Sitevoice LLC v. Gyrus Logic Incorporated, et al

Filing 24

ORDER Defendants move to dismiss plaintiffs amended complaint (filed in state court). Defendants' Rule 12(e) and Rule 12(f) motions are denied. Defendants' Rule 12(b)(6) is granted as to Mr. Trompetter. All of plaintiff's claimsagainst Mr. Trompetter are dismissed. Defendants' Rule 12(b)(6) is denied in part and granted in part as to Mr. Valles. Defendants' Rule 12(b)(6) motion as to Gyrus Logic is granted in part and denied in part. Defendants' Rule 12(b)(6) motio n is granted as to Mr. Dale, Mrs. Trompetter, and Mrs. Valles. All of plaintiff's claims against these defendants are dismissed. Plaintiff's amended complaint, should plaintiff elect to file one, shall be filed on or before October 23, 2014. Defendants' request for attorney fees is denied. The question of attorney's fees will be taken up when this case is fully resolved. Signed by Judge H Russel Holland on 9/23/2014. (KMG)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

SITEVOICE, LLC, an Oregon Limited
Liability Company,

)
)
)
Plaintiff/counterdefendant,
)
)
vs.
)
)
GYRUS LOGIC, INC., et al.,
)
)
Defendants/counterclaimants,
)
__________________________________________)
)
GYRUS LOGIC, INC., et al.,
)
)
Third-party plaintiffs,
)
)
vs.
)
)
DOUGLAS BEAN, et al.,
)
)
Third-party defendants.
)
__________________________________________)

No. 2:14-cv-0883-HRH

ORDER
Motions to Dismiss

Defendants move to dismiss1 plaintiff’s amended complaint.

This motion is

opposed.2 Oral argument was not requested and is not deemed necessary.

1

The combined Rule 12 motions to dismiss were filed in state court by all but one of
the defendants and do not have federal court docket numbers. Defendant Dale’s joinder
in the motions to dismiss was filed at Docket No. 12.
2

Docket No. 19.
-1-

Facts
Plaintiff is Sitevoice, LLC. Defendants are Gyrus Logic, Inc.; Luis and Esemel Valles;
Peter and Stacie Trompetter; and John Dale. Mr. Valles and Mr. Trompetter are alleged to
be officers of Gyrus Logic and Mr. Dale is alleged to be a former employee/officer of
plaintiff.3
Plaintiff “is engaged in the development and marketing of interactive natural
language processing software and systems[.]”4 Plaintiff alleges that it “entered into a series
of contracts ... collectively referred to ... as the ‘GLA’[, which] governed the sale and
transfer of ownership of the Platica software patent, technology, and related intellectual
property from” Gyrus Logic to plaintiff.5
Plaintiff alleges that defendants have breached the GLA “on a number of counts,
causing measurable and significant damages to its past, present, and future business
interests.”6 Plaintiff asserts eight breach of contract claims. In Count I, plaintiff alleges that

3

Amended Complaint [etc.] at 5, ¶¶ 5 & 8. The amended complaint was filed in state
court and does not have a federal court docket number.
4

Id. at 4, ¶ 4.

5

Id. at 2. Two of the contracts contain forum selection clauses that call for an Oregon
venue and choice-of-law clauses that provide that claims related to the contracts are
governed by Oregon law. The parties have agreed to waived these provisions. Joint Notice
at 1, Docket No. 23.
6

Amended Complaint [etc.] at 6-7, ¶ 14.
-2-

Gyrus Logic, Mr. Valles, and Mr. Trompetter breached the GLA by failing to deposit the
source code for Platica into escrow.7 In Count II, plaintiff alleges that Gyrus Logic, Mr.
Valles, and Mr. Trompetter breached the GLA by failing to release the permanent license
generation algorithm.8 In Count III, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr.
Trompetter breached the GLA by failing to assign certain intellectual property to plaintiff.9
In Count IV, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter breached
the GLA by failing to provide programming development and maintenance services in a
timely manner.10 In Count V, plaintiff asserts a breach of warranty claim against Gyrus
Logic, Mr. Valles, and Mr. Trompetter based on allegations that the Platica technology was
not fully developed when it was sold to plaintiff.11 In Count VI, plaintiff alleges that Gyrus
Logic, Mr. Valles, and Mr. Trompetter breached the non-compete provision in the GLA.12
In Count VII, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter breached

7

Amended Complaint [etc.] at 8-9, ¶¶ 16-22.

