Gopinath v. Somalogic, Inc. et al, No. 3:2023cv01164 - Document 37 (S.D. Cal. 2023)
Court Description: ORDER Granting in Part and Denying in Part 19 Motion to Dismiss. Signed by Judge Thomas J. Whelan on 11/22/2023. (All non-registered users served via U.S. Mail Service)(exs)
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1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 13 14 ASHWIN GOPINATH, an individual, 17 v. SOMALOGIC, INC., a Delaware, 18 19 20 Defendant. SOMALOGIC, INC., a Delaware corporation, Counterclaimant, 21 22 v. 23 ASHWIN GOPINATH, an individual, 24 25 26 27 28 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS [Doc. 19] Plaintiff, 15 16 Case No.: 3:23-cv-01164-W-WVG Counter-Defendant. Pending before the Court is Dr. Ashwin Gopinath’s (“Counter-Defendant”) motion to dismiss ([Doc. 19], “Motion”) all four of Somalogic, Inc.’s (“Counterclaimant”) 1 3:23-cv-01164-W-WVG 1 counterclaims ([Doc. 17], “Countercomplaint”1). Counterclaimant opposes the Motion 2 ([Doc. 28], “Opposition”). Counter-Defendant has replied. ([Doc. 33], “Reply”.) 3 The Court decides the matter on the papers submitted and without oral argument. 4 See Civ. L.R. 7.1(d)(1). For the reasons stated below, the Court GRANTS IN PART 5 and DENIES IN PART the Motion. 6 7 I. BACKGROUND 8 This lawsuit arises out of a business merger gone sour. As alleged, 9 Counterclaimant (a biotech company) acquired the San Diego based DNA 10 nanotechnology start-up company Palamedrix, Inc. (“Palamedrix”) in the summer of 11 2022. (Countercomplaint at ¶¶ 1-2, 17.) Palamedrix was founded by three individuals, 12 Dr. Shane Bowen, Dr. Paul Rothemund, and Counter-Defendant (collectively, the 13 “Founders”). (Id. at ¶ 2.) According to Counterclaimant, it was “primarily interested in 14 acquiring Palamedrix” not because of any property Palamedrix owned, but instead 15 because it wanted to employ its three Founders and “other scientists.” (Id. at ¶ 3.) As 16 such, Counterclaimant executed a merger agreement (the “Merger Agreement”2) with 17 Palamedrix on July 25, 2022, whereby Counterclaimant paid Palamedrix $14 million in 18 cash (“Upfront Cash”) and an additional $21 million worth of Counterclaimant’s 19 common stock (“Upfront Stock”). (Id. at ¶ 19.) As alleged, this consideration was 20 largely divided between Palamedrix’s three Founders and for his part, Counter- 21 Defendant’s share of the Upfront Stock was 456,286 individual shares. (Id. at ¶¶ 20, 33.) 22 Additionally, the Merger Agreement provided that an additional $17.5 million worth of 23 “consideration” may be paid to the three Founders if certain “revenue-based milestones” 24 were met by August of 2027 and August of 2028 and if the Founders remained employed 25 “full-time” by Counterclaimant (the “Milestone Consideration”). (Id. at ¶ 20; Merger 26 27 1 28 2 The Countercomplaint begins on page 13 of Doc. 17. The Merger Agreement is attached to the Countercomplaint as Exhibit A. 2 3:23-cv-01164-W-WVG 1 Agreement at Section 2.16(g)(i).) The Merger Agreement closed on August 31, 2022 (the 2 “Closing Date”). 3 To entice Counter-Defendant to remain with Counterclaimant after the merger, it 4 also entered into a side agreement (the “Founder Side Letter”3) on July 25, 2022 (the 5 same date the Merger Agreement was executed)—which, in relevant part, provided that 6 certain percentages of the Counter-Defendant’s shares of the Upfront Stock 7 Consideration would not vest unless he remained employed with Counterclaimant 12, 24, 8 and 36 months after the Closing Date. (Id. at ¶¶ 22-24, 30.) Specifically, the Founder 9 Side Letter provided that Counter-Defendant would have 76,062.88 shares of the Upfront 10 Stock vest to him on the Closing Date, and would then have an additional 126,756.25 11 shares of the Upfront Stock vest to him if he remained employed by Counterclaimant 12 every 12 months thereafter for the next three years (i.e. 126,756.25 would vest 12 months 13 after the Closing Date, another 126,756.25 would vest 24 months after the Closing Date, 14 and the final 126,756.25 would vest to him 36 months after the Closing Date). (Id. at ¶¶ 15 33-34; see Founder Side Letter at Section 2(a)-(c).) If Counter-Defendant was fired for 16 “Cause” or resigned without “Good Reason” before these dates, the outstanding, 17 unvested stock would not vest to him. (Countercomplaint at ¶ 30). “Cause” and “Good 18 Reason” are both defined terms in the Merger Agreement, although not in the Founder 19 Side Letters. (Id. at ¶¶ 31-32.) Similarly, the Counter-Defendant was only eligible to 20 receive the Milestone Consideration if the requisite revenue milestones were met in 2027 21 and 2028 and he remained employed by Counterclaimant full-time—unless he was fired 22 without “Cause” or resigned with “Good Reason.” (Countercomplaint at ¶ 37-38; 23 Merger Agreement at Section 2.16(g)(i).) 24 25 According to Counterclaimant, the Founders remaining after the merger was so important that the Merger Agreement specifically identified the Founders signing their 26 27 28 3 Counter-Defendant’s Founder Side Letter is attached to the Countercomplaint as Exhibit B. 3 3:23-cv-01164-W-WVG 1 Founder Side Letters and accepting employment offers (the “Founder Offer Letter”4) 2 with Counterclaimant as “material inducement” to Counterclaimant executing the Merger 3 Agreement and a “Condition to Closing.” (Id. at ¶ 22; Merger Agreement at 2.) In turn, 4 the Founder Side Letters stated that “[e]ntering into this Side Letter will be a condition 5 precedent to” Counterclaimant “executing the [M]erger [A]greement.” (Id. at ¶ 22; 6 Founder Side Letter at Section 2.) 7 Unfortunately, the relationship between Counterclaimant and Counter-Defendant 8 soured shortly after the merger. Indeed, on November 21, 2022, Counter-Defendant sent 9 Counterclaimant’s attorneys a letter (“Demand Letter”) asserting that he would be well 10 within his rights to resign for “Good Reason” given that certain former Palamedrix 11 employees had left Counterclaimant shortly after the merger. (Countercomplaint at ¶ 77.) 12 Then, on March 14, 2023, Counterclaimant informed Counter-Defendant that he was in 13 violation of numerous company policies and was suspending his access to the company 14 systems and email. (Countercomplaint at ¶ 81.) On April 10, 2023, Counter-Defendant 15 informed Counterclaimant that he was resigning. (Id. at ¶ 84.) 16 Shortly thereafter, on April 28, 2023, Counter-Defendant initiated this case by 17 filing his complaint (“Complaint”5) against Counterclaimant in San Diego County 18 Superior Court, seeking: (1) declaratory judgment that Counter-Defendant resigned for 19 “Good Reason” under the Merger Agreement (thereby entitling him to the rest of his 20 Upfront Stock vesting and his potential share of the Milestone Consideration despite no 21 longer working for Counterclaimant); and (2) that alternatively, he was wrongfully 22 discharged (i.e. without “Cause”) for “refusing to condone and reporting gender 23 discrimination and harassment” at Counterclaimant. (Complaint at ¶¶ 80, 86.) 