Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-05784/USCOURTS-cand-3_03-cv-05784-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

=

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DARIUS MOSTOWFI, TENG LEW LIM,

FUNG CHEE LIM and TENG HOWE LIM, 

Plaintiffs,

 v

I2 TELECOM INTERNATIONAL,INC,

PAUL R ARENA, BERNARD R KOSSAR,

ANTHONY F ZALENSKI, ALEX OPRESCU

RON ROSWELL, SR, JON ROBERTS and

ROBERTS, ABOKHAIR & MARDULA, LLP,

Defendant.

______________________________/

No C 03-5784 VRW

ORDER

This case arises from defendants’ allegedly unlawful

orchestration of a scheme to deprive plaintiffs of control over

their company and their intellectual property. There are two

groups of defendants: (1) defendants allegedly affiliated with the

company I2 Telecom International, Inc (I2 Telecom itself, Paul

Arena, Bernard Kossar, Anthony Zalenski, Alex Oprescu and Ron

Roswell (collectively, “I2 Telecom defendants”)) and (2) I2

Telecom’s attorneys (Jon Roberts and the law firm Roberts, Abokhair

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& Mardula LLP (collectively, the “attorney defendants”)).

Before the court are I2 Telecom defendants’ motion to

dismiss the first amended complaint (“FAC”) pursuant to FRCP

12(b)(6) and 9(b) (Doc #60) and attorney defendants’ motion to

dismiss the FAC pursuant to FRCP 12(b)(6) and 9(b) (Doc #65). For

the following reasons, the court GRANTS attorney defendants’ motion

to dismiss and GRANTS IN PART I2 Telecom defendants’ motion to

dismiss.

I

A

“On a motion to dismiss, all well-pleaded allegations of

material fact are taken as true and construed in a light most

favorable to the non-moving party.” Wyler Summit Partnership v

Turner Broadcasting Systems, Inc, 135 F3d 658, 661 (9th Cir 1998)

(citing Parks School of Business, Inc v Symington, 51 F3d 1480,

1484 (9th Cir 1995)). Accordingly, what follows is drawn from the

FAC, taking its allegations as true. The causes of action in this

case, while premised on a lengthy and complex set of allegations,

are all essentially based on plaintiffs’ contention that defendants

orchestrated a scheme to trick plaintiffs into relinquishing

control over the company Supercaller Community, Inc

(“Supercaller”), as well as control over various intellectual

property rights. See FAC (Doc #49) at 2 ¶ 1. Plaintiff Darius

Mostowfi (“Mostowfi”), a California resident, is an electrical

engineer and designer of telecommunication hardware. Id at 7-8 ¶¶

23, 28. Plaintiff Teng Lew Lim (“Lim”) is a Malaysian citizen

residing in California and is an entrepreneur. Id. In early 2001,

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Mostowfi and Lim collaborated to mass-produce Mostowfi’s “VOIP”

technology, which allows voice telecommunication calls to be routed

over the Internet. Id at 8 ¶ 29. Lim incorporated Supercaller for

this purpose and invested his own money into development of the

product. Id at 9 ¶ 30. Plaintiffs Fung Chee Lim and Teng Howe

Lim, Lew Lim’s uncle and brother, also invested in Supercaller. 

Id. The Lims collectively owned about 90% of Supercaller’s

outstanding shares, while Mostowfi owned the remaining 10%. Id. 

Lim became Supercaller’s CEO, while Mostowfi assumed the role of

CTO. Id.

Defendants acted in concert with one another to usurp

control over both Supercaller itself and the intellectual property

right for Supercaller’s VOIP technology. Id at 2 ¶ 2. According

to the complaint, defendants Arena, Kossar and Zalenski created a

sham enterprise for the purposes of accomplishing this fraud. Id

at 3 ¶¶ 4-8. That enterprise is defendant I2 Telecom, a Delaware

corporation that allegedly operated with inadequate capital and

falsely purported to provide telecommunications services using VOIP

technology. Id at 2 ¶ 3. 

Plaintiffs allege that in June 2002, I2 Telecom entered

into a Common Stock Purchase Agreement (“CSPA”) to invest in

Supercaller’s VOIP technology. Id at 12 ¶ 46. Pursuant to this

agreement, I2 Telecom agreed to pay $1,300,000 to purchase 20% of

Supercaller’s shares. Id. The agreement also provided that I2

Telecom defendants would receive one seat on Supercaller’s Board of

Directors. Doc #49, Ex A within Ex I. Defendant Arena filled that

seat, but I2 Telecom never paid the amount agreed upon. Doc #49 at

13 ¶ 47. (It is not clear from the complaint how much money, if

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any, defendants actually paid.) Moreover, I2 Telecom further

entered into a Development and Licensing Agreement (“DLA”) which

called for I2 Telecom to invest a substantial sum in promoting and

marketing Supercaller’s products. Id at 12-13 ¶ 46. In entering

these agreements, the I2 Telecom defendants misrepresented their

ability and intentions to consummate the transaction and relied on

defendant Roberts (an attorney) and defendant law firm Roberts,

Abokhair & Mardula LLP (RAM LLP) to further their

misrepresentations. Id at 4 ¶ 4. Defendants’ actions induced

Supercaller to expend its cash reserves in reliance on the receipt

of nonexistent funds from I2 Telecom. Id at 4 ¶ 10.

Thereafter, the I2 Telecom defendants wrongfully obtained

control of Supercaller by forcing the resignation of Lim and

Mostowfi. On September 16, 2002, the I2 Telecom defendants called

a Supercaller board meeting, falsely accused Lim of accounting

fraud, threatened him with criminal prosecution and deportation and

forced him to resign. Id at 4-5 ¶¶ 11-14. Then, using unlawful

board resolutions, the I2 Telecom defendants forced Lim to merge

Supercaller into I2 Telecom in return for no consideration. Id at

5 ¶ 14. As a result of this sham merger, the I2 Telecom defendants

became the owners of Supercaller. Id at 5-6 ¶ 16.

Next, the I2 Telecom defendants “systematically removed”

Mostowfi from Supercaller by wrongfully threatening to terminate

his employment, prompting his resignation. Id at 5 ¶ 17. 

Defendants then collaborated with Roberts and RAM LLP to acquire

the rights to Mostowfi’s intellectual property by threatening

Mostowfi with baseless lawsuits if he did not assign his rights in

the VOIP technology to the I2 Telecom defendants without any

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compensation. Id. Mostowfi then signed over his rights in a

provisional patent application he had filed. Id.

Plaintiffs filed the original complaint in this action on

December 22, 2003, alleging twenty-two different causes of action:

(1) declaratory judgment under Cal Corp Code § 709; (2) fraud and

deceit (misrepresentation and concealment); (3) fraud and deceit

(false promise); (4) racketeering conspiracy; (5) substantive

racketeering; (6) trespass to chattels; (7) unjust

enrichment/restitution; (8) civil conspiracy; (9) interference with

prospective economic advantage; (10) breach of duty of good faith

and fair dealing; (11) defamation; (12) breach of fiduciary duty,

duty of loyalty and duty against self-dealing by defendant Arena;

(13) usurpation of corporate opportunity; (14) breach of fiduciary

duty, duty of loyalty and duty against self-dealing by the attorney

defendants; (15) tortious interference with attorney-client

relationship; (16) breach of contract; (17) conversion; (18)

infliction of emotional distress; (19) wrongful discharge; (20)

professional negligence – legal malpractice; (21) accounting; and

(22) constructive trust. Doc #1.

Attorney defendants moved to dismiss the claims against

them pursuant to FRCP 12(b)(6) and 9(b). Doc #17. Plaintiffs

named the attorney defendants as defendants in seventeen of the

twenty-two causes of action (all claims except those for

defamation, breach of duty by Arena, usurpation of corporate

opportunity, breach of contract and wrongful discharge). Doc #1. 

