Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_03-cv-03618/USCOURTS-cand-4_03-cv-03618-9/pdf.json

Nature of Suit Code: 740
Nature of Suit: Railway Labor Act
Cause of Action: 45:151 Railway Labor 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

THOMAS RACHFORD, et al.,

Plaintiffs, No. C 03-3618 PJH

v. ORDER GRANTING MOTION TO 

COMPEL ARBITRATION AND

AIR LINE PILOTS ASSOCIATION, GRANTING MOTION TO DISMISS 

INTERNATIONAL, et al., IN PART AND DENYING IT IN PART

Defendant.

_______________________________/

The motion of defendants Emery Worldwide Airlines (“EWA”); Emery Air Freight

Corp. d/b/a Emery Air Freight Forwarding, Inc., a/k/a Menlo Worldwide Forwarding, Inc.

(“EWW”); and CNF, Inc. (“CNF”) to dismiss the third through eleventh causes of action in

the fourth amended complaint, and the motion of defendants EWW and CNF for an order

compelling arbitration of the second cause of action, came on for hearing before this court

on April 5, 2006. Plaintiffs appeared by their counsel G. Stephen Long, Marty Harper,

Andrew Jacob, and David T. Alexander, and defendants appeared by their counsel Michael

C. Hallerud. Having read the parties’ papers and carefully considered their arguments and

the relevant legal authority, and good cause appearing, the court GRANTS the motion to

compel arbitration, and GRANTS the motion to dismiss in part and DENIES it in part.

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 The ALPA Constitution and By-Laws establish “Master Executive Councils” (or

“MECs”), which are coordinating and governing organs for members employed by one airline.

2

BACKGROUND

This is a proposed class action filed by individuals formerly employed by EWA as

pilots and flight engineers. At the time of the events alleged in the complaint, CNF was the

parent company of EWA and EWW. EWA was a commercial airline that transported

freight, primarily for EWW, a freight forwarding company. 

On September 28, 2000, the EWA pilots and flight engineers (“the EWA pilots” or

“the Emery pilots”), who were represented by the Air Line Pilots Association (“ALPA”),

entered into a collective bargaining agreement (“CBA”) with EWA. Also on September 28,

2000, the EWA pilots entered into a “side letter” agreement with EWA and EWW (“the

subcontracting letter of agreement” or “LOA”), in which EWW promised to increase its use

of EWA to transport its airfreight, and to do so by limiting and gradually reducing its use of

outside third-party carriers. 

In August 2001, the Federal Aviation Administration (“FAA”) shut down EWA’s flight

operations on a temporary basis, after finding numerous safety violations. On September

19, 2001, EWA and the FAA entered into a “final settlement agreement” (“FSA”) in which

EWA stated that it desired to resume commercial air carrier flight operations, and agreed to

use its “best efforts” – including providing sufficient manpower and resources – to comply

with FAA statutes and regulations. 

In January 2002, the Emery MEC1

 filed a grievance against EWA (“the shut-down

grievance”), asserting that the cessation of flight operations violated the CBA. On January

16, 2002, ALPA, acting pursuant to its Constitution and By-Laws, imposed a custodianship

on the Emery MEC in accordance with 29 U.S.C. § 462.

 On August 4, 2003, 270 former EWA crew members filed the present action,

asserting that ALPA, EWA, and EWW had improperly settled grievances filed by ALPA

regarding the permanent shut-down. Plaintiffs alleged a cause of action against ALPA for

breach of the duty of fair representation, and a cause of action against EWA and/or EWW

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for breach of the CBA and LOA. The complaint also alleged that “[i]n taking the actions

described herein, [d]efendants EWA and EWW acted as the agents of each other.” 

On November 25, 2003, four of the original 270 plaintiffs – Thomas Rachford, Jon

del Turco, Wendy Albright, and Mark Luthi – filed a first amended complaint (“FAC”) as a

proposed class action, against ALPA, EWA, EWW, and CNF. The FAC alleged four

causes of action – 1) breach of the duty of fair representation, against ALPA; 2) breach of

contract (the CBA and LOA), against EWA and/or EWW; 3) intentional interference with

contract (the CBA and LOA), against CNF; and 4) negligent interference with contract (the

CBA and LOA), against CNF. The FAC asserted that EWA, EWW, and CNF acted as the

agents of each other. 

On June 30, 2004, following the court’s ruling on the motion to dismiss the FAC,

plaintiffs filed a second amended complaint (“SAC”), against ALPA, EWA, EWW, and CNF. 

The SAC alleged four causes of action 1) breach of the duty of fair representation, against

ALPA; 2) breach of contract (the CBA and LOA), against EWA and/or EWW; 3) intentional

interference with contract (the CBA and LOA), against CNF; and 4) negligent interference

with contract (the CBA and LOA), against CNF. The SAC asserted that EWA, EWW, and

CNF were alter egos of each other, and acted as the agents of each other. 

On September 30, 2004 – October 1, 2004, the court conducted an evidentiary

hearing on the question whether there had been a settlement of the shut-down grievance. 

On October 4, 2004, CNF entered into a stock purchase agreement with a

subsidiary of United Parcel Service, Inc. (“UPS”). Plaintiffs allege that pursuant to this

agreement, CNF sold its wholly-owned interest in EWW to UPS. Plaintiffs claim that as a

term of this transaction, CNF agreed to indemnify and defend UPS and hold UPS harmless

with regard to any claims, liabilities, or judgments relating to the CBA and the LOA. 

On June 15, 2005, the court issued its findings of fact and conclusions of law

following the evidentiary hearing, and concluded that the parties had not reached a

settlement of the shut-down grievance. Based on this finding, the court dismissed the first

cause of action against ALPA, and the second cause of action against EWA and EWW. 

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On December 15, 2005, the court granted plaintiffs’ motion for leave to file a third

amended complaint (“TAC”), alleging a claim against ALPA for improper imposition and

maintenance of a trusteeship, and alleging nine causes of action against EWA, EWW,

and/or CNF. On January 24, 2006, pursuant to stipulation, plaintiffs filed the fourth

amended complaint (“4thAC”), the present iteration, which is identical to the TAC, with one

additional cause of action. ALPA moved to dismiss the first cause of action, and the motion

was granted on April 10, 2006. 

