Murj, Inc. v. Rhythm Management Group, Inc., No. 5:2021cv00072 - Document 69 (N.D. Cal. 2022)

Court Description: Order GRANTING IN PART AND DENYING IN PART 49 RHYTHM'S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE. Signed by Judge Edward J. Davila on 8/22/2022. (ejdlc1, COURT STAFF) (Filed on 8/22/2022)

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Murj, Inc. v. Rhythm Management Group, Inc. Doc. 69 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 MURJ, INC., Plaintiff, 9 United States District Court Northern District of California 10 Case No. 5:21-cv-00072-EJD v. 11 RHYTHM MANAGEMENT GROUP, INC., 12 Defendant. ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE Re: Dkt. No. 49 13 14 Plaintiff Murj, Inc. (“Murj”) asserts a claim in its Second Amended Complaint against 15 Defendant Rhythm Management Group (“Rhythm”) for breach of contract and seeks damages for 16 lost profits, unjust enrichment, annual lost revenue, royalties, specific performance and injunctive 17 relief. Pl.’s Second Am. Compl. (“Second Am. Compl.”), Dkt. No. 44. On November 24, 2021, 18 the Court granted Defendant Rhythm’s first Motion to Dismiss with leave to amend. Order 19 Granting Mot. to Dismiss (“First Order”), Dkt. No. 43. Plaintiff Murj filed an amended complaint 20 shortly thereafter. Second Am. Compl., Dkt. No. 44. Before the Court is Defendant’s Motion to 21 Dismiss Plaintiff’s Second Amended Complaint and Defendant’s request for judicial notice in 22 support of the motion filed concurrently. Mot. To Dismiss Pl.’s Second Am. Compl. (“Motion”), 23 Dkt. No. 49; Def.’s Request for Judicial Notice in Support of Def.’s Mot. to Dismiss (“Request for 24 Judicial Notice”), Dkt. No. 53. The Court finds the motion appropriate for decision without oral 25 argument pursuant to Civil Local Rule 7-1(b). For the reasons described below, the Court 26 GRANTS in part and DENIES in part the motion to dismiss. 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 1 28 Dockets.Justia.com 1 I. 2 The Murj Platform is a data management software program that enables medical care 3 providers to manage data transmissions received from implanted cardiac devices manufactured by 4 a multitude of different companies. Second Am. Compl. ¶¶ 8-9. The Murj Platform generates and 5 transmits clinical transmission reports to medical personnel. Id. ¶ 10. Murj protects its platform 6 and trade secrets with various registered and issued intellectual property rights. Id. ¶ 11. 7 United States District Court Northern District of California BACKGROUND Rhythm is an independent diagnostic testing facility that sells clinical diagnostic services 8 to medical providers. Id. ¶ 12. These services include helping medical providers monitor patients 9 with implanted cardiac devices. Mot. at 5. In August 2018, Rhythm licensed the platform from 10 Murj (“License Agreement I”) to sell and deliver clinical diagnostic services, such as the 11 transmission reports, to Rhythm’s customers. Second Am. Compl. ¶¶ 13-14. The License 12 Agreement I included a sales order (“Sales Order I”) and an agreement that Rhythm would abide 13 by the Murj Inc. License Agreement Terms & Conditions (“Terms & Conditions”). Id. ¶ 14; Dkt. 14 Nos. 44-1, 44-2, 44-3. These agreements were supplemented by License Agreement II and Sales 15 Order II (collectively, “the Agreement”) executed in January of 2019. Second Am. Compl. ¶ 15; 16 Dkt. Nos. 44-4, 44-5. 17 In 2020, during the term of the Parties’ Agreement, Murj discovered that Rhythm had 18 developed its own cardiac monitoring platform called the Rhythm Synergy software platform 19 (“Rhythm Platform”). Second Am. Compl. ¶ 24. Rhythm denied that it had built and was using 20 the Rhythm Platform. Id. ¶ 25. Murj proceeded to assist Rhythm with a sales pitch to sell the 21 Murj Platform to Rhythm’s customers. Id. ¶ 26. Murj later learned that Rhythm had used the 22 sales pitch to instead sell the Rhythm Platform and initiated this action for breach of contract 23 shortly thereafter. Id. 24 II. 25 “Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the 26 claim showing that the pleader is entitled to relief.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 2 28 LEGAL STANDARD United States District Court Northern District of California 1 (quoting Fed. R. Civ. P. 8(a)(2)). The complaint must contain only enough facts to “state a claim 2 to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007). 3 “Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what 4 the . . . claim is and the grounds upon which it rests.”’ Erickson, 551 U.S. at 93 (alteration in 5 original) (quoting Twombly, 550 U.S. at 555). The court must accept as true all well-pleaded 6 factual allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). 7 Furthermore, a court must draw all reasonable inferences in the light most favorable to the non- 8 moving party. See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). The 9 allegations must be enough to raise a right to relief above the speculative level and must be 10 enough to “raise a reasonable expectation that discovery will reveal evidence” that supports the 11 plaintiffs’ claim. Twombly, 550 U.S. at 556. 12 III. DISCUSSION 13 Plaintiff Murj pleads that Defendant Rhythm breached Sections 3.4, 3.5, and 6.2 of the 14 Terms & Conditions, specifically the confidentiality, reverse engineering, and related intellectual 15 property clauses. Second Am. Compl. ¶¶ 55-58. Under California law, a plaintiff asserting a 16 breach of contract claim must plead: (1) existence of the contract; (2) plaintiff’s performance or 17 excuse for nonperformance; (3) defendant’s breach; and (4) damages to plaintiff as a result of the 18 breach. CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008), as modified on 19 denial of reh’g (Feb. 5, 2008) (citing Armstrong Petroleum Corp. v. Tri–Valley Oil & Gas. Co., 20 116 Cal. App. 4th 1375, 1391, nn. 6, 11 (2004)). The existence of a contract and Murj’s 21 performance are undisputed. As with Rhythm’s first motion to dismiss, Rhythm contends that 22 Murj has once again failed to state a cause of action for breach of contract arising from the 23 confidentiality, reverse engineering, and related intellectual property clauses. See Mot. to Dismiss 24 All Claims in Pl.'s Compl., Dkt. No. 26. The Court considers each claim in turn. 25 26 27 28 A. Breach of Contract i. Confidentiality Clause Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 3 1 The Murj Platform constitutes “Confidential Information” as defined by the Parties’ 2 Agreement. See Terms & Conditions, Dkt. No. 44-2 §§ 6.1, 1.2. Murj asserts that Rhythm 3 violated Section 6.2 of the Confidentiality Clause by “using the Murj Platform to create the 4 Rhythm Platform, by incorporating portions of the Murj Platform into the Rhythm Platform, by 5 failing to hold the Murj Platform in confidence, by disclosing portions of the Murj Platform to its 6 customers and other third-parties without permission, and by failing to take reasonable steps to 7 ensure that the Murj Platform and other Confidential Information is not disclosed or distributed by 8 its employees.” Second Am. Compl. ¶ 55. United States District Court Northern District of California 9 Rhythm asserts that Murj’s breach of the confidentiality clause is not cognizable because 10 Murj publicly disclosed images and demonstrations of the Murj Platform prior to the execution of 11 the Agreement in 2018, citing Ent. Rsch. Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211, 12 1227 (9th Cir. 1997). Mot. at 6. Rhythm requests judicial notice of these publicly available 13 images to support its assertion. Specifically, Rhythm asks the Court to take notice of: “(1) four 14 archived versions of Murj’s website from the Internet Archive’s Wayback Machine 2017-2018, 15 supported by a notarized affidavit;” and “(2) seven Twitter posts and images therein” under Fed. 16 R. Evid. 201 to establish that the Murj Platform was publicly disclosed at the time the Agreement 17 was signed in 2018. Def.’s Reply in Support of Request for Jud. Notice (“Reply to Judicial 18 Notice”), Dkt. No 53 at 1; Mot. at 7. 19 On a motion to dismiss, a court normally may not look beyond the pleadings when 20 considering the sufficiency of the complaint without converting the motion into one for summary 21 judgment under Rule 56. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). 22 Courts may consider materials outside a complaint where such materials are incorporated by 23 reference or subject to judicial notice. Id. Judicial notice is proper if the facts requested to be 24 noticed are “not subject to reasonable dispute” because they “can be accurately and readily 25 determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). 