Attorney defendants argued that plaintiffs’ claims were based on

allegations of fraud and that those allegations were not pled with

the requisite particularity mandated by FRCP 9(b). Doc #17 at 8-9. 

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By order dated May 27, 2004, the court granted attorney

defendants’ motion to dismiss. Doc #37. Noting that the

requirements of FRCP 9(b) apply to all of plaintiffs’ claims

against the attorney defendants, the court was unable to identify

any specific statements made by the attorney defendants that

satisfied Rule 9(b)’s heightened pleading standards. Rather, the

court found plaintiffs’ allegations to be too general and

insufficient to support the claims of fraud against the attorney

defendants. Accordingly, the court dismissed the claims against

attorney defendants, but granted plaintiffs leave to amend their

complaint to: (1) plead fraud against the attorney defendants with

the requisite degree of specificity; or (2) replead any of the

claims that do not require fraud as an essential element, if

plaintiffs are able to assert a non-fraud basis for any of those

claims. Id.

In addition to attorney defendants’ motion to dismiss,

the I2 Telecom defendants also moved the court to dismiss

plaintiffs’ complaint pursuant to FRCP 12(b)(6). Doc #8. Noting

that the I2 Telecom defendants failed to demonstrate what essential

elements were missing from the complaint, the court denied their

motion. Doc #37.

B 

On July 20, 2004, plaintiffs filed the FAC, adding eleven

pages to the original complaint’s sixty-eight pages. Doc #49. 

Although the FAC contains the same twenty-two causes of action as

the original complaint, plaintiffs have added eleven new paragraphs

below original paragraph seventy-five in an effort to plead their

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allegations of fraud against attorney defendants with sufficient

particularity. Id at 21-28 ¶¶ 75a-75m. The gravamen of

plaintiffs’ claim against attorney defendants appears to be the

following: By making fraudulent statements and omissions, attorney

defendants deceived plaintiffs into believing: (1) that I2 Telecom

was a legitimate business and (2) that attorney defendants were not

secretly working for the benefit of I2 Telecom defendants. As a

result of those fraudulent statements and omissions, plaintiffs

disclosed confidential information to attorney defendants (which

attorney defendants then disclosed to I2 Telecom defendants). Id

at 4 ¶ 9. Plaintiffs allege that but for the misrepresentations,

they would never have entered into the CSPA or DLA with I2 Telecom

defendants. The court will examine plaintiffs’ allegations in

greater detail shortly. 

Now before the court is attorney defendants’ second

motion to dismiss claims 1-10, 14, 15, 17, 18 and 20-22 of the FAC

(all causes of action directed against attorney defendants). Doc

#65. First, attorney defendants argue that plaintiffs’ FAC still

fails to satisfy FRCP 9(b)’s particularity requirements. Id at 11. 

Next, attorney defendants contend that beyond the alleged fraud

defects, plaintiffs have not adequately pled the elements of a RICO

claim. Id at 14. Also before the court is I2 Telecom defendants’

second motion to dismiss claims 2-5, 8-10, 13, 15, 18 and 19 of the

FAC. Doc #60.

II

As a preliminary matter, the court addresses plaintiffs’

contention that defendants cannot file a motion to dismiss on

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grounds separate from those they filed in a first Rule 12 motion. 

Doc #96 at 2. At bottom, plaintiff argues that because the grounds

for certain objections were available to defendants at the time the

previous motions to dismiss were filed, defendants should not now

be allowed to raise new objections. For several reasons however,

plaintiffs’ argument is without merit. 

FRCP 12(b)(6) provides that a defense of failure to state

a claim upon which relief can be granted may be made by motion

before filing a responsive pleading to the complaint. FRCP 12(g)

requires a defendant to include all defenses and objections

permitted under Rule 12 in the same motion. If defendant fails to

do so, the omitted defense or objection shall be waived. FRCP

12(h)(2) provides that a 12(b)(6) defense may be made in any

pleading permitted under FRCP 7(a), or by motion for judgment on

the pleadings, or at the trial on the merits. 

“The philosophy underlying [Rule 12(g)] is simple and

basic: a series of motions should not be permitted because that

results in delay and encourages dilatory tactics.” Aetna Life Ins

Co v Alla Medical Services, Inc, 855 F2d 1470, 1475, n2 (9th Cir

1988). “[I]t is a waste of judicial resources to consider motion

after motion in which defendants raise the same defense over and

over, each time testing a new argument.” Sprint Telephony PCS, L P

v County of San Diego, 311 F Supp 2d 898, 908 (SD Cal 2004). 

Defendants’ motions to dismiss do not implicate the

policy underlying Rule 12(g). First, plaintiffs have alleged

twenty-two causes of action in their seventy-nine page complaint

(excluding exhibits). To the extent this case has suffered delay,

it is a result of plaintiffs’ unnecessarily long and disorganized

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complaint. Second, as Rule 12(h)(2) makes clear, a defense of

failure to state a claim upon which relief can be granted may be

raised at several stages; as such, the court will ultimately have

to pass on the current round of motions to dismiss. This case will

be most efficiently and expeditiously resolved if the court

entertains defendants’ motions to dismiss at this stage of

litigation. To the extent that a motion to dismiss for failure to

meet Rule 9(b)’s heightened pleading standard may only be raised

while the pleadings are open, defendants still have the better of

the argument as the salutary purposes of Rule 9(b) – fair notice

and appropriately focused litigation – outweigh the efficiency

rationale behind Rule 12(g) in this case.

Plaintiffs argue that this court ruled in its May 27,

2004, order that I2 Telecom defendants waived any objections to the

RICO causes of action because they failed to raise them in the

first Rule 12 motion “and rather attempted to raise those issues in

the reply for the first time.” Doc #96 at 2. But the court merely

held that it would not consider arguments raised for the first time

in a reply brief, as doing so would unfairly deprive plaintiffs of

their opportunity to respond. In this case, defendants present

their arguments in motions to dismiss, rather than in reply to

plaintiffs’ opposition memorandum. Plaintiffs therefore have had

an opportunity to respond. 

Accordingly, in the interests of efficiency and fairness,

the court will address all issues raised in defendants’ motions to

dismiss.

/

/

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III

The court first addresses attorney defendants’ motion.

A

As the court has already indicated, plaintiffs have

amended the original complaint in an effort to satisfy FRCP 9(b)’s

heightened pleading requirements. Plaintiffs have added several

pages of material in an effort to state specific fraudulent

statements and omissions. While plaintiffs’ allegations of fraud

against attorney defendants are many, they boil down to two

charges: But for attorney defendants’ failure to disclose a

conflict of interest, plaintiffs would not have (1) communicated

confidential trade secrets to attorney defendants or (2) entered

into the CSPA and DLA with I2 Telecom defendants. Doc #49 at 26-27

¶ 75h. Despite plaintiffs’ amendment, attorney defendants argue

that the FAC still fails to comply with FRCP 9(b)’s heightened

pleading standards. 

Rule 9(b) provides:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall

be stated with particularity. Malice, intent,

knowledge, and other condition of mind of a 

person may be averred generally.

“Rule 9(b) demands that, when averments of fraud are made, the

circumstances constituting the alleged fraud be specific enough to

give defendants notice of the particular misconduct * * * so that

they can defend against the charge and not just deny that they have

done anything wrong.” Vess v Ciba-Geigy Corp USA, 317 F3d 1097,

1106 (9th Cir 2003) (internal quotations and citations omitted). 