The following claims remain: Plaintiffs allege, in the second cause of action, breach

of contract (LOA), against EWW and against CNF as alter ego or as successor to EWW’s

liability; in the third cause of action, intentional interference with contract (LOA), against

CNF and EWA; in the fourth cause of action, negligent interference with contract (LOA),

against CNF and EWA; in the fifth cause of action, intentional interference with contract

(CBA), against CNF and EWW; in the sixth cause of action, negligent interference with

contract (CBA), against CNF and EWW; in the seventh cause of action, third-party

beneficiary breach of contract (FSA), against EWA; in the eighth cause of action, intentional

interference with contract (FSA), against CNF and EWW; in the ninth cause of action,

negligent interference with contract (FSA), against CNF and EWW; in the tenth cause of

action, unjust enrichment, against CNF and EWW; and in the eleventh cause of action,

unfair competition, in violation of California Business & Professions Code § 17200, against

CNF, EWW, and EWA.

Plaintiffs assert that EWA, EWW, and CNF are agents and alter egos of each other,

and also assert that although CNF sold EWW to UPS in October 2004, it agreed to accept

liability for plaintiffs’ claims arising out of EWW’s alleged breach of the LOA and is therefore

liable under a theory of successor liability. 

CNF, EWA, and EWW now seek an order dismissing the causes of action asserted

against them for lack of subject matter jurisdiction and for failure to state a claim. In the

alternative, they seek summary judgment. EWW and CNF also seek an order compelling

arbitration of the second cause of action for breach of the LOA. 

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DISCUSSION

A. Legal Standard

1. Subject matter jurisdiction

Subject matter jurisdiction is fundamental and cannot be waived. Billingsly v. C.I.R.,

868 F.2d 1081, 1085 (9th Cir. 1989). The court is under a continuing duty to dismiss an

action whenever it appears that the court lacks jurisdiction. Id. Federal courts can

adjudicate only those cases which the Constitution and Congress authorize them to

adjudicate – those involving diversity of citizenship or a federal question, or those to which

the United States is a party. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375,

377 (1994). 

When presented with a Rule 12(b)(1) motion, the plaintiff bears the burden of

demonstrating that subject matter jurisdiction exists. See, e.g., Tosco Corp. v.

Communities for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001). The defendant may

either challenge jurisdiction on the face of the complaint or provide extrinsic evidence

demonstrating lack of jurisdiction on the facts of the case. White v. Lee, 227 F.3d 1214,

1242 (9th Cir. 2000). 

2. Failure to state a claim

A court should dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to

state a claim only where it appears beyond doubt that plaintiff can prove no set of facts in

support of the claim which would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S.

41, 45-46 (1957); Pillsbury, Madison & Sutro v. Lerner, 31 F.3d 924, 928 (9th Cir. 1994). 

Review is limited to the contents of the complaint. Allarcom Pay Television, Ltd. v. Gen.

Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). Allegations of material fact are taken

as true and construed in the light most favorable to the nonmoving party. Smith v.

Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). Conclusory allegations of law and

unwarranted inferences, however, are insufficient to defeat a motion to dismiss. Assoc.

Gen’l Contractors v. Metro. Water Dist. of So. Cal., 159 F.3d 1178, 1181 (9th Cir. 1998).

Motions to dismiss for failure to state a claim are disfavored, see Gilligan v. Jamco

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Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997), and Rule 12(b)(6) dismissals are proper only

in “extraordinary” cases. United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir.

1981). In dismissing for failure to state a claim, “a district court should grant leave to

amend even if no request to amend the pleadings was made, unless it determines that the

pleading could not possibly be cured by the allegation of other facts.” Doe v. United States,

58 F.3d 494, 497 (9th Cir. 1995) (citations omitted).

B. Defendants’ Motion

Defendants argue that the claims of tortious interference with contract (the third,

fourth, fifth, sixth, eighth, and ninth causes of action) should be dismissed for failure to

state a claim because a party to a contract cannot be liable in tort for interference with

contract. Defendants contend that because plaintiffs allege that the corporate defendants

are alter egos and agents of each other, they are in effect asserting that each of the

corporate defendants is a party to each of the three contractual agreements at issue. 

Defendants also assert that the CBA-related tort claims (the fifth and sixth causes of

action) are preempted by federal law; that plaintiffs have no standing to assert the claims of

interference with the FSA (eighth and ninth causes of action); and that plaintiffs fail to

allege facts sufficient to state a claim of negligent interference with the LOA (fourth cause

of action). 

Defendants contend that the breach of contract claims (the second and seventh

causes of action) must be dismissed for lack of subject matter jurisdiction. Defendants

claim that the plaintiffs lack standing to bring the claim of breach of the FSA (seventh cause

of action), and that the court lacks jurisdiction over the claim of breach of the LOA (second

cause of action) because that claim must be arbitrated and because CNF is not EWW’s

“successor.”

Defendants assert that the claim of unjust enrichment (tenth cause of action) must

be dismissed because it is preempted by federal law, because plaintiffs plead that the

parties’ relationships were governed by express contracts, and because plaintiffs fail to

plead facts supporting unjust enrichment.

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Finally, defendants contend that the unfair competition claim (eleventh cause of

action) is preempted by federal law, and fails to state a claim. 

In addition, defendants argue that under California’s choice-of-law principles, Ohio

law rather than California law applies to the FSA-related claims (seventh, eighth, and ninth

causes of action). 

1. The tortious interference with contract claims

In the third and fourth causes of action, plaintiffs allege that CNF and EWA

intentionally and negligently interfered with the LOA (to which the EWA pilots, EWA, and

EWW are named parties). In the fifth and sixth causes of action, plaintiffs allege that CNF

and EWW intentionally and negligently interfered with the CBA (to which the pilots and

EWA are named parties). In the eighth and ninth causes of action, plaintiffs allege that

CNF and EWW intentionally and negligently interfered with the contractual relationship

established by the FSA (to which EWA and the FAA are named parties).