8

Id. at 10-13 , ¶¶ 23-33.

9

Id. at 13-14 , ¶¶ 34-38.

10

Id. at 14-19, ¶¶ 39-44.

11

Id. at 19-20, ¶¶ 45-48.

12

Id. at 20-27, ¶¶ 49-66.
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the GLA by continuing to market Platica on its website.13 And, in Count VIII, plaintiff
alleges that Gyrus Logic’s, Mr. Valles’, and Mr. Trompetter’s breaches of the GLA were
willful.14
Plaintiff also asserts five conversion claims in its amended complaint. In Count IX,
plaintiff alleges that Gyrus Logic, Mr. Valles, Mr. Trompetter, and Mr. Dale converted an
idea originally conceived by Doug Bean, plaintiff’s CEO, by refusing to name Mr. Bean as
an inventor on the patent for the idea (the Question Generator patent).15 In Count X,
plaintiff alleges that Gyrus Logic, Mr. Valles, Mr. Trompetter, and Mr. Dale converted the
ownership of the Question Generator patent.16 In Count XI, plaintiff alleges that Gyrus
Logic, Mr. Valles, Mr. Trompetter, and Mr. Dale converted the ownership of the Grammar
Expert technology by refusing to assign this technology to plaintiff.17 In Count XII, plaintiff
alleges that Gyrus Logic, Mr. Valles, Mr. Trompetter, and Mr. Dale converted intellectual
property belonging to plaintiff when it placed the Grammar Expert technology into the

13

Amended Complaint [etc.] at 27-28, ¶¶ 67-71.

14

Id. at 29, ¶¶ 72-74.

15

Id. at 30-32, ¶¶ 76-82.

16

Id. at 32-36, ¶¶ 83-91.

17

Id. at 37-40, ¶¶ 92-98.
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non-provisional patent application for the Question Generator.18 And, in Count XV,
plaintiff asserts a conversion claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter
based on allegations that they converted “software, technology, and intellectual
property....”19
Next, plaintiff asserts a number of tort claims. In Count XIII, plaintiff asserts a fraud
claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter based on representations they
made regarding the readiness of the technology plaintiff was purchasing.20 In Count XIV,
plaintiff asserts a negligent misrepresentation claim against the same three defendants
based on the same representations about the readiness of the technology.21 In a second
Count XI, plaintiff asserts a defamation claim against Gyrus Logic, Mr. Valles, and Mr.
Trompetter.22 In a second Count XII, plaintiff asserts a tortious interference with contract
claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter.23 In a second Count XIII,
plaintiff asserts a tortious interference with business claim against Gyrus Logic, Mr. Valles,

18

Amended Complaint [etc.] at 40-41, ¶¶ 99-102.

19

Id. at 44, ¶¶ 126-131.

20

Id. at 41-42, ¶¶ 103-115.

21

Id. at 42-43, ¶¶ 116-125.

22

Id. at 44-45, ¶¶ 132-138.

23

Id. at 45-46, ¶¶ 139-147.
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and Mr. Trompetter.24 And, in Count XIX, plaintiff asserts an aiding and abetting claim
against Mr. Dale, Mrs. Valles, and Mrs. Trompetter.25
Finally, plaintiff alleges several claims against all defendants based on Arizona’s
Racketeering and Corrupt Influences Act (AZRAC). In Count XX, plaintiff asserts an
AZRAC claim based on allegations that defendants engaged in theft.26 In Count XXI,
plaintiff asserts an AZRAC claim based on allegations that defendants engaged in
extortion.27 In Count XXII, plaintiff asserts an AZRAC claim based on allegations that
defendants made false claims.28 In Count XXIII, plaintiff asserts an AZRAC claim based on
allegations that defendants committed fraud.29 In Count XXIV, plaintiff asserts an AZRAC
claim based on allegations that defendants used and invested income that was derived
from racketeering.30 In Count XXV, plaintiff alleges that defendants “acquired and
maintained interests in and control of [an] enterprise through a pattern of racketeering

24

Amended Complaint [etc.] at 46-47, ¶¶ 148-154.