Allegations of fraud “must be accompanied by ‘the who, what, when,

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where, and how’ of the misconduct charged.” Id (citing Cooper v

Pickett, 137 F3d 616, 627 (9th Cir 1997)). Additionally, the

allegations must include more than the neutral facts necessary to

identify the transaction – the allegations must also set forth what

is false and misleading about the statement and demonstrate why the

statement is false. Vess, 317 F3d at 1106; In re GlenFed, Inc

Securities Litigation, 42 F3d 1541, 1548 (9th Cir 1994). Rule 9(b)

thus demands much more than mere “notice pleading,” as is required

under Rule 8(a). GlenFed, 42 F3d at 1547.

Rule 9(b)’s heightened pleading standard applies not only

to claims in which fraud is an essential element, but also to any

claim for which the plaintiff has relied entirely on “a unified

course of fraudulent conduct” as its basis. Vess, 317 F3d at 1103. 

In that event, the claim can be said to be “grounded in fraud” or

to “sound in fraud,” and the pleading of the claim as a whole must

meet the Rule 9(b) standard. Id at 1103-04. As is the case with a

Rule 12(b)(6) motion, the court may dismiss a claim for fraud (or

one grounded in fraud) if the complaint or claim fails to comply

with the pleading standard set forth in Rule 9(b). Id at 1107.

As mentioned above, plaintiffs’ FAC contains the same

twenty-two causes of action as the original complaint. 

Accordingly, Rule 9(b) applies with equal force to all causes of

action in the amended complaint, regardless of whether fraud is an

essential element or the claim is merely grounded in fraud. See

Doc #37 at 24-25. Moreover, Rule 9(b) applies to both fraudulent

statements and omissions. See In re Stac Electronics Securities

Litigation, 89 F3d 1399, 1404 (9th Cir 1996) (explaining that Rule

9(b) requires an explanation as to why the statement or omission

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complained of was false or misleading). Because statements and

omissions require a somewhat different analysis, the court will

first analyze whether any allegations of false statements in the

FAC satisfy Rule 9(b). Next, the court will determine whether

plaintiffs have alleged any omissions in conformance with Rule

9(b). In this inquiry, the court seeks to identify: (1) a

specific statement or omission made to plaintiffs by any of the

attorney defendants that was false or misleading; (2) the time and

place of such a statement; and (3) allegations describing why that

statement was false.

B

The court has reviewed the FAC in search of any purported

statement that could conceivably satisfy Rule 9(b). First,

plaintiffs allege that attorney defendants “falsely stated to

[plaintiffs] that RAM-LLP would perform a better job at drafting

SuperCaller’s and Mostowfi’s patent applications.” Id at 22. This

statement fails to meet 9(b)’s standards for several reasons. 

First, plaintiffs have not identified when or where the statement

was made. Next, the description is vague and provides little

detail about the contents of those statements. Finally, plaintiffs

have failed to explain why the statement was false. In order to

know whether attorney defendants did a better or worse job than

plaintiffs’ previous counsel, plaintiffs must allege the level of

performance their other counsel would have met. Those allegations

have not been made. 

Most important, according to plaintiffs, is the fact that

attorney defendants’ invoices from September 6 through September

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20, 2002, demonstrate that attorney defendants “secretly

communicated [plaintiff’s confidential information] to [I2 Telecom

defendants]” and “used that confidential and privileged information

to the advantage of [I2 Telecom defendants.]” Id at 23-25. The

court is unable to locate any statement in the invoice or elsewhere

showing that attorney defendants communicated any confidential

information to I2 Telecom defendants. Nowhere in the invoice have

attorney defendants demarcated acts of secret communication or

misappropriation of plaintiffs’ confidential information. 

Allegations of fraud must set forth what is false and misleading

about the statement and demonstrate why the statement is false. 

Plaintiffs have failed to make that showing. It is simply not

sufficient for plaintiffs to reprint a bill and tell defendants (or

the court) to find the fraudulent misrepresentations. In short,

plaintiffs have not explained to the court how it is that the

invoice evidences a false representation. 

Next, plaintiffs allege that attorney defendants’ “active

endorsement that I2 Telecom was a legitimate telecommunications

company” caused plaintiffs to enter into the CSPA and DLA. Id at

27. Again, plaintiffs have failed to specify when and where any

“active endorsements” were made and why they were false. Moreover,

alleging an “active endorsement” hardly approaches the demanding

requirement of a specific statement. Accordingly, this allegation

is insufficient under Rule 9(b).

Next, plaintiffs allege that attorney defendants

“counseled I2 Telecom and its officers to threaten Mostowfi and

force him with unwarranted threats of bankrupting his family with

the sole aim to have Mostowfi assign his inventions to SuperCaller

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* * *.” Id at 27. This is a very serious charge. But once again,

the court is unable to determine when and where attorney defendants

offered such advice and how it misled anyone. Moreover, to the

extent defendants may have misrepresented the law to Mostowfi (i e,

deceiving him into wrongly believing that his family could be

bankrupted by virtue of his alleged misconduct), “fraud cannot be

predicated upon misrepresentations of law or misrepresentations as

to matters of law.” Miller v Yokohama Tire Corp, 358 F3d 616 (9th

Cir 2004) (internal citations omitted). And to the extent

defendants may have misrepresented fact in stating their intention

to bankrupt Mostowfi’s family, plaintiffs have not alleged that

defendants did not intend to do so. Accordingly, this alleged

statement is without merit. 

Next, plaintiffs allege that attorney defendants

“promised to prepare each [of plaintiffs’ patent applications] for

only $2000. But this promise was false.” Id at 27. Plaintiffs

also allege that attorney defendants “promised to prepare and file

SuperCaller’s patent applications faster than SuperCaller’s then

patent counsel, but this was a false promise because not only did

Roberts fail to file patent applications timely, he knowingly

allowed a provisional patent application to be expired.” Id at 28. 

To begin with, plaintiffs’ statement that attorney

defendants promised to prepare patent applications for $2,000 each

“was false” does not tell the court why the statement was false. 

The issue is not whether attorney defendants in fact prepared the

patent applications faster or slower than Chaganti would have. The

issue is whether attorney defendants’ promise to prepare the patent

applications faster than Chaganti was false when made. Moreover,

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in order to allege promissory fraud, plaintiffs must plead facts

generally averring that attorney defendants intended not to be

bound by their promise at the time the promise was made. Hsu v OZ

Optics Ltd, 211 FRD 615, 620 (ND Cal 2002). Plaintiffs have not

alleged that attorney defendants harbored an intent to file

Supercaller’s patent applications at a slower pace than

Supercaller’s prior patent counsel at the time of the promise. 

Plaintiffs have alleged that attorney defendants ultimately did not

fulfill their promises regarding patent applications. But that

fact is not sufficiently probative on the question of attorney

defendants’ intent at the time of the promise. Nor does it

necessarily foreclose the possibility that attorney defendants

meant what they said at the time of the promise. While it is true

that intent may be averred generally, plaintiffs have not even done

that. Accordingly, these allegations do not satisfy Rule 9(b)’s

requirements. 

Finally, plaintiffs allege that attorney defendants

“promised [plaintiffs] that [attorney defendants] would act in the

interests of the inventor Mostowfi.” Id at 28. However,

plaintiffs have not told the court when and where this promise was

made, or why it was false (aside from stating that the attorney

defendants’ invoice somehow shows it was false). Moreover, the

alleged statement is vague, and provides insufficient detail as to

the nature of the promise. It does not meet the Rule 9(b)

standard.

C

The court now turns to plaintiffs’ allegations that

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attorney defendants made fraudulent omissions. In the original

complaint, plaintiffs made few allegations regarding the conduct of

attorney defendants. Rather, plaintiffs merely proffered vague

allegations that attorney defendants knew or should have known that

I2 Telecom defendants were defrauding plaintiffs out of their

intellectual property. Doc #49 at 4 ¶ 9. Moreover, plaintiffs

offered the amorphous claim that RAM-LLP “lent an air of

legitimacy” to I2 Telecom defendants’ “sham investment operation.” 

