Interserve, Inc. et al v. Fusion Garage PTE. LTD

Filing 185

Memorandum in Opposition re 181 MOTION to Dismiss Fraud and Deceit and Unfair Competition Claims filed byCrunchPad, Inc., Interserve, Inc.. (Scherb, Matthew) (Filed on 10/14/2010)

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Andrew P. Bridges (SBN: 122761) [e-mail] David S. Bloch (SBN: 184530) [e-mail] Matthew A. Scherb (SBN: 237461) [e-mail] WINSTON & STRAWN LLP 101 California Street San Francisco, CA 94111-5802 Telephone: [phone] Facsimile: [phone] Attorneys for Plaintiffs TECHCRUNCH, INC. and CRUNCHPAD, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION

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TECHCRUNCH, INC., a Delaware corporation, ) and CRUNCHPAD, INC., a Delaware ) corporation, ) ) Plaintiffs, ) ) vs. ) ) FUSION GARAGE PTE. LTD., a Singapore ) company, ) ) Defendant. ) )

Case No. CV-09-5812 RS (PVT) PLAINTIFFS' OPPOSITION TO DEFENDANT'S MOTION TO DISMISS FRAUD AND DECEIT AND UNFAIR COMPETITION CLAIMS Date: November 4, 2010 Time: 1:30 P.M. Place: Courtroom 3, 17th Floor, San Francisco Hon. Richard Seeborg

Plaintiffs' Opp. to Def.'s Motion to Dismiss Fraud and Unfair Competition Claims -- Case No. CV-09-5812 RS (PVT)

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TABLE OF CONTENTS I. II. III.

Page

INTRODUCTION .....................................................................................................................1 STATEMENT OF THE ISSUES...............................................................................................1 FACTUAL BACKGROUND ....................................................................................................1 A. B. C. D. Plaintiffs' Initial Complaint and Fusion Garage's Motion to Dismiss ..........................1 The Amended Complaint's Detailed Allegations of Fraud and Reliance......................2 Corroborating Evidence of Fusion Garage's Fraud and Plaintiffs' Reliance ................5 Discovery Continues. .....................................................................................................5

IV.

ARGUMENT .............................................................................................................................6 A. B. C. D. The Legal Standard for Fusion Garage's Motion to Dismiss ........................................6 Plaintiffs Have Adequately Pleaded a Claim for Fraud and Deceit and Have Satisfied the Requirements of Rule 9(b). .......................................................................6 Plaintiffs Have Adequately Pleaded an Unfair Competition Claim. ...........................13 Plaintiffs, at a Minimum, Should Have Leave to Amend. ...........................................14

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CONCLUSION ........................................................................................................................15

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TABLE OF AUTHORITIES Page(s) CASES Amzak Corp. v. Reliant Energy, Inc., No. 03-c-0877, 2004 U.S. Dist. Lexis 16514 (N.D. Ill. Aug. 18, 2004) ................................8, 9 Andrews Farms v. Calcot, Ltd., 527 F. Supp. 2d 1239 (E.D. Cal. 2007)................................................................................7, 12 Asis Internet Services v. Subscriberbase Inc., No. 09-3503-SC, 2009 WL 4723338 (N.D. Cal. Dec. 4, 2009) ............................................7, 8 Broam v. Bogan, 320 F3d 1023 (9th Cir. 2003) ..................................................................................................14 Cal. Dump Truck Owners Ass'n, Inc. v. Associated General Contractors of Am., 562 F.2d 607 (9th Cir. 1977) ...................................................................................................14 Cel-Tech Comm'ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999) .............................................................................................................13 Cooper v. Picket, 137 F.3d 616 (9th Cir. 1997) .....................................................................................................6 Hartog v. Jot's, Inc., No. 03-2986, 2005 WL 2333799 (N.D. Cal. Sep. 22, 2005) ...................................................14 In re Countrywide Financial Corp. Securities Litigation, 588 F. Supp. 2d 1132 (C.D. Cal. 2008) .................................................................................8, 9 In re General Motors ERISA Litigation, No. 05-71085, 2006 WL 897444 (E.D. Mich. Apr. 6, 2006) ....................................................7 Johnson v. Hondo, Inc., 125 F.3d 408 (7th Cir. 1997) .....................................................................................................9 Lazar v. Superior Court, 12 Cal. 4th 631 (1996) ...............................................................................................................7 Legal Additions LLC v. Kowalski, No. C-08-2754-EMC, 2010 WL 335789 (N.D. Cal. Jan. 22, 2010) ..................................12, 13 Marceau v. Blackfeet Hous. Auth., 540 F.3d 916 (9th Cir. 2008) .....................................................................................................6 Menjivar v. Trophy Properties IV DE, LLC, No. C 06-03086-SI, 2006 WL 2884396 (N.D. Cal. Oct. 10, 2006) ...................................7, 8, 9 Neubronner v. Milken, 6 F.3d 666 (9th Cir. 1993) .........................................................................................6, 9, 12, 13 Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir. 1986) .................................................................................................14 ii
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Small v. Fritz Cos., Inc., 30 Cal. 4th 167 (2003) .....................................................................................................8, 9, 11 Smith v. Short Term Loans, No. 99 C 1288, 2001 WL 127303 (N.D. Ill. Feb. 14, 2001) ..................................................7, 8 Specialties of Mexico Inc. v. Masterfoods USA, No. L-09-88, 2010 WL 2488031 (S.D. Tex. June 14, 2010) ...................................................10 Sprewell v. Golden State Warriors, 266 F.3d 979 (9th Cir. 2001) .....................................................................................................6 Swartz v. KPMG LLP, 476 F.3d 756 (9th Cir. 2007) ...........................................................................................6, 9, 13 United Air Lines, Inc. v. Gregory, __ F. Supp. 2d __, No. 09-10394, 2010 WL 2037283 (D. Mass. May 20, 2010) .....7, 8, 11, 14 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) ...................................................................................................8 Yang v. Home Loan Funding, Inc., No. 07-1454, 2009 WL 179689 (E.D. Cal. Jan. 23, 2009) ......................................................14 STATUTES AND RULES Cal. Bus. Pro. Code § 17200 ..........................................................................................................13 Fed. R. Civ. P. 9(b) ................................................................................................................ passim Fed. R. Civ. P. 10(c) ........................................................................................................................4 Fed. R. Civ. P. 12(b)(6)....................................................................................................................6

