Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-02079/USCOURTS-casd-3_12-cv-02079-1/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1121 Trademark Infringement

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

VALVOLINE INSTANT OIL CHANGE

FRANCHISING, INC.; ASHLAND

CONSUMER MARKETS, a commercial

unit of ASHLAND, INC.; ASHLAND

LICENSING AND INTELLECTUAL

PROPERTY LLC; HENLEY

ENTERPRISES, INC.; HENLEY PACIFIC

LLC; HENLEY PACIFIC LA LLC; and

HENLEY PACIFIC SD LLC,

 Plaintiffs,

CASE NO. 12-cv-2079-GPC-KSC

ORDER GRANTING IN PART

AND DENYING IN PART

COUNTER-DEFENDANTS’

MOTION TO DISMISS RFG’S

COUNTERCLAIM

[ECF No. 58.]

vs.

RFG OIL, INC.,

 Defendant,

___________________________________

_

RFG OIL, INC.,

 Counter-Claimant,

vs.

VALVOLINE INSTANT OIL CHANGE

FRANCHISING, INC.; ASHLAND

CONSUMER MARKETS, a commercial

unit of ASHLAND, INC.; ASHLAND

LICENSING AND INTELLECTUAL

PROPERTY LLC; HENLEY

ENTERPRISES, INC.; HENLEY PACIFIC

LLC; HENLEY PACIFIC LA LLC; and

HENLEY PACIFIC SD LLC,

 

 Counter-Defendants.

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INTRODUCTION

The instant case was filed by Plaintiffs Valvoline Instant Oil Change

Franchising, Inc. (“VIOCF”), Ashland Consumer Markets, a commercial unit of

Ashland, Inc. (“Ashland”) , Ashland Licensing and Intellectual Property LLC 1

(“ALIP”), Henley Enterprises, Inc., Henley Pacific, LLC, Henley Pacific LA LLC, and

Henley Pacific SD LLC (collectively “Plaintiffs”) against Defendant RFG Oil, Inc.

(“RFG”) on February 8, 2012 in the United States DistrictCourt for the Eastern District

of Kentucky, and transferred to this Court on August 22, 2012 pursuant to 28 U.S.C.

§ 1404(a). (ECF No. 42.) On September 5, 2012, RFG filed a Counterclaim against

all Plaintiffs. (ECF No. 47.) Presently before the Court is the Motion of Valvoline

Instant Oil Change Franchising, Inc., Ashland Consumer Markets, and Ashland

Licensing and Intellectual Property LLC (collectively the “VIOCF CounterDefendants”) to dismiss five counts of RFG’s Counterclaim: the First Count for breach

of contract; the Fourth Count for intentional interference with prospective economic

advantage; the Fifth Count for breach of confidence; the Sixth Count for fraudulent

misrepresentation; and the Seventh Count for breach of implied covenant of good faith

and fair dealing. (ECF No. 58.) Having considered the parties’ submissions and for

the reasons set forth below, the Court GRANTS the VIOCF Counter-Defendants’

Motion to Dismiss as to Counts One, Five, Six, and Seven, and DENIES the VIOCF

Counter-Defendants’ Motion to Dismiss as to Count Four.

BACKGROUND2

In 1990, RFG opened its first location as a Valvoline Instant Oil Change

franchisee with VIOCF as franchisor. By 2011, RFG owned and operated

approximately forty (40) oil change and quick lube centers in and around Southern

Ashland is otherwise known as “Valvoline” and does business as “Valvoline

1

Instant Oil Change.”

The factual information in thissection istaken fromRFG’s Counterclaim. (ECF 2

No. 47.)

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California, all of which were Valvoline Instant Oil Change franchises. Each of RFG’s

franchise locations was governed by a series of License Agreements, Sign and

Equipment Leases, and Supply Agreements (collectively referred to as “Valvoline

Agreements”) that were entered into between RFG and VIOCF, Ashland, and ALIP.