Id. 

The court understands the greater difficulty in pleading

fraud by omission (as compared to fraudulent statements). 

Plaintiffs must identify specific omissions on the part of

defendants, explain when and where those omissions occurred and why

they were misleading. But unlike a specific statement, a

fraudulent omission can occur over a continuous period of time

rather than a fixed point. Consequently, it may not be possible

for plaintiffs to allege more than attorney defendants’ failure to

bring certain material information to plaintiffs’ attention

throughout their entire course of business dealings. The court is

mindful of that difficulty in its assessment of attorney

defendants’ alleged omissions. Nonetheless, plaintiffs fail to

plead misleading omissions with the requisite particularity. 

The FAC alleges that attorney defendants represented that

they were working on behalf of Supercaller when in reality,

attorney defendants were working in the interests of I2 Telecom

defendants. Id at 21-28 ¶¶ 75a-75m. In amending their complaint,

plaintiffs have provided specific examples of the content of

attorney defendants’ alleged fraudulent omissions. First,

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plaintiffs allege that attorney defendant Roberts and I2 Telecom

defendant Zalenski were close friends, and that attorney defendants

failed to state that fact in a telephone conference call on June

26, 2002. Id at 21 ¶ 75a. Next, plaintiffs allege that, during

the same conference call, Roberts failed to tell plaintiffs that he

was working on behalf of I2 Telecom defendants. Id. Therefore,

according to plaintiffs, Roberts had a conflict of interest and

failed to disclose it to plaintiffs on June 26, 2002. Had attorney

defendants not omitted to state those facts to plaintiffs,

plaintiffs would not have disclosed confidential trade secrets to

them. Id at 26 ¶ 75h. Moreover, the failure to state those facts

contributed to plaintiffs’ belief that attorney defendants were

working in the best interests of Supercaller, rather than I2

Telecom. Id at 22 ¶ 75c. 

Plaintiffs did not agree to transfer patent application

work to attorney defendants until July 12, 2002. Id at 27 ¶ 75j. 

Nor have plaintiffs alleged that they disclosed any confidential

information to attorney defendants prior to the transfer of patent

application work. Therefore, if plaintiffs were already aware of

the conflict of interest on or before July 12, 2002 when they

decided to transfer the work, then attorney defendants’ omissions

could not have misled plaintiffs when they decided to transfer the

patent application work to attorney defendants. To the contrary,

any statement by attorney defendants that there was a conflict of

interest would merely have confirmed what plaintiffs already knew.

Plaintiffs allege that on or about July 12, 2002, in a

telephone call, Supercaller’s “then patent counsel advised

[attorney defendants] that there was a conflict of interest if

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Roberts represented both I2 Telecom and Supercaller * * *.” Id

(emphasis added). Then, “facing the threat of lack of operating

funds, SuperCaller discharged its patent counsel and under pressure

from [I2 Telecom defendants], turned over the patent work to

Roberts.” Id. These allegations suggest that plaintiffs were

already aware of attorney defendants’ alleged conflict of interest

before they decided to transfer the patent application work to

attorney defendants. Plaintiffs have not alleged whether they

believed there was a conflict of interest at the time they decided

to turn over the work to Roberts. The FAC suggests that the facts

are to the contrary and that plaintiffs decided to turn the work

over to Roberts in spite of a perceived conflict of interest in

response to I2 Telecom defendants’ alleged threats to withhold

operating funds. Accordingly, plaintiffs have not alleged

sufficient facts to show that the omissions misled them into

disclosing confidential information to attorney defendants. 

Although the court might appear to be picking at small details,

these concerns illustrate the necessity of pleading fraud with

particularity, particularly pleading when defendants made alleged

statements.

Finally, plaintiffs allege that “but for the implication

by silence and active endorsement [by attorney defendants] that I2

Telecom was a legitimate telecommunications company * * * neither

SuperCaller, nor Mostowfi nor [] Lim would have entered into a

technology licensing and investment agreement[] with * * * [I2

Telecom defendants] under the CSPA and the DLA.” Doc #49 at 26-7 ¶

75h. First, this alleged omission is fairly amorphous – just what

should the attorney defendants have said to plaintiffs? Moreover,

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all of plaintiffs’ allegations concerning attorney defendants’

statements and omissions relate to June 26, 2002, or later. And

yet plaintiffs signed the CSPA and DLA on June 6, 2002. See Doc

#62 Ex A,B. The court is at a loss to understand how plaintiffs

could have signed the CSPA and DLA in reliance on statements and

omissions yet to be made.

In sum, the court finds that plaintiffs have failed to

allege facts with sufficient particularity to sustain the causes of

action against attorney defendants. Accordingly, the court GRANTS

the attorney defendants’ motion to dismiss.

D

Attorney defendants further challenge the FAC on the

ground that plaintiffs have not alleged the elements of a RICO

claim. Doc #65 at 14. Specifically, attorney defendants argue

that plaintiffs have not alleged a “pattern” of conduct, which is

an element of a RICO violation. Id. Because the court concludes

that the entirety of the complaint must be dismissed as to attorney

defendants pursuant to Rule 9(b), it declines to pass on whether

the allegations (if they had been properly pled under Rule 9(b))

would be sufficient to establish a RICO “pattern” of conduct.

IV

The court now turns to I2 Telecom defendants’ motion to

dismiss.

A

The court first addresses I2 Telecom defendants’

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arguments based on Rule 9(b).

1

First, I2 Telecom defendants argue that plaintiffs’

second, third and eighth claims for fraud and deceit do not meet

FRCP 9(b)’s heightened pleading requirements and should be

dismissed. Doc #60 at 4. The same standards of heightened

pleading already set forth govern the present analysis. Because

all three causes of action incorporate the allegations in the

general fact portion of the complaint, the court begins its

analysis there.

a

With respect to general allegations, plaintiffs first

allege that I2 Telecom defendants made several fraudulent promises. 

As already set forth, plaintiffs must allege that I2 Telecom

defendants intended not to be bound by their promise at the time

the promise was made. Plaintiffs allege that defendants “induced

reliance on the part of Supercaller on their promise of capital

infusion.” Doc #49 at 4 ¶ 10. Next, I2 Telecom defendant Arena

promised plaintiffs that he “would immediately bring investments of

$5,000,000 of his own money.” Id at 10 ¶ 37. Arena and Zalenski

“further promised [plaintiffs] that [I2 Telecom] would provide

$20,000,000 in subsequent venture funding from its shareholders. 

Id at 11 ¶ 38. “To induce reliance on the part of [plaintiffs],

[I2 Telecom defendants] promised that they would provide a back-end

server system for terminating telephone calls * * *; that they had

an agreement with Macro Communications * * *. Arena represented

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that Macro would provide the technology to terminate Supercalleroriginated calls * * *, but Macro never delivered what Arena

promised that they would deliver.” Id at 13 ¶ 48. “In August 5,

2002, I2 Telecom promised to support Supercaller’s development of a

telecom router, but provided neither money nor technical

resources.” Id at 13-14 ¶ 50. In all but the promise on August 5,

plaintiffs have failed to allege when the statement was made. 

Moreover, in every allegation, plaintiffs have failed to specify

where or how it was made. 

Next, plaintiffs allege non-promissory fraud in the

general body of the FAC as well. First, plaintiffs allege that I2

Telecom defendants falsely accused them of accounting fraud on

September 16, 2002. Id at 4 ¶ 12. But such an accusation has

nothing to do with misleading plaintiffs. Rather, false

allegations of accounting fraud would go to misleading whatever

authorities I2 Telecom defendants reported the fraud to. To say

that attorney defendants deceived plaintiffs into believing that

plaintiffs themselves committed accounting fraud does not admit to

rational interpretation. Moreover, as discussed above, fraud

cannot be predicated upon misrepresentations of law. Miller, 358

F3d at 620. 