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I.

INTRODUCTION After more than a year of collaborating in a joint venture to develop the CrunchPad tablet

computer, Defendant Fusion Garage and its CEO Mr. Rathakrishnan betrayed Plaintiffs TechCrunch, Inc. and CrunchPad, Inc. by executing a secret scheme to bring the CrunchPad to market alone. Fusion Garage not only breached its fiduciary duty to Plaintiffs but also fraudulently induced Plaintiffs to continue contributing to the joint venture and engaged in unfair competition. Despite Plaintiffs' detailed allegations in an Amended Complaint spanning 24 pages and 39 exhibits, Fusion Garage states it cannot fully and fairly contest the fraud and unfair competition claims because, it argues, some of Plaintiffs' allegations lack specificity. There is no doubt, however, that Fusion Garage is on ample notice of Plaintiffs' claims and that Plaintiffs have pleaded their claims adequately. Fusion Garage demands specificity of pleading of elements of a claim where the law does not require more than standard notice pleading. In any case, Plaintiffs allegations meet even the higher standard that Fusion Garage seeks to impose. The weakness of Fusion Garage's argument stands in stark contrast to Plaintiffs' robust allegations and suggests a purpose of delay, not one of "moving forward" as Fusion Garage professes. (Mot. at 17.) Plaintiffs ask the Court deny Fusion Garage's motion so the parties may indeed "move forward" with the case, as Fusion Garage suggests. II. STATEMENT OF THE ISSUES 1) Does Plaintiffs' Amended Complaint sufficiently allege reliance and damages in the claim for fraud and deceit? 2) Does Plaintiffs' fraud and deceit claim or claim for breach of fiduciary duty adequately support a claim for unfair competition? 3) If needed, should Plaintiffs have leave to amend their claims? III. FACTUAL BACKGROUND A. Plaintiffs' Initial Complaint and Fusion Garage's Motion to Dismiss

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Plaintiffs filed this lawsuit and their initial Complaint on December 10, 2009. (Dkt. No. 1.) Plaintiffs' initial Complaint asserted claims against Fusion Garage for breach of fiduciary duty, fraud and deceit, false advertising, misappropriation of business ideas, and unfair competition. 1
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On January 28, 2010, Fusion Garage filed its first motion to dismiss. (Dkt. No. 20.) On August 24, 2010, the Court partially granted and partially denied the motion to dismiss. (Dkt. 162.) The Court held that Plaintiffs had successfully stated a claim for breach of fiduciary duty; in fact the Court, in discussing the also-pending preliminary injunction motion, found that Plaintiffs were likely to succeed on that claim. The Court dismissed the other claims. It dismissed the misappropriation claim with prejudice but gave Plaintiffs leave to re-plead the other claims, including the fraud claim. With respect to the fraud claim, the Court acknowledged the mass of new documentary evidence that had come to light that Plaintiffs could use to sharpen their allegations. B. The Amended Complaint's Detailed Allegations of Fraud and Reliance

