Philo v. Liminova, Inc. et al
Filing
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ORDER granting 5 Motion to Dismiss. The Defendants motion to dismiss is hereby granted without prejudice and with leave to amend. Signed by Judge Anthony J. Battaglia on 4/15/13. (cge)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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A. PAUL PHILO,
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Plaintiff,
v.
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LIMINOVA, INC., WALTER LIM,
and DOES 1 through 10, inclusive,
Defendants.
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Civil No. 13cv113-AJB (WVG)
ORDER GRANTING
DEFENDANT’S MOTION TO
DISMISS
(Doc. No. 5)
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Defendants’ filed a motion to dismiss pursuant to Federal Rules of Civil Procedure
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12(b)(6) Plaintiff’s first cause of action for fraudulent concealment and request for
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punitive damages. (Doc. No. 5.) The Plaintiff filed an opposition, (Doc. No. 10), and the
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Defendants filed a reply, (Doc. No. 11). For the reasons set forth below, the Defendant’s
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motion to dismiss is GRANTED.
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Background
Defendant Walter Lim (“Defendant”) is an officer, director, and shareholder in
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Head First, Inc. (“Head First”). (Doc. No. 1-1, ¶ 2.) Head First was owned by Defendant
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and Don Lewis. (Id.) After Don Lewis’ death, Plaintiff A. Paul Philo (“Plaintiff”)
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succeeded to Don Lewis’ interest in Head First. (Id.)
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Since at least 1971, Head First has been in the business of developing, promoting,
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and marketing “Top Coverage,” a non-medicated head spray to cover bald spots and
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mask thinning hair. (Id. at ¶ 7.) The “Top Coverage” name and mark are registered with
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the United States Patent and Trademark Office (“USPTO”) under Registration No.
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1813335. (Id.) Head First has continuously and exclusively used the “Top Coverage”
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mark in commerce in connection with the advertising, promotion, and sale of its hair care
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products. (Doc. No. 1-1, ¶ 8.)
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On or about January 2011, Defendant advised Plaintiff that Head First was going
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to discontinue manufacturing and marketing the “Top Coverage” brand of products due
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to environmental regulations concerning the use of propellants, and that Head First would
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need to be dissolved. (Id. at ¶ 9.) The Plaintiff wanted to purchase the “Top Coverage”
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trademark and name from Head First and attempt to find a new manufacturer and
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continue to develop and market the product in compliance with the environmental
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regulations. (Id. at ¶ 10.) Defendant Lim agreed and in February 2011, Head First
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assigned all interest and goodwill in the “Top Coverage” trademark to Plaintiff for
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valuable consideration. (Id.) The Assignment Agreement was signed by Defendant Lim
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as president of Head First, and duly recorded with the Patent and Trademark Office on or
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about April 8, 2011. (Id.)
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Plaintiff alleges that while the parties were negotiating and entering into the
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Assignment Agreement for Top Coverage, Defendant Lim was already marketing the
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“Top Coverage” hair product through his company (“Liminova”) under the name and
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mark “TC Plus.” (Doc. No. 1-1, ¶ 11.) Like “Top Coverage,” “TC Plus” was a head
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spray sold in spray cans to conceal bald spots and thinning hair. (Id.) The “TC Plus”
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label stated, “If you like . . . Top Coverage You will love TC PLUS,” and featured
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before-and-after photos of a male scalp virtually identical to those used for “Top Cover-
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age” labels. (Id.) Moreover, “TC Plus” was being advertised in various outlets as “Top
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Coverage TC Plus.” (Id.)
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On April 27, 2011, two months after the execution of the Assignment Agreement,
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Liminova filed a trademark application with the USPTO for registration of the mark “TC
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Plus,” Serial No. 85306449, for goods defined as “Hair care preparation, namely, hair
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tinting spray featuring spray on, wash out hair tinting and thickening spray in a variety of
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hair colors.” (Doc. No. 1-1, ¶ 12.) In February 2012, Plaintiff filed an opposition to
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Defendant’s trademark application and Liminova subsequently abandoned the applica-
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tion. (Doc. No. 1-1, ¶ 13; Doc. No. 10, p.3:19-20.)
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On December 10, 2012, Plaintiff filed the instant complaint in San Diego Superior
Court. Defendants subsequently removed the case to this court and filed the instant
motion to dismiss.
Legal Standard
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A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings
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and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to
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state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 729, 732
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(9th Cir. 2001). The court may dismiss a complaint as a matter of law for: (1) “lack of
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cognizable legal theory,” or (2) “insufficient facts under a cognizable legal claim.”
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SmileCare Dental Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996)
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(citation omitted). However, a complaint survives a motion to dismiss if it contains
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“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
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Twombly, 550 U.S. 544, 570 (2007).
