Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-00777/USCOURTS-casd-3_18-cv-00777-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441ds Removal- Contract Dispute

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

AHMAD ALKAYALI, an individual; and 

CERTIFIED NUTRACEUTICALS, 

INC., a California corporation, 

Plaintiffs,

v. 

ROBERT DEN HOED, an individual; 

MOLECULAR BIOLOGY 

INTERNATIONAL, INC., an Iowa 

corporation; and DOES 1 through 10, 

inclusive, 

Defendants.

Case No.: 3:18-cv-777-H-JMA

ORDER: 

(1)GRANTING IN PART AND 

DENYING IN PART MOTION 

TO DISMISS; and

(2)GRANTING LEAVE TO 

AMEND

[Doc. No. 2.]

On January 30, 2018, Plaintiffs Ahmad Alkayali and Certified Nutraceuticals, Inc. 

(“Plaintiffs”) filed a complaint against Defendants Robert den Hoed and Molecular 

Biology International, Inc. (“Defendants”) in the San Diego County Superior Court. (Doc. 

No. 1-2.) On April 20, 2018, Defendants removed that lawsuit to this District. (Doc. No. 

1.) On April 27, 2018, Defendants filed a motion to partially dismiss the complaint. (Doc. 

No. 2.) Plaintiffs partially opposed the motion on June 25, 2018, (Doc. No. 6), and 

Defendants filed a reply on July 9, 2018. (Doc. No. 7.) The Court submitted the motion 

on the papers on July 10, 2018. (Doc. No. 8.) For the reasons below, the Court grants the 

motion in part and denies it in part. 

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Background1

Plaintiff Ahmad Alkayali is a San Diego area resident and the CEO of Plaintiff 

Certified Nutraceuticals, Inc. (“CNI”), a California corporation. (Doc. No. 1-2 at ¶ 1.) 

Defendant Robert den Hoed is an Iowa resident and the President of Defendant Molecular 

Biology International, Inc. (“MBI”), an Iowa corporation. (Id. at ¶ 3.) 

“On or about February 21, 2013, Plaintiffs and Defendants entered [into] a contract 

titled ‘Exclusivity Agreement’ (the ‘Agreement’) wherefore all parties agreed that 

ownership of intellectual property right to U.S. Patent 8,344,106 (‘106 Patent’) would be 

owned between Plaintiffs and Defendants jointly and collectively.” (Id. at ¶ 8.) “Under 

the Agreement, MBI was to manufacture and sell products exclusively to [CNI] and [CNI] 

was to exclusively purchase products from MBI.” (Id. at ¶ 9.) The products at issue are 

collagen mixtures made from chicken eggshells and “used for many things such as the 

healing of wounds, the production of skin creams and shampoo, the treatment of 

osteoarthritis and osteoporosis, and as an additive for human and pet food.” (Doc. No. 2-

2 Ex. 1.) The Agreement specified that it would remain in force during the life of the 106 

Patent, which remains operative as of the time of this Order. (Doc. No. 1-2 at ¶ 10.)

In June of 2017, Plaintiffs allege that Defendants “breached the Agreement by 

selling” covered products “to third party marketers[.]” (Id. at ¶ 11.) Plaintiffs allege that 

Defendants’ breach deprived Plaintiffs of profits they were entitled to under the 

Agreement. (Id. at ¶ 12.) In this lawsuit, Plaintiffs bring claims for breach of contract, 

breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, 

and declaratory relief, and seek compensatory and equitable relief. (Id. at ¶¶ 14–35.)

Discussion

I. Legal Standards

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal 

 

1

 The following facts, drawn from the complaint, are assumed true in evaluating Defendants’ motion 

to dismiss. See, e.g., Fry v. Napoleon Cmty. Schs., 137 S. Ct. 743, 751 n.2 (2017). 

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sufficiency of the pleadings and allows a court to dismiss a complaint if the plaintiff has 

failed to state a claim upon which relief can be granted. See Conservation Force v. Salazar, 

646 F.3d 1240, 1241 (9th Cir. 2011). The parties agree that Federal Rule of Civil Procedure 

8(a)(2)’s plausibility standard governs Plaintiffs’ contract claims. 

