Beautiful Slides, Inc. et al v. Allen

Filing 34

ORDER GRANTING COUNTERDEFENDANTS' MOTION TO DISMISS COUNTERCLAIMS; AFFORDING COUNTERCLAIMANT LEAVE TO AMEND. If Allen wishes to amend her Counterclaim to cute the noted deficiencies, she shall file her First Amended Counterclaim no later than September 20, 2017. In the event Allen does not wish to amend within the time provided, the Counterclaim will proceed only as to the Fifth, Sixth, and Seventh Causes of Action. Signed by Judge Maxine M. Chesney on 08/31/17. (mmclc2, COURT STAFF) (Filed on 8/31/2017)

1
2
3
4

IN THE UNITED STATES DISTRICT COURT

5

FOR THE NORTHERN DISTRICT OF CALIFORNIA

6
7

BEAUTIFUL SLIDES, INC., et al.,
Plaintiff,

10

MAY ALLEN,

United States District Court
Northern District of California

MAY ALLEN,
Counterclaimant,

13
14
15

Re: Dkt. No. 19

v.

11
12

ORDER GRANTING
COUNTERDEFENDANTS’ MOTION TO
DISMISS COUNTERCLAIMS;
AFFORDING COUNTERCLAIMANT
LEAVE TO AMEND

Defendants.

8
9

Case No. 17-cv-01091-MMC

v.
BEAUTIFUL SLIDES, INC., et al.,
Counterdefendants.

16
17
18

Before the Court is counterdefendants Beautiful Slides, Inc. (“BSI”) and Mitch

19

Grasso’s (“Grasso”) motion, filed May 1, 2017, to dismiss, pursuant to Rule 12(b)(6) of

20

the Federal Rules of Civil Procedure, four of the seven causes of action in

21

counterclaimant May Allen’s (“Allen”) counterclaim (“Counterclaim”). Allen has filed

22

opposition, to which counterdefendants have replied. Having read and considered the

23

papers filed in support of and in opposition to the motion, the Court rules as follows. 1
BACKGROUND

24
25
26

On March 2, 2017, counterdefendants filed against Allen a complaint for
declaratory relief, alleging Allen had “threatened to commence litigation” against them for

27
1

28

By order filed July 14, 2017, the Court took the matter under submission.

1

“copyright infringement, conversion, misappropriation of trade secrets, breach of

2

confidence, breach of contract, and fraud,” which counterdefendants denied having

3

committed. (See Complaint ¶ 29.) On April 10, 2017, Allen filed her Counterclaim, which

4

pleading is the subject of the instant motion.

5

In her Counterclaim, Allen alleges that she “works in software design, marketing,

6

and product management,” that Grasso “is a software coder by trade,” and that Allen and

7

Grasso “worked at VMware together.” (See Countercl. ¶¶ 8, 10.)2 Allen alleges that

8

Grasso, “[o]n or about 2014,” talked “to Allen about developing new presentation

9

software,” that “Grasso did not have a differentiating idea,” and that, “[i]n April 2014,”
when Allen “came up with a differentiating idea,” she and Grasso “agreed to work

11
United States District Court
Northern District of California

10

together to develop the product and the business around it,” which project they referred

12

to as “Beautiful Slides.” (See id. ¶¶ 11, 12.) Allen further alleges that, “[i]n the

13

subsequent months,” she and Grasso “collaborated on the fundamental design of the

14

application, its user interface, [and] its coloration,” and that Allen made various

15

contributions, such as “illustrated mock-ups,” marketing ideas, and “feature

16

improvements.” (See id. ¶¶ 13-14.)

17

According to Allen, although she and Grasso had “few formal discussions . . .

