Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00393/USCOURTS-caed-2_07-cv-00393-12/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

QWEST COMMUNICATIONS No. 2:07-cv-00393-MCE-KJM

CORPORATION,

Plaintiff,

v. MEMORANDUM AND ORDER

HERAKLES, LLC, et al,

Defendants.

----oo0oo----

Through the present action, Plaintiff Qwest Communications

Corporation (“Qwest”) seeks damages from Defendants Herakles, LLC

(“Herakles”), Sandy Beaches I LP (“Sandy Beaches”), Riptide I LP

(“Riptide”), and Capital Lease Funding, Inc. and Capital Lease

Funding, LP, for deceptive advertising, breach of contract,

constructive fraud and breach of fiduciary duty, statutory and

common law unfair competition, tortious interference with both

prospective economic advantage and with contract, unjust

enrichment, civil conspiracy, and aiding and abetting. 

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 The two other named Defendants, Capital Lease Funding, 1

Inc. and Capital Lease Funding LP (“CapLease Funding

Defendants”), have collectively filed another Motion to Dismiss

in this matter. Because both the allegations levied against the

CapLease Funding Defendants, as well as the resolution of their

motion, vary from the other Defendants considered herein, the

CapLease Funding Motion will be addressed by separate Order.

 This section is derived from the allegations in 2

Plaintiff’s Complaint. 

2

Pursuant to Federal Rule of Civil Procedure 12(b)(6), Herakles,

Sandy Beaches, and Riptide (collectively “Defendants”) filed the

present Motions to Dismiss all counts pled against them. As set 1

forth below, those Motions will be granted in part and denied in

part.

BACKGROUND2

This action arises from the circumstances surrounding the

performance of three contracts, which governed the construction,

occupation, and management of a Data Center in Sacramento,

California. Originally, Qwest and Wavve Telecommunications, Inc.

(“Wavve”) contemplated entering only one agreement to achieve

these objectives. However, when the now defunct Wavve was unable

to obtain financing from the CapLease Defendants, the parties

restructured their arrangement via the three current contracts. 

First, Qwest leased the Data Center from Sandy Beaches (“Lease”).

Next, Qwest subleased a portion of the Data Center to Riptide

(“Sublease”). Finally, Qwest entered a Real Estate Services

Agreement (“RESA”) with Wavve for the management of Qwest’s

portion of the Data Center. 

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Riptide subsequently assigned its rights in the Sublease to

Herakles. Wavve assigned its rights in the RESA to Surferr LLC,

an entity alleged to be related to Herakles, Sandy Beaches, and

Riptide. Surferr LLC then assigned its rights in the RESA to

Riptide, who subsequently re-assigned those rights to Herakles. 

Qwest alleges that Herakles is now both its competitor and

sublessor tenant, as well as the manager of Qwest’s portion of

the Data Center.

The Lease terms extend for a period of ten years, with the

option to renew for another nine. Qwest uses the leased space to

provide co-location, data center, telecommunications, internet

access, content hosting, network management, and internet

security services. The Lease provides for a “Tier IV data

center” with 99.999% operational availability and contains a

confidentiality clause, which, according to Qwest, Sandy Beaches

has violated. 

Qwest alleges that the RESA requires Herakles to act as

Qwest’s “exclusive agent” in managing the Data Center and Qwest

further alleges that the parties agreed that the Data Center

manager would be the “face of Qwest” to Qwest’s customers and

potential customers. However, Qwest now claims that, instead,

Herakles, as the current manager, diverted customers from Qwest

to itself, in its separate capacity as Qwest’s sublessor. 

Qwest also claims that Herakles engaged in deceptive

advertising by making statements purporting to be the Data Center

owner on the Herakles website and within the Data Center. 

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4

Additionally, Qwest alleges that Herakles misrepresented the

property in Data Center sign-in sheets by omitting Qwest’s name

on the logs and that Herakles took Qwest’s proprietary customer

and potential customer information.

Qwest further states that Herakles has failed to perform

certain construction work as obligated under the RESA and that,

in its capacity as sublessor, Herakles has failed to hire a

required third-party manager for its own portion of the Data

Canter. Instead, despite being a competitor of Qwest, Herakles

allegedly manages both the Qwest facility and its own facility,

to save itself added management costs. 

Finally, Qwest alleges that Herakles, Riptide, Sandy Beaches

and the CapLease Defendants are alter egos of one another. Qwest

alleges that the Defendants have common ownership, use one

company as a conduit for another, and share offices, employees,

and bank accounts. Qwest alleges that this practice enables

Herakles to breach its contract without liability, all the while

collecting Qwest’s rent payments through Sandy Beaches and

diverting customers to itself. 

STANDARD

A. Motion to Dismiss Under Rule 12(b)(6)

On a motion to dismiss for failure to state a claim under

Rule 12(b)(6), all allegations of material fact must be accepted

as true and construed in the light most favorable to the

nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,

337-38 (9th Cir. 1996). 

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Rule 8(a)(2) requires only “a short and plain statement of the

claim showing that the pleader is entitled to relief” in order to

“give the defendant fair notice of what the...claim is and the

grounds upon which it rests.” Bell Atl. Corp. v. Twombly, ---

U.S. ---, 127 S. Ct. 1955, 1964 (2007) (quoting Conley v. Gibson,

355 U.S. 41, 47 (1957)). While a complaint attacked by a

Rule 12(b)(6) motion to dismiss does not need detailed factual

allegations, a plaintiff's obligation to provide the “grounds” of

his “entitlement to relief” requires more than labels and

conclusions, and a formulaic recitation of the elements of a

cause of action will not do. Id. at 1964-65 (internal citations

and quotations omitted). Factual allegations must be enough to

raise a right to relief above the speculative level. Id. at 1965

(citing 5 C. Wright & A. Miller, Federal Practice and Procedure

§ 1216, pp. 235-36 (3d ed. 2004) (“The pleading must contain

something more...than...a statement of facts that merely creates

a suspicion [of] a legally cognizable right of action”)). 