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Notwithstanding this deference, the reviewing court need not accept “legal conclu-
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sions” as true. Ashcroft v. Iqbal, -- U.S. -- , 129 S. Ct. 1937, 1949–50, 173 L.Ed.2d 868
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(2009). It is also improper for the court to assume “the [plaintiff] can prove facts that [he
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or she] has not alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council
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of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, “[w]hen there are well-
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pleaded factual allegations, a court should assume their veracity and then determine
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whether they plausibly give rise to an entitlement to relief.” Iqbal, 129 S.Ct. at 1950.
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The court only reviews the contents of the complaint, accepting all factual allegations as
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true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v.
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Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citations omitted).
Discussion
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Defendants’ move to dismiss Plaintiff’s first cause of action for fraudulent conceal-
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ment and Plaintiff’s punitive damages claims pursuant to Rule 12(b)(6). Defendants
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challenge the sufficiency of Plaintiff’s first cause of action, for fraudulent concealment, on
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the grounds that Plaintiff fails to allege that any statutory, common law, or contractual
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duty exists requiring the disclosure of facts alleged to have been concealed by Defendants.
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(Doc. No. 5-1, p.3.) Defendants also contend that the Plaintiff fails to sufficiently plead
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an act of malice, fraud, or oppression on behalf of Defendants to support his claim for
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punitive damages under the first cause of action as required by California Civil Code §
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3294 and Rule 8. (Id.)
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I.
Fraudulent Concealment Claim
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In California, a claim for fraudulent concealment consists of five elements: “(1) the
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defendant must have concealed or suppressed a material fact, (2) the defendant must have
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been under a duty to disclose the fact to the plaintiff, (3) the defendant must have inten-
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tionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the
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plaintiff must have been unaware of the fact and would not have acted as he did if he had
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known of the concealed or suppressed fact, and (5) as a result of the concealment or
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suppression of the fact, the plaintiff must have sustained damage.” Kaldenbach v. Mutual
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of Omaha Life Ins. Co., 178 Cal.App.4th 830, 850, 100 Cal.Rptr.3d 637 (Ct.App.2009)
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(citations and internal quotation marks omitted). “Fraud or deceit may consist of the
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suppression of a fact by one who is bound to disclose it or who gives information of other
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facts which are likely to mislead for want of communication of that fact.” Outboard
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Marine Corp. v. Superior Court, 52 Cal.App.3d 30, 37, 124 Cal.Rptr. 852 (1975).
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A cause of action for fraudulent concealment requires an allegation that the
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defendant owed a duty to disclose the concealed fact. Levine v. Blue Shield of California,
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189 Cal. App. 4th 1117, 1126-1127 (2010). Where material facts are known to one party
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and not to the other, failure to disclose them is not actionable fraud unless there is some
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relationship between the parties which gives rise to a duty to disclose. A duty to disclose
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arises between two parties where a fiduciary or confidential relationship exists between
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them,1 or if there are other special circumstances which require disclosure.2 See Heliotis v.
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Schuman, 181 Cal. App. 3d 646, 651, 226 Cal. Rptr. 509 (1986). The special circum-
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stances in which a duty to disclose may arise such that nondisclosure or concealment
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constitute actionable fraud are: (1) when a fiduciary relationship exists between the
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parties; (2) when the defendant has exclusive knowledge of material facts not known to
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the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff;
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and (4) when the defendant makes a partial representation to the plaintiff while suppress-
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ing other material facts. See LiMandri v. Judkins, 52 Cal.App.4th 326, 336, 60 Cal.Rptr.2d
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539 (Ct.App.1997). “The first circumstance requires a fiduciary relationship; each of the
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other three ‘presupposes the existence of some other relationship between the plaintiff and
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defendant in which a duty to disclose can arise.’” Deteresa v. ABC, 121 F.3d 460, 467 (9th
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Cir.1997) (quoting LiMandri, 52 Cal.App.4th at 336-37, 60 Cal.Rptr.2d 539);. See
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LiMandri, 52 Cal.App.4th at 337, 60 Cal.Rptr.2d 539 (holding the relationship must be
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transactional in nature, such as when parties form a relationship by entering into a
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contractual agreement).
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Upon review of the complaint, the Court finds the Plaintiff has failed to sufficiently
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plead that Defendants owed him a fiduciary duty. The allegation of a fiduciary relation-
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ship must be supported by either a contract, or a relationship that imposes it as a matter of
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Jones v. ConocoPhillips, 198 Cal. App. 4th 1187, 130 Cal. Rptr. 571 (2011)
(citing Goodman v. Kennedy, 18 Cal. 3d 335, 346-47, 134 Cal. Rptr. 375, 556 P.2d 737);
Shum v. Intel Corp., 630 F. Supp. 2d 1063, 1075 (N.D. Cal. 2009) (citing Warner Constr.
24 Corp. v. Los Angeles, 2 Cal. 3d 285, 294, 85 Cal. Rptr. 444, 466 P.2d 996 (1970)).
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To the extent that Defendant argues that the language quoted from Heliotis v.
