Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 5:2017cv00447 - Document 37 (N.D. Cal. 2017)

Court Description: ORDER GRANTING NATIONAL UNION'S MOTION TO DISMISS WITH LEAVE TO AMEND. Re: Dkt. No. 15 . Amended complaint must be filed with the Court by 6/23/2017. Signed by Judge Nathanael Cousins. (lmh, COURT STAFF) (Filed on 6/2/2017)
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Yahoo! Inc. v. National Union Fire Insurance Company of Pittsburgh, PA Doc. 37 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 10 YAHOO! INC., Plaintiff, United States District Court Northern District of California 11 v. 12 13 14 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Case No. 17-cv-00447 NC ORDER GRANTING NATIONAL UNION’S MOTION TO DISMISS WITH LEAVE TO AMEND Re: Dkt. No. 15 Defendant. 15 In this insurance breach of contract action, defendant National Union Fire Insurance 16 17 Company of Pittsburgh, PA (National Union) moves to dismiss plaintiff Yahoo! Inc.’s 18 (Yahoo) complaint. The issue presented is whether the disputed insurance provision 19 provides coverage for Yahoo’s alleged violations of privacy. The Court grants dismissal 20 because National Union showed that Yahoo’s construction of the disputed insurance 21 provision did not provide for coverage. For the reasons set forth below the motion is 22 GRANTED WITH LEAVE TO AMEND. 23 I. 24 25 26 27 28 BACKGROUND A. Factual Background National Union sold Yahoo five consecutive Commercial General Liability (CGL) insurance policies. Dkt. No. 1 at 6. The policies each contain similar language, which provides coverage for personal and advertising injury. Id. at 82-85. The policies contain Endorsement No. 1, which alters coverage as to personal injury. Id. at 84. The policy Case No. 17-cv-00447 NC Dockets.Justia.com 1 contains an endorsement in order to provide extended coverage for personal and 2 advertising injury. Endorsement No. 1 defines personal injury as “injury, including 3 consequential ‘bodily injury’, arising out of one more of the following offenses: . . . (e) 4 oral or written publication, in any manner, of material that violates a person’s right of 5 privacy.” Dkt. No. 1 at 85. The CGL policies provide that National Union will pay the 6 sums that Yahoo becomes legally obligated to pay as damages due to personal injury. Dkt. 7 No. 15 at 4. During the period of January 2013 to April 2014, several class action lawsuits (Text 8 9 Message Litigations) were filed against Yahoo as a result of Yahoo’s alleged transmission of unsolicited text messages. Dkt. No. 1 at 2-6. These lawsuits allege violations of the 11 United States District Court Northern District of California 10 Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA). Id. The Text Message 12 Litigations allege that through the unsolicited transmission of the text messages, Yahoo 13 invaded the privacy of the plaintiffs. Id. at 3, 4. Once the Text Message Litigations began, Yahoo notified National Union to obtain 14 15 coverage under the policy. Id. at 7. National Union denied coverage. Id. B. Procedural History 16 On January 27, 2017, Yahoo filed its complaint, which alleges a breach of contract 17 18 claim due to National Union’s denial of coverage and consequent failure to defend. Dkt. 19 No. 1. On April 10, 2017, National Union filed its motion to dismiss pursuant to Federal 20 Rule of Civil Procedure 12(b)(6). See Dkt. No. 15. This Court has jurisdiction under 28 21 U.S.C. § 636(c) as both parties consented to proceeding before a magistrate judge. See 22 Dkt. Nos. 6, 17. 23 II. 24 LEGAL STANDARD A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 25 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a 26 motion to dismiss, all allegations of material fact are taken as true and construed in the 27 light most favorable to the non-movant. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337- 28 38 (9th Cir. 1996). The Court, however, need not accept as true “allegations that are Case No. 17-cv-00447 NC 2 1 merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re 2 Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Although a complaint need 3 not allege detailed factual allegations, it must contain sufficient factual matter, accepted as 4 true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 5 550 U.S. 544, 570 (2007). A claim is facially plausible when it “allows the court to draw 6 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft 7 v. Iqbal, 556 U.S. 662, 678 (2009). If a court grants a motion to dismiss, leave to amend should be granted unless the 8 9 pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). 