In response to the Court's order, Plaintiffs filed a more targeted and also far more detailed Amended Complaint on September 13, 2010. The Amended Complaint seeks relief for only breach of fiduciary duty, fraud and deceit, and unfair competition. It incorporates a substantial number of new factual allegations to help make Plaintiffs' claims crystal clear to both Fusion Garage and the Court. The Amended Complaint is 24 pages long and includes 39 exhibits. The Amended Complaint pursues a powerful fraud claim based on Fusion Garage's ongoing misrepresentations to Plaintiffs that the CrunchPad project was healthy and on track when it was not: As the Amended Complaint states, at Paragraph 96: "From the moment that Fusion Garage chose to go out on its own while failing to inform Plaintiffs of its choice, Fusion Garage was `playing along' Plaintiffs and committing fraud and deceit by omission of this material fact while continuing to operate as if they were still committed to a joint venture." Plaintiffs allege that, by at least September 2009, Fusion Garage had begun "misrepresenting its intention to continue working on the joint venture in collaboration with Plaintiffs." (Am. Compl. ¶ 92.) Fusion Garage may have begun making its fraudulent misrepresentations sooner, "at a point unknown to Plaintiffs," id., but that knowledge is currently within Fusion Garage's sole control. Meanwhile, the September 2009 date corresponds to the date when explicit documentary evidence shows Fusion Garage's intent to deceive Plaintiffs. See, e.g., id. ¶ 98. Paragraph 98 of the Amended Complaint sets forth this evidence, juxtaposing Fusion Garage's fraudulent reassurances to Plaintiffs with the secret actions of Fusion Garage that show its reassurances were false: 2
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Executing the "Divorce" from Plaintiffs In September 2009, Mr. Rathakrishnan was working with McGrath to help with "the final stages of divorcing himself from Michael Arrington of TechCrunch fame." (See Exhibit 23.)

Fraudulent Reassurances to Plaintiffs The same month, Fusion Garage asked Plaintiffs to sponsor visas for Fusion Garage personnel to come to the U.S. and finish the CrunchPad's development with Plaintiffs' personnel. Fusion Garage personnel came. (See photographs, supra, at p. 10.) To obtain the visas, Fusion Garage certified in letters to the U.S. government that "TechCrunch and Fusion Garage have been working as partners for the last 12 months on a web tablet product." (See Exhibit 16.) On the same day, Fusion Garage and Plaintiffs exchanged emails discussing the CrunchPad's status as "still on track." Copies of these emails are Exhibit 38. Fusion Garage did not reveal its divorce plans at that time. On October 27, 2009, Fusion Garage operated and worked on the CrunchPad at TechCrunch's Silicon Valley office, said nothing about abandoning the venture, and concealed the loss of Pegatron. (See Exhibit 18.) Just days before, Fusion Garage told Plaintiffs, in response to a call for status of the CrunchPad launch, "so yes, we should do this." A copy of this email is Exhibit 39.

On October 12, 2009, Fusion Garage exchanged emails with its PR firm in which it secretly discussed plans for the "JooJoo." (See Exhibit 26.) Fusion Garage formally contracted the PR firm on October 6 to assist with launching "the Fusion Garage tablet computer." (See Exhibit 25.) In mid to late October, Fusion Garage secretly corresponded with the new JooJoo manufacturer, Gigabyte. (See Exhibit 28.) Pegatron, the original manufacturer known to Plaintiffs, was no longer involved. On November 7, Fusion Garage sought to "push giga very hard and ensure we get board and bios etc. by 25th-27th Nov" for its JooJoo. (See Exhibit 29.)

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On November 10, FG registered The same day, Fusion Garage assured Plaintiffs "thejoojoo.com" without informing TC. "we are almost there" and "ready to go live on stage." (See Exhibit 20.) On November 11, Mr. Rathakrishnan gave comments to his PR firm on the script he would use to announce the theft of the CrunchPad and the JooJoo launch. (See Exhibit 30.) He speculated about Plaintiffs' reaction to, and how to spin, the usurpation. On November 13, 2009, Fusion Garage assured Plaintiffs that it was ready for the joint launch on November 20. (See Exhibit 21 ("we are [sic] course . . . shd target the event in sf.").)

The Amended Complaint also alleges reliance and damages based on these false statements and on Fusion Garage's continuing failure to disclose its plan to usurp and leave the parties' joint venture. Paragraphs 124 through 126 allege: "Defendant intended that Plaintiffs rely on Defendant's misrepresentations, promises, and omissions and intended to deceive Plaintiffs, so that Defendant would benefit from Plaintiffs' continued investment in, and efforts and collaboration on, the CrunchPad." (Am. Compl. ¶ 124.) "Plaintiffs reasonably relied on Defendant's representations and omissions in continuing the collaboration; forgoing other business opportunities; and contributing money, time, effort, and services." Id. ¶ 125. 3
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"As a result of Defendant's conduct, Plaintiffs have suffered damage in their business or property." Id. ¶ 126. Paragraph 100 reiterates that "Plaintiffs relied on the representations and omissions, were