The Supreme Court has explained that:

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a short and plain statement of the claim showing that the pleader is entitled to relief. As the Court held in [Bell Atlantic Corp. v. Twombley, 550 U.S. 544 (2007)], the pleading standard Rule 8 announces does not require detailed factual allegations, but it demands more than an unadorned, the-defendant- unlawfully-harmed-me accusation. A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will 

not do. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement. 

Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009) (citations, quotation marks, and brackets 

omitted).

However, Federal Rule of Civil Procedure 9(b)’s particularity standard governs 

Plaintiffs’ negligent misrepresentation claim. See, e.g., Miller v. Allstate Ins. Co., 489 F. 

Supp. 2d 1133, 1139 (S.D. Cal. 2007) (“Claims for negligent misrepresentation must meet 

the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).”); Patriot 

Sci. Corp. v. Korodi, 504 F. Supp. 2d 952, 965 (S.D. Cal. 2007). The Ninth Circuit has 

explained that:

Under Rule 9(b), a plaintiff must state with particularity the circumstances 

constituting fraud. This means the plaintiff must allege the who, what, when, 

where, and how of the misconduct charged, including what is false or 

misleading about a statement, and why it is false. Knowledge, however, may be pled generally.

Under [Ninth Circuit] case law, Rule 9(b) serves two principal purposes. First, allegations of fraud must be specific enough to give defendants notice 

of the particular misconduct which is alleged to constitute the fraud charged 

so that they can defend against the charge and not just deny that they have done anything wrong. Thus, perhaps the most basic consideration for a federal 

court in making a judgment as to the sufficiency of a pleading for purposes 

of Rule 9(b) is the determination of how much detail is necessary to give adequate notice to an adverse party and enable that party to prepare a 

responsive pleading.

Second, the rule serves to deter the filing of complaints as a pretext for the discovery of unknown wrongs, to protect defendants from the harm that 

comes from being subject to fraud charges, and to prohibit plaintiffs from 

unilaterally imposing upon the court, the parties and society enormous social 

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and economic costs absent some factual basis. By requiring some factual basis for the claims, the rule protects against false or unsubstantiated charges.

Consistent with these requirements, mere conclusory allegations of fraud are 

insufficient. Broad allegations that include no particularized supporting detail do not suffice, but statements of the time, place and nature of the alleged fraudulent activities are sufficient. Because this standard does not require absolute particularity or a recital of the evidence, a complaint need not allege a precise time frame, describe in detail a single specific transaction or identify the precise method used to carry out the fraud. 

United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016) (citations, 

quotation marks, alterations and footnote omitted).

In reviewing a Rule 12(b)(6) motion to dismiss, a district court must accept as true 

all facts alleged in the complaint, and draw all reasonable inferences in favor of the 

plaintiff. See Retail Prop. Tr. v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d 

938, 945 (9th Cir. 2014). But a court need not accept “legal conclusions” as true. Ashcroft, 

556 U.S. at 678. Further, it is improper for a court to assume the plaintiff “can prove facts 

which it has not alleged or that the defendants have violated the . . . laws in ways that have 

not been alleged.” Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of 

Carpenters, 459 U.S. 519, 526 (1983). In addition, a court may consider documents 

incorporated into the complaint by reference and items that are proper subjects of judicial 

notice.2

 See Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010).

If the court dismisses a complaint for failure to state a claim, it must then determine 

whether to grant leave to amend. See Doe v. United States, 58 F.3d 494, 497 (9th Cir. 

1995). “‘A district court may deny a plaintiff leave to amend if it determines that 

‘allegation of other facts consistent with the challenged pleading could not possibly cure 

the deficiency,’ or if the plaintiff had several opportunities to amend its complaint and 

 

2

 The Court grants Defendants’ request to take judicial notice of United States Patent No. 8,344,106 

B1 and the United States Patent and Trademark Office assignment abstract of title for United States Patent 

No. 8,344,106, as these are documents whose authenticity is not subject to reasonable dispute. (Doc. No. 

2-2.) See Fed. R. Evid. 201(b)(2). The Court denies Plaintiffs request to take judicial notice of the 

complaint filed before the Northern District of Iowa in Case No. 15-cv-4081-MWB, Molecular Biology 

International, Inc. v. Certified Nutraceuticals, Inc., because Plaintiffs failed to attach a copy of the 

document with their request. (Doc. No. 6-1.) 

