Hays v. VDF FutureCeuticals, Inc. et al
Filing
25
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' RULE 12(B)(6) MOTION TO DISMISS re 13 Motion to Dismiss. Signed by JUDGE LESLIE E. KOBAYASHI on 09/28/2016. -- This Court ORDERS Plaintiff to file hi s motion for leave to file an amended complaint by November 28, 2016. The motion will be referred to the magistrate judge. Plaintiff must file his motion for leave to file an amended complaint by November 28, 2016, and the motion must comply with the rulings in this Order. (eps, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
JOHN T. HAYS, III,
)
)
Plaintiff,
)
)
vs.
)
)
VDF FUTURECEUTICALS, INC.,
)
R.J. VAN DRUNEN & SONS, INC., )
AND VAN DRUNEN FARMS, CORP,
)
)
Defendants.
)
_____________________________ )
CIVIL 15-00535 LEK-RLP
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS’ RULE 12(B)(6) MOTION TO DISMISS
On June 13, 2016, Defendants VDF FutureCeuticals, Inc.
(“VDF FC”), R.J. Van Drunen & Sons, Inc. (“Van Drunen & Sons”),
and Van Drunen Farms (“VDF,” all collectively, “Defendants”)
filed their Rule 12(b)(6) Motion to Dismiss (“Motion”).1
no. 13.]
[Dkt.
Pro se Plaintiff John T. Hays, III (“Plaintiff”) filed
his memorandum in opposition on August 1, 2016, and Defendants
filed their reply on August 8, 2016.
[Dkt. nos. 21, 22.]
On
August 15, 2016, this Court issued an entering order finding this
matter suitable for disposition without a hearing pursuant to
Rule LR7.2(d) of the Local Rules of Practice of the United States
District Court for the District of Hawai`i (“Local Rules”).
[Dkt. no. 23.]
1
After careful consideration of the Motion,
Defendants state: “No entity called Van Drunen Farms,
Corp. exists, and accordingly, this defendant is erroneously
named.” [Mem. in Supp. of Motion at 2 n.1.]
supporting and opposing memoranda, and the relevant legal
authority, Defendants’ Motion is HEREBY GRANTED IN PART AND
DENIED IN PART for the reasons set forth below.
BACKGROUND
Plaintiff filed his Complaint on December 23, 2015.
According to the Complaint, Plaintiff and Dr. Dusan Miljkovic
(“Dr. Miljkovic”) met with Jeffrey Van Drunen (“Van Drunen”),
Defendants’ chief executive officer (“CEO”), in 2000.
Plaintiff
shared with Van Drunen “certain research that he and [Dr.]
Miljkovic were doing related to by products and derivatives from
coffee and coffee pulp,” and Plaintiff provided Defendants with
“written materials . . . regarding research on antioxidants in
coffee pulp which had been done at” Plaintiff’s direction.
[Complaint at ¶¶ 6-7.]
Plaintiff states that he provided the
materials to Defendants “on a ‘proprietary’ and ‘strictly
confidential’ basis,” and that all materials were clearly marked
as such.
[Id. at ¶¶ 7-8.]
At an unspecified time, Plaintiff
learned that Defendants obtained at least six United States
patents for “coffee by products [sic] and derivatives of coffee
pulp” using the research Plaintiff provided them.
[Id. at ¶ 9.]
Plaintiff states that he has received no benefit from
the information that he provided to Defendants, and the Complaint
asserts that Defendants have been unjustly enriched because they
have retained all of the income and benefits from the use of the
2
confidential information Plaintiff provided them.
11.]
[Id. at ¶¶ 10-
He seeks the imposition of a constructive trust on the
income that Defendants are deriving from the confidential
information that Plaintiff provided them, as well as damages for
the unauthorized use of the confidential information.
[Id. at
¶¶ 13-14.]
