Jobscience, Inc. v. CVPartners, Inc. et al

Filing 29

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FIRST AMENDED COMPLAINT by Hon. William Alsup granting in part and denying in part 18 Motion to Dismiss.(whalc1, COURT STAFF) (Filed on 1/9/2014)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 JOBSCIENCE, INC, 11 For the Northern District of California United States District Court 10 12 13 Plaintiff, v. ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FIRST AMENDED COMPLAINT CVPARTNERS, INC, et al., 14 Defendants. / 15 16 No. C 13-04519 WHA In this copyright infringement action involving a recruiting software license, defendants 17 move to dismiss all claims in the first amended complaint under FRCP 12(b)(6). For the reasons 18 stated below, the motion is GRANTED IN PART AND DENIED IN PART. 19 20 STATEMENT Plaintiff Jobscience, Inc. develops and licenses recruiting software applications. 21 Defendants are individuals and entities alleged to have copied Jobscience’s software application, 22 which was licensed to defendant CVPartners, Inc. The theory in the operative first amended 23 complaint (Dkt. No. 15) is that: 24 Defendants licensed Jobscience’s software application and then conspired to misappropriate Plaintiff Jobscience’s proprietary and confidential trade secrets, by gaining access through fraud and deceit, intentionally copying Jobscience software, recreating infringing software applications, creating alter ego limited liability companies to shield themselves, and then selling the product of their conspiracy for illicit financial gain to the detriment of Jobscience. 25 26 27 28 (Compl. ¶ 1). 1 According to the complaint, plaintiff created a software application called “Jobscience;” 2 the relevant additions include JS 2 Jobscience Recruiting Package Version 4.01.19 (2012) and JS 3 2 Jobscience Recruiting Package Version 2.01 (2009), both subjects of copyrights. In September 4 2010, defendant CVPartners executed a Master Agreement, with a End User License and 5 Agreement (EULA), to license plaintiff’s software application. The agreement was renewed in 6 August 2011. The complaint alleges that defendant Brandon Metcalf, formerly Senior Director 7 of Technology at CVPartners: 8 9 11 For the Northern District of California United States District Court 10 12 fraudulently induced Plaintiff to give him access to Jobscience software code, processes and methods, by requesting such access under the guise that he would access such code for the purpose consistent with the Agreement and the confidentiality provisions thereof. Metcalf gained access to Plaintiff’s trade secrets consisting of software code and other proprietary information . . . . After accessing the code through fraudulent means, by misrepresenting his intent and purpose, Defendants reverse engineered, copied and converted for Defendants’ own use, the Jobscience copyrighted software application and its elements. 13 (Compl. ¶ 27). In November 2011, defendant Skipan SAAS LLC was formed, with Brandon 14 Metcalf as COO. In January 2012, defendant Skipan LLC was formed. “[I]n a matter of 15 months, Defendants were allegedly able to create and market a software application that took 16 Jobscience several years and millions of dollars in investment to create and perfect.” In August 17 2012, CVPartners provided notice that they were terminating the license. Plaintiff thereafter 18 discovered a “replica of the Jobscience job board” on CVPartners’ website. “The job board, 19 which was one of the functional elements of Plaintiff’s software solution, was so similar to 20 Jobscience that Jobscience’s own employees were fooled to believe that the Jobscience job board 21 was still up on the CVPartners website” (Compl. ¶¶ 21, 22, 24, 25, 28, 30, 34, 35). 22 The complaint alleges thirteen claims for relief: (1) copyright infringement, (2) breach of 23 contract, (3) intentional interference with economic relations, (4) negligent interference with 24 economic relations, (5) misappropriation of trade secrets, (6-7) unfair competition, (8) fraud and 25 deceit, (9) negligent misrepresentation, (10) conversion, (11) breach of the implied covenant of 26 good faith and fair dealing, (12) conspiracy, and (13) constructive trust. 27 On December 3, defendants moved to dismiss with prejudice all claims, as well as “the 28 assertion of alter-ego liability” in the first amended complaint pursuant to FRCP 12(b)(6). 