Sony Electronics Inc. et al v. Hannstar Display Corp.

Filing 26

ORDER GRANTING HANNSTAR DISPLAY CORPORATION'S MOTIONS TO DISMISS AND STRIKE BREACH OF CONTRACT AND FRAUD CLAIMS, WITH LEAVE TO AMEND (SONY) 6060 in case 3:07-md-01827-SI; 16 in case 3:12-cv-02214-SI (Illston, Susan) (Filed on 8/27/2012)

1
2
3
4
5
IN THE UNITED STATES DISTRICT COURT
6
FOR THE NORTHERN DISTRICT OF CALIFORNIA
7
8
9
United States District Court
For the Northern District of California

10
11
12
13

IN RE: TFT-LCD (FLAT PANEL) ANTITRUST
LITIGATION
/

No. M 07-1827 SI
MDL No. 1827

This Order Relates To:

No. C 12-2214 SI

SONY ELECTRONICS INC.; SONY
COMPUTER ENTERTAINMENT AMERICA
LLC,

ORDER GRANTING HANNSTAR
DISPLAY CORPORATION’S MOTIONS
TO DISMISS AND STRIKE BREACH OF
CONTRACT AND FRAUD CLAIMS,
WITH LEAVE TO AMEND

Plaintiffs,

14
15
16
17

v.
HANNSTAR DISPLAY CORP.,
Defendant.

/

18
Currently before the Court is are motions by HannStar Display Corporation to dismiss and to
19
strike the breach of contract and fraud claims of plaintiffs Sony Electronics Inc. and Sony Computer
20
Entertainment America LLC (collectively, “Sony”). Pursuant to Civil Local Rule 7-1(b), the Court
21
found these matters suitable for disposition without oral argument. Having considered the parties’
22
papers, and for good cause appearing, the Court hereby GRANTS HannStar’s motions, with leave to
23
amend no later than September 7, 2012.
24
On May 2, 2012, Sony sued HannStar for the “antitrust injuries [it] sustained as a result of a
25
long-running conspiracy to fix . . . raise prices . . . and limit the output of . . . [LCD panels].” Complaint
26
at ¶ 1. Sony’s complaint contains (1) a claim under the Sherman Act, based on direct purchases of LCD
27
panels, (2) claims for damages under the California Cartwright Act and California Unfair Competition
28

law, (3) an unjust enrichment claim, and (4) claims for breach of contract and fraud. Id. at ¶¶ 147-178.

2

Sony’s breach of contract and fraud claims are based on HannStar’s alleged repudiation of a pre-

3

litigation settlement agreement. The agreement was allegedly reached after the parties engaged in

4

mediated discussions “for the purpose of resolving all LCD-related claims . . . without the necessity of

5

litigation” Id. at ¶ 166.

6

Proposal” through which Sony “agreed to release HannStar from [its] LCD-related claims,” id. at ¶ 168,

7

HannStar informed Sony that HannStar “would not pay the amount it had agreed to pay . . . and

8

repudiated the agreement.” Id. at ¶ 171. Sony further alleges that HannStar’s representations that it

9

would accept the agreement and pay the agreed amount were knowingly false, in that HannStar “never

10
United States District Court
For the Northern District of California

1

intended to pay the amount in the Mediator’s Proposal.” Id. at ¶ 176. Sony alleges that had Sony

11

“known the representations were false, [Sony] would have not have agreed to settle their claims . . . and

12

would not have refrained from suing HannStar.” Id. at ¶ 177.

Sony alleges that one month after both parties accepted the “Mediator’s

13

HannStar first argues that Sony’s breach of contract and fraud claims should be dismissed for

14

lack of subject matter jurisdiction. See Fed. R. Civ. Pro. 12(b)(1). However, the Court need not

15

consider whether subject mater jurisdiction exists because the parties concede that there is a basis for

16

diversity jurisdiction over the breach of contract and fraud claims.1 See Motion at 6 (“The breach of

17

contract and fraud claims can be asserted in this Court only on the basis of diversity jurisdiction, should

18

SEL and SCEA seek to invoke the Court’s diversity jurisdiction.”); id. (“[Sony’s] complaint

19

affirmatively shows that complete diversity exists.”). Accordingly, the Court GRANTS HannStar’s

20

motion to dismiss for lack of subject matter jurisdiction, but also GRANTS Sony leave to amend its

21

complaint to plead diversity jurisdiction.

22

HannStar asserts that even if the Court exercises diversity jurisdiction, there is “little likelihood

23
24
25
26
27
28

1

HannStar disputes whether Sony could satisfy the requirement that a party invoking diversity
jurisdiction “specifically allege . . . that the amount in controversy exceeds $75,000.” Bautista v. Pan
Am. World Airlines, Inc., 828 F.2d 546, 552 (9th Cir. 1987). Should Sony ultimately chose to invoke
diversity jurisdiction, the Court finds it premature to decide at the pleading stage the sufficiency of
Sony’s allegations regarding the amount in controversy. See, e.g., Usher v. City of Los Angeles, 828
F.2d 556, 561 (9th Cir. 1987) (the court must assume that the plaintiff’s allegations are true and must
draw all reasonable inferences in the plaintiff’s favor). The Court notes that it is reasonable to infer that
the fees and costs Sony has accrued as a result of HannStar’s alleged breach of the settlement agreement
could exceed the minimum amount in controversy.
2

1

that the breach of contract and fraud claims can be asserted.” Motion at 1. It argues that the allegations

2

underlying those claims are “dependent on matters that are not subject to disclosure and not admissible

3

under [California’s] mediation and confidentiality statutes.” Id. at 3; see Cal. Evid. Code §§ 1115-28.