25

Id. at 47-48, ¶¶ 155-161.

26

Id. at 52-54, ¶¶ 175-183.

27

Id. at 54-55, ¶¶ 184-193.

28

Id. at 56, ¶¶ 194-199.

29

Id. at 56-58, ¶¶ 200-209.

30

Id. at 58, ¶¶ 210-216.
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activity.”31 And, in Count XXVII, plaintiff alleges that defendants conspired to violated
AZRAC.32
Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure,33 defendants now move
to dismiss plaintiff’s amended complaint. In the alternative, defendants move for a more
definite and certain statement under Rule 12(e) and to strike the redundant, immaterial,
impertinent, or scandalous matter pursuant to Rule 12(f). Defendants also request that they
be awarded the attorneys’ fees they have incurred in filing the instant motion and in filing
their answer and counterclaim.
Rule 12(b)(6) Motion
Defendants’ Rule 12(b)(6) motion must be treated as a Rule 12(c) motion for
judgment on the pleadings because defendants have already filed their answer. Elvig v.
Calvin Presbyterian Church, 375 F.3d 951, 954–55 (9th Cir. 2004). In evaluating a motion
for judgment on the pleadings, “[t]he [c]ourt inquires whether the complaint at issue
contains ‘sufficient factual matter, accepted as true, to state a claim of relief that is plausible

31

Amended Complaint [etc.] at 59, ¶¶ 217-224.

32

Id. at 59-60, ¶¶ 225-230.

33

Defendants’ motion to dismiss was filed in Arizona state court under Arizona
Rules of Civil Procedure. However, because this case is now in federal court, federal
procedural rules apply. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009)
(citation omitted) (“It is well-settled that the Federal Rules of Civil Procedure apply in
federal court, irrespective of the source of the subject matter jurisdiction, and irrespective
of whether the substantive law at issue is state or federal”).
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on its face.’” Harris v. County of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “The [c]ourt may find a claim plausible when
a plaintiff pleads sufficient facts to allow the [c]ourt to draw a reasonable inference of
misconduct, but the [c]ourt is not required ‘to accept as true a legal conclusion couched as
a factual allegation.’” Id. (quoting Iqbal, 556 U.S. at 678).
Although the court generally cannot consider matters outside the pleadings when
evaluating a Rule 12(c) motion, “documents not attached to a complaint may be considered
if no party questions their authenticity and the complaint relies on those documents.” Id.
at 1132. Thus, in deciding the instant motion, the court has considered the contracts which
defendants attached to their amended answer.
Counts I and III
Plaintiff’s breach of contract claims in Counts I and III are based on the Assignment
of Intellectual Property (AIP) and are asserted against Gyrus Logic, Mr. Valles, and Mr.
Trompetter. However, Mr. Trompetter has no liability to plaintiff for any alleged breach
of the AIP because he was not a party to the AIP.34 See A.R.S. § 29-651 (“a member,
manager, employee, officer or agent of a limited liability company is not liable, solely by
reason of being a member, manager, employee, officer or agent, for the debts, obligations

34

AIP at 6, Exhibit 1, Defendants Gyrus Logic, Inc., Luis and Esemel Valles’ and Peter
and Stacie Trompetter’s Amended Answer; and Amended Counterclaim [etc.]. The
amended answer was filed in state court and does not have a federal court docket number.
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and liabilities of the limited liability company whether arising in contract or tort”); see also,
Lumbermen’s Ins. Co. v. Heiner, 245 P.2d 415, 419 (Ariz. 1952) (employee acting within the
scope of his employment cannot be held liable for his employer’s breach of contract).
Plaintiff’s argument that Mr. Trompetter could be liable under a “piercing the corporate
veil” theory fails because plaintiff has not alleged any facts that would suggest that Gyrus
Logic was “the alter ego” of Mr. Trompetter. Standage v. Standage, 711 P.2d 612, 615 (Ariz.
Ct. App. 1985). Thus, Counts I and III are dismissed as to Mr. Trompetter. Plaintiff is given
leave to amend its breach of contract claims in Counts I and III against Mr. Trompetter as
it is possible that plaintiff could allege some facts that would suggest that Gyrus Logic was
the alter ego of Mr. Trompetter.
As for Mr. Valles, contrary to defendants’ contention, he was a party to the AIP, and
thus he could be liable for breaching the AIP, if plaintiff has stated plausible breach of
contract claims in Counts I and III. “To bring an action for the breach of the contract, the
plaintiff has the burden of proving the existence of the contract, its breach and the resulting
damages.” Graham v. Asbury, 540 P.2d 656, 657 (Ariz. 1975).
Plaintiff has not stated a plausible breach of contract claim against Gyrus Logic and
Mr. Valles in Count I. As it is currently pled, it is not possible to tell if plaintiff is alleging
that Gyrus Logic and Mr. Valles breached the AIP by failing to transfer the source code for
the Platica software into escrow or if it is alleging that Gyrus Logic and Mr. Valles failed