11 United States District Court Northern District of California 10 III. DISCUSSION National Union moves to dismiss Yahoo’s complaint because the insurance policy 12 13 does not cover the Text Message Litigations. Dkt. No. 15 at 2. A. Insurance Contract Interpretation under California Law 1 14 15 Insurance policies are contracts and therefore must be interpreted as such. AIU Ins. 16 Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990). The “mutual intention” of the parties at 17 the time of contract formation governs the contract’s interpretation. Id. at 821. The 18 parties’ intentions are inferred from the “clear and explicit” meaning of these provisions. 19 Id. at 822. The provisions are interpreted in their “ordinary and popular” sense unless the 20 21 22 23 24 25 26 27 28 1 In Yahoo’s opposition to the motion to dismiss, Yahoo asserts that “National Union prematurely assumes that California law applies with no basis for this conclusion.” Dkt. No. 24 at 11. Yahoo does not provide support for the Court applying non-California law. Furthermore, in Yahoo’s statement regarding jurisdiction and venue in the complaint, Yahoo makes clear that the parties are before the Court in diversity, and that “the contracts of insurance that are the subject of this action were entered into and were to be performed within this District, and the underlying events giving rise to Yahoo’s claim for insurance coverage occurred within this district.” Dkt. No. 1 at 2. As National Union pointed out, a federal court sitting in diversity must apply the forum state’s substantive law. Welles v. Turner Entm’t Co., 503 F.3d 728, 738 (9th Cir. 2007) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Yahoo’s language in the complaint mirrors California Civil Code § 1646, which requires that a contract be interpreted “according to the law and usage of the place where it is to be performed; or . . . where it was made.” Yahoo’s unsupported assertion that non-California law may apply to this case is not well taken. Case No. 17-cv-00447 NC 3 1 terms are used in a “technical sense or a special meaning is given to them by usage.” Id. 2 A policy provision is considered ambiguous when it is capable of more than one 3 interpretation. Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 18 (1995). When ambiguity 4 in policy language or term arises, courts must resolve that ambiguity in favor of the 5 insured. United Nat. Ins. Co. v. Spectrum Worldwide Inc., 555 F.3d 772, 777 (9th Cir. 6 2009). The language of a contract must be interpreted as a whole, which means 7 ambiguities cannot be found in the abstract. Waller, 11 Cal. 4th at 18. 8 9 B. The Disputed Policy Provision The disputed provision is contained in the definition of personal injury coverage. The policy covers personal injury arising out of “oral or written publication, in any 11 United States District Court Northern District of California 10 manner, of material that violates a person’s right of privacy.” Dkt. No. 1 at 85. Yahoo 12 argues that this disputed provision means that the Text Message Litigations are covered 13 under the policy and therefore National Union owes Yahoo a duty to defend it in the 14 underlying lawsuits. 15 16 i. Right of Privacy Courts have identified two meanings for the right to privacy: (1) secrecy and (2) 17 seclusion. ACS Sys., Inc., 147 Cal. App. 4th at 148. The privacy right of secrecy involves 18 the right to prevent disclosure of personal information to third parties. Id. at 149. The 19 privacy right of seclusion involves the right to be let alone. Id. at 148. Invasion of the 20 privacy right of secrecy involves the “content of communication,” whereas invasion of the 21 privacy right of seclusion involves “means, manner, and method of communication.” Id. 22 at 149 (emphasis in original). For example, a person who wants to conceal a criminal 23 conviction from an employer asserts a claim for secrecy privacy. Id. at 148. A person who 24 wishes to prevent solicitors from calling on the telephone asserts a claim to the privacy 25 right of seclusion. Id. 26 Similar to this case, ACS