24 25 26 Counter-Defendant’s Founder Offer Letter is attached to the Countercomplaint as Exhibit C. Like the Merger Agreement and Founder Side Letter, the Founder Offer Letter was executed on July 25, 2022. (Countercomplaint at ¶ 26.) 5 The original state court Complaint is attached to the Notice of Removal [Doc. 1] as Exhibit 4. 4 27 28 4 3:23-cv-01164-W-WVG 1 Defendant/Counterclaimant removed the case to this Court on June 22, 2023, citing 2 diversity jurisdiction. (See generally, Notice of Removal.) 3 Counterclaimant then filed its Countercomplaint on September 5, 2023, asserting 4 four causes of action: (1) “Fraud (Fraudulent Inducement, False Promise, Concealment, 5 and Intention Misrelation”); (2) Negligent Misrepresentation; (3) Breach of the Implied 6 Covenant of Good Faith and Fair Dealings; and (4) Declaratory Relief that Counter- 7 Defendant resigned without “Good Reason” or, alternatively, that Counter-Defendant 8 was terminated for “Cause.” (Countercomplaint at ¶¶ 129.) 9 Generally, with respect to the first two causes of action, Counterclaimant alleges 10 that during the negotiation of the Merger Agreement, Founder Side Letters, and Founder- 11 Offer Letters, Counter-Defendant made representations that: (i) he would remain as an 12 employee with Counterclaimant for at least three years; (ii) that he would supervise 13 employees in the San Diego office; (iii) that he would develop technology for 14 Counterclaimant; and (iv) that he would work in good faith towards achieving the 15 revenue goals that the Milestone Consideration was conditioned on. (Id. at ¶¶ 98, 110.) 16 Of course, these four goals were largely not achieved in the sense that Counter-Defendant 17 ceased to be an employee of Counterclaimant less than a year after the Closing Date, thus 18 rendering the four above mentioned representations either—in Counterclaimant’s view— 19 fraudulent or negligent misrepresentations. For this, Counterclaimant seeks, among other 20 things, repayment of the Upfront Cash and Upfront Stock. (Id. at ¶¶ 106, 117.) 21 Similarly, as to the third cause of action, Counterclaimant alleges that Counter- 22 Defendant violated the covenant of good faith and fair dealings with respect to the 23 Founder Side Letter and Founder Offer Letter by “shirking his assigned work,” “poorly 24 managing team members,” working on outside projects, violating Counterclaimant’s 25 policies, talking badly about Counterclaimant to his fellow employees, asserting in the 26 Demand Letter that he had the right to resign for “Good Reason,” and generally by failing 27 to perform his job duties. (Id. at ¶¶ 119-22.) For this, Counterclaimant seeks recovery of 28 the salary paid to Counter-Defendant in the few months he was employed by 5 3:23-cv-01164-W-WVG 1 Counterclaimant, the cost of replacing Counter-Defendant, as well as the Upfront Cash 2 and Upfront Stock. (Id. at ¶ 124.) 3 As to the fourth cause of action, Counterclaimant alleges that Counter-Defendant 4 resigned without “Good Reason” or, alternatively, was terminated for “Cause.” (Id. at ¶¶ 5 127-28.) 6 7 Counter-Defendant now moves to dismiss all four causes of action in the Countercomplaint, and Counterclaimant opposes. 8 9 10 II. LEGAL STANDARD Federal Rule of Civil Procedure 12(b)(6) allows a defendant to file a motion to 11 dismiss for failing “to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the complaint’s sufficiency. See 13 N. Star Int’l v. Ariz. Corp. Comm’n., 720 F.2d 578, 581 (9th Cir. 1983). A complaint 14 may be dismissed as a matter of law either for lack of a cognizable legal theory or for 15 insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 16 749 F.2d 530, 534 (9th Cir. 1984). Additionally, in evaluating the motion, the Court 17 must assume the truth of all factual allegations and must “construe them in light most 18 favorable to the nonmoving party.” Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 19 2002). 20 To survive a motion to dismiss, a complaint must contain “a short and plain 21 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 22 8(a)(2). The Supreme Court has interpreted this rule to mean that “[f]actual allegations 23 must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. 24 Twombly, 550 U.S. 554, 555 (2007). The allegations in the complaint must “contain 25 sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its 26 face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). 27 Well-pled allegations in the complaint are assumed true, but a court is not required 28 to accept legal conclusions couched as facts, unwarranted deductions, or unreasonable 6 3:23-cv-01164-W-WVG 1 inferences. Papasan v. Allain, 478 U.S. 265, 286 (1986); Sprewell v. Golden State 2 Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 3 4 III. DISCUSSION 5 A. 6 Misrepresentation) 7 Counter-Defendant moves to dismiss Counterclaimant’s first and second causes of First and Second Causes of Action (Fraud and Negligent 8 action (Fraud and Negligent Misrepresentation) on two separate grounds: (1) that they 9 fail to allege “reasonable” reliance and (2) that they fail to meet Rule 9(b)’s heightened 10 pleading requirement. (Motion at 3-8.) Both grounds are indeed fatal to 11 Counterclaimant’s first two causes of action. 12 13 1. “Reasonability” of the Reliance As Counter-Defendant points out (Id. at 6) and Counterclaimant acknowledges 14 (Opposition at 10), “reasonable reliance” is an essential element of both Fraud and 15 Negligent Misrepresentation. (See California Civil Jury Instructions (“CACI”), 1900-03.) 16 While the “reasonableness” of reliance is ordinarily a question of fact, it can be decided 17 “as a matter of law if reasonable minds can come only one conclusion based on the 18 facts.” City Sols., Inc. v. Clear Channel Commc'ns, 365 F.3d 835, 841 (9th Cir. 2004) 19 (quoting Guido v. Koopman, 1 Cal.App.4th 837, 843 (1991)). 20 Counterclaimant points to its allegations in paragraphs 99 and 110 of the 21 Countercomplaint, where it has alleged that Counter-Defendant represented to 22 Counterclaimant “during [the] negotiations [of the Merger Agreement, Founder Side 23 Letter, and Founder Offer Letter]” that “[Counter-Defendant] would (i) work at 24 [Counterclaimant] after the merger for a period of three years or longer; (ii) continue 25 supervising employees in the San Diego office; (iii) continue developing technology for 26 [Counterclaimant]; and (iv) work in good faith towards achieving the [Milestone 27 Consideration] set out in the Merger Agreement.” (Opposition at 11.) Indeed, 28 Counterclaimant alleges that “it would not have entered into the Merger Agreement, 7 3:23-cv-01164-W-WVG 1 Founder Offer Letter, or Founder Side Letter with [Counter-Defendant]” nor would have 2 paid him the Upfront Cash and Upfront Stock had they known he would be, in their view, 3 such a poor employee who would no longer be with the company after less than a year of 4 employment. (Countercomplaint at ¶¶ 104, 114.) 