Plaintiffs allege that EWA, EWW, and CNF are alter egos of each other, and that

each corporate defendant acted as the agent of the others in taking the actions alleged in

the 4thAC. In the motion to dismiss, defendants argue that both the alter ego allegations

and the agency allegations compel dismissal of the six tortious interference claims,

because a party cannot interfere with a contract to which it is a party, and because an

agent acting on behalf of a corporation cannot be held liable for inducing a breach of the

corporation’s contract. 

The court finds that the motion to dismiss must be GRANTED. Under California law,

a party to a contract cannot be liable for interference with the contract. Only a stranger to a

contract may be liable for tortious interference. See Applied Equip. Corp. v. Litton Saudi

Arabia Ltd., 7 Cal. 4th 503, 513-16 (1994); see also Webber v. Inland Empire Invs., Inc., 74

Cal. App. 4th 884, 898 (1999) (where defendants are treated as one because they are all

owned and controlled by the same defendant, the doctrine that a party cannot interfere with

its own contract applies). Thus, to the extent that the corporate defendants that are not

parties to the various contracts are alter egos of each other, they cannot be liable for

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2

 Defendants argue that Ohio law applies to the claims of tortious interference with the

FSA claims. The court applies California law in this instance, however, because, as

defendants acknowledge, Ohio courts hold, as do California courts, that only a stranger to a

contract may be liable for tortious interference. See Condon v. Body, Vickers & Daniels, 649

N.E. 2d 1259, 1265 (Ohio App. 1994). 

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interference.2 

Plaintiffs contend that they have pled their alter ego allegations separately from the

interference allegations, and that they are entitled to plead “inconsistent theories.” They

argue that if the court finds that the 4thAC does not adequately plead alter ego as an

alternative theory, they should be granted leave to amend the complaint to do so. At the

hearing, plaintiffs’ counsel also stated that the alter ego allegations were “inadvertently

incorporated” into all the substantive claims, and asserted that the alter ego pleadings were

intended to apply only to the breach of contract causes of action, not to the tortious

interference claims.

The 4thAC clearly incorporates the alter ego allegations into each claim for relief. 

Plaintiffs have not pled alter ego “in the alternative,” as they assert, and indeed, there is no

way that they can do so. It is true that under Rule 8(e)(2), a party may “set forth two or

more statements of a claim or defense alternately or hypothetically, either in one count or

defense or in separate counts or defenses.” Fed. R. Civ. P. 8(e)(2). A party may also

“state as many separate claims . . . as the party has regardless of consistency and whether

based on legal, equitable, or maritime grounds.” Id. Nevertheless, the alter ego doctrine

does not create an independent cause of action that can be pled in the alternative with

another independent cause of action; it merely serves to identify which parties may be held

liable for the misconduct at issue. 

“A request to pierce the corporate veil is only a means of imposing liability for an

underlying cause of action and is not a cause of action in and of itself." Local 159 v.

Nor-Cal Plumbing, Inc., 185 F.3d 978, 985 (9th Cir.1999); see also In re Grothues, 226

F.3d 334, 337-38 (5th Cir. 2000) (alter ego theory is a remedy to enforce a substantive

right, not an independent cause of action). Put another way, a claim against a defendant

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3

 The law in Ohio is the same. See Andrews v. Carmody, 761 N.E. 2d 1076, 1081-82

(Ohio App. 2001). 

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based on the alter ego theory is a derivative of the substantive cause of action against the

corporate defendant. It is “not itself a claim for substantive relief," but rather is a means to

“disregard the corporate entity as a distinct defendant and to hold the alter ego individuals

liable on the obligations of the corporation where the corporate form is being used by the

individuals to escape personal liability, sanction a fraud, or promote injustice.” 

Hennessey's Tavern, Inc. v. American Air Filter Co., Inc., 204 Cal. App. 3d 1351, 1359

(1988). 

Thus, a party that is not an alter ego cannot be liable if it bears no primary liability

and there is no other basis for liability asserted. In the opposition to their motion, plaintiffs

seem to be arguing that defendants are alter egos for purposes of some claims, and are

not alter egos for purposes of other claims. But defendants either are or are not alter egos. 

They cannot be both. The only amendment possible – albeit one the plaintiffs have not

requested – would be for plaintiffs to delete the alter ego allegations from the complaint. 

However, the unacceptable result of permitting such amendment would be to return the

parties to the position they were in at the time that the FAC was the operative complaint –

that is, before the court granted plaintiffs’ motion for leave to file a second amended

complaint alleging that CNF, EWW, and EWA are alter egos of each other. 

The court finds further that defendants’ motion must be GRANTED with regard to

the allegation that CNF, EWA, and EWW acted as agents of each other. Under California

law, an agent acting on behalf of a corporation cannot be liable for inducing a breach of the

corporation’s contract, because the agent’s relationship to the corporation is privileged. 

Shoemaker v. Myers, 52 Cal. 3d 1, 24 (1990).3

 In other words, an agent acting on behalf of

a corporation is privileged to induce breach of the principal’s contract. Applied Equip., 7

Cal. 4th at 512. Under the related "agent's immunity rule," the agents of a corporation

cannot conspire with their corporate principal where they act in their official capacities on

behalf of the corporation, and not as individuals for their individual advantage. Id. & n.4

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(quotations and citations omitted). 

 Plaintiffs contend that they did not intend to allege tortious interference based on

agency. They assert that the agency allegation is directed only at the breach of contract

claims. However, the agency allegation states, in full, “[i]n taking the actions described

herein, Defendants EWA, EWW, and CNF acted as the agents of each other.” Moreover,

each version of the complaint has included exactly the same allegation. It is not clear to

the court how that allegation – which appears in the section labeled “Parties” and is

incorporated by reference in all causes of action alleged in the 4thAC – can be interpreted

as applying only to the breach of contract claims. The court finds, however, that

amendment would be futile, as the tortious interference claims cannot proceed because of

the alter ego allegations, as discussed above.

