California Expanded Metal Products Co v. Clarkwestern Dietrich Building Systems LLC et al

Filing 127

ORDER RE: MOTIONS TO DISMISS {Dkt. Nos. 113, 117 by Judge Dean D. Pregerson: The Motions to Dismiss are GRANTED. CEMCO's Third Cause of Action is dismissed with prejudice. ClarkWestern's Counterclaim is dismissed with leave to amend. Any amended counterclaim shall be filed within fourteen days of the date of this order. (See document for details) (bp)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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CALIFORNIA EXPANDED METAL
PRODUCTS CO., a California
company,

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Plaintiff,
v.
CLARKWESTERN DIETRICH
BUILDING SYSTEMS LLC doing
business as CLARKDIETRICH
BUILDING SYSTEMS, et al.

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Defendants.
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Case No. CV 12-10791 DDP (MRWx)
ORDER RE: MOTIONS TO DISMISS

[Dkt. Nos. 113, 117]

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Presently before the court is Defendant and Counterclaimant

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ClarkWestern Dietrich Building Systems LLC (“ClarkWestern)’s

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Motion to Dismiss Plaintiff’s Third Claim for Negligent

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Interference with Prospective Economic Advantage (Dkt. 113).

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Also before the court is Plaintiff California Expanded Metal

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Products Company (“CEMCO”)’s Motion to Dismiss ClarkWestern’s

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Counterclaim (Dkt. 117).

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the parties and heard oral argument, the court grants both

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motions and adopts the following order.

Having considered the submissions of

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I.

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Background
Plaintiff California Expanded Metal Products Co. ("CEMCO")

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is a California corporation.

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1.)

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employee.

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(“the Agreement”) with Klein, under which he promised CEMCO

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exclusive negotiation rights for an exclusive license to any

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construction-related technology that Klein might invent.

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9.)

(Third Amended Complaint ("TAC") ¶

Defendant James A. Klein (“Klein”) was, at one time, a CEMCO
(TAC ¶ 8.)

CEMCO alleges it entered into a contract

(TAC ¶

Under the Agreement, in the event CEMCO and Klein were

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unable to agree on license terms, CEMCO would enjoy a right of

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first refusal on any licensing agreement that Klein reached with

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a third party. (Id.)

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Klein later patented a new construction technology, but did

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not grant an exclusive license to CEMCO.

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Klein licensed his new “Blazeframe” technology to CEMCO’s biggest

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competitor, Defendant ClarkWestern.

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(TAC ¶ 10.)

Instead,

(Id.)

On October 31, 2012, Klein filed a patent infringement

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action against CEMCO in the Western District of Washington. See

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CV 13-04669 DDP-MRW.

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Klein and ClarkWestern on December 18, 2012, alleging four causes

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of action against ClarkWestern for (1) tortious interference with

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contractual relations, (2) tortious interference with prospective

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economic advantage, (3) negligent interference with prospective

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economic advantage, and (4) inducing breach of contract, and two

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causes of action against Klein for (5) breach of contract, and

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(6) breach of the covenant of good faith and fair dealing.

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ClarkWestern filed a counterclaim against CEMCO for tortious

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interference with prospective economic advantage.

CEMCO then initiated this action against

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After conferring with the parties, this court directed CEMCO

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to file a Third Amended Complaint.

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causes of action originally alleged, as well as nine additional

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causes of action for declaratory relief regarding the validity

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and enforceability of the various BlazeFrame patents.

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Clarkwestern again filed a counterclaim against CEMCO, alleging a

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single claim for Tortious Interference with Prospective Economic

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Advantage.

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The TAC alleges the same six

(Dkt. 115.)

ClarkWestern now moves to dismiss CEMCO’s third cause of

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action for negligent interference with prospective economic

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advantage.

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II.

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CEMCO moves to dismiss ClarkWestern’s counterclaim.

Legal Standard
A complaint will survive a motion to dismiss when it

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contains “sufficient factual matter, accepted as true, to state a

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claim to relief that is plausible on its face.” Ashcroft v.

