Clayton v. Automated Gaming Technologies, Inc.

Filing 106

ORDER signed by Judge John A. Mendez on 4/18/14 DENYING 86 Motion to Dismiss the First Cause of Action for breach of fiduciary duties in the First Amended Counterclaim. The Court GRANTS WITH LEAVE TO AMEND 86 Motion to Dismiss the Second Cause o f Action for fraud. The Court GRANTS WITHOUT LEAVE TO AMEND 87 Motion to Dismiss the Third Cause of Action for breach of contract. A Second Amended Counterclaim must be filed within 20 days of the date of this Order. Plaintiff's responsive pleading must be filed within 20 days thereafter. Plaintiff's counsel SHALL PAY the $700 in sanctions to the clerk of the court within 10 days of the date of this Order. (Meuleman, A)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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KEITH R. CLAYTON,

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No.

2:13-cv-00907-JAM-EFB

Plaintiff,
v.

ORDER GRANTING PLAINTIFF
AND COUNTER DEFENDANT’S
MOTION TO DISMISS IN PART
AND DENYING IN PART

AUTOMATED GAMING TECHNOLOGIES,
INC., a Nevada corporation, JOHN
R. PRATHER, and ROBERT MAGNANTI,

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Defendants.

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AUTOMATED GAMING TECHNOLOGIES,
INC., a Nevada corporation,
Counter-Claimant,

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v.
KEITH R. CLAYTON, and DOES 1
through 10, inclusive,
Counter-Defendants.

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This matter is before the Court on Plaintiff and CounterDefendant Keith R. Clayton’s (“Plaintiff”) Motion to Dismiss

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(Doc. #86) Defendant and Counter-Claimant Automated Gaming

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Technologies, Inc.’s (“AGT”) First Amended Counterclaim (Doc.

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#69). 1

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(Doc. #100).

AGT opposed the motion (Doc. #99), and Plaintiff replied

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I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

The allegations and extensive procedural history of this

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action are well known to the parties and do not need to be

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repeated in detail here.

In brief, Plaintiff’s suit and AGT’s

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counter claims arise out of a series of negotiations between the

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parties regarding two iterations of an employment agreement and

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an alleged sales contract for the purchase of software created by

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Plaintiff, as well as the subsequent employment relationship.

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Plaintiff earlier moved to dismiss (Doc. #37) AGT’s Counterclaim

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(Doc. #34), which alleged four causes of action:

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contract, (2) breach of duty of loyalty, (3) negligence, and (4)

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negligent interference with economic relations.

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(1) breach of

The Court dismissed the first two causes of action without

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prejudice.

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“officer” within the meaning of Nevada Revised Statutes §

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78.138(7) (“§78.138”).

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that Plaintiff’s breach of the employment contract involved

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“intentional misconduct, fraud or a knowing violation of law” as

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required by §78.138 when bringing an action against an officer of

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a corporation for acts in his or her capacity as an officer.

Relevant here, the Court ruled that Plaintiff was an

The Court found that AGT failed to allege

The

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for April 9, 2014.
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Court then found AGT’s allegations regarding Plaintiff’s conduct

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failed to amount to a breach of Plaintiff’s duty of loyalty to

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AGT, as alleged in the second cause of action, although the Court

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did find such a duty existed.

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causes of action.

The Court dismissed the remaining

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The First Amended Counterclaim states three causes of action

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against Plaintiff: (1) breach of fiduciary duties, (2) fraud, and

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(3) breach of contract. The relevant allegations contained in the

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First Amended Counterclaim supporting each of these causes of

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action will be discussed below.

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II.

OPINION

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A.

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Plaintiff requests the Court judicially notice certain

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facts and representations made in previous filings with the

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Court in this matter (Doc. #88).

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consider material beyond the pleadings in ruling on a motion to

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dismiss for failure to state a claim.

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material attached to, or relied on by, the complaint so long as

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authenticity is not disputed, or matters of public record,

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provided that they are not subject to reasonable dispute.

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Sherman v. Stryker Corp., 2009 WL 2241664, at *2 (C.D. Cal.

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2009) (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th

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Cir. 2001) and Fed. R. Evid. 201).

