations

1. Choice of Law

Before proceeding to the substance of defendants' statute of limitations argument, this court must determine whether California or Minnesota law applies. Both parties agree that this is a diversity action because (1) all claims arise under state law, (2) there is complete diversity of citizenship, and (3) the amount in controversy exceeds $75,000. (See Mem. in Supp. of Mot. to Dismiss at 6 (Docket No. 44); Opp'n to Mot. to Dismiss at 8 (Docket No. 46).)

To determine the applicable substantive law, a federal court sitting in diversity typically applies the choice-of-law rules of the forum in which it sits. See Narayan v. EGL, Inc., 616 F.3d 895, 898 (9th Cir. 2010) (citation omitted). The court observes that defendants sought to transfer this case from the District of Minnesota to the Eastern District of California under 28 U.S.C. § 1404(a). (Mot. to Dismiss or Transfer Venue at 1.) Normally, when a diversity action is transferred pursuant to Section 1404(a), the transferee district applies the choice-of-law rules of the original forum state. See Van Dusen v. Barrack,376 U.S. 612, 642-43 (1964).

Here, Judge Tostrud found that the District of Minnesota lacked personal jurisdiction over defendants and transferred the case to the Eastern District of California, a place where this action could have been brought. (Mem., Op., and Order at 12-13.) Therefore, this court finds that this transfer occurred under 28 U.S.C. § 1406(a). See 28 U.S.C. § 1406(a) ("The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought."); see also Muldoon v. Tropitone Furniture Co., 1 F.3d 964, 967 (9th Cir. 1993) (observing that transfers for lack of personal jurisdiction occur under Section 1406(a)). For transfers under Section 1406(a), the Ninth Circuit has held that courts "look to the law of the transferee state, also to prevent forum shopping, and to deny plaintiffs choice-of-law advantages to which they would not have been entitled in the proper forum." See Nelson v. Int'l Paint Co., 716 F.2d 640, 643 (9th Cir. 1983) (citations omitted). Consequently, California choice-of-law rules apply.

While choice-of-law analysis is often a fact-specific inquiry, this court can perform this analysis on a motion to dismiss where further development of the factual record is not likely to impact the final determination. See Frenzel v. AliphCom, 76 F. Supp. 3d 999, 1007 (N.D. Cal. 2014). Neither party indicates that further factual development is necessary to resolve the choice-of-law inquiry as to the statute of limitations issue and the court agrees.

"Where the contract contains no choice of law provision and the case does not present an issue of contract interpretation, California courts apply the governmental interest test to determine which state's law should apply."³ Columbia Cas. Co. v. Gordon Trucking, Inc., 758 F. Supp. 2d 909, 915 (N.D. Cal. 2010) (citing Wash. Mut. Bank, FA v. Superior Court, 24 Cal. 4th 906, 919 (2001)); see also Ledesma v. Jack Stewart Produce, Inc., 816 F.2d 482, 484 n.2 (9th Cir. 1987) (holding that courts should apply the governmental interest analysis to statutes of limitations). Under the governmental interest analysis, a court engages in a three-step process to determine if another state's law governs an issue brought in a California court. Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir. 2010) (citing Wash Mut. Bank, 24 Cal. 4th at 919). First, the court determines whether the relevant law of each jurisdiction is the same or different regarding the particular issue. Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95, 107 (2006). Second, if there is a difference, the court determines if a conflict exists by examining the interest of each jurisdiction in the application of its law. Id. at 107-08. Third, if there is a conflict, the court evaluates the relative interests of each jurisdiction in the application of its own law to determine which state'sinterest would be more impaired if its law were not applied and then apply that state's law. Id. at 108.

First, the court must determine whether the states' statutes of limitations are different. Breach of written contract claims have a four-year limitations period in California and a six-year limitations period in Minnesota. Compare Cal. Civ. Proc. Code § 337 with Minn. Stat. Ann. § 541.05(1). Unjust enrichment claims on the grounds of fraud have a three-year statute of limitations period in California and a six-year limitations period in Minnesota. Compare Cal. Civ. Proc. Code § 338(d) with Minn. Stat. Ann. § 541.05(1) & (6). A claim for tortious interference with contract has a two-year limitations period in California compared to a six-year limitations period in Minnesota. Compare Cal. Civ. Proc. Code § 339(1); Kiang v. Strycula, 231 Cal. App. 2d 809, 811 (1st Dist. 1965) with Minn. Stat. Ann. § 541.05(1); Wallin v. Minn. Dep't of Corr., 598 N.W.2d 393, 401 (Minn. Ct. App. 1999). Interference with prospective business advantage is subject to a two-year limitations period in California and a six-year limitations period in Minnesota. Compare Cal. Civ. Proc. Code § 339(1); Knoell v. Petrovich, 76 Cal. App. 4th 164 (2d Dist. 1999) with Minn. Stat. Ann. § 541.05; Wild v. Rarig, 302 Minn. 419, 446 (1975).

Under California law, the statute of limitations for a civil conspiracy claim "is determined by the [n]ature of the action in which the conspiracy is alleged." Kenworthy v. Brown, 248 Cal. App. 2d 298, 301 (3d Dist. 1967). Because plaintiff alleges that the conspiracy occurred "to deprive R4AC of itsprospective business advantages" (FAC ¶ 41), the statute of limitations under California law is two years. See Cal. Civ. Proc. Code § 339(1). Under Minnesota law, because a civil conspiracy claim must be...