26 In granting requests for judicial notice, the Court may only take notice as to the existence of the 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 4 28 1 web pages “and the facts contained therein, not as to the (disputed) inferences that Defendant 2 seeks to draw from them.” Darensburg v. Metro. Transp. Comm’n, No. 5-CV-01597 EDL, 2006 3 WL 167657, at *3 (N.D. Cal. Jan. 20, 2006); Khoja, 899 F.3d at 999 (“But a court cannot take 4 judicial notice of disputed facts contained in such public records.”). The Court has previously 5 granted requests for judicial notice “to the limited extent of the appearance of the webpages 6 located at the URLs references in the requests” and of the “appearance of the listed websites in the 7 past” from the Wayback Machine materials. Craigslist, Inc. v. DealerCMO, Inc., No. 16-CV- 8 01451-VC, 2017 WL 6334142, at *3 (N.D. Cal. Apr. 11, 2017). While the Court may take judicial notice of the appearance of such websites and images, United States District Court Northern District of California 9 10 the Court may not draw any inferences from these images and texts or “adjudicate factual disputes 11 that are implicated by any such inferences.” Id., at *3 n. 3. Rhythm asserts that it only requests 12 that the Court take notice of whether the images were available in the public realm at the time the 13 Parties executed the Agreement. See Def.’s Reply in Support of its Request for Judicial Notice, 14 Dkt. No. 53. In doing so, however, Rhythm asks the Court to in essence adjudicate disputed facts 15 involving the scope of disclosure and to determine the components, features, and interface display 16 of the Murj Platform. This is impermissible on a motion to dismiss. See Darensburg, 2006 WL 17 167657, at *3. Therefore, the Court declines to take judicial notice of the archived versions of 18 Murj’s website and Twitter posts and images for purposes of this motion. In its Second Amended Complaint, Murj alleges that Rhythm used the Murj Platform to 19 20 create its own program to replace the Murj Platform. Second Am. Compl. ¶ 40. Murj cites to the 21 Agreement which defines “Confidential Information” as including the “Application.” Id. at ¶ 21. 22 The Application is further defined as “the software Application developed and delivered by Murj 23 as described on a Sales Order,” or the Murj Platform. Id. ¶ 22.1 Accordingly, Murj has pled 24 25 26 27 28 Thus, the Court rejects Rhythm’s assertion that Murj’s “Confidential Information” information is limited to the Murj Platform display interface and descriptions that may have been publicly disclosed. Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 5 1 1 enough facts to state a claim to relief that has “facial plausibility” and permits the Court to draw a 2 “reasonable inference” that Rhythm is liable for the alleged conduct. Iqbal, 556 U.S. at 678. The 3 Court finds that Murj has adequately pled Rhythm’s breach of the Agreement with respect to the 4 confidentiality clause. 5 United States District Court Northern District of California 6 ii. Reverse Engineering Clause Rhythm challenges the plausibility of Murj’s breach of contract claim based on violation of 7 the reverse engineering clause. Mot. at 11. Murj asserts that Rhythm violated Section 3.4(a) by 8 reverse engineering the Murj Platform to create the Rhythm Platform in order to sell or license the 9 Rhythm Platform to third parties to use for services. Second Am. Compl. ¶¶ 16-19. The Court 10 previously found that Murj “merely suggest[ed]” that Rhythm created a competing platform 11 without sufficiently alleging reverse engineering, noting that “more is required for a reasonable 12 inference” that Rhythm reversed engineered the Murj Platform. First Order at 7. 13 Rhythm contends that Murj’s amended claim for breach of the Agreement’s reverse 14 engineering clause fails again because it is a “formulaic recitation of the elements” of reverse 15 engineering that says nothing about how Rhythm reverse engineered the Platform. Mot. at 11, 13 16 (quoting Twombly, 550 U.S. at 555). Rhythm additionally asks the Court to take judicial notice of 17 a technical publication about reverse engineering to support its assertion that Murj’s reverse 18 engineering allegations amount to nothing more than a recitation of the technical definition of the 19 concept. Mot. at 12. The Court grants Rhythm’s request for judicial notice of the definition of 20 reverse engineering because it is not subject to reasonable dispute. Having considered that 21 definition, the Court finds that Murj’s factual allegations sufficiently pleads that Rhythm must 22 have examined the Murj Platform in order to create an identical platform in appearance, function, 23 and with similar special features. 