5 However, as Counter-Defendant correctly points out, the fatal flaw for 6 Counterclaimant here is that Counter-Defendant’s employment with Counterclaimant was 7 explicitly at-will. (Motion at 6-8.) Indeed, the Founder Offer Letter clearly stated: 8 9 10 11 12 Your employment with [Counterclaimant] is at will, meaning either you or [Counterclaimant] are free to terminate the employment relationship at any time. Nothing in this offer letter or any other [Counterclaimant] communication, document, policy, or procedure is intended to create a promise or representation of continued employment or employment for a fixed period of time.” (Founder Offer Letter at 2 [emphasis added].) 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 And, as Counterclaimant alleges, the Founder Side Letter and Founder Offer Letter were executed “concurrently” with the Merger Agreement and were “material inducement” to Counterclaimant entering into the Merger Agreement. (Countercomplaint at ¶ 22.) Counter-Defendant is correct that, under California law, it is simply not reasonable—as a matter of law—for a party to rely on representations that contradict the terms of a written agreement. L'Garde, Inc. v. Raytheon Space & Airborne Sys., 2013 WL 12113998, at *17 (C.D. Cal. Sept. 6, 2013) (“A number of other decisions have similarly held that there cannot be justifiable reliance where a plaintiff claims to have relied upon a promise or representation which is wholly inconsistent with an express term of the contract knowingly executed by the plaintiff. ”); BASF Corp. v. Platinum Collision Centers, Inc., 2019 WL 6317776, at *6 (C.D. Cal. July 3, 2019) (“where alleged misrepresentations in a fraud in the inducement action contradict an integrated written agreement, as here, California courts routinely conclude that ‘reliance is simply not justifiable.’”). 8 3:23-cv-01164-W-WVG 1 Counter-Defendant cites several cases applying this principle to the employment 2 context, all of which find “at-will” clauses in employment agreements—just like the “at- 3 will” clause in the Founder Offer Letter—render any reliance by the other party on 4 representations that employment will continue for some specific period to be 5 “unreasonable.” Slivinsky v. Watkins-Johnson Co., 221 Cal. App. 3d 799, 807 (1990) 6 (“[employee’s] alleged reliance on [employer’s] oral promises of continuing employment 7 is simply not justifiable because the representations contradict the parties' integrated 8 employment agreement which provided that the employment was at will.”); Nisbet v. Am. 9 Nat'l Red Cross, 795 F. App'x 505, 508 (9th Cir. 2019) (“Plaintiff cannot support her 10 claim for intentional or negligent misrepresentation because an at-will employee cannot 11 justifiably rely on oral promises of continued employment.”). 12 Here, just like in Slivinsky and Nisbet, Counterclaimant’s alleged reliance on 13 Counter-Defendant’s supposed representations that he would “ (i) work at 14 [Counterclaimant] after the merger for a period of three years or longer” 15 (Countercomplaint at ¶¶ 104, 114) is rendered completely unreasonable by the Founder 16 Offer Letter’s “at-will” employment clause. Similarly, Counter-Defendant’s supposed 17 representations that he would “(ii) continue supervising employees in the San Diego 18 office; (iii) continue developing technology for [Counterclaimant]; (iv) work in good 19 faith towards achieving the [Milestone Consideration] set out in the Merger Agreement” 20 (id.) were also unreasonable for Counterclaimant to rely on because of the “at-will” 21 employment clause in the Founder Offer Letter, in that those representations were all 22 necessarily downstream from Counter-Defendant continuing to remain an employee. 23 That is, if Counter-Defendant were to cease working at Counterclaimant, he obviously 24 could not continue to supervise employees for or continue developing technology for 25 26 27 28 9 3:23-cv-01164-W-WVG 1 Counterclaimant, nor could he continue to work towards helping Counterclaimant reach 2 the Milestone Consideration’s revenue goals.6 3 Instead of citing any contrary authority, Counterclaimant tries to distinguish these 4 cases by pointing out that they all involved “claims by employees to long-term or 5 continuing employment,” not “complex merger transactions conditioned on ancillary 6 agreements.” (Opposition at 11.) While Counterclaimant’s observation is true, the Court 7 fails to see how the logic of these cases does not extend to the present case, especially 8 where Counterclaimant fails to cite any authority to the contrary. Indeed, if it 9 unreasonable for an at-will employee to rely on an employer’s representations that 10 employment would continue long-term; it seems equally unreasonable for an employer to 11 rely on an at-will employee’s representation that the employee would remain at the 12 company long-term. Counterclaimant also argues Counter-Defendant’s contractual relationship with 13 14 Counterclaimant centered “not only [on] the [Founder] Offer Letter, but also the 15 [Founder] Side Letter and Merger Agreement, which together provided for a three-year 16 vesting structure for the Upfront Stock [] and performance-based targets five and six 17 years away for Milestone Consideration.” (Opposition at 11.) However, these long-term 18 vesting structures do not support Counterclaimant’s theory that Counter-Defendant 19 committed Fraud and/or Negligent Misrepresentation by allegedly leaving the company 20 before three years. To the contrary, the entire structure of the Founder Side Letter and 21 Merger Agreement (specifically the vesting timelines of the Upfront Stock and Milestone 22 23 6 24 25 26 27 28 While the Countercomplaint is not entirely clear on this point, the Court understands the CounterDefendant’s alleged failure to “(ii) continue supervising employees in the San Diego office; (iii) continue developing technology for [Counterclaimant]; (iv) work in good faith towards achieving the [Milestone Consideration] set out in the Merger Agreement” to relate to his departure from Counterclaimant (and thus his inability to achieve these three goals since he was no longer at the company). However, to the extent the first and second causes of action also relate to his allegedly poor performance while employed by Counterclaimant, Counterclaimant’s redress in such circumstances would be seeking to fire Counter-Defendant for “Cause” under Section 2.16(g) of the Merger Agreement, not to sue Counter-Defendant for Fraud and Negligent Misrepresentation. 