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Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 570 (2007)).

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12(b)(6) motion, a court must “accept as true all allegations of

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material fact and must construe those facts in the light most

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favorable to the plaintiff.” Resnick v. Hayes, 213 F.3d 443, 447

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(9th Cir. 2000).

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factual allegations,” it must offer “more than an unadorned, the-

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defendant-unlawfully-harmed-me accusation.”

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678.

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a statement of a legal conclusion “are not entitled to the

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assumption of truth.” Id. at 679.

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that merely offers “labels and conclusions,” a “formulaic

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recitation of the elements,” or “naked assertions” will not be

When considering a Rule

Although a complaint need not include “detailed

Iqbal, 556 U.S. at

Conclusory allegations or allegations that are no more than

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In other words, a pleading

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sufficient to state a claim upon which relief can be granted.

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Id. at 678 (citations and internal quotation marks omitted).

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“When there are well-pleaded factual allegations, a court

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement of relief.” Id. at 679.

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Plaintiffs must allege “plausible grounds to infer” that their

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claims rise “above the speculative level.” Twombly, 550 U.S. at

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555. “Determining whether a complaint states a plausible claim

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for relief” is a “context-specific task that requires the

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reviewing court to draw on its judicial experience and common

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sense.”

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III. Discussion

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A.

Iqbal, 556 U.S. at 679.

CEMCO’s Cause of Action for Negligent Interference with
Prospective Economic Advantage

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CEMCO’s Third Cause of Action for Negligent Interference

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with Prospective Economic Advantage alleges that ClarkWestern

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knew or should have known about the relationship between Klein

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and CEMCO, and failed to act with reasonable care by “unfairly

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using its multibillion dollar market power to dictate the terms

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of the license that was offered by Klein to CEMCO, by interfering

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with CEMCO’s ability to obtain a fair license in an arms [sic]

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length negotiation with only Klein on an exclusive basis, and by

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requiring that Klein sue CEMCO for patent infringement . . . .”

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(TAC ¶¶ 30-31.)

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owed no duty of care to CEMCO.

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ClarkWestern argues that it, as a competitor,
(ClarkWestern Motion at 5-6.)

“The threshold element of a cause of action for negligence

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is the existence of a duty to use due care toward an interest of

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another that enjoys legal protection against unintentional
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invasion.”

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Inc., 178 Cal.APp.4th 1194, 1205 (2009) (internal quotation and

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citations omitted).

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affairs so as to prevent purely economic loss to third parties in

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their financial transactions is the exception, not the rule, in

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negligence law . . . .”

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omitted).

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Lake Alamnor Assoc. L.P. v. Huffman-Broadway Group,

“Recognition of a duty to manage business

Id. (internal quotation and citation

CEMCO’s argument that ClarkWestern owed CEMCO a duty of care
relies almost entirely upon the California Supreme Court’s

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decision in J’Aire Corp. v. Gregory, 24 Cal.3d 799, 804 (1979).

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In J’Aire, the plaintiff leased restaurant space at an airport.

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The airport hired a contractor to renovate the restaurant space.

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The restaurant could not resume business until the renovations

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were completed.

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project within a reasonable time, the tenant sued the contractor

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for negligence.

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Supreme Court, holding that the contractor did owe a duty of care

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to the restaurant, set out six factors relevant to a duty of care

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analysis: “(1) the extent to which the transaction was intended

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to affect the plaintiff, (2) the foreseeability of harm to the

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plaintiff, (3) the degree of certainty that the plaintiff

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suffered injury, (4) the closeness of the connection between the

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defendant's conduct and the injury suffered, (5) the moral blame

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attached to the defendant's conduct and (6) the policy of

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preventing future harm.”

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When the contractor failed to complete the

J’Aire, 24 Cal.3d at 802.

The California

J’Aire 24 Cal.3d at 804.