18

about the nature of their relationship,” they “did have a discussion, in June 2014,” during

19

which “Allen suggested the parties come to a formal agreement in writing expressing the

20

nature of their partnership,” and that “Grasso did not controvert that the [p]arties were

21

partners, nor co-founders in a new joint venture,” instead “respond[ing] that a formal

22

codification of [their] relationship was premature and unnecessary because [they] were

23

friends, that there was trust in the relationship, and for that reason Grasso had no intent

24

to ‘screw’ over Allen.” (See id. ¶ 15.) Allen alleges she relied “on these representations

25

in continuing to work with Grasso on the Beautiful Slides project” and that, “[f]rom both

26
27
28

2

As alleged in the complaint and admitted by Allen in her answer, VMware is “a
well-known provider of cloud and virtualization software.” (See Compl. ¶ 9; Answer ¶ 9.)
2

1

[p]arties perspective[,] there clearly appeared to be a joint desire to work together to

2

develop a new kind of presentation software for a profit.” (See id.)

3

Allen further alleges that, although Grasso was “side-tracked” from June 2014

4

through March 2016, he “resurfaced” in March 2016, at which point their “joint venture

5

was revived,” and Allen “took the lead to take the initial version to the next level” by hiring

6

“beta testers” and giving Grasso “tasks” concerning “changes that needed to be made”;

7

she also “investigated office space” and “consulted” with Grasso as to hiring and whether

8

to sell the intellectual party to a third party who had “expressed interest” in it. (See id.

9

¶¶ 17-19.)
“By August 2016,” Allen alleges, Grasso and Allen were “approaching [their

11
United States District Court
Northern District of California

10

respective] investor contacts” while “Allen continued to develop the business around the

12

product.” (See id. ¶¶ 20-21.) At this point, according to Allen, Grasso “cut[] Allen

13

completely out of the deal” by “form[ing] Beautiful Slides, Inc.,” (see id. ¶ 23), accepting

14

investments from third parties who “did not know of Allen’s existence as a partner in the

15

Beautiful Slides project” (see id.), “assigning “intellectual property to the corporation” (see

16

id. ¶ 29”), and “registering a copyright in a confusing manner,” without “any mention of

17

the partnership and/or Allen’s authorship and/or other interest in the work,” (see id.), after

18

which he “instructed Allen to quit her current job so that she [could] work with him . . . as

19

an ‘employee,’” to which Allen “naturally objected” (see id. ¶¶ 24-25).

20

Based on the above allegations, Allen brings the following seven causes of action:

21

(1) “Breach of Fiduciary Duty (Against Counter-Defendant Grasso),” (2) “Conversion

22

(Against All Counter-Defendants),” (3) “Breach of Implied Contract (Against Counter-

23

Defendant Grasso),” (4) “Fraud by Intentional Misrepresentation and Concealment

24

(Against Counter-Defendant Grasso,” (5) “Declaratory Relief Re Copyright Authorship

25

and Validity of Beautiful Slides Application (Against All Counter-Defendants),” (6)

26

“Declaratory Relief Re Copyright Authorship and Validity of Beautiful Slides Animations

27

(Against All Counter-Defendants),” and (7) “Declaratory Relief Re Copyright Authorship

28

and Validity of Beautiful Slides Identity (Against All Counter-Defendants).”
3

LEGAL STANDARD

1

Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure “can be

2
3

based on the lack of a cognizable legal theory or the absence of sufficient facts alleged

4

under a cognizable legal theory.” See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696,

5

699 (9th Cir. 1990). Rule 8(a)(2), however, “requires only ‘a short and plain statement of

6

the claim showing that the pleader is entitled to relief.’” See Bell Atlantic Corp. v.

7

Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). Consequently, “a

8

complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual

9

allegations.” See id. Nonetheless, “a plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic recitation

11
United States District Court
Northern District of California

10

of the elements of a cause of action will not do.” See id. (internal quotation, citation, and

12

alteration omitted).
In analyzing a motion to dismiss, a district court must accept as true all material

13
14

allegations in the complaint, and construe them in the light most favorable to the

15

nonmoving party. See NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).