involved an insured seeking coverage in a lawsuit alleging 27 violations of the TCPA due to the insured sending unsolicited advertisements via fax 28 machine. Id. at 140. The court analyzed whether the disputed policy provision provided Case No. 17-cv-00447 NC 4 1 coverage for the underlying litigation. Id. at 145. There, the disputed provision provided 2 coverage for injury resulting from “making known to any person or organization written or 3 spoken material that violates an individual’s right of privacy.” Id. at 149. Because the 4 disputed provision required that the material be made known, the court reasoned that the 5 policy required disclosure of the material to third parties. Id. The court concluded that 6 coverage for TCPA violations was not available. Id. at 154. A violation of secrecy 7 privacy involves material being made known to third parties, but violation of seclusion 8 privacy does not. Id. at 150. The court ruled that the policy provided coverage for 9 violations of secrecy privacy, but not seclusion. Id. 10 Yahoo cites Los Angeles Lakers, Inc. v. Federal Insurance. Co., No. 14-cv-7743 United States District Court Northern District of California 11 DMG, 2015 WL 2088865 (C.D. Cal. April 17, 2015) (on appeal) to argue that TCPA 12 violations are protected under insurance policies. Dkt. No. 24 at 10. In Los Angeles 13 Lakers, the court analyzed a policy exclusion clause, which excludes coverage for certain 14 actions, to determine if there was a duty to defend in an underlying TCPA violation action. 15 2015 WL 2088865, *5. The court reasoned that violations of the TCPA were protected 16 under the broad exclusion clause language. Id. at *7. The exclusion clause in Los Angeles 17 Lakers contained different language from this case. Id. at *2. There, the clause merely 18 stated “invasion of privacy” as one of its several exclusions, which is broader policy 19 language than the language here. Id.; Dkt. No. 1 at 85 (compare with “oral or written 20 publication, in any manner, of material that violates a person’s right of privacy.”). In 21 addition, the policy language in Los Angeles Lakers afforded a broader interpretation of 22 privacy because exclusion clauses are to be interpreted narrowly in order to protect the 23 insured. 2015 WL 2088865, *3 (citing MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 24 647-48 (2003)). This case does not implicate any exclusion clause. 25 Yahoo also cites Owners Insurance Co. v. European Auto Works, Inc., 695 F.3d 26 814 (8th Cir. 2012), to assert that both secrecy and seclusion privacy are protected under 27 the policy. Dkt. No. 24 at 10. Owner’s Insurance presents similar policy language as the 28 Case No. 17-cv-00447 NC 5 1 current case 2, but it uses Minnesota law to interpret the policy. 695 F.3d at 819. The 2 Yahoo policy is governed by California law, and under California law, insurance policy 3 provisions with such language have not been construed to also cover alleged violations of 4 seclusion privacy. See e.g., ACS Sys., Inc., 147 Cal. App. 4th 137; State Farm Gen. Ins. 5 Co. v. JT’s Frames, Inc., 181 Cal. App. 4th 429 (2010). Yahoo has not presented the 6 Court with California cases stating to the contrary. ii. Analysis of the Policy Text 7 First, the Court considers the policy’s plain text. The text of the disputed provision 8 9 is “oral or written publication, in any manner, of material that violates a person’s right of privacy.” Dkt. No. 1 at 85. “Publication” is defined as “making known.” Reimel v. 11 United States District Court Northern District of California 10 Alcoholic Bev. Appeals Bd., 256 Cal. App. 2d 158, 166-67 (1967). In situations where 12 secrecy privacy is violated, publication plays a key role. JT’s Frames, Inc., 181 Cal. App. 13 4th at 447. However, in situations where seclusion privacy is violated, publication is 14 irrelevant. Id. JT’s Frames is particularly helpful and on point in this case. There, the court 15 16 analyzed whether an insurance policy provided coverage in an underlying action alleging 17 violations of the TCPA. Id. at 434. The policy in JT’s Frames contained an advertising 18 injury clause, which covered injury caused by “oral or written publication of material that 19 violates a person’s right of privacy.” Id. In order to analyze the meaning of that provision, 20 the court first looked to the text of the provision. Id. at 445. In ACS, the disputed policy 21 language stated, “making known to any person or organization written or spoken material 22 that violates an individual’s right of privacy.” 