LGarde Inc v. Raytheon Space and Airborne Systems

Filing 22

ORDER by Judge Ronald S.W. Lew, DENYING both Plaintiff's Motion to Remand 10 , and Defendant's Motion to Dismiss Plaintiff's second cause of action for fraud pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) 7 . The Court hereby GRANTS the Defendant's request and takes judicial notice of the content referenced in Exhibits A-C attached to Defendant's Request for Judicial Notice 16 . (See attached document for details.) (lom)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 L’Garde, Inc., ) ) 12 ) ) Plaintiff, 13 ) v. ) 14 ) ) 15 ) Raytheon Space and Airborne ) 16 Systems, a business of ) Raytheon Company, ) 17 ) ) 18 Defendant. ) ) 19 ) 20 CV 11-4592 RSWL (AGRx) ORDER Re: Plaintiff’s Motion to Remand [10]; Defendant’s Motion to Dismiss [7] On July 19, 2011, Plaintiff L’Garde Inc.’s Motion 21 to Remand [10] and Defendant Raytheon Space and 22 Airborne Systems, a business of Raytheon Company’s, 23 Motion to Dismiss [7] came on for regular calendar 24 before this Court. The Court having reviewed all 25 papers submitted pertaining to these Motions and having 26 considered all arguments presented to the Court, NOW 27 FINDS AND RULES AS FOLLOWS: 28 The Court hereby DENIES both Plaintiff L’Garde, 1 1 Inc.’s Motion to Remand and Defendant Raytheon Space 2 and Airborne Systems’ Motion to Dismiss. 3 4 I. Background 5 Plaintiff L’Garde, Inc. (hereinafter, “Plaintiff”) 6 filed a Complaint on April 19, 2011 in Los Angeles 7 Superior Court against Defendant Raytheon Space and 8 Airborne Systems, a business of Raytheon Company 9 (hereinafter, “Defendant”). Plaintiff alleged in its 10 Complaint claims against Defendant for breach of 11 contract and fraud. 12 Defendant states that it was served with the 13 Summons and Complaint on April 29, 2011. (Def.’s Notice 14 of Removal, ¶ 3.) On May 27, 2011, Defendant filed a 15 Notice of Removal of this Civil Action on the basis of 16 diversity and federal question jurisdiction [1]. 17 18 II. Legal Standards 1. Judicial Notice 19 20 Pursuant to Federal Rule of Evidence 201, the Court 21 may take judicial notice of adjudicative facts only. 22 “A judicially noticed fact must be one not subject to 23 reasonable dispute in that it is either 1) generally 24 known within the territorial jurisdiction of the trial 25 court or 2) capable of accurate and ready determination 26 by resort to sources whose accuracy cannot reasonably 27 be questioned.” Fed. R. Evid. 201(b). A court must 28 take judicial notice if a party requests it and 2 1 supplies the court with the requisite information. Fed. 2 R. Evid. 201(d). 3 2. Remand 4 In deciding whether to remand a case, this Court 5 must determine whether the case was properly removed to 6 this Court. The right to remove a case to federal 7 court is governed by 28 U.S.C. § 1441, which in 8 relevant part states that “any civil action brought in 9 a State court of which the district courts of the 10 United States have original jurisdiction, may be 11 removed by the defendant....” 28 U.S.C. § 1441(a). 12 District courts have diversity jurisdiction over all 13 civil actions between citizens of different states 14 where the amount in controversy exceeds $75,000, 15 exclusive of interest and costs. 28 U.S.C. § 1332. The Court may remand a case to state court for lack 16 17 of subject matter jurisdiction or defects in removal 18 procedure. 28 U.S.C. § 1447(c). The defendant has the 19 burden of proving that removal is proper and that all 20 of the prerequisites are satisfied. If at any time 21 before final judgment it appears that the district 22 court lacks subject matter jurisdiction over a case 23 that has been removed to federal court, the case must 24 be remanded. 28 U.S.C. § 1447(c). 25 The Ninth Circuit strictly construes the removal 26 statute against removal jurisdiction and federal 27 jurisdiction must be rejected if there is any doubt as 28 to the right of removal in the first instance. Gaus v. 3 1 Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). 