Mophie Inc et al v. Loza and Loza LLP et al

Filing 13

MINUTES (IN CHAMBERS): ORDER by Judge David O. Carter: Denying 6 Motion to Strike Portions of Plaintiffs' Complaint. (See document for details.) (rla)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. SA CV 11-00539 DOC (MLGx)

Date: July 25, 2011

Title: MOPHIE INC., ET AL. v. LOZA & LOZA LLP, ET AL.
PRESENT:
THE HONORABLE DAVID O. CARTER, JUDGE
Julie Barrera
Courtroom Clerk

Not Present
Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
NONE PRESENT

NONE PRESENT

PROCEEDING (IN CHAMBERS): DENYING DEFENDANT LOZA & LOZA’S MOTION TO
STRIKE PORTIONS OF PLAINTIFFS’ COMPLAINT
Defendants Julio Loza and Christina Loza bring the present Motion to Strike Portions of
Plaintiffs’ Complaint (“Motion”) in the above-captioned case (Docket 6). After reviewing the moving,
opposing, and replying papers, the Court DENIES the Motion for the reasons stated below.
I.

BACKGROUND

Plaintiff Daniel Huang (“Huang”), along with others, formed mStation Audio LLC
(“mStation”), a company that specializes in designing and manufacturing Apple iPod speakers and
ports. Complaint, ¶ 12. In 2007, mStation acquired Plaintiff Mophie Inc. (“Mophie”), a manufacturer
of mobile intelligent devices and accessories, namely the innovative “Mophie Juice Pack,” a portable
battery case for Apple iPhones. Id. at ¶ 11-12. At this time, Huang retained Julio Loza and Christina
Loza (collectively, “Defendants”), who advertised themselves as intellectual property experts, to advise
Mophie regarding intellectual property issues and his own interests in the company. Id. at ¶ 13-16.
Defendants allegedly failed to provide Mophie or Huang (collectively, “Plaintiffs”) with written
retainers or fee agreements and failed to obtain waivers acknowledging a potential conflict of interest
for Huang and Mophie being represented by the same attorneys. Id. at ¶ 17. Plaintiffs allegedly
instructed Defendants to file patents under the company’s name Mophie, but Defendants filed these
patents under Huang’s name. Id. at ¶ ¶ 24, 38. When this mistake was revealed, Defendants
represented to Plaintiffs that they would transfer the rights from Huang to Mophie, but failed to take
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adequate steps to complete the transfer. Id. at ¶ 44.
Plaintiffs allege that in Spring 2010, they identified several competing products that
potentially infringed their patents and notified Defendants that any strategy for addressing the possible
infringement should be accomplished in a “conservative and cautious” manner. Id. at ¶ 20. Plaintiffs
allege that Defendants nonetheless delivered four “patently aggressive” cease and desist letters that
threatened the recipients that they would file suit and seek temporary restraining orders, preliminary
injunctions, monetary damages, and attorneys’ fees. Id. at ¶ 20. Defendants did not provide Plaintiffs
with drafts of these letters or counsel them on their ramifications, namely the fact that such aggressive
language allows the recipient to file for declaratory judgment. Id. at ¶ 21. Furthermore, Plaintiffs aver
that Defendants’ attempt at protecting Plaintiffs’ intellectual property occurred before Defendants had
secured protection for both the design and utility of the products, thus exposing Plaintiffs to legal
challenges to the validity of the design patents they had already acquired. Id. at ¶ 23. As a result of
these letters, two competitors sued Mophie for declaratory judgments of non-infringement and
invalidity of the design patents. Id. at ¶ 27-34. Defendants allegedly made further mistakes in
protecting Plaintiffs’ intellectual property by filing trademark and patent applications incorrectly. Id. at
¶ ¶ 55, 63.
Plaintiffs aver that Defendants engaged in legal malpractice and breached a fiduciary duty
to Plaintiffs by failing to adequately advise Plaintiffs regarding intellectual property disputes, including
improperly filing trademark applications and sending aggressive cease and desist letters to potential
competitors without explaining the letters’ ramifications to Plaintiffs. Id. at ¶ ¶ 75-76, 83, 95. Plaintiffs
allege that Defendants’ conduct was “grossly negligent, unconscionable, fraudulent, oppressive,
malicious and done intentionally or in conscious disregard of Plaintiffs’ rights and Defendants’
fiduciary obligations.” Id. at ¶ ¶ 78, 90, 101.
Defendants filed the present Motion to Strike Portions of Plaintiffs’ Complaint on April
29, 2011 (Docket 6), arguing that Plaintiffs have not alleged the malice, oppression, and fraud
necessary for a punitive damages claim. Motion, 4.
II.