24 Murj’s Second Amended Complaint specifically alleges that while Rhythm had access to 25 the confidential Murj Platform as a licensee, Rhythm examined the Murj Platform, and “with the 26 knowledge and benefit of these products, services and information,” created its competing Rhythm 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 6 28 1 Platform to replace the Murj Platform. Second Am. Compl. ¶¶ 40-41, 58. Murj pleads that 2 “Rhythm undertook the process of analyzing the Murj Platform to identify the system’s 3 components and their interrelationships, to understand the basic working principle and structure of 4 the system, and to create representations of the system in another form for the purpose of creating 5 the competing Rhythm Platform.” Id. at ¶ 58. Murj supports this allegation by detailing the 6 identical features and functionalities between the Murj Platform and the Rhythm Platform, 7 including: the user interface, layout, design, the “2 Click Clear” service, alert functions, the 8 reviewing and processing features of transmissions, the synergy page features, and the Platform’s 9 revenue collection features. Id. at ¶¶ 27-39. Murj further alleges that Rhythm reverse engineered 10 the Murj Platform to get a “head start” in creating a competing program. Id. at 14. In sum, Murj’s reverse engineering allegations in its Second Amended Complaint “nudge[] United States District Court Northern District of California 11 12 [its] claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 547, 570. Murj 13 provides a more detailed explanation that allows the Court to draw a “reasonable inference” that 14 Rhythm is liable for the alleged conduct. Iqbal, 556 U.S. at 678. Accordingly, the Court finds 15 that Murj has adequately pled that Rhythm breached Section 3.4(a) of the Agreement by reverse 16 engineering the Murj Platform to create the Rhythm Platform. iii. Intellectual Property Rights Clauses 17 Rhythm asserts that Murj’s breach of contract claim arising from Sections 3.4(d) and 3.5 of 18 19 the Agreement are also inadequately pled.2 Murj alleges that Rhythm violated Section 3.4(d) by creating the Rhythm Platform and 20 21 selling or licensing it to third parties for “time sharing, hosting, service provide or similar 22 services.” Second Am. Compl. ¶ 56. Section 3.4(d) provides that Rhythm may not “distribute, 23 sell, sublicense, rent, lease or use the Products (or any portion thereof) for time sharing, hosting, 24 25 26 27 28 Rhythm contends that Murj’s Section 3.4(d) and Section 3.5 are new theories alleged in Murj’s Second Amended Complaint. However, Murj alleged breach of contract under identical theories in its First Amended Complaint. See Dkt. No. 5 ¶¶ 18-19, 50. Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 7 2 United States District Court Northern District of California 1 service provider or similar purposes.” Mot. at 13; Dkt. No. 44-2. The parties disagree whether 2 “Products,” which is contractually defined as “the Murj Application and Services provided by 3 Murj hereunder” in Section 1.11, includes the Rhythm Platform. Dkt. No. 44-2 at 3. 4 In essence, Murj contends that “Products (or any portion thereof)” encompasses the 5 Rhythm Platform because it is composed of Murj Platform features and functions based on 6 Rhythm’s misuse of the Murj Platform. Response at 9. Rhythm argues that “Products” only 7 includes the Murj Platform and does not include the Rhythm Platform, which is a new product of 8 its own creation. Mot. at 13. Rhythm further contends that Section 3.4(d) prohibits the sale of 9 pirated copies of the Murj Platform on writable discs, for example, and that Murj cannot maintain 10 a claim for breach of contract under this theory since Murj has not pled any facts alleging that 11 Rhythm has engaged in such acts. Id. The Court agrees. The Agreement’s definition of 12 “Products” unambiguously refers to the Murj Platform; it does not include products created by 13 other parties such as the Rhythm Platform. Accordingly, Murj has failed to plead a claim with 14 respect to Section 3.4(d). 15 In addition, Murj alleges that Rhythm breached Section 3.5 of the Agreement, which states 16 that “Murj and its licensors retain all rights, title and interest, including all intellectual property 17 rights, in the Products.” Dkt. No. 44-2. Murj asserts that Rhythm used its Confidential 18 Information, the Murj Platform, to create the Rhythm Platform “in violation of Murj’s sole right, 19 title, and interest” in its Confidential Information. Second Am. Compl. at ¶ 57. Relying on its 20 request for judicial notice, Rhythm once again asserts that the Murj Platform is not confidential 21 since it was publicly disclosed. Mot. at 13. Rhythm contends that, because the Murj Platform is 22 not Confidential Information and Murj has not identified any other intellectual property rights at 23 issue aside from the Murj Platform, its allegation with respect to its “sole right, title, and interest” 24 in its “Confidential Information and other intellectual property rights” is “bare bones” because it 25 fails to adequately identify any violated intellectual property right. Mot. at 13–14; Second Am. 26 Compl. at ¶ 57. 