Philo v. Liminova, Inc. et al, No. 3:2013cv00113 - Document 13 (S.D. Cal. 2013)
Court Description: 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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Philo v. Liminova, Inc. et al Doc. 13 1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 A. PAUL PHILO, 12 13 Plaintiff, v. 14 15 16 LIMINOVA, INC., WALTER LIM, and DOES 1 through 10, inclusive, Defendants. 17 ) ) ) ) ) ) ) ) ) ) ) ) ) Civil No. 13cv113-AJB (WVG) ORDER GRANTING DEFENDANT’S MOTION TO DISMISS (Doc. No. 5) 18 19 Defendants’ filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 20 12(b)(6) Plaintiff’s first cause of action for fraudulent concealment and request for 21 punitive damages. (Doc. No. 5.) The Plaintiff filed an opposition, (Doc. No. 10), and the 22 Defendants filed a reply, (Doc. No. 11). For the reasons set forth below, the Defendant’s 23 motion to dismiss is GRANTED. 24 25 Background Defendant Walter Lim (“Defendant”) is an officer, director, and shareholder in 26 Head First, Inc. (“Head First”). (Doc. No. 1-1, ¶ 2.) Head First was owned by Defendant 27 and Don Lewis. (Id.) After Don Lewis’ death, Plaintiff A. Paul Philo (“Plaintiff”) 28 succeeded to Don Lewis’ interest in Head First. (Id.) 1 13cv113 Dockets.Justia.com 1 Since at least 1971, Head First has been in the business of developing, promoting, 2 and marketing “Top Coverage,” a non-medicated head spray to cover bald spots and 3 mask thinning hair. (Id. at ¶ 7.) The “Top Coverage” name and mark are registered with 4 the United States Patent and Trademark Office (“USPTO”) under Registration No. 5 1813335. (Id.) Head First has continuously and exclusively used the “Top Coverage” 6 mark in commerce in connection with the advertising, promotion, and sale of its hair care 7 products. (Doc. No. 1-1, ¶ 8.) 8 On or about January 2011, Defendant advised Plaintiff that Head First was going 9 to discontinue manufacturing and marketing the “Top Coverage” brand of products due 10 to environmental regulations concerning the use of propellants, and that Head First would 11 need to be dissolved. (Id. at ¶ 9.) The Plaintiff wanted to purchase the “Top Coverage” 12 trademark and name from Head First and attempt to find a new manufacturer and 13 continue to develop and market the product in compliance with the environmental 14 regulations. (Id. at ¶ 10.) Defendant Lim agreed and in February 2011, Head First 15 assigned all interest and goodwill in the “Top Coverage” trademark to Plaintiff for 16 valuable consideration. (Id.) The Assignment Agreement was signed by Defendant Lim 17 as president of Head First, and duly recorded with the Patent and Trademark Office on or 18 about April 8, 2011. (Id.) 19 Plaintiff alleges that while the parties were negotiating and entering into the 20 Assignment Agreement for Top Coverage, Defendant Lim was already marketing the 21 “Top Coverage” hair product through his company (“Liminova”) under the name and 22 mark “TC Plus.” (Doc. No. 1-1, ¶ 11.) Like “Top Coverage,” “TC Plus” was a head 23 spray sold in spray cans to conceal bald spots and thinning hair. (Id.) The “TC Plus” 24 label stated, “If you like . . . Top Coverage You will love TC PLUS,” and featured 25 before-and-after photos of a male scalp virtually identical to those used for “Top Cover- 26 age” labels. (Id.) Moreover, “TC Plus” was being advertised in various outlets as “Top 27 Coverage TC Plus.” (Id.) 28 2 13cv113 1 On April 27, 2011, two months after the execution of the Assignment Agreement, 2 Liminova filed a trademark application with the USPTO for registration of the mark “TC 3 Plus,” Serial No. 85306449, for goods defined as “Hair care preparation, namely, hair 4 tinting spray featuring spray on, wash out hair tinting and thickening spray in a variety of 5 hair colors.” (Doc. No. 1-1, ¶ 12.) In February 2012, Plaintiff filed an opposition to 6 Defendant’s trademark application and Liminova subsequently abandoned the applica- 7 tion. (Doc. No. 1-1, ¶ 13; Doc. No. 10, p.3:19-20.) 8 9 10 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 11 12 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings 13 and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to 14 state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 729, 732 15 (9th Cir. 2001). The court may dismiss a complaint as a matter of law for: (1) “lack of 16 cognizable legal theory,” or (2) “insufficient facts under a cognizable legal claim.” 17 SmileCare Dental Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996) 18 (citation omitted). However, a complaint survives a motion to dismiss if it contains 19 “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 20 Twombly, 550 U.S. 544, 570 (2007). 