LEGAL STANDARDS
A.

Motion to Strike, Rule 12(f)

Federal Rule of Civil Procedure 12(f) provides that a court “may strike from a pleading
an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.
12(f). Motions to strike are disfavored and “will usually be denied unless the allegations have no
possible relation to the controversy and may cause prejudice to one of the parties.” Friedman v. 24
Hour Fitness USA, Inc., 580 F. Supp. 2d 985, 990 (C.D. Cal. 2008) (internal quotation marks and
citation omitted). The Ninth Circuit has defined “immaterial” matter as “that which has no essential or
important relationship to the claim for relief or the defenses being pleaded.” Fantasy, Inc. v. Fogerty,
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984 F.2d 1524, 1527 (9th Cir. 1993) (internal quotation marks and citation omitted), rev’d on other
grounds, 510 U.S. 517 (1994). Similarly, “impertinent” refers to allegations that are not responsive or
relevant to the issues involved in the action and which could not be admitted as evidence in the action.
Id. As indicated by the language of the rule, “[t]he function of a 12(f) motion to strike is to avoid the
expenditure of time and money that must arise from litigating spurious issues by dispensing with those
issues prior to trial . . . ” Id.
Motions to strike are generally disfavored because of the limited importance of pleading
in federal practice and because such motions often are used as a delay tactic. See, e.g. Securities and
Exchanges Comm’n v. Levin, 232 F.R.D. 619, 624 (C.D. Cal. 2005). However, the court may grant a
motion to strike where it is clear that the matter to be stricken has no possible bearing on the subject
matter of the litigation. Shabaz v. Polo Ralph Lauren Corp., 586 F. Supp. 2d 1205, 1209 (C.D. Cal.,
2008) (citing LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992)). Before
granting a motion to strike, courts often require a showing of prejudice by the moving party. Levin, 232
F.R.D. at 624. In considering a motion to strike, the court views the pleadings in the light most
favorable to the non-moving party and resolves any doubt as to the relevance of the challenged
allegations in favor of the plaintiff. Id.
B.

Motion to Dismiss, Rule 12(b)(6)

Under Fed. R. of Civ. P. 12(b)(6), a complaint must be dismissed when a plaintiff’s
allegations fail to state a claim upon which relief can be granted. Dismissal for failure to state a claim
does not require the appearance, beyond a doubt, that the plaintiff can prove “no set of facts” in support
of its claim that would entitle it to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561 (2007)
(abrogating Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In order for a complaint to survive a
12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 129 S.Ct.
1937, 1950 (2009). A claim for relief is facially plausible when the plaintiff pleads enough facts, taken
as true, to allow a court to draw a reasonable inference that the defendant is liable for the alleged
conduct. Id. at 1949. If the facts only allow a court to draw a reasonable inference that the defendant is
possibly liable, then the complaint must be dismissed. Id. Mere legal conclusions are not to be
accepted as true and do not establish a plausible claim for relief. Id. at 1950. Determining whether a
complaint states a plausible claim for relief will be a context-specific task requiring the court to draw
on its judicial experience and common sense. Id.
In evaluating a 12(b)(6) motion, review is “limited to the contents of the complaint.”
Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). However, exhibits attached to the
complaint, as well as matters of public record, may be considered in determining whether dismissal was
proper without converting the motion to one for summary judgment. Parks School of Business, Inc. v.
Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Further, a court may consider documents “on which
the complaint ‘necessarily relies’ if: (1) the complaint refers to the document; (2) the document is
central to the plaintiff’s claim; and (3) no party questions the authenticity of the copy attached to the
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12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). “The Court may treat such a
document as ‘part of the complaint, and thus may assume that its contents are true for purposes of a
motion to dismiss under Rule 12(b)(6).’” Id. (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th
Cir. 2003)).
III. DISCUSSION
As explained below, the Court chooses to analyze Defendants’ Motion to Strike is
analyzed under the Rule 12(b)(6) standard, as it addresses the sufficiency of pleadings. Because
Plaintiffs sufficiently alleged facts in their Complaint to state a claim for punitive damages, Defendants’
Motion to Strike is DENIED.
A.