2 1 ANALYSIS 2 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 3 accepted as true, ‘to state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S. 4 Ct. 1937, 1949–50 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 5 claim is facially plausible when there are sufficient factual allegations to draw a reasonable 6 inference that the defendants are liable for the misconduct alleged. While a court “must take all 7 of the factual allegations in the complaint as true,” it is “not bound to accept as true a legal 8 conclusion couched as a factual allegation.” 9 Defendants argue that the complaint fails to state a claim for copyright infringement. To 11 For the Northern District of California United States District Court 10 COPYRIGHT INFRINGEMENT (COUNT I). plead copyright infringement, plaintiff must plead (1) ownership of a valid copyright and (2) 12 copying of protected expression by the alleged infringers. See Feist Pubs., Inc. v. Rural Tel. 13 Serv. Co., 499 U.S. 340, 361 (1991). The second element may be established by showing that 14 the works in question are substantially similar in their protected elements and that the alleged 15 infringers had access to the copyrighted works. Rice v. Fox Broad. Co., 330 F.3d 1170, 1174 16 (9th Cir. 2003). 17 The parties do not dispute that the first element is adequately pled. Jobscience obtained 18 copyright certificates for JS 2 Jobscience Recruiting Package Version 4.01.19 and JS 2 19 Jobscience Recruiting Package Version 2.01. 20 The issue is whether the second element is adequately pled. Defendants argue that the 21 complaint fails to allege (1) what each defendant allegedly infringed and how their actions 22 constitute infringement, (2) access to works entitled to copyright protection, and (3) virtual 23 identity of works entitled to copyright protection (Br. 5–7). Defendants also argue that 24 plaintiff’s concede that the job board “was one of the functional elements of Plaintiff’s software 25 solution” and functional elements of software are not protected under the Copyright Act (Compl. 26 ¶ 35). Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1523–24 (9th Cir. 1992). 27 28 This order finds sufficient facts in the complaint to state a plausible claim of copyright infringement. The complaint alleges that defendants infringe Jobscience’s software application: 3 1 “JS 2 Jobscience Recruiting Package Version 2.01 in 2009, Version 4.01.19 in 2012, and 2 Version 4.400.1 in 2013.” The allegedly infringing work is Talent Rover. Defendants allegedly 3 copied, developed derivative works, and sold Talent Rover “in direct competition with 4 Jobscience.” Defendant CVPartners’ website contains a “replica of the Jobscience job board,” 5 which “was so similar to Jobscience that Jobscience’s own employees were fooled to believe that 6 the Jobscience job board was still up on the CVPartners website,” after CVPartners terminated 7 the license. Defendants obtained access to plaintiff’s software application by virtue of 8 CVPartners’ license with Jobscience (Compl. ¶ 17, 27, 30, 32, 35). This suffices. 9 Accordingly, defendants’ motion to dismiss the copyright infringement claim is DENIED. BREACH OF CONTRACT (COUNT II). 11 For the Northern District of California United States District Court 10 Defendants argue that the complaint fails to plead sufficient facts to state a claim for 12 breach of contract. As a threshold matter, the parties disagree about who the complaint alleges is 13 liable for breach of contract. Plaintiff states that it “has alleged breach of contract against all of 14 the Defendants and has, in addition, alleged a theory of liability based on alter ego” (Opp. 10). 15 Not so. The complaint unambiguously alleges breach of contract “against Defendants 16 CVPartners, Gray and Metcalf” — not all defendants (Compl. ¶ 15). Moreover, of the three 17 defendants, defendants only challenge the breach of contract claim as applied to defendants Gray 18 and Metcalf, not CVPartners (Br. 7–8). This order, therefore, addresses the breach of contract 19 claim against Gray and Metcalf only. 20 Plaintiff alleges that Gray and Metcalf are directly liable for breach of contract because 21 “as users of the software [in question], Defendants [Gray and Metcalf] were also subject to an 22 End User License and Agreement containing license terms and conditions including 23 confidentiality provisions . . . .” The complaint states that all alleged wrongdoings are breaches 24 of both the Master Agreement and the EULA (Compl. ¶¶ 21, 22, 45, 62). 