deceived by them, and were damaged by them." Paragraph 101 notes that over the course of the joint venture, "Plaintiffs attracted offers of assistance from multiple other software and hardware developers in developing the CrunchPad" but "Plaintiffs declined these offers because of the joint venture arrangement it had with Fusion Garage." The Amended Complaint includes more specific allegations of reliance and damages ­ how Fusion Garage induced it to contribute money, time, effort, and service, and forgo other business opportunities (see Am. Compl. ¶ 125) ­ in the chart at Paragraph 98 and in other statements and exhibits:1 Paragraph 98, row 1 & Ex. 15, 16: In September of 2009, at Defendant's request, Plaintiffs helped to "sponsor visas" for Fusion Garage personnel and "Fusion Garage personnel came" to the United States to work with Plaintiffs to ready the CrunchPad for launch. Paragraph 98, row 2 & Ex. 38: The parties exchanged emails regarding the CrunchPad. The particular October 12, 2009 email cited, Exhibit 38, shows Mr. Kindle, still employed by Plaintiffs, corresponding with and working with Mr. Rathakrishnan. Paragraph 47 and 48: TechCrunch provided its Palo Alto offices as a workspace for Fusion Garage personnel working on the CrunchPad and pictures of Fusion Garage personnel working in the TechCrunch office. Paragraph 50: "Throughout September and October 2009, the parties communicated about the status of the CrunchPad and the lead-up to the planned November 20, 2009 launch at CrunchUp. Fusion Garage never disclosed a plan to usurp the CrunchPad business for itself." Paragraph 52: "On October 27, 2009, Fusion Garage conducted a demonstration of the CrunchPad at TechCrunch's Silicon Valley office without disclosing its intent to abandon the venture. Exhibit 18 is a copy of an email reflecting the demonstration." Exhibit 39: In November 2009, just before the breakup, Mr. Rathakrishnan tells Mr. Arrington and Mr. Kindle that he "need[s] the LOI from you end," thus soliciting further work from Plaintiffs. Finally, Plaintiffs' Prayer for Relief requests restitution, actual damages, Defendant's profits, Plaintiffs' share of the value of the parties' joint venture, exemplary damages, and fees and costs.

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1

"An exhibit to a pleading is a part of the pleading for all purposes." Fed. R. Civ. P. 10(c). 4
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In sum, Plaintiffs have alleged numerous specific actions they took and damages they suffered in their ongoing reliance on Fusion Garage's false representations about its intentions to bring the CrunchPad to market with Plaintiffs. C. Corroborating Evidence of Fusion Garage's Fraud and Plaintiffs' Reliance

There are still other corroborating allegations that Plaintiffs could make to further demonstrate reliance through the Fall of 2009 although they are unnecessary and in large part redundant of allegations already in the Amended Complaint. For example, Plaintiffs could allege additional interactions and communications between the parties showing Plaintiffs' continued involvement in the CrunchPad project, requests from Fusion Garage for Plaintiffs' assistance and Plaintiffs responses, and Plaintiffs' preparation for the expected November 20, 2009 CrunchPad launch. Further, Plaintiffs could itemize damages with greater granularity but Plaintiffs have already provided Fusion Garage with detailed responses to its interrogatories nos. 13 and 14 in which Plaintiffs provided both a spreadsheet itemizing costs and a collection of receipts and invoices. Fusion Garage is well aware of these documents and this information. D. Discovery Continues.

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Although Plaintiffs have already provided detailed information to Fusion Garage in discovery that corroborates Plaintiffs' fraud, reliance, and damages allegations, discovery is not near completion, despite Fusion Garage's contrary assertions. (Mot. at 3-4.) While Fusion Garage has deposed Plaintiffs' key personnel, the only Fusion Garage personnel to sit for deposition so far has been Mr. Rathakrishnan. He is still slated for another day of deposition. The other Fusion Garage personnel, in Singapore, are not likely to be deposed until next month at the earliest. Further, this Court only recently ordered Fusion Garage to produce, by October 22, 2010, an assortment of allegedly "trade secret" documents. (Dkt. No. 184.) This discovery is essential to revealing exactly what Fusion Garage knew and intended throughout the venture. // // // // 5
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IV.

ARGUMENT Plaintiffs have pleaded robust claims for fraud and unfair competition. Fusion Garage's

argument that Plaintiffs' fraud allegations lack specificity must fail. There is no requirement to plead the reliance and damages elements of fraud with specificity. In any event, however, Plaintiffs' allegations meet any applicable pleading standard. As to the unfair competition claim, the "fraud" aspect of that claim survives because Plaintiffs have properly pleaded common law fraud; the "unlawful" aspect survives even if the common law fraud claim fails, because Plaintiffs' unchallenged breach of fiduciary duty claim remains in the case. Although the Court should not dismiss Plaintiffs' fraud and unfair competition claims, if it were to do so, it should grant leave to amend given the additional corroborating allegations Plaintiffs can make. A. The Legal Standard for Fusion Garage's Motion to Dismiss