In the instant Motion, Defendants ask this Court to
dismiss Plaintiff’s Complaint with prejudice because: 1) his
unjust enrichment claim is preempted by the Hawai`i Uniform Trade
Secrets Act (“HUTSA”), Haw. Rev. Stat. Chapter 482B; 2) any HUTSA
claim Plaintiff had is now barred by the three-year statute of
limitations; 3) even if HUTSA does not preempt Plaintiff’s unjust
enrichment claim, it is barred by either the laches doctrine or
the six-year statute of limitations applicable to unjust
enrichment claims; and 4) even if Plaintiff’s unjust enrichment
claim is not time-barred, Plaintiff fails to state a plausible
claim for relief.
Defendants therefore ask this Court to dismiss
Plaintiff’s Complaint, with prejudice, pursuant to Fed. R. Civ.
P. 12(b)(6).
DISCUSSION
I.
Preemption of Plaintiff’s Unjust Enrichment Claim
In response to certified questions from this district
court, the Hawai`i Supreme Court held that “the HUTSA preempts
non-contract, civil claims based on the improper acquisition,
3
disclosure or use of confidential and/or commercially valuable
information that does not rise to the level of a statutorilydefined trade secret.”
BlueEarth Biofuels, LLC v. Hawaiian Elec.
Co., 123 Hawai`i 314, 327, 235 P.3d 310, 323 (2010).
The Hawai`i
Supreme Court also held that, because it is not necessary for a
court to find that the allegedly misused information was a trade
secret, it can conduct the preemption analysis at the motion to
dismiss stage.
Id.
After the Hawai`i Supreme Court answered the certified
questions, this district court granted the defendants’ motion to
dismiss the plaintiffs’ unjust enrichment claim because, although
the plaintiffs argued that the claim was not based upon the
unlawful retention of trade secrets or other confidential
information, the district court found that there were
“insufficient facts to state a claim for relief that is plausible
on its face — Plaintiffs have not stated what precisely it
conferred upon the . . . Defendants which they unlawfully
BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 780 F.
retained.”
Supp. 2d 1061, 1073 (D. Hawai`i 2011).
In the instant case, the only basis for Plaintiff’s
unjust enrichment claim is the allegedly improper use of the
confidential information and research that Plaintiff provided to
Defendants.
Thus, Plaintiff’s unjust enrichment claim is a non-
contract, civil claim that alleges the improper use of
4
“confidential and/or commercially valuable information,” and this
Court CONCLUDES that the claim is preempted by the HUTSA.
This
Court therefore DISMISSES Plaintiff’s unjust enrichment claim
because it fails to state a claim upon which relief can be
granted.
See Fed. R. Civ. P. 12(b)(6).
Defendants’ Motion gave Plaintiff notice of this defect
in his unjust enrichment claim, and there is no indication in
either the Complaint or Plaintiff’s memorandum in opposition that
it would be possible for him to amend his unjust enrichment claim
to allege that he conferred on Defendants – and they unlawfully
retained – other benefits besides the confidential information
described in the Complaint.
This Court therefore CONCLUDES that
it is absolutely clear that no amendment can cure the defect in
Plaintiff’s unjust enrichment claim.
See Lucas v. Dep’t of
Corr., 66 F.3d 245, 248 (9th Cir. 1995) (“Unless it is absolutely
clear that no amendment can cure the defect . . . a pro se
litigant is entitled to notice of the complaint’s deficiencies
and an opportunity to amend prior to dismissal of the action.”).
The dismissal of Plaintiff’s unjust enrichment claim is WITH
PREJUDICE, in other words, Plaintiff cannot amend his unjust
enrichment claim in this case.2
2
In light of the fact that this Court has dismissed
Plaintiff’s unjust enrichment claim with prejudice, this Court
does not need to address Defendants’ alternate arguments that:
(continued...)
5
II.
HUTSA Claim
This Court must liberally construe Plaintiff’s
pleadings because he is proceeding pro se.
See, e.g., Eldridge
v. Block, 832 F.2d 1132, 1137 (9th Cir. 1987) (“The Supreme Court
has instructed the federal courts to liberally construe the
‘inartful pleading’ of pro se litigants.” (citing Boag v.