Procedurally Improper Motion to Strike

Defendants argue that paragraphs 78, 90, 101 and the prayer for punitive damages should
be stricken from the Complaint because Plaintiffs have not alleged the malice, oppression, and fraud
necessary for a punitive damages claim. Motion, 4. These paragraphs, which are included under the
breach of fiduciary duty and legal malpractice causes of action, state that Defendants’ conduct was
“grossly negligent, unconscionable, fraudulent, oppressive, malicious, and done intentionally or in
conscious disregard of Plaintiffs’ rights and Defendants’ fiduciary obligations.” Complaint, ¶ ¶ 78, 90,
101. Plaintiffs assert their claim for punitive damages based on these allegations. Complaint, Prayer
for Relief. Plaintiffs counter that Defendants’ Motion is procedurally improper and should have been
brought as a Motion to Dismiss for failure to state a claim upon which relief can be granted under Fed.
R. Civ. P. 12(b)(6). Opposition to Defendants’ Motion to Strike Portions of Plaintiffs’s Complaint
(“Opposition”), 2.
The Court agrees that the Motion is not properly brought as a motion to strike.
Defendants do not argue that the language they wish to strike is “redundant, immaterial, impertinent, or
scandalous.” Fed. R. Civ. P. 12(f). The thrust of Defendants’ argument challenges the sufficiency of
the pleadings. Indeed, Defendants rely on the Iqbal/Twombly standard in their Motion, which, as
discussed above, addresses pleading sufficiencies. Instead of requesting Defendants to re-file the
present Motion as a Motion to Dismiss, however, the Court, in the interest of judicial economy, will
analyze the present Motion under Rule 12(b)(6). See Consumer Solutions REO, LLC v. Hillery, 658 F.
Supp. 2d. 1002, 1021 (N.D. Cal. 2009). Because the original Motion to Strike challenges the
sufficiency of the pleadings for punitive damages, the Court therefore applies the Rule 12(b)(6)
standard to evaluate whether Plaintiffs alleged sufficient facts of oppression, fraud, and malice for a
prayer for punitive damages. Kelley v. Corrections Corporation of America, 750 F. Supp. 2d 1132,
1146 (E.D. Cal. 2010); Martin v. County of San Diego, 2011 WL 1775691 (S.D. Cal. May 10, 2011).
B.

State Pleading Standard’s Inapplicability

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Defendants contend that Plaintiffs have not sufficiently alleged a claim for punitive
damages because Plaintiffs’ allegations of malice, oppression, and fraud do not meet the standard set
forth in California Civil Code § 3294. Motion, 6. Cal. Civ. Code § 3294 provides recovery for punitive
damages where there is clear and convincing evidence that the defendant is guilty of fraud, malice, or
oppression. Cal. Civ. Code § 3294. The statute defines malice and oppression as despicable conduct
carried on by the defendant in conscious disregard of the plaintiff’s rights. Cal. Civ. Code § 3294(c).
Fraud is defined as an intentional misrepresentation conducted by the defendant with the intention of
depriving plaintiff of his legal rights. Id. In their Opposition, Plaintiffs argue that these California state
law pleading requirements do not apply to the present case because the Court must apply the less
stringent standard under Fed. R. Civ. P. 8(a) for the Complaint as a whole and the additional
requirements under Fed. R. Civ. P. 9(b) for claims involving fraud. Opposition, 8-9. Plaintiffs
therefore insist that they are not required to provide clear and convincing evidence that Defendants are
guilty of fraud, malice, or oppression by engaging in “despicable conduct.” Id. They argue that
alleging malice, fraud, and oppression generally is sufficient for federal pleading purposes. Id.
The Court finds that Cal. Civ. Code § 3294 does not govern pleading requirements in the
present case. First, “where state law directly conflicts with applicable provisions of the Federal Rules
of Civil Procedure, federal courts must apply the Federal Rules – not state law.” Clark v. Allstate, 106
F. Supp. 2d. 1016, 1018 (S.D. Cal. 2000). When a plaintiff files a claim for punitive damages, Cal. Civ.
Code § 3294 governs the plaintiff’s substantive claim of whether there is clear and convincing evidence
of fraud, malice, or oppression, but the Federal Rules “govern the punitive damages claim procedurally
with respect to the adequacy of pleadings.” Clark v. State Farm Mut. Auto. Ins. Co., 231 F.R.D. 405,
406 (C.D. Cal. 2005). As Plaintiffs note in their Opposition, several cases have held that where
Plaintiffs seek punitive damages based on state law causes of action in federal court, the heightened
requirements of Cal. Civ. Code § 3294 are inapplicable in determining the sufficiency of the pleadings1.
See also Kelley v. Corrections Corp. of America, 750 F. Supp. 2d 1132, 1146-1147 (E.D. Cal. 2010)
(citing Neveu v. City of Fresno, 392 F. Supp. 2d 1159 (E.D. Cal. 2005)) (finding that federal pleading
standard governed the sufficiency of a punitive damages pleading); Endurance American Specialty Ins.
Co. v. Lance-Kashian & Co., Slip Copy, 2010 WL 3619476 (E.D. Cal. 2010) (holding that the federal
pleading standard applied to the adequacy of a punitive damages pleading).
C.