ClarkWestern, in turn, points to Stolz v. Wong
Communications, 25 Cal.App.4th 1811 (1994).

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In Stolz,

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the plaintiff sued a competitor for interfering with the

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plaintiff’s efforts to renew a broadcasting license.

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Cal.App.4th at 1815.

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the complaint had not alleged, and could not allege, a claim for

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negligent interference with economic relations because the

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parties were competitors, and therefore by definition did not owe

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each other a duty of care.

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Stolz, 25

The Stolz court, citing J’Aire, held that

Stolz, 25 Cal.App.4th at 1825.

A court of this district addressed the potential incongruity

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between J’Aire and Stolz in Sierra National Holdings, Inc. v.

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Altus Finance, S.A., No. CV 01-1339 AHM, 2001 WL 1343855 (C.D.

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Cal. June 20, 2001).

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companies, each of which attempted to acquire the assets of a

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third, failing insurance company.

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at *17.

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competitors.

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Sierra National plaintiff’s ability to conduct businesses did not

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depend upon the defendant’s conduct. Id.

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explained, under those circumstances, it would be possible to

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analyze the plaintiff’s negligent interference claim under

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J’Aire.

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and the lack of any interdependence, “a mechanical application

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and weighing of [the J’Aire] factors would expand the theoretical

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scope of [negligent interference with prospective economic

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advantage] far beyond its sensible boundaries.”

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courts have come to a similar conclusion.

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Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 957

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(N.D. Cal. 2003); Impeva Labs, Inc. v. Sys. Planning Corp., No.

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12-CV-00125-EJD, 2012 WL 3647716 at *7 (N.D. Cal. Aug. 23, 2012);

There, the parties were insurance

Sierra Nat’l, 2001 WL 1343855

As in Stolz, the Sierra National parties were

Id.

Id.

Unlike the tenant-plaintiff in J’Aire, the

As Judge Matz

However, given the parties’ status as competitors

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Id.

Other

See, e.g. AccuImage

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Gutierrez v. City of Carson, No. CV10-7627 JAK, 2011 WL 7129239

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at *12 (C.D. Cal. Dec. 16, 2011).

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Here, as in Sierra National, the parties are competitors

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whose businesses are not interrelated in any way.

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ClarkWestern owed no duty of care to CEMCO.

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Action for Negligent Interference with Prospective Economic

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Advantage is, therefore, DISMISSED with prejudice.

Accordingly,

The Third Cause of

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B.

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ClarkWestern’s Counterclaim alleges a single cause of action

ClarkWestern’s Counterclaim

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for Tortious Interference with Prospective Economic Advantage.

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(Counterclaim ¶¶ 11, 13.)

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counterclaim is that CEMCO intentionally interfered with license

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discussions between Klein and ClarkWestern by “maintaining

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uncertainty” regarding CEMCO’s own claims regarding Klein’s

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patent.

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misrepresented that its exclusive licensing Agreement with Klein

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applied to the BlazeFrame invention, disputed Klein’s ownership

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of the patented technology, misrepresented its willingness to

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settle the ownership dispute, and amended its own patent

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applications to avoid resolution of ownership issues.

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these intentional acts, ClarkWestern alleges that its license

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agreement with Klein was delayed by two years, during which time

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CEMCO sold its “FAS Track” version of Klein’s product royalty-

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free.

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The thrust of ClarkWestern’s

(Counterclaim ¶ 11.)

Specifically, CEMCO allegedly

Because of

An intentional interference claim requires (1) an economic

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relationship between plaintiff and a third party with the

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probability of future economic benefit to the plaintiff, (2)

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defendant’s knowledge of that relationship, (3) defendant’s
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intentional, independently wrongful act to disrupt the

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relationship, (4) actual disruption, and (5) economic harm to the

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plaintiff.

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Cal.App.4th 480, 504 (2011) (citing Korea Supply v. Lockheed

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Martin Corp., 29 Cal.4th 1134, 1153 (2003)).

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independent wrongness depends on its unlawfulness.