MacDougall, 454 U.S. 364, 365, 102 S. Ct. 700, 701, 70 L. Ed. 2d
551 (1982) (per curiam))).
This Court will therefore liberally
construe Plaintiff’s Complaint as alleging a HUTSA claim that
Defendants’ improper use of the confidential information and
research that Plaintiff provided to them in 2000 constitutes
misappropriation of trade secrets.
Defendants argue that, even
so construed, Plaintiff’s claim still fails as a matter of law
because he failed to file it within applicable statute of
limitations period.
A claim may be dismissed under [Fed. R. Civ. P.]
12 as “barred by the applicable statute of
limitations only when the running of the statute
is apparent on the face of the complaint,” and
“only if the assertions of the complaint, read
with the required liberality, would not permit the
plaintiff to prove that the statute was tolled.”
Rundgren v. Bank of New York Mellon, 777 F. Supp.
2d 1224, 1227 (D. Haw. 2011) (internal quotation
marks and citations omitted).
2
(...continued)
Plaintiff’s unjust enrichment claim is barred by either the
laches doctrine or the applicable statute of limitations; and
that the claim fails to state a plausible claim for relief.
6
Moddha Interactive, Inc. v. Philips Elec. N. Am. Corp., 92 F.
Supp. 3d 982, 995 (D. Hawai`i 2015), aff’d sub nom., No. 20152048, 2016 WL 3227326 (Fed. Cir. June 13, 2016).
Under HUTSA,
“[a]n action for misappropriation must be brought within three
years after the misappropriation is discovered or by the exercise
of reasonable diligence should have been discovered.
For the
purposes of this section, a continuing misappropriation
constitutes a single claim.”
Haw. Rev. Stat. § 482B-7.
As to when the § 482B-7 statute of limitations period
begins to run, this district court has stated:
Under California’s discovery rule, a
suspicion of wrongdoing will trigger the statute
of limitations. Gabriel Techs. Corp. v. Qualcomm
Inc., 857 F. Supp. 2d 997, 1003 (S.D. Cal. 2012).
Hawaii case law follows California precedent
regarding the application of the discovery rule.
See Ass’n of Apartment Owners of Newtown Meadows
v. Venture 15, Inc., 115 Hawai`i 232, 167 P.3d
225, 274 (2007) (quoting Jolly v. Eli Lilly & Co.,
44 Cal. 3d 1103, 245 Cal. Rptr. 658, 751 P.2d 923,
928 (1988)) (applying the “suspicion of
wrongdoing” standard from California law). A
plaintiff has reason to discover a cause of action
when he or she “has reason at least to suspect a
factual basis for its elements.” Fox v. Ethicon
Endo–Surgery, Inc., 35 Cal. 4th 797, 27 Cal. Rptr.
3d 661, 110 P.3d 914, 920 (2005). “[T]he
misappropriation that triggers the running of the
statute is that which the plaintiff suspects, not
that which may or may not actually exist.”
Cypress Semiconductor Corp. v. Super. Ct., 163
Cal. App. 4th 575, 586, 77 Cal. Rptr. 3d 685 (Cal.
Ct. App. 2008). Consequently, “[w]hen there is
reason to suspect that a trade secret has been
misappropriated, and a reasonable investigation
would produce facts sufficient to confirm this
suspicion (and justify bringing suit), the
7
limitations period begins, even though the
plaintiff has not conducted such an
investigation.” Gabriel Techs. Corp., 857 F.
Supp. 2d at 1003. Indeed, the law is clear that
Once the plaintiff has a suspicion of
wrongdoing, and therefore an incentive to
sue, she must decide whether to file suit or
sit on her rights. So long as a suspicion
exists, it is clear that the plaintiff must
go find the facts; she cannot wait for the
facts to find her.
Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103, 245
Cal. Rptr. 658, 751 P.2d 923, 928 (1988).
Moddha Interactive, 92 F. Supp. 3d at 993 (alterations in Moddha
Interactive).