21 Notwithstanding this deference, the reviewing court need not accept “legal conclu- 22 sions” as true. Ashcroft v. Iqbal, -- U.S. -- , 129 S. Ct. 1937, 1949–50, 173 L.Ed.2d 868 23 (2009). It is also improper for the court to assume “the [plaintiff] can prove facts that [he 24 or she] has not alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council 25 of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, “[w]hen there are well- 26 pleaded factual allegations, a court should assume their veracity and then determine 27 whether they plausibly give rise to an entitlement to relief.” Iqbal, 129 S.Ct. at 1950. 28 The court only reviews the contents of the complaint, accepting all factual allegations as 3 13cv113 1 true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. 2 Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citations omitted). Discussion 3 Defendants’ move to dismiss Plaintiff’s first cause of action for fraudulent conceal- 4 5 ment and Plaintiff’s punitive damages claims pursuant to Rule 12(b)(6). Defendants 6 challenge the sufficiency of Plaintiff’s first cause of action, for fraudulent concealment, on 7 the grounds that Plaintiff fails to allege that any statutory, common law, or contractual 8 duty exists requiring the disclosure of facts alleged to have been concealed by Defendants. 9 (Doc. No. 5-1, p.3.) Defendants also contend that the Plaintiff fails to sufficiently plead 10 an act of malice, fraud, or oppression on behalf of Defendants to support his claim for 11 punitive damages under the first cause of action as required by California Civil Code § 12 3294 and Rule 8. (Id.) 13 I. Fraudulent Concealment Claim 14 In California, a claim for fraudulent concealment consists of five elements: “(1) the 15 defendant must have concealed or suppressed a material fact, (2) the defendant must have 16 been under a duty to disclose the fact to the plaintiff, (3) the defendant must have inten- 17 tionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the 18 plaintiff must have been unaware of the fact and would not have acted as he did if he had 19 known of the concealed or suppressed fact, and (5) as a result of the concealment or 20 suppression of the fact, the plaintiff must have sustained damage.” Kaldenbach v. Mutual 21 of Omaha Life Ins. Co., 178 Cal.App.4th 830, 850, 100 Cal.Rptr.3d 637 (Ct.App.2009) 22 (citations and internal quotation marks omitted). “Fraud or deceit may consist of the 23 suppression of a fact by one who is bound to disclose it or who gives information of other 24 facts which are likely to mislead for want of communication of that fact.” Outboard 25 Marine Corp. v. Superior Court, 52 Cal.App.3d 30, 37, 124 Cal.Rptr. 852 (1975). 26 A cause of action for fraudulent concealment requires an allegation that the 27 defendant owed a duty to disclose the concealed fact. Levine v. Blue Shield of California, 28 189 Cal. App. 4th 1117, 1126-1127 (2010). Where material facts are known to one party 4 13cv113 1 and not to the other, failure to disclose them is not actionable fraud unless there is some 2 relationship between the parties which gives rise to a duty to disclose. A duty to disclose 3 arises between two parties where a fiduciary or confidential relationship exists between 4 them,1 or if there are other special circumstances which require disclosure.2 See Heliotis v. 5 Schuman, 181 Cal. App. 3d 646, 651, 226 Cal. Rptr. 509 (1986). The special circum- 6 stances in which a duty to disclose may arise such that nondisclosure or concealment 7 constitute actionable fraud are: (1) when a fiduciary relationship exists between the 8 parties; (2) when the defendant has exclusive knowledge of material facts not known to 9 the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; 10 and (4) when the defendant makes a partial representation to the plaintiff while suppress- 11 ing other material facts. See LiMandri v. Judkins, 52 Cal.App.4th 326, 336, 60 Cal.Rptr.2d 12 539 (Ct.App.1997). “The first circumstance requires a fiduciary relationship; each of the 13 other three ‘presupposes the existence of some other relationship between the plaintiff and 14 defendant in which a duty to disclose can arise.’” Deteresa v. ABC, 121 F.3d 460, 467 (9th 15 Cir.1997) (quoting LiMandri, 52 Cal.App.4th at 336-37, 60 Cal.Rptr.2d 539);. See 16 LiMandri, 52 Cal.App.4th at 337, 60 Cal.Rptr.2d 539 (holding the relationship must be 17 transactional in nature, such as when parties form a relationship by entering into a 18 contractual agreement). 19 Upon review of the complaint, the Court finds the Plaintiff has failed to sufficiently 20 plead that Defendants owed him a fiduciary duty. The allegation of a fiduciary relation- 21 ship must be supported by either a contract, or a relationship that imposes it as a matter of 22 1 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)). 