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to provide the escrow agent with the proper instructions to open the file that contained the
source code. Plaintiff is, however, given leave to amend Count I as to Gyrus Logic and Mr.
Valles.
Plaintiff has also failed to state a plausible breach of contract claim in Count III
against Gyrus Logic and Mr. Valles. Although this count is not duplicative of Count I, as
defendants contend, this count does not contain a plausible breach of contract claim.
Plaintiff has not sufficiently alleged what intellectual property Gyrus Logic and Mr. Valles
failed to assign. Vague, conclusory allegations that they have failed to assign “other patent
applications and intellectual property” are not sufficient to state a plausible claim. Plaintiff
is, however, given leave to amend its breach of contract claim in Count III against Mr.
Valles and Gyrus Logic.
Count II
In Count II, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter
breached the GLA by failing to release the permanent license generation algorithm.
Defendants argue that this count should be dismissed because plaintiff has failed to allege
what contract requires them to relinquish this software. However, plaintiff has cited to a
portion of the Product Development and Maintenance Agreement (PDMA) that it alleges
requires defendants to release the algorithm in question.

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Gyrus Logic and Mr. Valles were parties to the PDMA and thus they could be liable
for breaching the PDMA, if plaintiff’s claim in Count II is plausible. Defendants argue that
it is not because plaintiff has failed to allege any damages. But because plaintiff alleges
that it has been damaged because its ability to grant licenses to its customers has been
“chilled[,]”35 plaintiff has stated a plausible breach of contract claim in Count II against
Gyrus Logic and Mr. Valles.
But, Count II is dismissed as to Mr. Trompetter because he was not a party to the
PDMA.36 Plaintiff is given leave to amend this claim as to Mr. Trompetter because it is
possible that plaintiff may be able to allege facts to support a “piercing the corporate veil”
theory.
Count IV
In Count IV, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter
breached the GLA by failing to provide programming development and maintenance
services in a timely manner. As an initial matter, Mr. Trompetter is not a party to the
PDMA and thus plaintiff’s Count IV as to Mr. Trompetter is dismissed. Plaintiff is not
given leave to amend as amendment would be futile.

35

Amended Complaint [etc.] at 13, ¶ 33.

36

PDMA at 12, Exhibit 2, Defendants Gyrus Logic, Inc., Luis and Esemel Valles’, and
Peter and Stacie Trompetter’s Amended Answer [etc.].
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The PDMA provides that
[i]n the event of any losses, costs, or damages to customer
caused by developer, developer shall have no liability beyond
repair or replacement of the defective software.... In no event
will developer be liable for damages. In no event shall
developer be liable or responsible for any re-procurement
costs, loss of profits, loss of use, special, direct, incidental,
consequential, or punitive damages of any kind[.37]
Because plaintiff is not seeking repair or replacement of the Grammar Expert but rather
damages for the alleged delay, plaintiff has not stated a plausible claim that this provision
of the PDMA has been breached nor could plaintiff state a plausible claim because plaintiff
has alleged that it now has a functional version of the Grammar Expert.38 Thus, Count IV
is dismissed with prejudice as to Gyrus Logic, Mr. Valles, and Mr. Trompetter.
Count V
In Count V, plaintiff asserts a breach of warranty claim against Gyrus Logic, Mr.
Valles, and Mr. Trompetter based on allegations that they represented that they were
selling plaintiff “fully functioning software that was integrated with the Grammar Expert
development tool” but the software turned out to be defective.39 This count appears to be

37

PDMA at 8, Exhibit 2, Defendants Gyrus Logic, Inc. Luis and Esemel Valles’, and
Peter and Stacie Trompetter’s Amended Answer [etc.].
38

Amended Complaint [etc.] at 19, ¶ 44m.