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In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court accepts as true all allegations of material fact in the complaint and reads the complaint in the light most favorable to the nonmoving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). When pleading a fraud claim, "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This means Plaintiffs must state "the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). Put another way, a plaintiff must allege the "who, what, where, when, and how." Cooper v. Picket, 137 F.3d 616, 627 (9th Cir. 1997). Rule 9(b), though it talks of "circumstances," does not mention reliance or damages. The purpose of Rule 9(b) is to "identif[y] the circumstances constituting fraud . . . so that the defendant can prepare an adequate answer from the allegations." Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993). B. Plaintiffs Have Adequately Pleaded a Claim for Fraud and Deceit and Have Satisfied the Requirements of Rule 9(b). To plead fraud in California, a plaintiff must allege these elements: "(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) 6
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intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). Fusion Garage does not challenge Plaintiffs' pleading of misrepresentations, knowledge of falsity, or intent. Rather, Fusion Garage challenges only Plaintiffs' pleading of reliance and damages. It claims Plaintiffs' allegations for these two elements lack the required specificity. Fusion Garage is wrong that a plaintiff must plead reliance and damages with specificity. Moreover, Plaintiffs have in fact made detailed allegations concerning these elements that satisfy any applicable pleading standard, and has given Fusion Garage a clear understanding of the "who, what, where, when, and how" of the fraud claim. 1. Plaintiffs Need Not Plead Reliance and Damages With Specificity.

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Contrary to Fusion Garage's assertions, Plaintiffs need not plead reliance with specificity. Andrews Farms v. Calcot, Ltd., 527 F. Supp. 2d 1239, 1252 (E.D. Cal. 2007); Asis Internet Services v. Subscriberbase Inc., No. 09-3503-SC, 2009 WL 4723338, at *3 (N.D. Cal. Dec. 4, 2009); In re General Motors ERISA Litigation, No. 05-71085, 2006 WL 897444, at *14 (E.D. Mich. Apr. 6, 2006) ("Thus, the detrimental reliance element need not be pled with particularity."). Defendant also appears to argue that Plaintiffs have not specified damages with particularity. (Mot. at 8 (arguing "failure to plead any specific actions . . . that caused specific damages").) Again, Plaintiffs need not do so. Id.; Menjivar v. Trophy Properties IV DE, LLC, No. C 06-03086-SI, 2006 WL 2884396, at *13 (N.D. Cal. Oct. 10, 2006); United Air Lines, Inc. v. Gregory, __ F. Supp. 2d __, No. 09-10394, 2010 WL 2037283, at *6 (D. Mass. May 20, 2010); Smith v. Short Term Loans, No. 99 C 1288, 2001 WL 127303, at *6 (N.D. Ill. Feb. 14, 2001). In Andrews Farms, plaintiff farmers alleged that the defendants mismanaged and misused plaintiffs' funds and fraudulently failed to disclose improper spending. 527 F. Supp. 2d at 1244. The defendants argued that plaintiffs did not plead reliance with specificity. Id. at 1252. The plaintiffs had alleged that they "could have taken action to prevent [improper] charges" and that they "reasonably relied on [defendants'] misrepresentations." Id. The court found that Rule 9(b) did not require a more particular pleading and that plaintiffs' "conclusory" allegations (in defendants'