In the instant case, Plaintiff argues that his
claim is timely because he did not discover the misappropriation
until he learned about the Kona Red company on December 29, 2013,
spoke to its CEO, and discovered Defendants’ patents in 2014.
[Mem. in Opp. at 1-2.]
A.
Scope of Materials Considered
Both Defendants and Plaintiff ask this Court to
consider materials outside of the pleadings in ruling on the
issue of whether Plaintiff’s HUTSA claim is timely.
Defendants
submitted the following documents: two patents issued to VDF FC
in October 2010; [Motion, Exhs. 2-3;] two patent applications to
the World Intellectual Property Organization, published in
November 2004; [id., Exhs. 4-5;] and two United States Patent
Application Publications, published in November 2006 [id., Exhs.
6-7].
Defendants ask this Court to take judicial notice of these
8
documents.
[Mem. in Supp. of Motion at 8.]
Plaintiff submitted the following documents: a letter
dated July 5, 2003 to Van Drunen and Dr. Miljkovic from
Plaintiff, as president of Ikatu Coffee; [Mem. in Opp., Decl. of
John T. Hays, III, Exh. 1;] a memorandum dated October 29, 2003
to Van Drunen from Plaintiff, regarding “Coffee Pulp
FutureCeutical Project”; [id., Exh. 2 at 1;] and a memorandum
dated November 12, 2003 to Van Drunen from Plaintiff, regarding
“Coffee Pulp FutureCeutical Marketing Plan” [id. at 9].3
The
Court will refer to these collectively as “Plaintiff’s Letters.”
As a general rule, this Court’s scope of review in
considering a motion to dismiss is limited to the allegations in
the complaint.
See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d
992, 998 (9th Cir. 2010).
“[A] court may consider evidence on
which the complaint necessarily relies if: (1) the complaint
refers to the document; (2) the document is central to the
plaintiff’s claim; and (3) no party questions the authenticity of
the copy attached to the 12(b)(6) motion.”
internal quotation marks omitted).
Id. (citations and
In addition, the court may
consider documents attached to the complaint and matters that are
3
Plaintiff’s Exhibit 2 consists of both the October 29,
2003 memorandum and the November 12, 2003 memorandum. Because
the exhibit is not consecutively paginated, the citations to
Exhibit 2 refer to the page numbers in the district court’s
electronic case filing system.
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subject to judicial notice.
Consideration of any other types of
material requires the court to convert the motion to dismiss to a
motion for summary judgment.
Hawaii Reg’l Council of Carpenters
v. Yoshimura, Civ. No. 16-00198 ACK-KSC, 2016 WL 4745169, at *2
(D. Hawai`i Sept. 12, 2016) (quoting United States v. Ritchie,
342 F.3d 903, 908 (9th Cir. 2003)).
A court may take judicial notice of “a fact that is not
subject to reasonable dispute because it . . . can be accurately
and readily determined from sources whose accuracy cannot
reasonably be questioned.”
Fed. R. Evid. 201(b)(2).
“A court
may take judicial notice of ‘records and reports of
administrative bodies.’”
Balance Studio, Inc. v. Cybernet
Entm’t, LLC, Case No. 15-cv-04038-DMR, 2016 WL 1559745, at *1 n.2
(N.D. Cal. Apr. 18, 2016) (quoting Mack v. S. Bay Beer Distrib.,
798 F.2d 1279, 1282 (9th Cir. 1986)).
In Balance Studio, the
district court noted that the plaintiff did not object to the
defendant’s request for judicial notice, and it took judicial
notice of the submitted United States Patent & Trademark Office
(“USPTO”) records.
Id. (citing Oroamerica Inc. v. D&W Jewelry
Co., Inc., 10 Fed. Appx. 516, 517 n.4 (9th Cir. 2001) (taking
judicial notice of USPTO registration certificates, patent file
history, and patent application materials)).
In the instant case, Plaintiff does not object to
Defendants’ request that this Court take judicial notice of
10
Exhibits 2 through 7.
In fact, he argues that Defendants’
Exhibits 2 through 7 support his position.
[Mem. in Opp. at 2.]