As an additional basis for dismissing the claims of tortious interference with the CBA

(fifth and sixth causes of action), the court finds that those claims are preempted by the

Railroad Labor Act (“RLA”), 45 U.S.C. §§ 151, et seq. The RLA, which was extended in

1936 to cover the airline industry, is similar to the National Labor Relations Act, in that it

regulates the process of negotiations for the creation and modification of CBAs. Air

Transp. Ass’n. of America v. City and County of San Francisco, 266 F.3d 1064, 1075 (9th

Cir. 2001). The RLA is also similar to the Labor Management Relations Act (“LMRA”) in

that it creates a system for dispute resolution for grievances arising from CBAs. Id. (citing

45 U.S.C. § 153(i)). 

While the RLA (unlike the LMRA) contains no specific preemption language, the

courts have interpreted the RLA to preempt state laws that prohibit collective bargaining by

railroad and airline employees or that otherwise frustrate the purposes of the RLA, and to

preempt state law causes of action that depend upon interpretation of CBAs. Id. at 1076. 

Here, defendants argue that plaintiffs’ claims of interference with the CBA are preempted

because resolution of those claims will require the court to interpret the CBA.

The elements of intentional interference with contract are: 1) a valid contract

between plaintiff and a third party; 2) the defendant's knowledge of this contract; 

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 The California Supreme Court recognizes intentional interference with contract and

intentional interference with prospective economic advantage as separate torts. See Reeves, 33 Cal. 4th at 1148-53. The tort of interference with contractual relations appears to be a

species of the broader tort of intentional interference with prospective economic advantage.

See Buckaloo v. Johnson, 14 Cal. 3d 815, 823, 122 (1975). The difference is that the former

requires the existence of a binding contract. Id. However, the California Supreme Court has

previously rejected a cause of action for negligent interference with contract. See Fifield

Manor v. Finston, 54 Cal. 2d 632, 634-37 (1960). In Fifield, the court stated that courts have

generally refused to recognize a cause of action based on negligent, as opposed to intentional,

conduct that interferes with the performance of a contract between third parties or renders its

performance more expensive or burdensome, because to do so “would constitute an

unwarranted extension of liability for negligence." Id. at 636-37. The California Supreme Court

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3) intentional acts by the defendant designed to induce a breach or disruption of the

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

5) resulting damage. Reeves v. Hanlon, 33 Cal. 4th 1140, 1148 (2004). To establish the

claim, the plaintiff need not prove that a defendant acted with the primary purpose of

disrupting the contract, but must show the defendant's knowledge that the interference was

certain or substantially certain to occur as a result of his or her action. Id. The plaintiff

must also show that the contract "was breached and abandoned by reason of the

defendant's wrongful act and that such act was the moving cause thereof." Dryden v.

Tri-Valley Growers, 65 Cal. App. 3d 990, 997 (1977). 

The court knows of no way, without interpreting the CBA or applying its terms, to

determine whether CNF and EWW engaged in intentional acts designed to induce a breach

of the CBA or disruption of the contractual relationship, which acts did in fact result in an

actual breach of the CBA or disruption of the contractual relationship. In other words, in

order to determine whether CNF and EWW interfered with the CBA, or to determine

whether the contractual relationship was “disrupted,” the court would have to ascertain the

nature of the contractual relationship, which would necessitate interpreting the CBA or

applying its terms. See Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 252-63 (1994). 

California recognizes a cause of action for negligent interference with prospective

economic advantage, see J'Aire Corp. v. Gregory, 24 Cal.3d 799, 806 (1979), although it is

not settled that California recognizes negligent interference with contract as a separate

tort.4

 "The tort of negligent interference with economic relationship arises only when the

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has never overruled the holding of Fifield Manor. See LiMandri v. Judkins, 52 Cal. App. 4th

326, 349 (1997). The court notes in addition that while California Civil Jury Instructions (BAJI)

provides instructions for intentional interference with prospective economic advantage (BAJI

7.82) and negligent interference with prospective economic advantage (BAJI 7.82.1), it

provides but a single instruction for interference with contractual relations (BAJI 7.81), which

includes an intent/knowledge element. 

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defendant owes the plaintiff a duty of care." Stolz v. Wong Communications Ltd.

Partnership, 25 Cal. App. 4th 1811, 1825 (1994). The plaintiff must allege that the

defendant had a duty to exercise care in light of the plaintiff’s contractual relationship with a

third party. J’Aire Corp., 24 Cal. 3d at 803-04. Among the criteria for establishing a duty of

care is the “blameworthiness” of the defendant's conduct; in addition, the plaintiff must

show that the defendant’s conduct was independently wrongful apart from the act of

interference itself. Lange v. TIG Ins. Co., 68 Cal. App. 4th 1179, 1187 (1998). 

The tort of negligent interference with prospective economic advantage is

established where a plaintiff demonstrates that (1) an economic relationship existed

between the plaintiff and a third party which contained a reasonably probable future

economic benefit or advantage to plaintiff; (2) the defendant knew of the relationship and

was aware or should have been aware that if it did not act with due care its actions would

interfere with this relationship and cause plaintiff to lose the probable future economic

benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such

negligence caused damage to plaintiff in that the relationship was actually interfered with or

disrupted and plaintiff lost in whole or in part the economic benefits or advantage

reasonably expected from the relationship. 5 Witkin, Summary of Cal. Law (9th ed. 1988)

Torts, §§ 661-62. 

As with the claim of intentional interference with contract, the court finds that

determining whether CNF and EWW interfered with or disrupted the economic/employment

relationship between plaintiffs and EWA (delineated by the terms of the CBA) by failing to

use ordinary care in their own relationship with plaintiffs will require the court to interpret the

CBA or to apply its terms. Thus, the claim is preempted by the RLA. 

As a further basis for seeking dismissal of the claim of intentional interference with

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the FSA (eighth cause of action), defendants argue that because plaintiffs were not parties

to the FSA, they lack standing to assert this claim. Plaintiffs respond that they bring this

claim as third-party beneficiaries of the FSA, asserting that they part of the class of persons

for whose benefit the agreement was made. For reasons discussed below with regard to

the claim of breach of contract (FSA), the court does not decide this issue at this time. 