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words) were sufficient. Id. The court also rejected defendants' argument on damages, holding in similar fashion that damages need not be pleaded with specificity. Id. In Menjivar, the court held that, while Rule 9(b) may require plaintiffs to plead the circumstances of fraud with particularity, this is not so for damages. Plaintiffs need not plead damages with any more specificity than under typical notice pleading, nor must they specify an amount of damages. 2006 WL 2884396, at *13; accord United Air Lines, 2010 WL 2037283, at *6; Smith, 2001 WL 127303, at *6; In re Countrywide Financial Corp. Securities Litigation, 588 F. Supp. 2d 1132, 1199 (C.D. Cal. 2008). Thus, in Menjivar, a prayer "[f]or damages in an amount according to proof at trial" combined with alleged harm of "being forced to miss significant portions of work-related activities to respond to said misrepresentations" and enduring "considerable mental suffering, anxiety, humiliation, and emotional distress" met the low threshold for pleading fraud damages. 2006 WL 2884396, at *13. Similarly, in United Air Lines, the plaintiffs did not have to plead specific instances of lost revenue to plead fraud damages, 2010 WL 2037283, at *6, and in Smith the court found plaintiffs' failure to "itemize damages . . . irrelevant," 2001 WL 127303, at *6. In re Countrywide, a case that Fusion Garage cites, summarizes: "Plaintiffs need not plead their exact damages" nor "allege . . . the price dollar value of" losses they suffered. 588 F. Supp. 2d at 1199. The Asis court explains the outcome of these cases and shows how they are consistent with the Ninth Circuit's precedent on pleading fraud. The court noted that "[i]n most cases, pleading reliance and damages with specificity is not likely to be of much use in helping a defendant to prepare an adequate response; rather, it is the specific description of other aspects of the fraud, `the who, what, when, where, and how,' that will be most important in allowing a defendant to prepare its answer." 2009 WL 4723338, at *3 (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). Fusion Garage cites In re Countrywide, Amzak Corp. v. Reliant Energy, Inc., No. 03-c-0877, 2004 U.S. Dist. Lexis 16514 (N.D. Ill. Aug. 18, 2004), and Small v. Fritz Cos., Inc., 30 Cal. 4th 167 (2003) for its proposition that plaintiffs must plead reliance particularly. (It offers no cases for its apparent claim that plaintiffs must plead damages particularly.) Fusion Garage's cases are 8
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distinguishable and, in any event, do not bind this Court. In re Countrywide, a securities fraud (not common law fraud) case, made no real analysis of the issue and actually found that reliance was properly pleaded. 588 F. Supp. 2d at 1199. Amzak asked the plaintiff to provide some link between alleged misstatements and acts of reliance, but did so only when troubled by an extremely awkward situation, not present here, involving alleged acts of reliance that took place before several of the alleged misrepresentations ­ an obvious impossibility. 2004 U.S. Dist. Lexis 16514, at *17. Finally, Small, a California state case, applied California's state standard for pleading fraud, which does not apply in federal court. Menjivar, 2006 WL 2884396, at *13; Johnson v. Hondo, Inc., 125 F.3d 408, 417 (7th Cir. 1997). Menjivar rejected an argument that a federal complaint must plead fraud damages with specificity. Even if specificity were a requirement in California state courts, in Federal court "the complaint need only satisfy federal pleading standards." 2006 WL 2884396, at *13. In addition to these cases, Fusion Garage points to this Court's order on its first motion to dismiss. The Court stated that Plaintiffs, given the "hodgepodge" of fraud allegations in the initial Complaint, had "not alleged with adequate specificity how and to what extent [they] reasonably relied on each alleged misrepresentation." (Dkt. 162 at 14; Mot. at 7.) The Court did not define "adequate" and never tied the word to Rule 9(b). The parties had not then briefed the issue of whether Rule 9(b) applied to the reliance element. The Court's statement does not impose a pleading standard at odds with Andrews Farms and Asis; rather, it meshes with the overall goal of federal pleading rules: to put a defendant on notice of a claim so it can answer. Neubronner, 6 F.3d at 671; Swartz, 476 F.3d at 764. Rule 9(b) does not require heightened pleading of reliance and damages for fraud claims. There is no dispute that Plaintiffs have satisfied the ordinary pleading standards for these elements of their fraud claim. The Court should therefore deny Fusion Garage's motion. 2. Under Any Applicable Standard, Plaintiffs Have Pleaded Reliance and Damages with Sufficient Particularity. Even if the Court holds that Rule 9(b) were to require particularized pleading of the reliance element of a fraud claim, or even of the damages element, Plaintiffs have met this pleading standard. 9
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The Amended Complaint contains detailed allegations of reliance and damages based upon Fusion Garage's misrepresentations concerning the progress of the joint venture and its true intentions to abandon it. Paragraphs 100, 101, and 124 through 126 allege: "Defendant intended that Plaintiffs rely on Defendant's misrepresentations, promises, and omissions and intended to deceive Plaintiffs, so that Defendant would benefit from Plaintiffs' continued investment in, and efforts and collaboration on, the CrunchPad." (Am. Compl. ¶ 124.) "Plaintiffs reasonably relied on Defendant's representations and omissions in continuing the collaboration; forgoing other business opportunities; and contributing money, time, effort, and services." Id. ¶ 125. "Plaintiffs attracted offers of assistance from multiple other software and hardware developers in developing the CrunchPad" but "Plaintiffs declined these offers because of the joint venture arrangement it had with Fusion Garage." Id. ¶ 101. "Plaintiffs relied on the representations and omissions, were deceived by them, and were damaged by them." Id. ¶ 100. "As a result of Defendant's conduct, Plaintiffs have suffered damage in their business or property." Id. ¶ 126. Such allegations of relying on a defendant's assurances to continue a course of conduct of business is sufficient to meet the particularity requirements of Rule 9(b). Specialties of Mexico Inc. v. Masterfoods USA, No. L-09-88, 2010 WL 2488031, at *8 (S.D. Tex. June 14, 2010). In Specialties, the plaintiffs' allegation that they "relied on the representation [of the defendant] by continuing business as usual, by `spending significant time, and money' to market the [defendant's] products" was sufficient to satisfy Rule 9(b). An itemized list of time and money contributions was not necessary. Id. But the Amended Complaint goes further to include even more specific allegations of reliance and damages ­ how Fusion Garage induced Plaintiffs to contribute money, time, effort, and service, and forgo other business opportunities: Paragraph 98, row 1 & Ex. 15, 16: In September of 2009, at Defendant's request, Plaintiffs helped to "sponsor visas" for Fusion Garage personnel and "Fusion Garage personnel came" to the United States to work with Plaintiffs to ready the CrunchPad for launch. Paragraph 98, row 2 & Ex. 38: The parties exchanged emails regarding the CrunchPad. The particular October 12, 2009 email cited, Exhibit 38, shows Mr. Kindle, still working for Plaintiffs, corresponding with and working with Mr. Rathakrishnan. Paragraph 47 and 48: TechCrunch provided its Palo Alto offices as a workspace for Fusion Garage personnel working on the CrunchPad and pictures of Fusion Garage personnel working in the TechCrunch office. 10
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Paragraph 50: "Throughout September and October 2009, the parties communicated about the status of the CrunchPad and the lead-up to the planned November 20, 2009 launch at CrunchUp. Fusion Garage never disclosed a plan to usurp the CrunchPad business for itself." Paragraph 52: "On October 27, 2009, Fusion Garage conducted a demonstration of the CrunchPad at TechCrunch's Silicon Valley office without disclosing its intent to abandon the venture. Exhibit 18 is a copy of an email reflecting the demonstration." Exhibit 39: In November 2009, just before the breakup, Mr. Rathakrishnan tells Mr. Arrington and Mr. Kindle that he "need[s] the LOI from you end," thus soliciting further work from Plaintiffs. Finally, Plaintiffs' prayer for relief requests restitution, actual damages, Defendant's profits,