147 Cal. App. 4th at 149. The court in JT’s 23 Frames determined that “making known” and “publication” have the same meaning. 181 24 Cal. App. 4th at 447. The court concluded that the policy covered secrecy privacy, but not 25 seclusion privacy, because publication means that material is being made known to third 26 parties, and secrecy privacy involves disclosure of material to third parties. Id. Seclusion 27 2 28 The provision of in Owner’s Insurance Co. states, “oral or written publication of material that violates a person’s right of privacy.” 695 F.3d at 817. Case No. 17-cv-00447 NC 6 1 2 privacy does not. Here, Yahoo made the text messages known to the recipients, but did not make the 3 content of the text messages known to third parties. It is the content of the material that 4 violates a person’s right to privacy when that material is made known. ACS Sys., Inc., 147 5 Cal. App. 4th at 149. Making information known implies “telling, sharing or otherwise 6 divulging, such that the injured party is the one whose private material is made known, not 7 the one to whom the material is made known.” Id. (citing Res. Bankshares Corp. v. St. 8 Paul Mercury Ins. Co., 407 F.3d 631, 641 (4th Cir. 2005)). Thus, for information to be 9 made known or published, the information must be disclosed to a third party. ACS Sys., Inc., 147 Cal. App. 4th at 149. Here, the disputed provision therefore only plausibly 11 United States District Court Northern District of California 10 covers injury caused by the disclosure of private content to third parties based on the word 12 “publication” in the provision. ACS Sys., Inc., 147 Cal. App. 4th at 150. Thus, the 13 disputed provision does not cover Yahoo’s alleged legal violations because Yahoo did not 14 disclose the content of the material to third parties, but only to the underlying plaintiffs. 15 Another tool for interpreting the contract provision’s text is the last antecedent rule. 16 Id. The last antecedent rule states that, “qualifying words, phrases and clauses are to be 17 applied to the words or phrases immediately preceding and are not to be construed as 18 extending to or including others more remote.” Renee J. v. Superior Court, 26 Cal. 4th 19 735, 743 (2001). The disputed provision states, “oral or written publication, in any 20 manner, of material that violates a person’s right of privacy.” Dkt. No. 1 at 85. Applying 21 this rule to the disputed provision, “that violates a person’s right of privacy” modifies the 22 word “material.” JT’s Frames, Inc., 181 Cal. App. 4th at 446. This means the disclosed 23 material must violate a person’s right of privacy. Id. As the policy is drafted, “material” 24 can only violate a person’s right of privacy if it is “confidential information and violated 25 the victim’s right to secrecy.” Id. 26 Yahoo argues that “right of privacy” should be construed broadly so as to afford the 27 greatest protection to the insured. Dkt. No. 24 at 9. Although this is correct in terms of 28 interpretation of insurance policies, the broad definition Yahoo offers ignores the Case No. 17-cv-00447 NC 7 1 interpretation of the disputed provision as a whole. Yahoo’s desired interpretation of 2 “right of privacy” looks to the term in the abstract, but the correct method of interpretation 3 under California law is examining the provision as a whole. ACS Sys., Inc., 147 Cal. App. 4 4th at 146. When looking at the entire disputed provision, it shows that there must be 5 publication of material for privacy to be violated. Therefore, the element of publication 6 must be satisfied in order for privacy to be violated. The text messages do not violate a 7 person’s privacy right of secrecy, and thus these injuries are not covered under the 8 disputed policy provision. Thus, according to the text of the disputed provision, National 9 Union does not owe a duty to defend Yahoo for violations of seclusion privacy. 