2 Moreover, the burden of overcoming the “strong 3 presumption” against removal is always on the 4 defendant. Id. 5 3. Motion To Dismiss 6 In a Rule 12(b)(6) motion to dismiss, the Court 7 must presume all factual allegations of the complaint 8 to be true and draw all reasonable inferences in favor 9 of the non-moving party. Klarfeld v. United States, 944 10 F.2d 583, 585 (9th Cir. 1991). A dismissal can be 11 based on the lack of cognizable legal theory or the 12 lack of sufficient facts alleged under a cognizable 13 legal theory. Balistreri v. Pacifica Police Dep't, 901 14 F.2d 696, 699 (9th Cir. 1988). A party need not, 15 however, state the legal basis for his claim, only the 16 facts underlying it. McCalden v. California Library 17 Ass'n, 955 F.2d 1214, 1223 (9th Cir. 1990). A complaint should not be dismissed for failure to 18 19 state a claim unless it appears beyond doubt that the 20 plaintiff can prove no set of facts in support of his 21 claim that would entitle him to relief. Conley v. 22 Gibson, 355 U.S. 41, 45-46 (1957); Klarfeld, 944 F.2d 23 at 585; Usher v. City of Los Angeles, 828 F.2d 556, 561 24 (9th Cir. 1987). The court need not, however, accept 25 conclusory allegations or unreasonable inferences as 26 true. Western Mining Council v. Watt, 643 F.2d 618, 624 27 (9th Cir. 1981). Additionally, claims of fraud must satisfy not only 28 4 1 Rule 12(b)(6), but also the heightened pleading 2 standard of Rule 9(b). In alleging fraud or mistake, a 3 party must state with particularity the circumstances 4 constituting fraud or mistake. Fed. R. Civ. P. 9(b). 5 The heightened pleading standard of Rule 9(b) is 6 designed “to give defendants notice of the particular 7 misconduct which is alleged to constitute the fraud 8 charged so that they can defend against the charge and 9 not just deny that they have done anything wrong.” 10 Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993). 11 In order to meet this standard, the plaintiff must 12 allege the “who, what, where, when, and how” of the 13 fraudulent conduct. Vess v. Ciba-Geigy Corp. USA, 317 14 F.3d 1097, 1106 (9th Cir. 2003). The complaint must 15 “state the time, place, and specific content of the 16 false representations as well as the identities of the 17 parties to the misrepresentation.” Edwards v. Marin 18 Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004). “The 19 plaintiff must set forth what is false or misleading 20 about a statement, and why it is false.” Vess, 317 F.3d 21 at 1106 (quoting Decker v. Glenfed, Inc., 42 F.3d 1541, 22 1548 (9th Cir. 1994)). However, “[m]alice, intent, knowledge and other 23 24 conditions of a person’s mind may be alleged 25 generally.” Fed. R. Civ. P. 9(b); Walling v. Beverly 26 Enters., 476 F.2d 393, 397 (9th Cir. 1973). 27 Nevertheless, states of mind must still be alleged. 28 Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th 5 1 Cir. 1984). See also Fecht v. Price Co., 70 F.3d 1078, 2 1082 n.4 (9th Cir. 1995)(stating “the plaintiffs need 3 ‘simply ... say [ ] that scienter existed’ to satisfy 4 the requirements of Rule 9(b)”)(quoting In re GlenFed, 5 Inc. Sec. Lit., 42 F.3d 1541, 1547 (9th Cir. 1994)). 6 7 III. Analysis 1. Judicial Notice 8 9 Defendant requests the Court take judicial notice 10 of results of records searches from the California 11 Secretary of State website including: (A) the search 12 results for California corporations with “Raytheon” in 13 their name, (B) the “Business Entity Detail” of 14 Raytheon Company, and (C) the search results for 15 California corporations with “Space and Airborne” in 16 their name. As a preliminary matter, the Court GRANTS 17 Defendant’s Request for Judicial Notice. 18 In Hansen Beverage Co. v. Innovation Ventures, LLC, 19 the District Court for the Southern District of 20 California noted that just as public records and 21 government documents are generally considered “not to 22 be subject to reasonable dispute,” so too does this 23 include “[p]ublic records and government documents 24 available from reliable sources on the Internet.” 25 Hansen Beverage Co. v. Innovation Ventures, LLC, No. 26 08-CV-1166-IEG, 2009 WL 6597891, at *1 (S.D. Cal Dec. 27 23, 2009)(citing Jackson v. City of Columbus, 194 F.3d 28 737, 745 (6th Cir. 1999)). The court in Hansen 6 1 Beverage noted that internet pages printed off the FDA 2 website were similarly reliable to other traditional 3 public documents. Id. at *2. Here, similar to Hanson Beverage, Defendant seeks 4 5 judicial notice of the results of a records search from 6 a government website, one recognized by courts as a 7 source of reliable documentation. Id. (citing Paralyzed 8 Veterans of Am. v. McPherson, No. C 06-4670, 2008 U.S. 9 Dist. LEXIS 69542, at *5 (N.D. Cal. Sept. 8, 10 2008)(“Information on government agency websites has 11 often been treated as properly subject to judicial 12 notice.”). 