Schuman is conjunctive, that is, requiring the existence of all four circumstances to give
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cited language from the Heliotis opinion to be disjunctive, as the court was merely
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that would give rise to a duty to disclose. The Heliotis court presents the four
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(Doc. No. 10, p.4) was proper and not an attempt to mislead the Court.
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law.”3 The Plaintiff’s complaint, however, fails to set forth any facts supporting the
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existence of a legally recognized fiduciary relationship. Plaintiff’s complaint states that:
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(1) Defendant Walter Lim is an officer, director and shareholder in Head First, Inc., which
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was first owned by Defendant and Don Lewis; and (2) “when Don Lewis passed away,
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Plaintiff succeeded to Don Lewis’ interest in Head First.” (Doc. No. 1-1, ¶ 2.) The
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Plaintiff argues that as a director of Head First, Inc., Defendant Lim owed the Plaintiff a
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fiduciary duty as a shareholder. Plaintiff’s argument fails, however, because the Plaintiff’s
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complaint does not allege that he was a shareholder in Head First, Inc., it alleges only that
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he succeeded to Don Lewis’ interest in Head First, Inc., without specifying nature of that
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interest. Furthermore, the Court fails to see how shareholder status would be relevant to
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the assignment of the Top Coverage mark, as the Plaintiff entered that arm’s-length
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transaction as buyer, not as a shareholder.4 The Defendant was under no duty to make full
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disclosure to the Plaintiff if the transaction was at arm's-length.
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The Plaintiff contends that Defendants’ disclosure that he planned to dissolve Head
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First and discontinue manufacturing and marketing Top Coverage was a voluntary
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disclosure and constituted a partial disclosure, which created special circumstances
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imposing disclosure obligations. However, the Plaintiff has failed to plead any specific
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factual allegations that support an inference that Defendants’ intent to develop a compet-
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ing product constituted a material fact regarding the assignment of the Top Coverage
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mark. Furthermore, the Court notes that the Plaintiff has not presented the assignment or
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specifically referenced any of its provisions to support his allegation that Defendants
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development of a competing product somehow violated the terms of the assignment.
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City of Hope Nat. Med. Ctr. v. Genentech, Inc., 43 Cal. 4th 375, 386, 75 Cal. Rptr. 3d 333, 181
P.3d 142 (2008) (“Before a person can be charged with a fiduciary obligation, he must either knowingly
undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes
that undertaking as a matter of law.”); Berryman v. Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544,
1558 (2007).
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If the Plaintiff were acting simultaneously as both a shareholder and a buyer, the Corporations
Code mandates that the transaction be approved by 90% of the shareholders, which did not happen.
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Based upon the foregoing, the Defendants’ motion to dismiss Plaintiff’s fraudulent
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concealment claim is GRANTED.
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II.
Punitive Damages Claim
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In order to sufficiently plead a claim warranting an award of punitive damages,
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facts must be alleged in the pleading to support circumstances of oppression, fraud or
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malice. Grieves v. Super. Ct., 157 Cal. App. 3d 159 (1984) (citing G.D. Searle & Co. v.
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Super. Ct., 49 Cal. App. 3d 22, 29, 122 Cal. Rptr. 218 (1975)). Similarly, the terms
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“willful,” “fraudulent,” “malicious,” and “oppressive” are the statutorily enumerated
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descriptors of the type of conduct which may sustain a cause of action for punitive
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damages. Blegen v. Super. Ct., 125 Cal. App. 3d 959, 963 (1981) (citing Cal. Civ. Code §
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3294). The unsupported allegation of an intentional tort is not sufficient in and of itself.
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See Taylor v. Super. Ct., 24 Cal. 3d 890, 894, 157 Cal. Rptr. 693, 598 P.2d 854 (1979)
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(citing Prosser, Law of Torts (4th ed. 1971) § 2, at pp. 9-10). Further, fraud as a basis for
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punitive damages is defined by Section 3294(b)(3) as “an intentional misrepresentation,
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deceit, or concealment of a material fact known to the defendant with the intention on the
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part of the defendant of thereby depriving a person of property or legal rights or otherwise
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causing injury. Cal. Civ. Code § 3294(b)(3).
Plaintiff’s Complaint states that Defendant “acted fraudulently, maliciously, and in
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conscious disregard of his rights.” (Doc. No. 1-1, ¶ 20.) The Complaint fails to allege any
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facts to support this allegation. Based upon the foregoing, the Court finds that the
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Plaintiff has failed to meet the pleading requirements for a claim of exemplary damages.
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As such, the Defendants’ motion to dismiss Plaintiff’s punitive damages claim is
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GRANTED.
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Conclusion
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For the reasons set forth above, the Defendant’s motion to dismiss is hereby
GRANTED without prejudice and with leave to amend.
IT IS SO ORDERED.
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DATED: April 15, 2013
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Hon. Anthony J. Battaglia
U.S. District Judge
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