16

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

17

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

18

556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “Factual allegations must

19

be enough to raise a right to relief above the speculative level[.]” Twombly, 550 U.S. at

20

555. Courts “are not bound to accept as true a legal conclusion couched as a factual

21

allegation.” See Iqbal, 556 U.S. at 678 (internal quotation and citation omitted).
DISCUSSION

22

Counterdefendants move to dismiss the First through Fourth Causes of Action on

23
24

the asserted grounds that (1) the First, Second, and Third Causes of Action are

25

preempted by the Copyright Act, (2) the Third Cause of Action fails to adequately allege

26

the terms of an implied contract or any breach thereof, and (3) the Fourth Cause of

27

Action fails to plead fraud with sufficient particularity.

28

//
4

1

A. Copyright Preemption

2

Counterdefendants contend the First through Third Causes of Action, alleging,

3

respectively, breach of fiduciary duty, conversion, and breach of implied contract, are

4

preempted by the Copyright Act because, according to counterdefendants, each such

5

claim is based on “alleged conduct by [Grasso] that deprived Allen of the ability to profit

6

from the copying and use of the software,” which ability, counterdefendants contend, is

7

“subsumed within federal copyright law.” (See Mot. at 1:4-7 (internal quotation and

8

citation omitted).)
Pursuant to § 301 of the Copyright Act, “all legal or equitable rights that are

10

equivalent to any of the exclusive rights within the general scope of copyright” are

11
United States District Court
Northern District of California

9

“governed exclusively by [the Copyright Act],” and, consequently, “no person is entitled to

12

any such right or equivalent right . . . under the common law or statutes of any State.”

13

See 17 U.S.C. § 301(a). Section 301 “establishes a two-part test for preemption”: (1) the

14

work at issue “must come within the subject matter of copyright as defined in . . . the

15

Copyright Act”; and (2) “the rights granted under state law must be equivalent to any of

16

the exclusive rights within the general scope of copyright as specified by Section 106 of

17

the Copyright Act.” See Del Madera Prop. v. Rhodes & Gardner, Inc., 820 F.2d 973, 976

18

(9th Cir. 1987) (internal quotation, citation, and alteration omitted).3

19

Allen does not dispute that the first part of the preemption test, i.e., that the work

20

involved comes “within the subject matter of copyright,” see id. (internal quotation and

21

citation omitted), has been met. Allen does argue, however, that the second part of the

22

preemption test, i.e., that the rights granted under state law are “equivalent to any of the

23

exclusive rights within the general scope of copyright,” see id. (internal quotation and

24

citation omitted), has not been met.

25

“To survive preemption, the state cause of action must protect rights which are

26
3

27
28

“Section 106 of the Copyright Act provides a copyright owner with exclusive
rights of reproduction, preparation of derivative works, distribution, and display.” See Del
Madera, 820 F.2d at 977 (citing 17 U.S.C. § 106).
5

1

qualitatively different from the copyright rights” and “must have an ‘extra element’ which

2

changes the nature of the action.” See id. (internal quotation and citation omitted). Here,

3

Allen argues, there is an “extra element” in each of the challenged claims. As to her First

4

Cause of Action, breach of fiduciary duty, Allen contends “California partnership law

5

offers [her] a number of additional protections that the Copyright Act does not” (see Opp.

6

at 4:25-26); as to her Second Cause of Action, conversion, Allen contends she “seeks the

7

return of her share of the business assets regardless of whether these assets are

8

copyrightable or not” (see id. at 5:12-14); and as to her Third Cause of Action, breach of

9

implied contract, Allen contends she has alleged breach of an implied agreement “to work
on a startup together—not breach of an agreement restricting use of [her] ideas” (see id.

11
United States District Court
Northern District of California

10

at 5:27-6:1 (internal quotation and emphasis omitted)).

12

Each of the “extra elements” on which Allen relies, however, is predicated on the

13

existence of a partnership or joint venture, and, as set forth below, the Court finds Allen

14

has not adequately alleged the existence of either relationship.