Pursuant to each of the License Agreements, VIOCF promised not to grant a

license to another Valvoline franchisee within a two mile radius of the store to which

the License Agreement pertained. Furthermore, from about 1991 to 1999 VIOCF and

RFG entered into a Development Agreement in which “VIOCF granted RFG exclusive

rights to all of San Diego County and portions of Los Angeles County.” (ECF No. 47

¶ 22.) Although VIOCF did not renew the Development Agreement after 1999,

“VIOCF verbally assured RFG that it would continue to have exclusive rights to San

Diego County.” (Id. ¶ 23.) From 1999 to 2010, VIOCF advised RFG of preliminary

discussions with potential franchisees in Southern California, and would not grant

franchise licenses to potential franchisees if RFG objected to the location as an

encroachment on RFG’s territory. 

In late 2010, RFG acquired 16 new Valvoline franchises for the Southern

California market. As part of the transaction, “VIOCF agreed to provide RFG with

substantial financial assistance, cash incentives, credits to amounts due VIOCF and

Ashland, and commitments for future financial assistance for replacing the signs for

the 16 new Valvoline stores.” (Id. ¶ 28.) However, RFG alleges “VIOCF failed to

provide the promised financial assistance for the new locations and RFG began to

experience financial struggles.” (Id. ¶ 29.)

In late 2010, the Henley defendants, another VIOCF franchisee primarily 3

operating on the EastCoast, Florida and the Midwest, began communicating an interest

to VIOCF about expanding its store locations to Southern California. Specifically,

Henley wanted to purchase seventy-two (72) EZ-Lube store locations in Southern

Henley Enterprises, Inc., Henley Pacific LLC, Henley Pacific LA LLC, and

3

Henley Pacific SD LLC shall be referred to herein as “Henley.”

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California and convert them to Valvoline franchises. At least fourteen (14) of the

desired EZ-Lube locations were located within a two mile radius of an RFG Valvoline

franchise, which prevented Henley from converting all 72 EZ-Lube locations into

Valvoline franchises while the RFG-VIOCF License Agreements were still in force.

In late 2010, Henley began negotiating with RFG for the purchase of RFG’s

Valvoline locations. Henley represented that it wanted to enter into a new venture with

RFG, and that as part of this venture RFG would own and operate RFG’s locations as

well asthe 72 EZ-Lube locations. However, RFG alleges Henley never wanted to enter

into a new venture with RFG and simply wanted to acquire RFG’s locations at the

lowest possible cost. Furthermore, RFG alleges “VIOCF conspired with Henley to oust

RFG fromtheSouthern California market by wrongfully attempting to terminate RFG’s

license agreements and withholding VIOCF’s normal financial support to its

franchisee, RFG” because VIOCF would “greatly benefit” from Henley entering the

Southern California market. (Id. ¶ 3.)

In January 2011, VIOCF notified RFG of an alleged breach of the Valvoline

Agreements, based on RFG’s alleged failure to timely pay for products from VIOCF. 

RFG disputed that it was in breach of the Valvoline Agreements.

During the twenty-three (23) years that RFG had been a Valvoline franchisee,

RFG had occasionally been unable to pay VIOCF in full pursuant to the terms of the

Valvoline Agreements. On each ofthose prior occasions RFG and Valvoline were able

to negotiate extensions, credits, or financing so that VIOCF was ultimately paid in full

by RFG. This time, however, VIOCF demanded that RFG commence paying in

advance for VIOCF products. In addition, “VIOCF assured RFG that it would not take

action on the alleged breaches, as long as RFG continued negotiating with Henley

regarding the sale of the RFG locations and RFG continued to pay VIOCF for royalties

and product purchases.” (Id. ¶ 45.)

Subsequently, RFG pre-paid for Valvoline products that were not delivered. In

addition, VIOCF “over-charged RFG for products and VIOCF refused to adjust the

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prices.” (Id. ¶ 46.) This led RFG to purchase Valvoline productsfrom other merchants

at retail prices, after it had already pre-paid for a product that was never delivered,

resulting in severe financial hardship for RFG in the daily operations of its Valvoline

locations.

Further, RFG alleges “VIOCF was providing Henley with confidential

information regarding RFG’s business operations including, but not limited to, daily

car count averages, its average ticket, RFG’s negotiation strategy (which RFG gad [sic]

previously disclosed to VIOCF in confidence) and RFG’s financial information in

order to give Henley an advantage over RFG.” (Id. ¶ 49.)

