Edifecs Inc v. TIBCO Software, Inc.

Filing 45

ORDER granting in part and denying in part dft's #41 Motion to Dismiss Amended Complaint by Judge Ricardo S Martinez.(RS)

1 2 3 4 5 6 7 8 9 10 11 Plaintiff, 12 v. 13 14 15 16 17 18 TIBCO SOFTWARE INC., a Delaware corporation, Defendant. UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE EDIFECS INC., a Washington corporation, CASE NO. C10-330-RSM ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT

I. INTRODUCTION
This motion comes before the Court upon Defendant's Motion to Dismiss Amended

19 Complaint (Dkt. #41). For the reasons set forth below, Defendant's motion is granted in part and 20 denied in part. 21 22

II. BACKGROUND
This case arises from Defendant's acquisition of Foresight Corporation ("Foresight"),

23 Plaintiff's chief competitor in the healthcare software solutions industry. Dkt. # 1, ¶ 2. Plaintiff 24
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 1

1 alleges that the Foresight acquisition significantly threatened the confidentiality of its proprietary 2 software technology held by the Defendant under various licensing agreements. Plaintiff Edifecs 3 Inc. ("Edifecs"), a Washington corporation, brought this diversity suit for breach of contract and 4 trade secret misappropriation against defendant TIBCO Software, Inc. ("TIBCO"), a Delaware 5 corporation with principal place of business in Palo Alto, California. The complaint was filed 6 March 22, 2010. Dkt. # 1. 7 In a December 17, 2010 order (Dkt. #30), this Court dismissed Plaintiff's complaint and

8 granted leave to amend. The Court applied California law and held that allegations that TIBCO 9 had failed to segregate documents and employees to protect against the possibility of disclosure 10 of Edifecs' confidential information did not state a claim for which relief could be granted. Dkt. 11 #30. With respect to Edifecs' claim under the Uniform Trade Secrets Act (UTSA), the central 12 defect with Plaintiff's complaint was that there was no allegation of actual trade secret 13 misappropriation. To the extent that Plaintiff's claim for trade secret misappropriation proceeded 14 on a theory of inevitable disclosure, the Court dismissed the claim because of California's 15 rejection of the inevitable disclosure doctrine. And to the extent that Plaintiff proceeded on a 16 theory of threatened misappropriation, the Court held that Edifecs had failed to allege that 17 TIBCO had actually threatened to misuse Plaintiff's trade secrets. Specifically, TIBCO's refusal 18 to segregate documents and employees following the acquisition of Foresight was not a threat of 19 trade secret misappropriation. Id. at 8. 20 Finally, with respect to Plaintiff's breach of contract claim, the court determined that the

21 contract at issue did not include an implied obligation to segregate employees and documents 22 from those employees creating competitive products. The Court reasoned that, because the 23 contract vested TIBCO with a "Right to Develop Independently," which did not require TIBCO 24
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 2

1 to segregate employees when developing competing products, it would be inconsistent to read 2 the contract as including such an implied covenant with respect to TIBCO's acquisition of 3 Foresight. Id. ("[I]t would be inconsistent to interpret the contract to require TIBCO to 4 segregate its employees and documents from Foresight simply because it acquired a subsidiary to 5 create competitive products, rather than leverage its existing employees for that purpose."). 6 Plaintiff's claim for breach of the implied covenant of good faith and fair dealing was dismissed 7 because Edifecs failed to allege that TIBCO's failure to segregate documents and employees 8 frustrated its ability to receive the benefit of its contract. 9 Ultimately, the Court granted Defendant's Motion to Dismiss in its entirety but granted

10 Edifecs leave to amend its complaint to include allegations, should they exist, of actual trade 11 secret misappropriation, breach of contract, or breach of the implied covenant. The Court's 12 denied Edifecs' Motion for Reconsideration. Dkt. #35. 13

III. DISCUSSION

14 A. Rule 12(f) Motion to Strike Segregation Allegations 15 Pursuant to the Court's December 17, 2010 order, it is now the law of the case that

16 allegations that TIBCO failed to segregate its employees and relevant documents following its 17 acquisition of Foresight do not state a claim for misappropriation of trade secrets, breach of 18 contract, or breach of the implied covenant of good faith and fair dealing. See generally United 19 States v. Lummi Indian Tribe, 235 F.3d 443, 452 (9th Cir. 2000). The Court is not at liberty to 20 revisit this issue. Id. Therefore, it would constitute a waste of judicial resources to permit the 21 parties to litigate the question further. Id. ("The law of the case doctrine is a judicial invention 22 designed to aid in the efficient operation of court affairs. Under the doctrine, a court is generally 23 precluded from reconsidering an issue previously decided by the same court, or a higher court in 24
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 3

1 the identical case.") (internal citations omitted). TIBCO now moves under Fed. R. Civ. P. 12(f) 2 to strike those portions of the Edifecs' Amended Complaint that re-allege TIBCO's failure to 3 segregate employees and information as a basis for its claims. 4 Rule 12(f) permits a Court to "strike from a pleading an insufficient defense or any

5 redundant, immaterial, impertinent, or scandalous matter." The Ninth Circuit recently held that 6 Rule 12(f) does not authorize district courts to strike claims for damages on the basis that it is 7 precluded as a matter of law. Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 8 2010). This is because Rule 12(f) motions are reviewed for an "abuse of discretion," whereas 9 12(b)(6) motions are reviewed de novo. Id. at 974. "Thus, if a party may seek dismissal of a 10 pleading under Rule 12(f), the district court's action would be subject to a different standard of 11 review than if the district court had adjudicated the same substantive action under Rule 12(b)(6). 12 Applying different standards of review, when the district court's underlying action is the same, 13 does not make sense." Id. Notwithstanding the holding of Whittlestone, the Court finds that 14 striking portions of Plaintiff's complaint is appropriate under these circumstances. 15 First, redundant matters may be stricken from a pleading under Rule 12(f). The Court