10 3:23-cv-01164-W-WVG 1 Consideration) show that Counterclaimant and Counter-Defendant expressly 2 contemplated that Counter-Defendant could leave or be fired at any time and what would 3 happen to the Upfront Stock and Milestone Consideration in those circumstances. If 4 Counterclaimant wanted to entice that Counter-Defendant remained an employee longer 5 than he did it could have added stronger incentives for Counter-Defendant to remain— 6 such as structuring the vesting timeline of the Upfront Stock differently, increasing the 7 value of the Milestone Consideration, or bargained to remove the at-will employment 8 clause altogether. But simply put, as a matter of law, it would not be Fraud or Negligent 9 Misrepresentation for Counter-Defendant to exercise his right under the Founder Offer 10 Letter to “terminate the employment relationship at any time” and choose to forego the 11 unvested Upfront Stock and Milestone Consideration per the terms of the Founder Side 12 Letter and Merger Agreement. Nor would it be reasonable for Counterclaimant to rely on 13 Counter-Defendant’s alleged representations that he would remain with the company for 14 that least 3 years after the Closing Date where the written, executed documents at issue 15 all either explicitly allowed for or clearly considered Counter-Defendant leaving the 16 company at any time. Counterclaimant did not own Counter-Defendant. To the contrary, 17 he was free to leave his job at any time, so long as he was willing to forego the remainder 18 of his Upfront Stock vesting and the Milestone Consideration (unless of course he left for 19 “Good Reason” as defined by the Merger Agreement). 20 Accordingly, Counterclaimant’s first and second causes of action are DISMISSED 21 because its alleged reliance on Counter-Defendant’s representations was not 22 reasonable—as a matter of law—given the at-will employment clause in the Founder 23 Offer Letter and the long-term vesting structure of Upfront Stock and Milestone 24 Consideration in the Merger Agreement and Founder Side Letter. 25 2. Particularity Requirement 26 In addition to failing to properly allege “reasonable” reliance, Counterclaimant’s 27 first and second causes of action fail in part because they do not to meet the heightened 28 pleading requirements of Rule 9(b). (See Motion at 3-6.) Specifically, Counter11 3:23-cv-01164-W-WVG 1 Defendant argues that the Countercomplaint fails to allege the necessary facts regarding 2 the “who,” “what,” “where,” and “when” of the supposed fraud and negligent 3 misrepresentations. 4 Counter-Defendant is correct that Counterclaimant’s first and second causes of 5 action (for “Fraudulent Inducement, False Promise, Concealment, and Intentional 6 Misrepresentation” and “Negligent Misrepresentation”) must both “state with 7 particularity the circumstances constituting fraud or mistake” as required by Rule 9(b). 8 Lantz Ret. Invs., LLC v. Glover, 2023 WL 3533892, at *1 (9th Cir. May 18, 2023) 9 (“Plaintiffs bring several fraud-based claims subject to Rule 9 of the Federal Rules of 10 Civil Procedure: intentional misrepresentation; negligent misrepresentation . . . .”); Puri 11 v. Khalsa, 674 F. App'x 679, 689 (9th Cir. 2017) (“The complaint's allegations 12 concerning negligent misrepresentations are uniformly conclusory. They include only 13 broad reference to allegations made in previous paragraphs, lacking particularized detail 14 of any alleged misrepresentations.”). Counterclaimant concedes this point, instead 15 arguing that its first and second causes of action meet Rule 9(b)’s heightened pleading 16 standard because their allegations are “specific enough to give defendants notice of the 17 particular misconduct” at issue such that Counter-Defendant can “defend against the 18 charge[s] . . . .” (Opposition at 8.) 19 Counterclaimant understates the requirements of Rule 9(b). “Under Rule 9(b), a 20 plaintiff ‘must state with particularity the circumstances constituting fraud. This means 21 the plaintiff must allege ‘the who, what, when, where, and how of the misconduct 22 charged,’ including what is false or misleading about a statement, and why it is false. 23 Puri v. Khalsa, 674 F. App'x 679, 687 (9th Cir. 2017) (emphasis added) (citations 24 omitted). The reason for requiring such particularity is to “give defendants notice of the 25 particular misconduct so that they can defend against the charge and not just deny that 26 they have done anything wrong.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 27 (9th Cir. 2003) (ellipse omitted). To provide such required notice, “the complaint must 28 specify such facts as the times, dates, places . . . and other details of the alleged 12 3:23-cv-01164-W-WVG 1 fraudulent activity.” Oh v. Hanmi Fin. Corp., 621 F. Supp. 3d 1075, 1082 (C.D. Cal. 2 2022) (quoting Neubronner v. Milken, 6 F.3d 666, 671-72 (9th Cir. 1993)). 3 However, these strict requirements apply only to Counterclaimant’s allegations of 4 affirmative misrepresentation. (See Opposition at 9-10.) To the extent the first and 5 second causes of action also allege concealment or omissions, this “who, what, when, 6 where, and how” requirement is replaced by the requirement that the Countercomplaint 7 simply allege that: Counter-Defendant had a duty to disclose certain facts and 8 Counterclaimant would have acted differently had they known those facts. Baggett v. 9 Hewlett-Packard Co., 582 F. Supp. 2d 1261, 1267-68 (C.D. Cal. 2007) (emphasis added) 10 (citations omitted) (“[I]t is clear that a plaintiff in a fraudulent concealment suit will ‘not 11 be able to specify the time, place, and specific content of an omission as precisely as 12 would a plaintiff in a false representation claim.’ Because such a plaintiff is alleging a 13 failure to act instead of an affirmative act, the plaintiff cannot point out the specific 14 moment when the defendant failed to act. So, a fraud by omission or fraud by 15 concealment claim ‘can succeed without the same level of specificity required by a 16 normal fraud claim.’ . . . . [Plaintiff has satisfied its pleading requirement by] alleging 17 that ‘Plaintiff and the Class were unaware of the above facts and would not have acted as 18 they did if they had known.’”); Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1098– 19 99 (N.D. Cal. 2007) (“Clearly, a plaintiff in a fraud by omission suit will not be able to 20 specify the time, place, and specific content of an omission as precisely as would a 21 plaintiff in a false representation claim. . . . [A] fraud by omission claim can succeed 22 without the same level of specificity required by a normal fraud claim. . . . Plaintiffs 23 adequately state a claim of fraud by omission. They allege that GM was bound by a duty 24 to disclose material facts about its speedometers from 2003 to 2007. GM failed to 25 disclose this information, and plaintiffs reasonably claim that they suffered damages after 26 justifiably relying on GM's failure to disclose any defects with the speedometers.”). 