Because Plaintiff does not object and because Defendants’
Exhibits 2 through 7 are records of administrative bodies, this
Court GRANTS Defendants’ request and takes judicial notice of the
patent records presented in Exhibits 2 through 7.4
In addition,
Plaintiff refers generally to the patents in the Complaint.
[Complaint at ¶ 9.]
For these reasons, this Court CONCLUDES that
it can consider Defendants’ Exhibits 2 through 7 in ruling on the
Motion without converting the Motion into a motion for summary
judgment.
In contrast, this Court cannot determine “from sources
whose accuracy cannot reasonably be questioned” whether Plaintiff
actually sent Plaintiff’s Letters to the intended recipients, on
or around the date on the letters.
This Court therefore
concludes that Plaintiff’s Letters are not subject to judicial
notice.
Further, because Plaintiff’s Letters are neither
attached to nor referred to in the Complaint, this Court
CONCLUDES that it cannot consider Plaintiff’s Letters without
converting the instant Motion into a motion for summary judgment.
This Court declines do so and therefore will not consider
4
This Court emphasizes that, although it takes judicial
notice of the existence of the records in Defendant’s Exhibits 2
through 7 and their contents, it does not make any findings
regarding the truth or accuracy of the records’ contents.
11
Plaintiff’s Letters in ruling on the instant Motion.
B.
When Plaintiff’s Claim Accrued
“The United States Supreme Court has stated that
issuance of patents and recordation with the [US]PTO constitute
notice to the world of their existence.”
Wang v. Palo Alto
Networks, Inc., No. C 12-05579 WHA, 2014 WL 1410346, at *5 (N.D.
Cal. Apr. 11, 2014) (citing Sontag Chain Stores Co. Ltd. v. Nat’l
Nut Co. of California, 310 U.S. 281, 295 (1940) (dictum)).
United States Patent Number US 7,807,205 B2, issued
October 5, 2010 (“‘205 Patent”), lists the inventors as Dusan
Miljkovic, Brad Duell, and Vukosava Miljkovic.
The abstract of
the ‘205 Patent states: “Methods are provided for isolating a
nutrient from coffee cherries or for producing a food product
that comprises a coffee cherry or portion thereof.”
Exh. 2 at 1 (citation omitted).]
[Motion,
United States Patent Number US
7,815,959 B2, issued October 19, 2010 (“‘959 Patent”), lists the
same three inventors.
The abstract of the ‘959 Patent states: “A
coffee cherry is harvested, preferably in a sub-ripe state, and
quick-dried to provide a basis for numerous nutritional
products.”
[Id., Exh. 3 at 1.]
Plaintiff’s HUTSA claim is based
on the allegedly improper use of his confidential information to
obtain patents, [Complaint at ¶ 9,] and the publication of the
‘205 Patent and the ‘959 Patent in October 2010 constituted
notice to the world – including Plaintiff – of their existence.
12
Further, the Complaint alleges that Plaintiff and Dr. Miljkovic
met with Van Drunen in 2000 and Plaintiff shared with Van Drunen
research that he and Dr. Miljkovic were doing with “by products
[sic] and derivatives from coffee and coffee pulp.”
¶¶ 5-6.]
[Id. at
This Court finds that the alleged sharing of
information in 2000, combined with the notice of the ‘205 Patent
and the ‘959 Patent in 2010, were sufficient for Plaintiff “at
least to suspect a factual basis for [the] elements” of his HUTSA
claim.5
See Fox, 110 P.3d at 920.
Further, this Court finds
that a reasonable investigation after the publication of the ‘205
Patent and the ‘959 Patent in October 2010 would have produced
the alleged facts that Plaintiff currently relies upon to support
his HUTSA claim.
This Court therefore CONCLUDES that the statute
of limitations on Plaintiff’s HUTSA claim began to run when the
patents were issued in October 2010, even though Plaintiff
apparently did not conduct his investigation at that time.
See
Gabriel Techs. Corp., 857 F. Supp. 2d at 1003.