As an additional basis for seeking dismissal of the claim of negligent interference

with the FSA (ninth cause of action), defendants argue that Ohio law governs the FSArelated claims, and that Ohio does not recognize a cause of action for negligent

interference with contract. Because the court finds that all the tortious interference claims

must be dismissed because of the alter ego and agency allegations, the court does not

decide which state’s law applies to the claim of negligent interference with the FSA. 

2. The breach of contract claims

Defendants contend that the breach of contract claims (the second and seventh

causes of action) must be dismissed for lack of subject matter jurisdiction. Defendants

claim that the plaintiffs lack standing to bring the claim of breach of the FSA (seventh cause

of action), and that the court lacks jurisdiction over the claim of breach of the LOA (second

cause of action) because that claim must be arbitrated and because CNF is not

 EWW’s successor.

a. breach of FSA

In the 4thAC, plaintiffs allege that EWA “failed to observe its implied and explicit

covenants of good faith and fair dealing” arising under the FSA by deliberately failing to

provide “sufficient manpower and resources to become qualified and capable of conducting

its operations in compliance with FAA governing statutes and regulations,” thereby

breaching its obligations under the FSA. As indicated above with regard to the tortious

interference (FSA) claims, plaintiffs assert that the EWA pilots were third-party beneficiaries

of the FSA. Defendants argue, however, that plaintiffs lack standing to bring the claim of

breach of the FSA, because they were not the intended beneficiaries of the agreement.

California requires that an alleged third-party beneficiary be an intended beneficiary. 

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Bancomer, S.A. v. Superior Court, 44 Cal. App. 4th 1450, 1458 (1996) (contracting parties

must have intent to benefit third party and such intent must appear in the contract). On this

point, Ohio law is to the same effect. See TRINOVA Corp. v. Pilkington Bros. P.L.C., 638

N.E. 2d 572, 577 (Ohio 1994); Anderson v. Olmstead Utility Equip., Inc., 573 N.E. 2d 626,

631 n.5 (Ohio 1991). Relying on Ohio law, defendants assert that plaintiffs can qualify as

third-party beneficiaries only if they can show that EWA intended to benefit them directly by

negotiating and executing the FSA, and that EWA intended to discharge a preexisting duty

to plaintiffs by entering into the FSA. Defendants contend that plaintiffs do not allege these

elements in the 4thAC, and that the evidence shows that EWA did not intend to benefit

plaintiffs by entering into the FSA. 

In support, defendants cite to the Declarations of Gerard Trimarco (“Trimarco”), E.

Tazewell Ellet (“Ellett”), and Sheldon Kline (“Kline”). Trimarco is employed by UPS, and

was formerly employed by CNF. He was co-President of EWA as of 1998, and CEO as of

2000. He remained CEO of EWA until December 2004. He states that in August 2001, the

FAA demanded a meeting with EWA officials. At the meeting on August 11, 2001, the FAA

told Trimarco and the others present that unless EWA agreed to a grounding of its flight

operations until certain safety issues had been resolved, the FAA would revoke EWA’s air

carrier certificate. Trimarco chose the grounding. 

Trimarco then negotiated the terms of the interim settlement agreement (“ISA”) with

the FAA, on behalf of EWA, and signed it in Dayton, Ohio, on August 13, 2001. The ISA

obligated the parties to negotiate a final settlement agreement (the FSA) no later than 30

days from the date of the ISA. Trimarco states that during the negotiation for the ISA, there

was no mention or discussion of the ISA’s effect on or benefit to any individual EWA

employee or any group or class of EWA employees. He claims that he did not negotiate or

execute either the ISA or the FSA to benefit specifically the EWA pilots or any other group

of EWA employees. 

Ellett is an attorney who has represented EWA since 1998. He was present at the

August 11, 2001, meeting between EWA representatives and the FAA. He confirms that

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the FAA presented EWA with the option of agreeing to a shut-down or having its certificate

revoked, and that the parties’ discussion of the ISA did not include any reference to or

mention of the ISA’s effect on or benefit to any group of EWA employees. Ellett states that 

when he negotiated and executed the ISA, he did not consider its potential effect on any

group of EWA employees. Ellett also negotiated and executed the FSA, and asserts that

there was no discussion during the negotiation or execution of the FSA regarding its effect

on or benefit to any group of EWA employees. 

Kline is a partner at the law firm of Thelen Reid & Priest, LLP, counsel for the

corporate defendants herein. He has served as outside counsel for EWA since 1998. He

participated in the “effects” bargaining with ALPA and EWA in August and September 2001,

following the shut-down of EWA by the FAA. He states that he was aware that EWA was

negotiating the terms of the FSA during August and September 2001, but he did not

participate in those negotiations. He asserts that he never presented any ALPA

representative with a draft of the FSA. He recalls that the subject of the FSA did come up

during the effects bargaining, but says it was only after the FSA had been executed on

September 20. He claims that no EWA bargainer or ALPA representative stated at any

meeting that the FSA was intended to benefit the EWA pilots specifically or any other class

of EWA employees. 

In opposition, plaintiffs argue that they are third-party beneficiaries to the FSA

because they are in the class of persons for whose benefit the agreement was made. They

claim that they were third-party beneficiaries for two reasons – because the FSA was

allegedly the result of an FAA investigation prompted by the crash of an Emery plane in

Sacramento in February 2000, and was also the result of “safety concerns” raised by

plaintiffs; and because the FSA indicates that it was intended to remedy “[a]lleged

[v]iolations of 49 U.S.C. § 40101, et seq., [the Federal Aviation Act] and 14 C.F.R. § 43,

119, and 121.” Plaintiffs contend that the Federal Aviation Act was intended by Congress

to improve air safety and to prevent or reduce aviation accidents, and that the Act and its

regulations create an actionable duty on the part of FAA personnel to persons in the zone

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of danger – whether air passengers, carrier pilots, and personnel. 