By late 2011, Henley needed to finalize its purchase of the 72 EZ-Lube

locations, but Henley could not convert all of these locations to Valvoline franchises

because RFG had not transferred its locations to Henley. 

On November 29, 2011, VIOCF informed RFG that it would “terminate” RFG’s

License Agreements effective November 30, 2011. VIOCF told RFG that Ashland

demanded immediate payment of over $14 million and would take immediate action

to close RFG’s remaining Valvoline locations, but that if RFG signed a termination

agreement and executed a “We Feature Agreement,” RFG could have a ninety (90) day

4

extension on the closing of the Valvoline stores.

RFG was told that it had until December 5, 2011 at noon to execute the

documents. RFG had several conversations with VIOCF representatives regarding the

agreements and requested modifications, but RFG never executed the final documents.

On December 5, 2011, three hours after the noon deadline passed, and not

having received the executed agreements from RFG, VIOCF and Ashland presented

RFGwith a revised Termination Agreement and We Feature Agreement. On December

6, 2011, David Gong, one of two shareholders for RFG, executed the Termination

agreement and the We Feature Agreement, subject to modifications that Mr. Gong

A “We Feature Agreement” allows stores to carry Valvoline products without 4

being a franchisee.

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made to the We Feature Agreement. Jeff Gong, the other shareholder of RFG, did not

execute either agreement. As a guarantor of the Valvoline Agreements, Jeff Gong’s

signature was required on the Termination Agreement.

On December 6, 2011, “VIOCF and Ashland rejected the modifications made to

the We Feature Agreement and demanded that RFG execute an unmodified version.”

(Id. ¶ 60.) However, from December 6, 2011 to December 14, 2011, VIOCF and

Ashland negotiated with RFG over modifications to the We Feature Agreement.

On December 14, 2011, Ashland executed the modified We Feature Agreement

that it had previously rejected. But on December 16, 2011, “Ashland stated it

disagreed with and rejected RFG’s modifications and repudiated the document.” (Id.

¶ 63.)

Thereafter, the parties “maintained the status quo and RFG continued its

operations of its locations in the same manner it had for the last 23 years. During this

period, RFG and Henley continued their negotiationsto form a joint venture or to have

Henley acquire RFG’s locations.” (Id. ¶ 64.)

In February 2012, “RFG learned of Henley’s impending deal to close on the 72

EZ Lube locations and that Henley was now refusing to pay any compensation to RFG

to acquire its stores.” (Id. ¶ 65.) This information led RFG to believe that Henley had

not been negotiating with RFG with the intention of ever purchasing the RFG stores

in good faith.

On or about February 6, 2012, RFG sent a letter notifying VIOCF, Ashland, and

Henley that RFG still considered itself a Valvoline franchisee, and that as such “RFG

had substantial rights which would be violated by Henley’s acquisition of the EZ Lube

Locations.” (Id. ¶ 66.)

On February 8, 2012, VIOCF, Ashland and Henley filed this action against RFG

in the Eastern District of Kentucky, alleging trademark infringement, unfair

competition, breach of contract, tortious interference, and breach of implied covenant

of good faith and fair dealing. (ECF No. 1.) 

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On September 5, 2012, RFG filed a Counterclaim against all Plaintiffs. (ECF

No. 47.) In its Counterclaim, RFG lists ten Counts: (1) breach of contract asto VIOCF,

Ashland, and ALIP; (2) declaratory relief as to VIOCF, Ashland, and ALIP that the

Valvoline Agreements are enforceable; (3) declaratory relief as to VIOCF, Ashland,

and ALIP that the We Feature Agreement was never enforceable; (4) intentional

interference with prospective economic advantage as to VIOCF, Ashland, and ALIP;

(5) breach of confidence as to VIOCF and Ashland; (6) fraudulent misrepresentation

asto VIOCF, Ashland, and ALIP; (7) breach of implied covenant of good faith and fair

dealing as to VIOCF, Ashland, and ALIP; (8) misappropriation of trade secret as to

VIOCF, Ashland, and ALIP; (9) intentional interference with prospective economic

advantage as to Henley; and (10) breach of confidence as to Henley. (Id.)

LEGAL STANDARD

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

sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “To

survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.