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repeatedly failed to cure deficiencies.” Telesaurus VPC, LLC v. Power, 623 F.3d 998, 

1003 (9th Cir. 2010) (internal quotation marks and citations omitted).

II. Analysis

Defendants argue that Plaintiff Alkayali’s claims for breach of contract and breach 

of the implied covenant of good faith and fair dealing should be dismissed because Alkayali 

is not a party to the Agreement. (Doc. No. 2 at 9–11.) Defendants also argue that Plaintiffs’ 

negligent misrepresentation claim is invalid because it is predicated on Defendants’ 

promises of contractual performance, which are non-actionable predictions of future 

events. (Id. at 15–16.) Further, Defendants argue that Plaintiffs’ claim that the parties 

share joint ownership over the 106 Patent is implausible on its face. (Id. at 16–20.) Finally, 

Defendants ask the Court to dismiss Plaintiffs’ prayers for disgorgement of profits and 

attorneys’ fees, contending that those remedies are not available for breach of contract. (Id. 

at 20–21.)

Plaintiffs concede that Alkayali lacks standing to pursue contract claims against 

Defendants, and that attorneys’ fees are unavailable. (Doc. No. 6 at 6, 16.) However, 

Plaintiffs argue that their claims for negligent misrepresentation and declaratory relief are 

adequately pled. (Id. at 11–15.) Moreover, Plaintiffs argue that California courts have 

recognized disgorgement of profits as a contract remedy to prevent unjust enrichment. (Id. 

at 15–16.)

The Court accepts Plaintiffs’ concessions, and dismisses Alkayali’s contract claims 

against Defendants, as well as the complaint’s prayer for attorneys’ fees. Moreover, the 

Court agrees with Defendants’ that Plaintiffs’ negligent misrepresentation claim is invalid 

on its face. However, as explained below, the Court concludes that Plaintiffs have 

adequately pled their claim for declaratory relief, and that disgorgement of profits could be 

a valid remedy for Plaintiffs’ contract claims. The Court does not evaluate or dismiss 

CNI’s contract claims against MBI, because MBI did not put those claims at issue in its 

motion papers. 

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A. Choice of Law

The Court’s jurisdiction over Plaintiffs’ state law claims is based on diversity of 

citizenship. See 28 U.S.C. § 1332(a)(1). The Ninth Circuit has explained that:

The task of a federal court in a diversity action is to approximate state law as 

closely as possible in order to make sure that the vindication of the state right 

is without discrimination because of the federal forum. Federal courts are 

bound by the pronouncements of the state’s highest court on applicable state law. Similarly, a federal court is not free to reject a state judicial rule of law merely because it has not received the sanction of the state’s highest court, but 

it must ascertain from all available data what the state law is and apply it. An 

intermediate state appellate court decision is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by 

other persuasive data that the highest court of the state would decide 

otherwise. 

Kwan v. SanMedica Int’l, 854 F.3d 1088, 1093 (9th Cir. 2017) (citations, brackets, 

and internal quotation marks omitted); accord Pulte Home Corp. v. Am. Safety Indem. Co., 

264 F. Supp. 3d 1073, 1077–78 (S.D. Cal. 2017). 

The parties each note that either California or Iowa law could govern this dispute, 

but neither party takes a definite stance as to which state’s law should apply. The Court 

concludes that California law should govern the analysis of Defendants’ motion, but 

reserves the right to apply a different state’s law in subsequent proceedings based on facts 

developed during discovery. 

“Federal courts sitting in diversity look to the law of the forum state—here, 

California—when making choice of law determinations.” Nguyen v. Barnes & Noble Inc., 

763 F.3d 1171, 1175 (9th Cir. 2014). Plaintiffs’ complaint asserts both contract and tort 

claims. Under California’s choice of law rules, the law governing tort claims is determined 

by applying the three-part “governmental interest” test, while the law governing contract 

claims is determined by applying Civil Code § 1646. See Frontier Oil Corp. v. RLI Ins. 

Co., 153 Cal. App. 4th 1436, 1454–1460 (2007). In applying the governmental interest 

test, the Court “must first consider whether the two states’ laws actually differ; if so, [the 

Court] must examine each state’s interest in applying its law to determine whether there is 

a ‘true conflict’; and if each state has a legitimate interest [the Court] must compare the 

impairment to each jurisdiction under the other’s rule of law.” Arno v. Club Med Inc., 22 

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F.3d 1464, 1468 (9th Cir. 1994). On the other hand, Civil Code § 1646 provides that a 

“contract is to be interpreted according to the law and usage of the place where it is to be 

performed; or, if it does not indicate a place of performance, according to the law and usage 

of the place where it is made.”