13 The Court finds that the accuracy of the results of 14 records searches from the Secretary of State for the 15 State of California corporate search website can be 16 determined by readily accessible resources whose 17 accuracy cannot reasonably be questioned. Therefore, 18 the Court hereby GRANTS the Defendant’s request and 19 takes judicial notice of the content referenced in 20 Exhibits A-C attached to Defendant’s Request for 21 Judicial Notice [16]. Specifically, the Court takes 22 judicial notice of Exhibit A: the results of a records 23 search from the Secretary of State for the State 24 of California corporate search website, located at 25 http://kepler.sos.ca.gov, conducted on June 28, 2011, 26 for information on record with the California Secretary 27 of State for corporations containing “Raytheon” in 28 their name; Exhibit B: the “Business Entity Detail” for 7 1 Raytheon Company, dated June 28, 2011, printed from the 2 Secretary of State for the State of California 3 corporate search website; and Exhibit C: the results of 4 a records search from the Secretary of State for the 5 State of California corporate search website, located 6 at http://kepler.sos.ca.gov, conducted on June 28, 7 2011, for information on record with the California 8 Secretary of State for corporations containing “Space 9 and Airborne” in their name. 2. Motion To Remand 10 11 Plaintiff argues this Case should be remanded to 12 state court because there is (1) a forum selection 13 clause requiring Plaintiff’s choice of venue, (2) 14 Defendant has failed to prove diversity jurisdiction, 15 and (3) Defendant has failed to prove there is federal 16 question jurisdiction. First, Plaintiff argues there is a mandatory forum 17 18 selection clause in the Letter Subcontract requiring 19 Plaintiff’s choice of forum. 20 “Federal law governs the enforceability of forum 21 selection clauses in cases removed on the basis of 22 diversity jurisdiction.” See Manetti-Farrow, Inc. v. 23 Gucci Am., Inc., 858 F.2d 509, 513 (9th Cir. 1988). 24 forum selection clause is presumed valid and courts A 25 must enforce the clause absent a showing that such 26 enforcement would be unjust and unreasonable. M/S 27 Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). 28 However, a mandatory forum selection clause 8 1 constituting a waiver of a defendant’s right to removal 2 will only be found where “venue is specified with 3 mandatory language.” Docksider, Ltd. v. Sea Tech., 4 Ltd., 875 F.2d 762, 764 (9th Cir. 1989). 5 The Court finds that the forum selection clause in 6 this Case contains no limiting or exclusivity language; 7 it does not name a required court, judge, or 8 jurisdiction where the case must be heard. Unlike the 9 forum selection clause in Hunt Wesson Foods, Inc. v. 10 Supreme Oil Co., which at least required the case to be 11 heard in a specific County, the forum selection clause 12 contained in the Letter Subcontract here merely 13 requires that a court of competent jurisdiction hear 14 any dispute arising out of the Letter Subcontract.1 817 15 F.2d 75, 76 (9th Cir. 1987). Therefore, the Court 16 finds the forum selection clause in the Letter 17 Subcontract is too general to qualify as a mandatory 18 forum selection clause. See Hunt Wesson Foods, 817 F.2d 19 75. Calisher & Assocs., Inc. v. RGCM, LLC, 373 Fed. 20 App’x. 697 (9th Cir. 2010). Rather, the Court finds 21 that the clause relied on by Plaintiff here is a 22 permissive forum selection clause because it contains 23 vague, non-exclusive language. See N. Cal. Dist. 24 Council of Laborers v. Pittsburg - De Moines Steel Co., 25 26 27 28 1 The clause states, “Any controversy or claim...aris[ing] out of or in connection with this Purchase Order...may be resolved by submitting the claim to a court of competent jurisdiction.” (Pl.[’s] Mot. to Remand, Declaration of Brian Donovan, ¶ 2, Ex. 1, at 2.) 