25 To plead a claim for breach of contract, plaintiff must allege sufficient facts to show: (i) 26 the existence of a contract; (ii) plaintiff’s performance or excuse for failure to perform; (iii) 27 defendant’s breach; and (iv) resultant damage to plaintiff. Hale v. Sharp Healthcare, 183 Cal. 28 App. 4th 1373, 1387 (2010). Here, plaintiff alleges that it provided services to defendants under 4 1 the agreement, but “[e]very user of the Jobscience service by using the service consents to the 2 End User License Agreement, including Defendants Gray and Metcalf” and “Defendants 3 intentionally breached its contractual obligations to Plaintiff, under the confidentiality provisions 4 of the Agreement . . . ” (Compl. ¶¶ 33, 39, 45, 66). As a result of the alleged breach of contract, 5 “Plaintiff has been damaged and continues to be damaged in an amount to be proven at trial.” 6 These allegations are sufficient to survive defendant’s motion to dismiss the breach of contract 7 claim, which is DENIED. 8 INTERFERENCE CLAIMS (COUNTS III AND IV). 9 Plaintiff’s third and fourth claims for relief against defendants Gray, Metcalf, Skipan LLC, and Skipan SAAS are titled “intentional interference with economic relations” and 11 For the Northern District of California United States District Court 10 “negligent interference with economic relations.” In the opposition, plaintiff argues that these 12 torts are “subsumed under ‘interference with economic relations’ (interference with contractual 13 relations, interference with prospective economic advantage and negligent interference with 14 prospective economic advantage)” (Opp. 12). 15 Our court of appeals has stated: 16 In California, the elements of the tort of intentional interference with prospective economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional [wrongful] acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. 17 18 19 20 21 Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1151 (9th Cir. 2008). The elements of 22 the tort of negligent interference with prospective economic advantage are similar and outlined in 23 N. Am. Chem. Co. v. Superior Court, 59 Cal. App. 4th 764, 786 (1997). Liability for negligent 24 conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff 25 or to a class of which the plaintiff is a member. J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 803 26 (Cal. 1979). 27 Plaintiff’s interference claims cannot survive. The complaint fails to plead the existence 28 of an economic relationship with any third party, defendants’ knowledge of any of those parties, 5 1 defendants’ actual disruption of the economic relationship, negligence, among other elements of 2 interference. Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 956 (N.D. 3 Cal. 2003) (Judge Marilyn Hall Patel). Plaintiff also cannot merely assert that it “has been 4 damaged in an amount to be established according to proof at trial,” but rather must assert 5 particularized factual allegations, including specific economic relationships that defendants 6 disrupted. 7 Accordingly, plaintiff’s interference claims are DISMISSED. 8 TRADE SECRETS (COUNT V), UNFAIR COMPETITION (COUNTS VI AND VII), AND CONVERSION (COUNT X). 9 Defendants argue that plaintiff’s misappropriation of trade secrets, unfair competition, and 10 For the Northern District of California United States District Court conversion claims are preempted by the Copyright Act. This order agrees. Section 301(a) states: 11 14 all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 . . . are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. 15 17 U.S.C. 301(a). Preemption applies if the content of the protected right falls within the subject 16 matter of the Copyright Act and the rights asserted under state law are equivalent to those 17 protected by the Copyright Act. Sybersound Records, 517 F.3d at 1150. 