39

Id. at ¶ 48.
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based on the warranty in the PDMA that the “deliverables” that plaintiff was to be
provided would be “fit for their particular purpose.”40
As an initial matter, because Mr. Trompetter was not a party to the PDMA,
plaintiff’s breach of warranty claim against him is dismissed. Plaintiff is not given leave
to amend because amendment would be futile.
The PDMA provides that plaintiff’s “exclusive remedy under the limited warranty
is repair or replacement ... of any defective Software” and that this warranty is “exclusive
and in lieu of all other warranties, express or implied, including but not limited to implied
warranty of merchantability, or fitness for a particular purpose[.]”41 Because plaintiff is
seeking damages, not repair and replacement of any defective software, plaintiff has not,
and cannot, state a plausible breach of warranty claim. Thus, Count V is dismissed with
prejudice as to Gyrus Logic, Mr. Valles, and Mr. Trompetter.
Count VI
In Count VI, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter
breached the non-compete clause of the PDMA. This claim is dismissed, without leave to
amend, as to Gyrus Logic and Mr. Trompetter because the non-compete clause expressly

40

PDMA at 7, Exhibit 2, Defendants Gyrus Logic, Inc. Luis and Esemel Valles’, and
Peter and Stacie Trompetter’s Amended Answer [etc.].
41

Id. at 8.
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only applies to Mr. Valles.42 The clause provides that Mr. Valles “shall not ... perform any
related or similar Services for any other Person or individual (including GyrusLogic, Inc.)
while this Agreement remains in effect that directly or indirectly competes with” plaintiff.43
Defendant argues that plaintiff has failed to plead how Mr. Valles breached the noncompete clause but rather has made rambling, conclusory, and irrelevant allegations.
Although plaintiff’s allegations are not simple, concise, and direct, they are sufficient to
suggest that Mr. Valles breached the non-compete clause in his dealings with Intel.44
Plaintiff has stated a plausible breach of the non-compete clause claim against Mr. Valles.
Count VII
In Count VII, plaintiff alleges that Gyrus Logic, Mr. Valles, and Mr. Trompetter
breached a provision in the PDMA by continuing to market the Platica technology on
Gyrus Logic’s website. As Mr. Trompetter is not a party to the PDMA, Count VII is
dismissed as to him. Plaintiff is given leave to amend as to Mr. Trompetter as it is possible
that plaintiff can plead sufficient facts to support its “piercing the corporate veil” theory.
As for Gyrus Logic and Mr. Valles, defendants argue that plaintiff has failed to
allege how it was damaged as a result of this alleged breach, but plaintiff has sufficiently

42

Id. at 3.

43

Id.

44

Amended Complaint [etc.] at 21-27, ¶¶ 55-66.
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alleged that its business was damaged. Plaintiff has stated a plausible breach of contract
claim in Count VII as to Gyrus Logic and Mr. Valles.
Count VIII
In Count VIII, plaintiff alleges that Gyrus Logic’s, Mr. Valles’, and Mr. Trompetter’s
breaches of contract were willful and that they never intended to honor the GLA. There
is no claim for “willful” breach of contract under Arizona law. This count is dismissed with
prejudice as to Gyrus Logic, Mr. Valles, and Mr. Trompetter.
The Conversion Claims
In Counts IX, X, XI, and XII, plaintiff asserts four conversion claims against Gyrus
Logic, Mr. Valles, Mr. Trompetter, and Mr. Dale based on allegations related to the filing
of patent applications for the technology that Gyrus Logic was selling to plaintiff. In Count
XV, plaintiff asserts a conversion claim against Gyrus Logic, Mr. Valles, and Mr.
Trompetter based on vague allegations that these defendants converted technology owned
by plaintiff.
Defendants first argue that these claims are barred by the economic loss rule. “The
‘economic loss doctrine’ bars plaintiffs, in certain circumstances, from recovering economic
damages in tort.” Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance, Inc.,
223 P.3d 664, 665 (Ariz. 2010). This doctrine “refer[s] to a common law rule limiting a
contracting party to contractual remedies for the recovery of economic losses unaccompa-