Next, plaintiffs allege that the “‘merger’ [between

Supercaller and I2 Telecom] was a trick in that it at most amounted

to a name change.” Doc #49 at 5 ¶ 15. Plaintiffs have failed,

however, to state what is false or misleading about the merger. 

Moreover, this allegation amounts to an argument that I2 Telecom

defendants misrepresented the law of mergers to plaintiffs, which

cannot state a claim for fraud. Miller, 358 F3d at 620.

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Next, plaintiffs allege that “[a]fter numerous telephone

discussions, Arena and Zalenski made [plaintiffs] believe that [I2

Telecom] was a legitimate entity involved in startup financing of

technology ventures.” Doc #49 at 11 ¶ 39. This allegation fails

at step one. Alleging a group of telephone calls without alleging

their specific content does not qualify as a specific statement. 

Vess holds that the circumstances constituting the alleged fraud

must be specific enough to give defendants notice of the particular

misconduct. 317 F3d at 1106. Attorney defendants have, no doubt,

made several phone calls to plaintiffs. Without more detail

however, attorney defendants cannot know which call or calls, and

what content within those calls, unlawfully caused plaintiffs to

believe I2 Telecom was a legitimate entity. Moreover, there is

nothing inherently misleading about the existence of a telephone

call. Plaintiffs must plead something about the specific content

of those calls that was misleading. They have not done so. 

Next, plaintiffs allege that:

[a]s part of its deception, I2 [Telecom]

sported a web site, which showed that it had

offices, technology and engineers who were

ready to provide VOIP services with the

licensed Supercaller[] technology. At the time

I2 [Telecom] advertised on its website that it

was the exclusive worldwide licensee of

Supercaller’s technology, it had on its payroll

no electrical engineer with VOIP experience. 

The entire representation by I2 [Telecom] was a

consummate lie. * * * These devices and labels

were to deceive Supercaller and its employees

into believing that I2 [Telecom] was a

legitimate business. 

Doc #49 at 11-12 ¶ 41. 

The court is satisfied that plaintiffs have properly

alleged why statements on the website were false or misleading. 

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But plaintiffs have not alleged when this website came into

existence or when plaintiffs first viewed it. If the website was

not created and posted online until after the material events

alleged in the FAC occurred, then it has no relevance to this case. 

Accordingly, this allegation is also insufficient. 

b

Having found no allegations within the general body of

the complaint satisfying Rule 9(b), the court turns to the second,

third and eighth causes or action for allegations of specific

fraudulent statements or omissions.

The second cause of action for fraud and deceit alleges

several vague statements, without specifying the time, location and

reason false. Accordingly, none of these allegations satisfies

Rule 9(b). 

Plaintiffs also allege fraudulent omissions. Id at 41 ¶

97. First, plaintiffs allege that I2 Telecom defendants failed to

tell plaintiffs that I2 Telecom was “a shell company with

inadequate funds and when they offered to provide investment funds

to Supercaller in the amount of $1,300,000 in or about June 2002,

they did not have the funds available to invest.” Id. This

allegation implies that I2 Telecom defendants previously stated

that they did have $1,300,000 in June 2002 available to invest. 

The FAC alleges that “Arena assured Lew Lim that he had money set

aside to meet the investment obligation. But there was no money

set aside.” Id at 15 ¶ 56. “During negotiations leading to the

signing of the [CSPA] dated June 6, 2002, Arena represented to Lew

that he and I2 Telecom could write a check to cover the entire

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escrow amount of $1,000,000. But he and I2 Telecom never in fact

had the capacity to so pay * * *.” Id at ¶ 57. 

Moreover, the CSPA provided that “[I2 Phone] agrees to

purchase [shares of Supercaller]. The aggregate purchase price of

such shares shall be [$1,300,000].” Doc #62, Ex A at 1. The

agreement goes on to provide for four “closing” dates upon which I2

Phone was to make installment payments to Supercaller. Id. On the

first closing (on June 5, 2002, or such other time as the parties

mutually agree upon) I2 Phone was to pay $300,000 to Supercaller. 

Id at 1-2. On the second closing date (not to occur prior to July

1, 2002), I2 Phone was to pay another $300,000. Id at 2. On the

third closing date (not to occur prior to August 1, 2002), I2 Phone

was to pay $500,000. Finally, on the fourth closing date (not to

occur prior to October 1, 2002), I2 Phone was to pay the final

$200,000. Id at 2-3.

Plaintiffs’ allegations come very close to meeting Rule

9(b)’s heightened pleading requirements. Nonetheless, each

allegation suffers from at least one defect. The first allegation

(Arena’s assurance that money was set aside to meet the investment

obligation) adequately sets forth what was false or misleading

about the alleged statement, who made it and to whom it was made. 

But it is unclear when or where the statement was made. It is true

that plaintiffs allege other facts within the same paragraph

occurring “on or about June 6th, 2002.” Doc #49 at 15 ¶ 56. But

it is not clear whether the alleged fraudulent statement contained

in that paragraph was also allegedly made on June 6. 

The next allegation (that Arena represented to Lim that

I2 Telecom could write a check to cover the escrow amount of

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$1,000,000) adequately sets forth what was false or misleading

about the statement (i e, that I2 Telecom defendants never had the

money to write the check). Moreover, plaintiffs allege who made

the statement and to whom it was made. Plaintiffs fail to allege

when and where the statement was made. Instead, plaintiffs merely

allege that the statement was made “during negotiations leading to

the signing [of the CSPA].” Id at ¶ 57. The FAC fails to allege

over what course of time those negotiations took place or at what

point during those negotiations the fraudulent statement was made. 

For example, if the negotiations took place over a two-week period,

plaintiffs should specify when during that period the alleged

statement was made, and where plaintiff and defendant were at the

time. Arena may have been involved in several discussions and

negotiations with plaintiff. Plaintiff must therefore give Arena

notice of when and where the alleged statement was made so that he

may properly respond. Was it a conference call? Were the parties

negotiating face-to-face? Was anyone else present? These are the

kinds of allegations that will enable I2 Telecom defendants to do

more than simply deny that they made the statements. 

Furthermore, the CSPA has no bearing on whether the

failure of I2 Telecom defendants to disclose that they were

inadequately capitalized was a fraudulent statement. The CSPA does

not represent that I2 Telecom defendants had the $1,300,000 at the

time they entered into the agreement. Rather, the CSPA provides

that I2 Telecom defendants were to pay the money in installments

over a course of several months. There is nothing inconsistent

with that agreement and I2 Telecom defendant’s failure to have all

$1,300,000 in funds at the time the CSPA was entered into. 

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Next, plaintiffs allege that I2 Telecom defendants

omitted to tell plaintiffs that “I2 Telecom did not have any

expertise in the VOIP technology or in the market for the

technology.” Id at 41 ¶ 97. The FAC alleges that “[i]n numerous

conference calls in June-September 2002, Arena, Zalenski and I2

Telecom promised to provide technical assistance with a backend

server deployment, and development of carrier technology – carrier,

protocols and regulatory requirements – for several

telecommunication product markets. But this never happened because

I2 Telecom never had any technological ability to perform on any of

its promises.” Id at 14 ¶ 50. 

While this statement moves in the direction of satisfying

Rule 9(b)’s pleading requirements by setting forth what was

misleading about the statement, the complaint fails to set forth

when and where the alleged statement or statements were made. 