12 13 18 Plaintiff’s misappropriation of trade secrets claim is based on the same nucleus of facts as 19 the copyright infringement claim. The complaint alleges that defendant Metcalf “gained access to 20 Plaintiff’s trade secrets consisting of software code and other proprietary information.” “Plaintiff 21 invested substantial time, money, and skill in developing its proprietary software applications, 22 software code, methods and other trade secrets. Defendants spent very little time and effort in 23 converting those same software applications for their own use” (Compl. ¶¶ 27, 82). 24 To plead a claim for trade secret misappropriation under the California Uniform Trade 25 Secrets Act (CUTSA), California Civil Code 3426, et seq., the complaint must assert (1) the 26 existence of a trade secret, and (2) misappropriation of the trade secret. Trade secret means: 27 28 information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain 6 1 economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 2 3 California Civil Code 3426.1. Plaintiff has not pled the existence of a trade secret. Simply 4 referring to “proprietary software applications” — which serve as the basis for plaintiff’s 5 copyright infringement claim — and vague “software code, methods and other trade secrets” 6 cannot suffice. Indeed, plaintiff cannot show efforts to maintain privacy of the so-called trade 7 secret because it received copyrights for its software applications. Plaintiff’s misappropriation of 8 trade secrets claim is thus preempted by the Copyright Act. 9 Defendants also argue that the unfair competition and conversion claims are preempted. This too is correct. Plaintiff alleges that defendants “misappropriat[ed] and conver[ted] Plaintiff’s 11 For the Northern District of California United States District Court 10 software application for their own use” and “stole and converted Plaintiff’s proprietary software 12 applications” (Compl. ¶¶ 91, 98, 122). These conclusory allegations fail to show claims of unfair 13 competition and conversion based on facts distinct from the copyright infringement claim. 14 15 Accordingly, plaintiff’s claims for misappropriation of trade secrets, unfair competition, and conversion are DISMISSED. 16 FRAUD AND DECEIT (COUNT VIII) AND NEGLIGENT MISREPRESENTATION (COUNT IX). 17 Defendants argue that plaintiff’s fraud and deceit and negligent misrepresentation claims 18 fail to meet the heightened pleading requirements under FRCP 9(b). Rule 9(b) states “[i]n 19 alleging fraud or mistake, a party must state with particularity the circumstances constituting 20 fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be 21 alleged generally.” “Under California law, the indispensable elements of a fraud claim include a 22 false representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages.” 23 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1105 (9th Cir. 2003) (internal quotation marks 24 and citations omitted). Plaintiff’s complaint is entirely inadequate in this regard. The complaint 25 alleges that: 26 27 28 Defendants made material misrepresentations of fact and omitted to state material facts with the knowledge that such statements, and/or omissions, were false and/or misleading. In particular, Defendants induced Plaintiff to share Plaintiff’s trade secrets, obtaining access to proprietary software code by misrepresenting the purpose for access to the code and concealing the Defendants’ intent to teal 7 1 2 [sic] and convert Plaintiff’s proprietary software and design to produce, manufacture, distribute, and sell copied and derivative works for their own account. 3 (Compl. ¶ 104). The first sentence is again parroted in plaintiff’s negligent misrepresentation 4 claim (Compl. ¶ 113). Plaintiff’s complaint is devoid of any specific allegations of who, what, 5 when, where, and how the allegedly fraudulent conduct occurred. All that is stated is that 6 defendant Brandon Metcalf “fraudulently induced Plaintiff to give him access to Jobscience 7 software code, process and methods, by requesting such access under the guise that he would 8 access the code for the purpose consistent with the Agreement and the confidentiality provisions 9 thereof” (Compl. ¶ 27). This falls below the heightened pleading requirements of FRCP 9(b). No particularized allegations surrounding the circumstances of the alleged fraudulent conduct by 11 For the Northern District of California United States District Court 10 each specific defendant are made. 12 13 14 Accordingly, plaintiff’s claims for fraud and deceit and negligent misrepresentation are DISMISSED. Defendants also argue that plaintiff’s tort claims for interference, unfair competition, fraud 15 and deceit, and negligent misrepresentation should be dismissed under the contract-tort 16 transmutation bar because plaintiff fails to allege an independent duty arising from principles of 17 tort law to support these claims. Plaintiff never substantively responded to this argument. It is, 18 however, unnecessary to reach this argument for the reasons stated above. 