9 1 69 F.3d 1034, 1037 (9th Cir. 1995). Moreover, the 2 Court finds that the permissive forum selection clause 3 does not amount to an express waiver by Defendant of 4 it’s right to removal. See Ferrari, Alvarez, Olsen & 5 Ottoboni v. Home Ins. Co., 940 F.2d 550, 554 (9th Cir. 6 1991). 7 Accordingly, because the Court finds the Letter 8 Subcontract contains a permissive forum selection 9 clause and that Defendant has therefore not expressly 10 waived it’s right to removal, the Court further finds 11 that it may hear this Case so long as it has proper 12 subject matter jurisdiction. As such, the Court DENIES 13 Plaintiff’s Motion to Remand based on the forum 14 selection clause. 15 Second, Plaintiff argues that this Court lacks 16 diversity jurisdiction because there is no complete 17 diversity of citizenship between the Parties. 18 To determine diversity of citizenship in the 19 context of diversity jurisdiction, a corporation is a 20 citizen of (1) the state under whose laws it is 21 organized or incorporated; and (2) the state of its 22 “principal place of business.” 28 U.S.C. § 1332(c)(1). 23 Recently, in Hertz Corp. v. Friend, the Supreme Court 24 held that a corporation’s principal place of business 25 is solely determined by the state of its “nerve 26 center.” 130 S. Ct. 1181 (2010). A corporation’s nerve 27 center is “where a corporation's officers direct, 28 control, and coordinate the corporation's activities... 10 1 [a]nd in practice it should normally be the place where 2 the corporation maintains its headquarters-provided 3 that the headquarters is the actual center of 4 direction, control, and coordination.” Id. at 1192. 5 Plaintiff L’Garde, Inc. is incorporated in 6 California, and has its headquarters in Tustin, 7 California. Defendant Raytheon Space and Airborne 8 Systems is an unincorporated business division of 9 Raytheon Company. 10 Delaware. Raytheon Company is incorporated in Ninth Circuit precedent holds that, unlike a 11 legally incorporated subsidiary, an unincorporated 12 division of a corporation does not possess the formal 13 separateness required and is therefore not an 14 independent entity for jurisdictional purposes. See 15 Breitman v. May Co. Calif., 37 F.3d 562, 564 (9th Cir. 16 1994)(noting that the distinction between an 17 incorporated subsidiary and an unincorporated division 18 is important for determining diversity jurisdiction). 19 Finding Breitman particularly instructive, the Court 20 finds here that Defendant’s citizenship is based on 21 Raytheon Company. Accordingly, as Raytheon Company is 22 incorporated in Delaware, the Court finds that 23 Defendant is also a citizen of Delaware for diversity 24 jurisdiction purposes. 25 However, to fully resolve the jurisdictional issue, 26 the Court must also determine in which state Defendant 27 has its principal place of business. As such, the 28 Court next determines, based on the Supreme Court’s 11 1 guidance as to the nerve center test, whether Defendant 2 has adequately pled the location of its headquarters or 3 its “actual center of direction, control, and 4 coordination.” Hertz, 130 S. Ct. at 1192. 5 California district courts have found that reliance 6 on a single piece of evidence, such as a Secretary of 7 State printout, is insufficient for a party to prove 8 the location of its headquarters under the nerve center 9 test. See N. Cal. Power Agency v. AltaRock Energy, 10 Inc., No. 11–1749, 2011 WL 2415748, at *2-3 (N.D. Cal. 11 June 15, 2011)(finding a Secretary of State printout 12 insufficient as sole piece of evidence to prove a 13 party’s nerve center); Ganensan v. GMAC Mortg., Inc., 14 No. C 11–0046, 2011 WL 1496099, at *2 (N.D. Cal. Apr. 15 20, 2011)(finding conclusory statements of location of 16 headquarters insufficient absent other evidence under 17 nerve center test). However, here Defendant pleads a 18 variety of facts which persuade the Court to find, 19 based on the totality of the circumstances, that the 20 headquarters of Raytheon Company are located in 21 Waltham, Massachusetts. See Hertz, 130 S. Ct. at 1195 22 (finding “the mere filing of a form ... listing a 23 corporation's ‘principal executive offices’ would, 24 without more,” be insufficient proof to establish a 25 corporation's “nerve center”). 