27 28 13 3:23-cv-01164-W-WVG 1 2 3 4 5 6 7 8 9 a) Affirmative Misrepresentations At the heart of its affirmative misrepresentation theory, Counterclaimant’s first cause of action alleges: In the period before completion of the Merger, [Counter-Defendant] and other Palamedrix representatives acting on [Counter-Defendant’s] behalf made representations during negotiations with [Counterclaimant] that he would: (i) work at [Counterclaimant] after the Merger for a period of three years or longer; (ii) continue supervising employees in the San Diego office; (iii) continue developing technology for [Counterclaimant]; and (iv) work in good faith towards achieving the Milestones set out in the Merger Agreement. (Countercomplaint at ¶ 99.) 10 11 12 13 14 15 16 17 18 19 Similarly, Counterclaimant’s second cause of action alleges (with respect to its affirmative misrepresentation theory): At or around that time and for months before between August 2021 and August 2022, [Counter-Defendant] and other Palamedrix representatives acting on [Counter-Defendant’s] behalf made representations during negotiations with [Counterclaimant] (a transaction that [Counter-Defendant] had a financial interest in) that [Counter-Defendant] would: (i) work at [Counterclaimant] after the Merger for a period of at least three years or longer; (ii) supervise employees in the San Diego office; (iii) develop technology for [Counterclaimant]; and (iv) work in good faith towards achieving the Milestones set out in the Merger Agreement. (Countercomplaint at ¶ 110.) 20 21 22 23 24 25 26 27 28 Counter-Defendant argues that the first and second causes of action fail because the Countercomplaint fails to allege facts regarding the “who,” “what,” “when,” and “where.” (Motion at 3-6.) Who: Counterclaimant alleges for both its first and second causes of action that “[Counter-Defendant] and other Palamedrix representatives” made the misrepresentations. (Countercomplaint at ¶¶ 99, 110.) Because the Countercomplaint specifically identifies Counter-Defendant by name, it sufficiently alleges the “who” with respect to Counter-Defendant. However, because the “other Palamedrix representatives” 14 3:23-cv-01164-W-WVG 1 remain unnamed, the first and second causes of action fail to meet the “who” requirement 2 with respect to anyone other than Counter-Defendant. 3 What: For both the first and second causes of action, Counterclaimant alleges that 4 Counter-Defendant “made representations during negotiations with [Counterclaimant]” 5 that Counter-Defendant “would: (i) work at [Counterclaimant] after the Merger for a 6 period of at least three years or longer; (ii) supervise employees in the San Diego office; 7 (iii) develop technology for [Counterclaimant]; and (iv) work in good faith towards 8 achieving the Milestones set out in the Merger Agreement.” (Countercomplaint at ¶¶ 99, 9 110.) And of course, Counter-Defendant was no longer employed with Counterclaimant 10 less than a year after the Closing Date. (Countercomplaint at ¶¶ 81, 84.) Accordingly, 11 Counterclaimant has sufficiently alleged “what” the misrepresentations complained of 12 are. 13 When: For its first cause of action, Counterclaimant alleges that the supposed 14 misrepresentations were made simply “[i]n the period before the completion of the 15 Merger . . . .” (Countercomplaint at ¶ 99.) Similarly, for its second cause of action, 16 Counterclaimant alleges that the supposed misrepresentations were made “[a]t or around 17 [the Closing Date] and for months before between August 2021 and August 2022 . . . .” 18 (Countercomplaint at ¶ 110.) These generalized temporal allegations lack sufficient 19 specificity to meet the “when” requirement of Rule 9(b) because they fail to provide 20 Counter-Defendant sufficient notice of the exact statements, conversations, and/or 21 communications complained of. See Vess, 317 F.3d at 1106; Hanmi Fin. Corp., 621 F. 22 Supp. 3d at 1082. 23 Where: Both the first and second causes of actions fail to meet the “where” 24 requirement in that the Countercomplaint does not even attempt to allege where the 25 supposed misrepresentations occurred. (See Motion at 5.) Nor does the 26 Countercomplaint allege, at any point, the mode of communication whereby the supposed 27 misrepresentations were made. See, e.g., Kapu Gems v. Diamond Imports, Inc., 2016 WL 28 4259119, at *14 (N.D. Cal. Aug. 12, 2016) (holding fraud claims must be dismissed 15 3:23-cv-01164-W-WVG 1 where plaintiff failed to allege whether the misrepresentations “made in person or by 2 some other mode of communication.”). 3 4 5 Accordingly, the Countercomplaint’s first and second causes of action fail to the extent that they allege affirmative misrepresentation. b) Omissions/Concealments 6 As Counterclaimant points out in its Opposition, the Countercomplaint alleges that 7 Counter-Defendant made not only affirmative misrepresentations with respect to the first 8 and second causes of action, but also that Counter-Defendant omitted/concealed facts. 9 (Countercomplaint at ¶¶ 102-03 [“[Counter-Defendant] also fraudulently concealed and 10 failed to disclose several material facts which he had a duty to disclose. There was a duty 11 to disclose, because [Counter-Defendant] made the affirmative representations specified 12 in paragraph 98 above, which were incomplete and misleading given that [Counter- 13 Defendant] was aware that he did not intend to continue in his employment at 14 [Counterclaimant] for any significant period of time . . . . [Counter-Defendant] failed to 15 disclose that he (i) intended to leave [Counterclaimant] within a very short period while 16 asserting an entitlement to all consideration under the Merger Agreement and Founder 17 Side Letter, and (ii) had no intention of continuing to supervise employees in the San 18 Diego office, develop technology for [Counterclaimant], or work in good faith towards 19 achieving the [Milestone Consideration] set out in the Merger Agreement.”]; 115 [“in 20 reasonable and justifiable reliance upon the representations and related omissions made 21 by Dr. Gopinath, [Counterclaimant] executed and performed under the Merger 22 Agreement, Founder Offer Letter, and Founder Side Letter and proceed to pay or agree to 23 pay consideration to [Counter-Defendant] under those agreements.”].) 24 Counter-Defendant objects that these allegations do not set forth the “who,” 25 “what,” “when,” and “where” of the omissions and/or concealments. However, as 26 explained above, Counterclaimant need only allege that Counter-Defendant owed a duty 27 to disclose certain information to Counterclaimant and that Counterclaimant would have 28 acted differently had Counter-Defendant disclosed said information. Because Counter16 3:23-cv-01164-W-WVG 1 Defendant raises no arguments regarding whether he had a duty to disclose certain 2 information or the sufficiency of Counterclaimant’s allegations of said duty, the Court 3 notes only that the Countercomplaint does allege, at least facially, that Counter- 4 Defendant owed a duty to disclose certain information and that Counterclaimant would 5 have acted differently had it know that information. (See Countercomplaint at ¶¶ 102-04; 6 115.) 