Plaintiffs' share of the value of the parties' joint venture, exemplary damages, and fees and costs. Plaintiffs' robust allegations more than adequately comply with, and serve the purposes of, Rule 9(b). The purpose of Rule 9(b) is "to give defendants notice of the plaintiff's claim, to discourage fishing expeditions and "strike suits" and to protect defendants from baseless allegations." United Air Lines, 2010 WL 2037283, at *4. "Although the rule mandates that the plaintiff state the circumstances of the fraud with particularity, he need not plead all of the evidence or facts supporting his claim." Id. "Furthermore, where, as here, the alleged fraud occurs over an extended period of time and involves numerous transactions, pleading the specifics of each transaction is unnecessary." Id. Just as in Untied Air Lines, "this is not a case where . . . veiled allegations have forced both the defendant and the Court to search in vain" for the gist of the fraud claim. Id. Plaintiffs' Amended Complaint provides far greater specificity than the United Air Lines complaint, pleading numerous specific transactions and evidence supporting the fraud claim. Even under the case Fusion Garage itself cites, Small, Plaintiffs have met their pleading burden. Small requires that a plaintiff "allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that the plaintiff actually relied on the misrepresentations." Id. at 184. In order to continue in the venture, Plaintiffs had to continue communicating and meeting with Fusion Garage, open TechCrunch's offices to Fusion Garage employees, assist Fusion Garage with visas, and make plans for launching the CrunchPad. (See, e.g., ¶ 48, Ex. 15, 17-20, 38-39.) These detailed allegations of continued reliance on Fusion Garage's misrepresentations are a far cry from the "unspoken and unrecorded thoughts and decisions" in Small. 11
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Despite all this, Fusion Garage argues that Plaintiffs have not pleaded reliance because they do not name the first date that the joint venture began. (Mot. at 11.) Fusion Garage overlooks its own concession, which Plaintiffs pleaded in Paragraph 98 of the Amended Complaint: "TechCrunch and Fusion Garage have been working as partners for the last 12 months on a web tablet product." Fusion Garage wrote this in letters to obtain visas in September of 2009, dating the joint venture to September of 2008. The start of the venture in 2008 and its continued outward existence through much of 2009 is evident from the course of conduct that Plaintiffs have alleged in the Amended Complaint. In any event, the precise date the joint venture began does not bear on the adequacy of Plaintiffs' fraud allegations, so long as a venture was in place when Fusion Garage made its fraudulent statements. It is particularly clear that after September 2009, by which time the joint venture was in place (Am. Compl. ¶¶ 92, 98), the documentary evidence in the Amended Complaint begins to expose Fusion Garage's intent to defraud. For any misrepresentations before September 2009, knowledge of their falsity resides ­ for the moment ­ exclusively with Fusion Garage, and Plaintiffs need not perform the impossible task of guessing what else Fusion Garage has concealed. Andrews, 527 F. Supp. 2d at 1257 ("[P]laintiffs are not required to plead facts known only to defendants."); Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993). Further evidence of Fusion Garage's fraud may emerge from the deposition and document discovery that Plaintiffs still await. Fusion Garage cites Legal Additions LLC v. Kowalski, No. C-08-2754-EMC, 2010 WL 335789 (N.D. Cal. Jan. 22, 2010) in support of its argument about the lack of a date, but the case actually undermines Fusion Garage's position. Legal Additions argued that it relied upon an email exchange with the defendants in which the defendants agreed to work with Legal Additions on making legal placements and to split the commissions. Id. at *4. The problem for Legal Additions was that it could not allege that defendants knew that the promise was false and intended to deceive Legal Additions on the date the promise was made, the date of the email exchange. Id. at *5. Here, Plaintiffs allegations point to specific emails in which Fusion Garage lied to Plaintiffs during the course of the joint venture, and Plaintiffs specifically allege that Fusion Garage made these statements with the intent to deceive and induce reliance. (Am. Compl. ¶ 98, 124.) Second, the 12
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court actually found sufficient Legal Additions's allegation that, in working with the defendants to make legal placements, it relied upon the email exchange attached to the complaint, and that "[w]hether or not that reliance was justified is a factual matter for the jury to resolve." Id. at *5. As noted before, the purpose of Rule 9(b) is to "identif[y] the circumstances constituting fraud . . . so that the defendant can prepare an adequate answer from the allegations." Neubronner, 6 F.3d at 671; Swartz, 476 F.3d at 764. Fusion Garage requires no further information to answer Plaintiffs' fraud claim. Not only have Plaintiffs provided detailed allegations concerning Fusion Garage's fraud, but Fusion Garage was also able to articulate the fraud claim against it. (See, e.g., Mot. at 4-5.) It is hard to fathom what additional information Fusion Garage needs and how that information would help it. Further allegations of email communications between the parties and itemized cost lists, which Plaintiffs have already produced during the course of discovery, and much of which Fusion Garage already had in its possession since before the case began, is unnecessary for Fusion Garage to respond to Plaintiffs' fraud claim. Regardless of whether the ordinary standard or an illegitimate heightened standard applies to the reliance and damages elements of fraud claims, Plaintiffs have adequately pleaded these elements with specificity, and the Court should deny Fusion Garage's motion to dismiss Plaintiffs' fraud claim. C. Plaintiffs Have Adequately Pleaded an Unfair Competition Claim.