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 8 28 1 2 Confidential Information. Therefore, Murj’s claim with respect to Section 3.5 successfully 3 identifies an intellectual property at issue – the Murj Platform – that Rhythm allegedly used to 4 violate Murj’s sole right, title, and interest in its Confidential Information. 5 6 7 8 9 United States District Court Northern District of California For the reasons previously stated, Murj has adequately pled that the Murj Platform is In sum, the Court finds that Murj has failed to plead a claim for breach of contract under Section 3.4(d) but has adequately pled breach of the contract pursuant to Section 3.5. B. Damages Rhythm also argues that Murj has failed to sufficiently plead its damages. Mot. at 14–15. i. Unjust Enrichment 10 First, Murj claims unjust enrichment of benefits received by Rhythm using the Murj 11 Platform in violation of the Agreement or reasonable royalties associated with the use of the Murj 12 Platform including those derived from the Rhythm Platform. Second Amend. Compl. ¶ 61. 13 Accordingly, Murj seeks disgorgement of royalties. Id. Rhythm asserts that unjust enrichment is 14 not permitted under California law when the parties have a valid contract. Mot. at 14. The Court 15 agrees. California courts typically construe “causes of action labeled ‘unjust enrichment’ as a 16 ‘quasi-contract claim seeking restitution.’” Mohebbi v. Khazen, 50 F. Supp. 3d 1234, 1260 (N.D. 17 Cal. 2014) (quoting Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal.App.4th 221, 231 18 (2014)). “[T]here is no right to equitable relief or an equitable remedy when there is an adequate 19 remedy at law.” Huu Nguyen v. Nissan N. Am., Inc., No. 16-CV-05591-LHK, 2017 WL 1330602, 20 at *4 (N.D. Cal. Apr. 11, 2017) (quoting Duttweiler v. Triumph Motorcycles (Am.) Ltd., 14-CV- 21 04809-HSG, 2015 WL 4941780, at *8 (N.D. Cal. Aug. 19, 2015)). 22 Here, there is no dispute as to the validity of the Parties’ contract. Murj contends that it 23 pleads unjust enrichment as a remedy and not as a claim for relief. Response at 14. However, 24 “several courts in this district have barred claims for equitable relief… at the motion to dismiss 25 stage where plaintiffs have alleged other claims presenting an adequate remedy at law.” Munning 26 v. Gap, Inc., 238 F. Supp. 3d 1195, 1203 (N.D. Cal. 2017). Murj has not sufficiently 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 9 28 1 demonstrated why disgorgement of reasonable royalties would be appropriate where Murj has an 2 adequate remedy at law. Accordingly, Murj has failed to adequately plead damages for unjust 3 enrichment. 4 United States District Court Northern District of California 5 ii. Lost Profits Second, Murj alleges that it suffered damages in the amount equal to lost profits incurred 6 because of Rhythm’s appropriation of Murj customers in violation of the Agreement, which 7 encompasses sales of the Rhythm Platform to customers who would have otherwise purchased the 8 Murj Platform from Rhythm pursuant to the Parties’ Agreement. Second Amend. Compl. ¶ 62. 9 Rhythm contends that the Agreement precludes recovery of any lost profits. Mot. at 15. Murj 10 claims these are not indirect lost profits but should be treated as general damages, noting that their 11 alleged loss of profit directly results from Rhythm’s nonperformance of the contract and not from 12 lost profits that arise when the breach causes the non-breaching party to lose profits on unrelated 13 contracts with third parties. Response at 10–11 (citing In re First Magnus Fin. Corp., No. 14 ADV.09-00381-JMM, 2010 WL 6452904, at *5–7 (B.A.P. 9th Cir. Aug. 31, 2010) (finding that 15 the contract restricts damages from lost profits in the context of “incidental, punitive, indirect, 16 special or consequential damages,” but does not restrict lost profit general damages that were 17 contracted-for and arose directly from the debtor’s breach); see also Coremetrics, Inc. v. Atomic 18 Park.com, LLC, No. C-04-0222 EMC, 2005 WL 3310093, at *4 (N.D. Cal. Dec. 7, 2005) 19 (distinguishing direct and indirect loss of profits and finding that “the Limitations on Damages 20 clause is unambiguous and contemplates a bar on recovery of indirect [loss of profits] damages, 21 not the direct [loss of profits] damages Coremetrics seeks here”). 