15

Under California law, a partnership is defined as “the association of two or more

16

persons to carry on as co-owners a business for profit,” see Cal. Corp. Code § 16202(a),

17

and a joint venture is defined as “an undertaking by two or more persons jointly to carry

18

out a single business enterprise for profit,” see Weiner v. Fleischman, 54 Cal. 3d 476,

19

482 (1991) (internal quotation and citation omitted). “From a legal standpoint, both

20

relationships are virtually the same,” and either “may be formed orally or assumed to

21

have been organized from a reasonable deduction from the acts and declarations of the

22

parties.” See id. at 482-83 (internal quotation and citation omitted).

23

Here, Allen does not allege an express agreement to enter into a partnership or

24

joint venture, whether oral or written, but, rather, relies on the conduct of the parties. As

25

discussed below, however, the Court finds Allen has not adequately alleged either of the

26

two requisite elements of a partnership or joint venture, namely, an intent to share profits

27

and an intent to jointly manage and control the enterprise.

28

First, to form a partnership or joint venture, the parties must either explicitly agree
6

1

to share profits or engage in conduct from which an agreement to do so may be

2

assumed. See Holmes v. Lerner, 74 Cal. App. 442, 457 (1999) (holding, although

3

evidence of “actual sharing of profits” is not required, partnership requires “an

4

understanding to share in profits and losses as any business owners would,” which

5

understanding may be derived from “the conduct of the parties”); see also Simmons v.

6

Ware, 213 Cal. App. 4th 1035, 1049 (2013) (holding “[a]greement to share in the profits .

7

. . of the enterprise is . . . essential to a joint venture”) (internal quotation and citation

8

omitted). Allen, however, has not alleged an express agreement to share profits, nor has

9

she set forth any facts to support her conclusory allegation that “Grasso had reason to
know that Allen would interpret their conduct as an agreement to enter into a contract . . .

11
United States District Court
Northern District of California

10

to share in the profits from the venture.” (See Countercl. ¶ 43.) Consequently, Allen has

12

failed to plead the first required element.

13

Likewise, Allen has failed to plead the second required element. “An essential

14

element of a partnership or joint venture is the right of joint participation in the

15

management and control of the business.” See Kaljian v. Menezes, 36 Cal. App. 4th

16

573, 586 (1995) (internal quotation and citation omitted). Although Allen alleges she and

17

Grasso consulted on various business decisions, such as “who to hire as a potential

18

CTO” and whether to accept a third party’s offer (see Countercl. 18-19), she does not

19

allege she had an equal vote in any final management decision. See, e.g., Bank of

20

California v. Connolly, 36 Cal. App. 3d 350, 364 (1973) (finding “essential element of right

21

to joint control was absent” where “court could have reasonably inferred [plaintiffs] were

22

invited to participate in [marketing] decisions, not because they had a voice in

23

management decisions . . . , but because they were expected to provide their skills and

24

services [to the enterprise]”); Fredianelli v. Jenkins, 911 F. Supp. 2d 1001, 1021 (N.D.

25

Cal. 2013) (holding plaintiff failed to show partnership interest in rock group where

26

plaintiff had not shown he “ever had any control in a decision by the [b]and”; noting a

27

decision “made in consultation with [p]laintiff [did] not imply that [p]laintiff had the power

28
7

1

to change the outcome”) (internal quotation omitted). 4

2

By contrast, in Brown v. Snapchat, No. CV 13-08569, 2014 WL 12573368, (C.D.

3

Cal. Feb. 3, 2014), a case Allen contends contains “facts highly similar” to her own (see

4

Opp. at 3:14), the plaintiff alleged not only that he and the individual defendants

5

expressly agreed “each would have equal say in the control and management of the joint

6

venture/partnership,” but further alleged that they, in fact, “voted to make important

7

decisions concerning the [product].” See First Amended Complaint ¶¶ 29, 38, Brown, No.

8

CV 13-08569, 2014 WL 12573368. Here, Allen has alleged neither an express

9

agreement to share control5 nor an instance in which she and Grasso voted as to an

10

important decision.
Absent adequate allegations as to the existence of a partnership or joint venture,

United States District Court
Northern District of California

11
12

Allen cannot avoid preemption by arguing that her “rights under [California’s] partnership

13

and joint venture law” are “broader” than, and therefore “not equivalent to[,] any exclusive

14

rights in the Copyright Act.” (See Opp. at 4:1-3 (quoting Brown, 2014 WL 12573368, at

15

*3).