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California's Unfair Competition Law proscribes "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. Pro. Code §17200 (emphasis added). This claim should survive merely because Plaintiffs fraud claim survives. But there is also another basis for keeping this claim in the case. As Fusion Garage has conceded in a previous filing, "[b]y proscribing `any unlawful business practice,' `section 17200 `borrows' violations of other laws and treats them as unlawful practices' that the unfair competition law makes independently actionable." Cel-Tech Comm'ns, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180 (1999). Section 17200's "coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law." Id. (quotation marks omitted). Defendant admits that it must answer Plaintiffs' breach of fiduciary claim. (Mot. 1.) This alone is sufficient to support Plaintiffs' claim 13
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for unfair competition, which Plaintiffs have tethered to both their fraud claim and their claim for breach of fiduciary duty. D. Plaintiffs, at a Minimum, Should Have Leave to Amend.

Plaintiffs have appropriately pleaded their fraud and unfair competition claims. If, however, the Court were to disagree, it should grant leave to amend and reject Fusion Garage's request to dismiss the claims with prejudice, (Mot. at 11-13). "Dismissal without leave to amend is proper only in "extraordinary" cases." Broam v. Bogan, 320 F3d 1023, 1028 (9th Cir. 2003). "If a complaint is dismissed for failure to state a claim, leave to amend should be granted unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). The liberal policy favoring leave to amend also applies when, for various reasons, Plaintiffs require more than one opportunity to re-plead a claim. E.g., Cal. Dump Truck Owners Ass'n, Inc. v. Associated General Contractors of Am., 562 F.2d 607, 615 (9th Cir. 1977) ("Therefore, we reverse and remand to the district court with instructions that the appellants have leave to further amend their complaint."); Yang v. Home Loan Funding, Inc., No. 07-1454, 2009 WL 179689, at *7 (E.D. Cal. Jan. 23, 2009) ("The SAC is hereby DISMISSED in its entirety . . . . Leave is hereby granted to further amend the complaint."); Hartog v. Jot's, Inc., No. 03-2986, 2005 WL 2333799, at *7 (N.D. Cal. Sep. 22, 2005). In considering whether to grant leave to amend, a court may consider (1) bad faith; (2) undue delay; (3) prejudice to the defendant; (4) futility of amendment; and (5) whether the plaintiff has previously amended his or her pleadings. Hartog, 2005 WL 2333799, at *7. There is no evidence of bad faith. There is no undue delay or prejudice to Fusion Garage given that no discovery cutoff or pretrial or trial dates have been set, and given that, as discussed above, Fusion Garage cannot convincingly contend that it does not understand the claims in this case. While Plaintiffs believe they have provided ample specificity for their fraud claim, and while the law does not require an exhaustive list of all evidence underlying a fraud claim, United Air Lines, 2010 WL 2037283, at *4,

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Plaintiffs could provide still more specificity in a Second Amended Complaint based on the facts discussed earlier. Thus amendment would not be futile. Although Plaintiffs have amended their fraud claim before, it has happened only once. At that time, Plaintiffs provided significant new detail in their allegations and made a good faith effort to satisfy the Rule 9(b) pleading standard, which Plaintiffs believe they have met. For these reasons, the Court should grant leave to amend if it dismisses Plaintiffs' fraud claim. V. CONCLUSION For the foregoing reasons, Fusion Garage's motion to dismiss the fraud and deceit and unfair competition claims fails. Plaintiffs respectfully request that the Court deny the motion. Dated: October 14, 2010 WINSTON & STRAWN LLP By: /s/ Andrew P. Bridges David S. Bloch Matthew A. Scherb Attorneys for Plaintiffs TECHCRUNCH, INC. and CRUNCHPAD, INC.

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