10 iii. Analysis of the Policy Context United States District Court Northern District of California 11 Second, the court considers the context in which the disputed provision is contained 12 in the contract. As previously stated, insurance policies must be interpreted as a whole and 13 not in the abstract in order to interpret ambiguous language. ACS Sys, Inc., 147 Cal. App 14 4th at 146. Analyzing the placement of provisions in the policy, and using other clauses in 15 the policy to help interpret the other provisions, sheds light on the meaning of ambiguous 16 language. Id. at 151. Here, the disputed provision is the last of five offenses in which 17 personal injury coverage arises. It is important to analyze the provision directly before the 18 disputed one in order to use the context of that provision to help determine the disputed 19 provision’s meaning. Id. The provision immediately before the disputed one provides 20 coverage for “oral or written publication, in any manner, of material that slanders or libels 21 a person or organization or disparages a person’s or organization’s goods, products, or 22 services.” Dkt. No. 1 at 84. Libel or slander involves “a publication of defamatory content 23 about someone to a third person.” Cal. Civ. Code §§ 45, 46; Live Oak Publ’g Co. v. 24 Cohagan, 234 Cal. App. 3d 1277, 1284 (1991); ACS Sys., Inc., 147 Cal. App. 4th at 151. 25 The provision directly before the disputed one states that the violation comes from the 26 sharing of content to third parties and not just from receiving the content. ACS Sys., Inc., 27 147 Cal. App. 4th at 152. That provision only provides coverage when content is disclosed 28 to third parties. Because the disputed provision immediately follows the provision Case No. 17-cv-00447 NC 8 1 covering slander and libel, it is reasonable to infer that the disputed provision also provides 2 coverage only when material is disclosed to third parties. This type of disclosure violates 3 the privacy right of secrecy, not seclusion. 4 Secrecy and seclusion privacy are mutually exclusive in this context because of the 5 use of “publication.” The term “publication” plays a key role in interpreting the meaning 6 of the disputed provision as a whole. The provision involving slander and libel requires 7 disclosure to third parties. Id. Therefore, it follows that the disputed provision would also 8 involve disclosure to third parties. 9 In its brief, Yahoo discusses the context of the disputed provision, but omits the provision immediately before the disputed one. Dkt. No. 24 at 8. Yahoo cites two of the 11 United States District Court Northern District of California 10 provisions prior to the disputed one. Those provisions are: “(a) false arrest, detention, or 12 imprisonment” and “(c) the wrongful eviction from, wrongful entry into, or invasion of the 13 right of private occupancy of a room, dwelling or premises that a person occupies, 14 committed by or on behalf of its owner, landlord or lessor.” Dkt. No. 1 at 84. Yahoo 15 ignores the provision providing the most context. Dkt. No. 24 at 8. By ignoring the 16 provision immediately before the disputed one, Yahoo draws strained inferences about the 17 context of the policy as a whole. Courts will not strain to find ambiguity in policy 18 language. Waller, 11 Cal. 4th at 18-19. The other provisions Yahoo cites are different 19 from the disputed one, and therefore Yahoo concludes that the context of the provision 20 does not shed light on its meaning. Dkt. No. 24 at 9. However, the provision immediately 21 before the disputed one contains language that signals the importance of disclosure to third 22 parties. Because the disputed provision directly follows a provision that involves 23 disclosure to third parties, the Court concludes that the disputed provision also involves 24 disclosure to third parties. Yahoo’s argument is unpersuasive. 25 C. Qualifying Policy Language 26 The disputed policy provision states, “oral or written publication, in any manner, of 27 material that violates a person’s right of privacy.” Dkt. No. 1 at 85. Yahoo argues that the 28 “in any manner” language broadens the meaning of publication. Dkt. No. 24 at 12. This Case No. 17-cv-00447 NC 9 1 argument is unsupported by binding authority, and is unpersuasive. Applying the last 2 antecedent rule to this phrase, shows that “in any manner” applies to the preceding phrase, 3 “oral or written publication.” Therefore, “in any manner” modifies “publication.” 