Plaintiffs also request, pursuant to Federal Rule of Civil Procedure 56(f), that they be

permitted to conduct discovery in order to oppose the statements in the Trimarco, Ellett,

and Kline declarations – specifically, those statements relied upon by defendants to

establish that Ohio law should be applied to the claims of breach of contract (FSA) and

intentional and negligent breach of contract (FSA), and to establish that the FSA was not

intended to benefit the EWA pilots. Plaintiffs contend that they need discovery to determine

where the FSA was negotiated, and whether it was negotiated to benefit the EWA pilots or

any other group of EWA employees. 

Although plaintiffs’ argument that they were the intended beneficiaries of the FSA is

less than compelling, the court finds that the motion to dismiss the breach of FSA claim

must be DENIED. It is true, as defendants argue, that plaintiffs provide no competent

evidence establishing that the FSA was the direct result of the February 2000 plane crash. 

Moreover, even if the crash had prompted the FAA’s investigation, that fact would not

compel the conclusion that the EMERY pilots were the intended beneficiaries of the FSA,

as opposed to all other EWA employees, or as opposed to EWW’s customers or the

general public. The asserted “indication” that the FSA was intended to remedy “alleged

violations” of the FAA and its regulations is based solely on the fact that the caption of the

FSA is designated, “In the Matter of: Alleged Violations of 49 U.S.C. § 40101, et seq.” This

is not an indication that the intended purpose of the FSA was to benefit the EWA pilots. 

On the other hand, plaintiffs are correct in asserting that they have not had the

opportunity to conduct discovery on this issue. In particular, it would be unfair for the court

to find that plaintiffs lacked standing based on defendants’ declarations, but without

allowing plaintiffs an opportunity to obtain information in discovery to oppose defendants’

evidence. The court notes, in addition, that while plaintiffs refer to this as a Rule 56(f)

motion, it is actually primarily a motion for jurisdictional discovery, as defendants appear to

be seeking dismissal of the FSA-related claims for lack of standing, under Federal Rule of

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5

 Plaintiffs also request leave to conduct discovery to establish the meaning of the

arbitration provision in the LOA, to determine whether the System Board actually found that

the grounding of EWA in August 2001 was caused by a “force majeure,” and to oppose

defendants’ arguments regarding choice of law. This request is denied. As explained below,

the court finds that the LOA requires arbitration. Further, there is no dispute that the System

Board found that the August 2001 grounding was caused by a “force majeure.” In addition, the

choice-of-law issue is not dispositive with regard to the FSA-related claims, as the court finds

that the tortious interference claims must be dismissed based on the allegations of agency and

alter ego liability, while resolution of the breach of contract claim will turn in part on whether

plaintiffs can show they were the intended beneficiaries of the FSA – an element required for

third-party beneficiary breach of contract claims under both Ohio and California law. 

17

Civil Procedure 12(b)(1).5

 

b. breach of LOA

In the second cause of action, plaintiffs allege breach of contract (the LOA) against

EWW and against CNF as alter ego or as successor to EWW’s liability (based on the

indemnity provision in a Stock Purchase Agreement under which UPS acquired EWW stock

from CNF in 2004). Defendants argue that the court lacks jurisdiction over this claim

because the LOA provides for mandatory arbitration, which provision defendants assert is

enforceable under the Federal Arbitration Act. 

The LOA states that it is an agreement between EWW and the airline pilots in the

service of EWA, as represented by ALPA. Paragraph 2 of the LOA provides as follows: 

The parties shall meet to exchange data needed for the calculation of block

hour totals, percentages and proportions as well as to establish procedures to

verify compliance with this Letter of Agreement. In the event that the parties

are unable to agree upon procedures or if a dispute arises, all such matters,

including remedy, shall be referred to Permanent Umpire, Richard Kasher,

who shall promptly hear and resolve the dispute. In the event that Umpire

Kasher shall become unwilling or unable to continue in this capacity, the

parties will agree upon Umpire George Nicolau. 

Defendants contend that the Ninth Circuit interprets such agreements broadly, and

that under Ninth Circuit rulings an agreement such as this – providing that “all” disputes

over “compliance with this Letter of Agreement” “shall be referred” to binding arbitration –

should be arbitrated. Defendants argue that the only job for the court is to determine

whether a valid agreement to arbitrate exists, and if it does, whether the agreement

encompasses the disputed issue. Defendants contend that the agreement is valid, and that

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it clearly encompasses the claim of breach of the LOA.

Defendants also assert that ALPA has taken the position that all disputes under the

LOA must be arbitrated, and that the System Board arbitrator previously found so as well. 

Defendants contend that plaintiffs are bound by ALPA’s commitments to the LOA, because

ALPA is or was plaintiffs’ statutory bargaining agent.

In opposition, plaintiffs argue that the arbitration clause does not apply to the claim

of breach of the LOA. They argue that ¶ 2 of the LOA merely states that the parties will

work out the procedural details of exchanging data under ¶ 2, and will arbitrate if they are

unable to agree on these details. Plaintiffs claim that they have not raised any issue

relevant to ¶ 2 in their claims in this lawsuit, noting that the procedure for measuring the

proportion of cargo flow by EWA compared with other carriers is not at issue. Instead, they

argue, the LOA claim raises issues wholly unrelated to block hours – specifically, whether

plaintiffs incur benefits as a party or as a third-party beneficiary, whether plaintiffs are

bound by ALPA’s promise in the LOA not to assert claims against EWW; and whether

EWW is excused from breach of the LOA because of the FAA order. 

Plaintiffs assert that the language of the LOA does not reflect the parties’ intent to

arbitrate disputes and to be bound by the arbitration decisions that resolve such disputes. 

Plaintiffs claim that an EWA representative stated before the System Board in April 2002

that it was EWA’s position that the jurisdiction of the umpire specified in ¶ 2 “is to decide

disputes under paragraph two of that letter with respect to the application of the formula

and not issues with respect to the violation of the agreement itself.” Plaintiffs do not dispute

that ¶ 2 of the LOA is a “valid agreement to arbitrate” under the FAA. They assert only that

their claim for breach of the LOA is viable because the LOA’s language does not

“unambiguously” reflect the parties’ intent to arbitrate all disputes. 