Here, the present record does not permit the Court to apply either of these tests. The 

parties have not taken a position as to whether California or Iowa law should govern 

Plaintiffs’ tort claims, and so the Court cannot faithfully apply the governmental interest 

test. Moreover, the Agreement does not indicate a place of performance, and the record 

contains no evidence as to where it was made; the Court therefore cannot apply Civil Code 

§ 1646. Accordingly, the Court must apply California law by default. See, e.g., CRS 

Recovery, Inc. v. Laxton, 600 F.3d 1138, 1142 (9th Cir. 2010) (“As a default, the law of 

the forum state will be invoked . . . .”). However, the Court reserves the right to change 

this determination for subsequent proceedings if either party makes a persuasive showing 

under the governmental interest test or § 1646 that Iowa law should apply to some or all of 

Plaintiffs’ claims. 

B. Negligent Misrepresentation

Under California law, the “elements of negligent misrepresentation are (1) the 

misrepresentation of a past or existing material fact, (2) without reasonable ground for 

believing it to be true, (3) with intent to induce another's reliance on the fact 

misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting 

damage.” Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 

226, 243 (2007). The complaint alleges that Defendants’ contractual representation that 

MBI would sell collagen products derived from the 106 Patent “exclusively to Plaintiffs” 

was negligent because “Defendants made this representation without reasonable grounds 

for believing it was true since [MBI] thereafter sold [the collagen products] to Third Party 

Marketers in direct violation of the Agreement.” (Doc. No. 1-2 at ¶ 27.) 

Defendants argue that the complaint fails to state a plausible negligent 

misrepresentation claim because: (i) predictions about future contractual performance, 

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rather than past or existing facts, generally cannot form the basis of a negligence claim; 

(ii) the complaint does not demonstrate justifiable reliance; and (iii) only professionals who 

provide information for a living—like lawyers and accounts—can be liable for negligent 

misrepresentations. (Doc. No. 2 at 15–16; Doc. No. 7 at 8.) Plaintiffs argue that 

Defendants’ contractual representations are actionable because they implied that Plaintiffs 

intended to perform the contract at the time it was made, when in fact they had no intention 

of performing. (Doc. No. 6 at 12–13.)

The Court agrees with Defendants. “To be actionable, a negligent misrepresentation 

must ordinarily be as to past or existing material facts. Predictions as to future events, or 

statements as to future action by some third party, are deemed opinions, and not actionable 

fraud.” Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 159 (1991) 

(alteration, quotation marks, and citation omitted). Here, the complaint alleges that 

Defendants’ contractual representations were made “without reasonable grounds for 

believing [they were] true” simply because MBI later breached the Agreement. (Doc. No. 

1-2 at ¶ 27.) However, any statements Defendants made that MBI would perform its 

obligations under the agreement necessarily “involved a promise to perform at some future 

time,” and thus cannot form the basis of a negligent misrepresentation claim. Tarmann, 2 

Cal. App. 4th at 159. 

Moreover, even if the Court were to disregard Rule 9(b)’s particularity requirement 

and read the complaint as alleging that MBI had no intent to perform at the time it entered 

the Agreement, Plaintiffs’ claim would still fail. “Although a false promise to perform in 

the future can support an intentional misrepresentation claim, it does not support a claim 

for negligent misrepresentation.” Stockton Mortg., Inc. v. Tope, 233 Cal. App. 4th 437, 

459 (2014) (emphasis in original). Because a claim based on a false promise—i.e., actual 

fraud—requires proof of specific fraudulent intent, California law “precludes pleading a 

false promise claim as a negligent misrepresentation[.]” Tarmann, 2 Cal. App. 4th at 864. 

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The Court accordingly dismisses Plaintiffs’ negligent misrepresentation claim.3

C. Declaratory Relief

Defendants next argue that the complaint fails to plead a plausible claim for 

declaratory relief. (Doc. No. 2 at 16.) The Agreement contains a clause stating as follows:

Whereas [BMI] and [CNI] jointly and collectively are the owner of certain 

intellectual properties specifically known as US Patent 8,344,106 B1, 

kollaGen II-xs, kollaGen I.V.X, and TendoGuard (hereinafter the Products)[.] 