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Marsh v. Anesthesia Serv. Med. Group. Inc., 200

An act’s
Id.

CEMCO argues that ClarkWestern’s counterclaim fails because

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(1) the Counterclaim does not allege a sufficient economic

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relationship between ClarkWestern and Klein and (2) CEMCO’s

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alleged acts were not unlawful. (CEMCO Motion at 1-2.)
Intentional interference claims protect “the expectation

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that the [economic] relationship eventually will yield the

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desired benefit, not necessarily the more speculative expectation

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that a potentially beneficial relationship will arise.”

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Supply, 29 Cal.App.4th at 1164 (quotation marks and citation

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omitted).

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with “a contract which is certain to be consummated.”

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v. County of Los Angeles, 38 Cal.App.4th 242, 261 (1995)

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Korea

The tort can be established by showing interference
Kasparian

Here, ClarkWestern’s Counterclaim alleges that it began an

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economic relationship with Klein’s company, BlazeFrame Industries

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Ltd., in 2010 “as a result of BlazeFrame’s claims to ownership of

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the BlazeFrame Technology and [ClarkWestern’s] interest in

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obtaining a license . . . .”

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Counterclaim also alleges that BlazeFrame and ClarkWestern “began

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discussing a possible license” in January 2010 and “engaged in

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on-going discussions with BlazeFrame for the next two-plus years

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regarding a potential license . . . .”

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CEMCO’s allegedly interfering acts is unclear, with the exception

(Counterclaim ¶ 8.)

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(Id. ¶ 9.)

The

The timing of

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of CEMCO’s written correspondence to ClarkWestern in February and

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March 2010.

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(Id. ¶¶ 33, 37.)

The Counterclaim does not adequately allege when the

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purported economic relationship between Clarkwestern and

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BlazeFrame began.

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generally agree that it must be reasonably probable the

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prospective economic advantage would have been realized but for

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defendant’s interference.”

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v. Aetna, Inc., No. 12-cv-5847-WHO, 2014 WL 524076 at *14 (N.D.

“To show an economic relationship, the cases

Rheumatology Diagnostics Lab., Inc.

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Cal. Feb. 14, 2014) (internal quotation and citation omitted).

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Although preliminary discussions are alleged to have taken place

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in January 2010, those discussions concerned only the possibility

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of a licensing agreement.

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are insufficient, on their own, to establish any certainty that

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an agreement would be reached.

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Petrominerals Corp., 128 Cal.App.4th 212, 243 (2005).

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The exploratory discussions alleged

See Sole Energy Co. v.

Though ClarkWestern argues that the eventual execution of a

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licensing agreement in 2012 is sufficient to demonstrate the

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existence of an economic relationship, that licensing agreement

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was not consummated until over two and a half years after the

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relationship is alleged to have begun, and roughly two and a half

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years after CEMCO’s written communications to ClarkWestern.

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is unclear from the Counterclaim, as currently pled, when in that

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span a reasonable expectation that the licensing talks would bear

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It

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fruit arose.

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DISMISSED, with leave to amend.1

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IV.

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Accordingly, ClarkWestern’s Counterclaim is

Conclusion
For the reasons stated above, the Motions to Dismiss are

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GRANTED.

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prejudice.

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to amend.

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fourteen days of the date of this Order.

CEMCO’s Third Cause of Action is dismissed with
ClarkWestern’s Counterclaim is dismissed with leave
Any amended counterclaim shall be filed within

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IT IS SO ORDERED.

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Dated: October 29, 2014
DEAN D. PREGERSON
United States District Judge

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Having dismissed the Counterclaim for failure to allege a
sufficient economic relationship, the court need not address
CEMCO’s additional argument. The court notes, however, that
while the Noerr-Pennington doctrine generally protects the right
to petition the government and to litigate, sham litigation
enjoys no such protection. See Sosa v. DIRECTV, Inc., 437 F.3d
923, 932 (9th Cir. 2006).
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