19 BREACH OF THE IMPLIED COVENANT (COUNT XI). 20 Our court of appeals has held that “[g]enerally, no cause of action for the tortious breach 21 of the implied covenant of good faith and fair dealing can arise [under California law] unless the 22 parties are in a ‘special relationship’ with ‘fiduciary characteristics’ . . . [t]hus, the implied 23 covenant tort is not available to parties of an ordinary commercial transaction where the parties 24 deal at arms’ length.” Pension Trust Fund v. Fed. Ins. Co., 307 F.3d 944, 955 (9th Cir. 2002). 25 Defendants argue that plaintiff fails to plead sufficient facts to show a “special relationship with 26 fiduciary characteristics” (Br. 23). The opposition does not respond to this argument. 27 28 A variety of factors are considered when determining whether a special relationship with fiduciary characteristics exists, including: 8 1 whether the parties were in unequal bargaining positions, whether the damaged party entered the contract for a nonprofit motive, whether ordinary contract damages were inadequate, whether one party is especially vulnerable because of the type of harm it may suffer and the adhesive nature of a contract requires the damaged party to place trust in the other to perform, and the other party knew of the vulnerability. 2 3 4 5 Mitsui Mfrs. Bank v. Superior Court, 212 Cal. App. 3d 726, 733 (1989). Plaintiff has not pled 6 sufficient facts to show any of these or similar factors in the complaint. 7 8 9 DISMISSED. CONSPIRACY (COUNT XII) AND CONSTRUCTIVE TRUST (COUNT XIII). As a threshold matter, civil conspiracy is not a separate and distinct cause of action under 11 For the Northern District of California United States District Court 10 Thus, plaintiff’s claim for breach of the implied covenant of good faith and fair dealing is California law. Entm’t Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 12 1228 (9th Cir. 1997), cert. denied, 523 U.S. 1021 (1998). Plaintiff’s reliance on Neblett v. Elliott, 13 46 Cal. App. 2d 294, 295 (1941), is unavailing because that was a libel decision. Plaintiff’s 14 conspiracy claim is DISMISSED WITHOUT LEAVE TO AMEND. 15 Similarly, constructive trust is not a claim for relief. See Malfatti v. Mortgage Elec. 16 Registrations Sys., No. 11-cv-03142-LB, 2011 WL 5975055, at *3 (N.D. Cal. Nov. 29, 2011). 17 Plaintiff’s claim for constructive trust is DISMISSED WITHOUT LEAVE TO AMEND. 18 19 CONCLUSION In sum, defendants’ motion to dismiss the copyright infringement and breach of contract 20 claims are DENIED. Plaintiff’s interference, misappropriation of trade secrets, unfair competition, 21 conversion, and breach of implied covenant of good faith and fair dealing are DISMISSED. 22 Plaintiff’s conspiracy and constructive trust claims are DISMISSED WITHOUT LEAVE TO AMEND. 23 It is premature to outright grant leave to amend at this point because it is not entirely clear 24 how and if the deficiencies in the first amended complaint can be cured. Plaintiff may file a 25 motion for leave to amend the first amended complaint (except as to those dismissed without 26 leave to amend), if supportable, within FOURTEEN CALENDAR DAYS of this order, noticed on a 27 35-day track. The motion should specifically detail how deficiencies outlined in this order can be 28 cured and append the proposed second amended complaint (and a redline showing the proposed 9 1 changes). Plaintiff, of course, can decide not to file a motion for leave to amend the first amended 2 complaint and proceed on the copyright infringement claim against all defendants and breach of 3 contract claim against defendants CVPartners, Inc., Kent Gray, and Brandon Metcalf. 4 5 IT IS SO ORDERED. 6 7 Dated: January 9, 2014. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10

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