Quintara Biosciences, Inc. v. Ruifeng Biztech Inc. et al.
Filing
28
ORDER GRANTING IN PART 18 MOTION TO DISMISS. SIGNED BY JUDGE ALSUP. (whalc2, COURT STAFF) (Filed on 10/16/2020)
1
2
3
4
5
UNITED STATES DISTRICT COURT
6
7
NORTHERN DISTRICT OF CALIFORNIA
8
9
10
QUINTARA BIOSCIENCES, INC.,
Plaintiff,
United States District Court
Northern District of California
11
12
13
14
No. C 20-04808 WHA
v.
RUIFENG BIZTECH INC., et al.,
ORDER RE MOTION TO DISMISS
Defendants.
15
16
INTRODUCTION
17
In this potpourri of disputes between former business partners, defendants move to
18
dismiss a subset of plaintiff’s claims. For the following reasons, the motion is GRANTED IN
19
PART AND DENIED IN PART.
20
21
STATEMENT
A prior order detailed the extraordinary allegations here (Dkt. No. 19), but they bear
22
restating. Drs. Qun ‘Richard’ Shan and Xueling ‘Sue’ Zhao started their DNA-sequence
23
analysis company, plaintiff Quintara Biosciences, Inc., in their garage in 2005. Purchasing
24
startup equipment with a $230,000 home equity loan, they toiled long hours and many
25
sleepless nights, while raising children and working other full-time jobs, to eventually build
26
Quintara into a respected genetic-sequencing analysis business.
27
28
Despite success, however, Quintara developed cash flow problem in 2013. Then entered
defendant Gangyou Wang, whom Shan and Zhao met through a mutual acquaintance. Wang
1
said he could solve Quintara’s problems with an interest-free $1,000,000 loan with conditions
2
structured to aid his green card application. Wang’s company, defendant Ruifeng Biztech Inc.,
3
would appear to take over, at least in name, operation of Quintara. Ruifeng would operate the
4
lab and pay the employees. On his green card application, then, Wang could say that he had
5
brought a million dollar startup with at least ten employees to the United States. By the time
6
Wang obtained his green card, Quintara would have paid back the million dollar loan, and the
7
relationship would terminate. The parties finalized the deal with a handshake.
8
Following the initial loan, though, Wang convinced Shan and Zhao to enter a
9
collaboration agreement. Quintara and Ruifeng would start a joint venture; Ruifeng would
10
own 51%; Quintara would own 49%. The parties, however, never formed any new entity.
United States District Court
Northern District of California
11
Skip ahead to September 2017. Wang asked for another favor, that Ruifeng be added
12
onto the lease for Quintara’s California headquarters, 3563 Investment Blvd., Suite 2,
13
Hayward, California. Wang promised nothing would change in the parties’ actual practice;
14
Quintara would operate as usual, pay rent to Ruifeng, and Ruifeng would pass the rent along to
15
the landlord. Unbeknownst to Shan and Zhao however, Wang forged Shan’s name on a lease
16
termination agreement, leaving the premises in Ruifeng’s name alone.
17
In early 2019, Quintara had repaid the million dollar loan and Wang had obtained his
18
green card, so Shan and Zhao sought to terminate the relationship between Quintara and
19
Ruifeng. But Wang refused, claiming under the collaboration agreement that Ruifeng owned
20
51% of Quintara’s business assets. When Quintara nonetheless announced termination of the
21
relationship, Wang secretly (and successfully) solicited several Quintara employees to jump
22
ship to Ruifeng. Finally, on March 9, 2020, the wolf emerged from the sheep’s clothing.
23
Wang changed the locks on the 3563 Investment Blvd. premises and denied entry to Quintara
24
employees. He then started defendant RF Biotech LLC to operate Quintara’s business, out of
25
Quintara’s premises, with Quintara’s equipment, and with Quintara’s prior employees,
26
defendants Alex Wong, Alan Li, Rui Shao.
27
28
Five months later, Quintara sued for various business torts and sought both a temporary
restraining order and preliminary injunction compelling defendants to turn over the 3563
2
1
Investment Blvd. premises, return Quintara’s equipment, and cease using any trade secrets
2
obtained. Given Quintara’s delay undermined any argument of immediate and irreparable
3
harm, a prior order denied preliminary injunctive relief (Dkt. No. 19). Defendants now seek to
4
dismiss Quintara’s fraud claim against Mr. Wang, trade secrets claim for exemplary damages
5
and fees, and claim for damages under California Business and Professions Code § 17200.