544. 547 (2007)). In reviewing a motion to dismiss under Rule 12(b)(6), the court

assumes the truth of all factual allegations and must construe all inferences from them

in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890,

895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.

1996). Legal conclusions, however, need not be taken as true merely because they are

cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th

Cir. 2003); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). A claim is

facially plausible when the factual allegations permit “the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at

678.

Where a motion to dismiss is granted, “leave to amend should be granted ‘unless

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the court determines that the allegation of other facts consistent with the challenged

pleading could not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc.,

957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well

Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to

amend would be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at

658.

DISCUSSION

The VIOCF Counter-Defendants move to dismiss five counts of RFG’s

Counterclaim: the First Count for breach of contract; the Fourth Count for intentional

interference with prospective economic advantage; the Fifth Count for breach of

confidence; the Sixth Count for fraudulent misrepresentation; and the Seventh Count

for breach of implied covenant of good faith and fair dealing. (ECF No. 58.) For the

reasons stated below, the VIOCF Counter-Defendants’ Motion must be granted as to

all claims except for RFG’s Fourth Count for intentional interference with prospective

economic advantage.

I. Breach of Contract

The VIOCF Counter-Defendants argue that RFG failsto state a claim for breach

of contract against the VIOCF Counter-Defendants because “RFG has not properly

pled verbatim the material terms of the contract (or attached a copy of the contract)

upon which the cause of action against VIOCF Counter-Defendants is based.” (ECF

No. 58 at 2:17-24.) RFG argues that RFG is not required by the Federal Rules of Civil

Procedure to attach a contract to its complaint, and that attaching the relevant contract

for each RFG location involved in this dispute would be overly burdensome and

inefficient. (ECF No. 66 at 13:1-22.)

To state a claim for breach of contract, a plaintiff must plead the existence of the

contract, plaintiff’s performance (or excuse for nonperformance), defendant’s breach, 

and damage to plaintiff resulting from defendant’s breach. Low v LinkedIn Corp., 900

F. Supp. 2d 1010, 1028 (N.D. Cal. 2012) (quoting Gautier v. General Tel. Co., 234 Cal.

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App. 2d 302, 305 (1965)). Furthermore, “if the action is based on an alleged breach

of a written contract, the terms must be set out verbatim in the body of the complaint

or a copy of the written instrument must be attached and incorporated by reference.” 

Otworth v. S. Pac. Transp. Co., 212 Cal. App. 3d 452, 459 (1985).

Here, RFG fails to state a claim for breach of contract because RFG has not

attached the relevant contract to its complaint or included verbatim the terms RFG

alleges were breached by the VIOCF Counter-Defendants. In its Opposition, RFG cites

a First Circuit case, Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 n.3 (1st

Cir. 1991), for the proposition that RFG is not required to attach the contract to its

counterclaim. (ECF No. 66 at 13.) However, the court in Romani merely addressed

whether the defendant in that case could properly introduce documents in a motion to

dismiss without converting the motion into one for summary judgment. Romani, 929

F.2d at 879 n.3. As the VIOCF Counter-Defendants note in their Reply to RFG’s

Opposition, various other District Courts in this state have upheld the rule in Otworth. 

See, e.g., Ayala v. Bank of America, No. 09cv1946-BTM (NLS), 2010 WL 1568577

at *2 (S.D. Cal. Apr. 16, 2010); Yanik v. Countrywide Home Loans, Inc., No. CV 10-

6268 CAS(RZx), 2010 WL 4256312 at *4 (E.D. Cal. Oct. 18, 2010).

RFG also argues that adhering to the rule in Otworth would be “overly

burdensome” and “inefficient.” (ECF No. 66 at 13:18-19.) However, RFG cites no

authority for the proposition that an abundance of documents may excuse a party from

attaching such documents to its pleading or including the verbatim terms relevant to

the party’s claimfor breach of contract. RFG’s argument is also unpersuasive because,

as RFG itself points out in its Opposition, the contracts between RFG and the VCIOF

Counter-Defendants were “virtually identical in most situations.” (ECF No. 66 at

13:15.) If the contracts pertaining to the various RFG Valvoline locations are indeed

virtually identical, then the terms RFG claims were breached by the VIOCF CounterDefendants may be the same across all of the contracts, in which case RFG could

simply include such terms verbatim in the body of its complaint. Furthermore, the fact

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that Plaintiffs attached representative contracts to their First Amended Complaint

against RFG and identified the relevant provisions RFG allegedly breached lends

credence to the VIOCF Counter-Defendants’ argument that it would not be overly

burdensome for RFG to do the same. (ECF No. 59-1 Ex. A-G.)