7 Accordingly, the Countercomplaint’s first and second causes of action do not fail 8 with respect to their allegations of omissions/concealments on account of failing to allege 9 “who,” “what,” “when,” and “where.” However, as explained above, the first and second 10 causes of action still fail with respect to both the alleged affirmative misrepresentations 11 and omissions/concealments because Counterclaimant has failed to allege reasonable 12 reliance. 13 14 B. 15 and Fair Dealings) 16 Counter-Defendant moves to dismiss Counterclaimant’s third cause of action Third Cause of Action (Breach of the Implied Covenant of Good Faith 17 (breach of the implied covenant of good faith and fair dealings with respect to the 18 Founder Side Letter and the Founder Offer Letter) on the grounds that it attempts to 19 impose terms on Counter-Defendant beyond those contained in the Founder Side Letter 20 and Founder Offer Letter. (See Motion at 11-16.) 21 At the outset, it is important to note that the implied covenant of good faith and fair 22 dealings imposes only the obligation for neither party to a contract to “do anything that 23 will injure there right of the other party to receive the benefits of the agreement.” 24 Openshaw v. FedEx Ground Package Sys., Inc., 576 F. App'x 685, 687 (9th Cir. 2014). 25 However, it “cannot impose substantive duties or limits on the contracting parties beyond 26 those incorporated in the specific terms of their agreement.” Id. (quoting Guz v. Bechtel 27 Nat. Inc., 24 Cal. 4th 317 (2000)). And it certainly “cannot contradict the express terms 28 of a contract.” Bevis v. Terrace View Partners, LP, 33 Cal. App. 5th 230, 252 (2019). 17 3:23-cv-01164-W-WVG 1 As the California Supreme Court has noted, “[w]e are aware of no reported case in which 2 a court has held the covenant of good faith may be read to prohibit a party from doing 3 that which is expressly permitted by an agreement.” Storek & Storek, Inc. v. Citicorp 4 Real Estate, Inc., 100 Cal.App.4th 44, 55 (2002). 5 6 7 8 9 10 11 12 13 For the reasons stated below, the Countercomplaint’s third cause of action indeed fails to adequately allege a breach of the implied covenant of good faith and fair dealings. 1. The Founder Offer Letter The Countercomplaint alleges that Counter-Defendant breached the implied covenant with respect to the Founder Offer Letter by: [F]ailing to perform his duties and shirking his assigned work over the course of months, denigrating [Counterclaimant] to others (including his own team), poorly managing team members, consistently prioritizing his outside projects over his commitments to [Counterclaimant], violating multiple Company policies, and lying to [Counterclaimant]. (Countercomplaint at ¶ 122.) 14 15 For this, Counterclaimant seeks damages in the amount of: (1) the value of the 16 salary and benefits it paid Counter-Defendant while he was employed with it; (2) the 17 value of the Upfront Cash and the Upfront Stock; (3) “the cost of replacing [Counter- 18 Defendant]”; and (4) “other harm resulting from [Counter-Defendant’s] misconduct.” 19 (Countercomplaint at ¶ 124.) 20 The problem for Counterclaimant once again is that the Founder Offer Letter was 21 explicitly at-will and stated that either party was “free to terminate the employment 22 relationship at any time.” (Founder Offer Letter at 2.) And, under the Merger 23 Agreement and Founder Side Letter, Counterclaimant could only fire Counter-Defendant 24 without triggering the vesting of any unvested Upfront Stock or the Milestone 25 Consideration if the firing was for “Cause.” (Countercomplaint at ¶¶ 30, 37-38.) Taken 26 together, Counterclaimant was free to fire Counter-Defendant at any time. However, if it 27 wanted to avoid vesting any unvested Upfront Stock or the Milestone consideration to 28 Counter-Defendant, Counterclaimant could only fire him for “Cause.” 18 3:23-cv-01164-W-WVG 1 The Court will not impose substantive duties on Counter-Defendant regarding his 2 employment obligations beyond what was in written agreements at issue. Between the 3 Offer Letter’s at-will employment clause and the long-term vesting structure of the 4 Upfront Stock and Milestone Consideration, the parties clearly contemplated what 5 Counter-Defendant’s employment obligations were and what the penalties would be if he 6 failed to meet those obligations. To wit, if Counterclaimant was unhappy with Counter- 7 Defendant’s job performance, its remedy was to try to fire him for “Cause” and prevent 8 the vesting of any unvested Upfront Stock or the Milestone Consideration. That is what 9 the parties explicitly bargained for. The Court will not use the covenant of good faith and 10 fair dealings to go beyond the terms of the written agreements and modify the 11 circumstances in which Counterclaimant can claw-back the Upfront Stock and Milestone 12 Consideration from Counter-Defendant (or otherwise punish him). Doing so would 13 effectively be modifying the definition of “Cause” and expanding the penalty to Counter- 14 Defendant to include clawing back the Upfront Cash. 15 Counterclaimant cites two cases that it claims support the theory that the covenant 16 of good faith and fair dealings can be used by employers against employees for violating 17 company policies: Cumis Ins. Soc’y, Inc. v. Vallatini, 2018 WL 3430672, at *2-4 (D. 18 Haw. July 16, 2018); Carpenter v. All Am. Games, 2017 WL 394517, at *3-4 (D. Ariz. 19 Jan. 30, 2017). Both cases are distinguishable. First, both are unpublished cases from 20 different judicial districts applying Hawaii and Arizona state law, respectively. 21 Unsurprisingly, neither case discusses the California law principle that the implied 22 covenant of good faith and fair dealings cannot be used to impose substantive duties on 23 the contracting parties beyond those incorporated in the specific terms of the agreement. 24 Second, both cases involved allegations that the employee had engaged is serious fraud 25 and self-dealing far beyond what is alleged in the Countercomplaint. See Vallatini, 2018 26 WL 3430672, at *1 (“[a]ccording to [employer’s subrogee], in approving loans to certain 27 borrowers in violation of [employer’s] policies, [Defendant] ‘knowingly and intentionally 28 misrepresented that various members were qualified borrowers when in fact, they were 19 3:23-cv-01164-W-WVG 1 not.’”); All Am. Games, 2017 WL 394517, at *1 (internal citations omitted) 2 (“[counterclaimants] discovered a ‘troubling and improper relationship between [counter- 3 defendant] and another former employee.’ According to [counterclaimants], this former 4 employee was manipulating ‘[counterclaimants’] financial systems to inflate the revenue 5 numbers for the FBU regional camps being held in Phoenix, Seattle and California’ . . . . 6 [counterclaimants’] investigation revealed that ‘[counter-defendant] extended reduced 7 pricing to customers that were unauthorized by [counterclaimants] in order to inflate the 8 revenue numbers for those camps’ . . . .”). 