6
This order follows full briefing and is appropriate for disposition on the papers.
ANALYSIS
7
8
9
A complaint must allege sufficient factual matter to state a facially plausible claim for
relief. Simply, the allegations must permit the reasonable inference, without speculation, that
defendants are, in fact, liable for the conduct alleged. We take as true all factual allegations
11
United States District Court
Northern District of California
10
but legal conclusions merely styled as fact may be disregarded. Ashcroft v. Iqbal, 556 U.S.
12
662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
13
1.
14
Defendants challenge Quintara’s fraud claim against Mr. Wang. “The elements of fraud
FRAUD CLAIM.
15
are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2)
16
knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable
17
reliance; and (5) resulting damage.” Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th
18
979, 990 (2004).
19
Taken in Quintara’s favor, the complaint alleges that Wang intentionally
20
mischaracterized (1) the initial loan structure, (2) the subsequent collaboration agreement, and
21
(3) the 2017 lease substitution as legitimate means of support for his permanent residence
22
application when each was, in fact, improper and (more importantly) part of Wang’s plan to
23
convert Quintara’s business and assets. Defendants challenge causation, contending that
24
Quintara was not fraudulently induced by any representations. This order agrees.
25
A plaintiff’s reliance on a defendant’s misrepresentation “must be justifiable” in light of
26
plaintiff’s “own intelligence and information.” Hobart v. Hobart Estate Co., 26 Cal.2d 412,
27
447 (1945). Now, “[n]egligence on the part of the plaintiff in failing to discover the falsity of a
28
statement is no defense when the misrepresentation was intentional.” But:
3
1
If the conduct of the plaintiff in the light of his own intelligence
and information was manifestly unreasonable . . . he will be denied
a recovery. He may not put faith in representations which are
preposterous, or which are shown by facts within his observation
to be so patently and obviously false that he must have closed his
eyes to avoid discovery of the truth.
2
3
4
5
Seeger v. Odell, 18 Cal. 2d 409, 414–16 (1941) (Traynor, J.); in re Kirsch, 973 F.2d 1454,
6
1459 (9th Cir. 1992). “California courts do not . . . merely wink at this requirement, but rather
7
take it quite seriously.” Atari Corp. v. Ernst & Whinney, 981 F.2d 1025, 1031 (9th Cir. 1992).
8
Here, Quintara’s conduct can be taken only as willful blindness to its circumstances. To
repeat the complaint: Quintara took an unwritten one million dollar loan with significant
10
strings attached from a new business partner in 2013, entered an illusory joint-ownership
11
United States District Court
Northern District of California
9
collaboration agreement shortly thereafter, and in 2017 agreed to a lease name swap, which
12
Quintara’s own founders suspected to be illicit (Compl., Dkt. No. 1, at ¶¶ 14, 15, 19, 20, 22,
13
23). It is now 2020. A multi-million dollar technology company that proceeds through seven
14
years of expansion, business deals, corporate and employee tax filings, along with unwritten
15
million dollar loans, illusory collaboration agreements, and suspect real estate deals without
16
consulting counsel has deliberately buried its head in the sand. Quintara’s willful blindness to
17
the circumstances shining a spotlight on the alleged misconduct forecloses its justifiable
18
reliance on Wang’s misrepresentations, however intentional, and undermine its fraud claim.
19
2.
20
Defendants next challenge Quintara’s trade secret misappropriation claim for exemplary
TRADE SECRET EXEMPLARY DAMAGES & ATTORNEY’S FEES.
21
damages and attorney’s fees. The Defend Trade Secrets Act, which created a federal trade
22
secret misappropriation claim in 2016, provides for exemplary damages and attorney’s fees if
23
“the trade secret was willfully and maliciously misappropriated.” 18 U.S.C. § 1836(b)(3)(C)–
24
(D); Genentech, Inc. v. JHL Biotech, Inc., No. C 18-06582 WHA, 2019 WL 1045911, at *8
25
(N.D. Cal. March 5, 2019).
26
Before an employer may recover exemplary damages and fees from an employee for
27
trade secret misappropriation, however, the employer must inform the employee via written
28
policy of the DTSA’s whistleblower protections for the disclosure of protected information to,
4
1
among others, government officials or for investigative purposes. 18 U.S.C. § 1833(b).