Plaintiff failed to file his HUTSA claim within the
three-year statute of limitations period specified in Haw. Rev.
Stat. § 482B-7 because he did not file the Complaint until
December 23, 2015.
This Court CONCLUDES that Plaintiff’s HUTSA
5
This Court does not need to address whether the statute of
limitations period began to run at an earlier point, such as when
the patent applications were published.
13
claim is untimely, and that there are no factual allegations in
the Complaint that would support tolling of the statute of
limitations.
This Court therefore GRANTS Defendant’s Motion
insofar as this Court DISMISSES Plaintiff’s HUTSA claim.
However, as stated, supra, this Court cannot dismiss
Plaintiff’s claim with prejudice unless it is absolutely clear
that no amendment can cure the defects in the claim.
66 F.3d at 248.
See Lucas,
This Court CONCLUDES that is arguably possible
for Plaintiff to amend his HUTSA claim to plead a factual basis
for tolling of the statute of limitations – including, but not
limited to, equitable tolling.
See, e.g., Eager v. Honolulu
Police Dep’t, CIVIL NO. 15-00098 JMS-KSC, 2016 WL 471282, at *8
(D. Hawai`i Feb. 4, 2016) (describing the requirements to
establish equitable tolling under Hawai`i law).
This Court
therefore DENIES Defendant’s Motion to the extent that Defendants
ask this Court to dismiss Plaintiff’s HUTSA claim with prejudice.
The dismissal of Plaintiff’s HUTSA claim is WITHOUT PREJUDICE.
C.
Leave to Amend
Insofar as the dismissal of Plaintiff’s HUTSA claim is
without prejudice, this Court will allow Plaintiff to file a
motion for leave to file an amended complaint.
Plaintiff must
attach his proposed amended complaint to the motion for leave to
file.
See Local Rule LR10.3 (“Any party filing or moving to file
an amended complaint . . . shall reproduce the entire pleading as
14
amended and may not incorporate any part of a prior pleading by
reference, except with leave of court.”).
This Court ORDERS
Plaintiff to file his motion for leave to file an amended
complaint by November 28, 2016.
The motion will be referred to
the magistrate judge.
This Court CAUTIONS Plaintiff that his proposed amended
complaint must state all of the facts and all of the legal
theories that his HUTSA claim relies upon.
Plaintiff cannot rely
upon or incorporate by reference any portion of his original
Complaint.
This Court will not consider Plaintiff’s amended
complaint collectively with his prior filings in this case.
This Court also CAUTIONS Plaintiff that, if he fails to
file his motion for leave to file an amended complaint by
November 28, 2016, the HUTSA claim that this Court dismissed
without prejudice in this Order will be dismissed with prejudice,
and this Court will direct the Clerk’s Office to issue the final
judgment and close the case.
In other words, Plaintiff would
have no remaining claims in this case, and his lawsuit would be
over.
Further, this Court CAUTIONS Plaintiff that, even if the
magistrate allows Plaintiff to file his proposed amended
complaint, this Court may still dismiss the amended complaint
with prejudice if it fails to cure the defects identified in this
Order.
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CONCLUSION
On the basis of the foregoing, Defendants’ Rule
12(b)(6) Motion to Dismiss, filed June 13, 2016, is HEREBY
GRANTED IN PART AND DENIED IN PART.
Defendants’ Motion is
GRANTED insofar as: Plaintiff’s unjust enrichment claim is HEREBY
DISMISSED WITH PREJUDICE; and Plaintiff’s Hawai`i Uniform Trade
Secrets Act claim is HEREBY DISMISSED.
Defendants’ Motion is
DENIED insofar as the dismissal of the HUTSA claim is WITHOUT
PREJUDICE.
Plaintiff must file his motion for leave to file an
amended complaint by November 28, 2016, and the motion must
comply with the rulings in this Order.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, September 28, 2016.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
JOHN T. HAYS, III VS. VDF FUTURECEUTICALS, INC., ET AL; CIVIL
15-00535 LEK-RLP; ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS’ RULE 12(B)(6) MOTION TO DISMISS
16
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