(Doc. No. 1-2, Ex. A) (“Whereas Clause”). Plaintiffs seek a declaration based on this 

clause that the Agreement makes Plaintiffs joint owners of the 106 Patent with Defendants. 

(Doc. No. 1-2 at ¶ 33.) Defendants argue that the Whereas Clause is insufficient evidence 

to show that Defendants intended to assign their ownership rights in the 106 Patent with 

Plaintiffs. (Doc. No. 2 at 16–20.) Defendants further point out that the Exclusivity 

Agreement would not have been necessary at all if Plaintiffs held joint ownership rights in 

the 106 Patent. (Id.) 

Defendants’ arguments have considerable persuasive force. Nevertheless, the Court 

concludes that dismissing Plaintiffs’ claim for declaratory relief would be inappropriate at 

this stage. Defendants’ own briefing recognizes that the Whereas Clause is “ambiguouslyworded.” (Doc. No. 2 at 17.) Cf. Scheenstra v. Cal. Dairies, Inc., 213 Cal. App. 4th 370, 

389 (2013) (a contract is ambiguous when it is “reasonably susceptible to more than one 

interpretation”). The Court concludes that a trier of fact could reasonably interpret the 

Whereas Clause as evincing an intent for the parties to share joint ownership of the 106 

Patent, depending on what other evidence of intent is developed during discovery. The 

 

3

 Because the Court agrees that Defendants’ contractual promises cannot form the basis of a 

negligent misrepresentation claim under Tarmann and Stockton, the Court does not address Defendants’ 

additional arguments that the complaint does not plead justifiable reliance, and that only professional 

information-providers can be liable for negligent misrepresentations. As an additional reason for 

declining to address the latter argument, the Court notes that while Defendants made this argument under 

Iowa law in their opening brief, they failed to raise the issue under California law until their reply brief. 

See, e.g., Little v. Gore, 148 F. Supp. 3d 936, 944 n.2 (S.D. Cal. 2015) (collecting cases for the proposition 

that arguments raised in a reply brief, but not in memorandum of points and authorities attached to a 

motion to dismiss, are waived). 

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Court will thus decline to dismiss this claim on the pleadings. 

D. Disgorgement of Profits and Attorneys’ Fees

The complaint seeks both disgorgement of profits and attorneys’ fees, among other 

things, as remedies for Defendants’ alleged breach of contract. (Doc. No. 1-2 at 7.) 

Defendants argue that neither of these remedies are available for breach of contract. (Doc. 

No. 2 at 20–21.) Plaintiffs concede that they cannot recover attorneys’ fees, but argue that 

disgorgement is available under common law principles regarding restitution and unjust 

enrichment. (Doc. No. 6 at 15–16.) 

The Court agrees with Plaintiffs. California law permits plaintiffs to seek 

disgorgement of a defendant’s unjust enrichment as a restitutionary remedy for breach of 

contract.4

 See, e.g., Hernandez v. Lopez, 180 Cal. App. 4th 932, 939 (2009) (holding that 

“a plaintiff” may “seek compensation under an unjust enrichment theory . . . based on the 

pleaded cause of action for breach of contract”); Dunkin v. Boskey, 82 Cal. App. 4th 171, 

198 (2000) (same); 1 Witkin, Summary 11th Contracts § 1050 (2018) (“Restitution may 

also be awarded in contract actions . . . .”). “While the paradigm case of unjust enrichment 

is one in which the benefit on one side of the transaction corresponds to an observable loss 

on the other, the consecrated formula ‘at the expense of another’ can also mean ‘in violation 

of the other's legally protected rights,’ without the need to show that the claimant has 

suffered a loss.” Restatement (3d) of Restitution and Unjust Enrichment § 1 cmt. a (2011).5

 

Thus, for example, a plaintiff may require a defendant to “disgorg[e] its unjust enrichment” 

 

4

 The terms “disgorgement,” “unjust enrichment,” and “restitution,” although formally distinct, have 

confusing and often overlapping meanings within the law. It is not necessary for the Court to engage in a 

lengthy discussion of these terms here. In this context, disgorgement and unjust enrichment are 

synonymous, and both describe a species of equitable relief available under the broader heading of 

restitutionary remedies. For more discussion of these concepts, see Ajaxo Inc. v. E*Trade Group, Inc., 

135 Cal. App. 4th 21, 56–57 (2005), 1 Witkin, Summary 11th Contracts § 1050 (2018), and the comments 

to § 1 of the Third Restatement of Restitution and Unjust Enrichment. 