2
Defendants note, and Quintara does not contest, that Quintara’s non-disclosure agreement (as
3
alleged) did not include the relevant whistleblower protection notice. So, defendants argue,
4
Quintara may not recover exemplary damages or attorney’s fees. This order agrees in part.
5
To start, Quintara correctly responds, and defendants do not contest, that defendants
6
Wang, Ruifeng, and RF Biotech never worked for Quintara. So their alleged misappropriation
7
will support exemplary damages and fees, regardless of any whistleblower notice in Quintara’s
8
NDA.
9
As to defendants who were Quintara employees, Alex Wong, Alan Li, and Rui Shao,
Quintara argues that the notice requirement does not apply. Indeed, though Subsection
11
United States District Court
Northern District of California
10
1833(b)(3)(C) states that “employer may not be awarded exemplary damages or attorney fees”
12
if it “does not comply with the notice requirement,” the next subsection, 1833(b)(3)(D), cabins
13
this limitation to “to contracts and agreements that are entered into or updated after the date of
14
enactment of this subsection.” And, as Quintara argues in opposition, Wong, Li, and Shao
15
joined Quintara and signed the operative NDA well before May 11, 2016, when the DTSA
16
took effect.
17
But that’s not what the complaint alleges. Quintara itself admits that the complaint “does
18
not state when these policies were signed, nor if and when they were updated, aside from
19
stating that Wong began working for Quintara in 2007” (Dkt. No. 24). Allegations merely
20
consistent with rather than indicative of liability do not show entitlement to relief. Absent any
21
allegation when Wong, Li, and Shao signed Quintara’s NDA, the application of § 1833(b)
22
remains speculative and does not fairly put these defendants on notice of their potential
23
liability. See Twombly, 550 U.S. at 555–57. On these pleadings, Quintara may not recover
24
exemplary damages and attorney’s fees from defendants Wong, Li, and Shao.
25
3.
26
Last, defendants contend Quintara’s claim for damages under § 17200 fails. The
27
SECTION 17200.
complaint alleges:
28
5
1
2
3
4
73. Defendants’ conduct[] [was a] fraudulent and unlawful
business practice[] in violation of the unfair competition law of
California, Cal. Bus. and Prof. Code §17200.
74. As a result of Defendants’ acts, Plaintiff has suffered harm and
is entitled to recover damages, the exact amount to be determined
at trial.
5
Cursory examination of § 17200 and the relevant following sections describing its enforcement
6
reveal that the section offers restitution and injunction, not damages. See also, Korea Supply
7
Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1144 (2003). Quintara contends that the
8
distinction here is merely semantic. Not so. Rule 8 requires “a demand for the relief sought.”
9
Quintara seeks relief foreclosed by its claim. Its claim for damages under § 17200 fails.
CONCLUSION
10
United States District Court
Northern District of California
11
For the foregoing reasons, defendants’ motion is GRANTED IN PART. Quintara’s claims
12
for fraud against defendant Gangyou Wang, for damages under California Business and
13
Professions Code § 17200, and for exemplary damages and attorney’s fees under the Defend
14
Trade Secrets Act, 18 U.S.C. § 1836(b)(3)(C), (D), against defendants Alex Wong, Alan Li,
15
and Rui Shao are DISMISSED. The remainder of defendants’ motion is DENIED. Quintara’s
16
claim for exemplary damages and attorney’s fees under the DTSA against defendants Ruifeng
17
Biztech Inc., Gangyou Wang, and RF Biotech LLC may proceed. Unchallenged here,
18
Quintara’s claims for conversion, breach of the duty of loyalty, and misappropriation of trade
19
secrets may also proceed.
20
*
*
*
21
The October 22 hearing and case management conference is VACATED. A case
22
management order will follow. The parties may move to amend the case schedule by
23
OCTOBER 29 AT NOON in a motion not exceeding 10 PAGES.
24
Quintara may move for leave to amend its complaint by NOVEMBER 5 AT NOON. Any
25
such motion must include as an exhibit a redlined version of the proposed amendment that
26
clearly identifies all changes from the amended complaint. This order highlighted certain
27
deficiencies in the amended complaint, but it will not necessarily be enough to add sentences
28
6
1
parroting each missing item identified herein. If Quintara moves for leave to amend, it should
2
be sure to plead its best case.
3
IT IS SO ORDERED.
4
5
Dated: October 16, 2020.
6
7
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE
8
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?