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Request for Judicial Notice

Generally, the Court may not

The exceptions are

The Court denies Plaintiff’s request.

E.g.,

The Court has

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considered the First Amended Counterclaim and the contract

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relied on and attached to it in deciding

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dismiss herein.
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Plaintiff’s motion to

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//

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B.

Sanctions

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Pursuant to the Court’s Order Re Page Limits (Doc. #4-2),

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reply memoranda are limited to ten (10) pages.

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(Doc. #100) to AGT’s opposition to this motion was twenty-four

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(24) pages long.

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each page in excess of the court-ordered limit, amounting to

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$700.

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C.

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The Court hereby sanctions Plaintiff $50 for

Discussion
1.

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Plaintiff’s Reply

Breach of Fiduciary Duties

Plaintiff contends AGT’s first cause of action for breach

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of fiduciary duties must fail because it does not meet the

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requirements of §78.138, namely that it does not allege

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“intentional misconduct, fraud or a knowing violation of law”.

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MTD at pp. 20-24.

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In the First Amended Counterclaim, AGT alleges that

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Plaintiff wrongfully withheld technical information from AGT in

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order to demand payment regarding the disputed software sale

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contract and “additional and excessive compensation.”

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33.

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proprietary information obtained from AGT and used it improperly

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in the software for which he is currently seeking a copyright.

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FACC ¶ 34.

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of customers and goodwill. FACC ¶ 35.

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FACC ¶

In addition, AGT alleges that Plaintiff misappropriated

AGT alleges this resulted in damages, including loss

As compared to the allegations in the original

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Counterclaim, these additional allegations involve Plaintiff’s

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intentional misuse of “confidential information” gained from AGT

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and intentionally withholding information from AGT for profit
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while employed by AGT, thereby acting against the best interests

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of his employer in “matters connected with his agency.”

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Restatement (Second) of Agency §§ 387, 393 comment (a).

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allegations meet the requirements of §78.138, a breach of

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fiduciary duties involving Plaintiff’s intentional misconduct.

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The claim for breach of fiduciary duties in the First Amended

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Counterclaim “sufficiently allege[s] underlying facts” that

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“plausibly suggest an entitlement to relief.”

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652 F.3d 1202, 1216 (9th Cir. 2011), cert. denied, 132 S. Ct.

These

Starr v. Baca,

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2101, 182 L. Ed. 2d 882 (U.S. 2012).

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does not trigger the heightened pleading requirements of Rule 9,

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as argued by Plaintiff, as it does not rely on fraudulent

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conduct.

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cause of action is DENIED.

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The basis for this claim

Accordingly, Plaintiff’s motion to dismiss AGT’s first

2.

Fraud

AGT’s second claim for relief is for fraud.

Plaintiff

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contends the allegations supporting this cause of action fail to

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meet the heightened pleading requirements of Rule 9 of the

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Federal Rules of Civil Procedure.

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In the First Amended Counterclaim, AGT alleges it was

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induced to hire Plaintiff by misrepresentations made by him in

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“his resume and other communications.”

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misrepresentations concerned his possession of the “expertise and

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experience to write and develop the cash processing software AGT

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is in the business of selling.”

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had the experience to support and run the Systems Department at

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AGT, which AGT alleges he did not.

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the software he had created “had certain capabilities” that AGT

Id.

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FACC ¶ 37.

The alleged

He also represented that he

Id.

He also represented that

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later learned it did not have.

Id. ¶ 38.

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The Court finds AGT’s counterclaim fails to state a claim

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for fraud with the requisite particularity pursuant to Rule 9.

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What is lacking from the pleadings is, coincidentally, exactly

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what AGT offers to provide if the Court dismisses the claim:

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“additional and more specific facts in support of its claim”;

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allegations that “identify conversations” and their details; and

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“additional facts relating to [Plaintiff’s] representations,”

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which “allege more specifically how such representations were

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false.”

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Plaintiff’s motion to dismiss the second cause of action for

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fraud, but grants AGT leave to amend.

Opp. at pp. 20-21.