16
17

Accordingly, the First through Third Causes of Action will be dismissed with leave
to amend.6

18
4

19
20
21
22
23
24
25
26
27

The Court notes that many of the cases concerning joint control involve ongoing
businesses, wherein various management decisions have been made and, consequently,
the manner in which the plaintiff participated in such decisions can be evaluated,
whereas here, at the time Allen alleges the partnership/joint venture was breached, the
business had not yet launched. In the few cases finding a joint venture where the
business was not yet established, the plaintiff had alleged an express oral agreement as
to joint control. See, e.g., Second Measure, Inc. v. Kim, 143 F. Supp. 3d 961, 964, 972
(N.D. Cal. 2015) (finding partnership/joint venture adequately pleaded where company
incorporated after plaintiff’s role “ended” but plaintiff alleged parties had “agreed to have
equal say in the control of the management”).
5

Indeed, the only agreement reflected in the pleadings is a prior employment
relationship. (See Compl. ¶ 9 (alleging Grasso “founded . . . SlideRocket,” which he later
“sold to VMWare,” and, “[w]hile working at SlideRocket, Grasso hired Allen as an entrylevel quality assurance contractor”); Answer ¶ 9 (admitting Grasso “co-founded
SlideRocket,” which “was sold to VMWare,” and that Allen “was hired by SlideRocket as
an entry-level quality assurance contractor”).)
6

28

If Allen chooses to amend to plead additional facts in support of a partnership or
joint venture, she also should specify the “non-copyrightable partnership property” she
8

1

B. Failure to Allege Terms and Breach of Implied Contract

2

Counterdefendants argue the Third Cause of Action, breach of implied contract, is

3

subject to dismissal on the additional ground that “Allen does not allege sufficient facts to

4

give rise to an implied contract, or conduct amounting to a breach of the agreement.”

5

(See Mot. at 11:10-11.)

6

Under California law, “[a]n implied contract is one, the existence and terms of

7

which are manifested by conduct.” See Cal. Civ. Code § 1621. Here, as set forth above,

8

Allen alleges “Grasso had reason to know that [she] would interpret their conduct as an

9

agreement to enter into a contract, namely, to share in the profits from the venture” (see
Countercl. ¶ 43), but has not alleged a course of conduct from which any such agreement

11
United States District Court
Northern District of California

10

may be implied.7

12

Accordingly, the Third Cause of Action will be dismissed with leave to amend.

13

C. Failure to Plead Fraud with Sufficient Particularity

14

Counterdefendants argue the Fourth Cause of Action, fraud, is subject to dismissal

15

for failure to comply with Rule 9(b) of the Federal Rules of Civil Procedure, which

16

requires a party “alleging fraud or mistake . . . state with particularity the circumstances

17

constituting fraud or mistake.” See Fed. R. Civ. P. 9(b).

18

Under California law, fraud can take the form of a knowing, affirmative

19

misrepresentation, a suppression of a fact, or a promise, made without intention of

20

performing it. See Cal. Civ. Code § 1710. Here, although the Fourth Cause of Action is

21

titled “Fraud by Intentional Misrepresentation and Concealment,” the Court finds Allen

22

fails to plead either form of fraud in compliance with Rule 9(b).

23
24

contends forms the basis of her conversion claim. (See Opp. at 5:18.)
7

25
26
27
28

The Court is not persuaded, however, to the extent counterdefendants contend
that, even if Allen had sufficiently pleaded an implied contract, she has failed to allege a
breach because, according to counterdefendants, she has not alleged Grasso’s company
“actually sold any products or services, much less that [it] earned a profit doing so.” (See
Mot. at 11:3-6.) As Allen points out, she alleges Grasso took “for himself all profits and
compensation that would have gone to [Allen]” (see Countercl. ¶ 9), which, read in the
light most favorable to Allen, the Court understands to allege profits were in fact earned.
9