The court finds that the motion to compel arbitration of the breach of LOA claim must

be GRANTED. The Federal Arbitration Act has established a rule of contract construction

favoring arbitration, and "as a matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem’l Hosp. v.

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Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Additionally, "ambiguities as to the scope

of the arbitration clause itself [must be] resolved in favor of arbitration." Mastrobono v.

Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (citing Volt Info. Sciences, Inc. v.

Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989)). 

The court is persuaded by the evidence showing that ALPA has taken the position

that all disputes under the LOA must be arbitrated, and that the arbitrator so found as well. 

While it is true that the language of the LOA is somewhat ambiguous, the court must

resolve this ambiguity in favor of arbitration.

The court finds further that CNF is not EWW’s successor. Plaintiffs allege that CNF

is a “successor” to EWW’s alleged liability based on an indemnity provision in a stock

purchase agreement under which a subsidiary of UPS purchased EWW stock from CNF in

2004. Plaintiffs also assert that a statement in one of CNF’s filings with the Securities and

Exchange Commission – that CNF agreed to “indemnify, defend, and hold harmless” UPS

with respect to any claims relating to the CBA – proves CNF’s status as successor to

EWW’s liability. In their opposition to defendants’ motion, plaintiffs concede that CNF is not

a “successor” as that word is defined in the legal context. Nevertheless, they argue that

CNF is a successor “as a practical matter” because CNF assumed EWW’s liability for

breach of the LOA or for any other claim for which EWW might be found liable.

As defendants have pointed out, however, the stock acquisition did not extinguish

EWW, and EWW as a legal entity did not change by virtue of the stock purchase. In

addition, an indemnity provision does not create successor liability by imputing the

indemnitee’s liability to the indemnitor; rather, such a provision simply allows the

indemnitee to recover from the indemnitor on becoming liable. CC-Calif. Plaza Assocs. v.

Paller & Goldstein, 51 Cal. App. 4th 1042, 1054 (1996). 

A “successor,” by contrast, “succeeds” to the responsibilities of another. The

general rule is that when one corporation sells or transfers all its assets to another

corporation, the latter is not liable for the debts and liabilities of the transferor unless 

1) there is an express or implied agreement of assumption, 2) the transaction amounts to a

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consolidation or merger of the two corporations, 3) the purchasing corporation is a mere

continuation of the seller, or 4), the transfer of assets to the purchaser is for the fraudulent

purpose of escaping liability for the seller’s debts. Ray v. Alad Corp., 19 Cal. 3d 22, 28

(1977). In the event that one of those exceptions applies, the successor is the purchaser or

transferee, not, as plaintiffs would have it here, the seller or transferor. 

3. The unjust enrichment claim

In the tenth cause of action, plaintiffs assert that CNF and EWW received a

“substantial financial benefit from reduced expenses” as a result of EWA’s cessation of

flight operations and use of subcontractors to carry EWW’s freight, and that plaintiffs and

the “CNF class” incurred financial damages as a result. Defendants assert that the unjust

enrichment claim must be dismissed because it is preempted by the RLA, and because

plaintiffs fail to plead facts supporting the claim. 

Defendants contend that the unjust enrichment claim is preempted because

plaintiffs’ claimed losses are based on their loss of employment, and their right of

employment was governed directly by the CBA. Defendants argue that the alleged unjust

gain conferred on the corporate defendants therefore arises from a breach of the CBA,

which means that any unjust enrichment claim will require interpretation and application of

the CBA.

Plaintiffs assert, however, that the unjust enrichment claim can be resolved without

interpreting the CBA. They cite two cases – Consolidated Rail Corp. (Conrail) v. Railway

Labor Executives’ Ass’n, 491 U.S. 299, 305 (1989); and Hawaiian Airlines v. Norris, 512

U.S. at 256 – for the proposition that the RLA’s mechanism for resolving minor disputes

does not preempt causes of action to enforce rights that are independent of the CBA. 

The court finds that the motion must be GRANTED. The unjust enrichment claim

explicitly incorporates all preceding allegations of the 4thAC, including that an express

contract governs the relationship between the parties. Unlike the plaintiff in Hawaiian

Airlines, who alleged a state law claim of retaliatory discharge because of whistleblower

activities, the plaintiffs in the present case allege loss of “employment opportunity” of a

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 Defendants argue that Ohio law applies to this cause of action, because Ohio has a

stronger interest in applying its law than does California. To establish a claim of unjust

enrichment under Ohio law, a plaintiff must demonstrate a) a benefit conferred by the plaintiff

on the defendant, b) knowledge by the defendant of this benefit, and c) retention of the benefit

by the defendant under circumstances where it would seem unjust to do so. Johnson v.

Microsoft Corp., 834 N.E. 2d 791, 799 (Ohio 2005). Because the court finds that the unjust

enrichment claim is preempted by the RLA, the court does not decide the issue of choice of

law.

21

value comparable to the “benefit” conferred on defendants by the cessation of EWA’s flight

operations. Because plaintiffs’ employment at EWA was governed by contract – the CBA –

any claim of loss of “employment opportunity” caused by the shutdown of EWA would

require an analysis and interpretation of the CBA to ascertain the nature and extent of

plaintiffs’ employment rights. Accordingly, the claim must be dismissed.

As an alternative basis for seeking dismissal, defendants argue that under the facts

alleged, plaintiffs cannot maintain a cause of action for unjust enrichment. The elements of

a claim of unjust enrichment are receipt of a benefit and unjust retention of the benefit at

the expense of another. Ghirardo v. Antonioli, 14 Cal. 4th 39, 51 (1996); Lectrodryer v.

SeoulBank, 77 Cal. App. 4th 723, 726 (2000).6 

Defendants argue that plaintiffs cannot plead that they “conferred a benefit” on any

corporate defendant for which they were not compensated. Indeed, defendants note,

rather than claiming that they conferred a benefit on defendants, plaintiffs allege elsewhere

in the 4thAC that the corporate defendants lost money. Defendants also argue that the

purpose of an unjust enrichment claim is not to compensate a plaintiff for loss or damage

suffered by him – the essence of the claim in the 4thAC – but to compensate that plaintiff

for the benefit he has conferred on the defendant.