26 Specifically, Defendant identifies 870 Winter 27 Street, Waltham, Massachusetts 02451 as the location of 28 its headquarters and pleads that: five of its twelve 12 1 executive officers, including its CEO, work out of the 2 Waltham office; nationwide operations and control as to 3 its Human Resources, Information Technology, and 4 Finance Departments originate from there; its Board of 5 Directors meet there; and the California Secretary of 6 State and Defendant’s Form 10-K recognize Raytheon 7 Company’s headquarters as Waltham, Massachusetts. 8 (Opp’n to Pl.[’s] Mot. to Remand, Declaration of Woods 9 Abbot, ¶¶ 5-8.)(Req. for Jud. Notice, Ex. B.)(Opp’n to 10 Pl.[’s] Mot. to Remand, Declaration of Aaron Belzer, 11 Ex. A). 12 Accordingly, based on the totality of the above 13 referenced facts, the Court finds that Raytheon 14 Company’s principal place of business is in Waltham, 15 Massachusetts. As Defendant Raytheon SAS is an 16 unincorporated division of Raytheon Company, it does 17 not possess citizenship independent of its parent 18 corporation, Raytheon Company. 19 at 564. See Breitman, 37 F.3d Therefore, under Breitman, the Court finds 20 Defendant Raytheon SAS’s principal place of business to 21 be in Waltham, Massachusetts for purposes of 22 determining diversity jurisdiction. 23 The Court also notes that this Action is analogous 24 to the Southern District Court of California’s recent 25 decision, In re Hydroxycut Marketing and Sales 26 Practices Litigation, No. 09MD2087, 2010 WL 2998855, at 27 *2-4 (S.D. Cal. July 29, 2010). There, plaintiffs 28 alleged that defendant was a non-diverse New York based 13 1 company because it had a large facility in New York. 2 The Court disagreed, noting that the high level 3 executive decisions were made in Ontario, Canada, 4 despite the presence of the large New York facility. 5 Similarly, in the present Case, Plaintiff assumes 6 Defendant Raytheon SAS is a California company because 7 of its highly visible business activities within the 8 state; however, Defendant has pled facts indicating its 9 executive-level decisions are made from Raytheon 10 Company’s Waltham, Massachusetts headquarters and, 11 under the “nerve center” test, the Court finds that to 12 be determinative. 13 Therefore, the Court finds that because there is 14 complete diversity of citizenship between the Parties, 15 and the amount in controversy requirement is not 16 disputed, the Court has proper subject matter 17 jurisdiction to hear this Case. As such, the Court 18 DENIES Plaintiff’s Motion to Remand on the basis of 19 diversity jurisdiction. 20 Third, Plaintiff argues this Court lacks federal 21 question jurisdiction and should apply California 22 common law to resolve the Case at bar. Defendant 23 argues, in Opposition, that this Case implicates unique 24 federal interests and requires the application of 25 uniform federal common law thereby giving this Court 26 federal question jurisdiction. 27 28 U.S.C. § 1331 provides that “[t]he district 28 courts shall have original jurisdiction of all civil 14 1 actions arising under the Constitution, laws, or 2 treaties of the United States.” 28 U.S.C. § 1331. The 3 burden of establishing federal question jurisdiction 4 falls on the party invoking the removal statute. 5 Williams v. Caterpillar Tractor Co., 786 F.2d 928, 930 6 (9th Cir. 1986). The fact that the movant must prove 7 that the lawsuit involves a uniquely federal interest 8 does not, however, authorize federal courts to invoke 9 federal common law jurisdiction, “[it] merely 10 establishes a necessary, not a sufficient, condition 11 for the displacement of state law.” Boyle v. United 12 Tech. Corp., 487 U.S. 500, 507 (1988). “Displacement 13 will occur only where ... a ‘significant conflict’ 14 exists between an identifiable ‘federal policy or 15 interest and the [operation] of state law’ ... or the 16 application of state law would ‘frustrate specific 17 objectives’ of federal legislation....” Id. (citations 18 omitted). See also Wallis v. Pan American Petroleum 19 Corp., 384 U.S. 63, 68 (1966)(noting that in deciding 20 whether to fashion rules of federal common law, 21 “normally the guiding principle is [the existence of] a 22 significant conflict between some federal policy or 23 interest and the use of state law...”). 