4

On this basis, HannStar contends that Sony’s allegations should be stricken under Rule 12(f); and, if the

5

Court decides to strike them, Sony’s breach of contract and fraud claims should be dismissed. See id.

6

at 10.
California mediation and confidentiality statutes (“confidentiality statutes”) forbid the discovery

8

or admission of “evidence of anything said or any admission made for the purpose of, in the course of,

9

or pursuant to, a mediation or mediation consultation,” see Cal. Evid. Code § 1119(a), which includes

10
United States District Court
For the Northern District of California

7

any “writing[s]” Cal. Evid. Code § 1119(b), or “communications,” Cal. Evid. Code § 1119(c). With

11

diversity as the basis for jurisdiction over Sony’s breach of contract and fraud claims, the Court finds

12

that state law would apply. See Fed. R. Evid. 501 ( “[I]n a civil case, state law governs privilege

13

regarding a claim or defense for which state law applies.”); see also Pasadena Oil & Gas Wyoming LLC

14

v. Montana Oil Properties Inc., 320 F. App’x 675, 677 (9 th Cir. 2009) (“State privilege law generally

15

applies to state claims brought in federal court pursuant to diversity jurisdiction . . . ”).2

16

However, these confidentiality statutes do not preclude Sony from pleading and pursing its

17

breach of contract and fraud claims. California Code of Evidence section 1123 provides certain

18

exceptions to the protective prescriptions of the confidentiality statutes. One exception allows for the

19

admissibility of a “written settlement agreement” when “[t]he agreement provides that it is enforceable

20

or binding or words to that effect.” Cal. Evid. Code § 1123(b). Sony argues in its papers that a “written

21

settlement agreement” was entered, consisting of emails from counsel accepting the mediator’s proposal.

22

Opp’n at 11. The Complaint pleads almost as much, see Complaint at ¶ 167 (“On March 27, Prof. Green

23

advised Plaintiffs and HannStar by e-mail that both parties had accepted his proposal that Plaintiffs’

24

claims against HannStar were settled and resolved pursuant to the terms of his proposal as of that

25

date.”), and presumably could be amended to include the contentions in Sony’s opposition papers. It

26
2

27
28

The Court disagrees with Sony that the confidentiality statutes do not create a “privilege” for
these purposes. See RegScan, Inc. v. Bureau of Nat’l Affairs, Inc., No. 1:11CV1129 (JCC/JFA), 2012
WL 2994075 (E.D. Va. July 19, 2012) (The “guarantee of confidentiality of mediation materials and
communications is a ‘privilege’ within the meaning of 501.”).
3

1

is thus possible that Sony can plead facts that, if proven, would bring the alleged settlement agreement

2

within the conditions to admissibility set forth in section in 1123(b). Accordingly, the Court GRANTS

3

HannStar’s Rule 12(b)(1) motion, but also GRANTS Sony leave to amend its complaint to allege an

4

admissible and enforceable settlement agreement.

5

HannStar also argues that Sony’s fraud allegations are too sparse to state a claim. The Court

6

agrees. “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be

7

stated with particularity.” Fed. R. Civ. Pro. 9(b). “A pleading ‘is sufficient under Rule 9(b) if it

8

identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer

9

from the allegations.’” Id. (quoting Gottrech v. San Francisco Investment Corp., 552 F.2d 866 (9th Cir.

United States District Court
For the Northern District of California

10

1977).

Under California law, “the ‘indispensable elements of a fraud claim include a false

11

representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages.’” Vess v.

12

Ciba-Geigy Corp., 317 F.3d 1097, 1105 (9th Cir. 1996) (internal citations omitted).

13

Sony’s fraud claim is based largely upon the allegation that HannStar knowingly made a false

14

statement on or about March 27, 2012, when it communicated to Sony, “through outside counsel,” that

15

it accepted the mediator’s proposal. See Complaint at ¶¶ 175-177. However, Sony has not identified

16

with specificity who made the false representation or to whom that false representation was made. Nor

17

has Sony specifically alleged that the person who made the fraudulent representation had “knowledge

18

of its falsity.” See Vess, 317 F.3d at 1105. An allegation of this sort based solely on “information and

19

belief” is insufficient to state a claim under Rule 9(b). Accordingly, HannStar’s motion to dismiss

20

Sony’s fraud claim under Rule 9(b) is GRANTED with leave to amend.

21

For the foregoing reasons and for good cause shown, the Court hereby GRANTS HannStar’s

22

motoins to dismiss, all with leave to amend. Any amended complaint must be filed no later than

23

September 7, 2012. Docket No. 16 in 12-2114; Master Docket No. 6060 in 07-1827.

24
25
26

IT IS SO ORDERED.
Dated: August 27, 2012
SUSAN ILLSTON
United States District Judge

27
28
4