4 Interpreting this language in its “ordinary and popular” sense provides that information 5 may be made known in any way in order for coverage to apply. AIU Ins. Co., 51 Cal. 3d at 6 821. Any manner of publication involves any medium by which material is published. 7 Here, the information was never published because the content was never made known to 8 third parties. ACS Sys., Inc., 147 Cal. App. 4th at 149. Therefore, the manner of 9 publication is not at issue because there was no publication in the first place. 10 United States District Court Northern District of California 11 12 D. Yahoo’s Other Arguments In opposition to National Union’s motion to dismiss, Yahoo cites several cases that are irrelevant here. See Dkt. No. 24 at 9-10, 12. 13 These cases cite out of state law, which do not interpret insurance policies in the same 14 manner as California courts. For example, Yahoo cites Park University Enterprises, Inc. v. 15 American Casualty Co. of Reading, Pa, which applies Kansas law to interpret the disputed 16 insurance policy provision. 442 F.3d 1239, 1249 (2006). In Kansas, the standard for 17 interpreting insurance policies is viewing ambiguous terms as a reasonable person and 18 determining meaning from that perspective. Id. Although this is similar to California’s 19 method of interpreting ambiguous terms in favor of the insured, that court did not consider 20 the context of the contract as a whole. Waller, 11 Cal. 4th at 11. It is important to view 21 the contract as a whole and not in the abstract. ACS Sys., Inc., 147 Cal. App 4th at 146. 22 The court in Park University looks at the language in the abstract to determine if it is 23 ambiguous. Park University Enter, Inc., 442 F.3d at 1249. California courts also look to 24 context. Waller, 11 Cal. 4th at 11. 25 Yahoo cites several other cases which also apply out-of-state laws to interpret 26 insurance policy language. See Dkt. No. 24 at 9, 12. Like Park University, those cases are 27 also inapposite because they assign meaning to policy language that is inconsistent with 28 California case law. Collective Brands, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa, Case No. 17-cv-00447 NC 10 1 No. 11-cv-4097 JTM, 2013 WL 66071, *13 (D. Kan. Jan. 4, 2013) (explicitly rejecting use 2 of California law to interpret similar insurance policies); Valley Forge Ins. Co. v. Swiderski 3 Elecs., Inc., 223 Ill. 2d 352, 368 (2006) (finding that a similarly-worded policy may be 4 interpreted using dictionary definitions for “right of privacy,” which includes seclusion); 5 Hooters of Augusta, Inc. v. Am. Global Ins. Co., 157 Fed. App’x 201, 206 (11th Cir. 2004) 6 (applying Georgia law and a broader interpretation of privacy); Western Rim Inv. Advisors, 7 Inc. v. Gulf Ins. Co., 269 F. Supp. 2d 836, 846 (N.D. Tex. 2003) aff’d 96 Fed. App’x 960 8 (5th Cir. 2004) (applying Texas law to interpret the meaning of “publication”). Therefore, 9 this Court will not consider those cases in ruling on this case’s merits. However, because Yahoo’s claim for coverage could possibly be amended by the 11 United States District Court Northern District of California 10 allegation of additional facts, or by other reasons why the court should not dismiss this 12 case with prejudice, 3 the Court GRANTS leave to amend. 13 IV. CONCLUSION For the foregoing reasons, National Union’s motion to dismiss is GRANTED WITH 14 15 LEAVE TO AMEND. The amended complaint must be filed with the Court by June 23, 16 2017. 17 IT IS SO ORDERED. 18 19 20 Dated: June 2, 2017 21 _____________________________________ NATHANAEL M. COUSINS United States Magistrate Judge 22 23 3 24 25 26 27 28 In its reply, National Union requests that its motion be granted with prejudice so that Yahoo may not amend its complaint to argue that, for example, coverage exists under a different provision. Dkt. No. 30 at 14-17. This argument has not been fully briefed, and was not in any way the subject of the original complaint or motion to dismiss. See Dytch v. Yoon, No. 10-cv-02915 MEJ, 2011 WL 839421, at *3 (N.D. Cal. Mar. 7, 2011) (quoting United States ex rel. Giles v. Sardie, 191 F. Supp. 2d 1117, 1127 (C.D. Cal. 2000) (“It is improper for a moving party to introduce new facts or different legal arguments in the reply brief than those presented in the moving papers.”). The Court declines to consider National Union’s argument, the merits of which may be taken up again on a subsequent motion to dismiss. Case No. 17-cv-00447 NC 11