1

First, Allen fails to plead a misrepresentation. As counterdefendants correctly

2

point out, Allen does not set forth the “specific content” of any representation on which

3

she relies, see Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (holding Rule

4

9(b) “requires . . .an account of the time, place, and specific content of the false

5

representations”), or why any such representation was false at the time it was made, see

6

U.S. v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016) (holding Rule

7

9(b) requires allegation specifying “what is false or misleading about a statement, and

8

why it is false”).
Second, Allen fails to plead fraudulent concealment. Allen alleges Grasso

10

“intentionally failed to disclose certain facts to Allen, namely, that if and when the product

11
United States District Court
Northern District of California

9

and business they were jointly developing became profitable, he intended to cut Allen out

12

as a founder.” (See Countercl. ¶ 50.) Under California law, however, nondisclosure or

13

concealment is only actionable where the “defendant is in a fiduciary relationship with the

14

plaintiff” or there is “some other relationship” or “transaction” between the parties “which

15

gives rise to a duty to disclose,” such as “seller and buyer, employer and prospective

16

employee, doctor and patient, or parties entering into any kind of [a] contractual

17

agreement.” See Hoffman v. 162 N. Wolfe LLC, 228 Cal. App. 4th 1178, 1186-87 (2014)

18

(internal quotation and citation omitted). Here, as set forth above, Allen has not

19

adequately alleged a fiduciary relationship or contractual agreement with Grasso, and

20

she has not alleged any other relationship that would give rise to a duty to disclose.

21

Next, although not encompassed in its title or text, to the extent Allen bases her

22

Fourth Cause of Action on a theory that Grasso’s statement in 2014 that he “had no

23

intent to ‘screw [her] over’” (see Countercl. ¶ 15) constituted a promise without intent to

24

perform, such claim likewise fails. Even assuming, arguendo, such statement can be

25

construed as a potentially actionable promise, Allen, as counterdefendants point out,

26

appears to allege that Grasso did not form the intent to “cut [her] out” until two years later,

27

in “2016” (see id. ¶¶ 21-22); see also Magpali v. Farmers Group, Inc., 48 Cal. App. 4th

28

471, 481 (1996) (holding “promise of future conduct is actionable as fraud only if made
10

1
2

without a present intent to perform”) (emphasis added).
Lastly, a party bringing a fraud claim must allege “actual and justifiable reliance”
on the alleged fraudulent conduct. See Beckwith v. Dahl, 205 Cal. App. 4th 1039, 1062

4

(2012). Here, Allen’s allegation that she “reasonably would have behaved differently” if

5

“the omitted information had been disclosed” (see Countercl. ¶ 54) does not allege

6

reliance with the “requisite specificity.” See Beckwith, 205 Cal. App. 4th at 1063; see

7

also id. at 1062 (holding “the plaintiff’s actual and justifiable reliance on the defendant’s

8

misrepresentation must have caused him to take a detrimental course of action”). Nor

9

can Allen rely on her assertion, in her opposition, that “she would have either insisted on

10

formalizing the parties’ relationship in writing, refused to contribute further to the project,

11
United States District Court
Northern District of California

3

and/or develop[ed] her own project” (see Opp. at 11:13), as she has made no such

12

allegation in her Counterclaim.

13

Accordingly, the Fourth Cause of Action will be dismissed with leave to amend.
CONCLUSION

14
15

For the reasons set forth above, counterdefendants’ motion to dismiss is hereby

16

GRANTED, and the First through Fourth Causes of Action in Allen’s Counterclaim are

17

hereby DISMISSED. If Allen wishes to amend her Counterclaim to cure the above-noted

18

deficiencies, she shall file her First Amended Counterclaim no later than September 20,

19

2017. In the event Allen does not wish to amend within the time provided, the

20

Counterclaim will proceed only as to the Fifth, Sixth, and Seventh Causes of Action.

21
22

IT IS SO ORDERED.

23
24

Dated: August 31, 2017
MAXINE M. CHESNEY
United States District Judge

25
26
27
28
11