Plaintiffs contend that they have properly pled unjust enrichment under California

law. They assert that the 4thAC alleges that CNF and EWW received a substantial

financial benefit by saving about $350 million from breaching the CBA and LOA, while

plaintiffs lost employment opportunity of comparable value. According to plaintiffs, the

“injustice” here is that defendants received this benefit only by violating federal air safety

laws and regulations, causing the FAA to ground EWA and purportedly creating an excuse

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for breach of the CBA and LOA. 

The court agrees with defendants that plaintiffs have not stated a claim for unjust

enrichment, as they have not alleged that they themselves conferred a benefit for which

they were not compensated, on either CNF or EWW. Because the court finds that this

claim is preempted, however, amendment would be futile. 

4. The § 17200 claim

In the eleventh cause of action, plaintiffs allege that the actions of the corporate

defendants, including the acts defendants performed as alter egos of each other,

constituted illegal and unfair business acts and practices within the meaning of Business &

Professions Code § 17200. Plaintiffs allege further that as a result of these violations of 

§ 17200, defendants have unjustly enriched themselves at the expense of the class

members, and should be required to disgorge their illegal gains and make full restitution to

the class members. In their motion to dismiss, defendants contend that the unfair

competition claim is preempted by the RLA, and also fails to state a claim. 

Plaintiffs assert that the CBA and the LOA gave them a vested interest in future

employment with EWA. They claim that the CBA gave plaintiffs “the right to perform ‘all

present and future revenue flying performed by Emery Worldwide Airlines’ with some

exceptions;” and that the LOA provided the pilots with the right to require EWW to give an

increasing amount of its cargo to EWA because EWW agreed that it would “reduce the

proportion of scheduled block hours flown by airline contractors (other than EWA and

Ryan).” Plaintiffs contend that by virtue of the LOA, they were “guaranteed” work because

EWW was obligated to ship air cargo via EWA, and EWA was obligated to use plaintiffs as

pilots. 

Plaintiffs assert that the “effect” of the CBA and the LOA was that they obtained, in

exchange for agreeing to the other terms of the CBA, a “valuable right to an employment

opportunity that was not subject to any condition precedent – other than events that were

not under Defendants’ control.” Thus, plaintiffs assert, they had a “vested interest,” which

they lost when EWA stopped flying, and it is this “vested interest” that they seek to recover

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under the § 17200. 

The court finds that the motion must be GRANTED. Because plaintiffs assert that

the alleged “unlawful” and “unfair” conduct giving rise to the § 17200 claim was a violation

of their contract right to employment opportunities – which necessarily requires

interpretation and application of the CBA – the § 17200 claim is preempted by the RLA. In

order to establish that they are entitled to recover under § 17200, plaintiffs must show that

the CBA entitled them to continuing employment during the period of time up to the

December 2001 cessation of operations of EWA, and must then show a breach of the CBA

entitling them to payment of wages they would have earned but for defendants’ alleged

breach of the CBA.

As an alternative basis for dismissal, the court finds that this cause of action fails to

state a claim. A UCL action is “an equitable action by means of which a plaintiff may

recover money or property obtained from the plaintiff . . . through unfair or unlawful

business practices,” and is not “an all-purpose substitute for a tort or contract action.” 

Cortez v. Purolator Air Filtration Prods. Co., 23 Cal. 4th 163, 173 (2000). Section 17200

establishes three types of “unfair competition” – unlawful, unfair, and fraudulent acts or

practices. Schnall v. Hertz Corp., 78 Cal. App. 4th 1144, 1153 (2000). 

“Unlawful” practices are those practices that are prohibited by law, whether “civil or

criminal, federal, state, or municipal, statutory, regulatory, or court-made.” Saunders v.

Superior Court, 27 Cal. App. 4th 832, 839 (1994). Plaintiffs do not allege that defendants

have engaged in any practice forbidden by law. Nor have plaintiffs stated a claim for

“unfair” or fraudulent business practices. An “unfair” business practice is “conduct that

threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of

those laws because its effects are comparable to or the same as a violation of the law, or

otherwise significantly threatens or harms competition.” Cel-Tech Communications, Inc. v.

Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 186-87 (1999). A fraudulent business

practice is one that is likely to deceive the public. Bank of the West v. Superior Court, 2

Cal. 4th 1254, 1267 (1992). Plaintiffs do not allege any conduct that threatens or harms

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competition, or that is likely to deceive the public. 

In addition, to the extent that plaintiffs seek damages, the § 17200 claim is improper,

as damages are not available for a violation of § 17200. Cortez, 23 Cal. 4th at 173-74. 

Plaintiffs assert that they seek restitution or disgorgement. An order for restitution is one

"compelling a UCL defendant to return money obtained through an unfair business practice

to those persons in interest from whom the property was taken." Kraus v. Trinity Mgmt

Servs., Inc., 23 Cal. 4th 116, 126-27 (2000). Here, however, the 4thAC does not allege

that defendants obtained money from the plaintiffs through an unjust business practice. In

seeking “restitution” of their “vested” property interests, by which they mean the right to

future employment with EWA, plaintiffs appear to be simply seeking damages. 

CONCLUSION

In accordance with the foregoing, the court hereby GRANTS the motion to compel

arbitration, and GRANTS the motion to dismiss in part and DENIES it in part. The motion

to dismiss is granted as to all causes of action except the seventh cause of action for

breach of the FSA. The dismissal is WITH PREJUDICE. 

Because the court must consider evidence submitted by the parties in ruling on the

motion to dismiss the breach of the FSA claim, and because plaintiffs have not had an

opportunity to conduct discovery on the question whether the contracting parties intended

to benefit the plaintiffs, the court will permit the parties 60 days in which to conduct

discovery. Defendants may then file a motion for summary judgment on that issue only, no

later than September 20, 2006. The motion shall be noticed for hearing on October 25,

2006. 

IT IS SO ORDERED.

Dated: June 16, 2006 ______________________________

PHYLLIS J. HAMILTON

United States District Judge

Case 4:03-cv-03618-PJH Document 177 Filed 06/16/06 Page 24 of 24