22 Section 9.1 of the Agreement states that “indirect, incidental, special or consequential 23 damages” are not recoverable for either party, “including without limitation… loss of profits.” 24 Dkt. 44-2 at 9. The contract unambiguously states that lost profits are unrecoverable “indirect 25 damages” and does not limit direct loss of profit damages. Following the Court’s previous 26 findings on clauses with identical limitations on damages, the Court agrees with Murj that Section 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 10 28 1 2 Accordingly, Murj has adequately pled the damages element of the breach of contract 3 claim with respect to lost profits that directly flow from Rhythm’s alleged breach of contract. 4 5 United States District Court Northern District of California 9.1 contemplates loss of profits as they relate to consequential or special damages. iii. Drop in Market Value Murj also seeks damages for its loss of market value as a company due to the “annual lost 6 revenue associated with the customers appropriated by Rhythm using the Rhythm Platform” and 7 for the cost of developing its confidential information. Second Amend. Compl. ¶¶ 60, 63. Murj 8 contends that these are general damages necessary to restore Murj to the position it would be in 9 had there been no breach. Id. ¶ 63. Rhythm asserts that any decline in Murj’s market value is a 10 consequential damage, citing Schonfeld v. Hillard, 218 F.3d 164, 176 (2d Cir. 2000) (finding that 11 “the market value of a lost income-producing asset” is a consequential damage). 12 General damages “are often characterized as those that flow directly and necessarily from a 13 breach of contract, or that are a natural result of a breach.” Lewis Jorge Constr. Mgmt., Inc. v. 14 Pomona Unified Sch. Dist., 34 Cal. 4th 960, 968 (2004). The California Supreme Court has 15 described general damages for breach of contract as “based on the value of the performance itself, 16 not the value of some consequence that performance would produce.” Id. at 971 (citations 17 omitted). An annual drop in market value after a breach and development costs are both collateral 18 losses following a breach that fall squarely outside the realm of general damages. The Court finds 19 that these damages are not recoverable, as they are prohibited by Section 9.1 of the Agreement 20 which forbids “indirect. incidental, special, or consequential damages.” Dkt. 44-2 at 9. 21 22 23 24 Accordingly, Murj has failed to adequately plead the damages element of the breach of contract claim with respect to the cost of development and loss of business market value. C. Specific Performance and Injunctive Relief Murj seeks a Court order requiring Rhythm to perform all of its obligations under the 25 Agreement, particularly the confidentiality, reverse engineering, and intellectual property clauses. 26 Second Amend. Compl. ¶¶ 66-71. Murj also seeks injunctive relief prohibiting Rhythm from 27 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 11 28 1 continuing to breach the post-termination provisions of the Agreement. Id. ¶¶ 72-74. Rhythm 2 contends that Murj inadequately pled breach of the Agreement, and therefore Murj’s requests for 3 specific performance and injunctive relief should necessarily be dismissed. Mot. at 16–17. As 4 previously discussed, Murj has adequately pled a breach of contract claim, which if proven, 5 provides a basis for injunctive relief and specific performance. See Dkt. No. 43 at 8. 6 IV. 7 For the foregoing reasons, the Court GRANTS in part and DENIES in part Rhythm’s 8 motion to dismiss. The motion to dismiss the breach of contract claim is GRANTED to the extent 9 that it is based on Section 3.4(d) of the Agreement and DENIED in all other respects. Damages 10 11 United States District Court Northern District of California CONCLUSION 12 for loss in market value, development costs, and unjust enrichment are stricken. IT IS SO ORDERED. Dated: August 22, 2022 13 14 15 EDWARD J. DAVILA United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No.: 5:21-cv-00072-EJD ORDER GRANTING IN PART AND DENYING IN PART RHYTHM’S MOTION TO DISMISS SECOND AMENDED COMPLAINT; DENYING REQUEST FOR JUDICIAL NOTICE 12

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