Rule 12(b)(6) Analysis

In determining the sufficiency of pleadings, a complaint must include a “short and plain
statement of the claim showing that the [Plaintiff] is entitled to relief, and . . . a demand for judgment
for the relief he [seeks].” Fed. R. Civ. P. 8(a). Though the complaint does not need “detailed factual
1

Indeed the Court found one case that conflicts with this analysis, Putini v. Blair
Corp., Slip Copy, 2010 WL 1797019 (S.D. Cal. 2010). Yet that opinion only indicated
that, “the Court [was] not convinced that the Iqbal standard applies to punitive damage
requests,” but nonetheless, analyzed the case under Iqbal.
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allegations” to survive a motion to dismiss, it does require “more than labels and conclusions,” and
needs to put Defendants on “fair notice” of “what the . . . claim is and the grounds upon which it rests.”
Twombly, 550 U.S. 544 at 555. A pleading “does not require detailed factual allegations, but it
demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 129 S.Ct.
at 1959 (2009). If the complaint alleges a cause of action based on fraud, the plaintiff “must state with
particularity the circumstances constituting fraud or mistake,” but may generally allege “malice, intent,
knowledge, and other conditions of a person’s mind.” Fed. R. Civ. P. 9(b); Clark v. Allstate, 106 F.
Supp. 2d. at 1018 (S.D. Cal. 2000). To sufficiently allege fraud with particularity, “a plaintiff must set
forth more than the neutral facts necessary to identify the transaction . . . the plaintiff must set forth an
explanation as to why the statement or omission complained of was false or misleading.” In re
GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994). When pleading the malice necessary for
a punitive damages claim, “a conclusory pleading is sufficient.” Greenwich Ins. Co. v. Rodgers, 729 F.
Supp. 2d. 1158, 1164 (C.D. Cal. 2010).
Despite arguing that the federal pleading standard is inapplicable, Defendants
nevertheless appear to rely on the federal rules to argue that Plaintiffs’ Complaint fails to plead the
elements of fraud, oppression, and malice necessary for a valid punitive damages claim. Motion, 10.
Defendants argue that Plaintiffs’ request for punitive damages does not demonstrate “enough heft to
show that the pleader is entitled to relief” because the paragraphs of the Complaint in question fail to
allege “any facts that would support its legal conclusion that Defendants’ behavior was
‘unconscionable, oppressive, or malicious.’” Motion, 10 (quoting Twombly, 550 U.S. at 557 (2007)).
Defendants further assert that Plaintiffs’ argument that conditions of the mind can be alleged generally
under Rule 9(b) is inapplicable because Plaintiffs have not even sufficiently pled the Complaint under
the more lenient Rule 8 standard, “which requires more than ‘labels and conclusions,’ or ‘tenders of
naked assertions devoid of further factual enhancements.’” Reply, 10 (quoting Iqbal, 129 S.Ct. at 1949
(2009)). Defendants assert that because the Complaint does not even meet the Rule 8(a) standard, the
Complaint would certainly not withstand the more stringent Rule 9(b) analysis necessary for the fraud
allegations. Id. at 9-10.
As a threshold matter, when pleading the malice necessary for a punitive damages claim,
“a conclusory pleading is sufficient.” Greenwich Ins. Co. v. Rodgers, 729 F. Supp. 2d. 1158, 1164
(C.D. Cal. 2010). The Ninth Circuit has interpreted Rule 9(b) as not requiring “any particularity in
connection with averment of intent, knowledge, or condition of the mind.” Clark v. Allstate, 106 F.
Supp. 2d. at 1018 (S.D. Cal. 2000) (citing In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir.
1994)); Gottreich v. San Francisco Inv. Corp., 552 F.2d 866, 866-67 (9th Cir.1977) (finding that a
conclusory allegation that defendants “knew” their representations were false was a sufficient pleading
of fraudulent intent). Moreover, the Complaint provides “ample specific factual allegations” to show
that Plaintiffs are entitled to a claim for punitive damages. See Twombly, 550 U.S. at 557 (2007).
Punitive damages are awarded “if the defendant’s acts are reprehensible, fraudulent or in blatant
violation of law or policy. Punitive damages are proper only when the tortious conduct rises to levels
of extreme indifference to the plaintiff’s rights, a level which decent citizens should not have to
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tolerate.” Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1287 (1994) (quoting Flyer's