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nied by physical injury to persons or other property.” Id. at 667. “‘Economic loss,’ ... refers
to pecuniary or commercial damage, including any decreased value or repair costs for a
product or property that is itself the subject of a contract between the plaintiff and
defendant, and consequential damages such as lost profits.” Id.
The property that plaintiff has alleged has been converted is the subject of either the
AIP or the PDMA. And, the harm that plaintiff has alleged in its conversion claims is
essentially the failure to receive the property promised in the GLA, and not a separate
harm. Thus, plaintiff’s conversion claims are barred by the economic loss doctrine and
these claims dismissed with prejudice.45
The Other Tort Claims
In addition to the conversion claims, plaintiff asserts the following tort claims: 1) a
fraud claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter (Count XIII); 2) a
negligent misrepresentation claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter
(Count XIV); 3) a defamation claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter
(second Count XI); 4) a tortious interference with contract claim against Gyrus Logic, Mr.
Valles, and Mr. Trompetter (second Count XII); 5) a tortious interference with business
claim against Gyrus Logic, Mr. Valles, and Mr. Trompetter ( second Count XIII); and 6) an
45

Because the conversion claims are barred by the economic loss doctrine, the court
need not consider defendants’ alternative arguments that plaintiff’s conversion claims are
preempted by the Arizona Trade Secret Act or that plaintiff has failed to plead plausible
conversion claims.
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aiding and abetting claim against Mr. Dale, Mrs. Valles, and Mrs. Trompetter (Count XIX).
Defendants first argue that these tort claims are also barred by the economic loss
doctrine because plaintiff is seeking to recover only economic damages. As plaintiff is
quick to point out, however, courts have held that the economic loss rule does not apply
to fraud claims, KD & KD Enterprises, LLC v. Touch Automation, LLC, Case No.
CV–06–2083–PHX–FJM, 2006 WL 3808257, at *2 (D. Ariz. Dec. 27, 2006), and negligent
misrepresentation claims, Aventis Technologies Corp. v. JP Morgan Chase Bank, Case No.
CIV–03–1624 PHX JWS, 2004 WL 5137578, at *3 (D. Ariz. Jan. 26, 2004). But, the economic
loss rule does apply to plaintiff’s defamation (second Count XI), tortious interference with
contract (second Count XII), tortious interference with business (second Count XIII), and
aiding and abetting (Count XIX) claims. Therefore, these claims are dismissed with
prejudice.
As for plaintiff’s fraud (Count XIII) and negligent misrepresentation (Count XIV)
claims, these claims are dismissed because plaintiff has failed to plead these claims with
particularity. In alleging fraud, Rule 9(b) requires a party to “state with particularity the
circumstances constituting fraud or mistake,” including “the who, what, when, where, and
how of the misconduct charged.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1104, 1106
(9th Cir. 2003) (internal quotation omitted). Plaintiff had not alleged which defendant
made which representations, when any alleged misrepresentation was made, or how any

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of the alleged representations were false. Plaintiff is however given leave to amend its
fraud and negligence misrepresentation claims because it is possible that plaintiff could
state plausible fraud and negligent misrepresentation claims that would not be barred by
the economic loss doctrine.46
AZRAC Claims
In Counts XX, XXI, XXII, XXIII, XXIV, XXV, and XXVII, plaintiff asserts AZRAC
claims. Defendants first argue that these claims are barred by the economic loss doctrine,
but defendants have cited no authority that suggests that this doctrine applies to statutory
claims such as AZRAC claims. Defendants also argue that these claims are preempted by
the Arizona Uniform Trade Secret Act, but as noted above, the court is not yet convinced
that plaintiff’s claims are based on the misappropriation of secret information.
Plaintiff’s AZRAC claims are dismissed, however, because plaintiff has failed to state
plausible AZRAC claims. In order to state a plausible claim under AZRAC, a plaintiff must
allege “‘a pattern of racketeering activity,’ which i[s] defined as ‘[a]t least two acts of
racketeering’ that are ‘related’ and ‘continuous’....” Lifeflite Medical Air Transport, Inc. v.
Native American Air Services, Inc., 7 P.3d 158, 161 (Ariz. Ct. App. 2000) (quoting H.J. Inc.