Because RFG has failed to put the VIOCF Counter-Defendants on notice by

specifying the verbatim terms the VIOCF Counter-Defendants allegedly breached or

attaching the relevant contracts to its Counterclaim, RFG has not adequately stated a

claim for breach of contract against the VIOCF Counter-Defendants.

II. Intentional Interference with Prospective Economic Advantage

The VIOCF Counter-Defendants argue that RFG fails to state a claim for

intentional interference with prospective economic advantage because the VIOCF

Counter-Defendants “are not strangers or outsiders capable of wrongfully interfering

with” the negotiation between RFG and Henley that serves as the basis for RFG’s

claim, and therefore “are legally privileged to assert their rights with respect to their

own franchise.” (ECF No. 58 at 2-3.) RFG argues that the argument put forth by the

VIOCF Counter-Defendants does not apply to this case because the actions taken by

the VIOCF Counter-Defendants “were both wrongful and intended to harm RFG.” 

(ECF No. 66 at 9-10.)

A defendant may be liable for intentional interference with prospective economic

advantage where plaintiff shows: “(1) an economic relationship between plaintiff and

a third party, with the probability of future economic benefit to the plaintiff; (2)

defendant's knowledge of the relationship; (3) an intentional act by the defendant,

designed to disrupt the relationship; (4) actual disruption of the relationship; and (5)

economic harm to the plaintiff proximately caused by the defendant's wrongful act,

including an intentional act by the defendant that is designed to disrupt the relationship

between the plaintiff and a third party.” Edwards v. Arthur Andersen LLP, 44 Cal. 4th

937, 944 (2008). 

However, one who has a financial interest in the business of another may

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intentionally cause the other not to enter into a contractual relation with a third party

without being held liable for intentional interference with prospective economic

advantage as long as the actor “does not employ wrongful means” and “acts to protect

his interest from being prejudiced by the relation.” Hamro v. Shell Oil Co., 674 F.2d

784, 789-90 (9th Cir. 1982) (quoting Restatement (Second) of Torts § 769 (1979)). 

The type of financial interest privileged by this rule is “‘an interest in the nature of an

investment,’ such as that of a part owner, a partner or a stockholder.” Id. at 790

(quoting Restatement (Second) of Torts § 769 cmt. c). Because privilege is an

affirmative defense which defendants have the burden of proving, Robinson v. State

Farm Ins., C 94 3304 TEH, 1996 WL 31850 at *3 (N.D. Cal. Jan. 16, 1996), and the

issue of whether a defendant employed wrongful means or acted to harm the plaintiff

often turns on the defendant’s state of mind, the existence of the privilege “cannot

normally be satisfactorily determined on the basis of pleadings alone.” Sade Shoe Co.

v. Oschin & Snyder, 162 Cal. App. 3d 1174, 1181 (1984) (quoting Culcal Stylco, Inc.

v. Vornado, Inc., 26 Cal. App. 3d 879, 883 (1972)).

Here, the VIOCF Counter-Defendants do not dispute that RFG has pled facts

sufficient to state a prima facie claim for intentional interference with prospective

economic advantage, but rather argue that RFG fails to state a claim because the

VIOCF Counter-Defendants’ actions were privileged. (ECF Nos. 58, 67.) Because

privilege is an affirmative defense and the issue of whether the VIOCF CounterDefendants acted to cause harm to RFG depends on the VIOCF Counter-Defendants’

motive, it would be inappropriate for the Court to decide the issue at this stage in the

litigation. Thus, the VIOCF Counter-Defendant’s motion to dismiss RFG’s

counterclaim must be denied as it pertains to RFG’s cause of action for intentional

interference with prospective economic advantage.