Instead, the allegation in question covers a span of time from June

through September, 2002. Moreover, plaintiffs must satisfy the

heightened pleading requirements for each defendant. In re Worlds

of Wonder Securities Litigation, 694 F Supp 1427, 1432 (N D Cal

1988). Plaintiff must distinguish among those he sues and

“enlighten each defendant as to his or her part in the alleged

fraud.” Id (citing Bruns v Ledbetter, 583 F Supp 1050, 1052 (S D

Cal 1984). Plaintiffs’ allegation does not sufficiently attribute

specific conduct to individual defendants. Instead, plaintiffs

have lumped “Arena, Zalenski and I2 Telecom” together and alleged

that all three promised to provide technical expertise. For one

thing, I2 Telecom, as a legal business entity, clearly is not

capable of making statements except through an officer or agent,

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whom plaintiffs do not adequately identify. Plaintiff’s allegation

is therefore over inclusive and must be refined with greater

specificity as to who made what statements. 

In sum, plaintiffs fail to allege any fraudulent

statements or omissions in conformance with FRCP 9(b)’s heightened

pleading standards. Accordingly, the second cause of action

against I2 Telecom defendants is DISMISSED. 

 Plaintiffs’ third and eighth causes of action for fraud,

deceit and conspiracy, like the second, allege several vague

statements, without specifying when the statement was made, where

it was made or why it was false. Id at 43-46 ¶¶ 103-112, 151-161. 

Accordingly, the third and eighth causes of action against I2

Telecom defendants are both DISMISSED.

2

 Next, I2 Telecom defendants argue that plaintiffs’ tenth

cause of action for breach of the duty of good faith and fair

dealing should be dismissed for failure to satisfy Rule 9(b)’s

requirements of particularity. Doc #60 at 8. Fraud is not an

essential element of this cause of action. Because it is based on

I2 Telecom defendants’ alleged scheme to defraud plaintiffs, it is

grounded in fraud. See Doc #37 at 24. Accordingly, the court

reviews the tenth cause of action for specific allegations of

fraud. 

Plaintiffs allege two instances of fraudulent conduct by

I2 Telecom defendants. First, plaintiffs allege that I2 Telecom

defendants “ingratiated themselves in the good offices of

[p]laintiffs with false representations that they would act in good

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faith and according to accepted business norms.” Doc #49 at 65 ¶

169. This allegation fails to identify a specific misleading

statement, when it was made or why it was misleading. Next,

plaintiffs allege that I2 Telecom defendants “promised not to

unfairly act with Supercaller and third party companies when [I2

Telecom defendants] provided services of Supercaller and third

party companies to their clients.” Id at ¶ 171. This allegation

suffers from the same defects as the first. Moreover, plaintiffs

have not alleged that defendants had an intention to act unfairly

when they made any such promise. Failure to fulfill a promise is

not in itself fraudulent. Accordingly, the tenth cause of action

is DISMISSED. 

3

Relying in part on Rule 9(b), I2 Telecom defendants argue

that plaintiffs’ fourth and fifth causes of action for racketeering

should be dismissed under Rule 12(b)(6). To state a claim under

RICO, 18 USC § 1962(c), plaintiffs must allege: (1) the conduct;

(2) of an enterprise; (3) through a pattern of (4) racketeering

activity. Forsyth v Humana, Inc, 114 F3d 1467 (9th Cir 1997). 

a

First, I2 Telecom defendants allege that plaintiffs have

not adequately alleged the existence of an “enterprise” separate

from the pattern of racketeering activity in which defendants

allegedly engaged. Doc #60 at 6. 18 USC § 1961(4) defines

“enterprise” as including “any individual, partnership,

corporation, association, or other legal entity, and any union or

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group of individuals associated in fact although not a legal

entity.” At a minimum, to be an enterprise, an entity must exhibit

some sort of structure for the making of decisions, whether it be

hierarchical or consensual. Chang v Chen, 80 F3d 1293, 1299 (9th

Cir 1996). The structure should provide some mechanism for

controlling and directing the affairs of the group on an on-going,

rather than an ad hoc, basis. Id. 

Plaintiffs have alleged that I2 Telecom is a Delaware

corporation, with defendant Arena serving as CEO, defendant

Zalenski serving as president and defendant Kossar serving as

chairman of the board. Doc #49 at 3 ¶ 4, 7 ¶ 24. These

allegations show that I2 Telecom exhibited a hierarchical structure

independent from the pattern of racketeering activity in which

plaintiffs believe defendants have engaged. Accordingly, I2

Telecom defendants’ contention that plaintiffs fail adequately to

allege an enterprise is without merit.

b

Next, I2 Telecom defendants argue that plaintiffs have

failed to plead the underlying criminal acts of racketeering

activity with sufficient particularity under FRCP 9(b). Doc #60 at

6-7. When a plaintiff alleges fraudulent acts as the predicate

acts in a RICO claim, FRCP 9(b) requires that circumstances

constituting fraud be stated with particularity. Pollack v Katz,

42 F3d 1401 (9th Cir 1994). In Moore v Kayport Package Exp, Inc,

885 F2d 531, 541 (9th Cir 1989), the plaintiff’s third amended

complaint alleged that: “Commencing on or about October, 1982, and

through and including March, 1983, within the Central District of

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California, and elsewhere, the defendants, and each of them,

devised, intended to devise and carried out, a scheme to defraud *

* *.” Id. The court found this allegation insufficient for

several reasons. First, the complaint did not attribute specific

conduct to individual defendants. Id. Moreover, the complaint did

not sufficiently specify the time, place or content of the alleged

fraud. Id.

In Pollack, plaintiff alleged that on a number of

different dates defendant made fraudulent representations by mail,

facsimile transmission and phone. Id. However, plaintiff did not

describe the particular contents of the alleged letters, faxes and

phone calls and the role they played in the fraudulent scheme. Id. 

Accordingly, the Ninth Circuit upheld the district court’s

dismissal of plaintiff’s RICO claim. Id. 

Similarly in this case, plaintiffs allege that “from

February 2002 to the present, [I2 Telecom defendants] combined,

conspired and agreed with other businesses * * * to deceive and

trick [p]laintiffs into entering into licensing, marketing and

investing agreements with I2 Telecom * * *.” Doc #49 at 47 ¶ 116. 

Like the Moore complaint, the FAC here does not sufficiently

attribute specific conduct to individual defendants. Nor does the

FAC sufficiently specify the time, place or content of the alleged

fraud. Moreover, the court has already found that the fraud

allegations in the second and third causes of action are

insufficient under 9(b). It remains, therefore, only to review the

remainder of plaintiffs’ fourth and fifth causes of action to

determine whether plaintiffs have alleged any predicate acts of

fraud with sufficient particularity. 

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Although plaintiffs have no doubt exhausted the thesaurus

entries for the word “fraud,” alleging that I2 Telecom defendants

“deceive[d],” “trick[ed],” “defrauded,” “conceal[ed],”

“misrepresent[ed]” and “hoodwink[ed]” plaintiffs, the fourth and

fifth causes of action do not identify a single misleading

statement which satisfies Rule 9(b). Rather, these allegations

repeat the refrain running throughout the FAC. For example,

plaintiffs allege that I2 Telecom defendants have “employ[ed] a

variety of practices desired to deceive and trick plaintiffs * *

*.” Id at 52 ¶ 130. I2 Telecom defendants have “deceived

plaintiffs into entering an agreement [by] utilizing a variety of

practices and strategies designed to deceive * * *.” Id ¶ 131

(emphasis added). I2 Telecom defendants have “deceptively made

numerous telephone calls” and “[a]ctively conceal[ed] their true

motive.” Id at 53 ¶ 132(a)(emphasis added). Moreover, I2 Telecom

defendants have “[c]aused, through deception, intimidation,

trickery and fraud, plaintiffs to forego other legitimate

investment opportunities * * *.” Id at ¶ 132(e). Because these

vague allegations continue for several pages, the court declines to

explain why each and every one fails to meet 9(b)’s heightened

pleading standards. Suffice it to say that specificity is lacking

throughout. 