Body Shop Profit Sharing Plan v. Ticor Title Ins. Co., 185 Cal.App.3d 1149, 1154 (1986)). Indeed, the
Complaint includes over fifty paragraphs of detailed factual allegations which provide a sound basis for
punitive damages. The Complaint as a whole provides Defendants with enough factual allegations to
allow the Defendants to be on fair notice of the causes of actions brought against them and the grounds
on which these allegations are founded.
The Complaint sets forth multiple factual scenarios to support the malice, oppression, and
fraud necessary to sufficiently plead its prayer for punitive damages. Iqbal, 129 S. Ct. at 1949 (2009).
For example, paragraphs 18-34 of the Complaint lay out Defendants’ allegedly ineffective attempts at
protecting Plaintiffs’ intellectual property rights. Complaint, ¶ 18-34. This section of the Complaint
identifies specific facts such as the dates and recipients of the cease and desist letters Defendants
allegedly sent without Plaintiffs’ approval. Id. This section continues to describe in detail the litigation
resulting from these letters, including legal fees and Defendants’ specific conduct in those two matters.
Id. Plaintiffs’ Complaint is facially plausible because the Complaint pled enough facts describing the
activities underlying a breach of fiduciary duty and legal malpractice to allow the Court to draw a
reasonable inference that Defendants could be liable for the alleged conduct and Plaintiffs would be
entitled to punitive damages. Iqbal, 129 S. Ct. at 1949 (2009). The Complaint provides Defendants
with “fair notice” of what claims are brought against them, namely breaches of fiduciary duty and legal
malpractice, and “the grounds upon which it rests” by detailing Defendants’ actions and the litigation
allegedly resulting from Defendants’ conduct. Twombly, 550 U.S. 544 at 555.
Furthermore, under Rule 9(b), Plaintiffs have sufficiently alleged the factual
circumstances surrounding the fraud allegations and the conditions of the mind necessary for a prayer
for punitive damages. The Complaint sets forth over fifty paragraphs of factual allegations underlying
Plaintiffs’ prayer for punitive damages. These paragraphs provide specific facts which, if found true,
would support a claim for punitive damages because Plaintiffs explain how Defendants’ alleged
fraudulent conduct deems their statements of expertise in intellectual property false or misleading. For
example, paragraphs 52-64 of the Complaint discuss Defendants’ allegedly incompetent filing of
trademark applications. Complaint, ¶ 52-64. This section of the Complaint specifically identifies
which of Defendants’ actions would constitute alleged legal malpractice. Id. In paragraphs 56 and 57,
Plaintiffs provide five specific actions Defendants failed to take in violation of their fiduciary duty. Id.
The Complaint continues to provide dates and details of Defendants’ various failed attempts at filing
trademark applications, including relevant application details, such as registration numbers. These
alleged facts establish how Defendants’ statements of expertise could be false or misleading because
they are linked to allegations that Defendants’ egregious conduct was intentional.
In pleading the mental state component, paragraphs 78, 90, 101 of the Complaint
generally allege that Defendants engaged in fraudulent conduct in conscious disregard of Plaintiffs’
rights. Alleging this mental state in a general manner is sufficient for pleading purposes under binding
California law. See Greenwich Ins. Co. v. Rodgers, 729 F. Supp. 2d. 1158, 1164 (C.D. Cal. 2010);
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Clark v. Allstate, 106 F. Supp. 2d. at 1018 (S.D. Cal. 2000). The Court notes the difficulty of pleading
a state of mind, especially for a plaintiff who at the pleading stage is unable to allege detailed facts
about a defendant’s mental state. More detailed descriptions depend on discovery and can be resolved
at future stages of litigation. Thus, Plaintiffs are not required to plead with particularity and may assert
generally that Defendants’ allegedly fraudulent actions were conducted with the malice necessary for a
punitive damages claim. Greenwich Ins. Co. v. Rodgers, 729 F. Supp. 2d. 1158, 1164 (C.D. Cal. 2010).
As a result, Plaintiffs’ Complaint has stated a claim for punitive damages and Defendants’
Motion is DENIED.
IV. DISPOSITION
For the reasons set forth above, Defendants’s Motion to Strike is DENIED.
The Clerk shall serve this minute order on all parties to the action.

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