16 already decided as a matter of law that TIBCO's failure to segregate employees and documents 17 does not give rise to the claims Edifecs asserts. See Dkt. #30. Therefore, the allegations in the 18 First Amended Complaint that re-allege the same claims based on the same set of facts as those 19 in the original complaint are redundant. Second, the concern about standard of review that 20 informs the Whittlestone decision is not present here. Striking portions of the First Amended 21 Complaint that have already been dismissed in the earlier briefing based on the law of the case 22 doctrine will not prejudice the Plaintiff upon appeal. Should Edifecs choose to challenge the 23 Court's decision regarding TIBCO's failure to segregate not giving rise to a cause of action for 24
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 4

1 violation of the UTSA, breach of contract, or breach of the implied covenant, it will be entitled to 2 de novo review because that decision was made under Rule 12(b)(6). 3 For these reasons, TIBCO's Rule 12(f) Motion to Strike is appropriate to the extent that

4 portions of the First Amended Complaint re-allege that TIBCO's failure to segregate documents 5 and employees following the acquisition of Foresight constitutes a violation of the UTSA, a 6 breach of contract, or a breach of the implied covenant of good faith and fair dealing. While

7 Edifecs has changed the language in the First Amended Complaint such that it no longer alleges 8 that TIBCO's failure to take commercially reasonable steps to protects its confidential 9 information is solely predicated on its failure to implement the specific segregation procedures 10 requested by Edifecs, the Amended Complaint does not include any allegations other than the 11 failure to segregate that would support its allegations that TIBCO failed to take reasonable steps 12 to protect the confidential information. Therefore, the following portions of Edifecs' complaint 13 are hereby STRICKEN: 2:1-2, 5:8-21, 7:16-18 (starting with "and the obligation to..."), and 9:414 9. The Court will not strike those portions of Plaintiff's complaint that call for the segregation of 15 employees and documents in its prayer for relief because the Court has not made any prior 16 determination regarding whether such a remedy would constitute appropriate relief under the 17 circumstances. Further, the Court declines to make such a determination at this stage in the 18 litigation. 19 B. Motion to Dismiss Claim for Breach of the Implied Covenant 20 Defendant moves to dismiss Edifecs' claim for breach of the implied covenant of good

21 faith and fair dealing as duplicative of its breach of contract claim. Edifecs alleges that TIBCO 22 breached the implied covenant by failing to pay proper royalties and failing to comply with 23 contractual terms regarding confidentiality. Edifecs argues that the First Amended Complaint 24 contains factual allegations that support its breach of the implied covenant claim that are distinct
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 5

1 from those allegations that support its breach of contract claim. For example, Edifecs alleges 2 that TIBCO frustrated Edifecs' ability to benefit from the License Agreement through the 3 maintenance of improper internal controls and manual accounting systems. 4 Conduct that is actionable as a breach of contract claim does not give rise to a separate

5 claim for breach of the implied covenant of good faith and fair dealing. See, e.g., Guz v. Bechtel 6 Nat'l, Inc., 24 Cal.4th 317, 352-53 (2000). However, Plaintiff has alleged that Defendant 7 engaged in distinct conduct ­ including engaging in a particular method of accounting ­ that may 8 give rise to a separate claim for breach of the implied covenant. Therefore, the Court declines to 9 dismiss Plaintiff's claim for breach of the implied covenant. 10 C. Motion to Dismiss Claim for Injunctive Relief 11 TIBCO seeks to dismiss Edifecs' Fourth Cause of Action for Injunctive Relief and

12 Accounting on the basis that a separate claim for injunctive relief is not recognized under 13 California law and, even if it were, California does not permit parties to allege tort claims over 14 nonpublic information except through the Uniform Trade Secrets Act. Injunctive relief is a 15 remedy, not a cause of action. See BLACK'S LAW DICTIONARY 201 (1979) (defining cause 16 of action as "[a] situation or state of facts which would entitle party to sustain action and give 17 him right to seek a judicial remedy in his behalf."). Therefore, Edifecs' requested injunctive 18 relief must be tied to an independent duty owed by the Defendant to the Plaintiff. See McDowell 19 v. Watson, 59 Cal.App.4th 1155, 1159, 69 Cal.Rptr.2d 692 (1997); Cox Commc'ns PCS, L.P. v. 20 City of San Marcos, 204 F.Supp.2d 1272, 1283 (S.D.Cal.2002). Edifecs may seek an injunction 21 and an accounting in connection with its other claims. Therefore, the Court will construe 22 Edifecs' claim for injunctive relief and an accounting as part of its prayer for relief rather than a 23 separate cause of action. See Fed. R. Civ. P. 8(e) ("Pleadings must be construed so as to do 24 justice."). As such, the claim is not preempted by the CUTSA and will not be dismissed.
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 6

1

IV. CONCLUSION
2 Having reviewed the relevant pleadings, the declarations and exhibits attached thereto, 3 and the remainder of the record, the Court hereby finds and ORDERS: 4 (1) Defendant's Motion to Dismiss (Dkt. #41) is GRANTED in part and DENIED in 5 part, as set out above. 6 (2) The Clerk is directed to forward a copy of this Order to plaintiffs and to all counsel 7 of record. 8 9 Dated March 23, 2011. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
ORDER ON DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT - 7

A

RICARDO S. MARTINEZ UNITED STATES DISTRICT JUDGE