5

 California courts follow the general principles stated in the Restatement of Restitution and Unjust 

Enrichment in the absence of any contradictory statutory or decisional authority. See, e.g., First 

Nationwide Savings v. Perry, 11 Cal. App. 4th 1657, 1663 (1992); 1 Witkin, Summary 11th Contracts 

§ 1052 (2018). 

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as a remedy for breach of a non-disclosure agreement in order to restore the plaintiff “to as 

good as a position as that occupied by him before the contract was made.” Ajaxo Inc. v. 

E*Trade Group, Inc., 135 Cal. App. 4th 21, 56–57 (2005) (footnote omitted). The general 

theory in such cases is that “‘because X was unjustly enriched when it failed to uphold the 

contract, X must make restitution.’” Id. at 56 (quoting 1 Corbin on Contracts § 1.20) 

(brackets and first and third alterations omitted).

Here, Plaintiffs’ breach of contract theory is simple: Defendants’ enjoyed the 

benefits of the Exclusivity Agreement without upholding their end of the bargain. Cf. Cal. 

Civil Code § 3521 (“He who takes the benefit must bear the burden.”). To the extent 

Defendants’ alleged breach resulted in unjust enrichment, Plaintiffs may seek 

disgorgement as a remedy.6

 Ajaxo, 135 Cal. App. 4th at 57. However, per Plaintiffs’ 

concession, the Court dismisses the complaint’s prayer for attorney fees. 

E. Leave to Amend

As explained above, the Court dismisses Plaintiffs’ negligent misrepresentation 

claim as failing to articulate a valid legal theory. The Court also dismisses Alkayali’s 

contract claims Defendants’ and Plaintiffs’ prayer for attorneys’ fees, because Plaintiffs 

conceded that those claims are inadequately pled. The Court does not dismiss CNI’s 

contract claims against MBI because Defendants did not seek dismissal of those claims,

does not dismiss Plaintiffs’ claim for declaratory relief because it is adequately pled, and 

does not dismiss Plaintiffs’ prayer for disgorgement of profits because disgorgement could 

potentially be a valid contract remedy if Plaintiffs are able to prove their claims. 

Plaintiffs request leave to amend their dismissed claims. The Ninth Circuit has 

“consistently . . . held that leave to amend should be granted unless the district court 

‘determines that the pleading could not possibly be cured by the allegation of other facts.’” 

 

6

 Disgorgement is an equitable—and thus discretionary—remedy. See, e.g., S.E.C. v. First Pac. 

Bancorp, 142 F.3d 1186, 1192 (9th Cir. 1998). Whether Plaintiffs can ultimately demonstrate that 

disgorgement is appropriate in this case will depend on equitable considerations that cannot be evaluated 

at this early stage. 

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U.S. ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir. 2001) (quoting 

Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)). Here, the Court concludes that each 

of Plaintiffs’ dismissed legal theories could be salvaged by the pleading of additional facts, 

or by re-working the claims to address the legal defects noted in this Order as well as those 

conceded by Plaintiffs in their briefing. The Court therefore directs Plaintiffs to file an 

amended complaint on or before August 17, 2018. At a minimum, for ease of case 

management, the amended complaint should delete any claims or prayers for relief that 

Plaintiffs are no longer asserting. 

Conclusion

For the foregoing reasons, the Court grants Defendants’ motion to dismiss in part 

and denies it in part, and grants leave to amend. Specifically, the Court dismisses 

Alkayali’s contract claims against Defendants, Plaintiffs’ negligent misrepresentation 

claim, and Plaintiffs’ prayer for attorneys’ fees. The Court does not dismiss CNI’s contract 

claims against MBI, Plaintiffs’ claims for declaratory relief, or Plaintiffs’ prayer for 

disgorgement of profits. The Court orders Plaintiffs to file an amended complaint on or 

before August 17, 2018. 

IT IS SO ORDERED.

DATED: July 16, 2018 

 

 MARILYN L HUFF, District Judge

 UNITED STATES DISTRICT COURT

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