Plaintiffs have failed to allege predicate acts of

racketeering activity with the specificity required by FRCP 9(b). 

Accordingly, the fourth and fifth causes of action under RICO are

DISMISSED.

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B

I2 Telecom defendants next argue that plaintiffs’ ninth

cause of action for interference with prospective economic

advantage should be dismissed for failure to state a claim upon

which relief can be granted. Doc #60 at 7. I2 Telecom defendants

have not argued that the ninth cause of action lacks merit for

failure to comply with FRCP 9(b). Consequently, the court reviews

this cause of action under the substantially more permissive

standard of FRCP 8. This standard is a liberal one that does not

require plaintiff to set forth all the factual details of the

claim; rather, all that the standard requires is that plaintiff

give defendant fair notice of the claim and the grounds for making

that claim. Leatherman v Tarrant County Narcotics Intell & Coord

Unit, 507 US 163, 168 (1993) (citing Conley v Gibson, 355 US 41, 47

(1957)). To this end, plaintiffs’ complaint should set forth

“either direct or inferential allegations with respect to all the

material elements of the claim.” Wittstock v Van Sile, Inc, 330

F3d 899, 902 (6th Cir 2003). 

Under Rule 12(b)(6), a complaint “should not be dismissed

for failure to state a claim unless it appears beyond doubt that

the plaintiff can prove no set of facts in support of his claim

which would entitle him to relief.” Hughes v Rowe, 449 US 5, 10

(1980) (citing Haines v Kerner, 404 US 519, 520 (1972)); see also

Conley, 355 US at 45-46. All material allegations in the complaint

must be taken as true and construed in the light most favorable to

plaintiff. See In re Silicon Graphics Inc Securities Litigation,

183 F3d 970, 980 n10 (9th Cir 1999).

The elements of a cause of action for interference with

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prospective economic advantage in California are: (1) plaintiff

had an economic relationship with a third party containing the

probability of a future economic benefit to plaintiff; (2)

defendant had knowledge of this relationship; (3) defendant

committed intentional and wrongful acts designed to disrupt the

relationship; (4) actual disruption of the relationship occurred;

and (5) economic harm to plaintiff was proximately caused by

defendant’s conduct. Della Penna v Toyota Motor Sales, USA, Inc,

11 Cal 4th 376, 389 (1995).

I2 Telecom defendants contend that plaintiffs have failed

to allege facts establishing that Supercaller had an economic

relationship with a third party containing future economic benefit. 

Doc #60 at 8. Moreover, I2 Telecom defendants argue that

plaintiffs did not allege that defendants had any knowledge of an

economic relationship with a third party. 

Plaintiffs allege that Supercaller “forewent other

opportunities to raise venture funding in reliance of the promise

by [I2 Telecom defendants]. For example, Supercaller had

attractive offers to purchase shares from the Whistler Group * * *

and Don Metzger * * *, which were refused because [plaintiffs]

relied on the promises of [I2 Telecom defendants.]” Doc #49 at 13

¶ 49. Consequently, the complaint satisfies the first element of

interference with prospective economic advantage. But plaintiffs

do not allege that I2 Telecom defendants had knowledge of those

relationships or that plaintiffs ever attempted to make I2 Telecom

defendants aware of those relationships. Nor do plaintiffs make

allegations that could give rise to an inference that I2 Telecom

was aware of those relationships. Accordingly, plaintiffs’ ninth

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cause of action is DISMISSED. 

C

Next, I2 Telecom defendants contend that plaintiffs’

thirteenth cause of action for usurpation of corporate opportunity

should be dismissed. Doc #60 at 9. The corporate opportunity

doctrine prohibits a fiduciary from acquiring:

in opposition to the corporation, property in

which the corporation has a vested interest or

tangible expectancy * * * [A] corporate

opportunity exists when a proposed activity is

reasonably incident to the corporation’s

present or prospective business and is one in

which the corporation has the capacity to

engage.

Robinson, Leatham & Nelson, Inc v Nelson, 109 F3d 1388 (9th Cir

1997).

Plaintiffs allege that if the court finds defendant Arena

was a duly appointed member of the Supercaller Board of Directors,

he owed Supercaller a duty not to usurp corporate opportunities for

himself. Doc #49 at 68-69 ¶ 186. According to plaintiffs, I2

Telecom defendants knew of an opportunity to market a Supercaller

to Staples, Inc. Id at ¶ 187. But plaintiffs have merely alleged

that I2 Telecom defendants “used that information to personally

benefit.” Plaintiffs have not alleged how defendants used the

information to their benefit. Id. The complaint must do more than

allege the elements of the cause of action in conclusory fashion. 

Accordingly, this cause of action is DISMISSED. 

D

I2 Telecom defendants next argue that plaintiffs’

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fifteenth cause of action for interference with attorney-client

relationship should be dismissed. Doc #60 at 10. The elements of

interference with attorney-client relationship mirror those of

interference with contract. Abrams & Fox, Inc v Briney, 39 Cal App

3d 604, 608 (1974). Plaintiffs must allege: (1) a valid contract

between plaintiff and a third party, (2) defendants’ knowledge of

this contract, (3) that defendants’ intentional acts were designed

to induce a breach or disruption of the contractual relationship,

(4) actual breach or disruption of the contractual relationship and

(5) resulting damage. Pacific Gas & Electric Co v Bear Stearns &

Co, 50 Cal 3d 1118, 1126 (1990). Plaintiffs’ complaint should set

forth “either direct or inferential allegations with respect to all

material elements of the claim.” Wittstock, 330 F3d at 902

(emphasis added).

According to I2 Telecom defendants, plaintiffs fail to

allege that a valid contract existed between plaintiff and Chaganti

or that an actual breach of the contract occurred. Doc #60 at 10. 

However, plaintiffs do allege that “Supercaller hired [] Chaganti.” 

Doc #49 at 71 ¶ 192. While plaintiffs do not spell out the fact in

excruciating detail, the court finds that plaintiffs set forth

allegations sufficient to support an inference that plaintiffs and

Chaganti had a valid contract. Moreover, I2 Telecom defendants

ignore that not only actual breach but also disruption of the

contract satisfies the fourth element. Plaintiffs allege that

Arena “pressured [] Lim not to pay Naren Chaganti for the services

he rendered.” Id at ¶ 193. Again, the court finds that plaintiffs

have set forth allegations sufficient to support the inference that

I2 Telecom defendants disrupted the contract between plaintiffs and

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Chaganti. Accordingly, I2 Telecom defendants’ motion to dismiss

the fifteenth cause of action is DENIED. 

E

Next, I2 Telecom defendants contend that plaintiffs’

eighteenth cause of action for infliction of emotional distress is

barred by the statute of limitations. Doc #60 at 10. In 2002 the

California Legislature amended section 340(3) of the California

Code of Civil Procedure, deleting the one-year limitations period

for personal injury actions, and adding section 335.1, which now

provides a two-year statute of limitations for such actions. 

Neither plaintiffs nor I2 Telecom defendants take notice

of the extension of the statute of limitations. Citing a 1998

case, I2 Telecom defendants allege that “[c]laims for intentional

infliction of emotional distress must be brought within one year of

the event alleged to have inflicted the distress.” Doc #60 at 10. 

Plaintiffs clearly fail to notice this detail as well. While they

correctly state that “defendants are * * * wrong in asserting

statute of limitations * * * for [plaintiffs’] emotional distress

claim,” plaintiffs’ explanation is wildly off target. Doc #96 at

18. According to plaintiffs, the statute of limitations does not

bar the cause of action for intentional infliction of emotional

distress because “[n]othing in the complaint states that plaintiffs

are barred by any limitations period.” Id. But a determination

that a claim is barred by the statute of limitations does not turn

on whether plaintiffs have alleged in the complaint that they are

barred by the statute of limitations from bringing their own claim. 