46

Defendants also argue that plaintiff’s fraud and negligent misrepresentation claims
are preempted by the Arizona Uniform Trade Secrets Act, but the court is not persuaded,
based on what is currently before it, that these claims “are based on the misappropriation
of secret information.” Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1048 (D. Ariz.
2010).
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v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989)).

“A pattern of activity

lasting only a few months does not reflect the ‘long term criminal conduct’ to which RICO
was intended to apply.” Religious Technology Center v. Wollersheim, 971 F.2d 364, 366-67
(9th Cir. 1992).47 Plaintiff has not alleged over what time period each of the predicate acts
for each AZRAC claim occurred. Plaintiff has done little more than quote portions of
AZRAC, which is not sufficient to state a plausible claim.
Plaintiff’s AZRAC claims also appear to be based on “allegations of one scheme,
perpetrated against a single victim,” which “are typically insufficient to establish a pattern”
of racketeering. R. Prasad Industries v. Flat Irons Environmental Solutions Corp., Case No.
CV 12–8261–PCT–JAT, 2013 WL 2217831, at *17 (D. Ariz. 2013). Rather, plaintiff’s
“apparent status as the sole victim of [defendants’] alleged misconduct supports the
conclusion that a ‘pattern’ of racketeering activity has not been alleged.” Laron, Inc. v.
Construction Resource Services, LLC, Case No. CV–07–0151–PCT–NVW, 2007 WL 1958732,
at *4 (D. Ariz. July 2, 2007).
In addition, plaintiff’s AZRAC claim that is based on fraud has not been pled with
the requisite particularity. See A.G. Edwards & Sons, Inc. v. Smith, 736 F. Supp. 1030, 1032

47

“The Arizona Court of Appeals concluded in Lifeflite ... that the Arizona legislature
intended that AZRAC’s definition of ‘pattern of racketeering activity’ should be interpreted
in accordance with the U.S. Supreme Court’s interpretation of that phrase in the federal
statute.” Aviva USA Corp. v. Vazirani, 902 F. Supp. 2d 1246, 1270 (D. Ariz. 2012).
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(D. Ariz. 1989) (analyzing whether AZRAC claim, as well as other fraud claims, had been
pled with particularity).
Plaintiff is given leave to amend its AZRAC claims because it is possible that plaintiff
could state plausible AZRAC claims. The court would note, however, that based on the
allegations in plaintiff’s amended complaint, it is the court’s perception that this is not
really a racketeering case.
Rule 12(e) Motion
Rule 12(e) provides that “[a] party may move for a more definite statement of a
pleading to which a responsive pleading is allowed but which is so vague or ambiguous
that the party cannot reasonably prepare a response.” Defendants’ Rule 12(e) motion is
denied because such a motion “must be made before filing a responsive pleading....” Fed.
R. Civ. P. 12(e). The Rule 12(e) motion is also denied because it has been rendered moot
by the disposition of defendants’ Rule 12(b)(6) motion.
Rule 12(f) Motion
Rule 12(f) provides that “[t]he court may strike from a pleading an insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter.” Defendants’
primary argument here is that plaintiff’s amended complaint contains duplicative claims
which should be dismissed. This portion of defendants’ Rule 12(f) motion has been
rendered moot by the disposition of defendants’ Rule 12(b)(6) motion.

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Defendants also argue that plaintiff’s amended complaint contains a great deal of
immaterial matter in the form of rhetorical questions, conclusory statements of law,
improper argument, and speculation. Had defendants moved to dismiss plaintiff’s
amended complaint pursuant to Rule 8(a), the court would have granted such a motion
because plaintiff’s amended complaint is “needlessly long [and] highly repetitious....”
Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1059 (9th Cir. 2011)
(citation omitted). However, defendants have moved to strike portions of plaintiff’s
amended complaint under Rule 12(f). Because plaintiff is being given an opportunity to
amend its complaint, defendants’ Rule 12(f) motion is denied.
Should plaintiff elect to file a second amended complaint, the court reminds plaintiff
that Rule 8(a)(2), Federal Rules of Civil Procedure, requires “a short and plain statement
of the claim showing that the pleader is entitled to relief[.]” Arguments, rhetorical
questions, conclusory statements of law, and other such matter have no place in a
complaint. Rather, the focus should be on alleging sufficient facts to support the claims
being asserted.
Conclusion
Defendants’ Rule 12(e) and Rule 12(f) motions are denied.
Defendants’ Rule 12(b)(6) is granted as to Mr. Trompetter. All of plaintiff’s claims
against Mr. Trompetter are dismissed. Plaintiff is given leave to amend its breach of