9 Additionally, the third cause of action fails because at no point does the 10 Countercomplaint identify what specific contractual provision Counter-Defendant’s 11 actions frustrated. E.g., Plastino v. Wells Fargo Bank, 873 F. Supp. 2d 1179, 1191 (N.D. 12 Cal. 2012) (quoting Perez v. Wells Fargo Bank, N.A., 2011 WL 3809808, at *18 (N.D. 13 Cal. Aug. 29, 2011)) (“to state a claim for breach of the implied covenant of good faith 14 and fair dealing, a plaintiff must identify the specific contractual provision that was 15 frustrated.”); Upstrem, Inc. v. BHFO, Inc., 2021 WL 2038324, at *8 (S.D. Cal. May 21, 16 2021) (same). 17 Absent any contrary, binding authority applying California law, the Court will not 18 use the implied covenant of good faith and fair dealings to effectively modify the 19 specifically bargained for circumstances in which Counter-Defendant could be fired for 20 “Cause” and what the penalties would be for Counter-Defendant. 21 22 23 2. The Founder Side Letter The Countercomplaint also alleges that Counter-Defendant breached the implied 24 covenant of good faith and fair dealings with respect to the Founder Side Letter for 25 largely the same reasons as the Founder Offer Letter. (See Countercomplaint at ¶ 122.) 26 However, with respect to the Founder Side Letter, the third cause of action adds the 27 allegation that “[Counter-Defendant] prevented [Counterclaimant] from receiving the 28 20 3:23-cv-01164-W-WVG 1 benefits under the Founder Side Letter by asserting an entitlement to resign with full 2 compensation within three months of the Closing Date.” (Id.) 3 Unlike the Founder Offer Letter, the Founder Side Letter contains a choice of law 4 clause stating that it is “governed by the laws of the State of Delaware.” (Founder Side 5 Letter at 3.) A federal court sitting in diversity must apply the choice of law method of 6 the forum state. E.g., Zinser v. Accufix Rsch. Inst., Inc., 253 F.3d 1180, 1187 (9th Cir.). 7 Under California’s choice of law method, courts must apply the law of the state that the 8 parties chose in their choice of law clause, so long as (1) the “chosen state has a 9 substantial relationship to the parties or their transaction” or (2) “there is any other 10 reasonable basis for the parties' choice of law.” Washington Mut. Bank, FA v. Superior 11 Ct., 24 Cal. 4th 906, 916 (2001); accord Restatement (Second) of Conflict of Laws § 187 12 (1971); Restatement (Third) of Conflict of Laws, § 6.10, A TD No 4 (2023). Given the 13 choice of law clause and Counterclaimant’s incorporation in the state of Delaware ([Doc. 14 17], “Answer” at ¶ 15), the Court will apply Delaware law. 15 The protections provided under Delaware’s implied covenant of good faith and fair 16 dealings are less robust than California’s. Under Delaware law, the implied covenant can 17 only be used to fill gaps in a contract and “imply[] only those terms that the parties would 18 have agreed to during their original negotiations if they had thought to address them.” 19 Cygnus Opportunity Fund, LLC v. Washington Prime Grp., LLC, 302 A.3d 430, 459 20 (Del. Ch. 2023). Thus, the implied covenant “cannot be invoked where the contract itself 21 expressly covers the subject at issue.” Id. at 458. 22 Here, the Founder Side Letter explicitly laid out the long-term vesting structure of 23 the Upfront Stock and stated “if [Counter-Defendant’s] employment with 24 [Counterclaimant] is terminated without Cause or if you resign for Good Reason . . . then 25 one hundred percent (100%) of your Upfront Stock Consideration will no longer be 26 subject to forfeiture.” (Founder Side Letter at Section 2.) Of course, the flip side of this 27 was that the unvested Upfront Stock would not vest to Counter-Defendant if he were 28 fired for “Cause” or resigned without “Good Reason.” From this, it is clear the parties 21 3:23-cv-01164-W-WVG 1 did contemplate what they wanted Counter-Defendant’s employment obligations to be 2 and what the penalties to Counter-Defendant could be if he violated those obligations. If 3 Counterclaimant was unhappy with Counter-Defendant’s job performance or his 4 assertion in the Demand Letter that he was within his rights to resign for “Good Reason,” 5 it could have tried firing him for “Cause.” Those attempts may or may not have failed, 6 given the definitions of “Cause” and “Good Reason,” but that is what the parties 7 bargained for. 8 9 Accordingly, Counterclaimant’s third cause of action fails to state a claim for breach of the implied covenant of good faith and dealings with respect to the Founder 10 Side Letter because the parties already contractually agreed upon the exact circumstances 11 under which Counter-Defendant could be fired for “Cause” and what the penalties would 12 be. The implied covenant cannot be used to modify that. 13 Accordingly, the Countercomplaint’s third cause of action is DISMISSED. 14 15 C. 16 Defendant Resigned Without Good Reason, or Alternatively, Was Terminated 17 for Cause) 18 Counterclaimant’s fourth cause of action seeks declaratory judgment that Counter- The Fourth Cause of Action (Declaratory Judgment That Counter- 19 Defendant resigned without “Good Reason” or, alternatively, that he was fired for 20 “Cause.” (Countercomplaint at ¶¶ 127-28.) Counter-Defendant moves to dismiss this 21 cause of action, arguing that the Countercomplaint (1) “alleges no facts to support 22 [Counterclaimant’s] claim that [Counter-Defendant] lacked ‘Good Reason’ to resign,” 23 and (2) cannot proceed under the alternative theory that Counter-Defendant was 24 terminated for “Cause” because Counterclaimant “judicially admits” that Counter- 25 Defendant resigned. (Motion at 17-18.) Both arguments fail. 26 For starters, parties are free to plead their case in the alternative and doing so 27 “should not be construed as an admission against another alternative or inconsistent 28 pleading in the same case.” Anderson v. Edward D. Jones & Co., L.P., 990 F.3d 692 (9th 22 3:23-cv-01164-W-WVG 1 Cir. 2021), cert. denied, 142 S. Ct. 745 (2022) (citing Molsbergen v. United States, 757 2 F.2d 1016, 1019 (9th Cir. 1985)) (“In light of the liberal pleading policy embodied in 3 Rule 8[(d)](2), we hold that a pleading should not be construed as an admission against 4 another alternative or inconsistent pleading in the same case. . . .”). On the one hand, 5 Counterclaimant does state in its Answer to Counter-Defendant/Plaintiff’s Complaint that 6 “[Counterclaimant] admits that Plaintiff resigned from his employment at 7 [Counterclaimant] and that in this action, he purports to have resigned for ‘Good 8 Reason.’” (Answer at ¶ 10.) However, Counterclaimant goes on in that same paragraph 9 to say “[Counterclaimant] also admits that [Counterclaimant] notified Plaintiff he was 10 11 terminated for ‘Cause.’” (Id.) It is obvious from these statements in its Answer, along with the allegations in the 12 Countercomplaint, that Counterclaimant is pleading the two theories in the alternative. 