Accordingly, the Court grants

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Plaintiff includes a one sentence argument in his Motion to

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Dismiss contending the statute of limitations bars the claim for

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fraud. MTD at p.19

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the statute of limitations period may be granted only ‘if the

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assertions of the complaint, read with the required liberality,

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would not permit the plaintiff to prove that the statute was

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tolled.’”

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1206-07 (9th Cir. 1995) (quoting Jablon v. Dean Witter & Co., 614

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F.2d 677, 682 (9th Cir.1980)).

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applicability of the equitable tolling doctrine often depends on

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matters outside the pleadings, it ‘is not generally amenable to

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resolution on a Rule 12(b)(6) motion.’”

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v. City of San Diego, 5 F.3d 1273, 1276 (9th Cir. 1993).

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Court does not find that AGT can plead no set of facts that would

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establish the timeliness of the claim.”

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notwithstanding Plaintiff’s statute of limitations argument, the

“A motion to dismiss based on the running of

Supermail Cargo, Inc. v. United States, 68 F.3d 1204,

However, “[b]ecause the

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Id. (quoting Cervantes

Id.

The

Therefore,

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Court grants AGT leave to amend this claim.

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Court’s dismissal, Plaintiff’s arguments regarding AGT’s claim

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for punitive damages in connection with this cause of action are

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moot.

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3.

As a result of the

Breach of Contract

Plaintiff contends the breach of contract claim must fail

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because it does not state facts sufficient to constitute a

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viable claim under §78.138.

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primarily just repeated allegations from the rejected breach of

MTD at p. 24.

He argues AGT has

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contract claim from the initial Counterclaim, and that AGT

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misstates the nature of the employment agreement.

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AGT argues that it has sufficiently stated a claim.

It

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points to allegations that Plaintiff purposefully obtained

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employment with another company and did not tell AGT about it.

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Opp. at pp. 14-15.

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Plaintiff was preoccupied and did not have as much time for his

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work with AGT and therefore his work suffered.

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allegations parallel those in the first Counterclaim and again

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fail to meet the requirements of §78.138 for the same reasons

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laid out in the Court’s previous order dismissing AGT’s breach

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of contract claim.

As a result of this other employment,

These

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AGT has added additional allegations regarding Plaintiff’s

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unauthorized use of its proprietary information in the software

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Plaintiff seeks to copyright and/or alleges the software is the

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property of AGT because it was constructed during the time

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Plaintiff was employed by AGT.

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certainly actionable under §78.138, but as a breach of

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Plaintiff’s fiduciary duties to AGT, as stated in AGT’s first

FACC ¶ 54.

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This conduct is

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cause of action.

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does not even fall within the purview of §78.138 because it is

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not one against Plaintiff as an officer of AGT.

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to accept this argument, AGT would thereby undermine its claim

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that the underlying conduct is actionable as a violation of the

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terms of Plaintiff’s employment.

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claim occurred outside of Plaintiff’s employment relationship

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with AGT, a claim for breach of the employment contract is

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misplaced.

In its opposition, AGT contends that the claim

Were the Court

If the actions underlying the

Accordingly, the Court dismisses the breach of

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contract claim.

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of contract claim after sufficient leave to amend its first

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attempt, the claim is dismissed without leave to amend.

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Court finds any actionable conduct alleged by AGT under its

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breach of contract claim, is more properly brought under its

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breach of fiduciary duties claim in the first cause of action.

As AGT has been unable to assert a viable breach

The

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III.

ORDER

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For the reasons set forth above, the Court DENIES

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Plaintiff’s Motion to Dismiss the First Cause of Action for

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breach of fiduciary duties in the First Amended Counterclaim.

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The Court GRANTS WITH LEAVE TO AMEND Plaintiff’s Motion to

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Dismiss the Second Cause of Action for fraud.

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WITHOUT LEAVE TO AMEND Plaintiff’s Motion to Dismiss the Third

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Cause of Action for breach of contract.

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Counterclaim must be filed within twenty (20) days of the date of

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this Order.

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twenty (20) days thereafter.

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The Court GRANTS

A Second Amended

Plaintiff’s responsive pleading must be filed within

Plaintiff’s counsel shall pay the $700 in sanctions to the
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clerk of the court within ten (10) days of the date of this

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Order.

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IT IS SO ORDERED.
Dated: April 18, 2014

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