Neither party has provided the court with an accurate analysis of

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the facts and governing law. Accordingly, I2 Telecom defendants’

motion to dismiss the eighteenth cause of action is DENIED.

F

Finally, I2 Telecom defendants argue that plaintiffs’

nineteenth cause of action for wrongful discharge in violation of

public policy is precluded by a decision by the California

Department of Industrial Relations. Doc #60 at 11. FRCP 12(b)

provides that if, on a 12(b)(6) motion to dismiss:

matters outside the pleading are presented to

and not excluded by the court, the motion shall

be treated as one for summary judgment and

disposed of as provided in Rule 56, and all

parties shall be given reasonable opportunity

to present material made pertinent to such a

motion by Rule 56.

Plaintiffs have had reasonable opportunity to present

material pertinent to the resolution of this issue in their

opposition to defendants’ motion. Instead, plaintiffs argue merely

that this “issue should be saved for another day.” Doc #96. 

Nonetheless, the court treats I2 Telecom defendants’ motion as one

for summary judgment.

In reviewing a summary judgment motion, the court must

determine whether genuine issues of material fact exist, resolving

any doubt in favor of the party opposing the motion. “[S]ummary

judgment will not lie if the dispute about a material fact is

‘genuine,’ that is, if the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.” Anderson v

Liberty Lobby, 477 US 242, 248 (1986). “Only disputes over facts

that might affect the outcome of the suit under the governing law

will properly preclude the entry of summary judgment.” Id. And

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the burden of establishing the absence of a genuine issue of

material fact lies with the moving party. Celotex Corp v Catrett,

477 US 317, 322-23 (1986). Summary judgment is granted only if the

moving party is entitled to judgment as a matter of law. FRCP

56(c).

The nonmoving party may not simply rely on the pleadings,

however, but must produce significant probative evidence, by

affidavit or as otherwise provided in FRCP 56, supporting its claim

that a genuine issue of material fact exists. TW Elec Serv v

Pacific Elec Contractors Assn, 809 F2d 626, 630 (9th Cir 1987). 

The evidence presented by the nonmoving party “is to be believed,

and all justifiable inferences are to be drawn in his favor.” 

Anderson, 477 US at 255. “[T]he judge’s function is not himself to

weigh the evidence and determine the truth of the matter but to

determine whether there is a genuine issue for trial.” Id at 249. 

Administrative proceedings may be given the preclusive

effect accorded to a court when: (1) An administrative agency is

acting in a judicial capacity and (2) resolves disputed issues of

fact properly before it which the parties have had an adequate

opportunity to litigate. United States v Utah Construction &

Mining Co, 384 US 395, 422 (1966); Plaine v McCabe, 797 F2d 713

(9th Cir 1986). 

“There can be no indiscriminate presumption of judicial

adequacy of state administrative proceedings.” Id at 719. 

Consequently, the court must carefully review the state

administrative proceeding to ensure that, at a minimum, it meets

the state’s own criteria necessary for a court of that state to

give preclusive effect to the state agency’s decisions. Id. “[A]

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federal court should normally give preclusive effect to a state

administrative decision when a state court would itself give that

administrative decision preclusive effect * * *.” Id at 719 n13.

Neither party has provided the court with relevant

authority on this issue. First, I2 Telecom defendants’ recitation

of the governing legal standards announced in Utah Construction &

Mining Co and Plaine are but a shadow of the complex analysis the

court must perform. These cases state the relevant question; it is

up to I2 Telecom defendants to answer it. As stated above, the

court must determine whether a California court would give the

administrative decision preclusive effect. But I2 Telecom

defendants offer no such argument. Instead, the court is told

without so much as a citation to a statute or a case that the

administrative agency is acting in a judicial capacity and resolved

a dispute before it which the parties had adequate opportunity to

litigate. Doc #60 at 11. As one example of I2 Telecom defendants’

deficient argument, the court notes that neither federal nor

California law gives preclusive effect to a state administrative

proceeding not subject to judicial review. Wehrli v County of

Orange, 175 F3d 692, 695 (9th Cir 1999). Yet defendants offer the

court no guidance about whether decisions of the Department of

Industrial Relations are subject to judicial review. Moreover,

Utah Construction & Mining Co and Plaine dictate several additional

considerations, but I2 Telecom defendants have submitted nothing to

assist the court in that analysis.

Plaintiffs have fared no better in this argument,

treating the court to a four sentence rebuttal instructing the

court to save the issue for another day because the administrative

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proceeding is a matter outside the complaint. This response is not

sufficient; there is no reason why plaintiffs could not submit an

adequate response to I2 Telecom defendants’ contention.

The burden being on I2 Telecom defendants, the court must

DENY their motion to dismiss the nineteenth cause of action. 

V

“[A] party may amend the party’s pleading * * * by leave

of court * * * and leave shall be freely given when justice so

requires.” FRCP 15(a). The Ninth Circuit directs district courts

to apply the policy of Rule 15(a) with “extreme liberality.” 

Morongo Band of Mission Indians v Rose, 893 F2d 1074, 1079 (9th Cir

1990) (citing DCD Programs, Ltd v Leighton, 833 F2d 183, 186 (9th

Cir 1987)). This liberality, however, is “subject to the

qualification that amendment of the complaint [1] does not cause

the opposing party undue prejudice, [2] is not sought in bad faith

and [3] does not constitute an exercise in futility.” DCD

Programs, 833 F2d at 186 (internal citations omitted).

In view of the unfocused character of the first two

complaints, the court has serious reservations about granting

plaintiffs yet another opportunity to amend the complaint. But

with hope overcoming experience, the court GRANTS plaintiffs’

request for leave to amend the FAC. Plaintiffs are granted leave

to amend their FAC to: (1) plead fraud against defendants with the

requisite degree of particularity required by FRCP 9(b) and (2)

replead any of the claims that do not require fraud as an essential

element, if plaintiffs are able to assert a non-fraud basis for

those claims. Plaintiffs are also admonished to heed the court’s

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instructions to plead fraudulent statements and omissions with

particularity. Particularity in this context does not mean rococo

evidentiary detail. It does mean clear and concise allegations of

facts that constitute elements of the claim in question. 

Economical pleading is more likely to satisfy the particularity

requirement than many and verbose allegations. The relevant legal

standards are set forth in this order. 

Plaintiffs’ failure to allege succinctly, coherently and

nonredundantly the facts giving rise to their claims has occasioned

the parties’ confusing and often unhelpful briefing, considerable

delay in resolving the parties’ motions and now this lengthy order. 

To avoid this in further proceedings, should plaintiffs elect to

file an amended complaint, plaintiffs are ordered to amend under

the following constraints: (1) All factual allegations must be set

forth in the general body of the complaint; (2) the general body

must be no greater than twenty-five pages long and (3) the causes

of action must provide relevant citations (not restatements) to the

underlying factual allegations set forth in the general body of the

complaint. No further amendment will be permitted except for good

cause shown.

VI

Plaintiffs move to file a surreply (Doc #105), a practice

the court strongly disfavors. Accordingly, plaintiffs’ motion is

DENIED.

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VII

In sum, the court: GRANTS attorney defendants’ motion to

dismiss (Doc #65), GRANTS IN PART I2 Telecom defendants’ motion to

dismiss (Doc #60) and DENIES plaintiffs’ motion to file a surreply

(Doc #105). The remaining causes of action against I2 Telecom

defendants (or some subset thereof) are claims 1, 6, 7, 11, 12, 15-

19, 21 and 22 in the FAC. Plaintiffs may if they so choose file an

amended complaint by June 13, 2005, and defendants shall answer or

otherwise plead on or before July 7, 2005. If plaintiffs do not

file and amended complaint, the I2 Telecom defendants shall answer

the FAC by June 27, 2005.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Judge

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