23 25 2 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 26 rise to a duty to disclose, the Court disagrees. (Doc. No. 11, p. 3.) The Court finds the cited language from the Heliotis opinion to be disjunctive, as the court was merely 27 quoting Witkin’s California treatise on torts, which provides the various circumstances that would give rise to a duty to disclose. The Heliotis court presents the four 28 circumstances as a list, suggesting that the “and/or” used by Plaintiff in their Opposition (Doc. No. 10, p.4) was proper and not an attempt to mislead the Court. 5 13cv113 1 law.”3 The Plaintiff’s complaint, however, fails to set forth any facts supporting the 2 existence of a legally recognized fiduciary relationship. Plaintiff’s complaint states that: 3 (1) Defendant Walter Lim is an officer, director and shareholder in Head First, Inc., which 4 was first owned by Defendant and Don Lewis; and (2) “when Don Lewis passed away, 5 Plaintiff succeeded to Don Lewis’ interest in Head First.” (Doc. No. 1-1, ¶ 2.) The 6 Plaintiff argues that as a director of Head First, Inc., Defendant Lim owed the Plaintiff a 7 fiduciary duty as a shareholder. Plaintiff’s argument fails, however, because the Plaintiff’s 8 complaint does not allege that he was a shareholder in Head First, Inc., it alleges only that 9 he succeeded to Don Lewis’ interest in Head First, Inc., without specifying nature of that 10 interest. Furthermore, the Court fails to see how shareholder status would be relevant to 11 the assignment of the Top Coverage mark, as the Plaintiff entered that arm’s-length 12 transaction as buyer, not as a shareholder.4 The Defendant was under no duty to make full 13 disclosure to the Plaintiff if the transaction was at arm's-length. 14 The Plaintiff contends that Defendants’ disclosure that he planned to dissolve Head 15 First and discontinue manufacturing and marketing Top Coverage was a voluntary 16 disclosure and constituted a partial disclosure, which created special circumstances 17 imposing disclosure obligations. However, the Plaintiff has failed to plead any specific 18 factual allegations that support an inference that Defendants’ intent to develop a compet- 19 ing product constituted a material fact regarding the assignment of the Top Coverage 20 mark. Furthermore, the Court notes that the Plaintiff has not presented the assignment or 21 specifically referenced any of its provisions to support his allegation that Defendants 22 development of a competing product somehow violated the terms of the assignment. 23 24 25 26 27 28 3 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). 4 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. 6 13cv113 Based upon the foregoing, the Defendants’ motion to dismiss Plaintiff’s fraudulent 1 2 concealment claim is GRANTED. 3 II. Punitive Damages Claim 4 In order to sufficiently plead a claim warranting an award of punitive damages, 5 facts must be alleged in the pleading to support circumstances of oppression, fraud or 6 malice. Grieves v. Super. Ct., 157 Cal. App. 3d 159 (1984) (citing G.D. Searle & Co. v. 7 Super. Ct., 49 Cal. App. 3d 22, 29, 122 Cal. Rptr. 218 (1975)). Similarly, the terms 8 “willful,” “fraudulent,” “malicious,” and “oppressive” are the statutorily enumerated 9 descriptors of the type of conduct which may sustain a cause of action for punitive 10 damages. Blegen v. Super. Ct., 125 Cal. App. 3d 959, 963 (1981) (citing Cal. Civ. Code § 11 3294). The unsupported allegation of an intentional tort is not sufficient in and of itself. 12 See Taylor v. Super. Ct., 24 Cal. 3d 890, 894, 157 Cal. Rptr. 693, 598 P.2d 854 (1979) 13 (citing Prosser, Law of Torts (4th ed. 1971) § 2, at pp. 9-10). Further, fraud as a basis for 14 punitive damages is defined by Section 3294(b)(3) as “an intentional misrepresentation, 15 deceit, or concealment of a material fact known to the defendant with the intention on the 16 part of the defendant of thereby depriving a person of property or legal rights or otherwise 17 causing injury. Cal. Civ. Code § 3294(b)(3). Plaintiff’s Complaint states that Defendant “acted fraudulently, maliciously, and in 18 19 conscious disregard of his rights.” (Doc. No. 1-1, ¶ 20.) The Complaint fails to allege any 20 facts to support this allegation. Based upon the foregoing, the Court finds that the 21 Plaintiff has failed to meet the pleading requirements for a claim of exemplary damages. 22 As such, the Defendants’ motion to dismiss Plaintiff’s punitive damages claim is 23 GRANTED. 24 /// 25 /// 26 /// 27 /// 28 /// 7 13cv113 Conclusion 1 2 3 4 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. 5 6 DATED: April 15, 2013 7 8 Hon. Anthony J. Battaglia U.S. District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 13cv113
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