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contract claims in Counts I, II, III, and VII if plaintiff believes it has some basis for alleging
a “piercing the corporate veil” theory. Plaintiff’s breach of contract claims against Mr.
Trompetter in Counts IV, V, VI, and VIII are dismissed with prejudice. Plaintiff’s
conversion claims in Counts IX, X, XI, XII, and XV against Mr. Trompetter are dismissed
with prejudice. Plaintiff’s tort claims in the second Counts XI, XII, and XIII are dismissed
with prejudice. Plaintiff is given leave to amend its fraud and negligent misrepresentation
claims in Counts XIII and XIV against Mr. Trompetter. Plaintiff is also given leave to
amend its AZRAC claims in Counts XX, XXI, XXII, XXIII, XXIV, XXV, and XXVII against
Mr. Trompetter.
Defendants’ Rule 12(b)(6) is denied in part and granted in part as to Mr. Valles. It
is denied as to Counts II, VI, and VII. It is otherwise granted. Plaintiff’s breach of contract
claims in Counts I, III, IV, V, and VIII against Mr. Valles are dismissed. Counts IV, V, and
VIII are dismissed with prejudice, but plaintiff is given leave to amend as to Counts I and
III. Plaintiff’s conversion claims in Counts IX, X, XI, XII, and XV against Mr. Valles are
dismissed with prejudice. Plaintiff’s tort claims in the second Counts XI, XII, and XIII are
dismissed with prejudice. Plaintiff is given leave to amend its fraud and negligent
misrepresentation claims in Counts XIII and XIV against Mr. Valles. Plaintiff is also given
leave to amend its AZRAC claims in Counts XX, XXI, XXII, XXIII, XXIV, XXV, and XXVII
against Mr. Valles.

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Defendants’ Rule 12(b)(6) motion as to Gyrus Logic is granted in part and denied in
part. It is denied as to Counts II and VII. It is otherwise granted. Plaintiff’s breach of
contract claims in Counts I, III, IV, V, VI, and VIII against Gyrus Logic are dismissed.
Counts IV, V, VI, and VIII are dismissed with prejudice, but plaintiff is given leave to
amend as to Counts I and III. Plaintiff’s conversion claims in Counts IX, X, XI, XII, and XV
against Gyrus Logic are dismissed with prejudice. Plaintiff’s tort claims in the second
Counts XI, XII, and XIII are dismissed with prejudice. Plaintiff is given leave to amend its
fraud and negligent misrepresentation claims in Counts XIII and XIV against Gyrus Logic.
Plaintiff is also given leave to amend its AZRAC claims in Counts XX, XXI, XXII, XXIII,
XXIV, XXV, and XXVII against Gyrus Logic.
Defendants’ Rule 12(b)(6) motion is granted as to Mr. Dale, Mrs. Trompetter, and
Mrs. Valles. All of plaintiff’s claims against these defendants are dismissed. Plaintiff’s
conversion claims in Counts IX, X, XI, and XII against Mr. Dale are dismissed with
prejudice. Plaintiff’s Count XIX against Mr. Dale, Mrs. Valles, and Mrs. Trompetter is
dismissed with prejudice. Plaintiff is given leave to amend its AZRAC claims in Counts
XX, XXI, XXII, XXIII, XXIV, XXV, and XXVII against Mr. Dales, Mrs. Valles, and Mrs.
Trompetter.
Plaintiff’s amended complaint, should plaintiff elect to file one, shall be filed on or
before October 23, 2014.

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Defendants’ request for attorney fees is denied. The question of attorney’s fees will
be taken up when this case is fully resolved.48
DATED at Anchorage, Alaska, this 23rd day of September, 2014.
/s/ H. Russel Holland
United States District Judge

48

As this case moves forward, the court expects counsel to act in a professional and
courteous manner at all times and in all matters. Making disparaging remarks about
opposing counsel does nothing to advance this litigation.
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