III. Breach of Confidence

The VIOCF Counter-Defendants argue that RFG failsto state a claim for breach

of confidence as to the VIOCF Counter-Defendants because “RFG’s breach of

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confidence claim is based on the same nucleus of facts as RFG’s claim for

misappropriation of trade secrets” and is thus preempted by the California Uniform

Trade Secrets Act (“CUTSA”). (ECF No. 58-1 at 9-10.) RFG argues that the claims

for breach of confidence and misappropriation of trade secrets are not based on the

same nucleus of facts because the breach of confidence claim involves not only the

alleged disclosure of confidential customer lists but also the alleged disclosure of

financial information. (ECF No. 66 at 11.)

The CUTSA does not affect “civil remedies that are not based upon

misappropriation of a trade secret.” Cal. Civ. Code § 3426.7. Under California law,

this means that the CUTSA does supersede other civil remedies to the extent that a

party’s claim for relief is based on the same nucleus of facts as a claim for

misappropriation of trade secrets. K.C. Multimedia, Inc. v. Bank of Am. Tech. &

Operations, Inc., 171 Cal. App. 4th 939, 958 (2009); Digital Envoy, Inc. v. Google,

Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005). Furthermore, the CUTSA

supersedes other civil remedies where the claim for relief is based on the

misappropriation of confidential or proprietary information, even if such information

failsto qualify as a trade secret under the CUTSA. SunPower Corp. v. SolarCity Corp.,

12-CV-00694-LHK, 2012 WL 6160472 at *7 (N.D. Cal. Dec. 11, 2012); Silvaco Data

Sys. v. Intel Corp., 184 Cal. App. 4th 210, 239 n.22 (2010) (disapproved of on other

grounds by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011)). Although a

displacement provision contained in the Model UniformTrade Secrets Act(“MUTSA”)

may allow plaintiffs in other jurisdictions to maintain separate causes of action where

a claim for relief includes other factual allegations in addition to misuse or

misappropriation of trade secrets, “California has rejected that particular provision of

the uniform act in favor of an entirely different one.” K.C. Multimedia, 171 Cal. App.

4th at 956-59 (rejecting a “narrow interpretation of preemption” with respect to the

CUTSA and holding that plaintiff’s claims for breach of confidence, interference with

contract, and unfair competition were preempted by the CUTSA despite added factual

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allegations in those claims).

Here, RFG’s cause of action for breach of confidence as to the VIOCF CounterDefendants is based on the allegation that the VIOCF Counter-Defendants provided

Henley with RFG’s confidential customer lists, as well as financial performance

information for each of RFG’s locations, in an attempt to oust RFG from the Southern

California market. (ECF No. 47 at 11-12.) RFG’s claim for misappropriation of trade

secrets, meanwhile, is based solely on the VIOCF Counter-Defendants’ alleged

disclosure to Henley of RFG’s confidential customer lists. (Id. at 13 ¶ 109.) However,

given that the California legislature rejected an approach to the MUTSA that would

allow RFG to maintain separate causes of action in this type of situation, the added

factual allegations in RFG’s breach of confidence cause of action are insufficient to

differentiate it from RFG’s claim of misappropriation of trade secrets and thus both

claims are based on the same nucleus of facts. Therefore, RFG’s claim for breach of 5

confidence asto the VIOCF Counter-Defendantsis preempted by the CUTSA and must

be dismissed.

IV. Fraudulent Misrepresentation

The VIOCF Counter-Defendants argue that RFG fails to state a claim for

fraudulent misrepresentation (1) because RFG’s claim is improperly based upon

alleged promises concerning future actions rather than statements involving past or

existing facts, and (2) because RFG fails to “put the VIOCF [Counter-]Defendants on

notice as to who allegedly made [fraudulent] representations to RFG, or under what

authority that individual(or individuals) purported to speak (or write).” (ECF No. 58-1

at 10-11.) RFG argues that allegedly fraudulent statements made to RFG about what

VIOCF intended to do constitute representations of existing facts sufficient to state a

Even if RFG’s cause of action for breach of confidence rested solely upon the

5

alleged misappropriation of financial information, RFG would still fail to state a claim. 

Although such financial information may not classify as a trade secret under the

CUTSA, it is confidential information and thus RFG’s breach of confidence cause of

action would be preempted by the CUTSA.