24 Thus, federal common law jurisdiction replaces 25 existing state law in this Case “only if (1) the 26 dispute implicates a uniquely federal interest and (2) 27 a significant conflict exists between an identifiable 28 federal policy or interest and the application of state 15 1 law to the dispute or the application of state law 2 would frustrate specific objectives of federal 3 legislation.” Texas Indus., 451 U.S. at 640; Boyle, 487 4 U.S. at 507. 5 Under Erie Railroad v. Thompkins, having found 6 diversity jurisdiction proper, this Court would 7 ordinarily apply California state law to resolve the 8 claims at issue in this Action. 304 U.S. 64 (1938). 9 This presumption is further bolstered by the Letter 10 Subcontract, authored by Defendant, holding 11 “irrespective of the place of performance, this 12 Purchase Order will be construed and interpreted 13 according to the laws of the State from which the 14 Purchase Order is issued, without resort to the State’s 15 Conflict of Law Rules.” (Pl.[’s] Mot. to Remand, 16 Declaration of Brian Donovan, ¶ 2, Ex. 1, at 2.) The 17 above referenced Purchase Order was issued in 18 California. Id. However, if Defendant meets its burden 19 of proving federal question jurisdiction, this Court 20 will be compelled to replace California state law with 21 federal common law to resolve this Case. Boyle, 487 22 U.S. at 507. 23 Defendant asserts this Case involves a uniquely 24 federal interest because the dispute involves 25 performance of a subcontract under a government defense 26 procurement contract, containing standard federal 27 contract clauses. Defendant argues the disputed 28 subcontract implicates national security and requires 16 1 the imposition of federal common law to interpret the 2 standard federal clauses consistently with existing 3 federal precedent. 4 Defendant relies principally on the Ninth Circuit 5 case of New SD, Inc. v. Rockwell Int’l Corp., 79 F.3d 6 953 (9th Cir. 1996). New SD involved a dispute between 7 a prime contractor and its subcontractor on an Air 8 Force contract for the development of a space based 9 anti-ballistic missile. Id. The Ninth Circuit held 10 that “the construction of subcontracts, let under prime 11 contracts connected with the national security, should 12 be regulated by a uniform federal law.” New SD, 79 F.3d 13 at 955 (quoting American Pipe & Steel Corp. v. 14 Firestone Tire & Rubber Co., 292 F.2d 640, 644 (9th 15 Cir. 1961). Since the dispute in New SD involved a 16 prime contractor and a subcontractor on a government 17 contract clearly implicating national security 18 interests, the Court found federal common law must 19 replace state law in order to provide a uniform federal 20 standard which would prevent the cost of national 21 security from being “increased in the process.” New SD, 22 70 F.3d at 955. However, the Court finds that this 23 case relied upon by Defendant concerns matters of 24 national security that are simply not present here. 25 Furthermore, Defendant argues that this Case 26 requires the imposition of federal common law because 27 “significant federal interests” may be affected and 28 it’s defense will rely on Federal Acquisition 17 1 Regulation (hereinafter, “FAR”) clauses incorporated 2 into the Letter Subcontract. Additionally, Defendant 3 avers that if found liable for breach of contract to 4 Plaintiff, it may be able to pass on its damages to the 5 United States Government through the prime contractor 6 on the “ISIS” project.2 7 The Court finds Defendant’s arguments unpersuasive. 8 The underlying issue in this Case is whether Defendant 9 promised to enter into a definitive subcontract with 10 Plaintiff. Plaintiff alleges Defendant took advantage 11 of its “small business” status in order to win the bid 12 from Lockheed Martin, the prime contractor for the ISIS 13 project. Plaintiff argues Defendant breached a 14 contract to negotiate a future definitive subcontract 15 in good faith, and that Defendant committed fraud 16 because it never intended to honor the agreement 17 between the Parties. 