13 Counterclaimant would prefer the Court to find that Counter-Defendant resigned without 14 “Good Reason.” (Countercomplaint at ¶¶ 127-28.) However, if the Court finds that 15 Counter-Defendant was terminated, Counterclaimant asks the court to alternatively find 16 that it had “Cause” to terminate Counter-Defendant. (Id.) Accordingly, the Court will 17 not hold that Counterclaimant pleading one theory somehow amounts to a judicial 18 admission foreclosing an alternative theory. 19 Turning to the substance of the Counterclaimant’s allegations in the fourth cause of 20 action, the Court notes that the Merger Agreement defines “Good Reason” to include, 21 among other things: “a material, adverse change in [Counter-Defendant’s] title, 22 authority, duties or responsibilities . . . .” (Merger Agreement at Section 23 2.16(g)(iii)(C)(4).) From here, Counter-Defendant argues that the fourth cause of action 24 fails because the Countercomplaint does not specifically allege Counter-Defendant’s 25 “title, authority, duties [and] responsibilities” were not materially altered or adversely 26 changed before he resigned—i.e., the Countercomplaint does not allege facts showing he 27 lacked “Good Reason” to resign. (Opposition at 17-18.) 28 23 3:23-cv-01164-W-WVG 1 However, the Countercomplaint does allege that in November 2022, Counter- 2 Defendant’s attorneys sent Counterclaimant the Demand Letter wherein Counter- 3 Defendant asserted he had resigned for “Good Reason.” (Countercomplaint at ¶ 76; see ) 4 The Countercomplaint goes on to allege that this claim of “Good Reason” was “false[].” 5 (Id. at ¶ 77.) Furthermore, attached to the Countercomplaint is a letter Counterclaimant’s 6 attorneys sent in response to the Demand Letter, wherein Counterclaimant’s attorney laid 7 out in detail why Counter-Defendant did not have “Good Reason” to resigned. 8 (“Response Letter”7 at 1, 4 [“[T]he Good Reason identified in [the Demand Letter] was 9 essentially that certain former Palamedrix employees had left [Counterclaimant] (as 10 would be expected in any company transaction). On December 14, I responded to inform 11 you that your letter was wrong on the facts and the law. As I explained, certain of those 12 employees that left [Counterclaimant] and were the subject of [the Demand Letter] in fact 13 claimed that [Counter-Defendant] was part of the reason they were leaving. And I 14 explained that, as [Counter-Defendant] was aware, [Counterclaimant] was actively 15 looking for additional employees . . . . [Counterclaimant] worked with [the Founders] to 16 advertise for, and hire, qualified replacements for those employees. [Counter-Defendant] 17 expressly only asked for replacements for three employees, and never requested backfill 18 for the other roles. Replacements for all three advertised roles were hired as soon as 19 qualified candidates were found.”].) 20 While perhaps not a model of pleading, the Court takes paragraphs 76 and 77 of 21 the Countercomplaint, together with the Merger Agreement’s definition of “Good 22 Reason” and the Response Letter, to sufficiently alleged facts that, if true, would state a 23 plausible claim for declaratory judgment that Counter-Defendant resigned without “Good 24 Reason”—in that he resigned when there was no material, adverse change to his “title, 25 authority, duties or responsibilities.” See Durning v. First Bos. Corp., 815 F.2d 1265, 26 27 28 7 The Response Letter is attached to the Complaint as Exhibit K. 24 3:23-cv-01164-W-WVG 1 1267 (9th Cir. 1987) (“If a complaint is accompanied by attached documents, the court is 2 not limited by the allegations contained in the complaint. These documents are part of the 3 complaint and may be considered in determining whether the plaintiff can prove any set 4 of facts in support of the claim.”). 5 Accordingly, Motion is DENIED with respect to the fourth cause of action. 6 7 D. 8 Lastly, Counterclaimant asks the Court to grant it leave to amend its 9 Leave to Amend Countercomplaint if the Court dismisses any of its four causes of action. (Opposition at 10 25.) As explained above, the Court is indeed dismissing the Countercomplaint’s first, 11 second, and third causes of action. 12 Federal Rule of Civil Procedure 15(a)(2) states that courts “should freely give 13 leave [to amend] when justice so requires.” Furthermore, Ninth Circuit precedent is clear 14 that leave to amend “should be grated with ‘extreme liberty’” and only be denied when 15 “it is clear . . . that the complaint could not be saved by any amendment.” Moss v. U.S. 16 Secret Serv., 572 F.3d 962, 972 (9th Cir. 2009). 17 Counter-Defendant argues that leave to amend should not be granted as to the first 18 and second causes of action, because “amendment would be futile”—in that 19 Counterclaimant’s entire theory of “reliance” is completely unreasonable as a matter of 20 law since Counterclaimant alleges to have relied on representations contrary to the 21 written agreements. (Motion at 9-10.) Counterclaimant responds by emphasizing how 22 leave to amend should be granted with “extreme liberty.” (Opposition at 13; 25.) 23 Counterclaimant does not however, assert any additional facts that it would plead if given 24 the opportunity. (See id.) 25 Here, allowing Counterclaimant to amend its first and second causes of action 26 would be futile because the entire legal theory upon which they rest—that 27 Counterclaimant could reasonably rely on any representations contrary to the written 28 25 3:23-cv-01164-W-WVG 1 agreements—fail as a matter of law. There are no additional facts Counterclaimant could 2 plead that would change this. 3 As for the third cause of action, Counter-Defendant does not ask the Court to 4 dismiss without leave to amend. However, the Court also believes the legal theory upon 5 which the third cause of action rests—that the implied covenant can be used to impose 6 additional employment obligations on Counter-Defendant and penalties for violations 7 thereof beyond those clearly contemplated by the agreements at issue—fails as a matter 8 of law. Yet, given the liberal amendment policies in federal court and Counter- 9 Defendant’s failure to ask for the third cause of action to be dismissed without leave to 10 amend, the Court will hesitantly allow Counterclaimant to amend its third cause of 11 action. However, the Court remains highly skeptical that Counterclaimant will be able 12 successfully amend its third cause of action. Any amendment must comply with this 13 Order. 14 15 16 IV. CONCLUSION & ORDER For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART 17 the Motion [Doc. 19]. The Countercomplaint’s [Doc. 17] first and second causes of 18 action are DISMISSED WITHOUT LEAVE TO AMEND; the third cause of action is 19 DISMISSED WITH LEAVE TO AMEND; and the fourth cause of action remains. 20 21 Dated: November 22, 2023 22 23 24 25 26 27 28 26 3:23-cv-01164-W-WVG
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