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claim for fraudulent misrepresentation, and that RFG’s allegations are specific enough

to survive a motion to dismiss. (ECF No. 66 at 12.)

To state a claim for fraudulent misrepresentation, RFG must allege (1) the

VIOCF Counter-Defendants made a false representation of fact; (2) the VIOCF

Counter-Defendants knew the representation wasfalse at the time ofthe representation;

(3) the VIOCF Counter-Defendants intended that RFG would rely on the

representation; (4) RFG reasonably relied on the representation; and (5) RFG suffered

damages as a result of the false representation. 5 Witkin, Summary of Cal. Law (10th

ed. 2005) Torts, § 772, p. 1121; Engalla v. Permanente Medical Group, Inc., 15 Cal.

4th 951, 974 (1997); Hunter v. Up-Right, Inc., 6 Cal. 4th 1174, 1184 (1993).

Furthermore, “[f]raudulent representations, to constitute ground for relief, must

be as to existing and material facts; predictions of future events are ordinarily

considered non-actionable expressions of opinion.” Richard P. v. Vista Del Mar Child

Care Serv., 106 Cal. App. 3d 860, 865 (1980). However, “while fraud requires the

intentional misrepresentation of a fact, the speaker's intention may constitute a fact for

this purpose.” Yield Dynamics, Inc. v. TEA Sys. Corp., 154 Cal. App. 4th 547, 575

(2007). Thus, where a promise is made without the intention to perform “there is an

implied misrepresentation of fact that may be actionable fraud.” Lazar v. Superior

Court, 12 Cal. 4th 631, 638 (1996); see also 5 Witkin, Summary of Cal. Law (10th ed.

2005) Torts, § 781, p. 1131 (“A statement of what the defendant or some third person

intends to do relates to an existing state of mind, and is a representation of fact.”).

In addition, “‘[e]very element of the cause of action for fraud must be alleged in

the proper manner and the facts constituting the fraud must be alleged with sufficient

specificity to allow defendant to understand fully the nature of the charge made.’” 

Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 157 (1991) (quoting

Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 57 Cal. App. 3d 104, 109 (1976)). 

Where a fraud action is being maintained against a corporation, a claimant must “allege

the names of the persons who made the allegedly fraudulent representations, their

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authority to speak, to whom they spoke, what they said or wrote, and when it was said

or written.” Id.

Here, RFG alleges the VIOCF Counter-Defendants made a false representation

when they “assured RFG that it would not take on RFG’s alleged breaches of the

Valvoline Agreements, as long as RFG continued negotiating with Henley regarding

the sale of the RFG locations and RFG began to pre-pay for its products.” (ECF No.

47 ¶ 95.) Such assurances, asfalse representations of the VIOCF Counter-Defendants’

intention to perform on a promise, would constitute misrepresentations of fact

sufficient to state a claim for fraud. However, RFG has failed to state a claim for

fraudulent misrepresentation because RFG’s allegations lack the specificity required

in a fraud action against a corporation. RFG does not provide the names of the persons

who made the allegedly fraudulent misrepresentations, their authority to speak, to

whom they spoke, what they said or wrote, or when it was said or written. Thus, the

VIOCF Counter-Defendants’ motion to dismiss must be granted with respect to RFG’s

claim for fraudulent misrepresentation.

V. Breach of Implied Covenant of Good Faith and Fair Dealing

The VIOCF Counter-Defendants argue that RFG failsto state a claim for breach

of implied covenant of good faith and fair dealing because (1) the claim is superfluous

and improper in that it “does not go beyond the statement of a breach of express

contractual terms and seeks the same relief sought in a breach of contract claim” and

(2) the claim is improper because “there is no recognized cause of action for tortious

breach of contract outside of the insurance context.” (ECF No. 58 at 3-4.) RFG argues

that the claim for breach of implied covenant of good faith and fair dealing is not

superfluous, and that although “courts generally enforce this breach via contract law,

and not with the imposition of tort remedies, RFG is still entitled to bring the claim.” 

(ECF No. 66 at 10.)