18 The fact that Defendant may rely on FAR clauses in 19 its defense, and may try to pass off damages it incurs 20 to the United States Government does not satisfy either 21 of the requirements set forth in Boyle that a removing 22 party must show (1) the dispute implicates a uniquely 23 federal interest and (2) there is a significant 24 conflict between an identifiable federal policy or 25 26 27 28 2 The goal of the ISIS project is to develop an airship capable of operating for long periods of time at “stratospheric altitudes” with fixed radars “capable of tracking small missiles, vehicles and persons in a manner” beyond the Government’s current capabilities. (Compl. ¶ 5). 18 1 interest and the application of state law to the 2 dispute, or that the application of state law would 3 frustrate specific objectives of federal legislation. 4 487 U.S. at 507. The Court finds the contract-based 5 claims raised in Plaintiff’s Complaint relate to an 6 agreement to negotiate a future definitive subcontract 7 between the Parties in which no substantial rights or 8 duties of the United States are implicated. 9 This Case is factually analogous to Northrop Corp. 10 v. AIL Systems, Inc., 959 F.2d 1424 (7th Cir. 1992), in 11 which the plaintiff sued the defendant for an alleged 12 breach of a “teaming agreement.” There, the parties 13 successfully “teamed” up to win a bid for an Air Force 14 contract and while they initially worked together, 15 defendant eventually refused to subcontract out the 16 work to plaintiff in order to realize a cost-reduction. 17 Id. at 1425. The Seventh Circuit held the teaming 18 agreement did not rise to the level of a unique federal 19 interest sufficient to warrant the imposition of 20 federal law because “[t]he federal government is not 21 liable for any damages [Defendant] may owe [Plaintiff] 22 for the alleged breaches of the teaming agreement. Nor 23 is there any indication that the government will pay a 24 higher price for the [contract] if [Defendant] is found 25 liable to [Plaintiff].” Id. at 1427. 26 Thereafter, the Ninth Circuit held the New SD and 27 Northrop decisions to be in harmony because the source 28 of the Northrop dispute arose from the “teaming 19 1 agreement,” not the actual “subcontracts which govern 2 actual work being performed on federal projects that 3 implicate federal interests much more directly.” New 4 SD, 79 F.3d at 955 (quoting Northrop, 959 F.2d at 5 1428). 6 Here, the Plaintiff’s Complaint is devoid of any 7 question of unique federal interest and simply alleges 8 a dispute over the meaning of the Letter Subcontract’s 9 provision requiring the Parties to negotiate in good 10 faith a subsequent definitive subcontract. Thus, 11 Plaintiff’s claims are based on its right to be a 12 potential subcontractor of later phases of the ISIS 13 subcontract. 14 On balance, this is not a case, like New SD or 15 American Pipe “[w]here the federal interest requires 16 that ‘the rule must be uniform throughout the country,’ 17 [and determining that the] ‘entire body of state law 18 applicable to the area conflicts and is replaced by 19 federal rules.’” New SD, 79 F.3d at 955 (citing 20 American Pipe at 643). Rather, this Case is much more 21 similar to Northrop because the source of the dispute 22 is not the quality of work under the subcontract but on 23 an alleged agreement promising future subcontracting 24 work. Additionally, the Parties are a step further 25 removed from privity with the United States Government 26 as this dispute does not involve a prime contractor. 27 Nor is national security so clearly implicated, as the 28 disputed ISIS phase lacked a defense priority rating. 20 1 While Defendant has cited several FAR clauses 2 present in the Letter Subcontract, Defendant has not 3 shown that an understanding and interpretation of such 4 clauses requires application of federal common law. 5 Nor has Defendant alleged in what way the application 6 of California state law offends the proper resolution 7 of this matter. Defendant’s bald assertion that it 8 “may be able to pass on to the Government” its 9 potential damages owed to Plaintiff, also falls short 10 of satisfying the Boyle standard in which the Supreme 11 Court contrasted cases where Government liability was 12 merely speculative versus actual and imminent, thereby 13 requiring the application of federal common law. See 14 Boyle, 487 U.S. 506-07. See also New SD, 79 F.3d at 954 15 (noting the FAR clause in the contract would require 16 the Government to pay for any damages the defendant 17 prime contractor caused the plaintiff subcontractor, 18 therefore finding the application of federal common law 19 necessary to prevent escalating national security costs 20 to the United States). 