LGarde Inc v. Raytheon Space and Airborne Systems
Filing
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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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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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11 L’Garde, Inc.,
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Plaintiff,
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v.
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Raytheon Space and Airborne )
16 Systems, a business of
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Raytheon Company,
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Defendant.
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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
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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
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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
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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.”).
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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
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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
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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
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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.,
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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...
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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
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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
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