“Every contract imposes on each party a duty of good faith and fair dealing in

its performance and its enforcement.” Jonathan Neil & Associates, Inc. v. Jones, 33

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Cal. 4th 917, 937 (2004) (quoting Restatement (Second) of Contracts § 205 (1981)). 

However, if a plaintiff’s allegations of a breach of such duty “do not go beyond the

statement of a mere contract breach and, relying on the same alleged acts, simply seek

the same damages or other relief already claimed in a companion contract cause of

action, they may be disregarded as superfluous as no additional claim is actually

stated.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395

(1990). Thus, where a plaintiff has alleged both breach of contract and breach of

implied covenant of good faith and fair dealing, “the only justification for asserting a

separate cause of action for breach of the implied covenant isto obtain a tort recovery.” 

Id. 

Although “in insurance casesthere is a well-developed history recognizing a tort

remedy for a breach of the implied covenant,” such recognition is dependent on the

existence of a “special relationship” between the insurer and the insured and “has little

authoritative support” outside of the insurance context. Id. at 1395-99 (holding that

plaintiff could not recover in tort for breach of implied covenant of good faith and fair

dealing in a case arising out of “a rather common commercial banking transaction”). 

For a plaintiff to recover tort damagesfor breach of implied covenant of good faith and

fair dealing outside of the insurance context, “‘(1) the contract must be such that the

parties are in inherently unequal bargaining positions; (2) the motivation for entering

the contract must be a nonprofit motivation, i.e., to secure peace of mind, security,

future protection; (3) ordinary contract damages are not adequate, because (a) they do

not require the party in the superior position to account for its actions, and (b) they do

not make the inferior party 'whole'; (4) one party is especially vulnerable because of the

type of harm it may suffer and of necessity places trust in the other party to perform;

and (5) the other party is aware of this vulnerability.’” Id. at 1398 (quoting Wallis v.

Superior Court, 160 Cal. App. 3d 1109, 1118 (1984)). The relationship between

franchisor and franchisee has been held insufficient to support the recovery of tort

damages for breach of the implied covenant. Little Oil Co., Inc. v. Atl. Richfield Co.,

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852 F.2d 441, 447 (9th Cir. 1988).

Here, RFG merely states the VIOCF Counter-Defendants breached the implied

covenant of good faith and fair dealing “[b]y virtue of its bad faith conduct.” (ECF No.

47 ¶ 104.) Such a statement isinsufficient to demonstrate that RFG relies on more than

mere contract breach as the factual basis for its claim. As far as damages, RFG seeks

in both causes of action “an amount in excess of $10,000,000.00 to be determined at

trial.” (Id. ¶¶ 71, 105.) Because RFG’s allegations do not go beyond a mere statement

of contract breach and RFG seeks the exact same damages as in its cause of action for

breach of contract, RFG’s claim for breach of implied covenant of good faith and fair

dealing is superfluous and must be dismissed.

Furthermore,the relationship between RFG and the VIOCF Counter-Defendants

is not the type that would support the availability of tort remedies for breach of the

implied covenant. As a franchisee, RFG’s motivation for entering into a contract was

profit, rather than the peace of mind and security that motivates people to enter into

insurance contracts. RFG has not given any reasons why ordinary contract damages

would be inadequate in this case, or why RFG was in a special position of

vulnerability.

RFG’s claim for breach of implied covenant of good faith and fair dealing is

superfluous to its claim for breach of contract, and the relationship between RFG and

the VIOCF Counter-Defendants does not support the recovery of tort damages in this

case. Thus, RFG’s cause of action for breach of the implied covenant must be

dismissed.

CONCLUSION

For the reasons set forth above, the VIOCF Counter-Defendants’ Motion to

Dismiss RFG’s Counterclaim is GRANTED as to the First Count for breach of

contract, Fifth Count for breach of confidence, Sixth Count for fraudulent

misrepresentation, and Seventh Count for breach ofimplied covenant of good faith and

fair dealing. The VIOCF Counter-Defendants’ Motion is DENIED astoRFG’s Fourth

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Count for intentional interference with prospective economic advantage. RFG is

granted leave to file an amended counterclaim no later than 20 days from the date this

order is filed.

IT IS SO ORDERED.

DATED: August 5, 2013

HON. GONZALO P. CURIEL

United States District Judge

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