21 Here, unlike in New SD, but consistent with 22 Northrop, Defendant has not pled any facts indicating 23 that the cost of National Security stands to be 24 increased should it be held liable under Plaintiff’s 25 breach of contract and fraud claims. Moreover, 26 Defendant has failed to persuade the Court that 27 applying California law to resolve the current matter 28 will conflict with a significant federal policy or 21 1 interest. Defendant claims that several FAR clauses 2 are implicated and will form the basis of “one of its 3 major defenses” (Opp’n to Pl.[’s] Mot. to Remand , 11), 4 but fails to plead anything beyond such conclusory 5 statements. Therefore, the Court finds that Defendant 6 has not met its burden of proving that the imposition 7 of federal common law is required, and as such, this 8 Court does not have federal question jurisdiction and 9 will apply California law to resolve the present 10 dispute. 11 However, the Court still finds it has subject 12 matter jurisdiction on the basis of diversity to hear 13 the present matter. Accordingly, the Court DENIES 14 Plaintiff’s Motion to Remand. 15 3. Motion To Dismiss 16 Defendant argues that Plaintiff has failed to 17 satisfy the heightened pleading requirements of Rule 18 9(b) as to its second cause of action for fraud. 19 Under California law “[t]he elements of fraud, 20 which give rise to the tort action for deceit, are (a) 21 misrepresentation (false representation, concealment, 22 or nondisclosure); (b) knowledge of falsity (or 23 'scienter'); (c) intent to defraud, i.e., to induce 24 reliance; (d) justifiable reliance; and (e) resulting 25 damage.” Lazar v. Super. Ct., 12 Cal. 4th 631, 638 26 (1996). 27 While the substantive elements of a fraud claim are 28 determined by state law, the procedural requirements 22 1 are governed by Rule 9(b)’s heightened pleading 2 standard. Vess, 317 F.3d at 1103. While each element 3 of a fraud claim must be alleged with heightened 4 particularity, conditions of the mind may be averred 5 generally. Fed. R. Civ. P. 9(b). The allegations of 6 fraud must be accompanied by the who, what, where, 7 when, and how of the fraud charged. Vess, 317 F.3d at 8 1106. 9 The Court finds that Plaintiff has pled with 10 particularity the elements of fraud under California 11 law. Plaintiff’s Complaint pleads with particularity 12 facts indicating Defendant made material 13 misrepresentations as to its intent to contract with 14 Plaintiff a long term definitive subcontract, and that 15 Plaintiff reasonably relied on these misrepresentations 16 to its detriment. Contrary to Defendant’s argument, 17 the Court finds Plaintiff need not plead an exact 18 amount of damages in its Complaint. See Toscano v. 19 Ameriquest Mortg. Co., No. CIV-F-07-0957, 2007 WL 20 3125023, at *6 (E.D. Cal. Oct. 24, 2007). 21 The Court finds that Plaintiff has also 22 sufficiently pled the scienter requirement of fraud by 23 averring generally facts which indicate Defendant knew 24 its misrepresentations were false at the time of 25 contracting. See Locke v. Warner Bros., Inc., 57 Cal. 26 App. 4th 354, 368 (Ct. App. 1997)(holding “[f]raudulent 27 intent must often be established by circumstantial 28 evidence, and may be inferred from such circumstances 23 1 as defendant's ... failure even to attempt 2 performance...”). 3 Therefore, the Court finds Plaintiff has pled with 4 particularity the elements of a fraud claim under Rule 5 9(b), and Defendant’s Motion to Dismiss for failure to 6 state a claim for fraud is hereby DENIED. 7 8 III. Conclusion 9 For the reasons heretofore stated, the Court DENIES 10 both Plaintiff’s Motion to Remand, and Defendant’s 11 Motion to Dismiss Plaintiff’s second cause of action 12 for fraud pursuant to Federal Rules of Civil Procedure 13 12(b)(6) and 9(b). 14 15 DATED: July 26, 2011. 16 IT IS SO ORDERED. 17 18 HONORABLE RONALD S.W. LEW Senior, U.S. District Court Judge 19 20 21 22 23 24 25 26 27 28 24

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