A court granting a motion to dismiss a complaint must then

decide whether to grant leave to amend. A court should “freely

give” leave to amend when there is no “undue delay, bad faith[,]

dilatory motive on the part of the movant,...undue prejudice to

the opposing party by virtue of...the amendment, [or] futility of

the amendment....” Fed. R. Civ. P. 15(a); Foman v. Davis, 371

U.S. 178, 182 (1962). Generally, leave to amend is denied only

when it is clear the deficiencies of the complaint cannot be

cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957

F.2d 655, 658 (9th Cir. 1992).

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B. General Pleading Requirements

“Rule 8(a)(2)...requires a ‘showing,’ rather than a blanket

assertion of entitlement to relief. Without some factual

allegation in the complaint, it is hard to see how a claimant

could satisfy the requirements of providing not only ‘fair

notice’ of the nature of the claim, but also ‘grounds’ on which

the claim rests.” Id. at 1965 n.3. (Factual allegations

necessary to plead “grounds” on which claim rests.) 

A pleading must contain “only enough facts to state a claim

to relief that is plausible on its face.” Id. at 1974. If the

“plaintiffs...have not nudged their claims across the line from

conceivable to plausible, their complaint must be dismissed.” 

Id. Nevertheless, “[a] well-pleaded complaint may proceed even

if it strikes a savvy judge that actual proof of those facts is

improbable, and ‘that a recovery is very remote and unlikely.’”

Id. at 1965.

Federal Rule of Civil Procedure 9(b) provides that “a party

must state with particularity the circumstances constituting

fraud.” “A pleading is sufficient under Rule 9(b) if it

identifies the circumstances constituting fraud so that the

defendant can prepare an adequate answer from the allegations.” 

Neubronner v. Milken, 6 F.3d 666, 671-672 (9th Cir. 1993)

(internal quotations and citations omitted). “The complaint must

specify such facts as the times, dates, places, benefits

received, and other details of the alleged fraudulent activity.” 

Id. at 672. 

///

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ANALYSIS

A. Defendants’ Alter Ego Liability

“A basic tenet of American corporate law is that the

corporation and its shareholders are distinct entities.” Dole

Food Co. v. Patrickson, 538 U.S. 468, 474 (2003). Alter ego

liability, however, provides a means to pierce the corporate veil

for purposes of imposing liability on a defendant for an

underlying cause of action. See Dion LLC, v. Infotek Wireless,

Inc., 2007 WL 3231738 at *3 (N.D. Cal. Oct. 30, 2007) (quoting

Local 159 v. Nor-Cal Plumbing, Inc., 185 F.3d 978, 985 (9th Cir.

1999)). 

Assessing a corporate entity’s alter ego status is an

equitable determination within the province of the trial court. 

Assoc. Vendors, Inc., v. Oakland Meat Co., Inc., 210 Cal. App. 2d

825, 837 (1st Dist. 1962). Decisions are necessarily factdependent and “vary according to the circumstances in each case.” 

Id. (internal quotations omitted). Nevertheless, the general

requirements for proving liability are “1) that there be such

unity of interest and ownership that the separate personalities

of the corporation and the individual no longer exist, and

2) that, if the acts are treated as those of the corporation

alone, an inequitable result will follow.” Id. “Bad faith in

one form or another is an underlying consideration and will be

found in...those cases wherein the trial court was justified in

disregarding the corporate entity.” Id. at 838. 

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Among the factors supporting a “unity of interest” finding

are “financial issues (e.g., was the corporation adequately

capitalized?); corporate formality questions (e.g., was stock

issued, are minutes kept and officers and directors elected, are

corporate records segregated?); ownership issues (e.g., what is

the stock ownership picture?); commingling issues (e.g., are

corporate assets commingled, does the parent company merely use

the corporate shell of the subsidiary to obtain goods and

services for the parent company?); etc.” Tomaselli v.

Transamerica Ins. Co., 25 Cal. App. 4th 1269, 128 n.13. (citing

Assoc. Vendors, Inc. at 837-842). Notably, “[t]he mere fact of

sole ownership and control does not eviscerate the separate

corporate identity that is the foundation of corporate law.” 

Katzir’s Floor and Home Design, Inc. v. M-MLS.com, 394 F.3d 1143,

1149 (9th Cir. 2004)(citing Dole Food Co. at 475). 

Under the second prong of the doctrine, “[a]lter ego

is...invoked only where recognition of the corporate form would

work an injustice to a third person.” Id. (quoting Tomaselli at

1285). “The injustice that allows a corporate veil to be pierced

is not a general notion of injustice; rather, it is the injustice

that results only when corporate separateness is illusory.” 

Katzir’s Floor and Home Design at 1149. Facts relevant to the

“injustice” inquiry include “inadequate capitalization,

commingling of assets, [a] disregard of corporate

formalities...[and] any other facts which demonstrate the

critical element: that an inequitable result would have

followed.” Tomaselli at 1285. 

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Conclusory allegations are not sufficient to support an

alter ego finding. Hokama v. E.F. Hutton & Co., Inc., 566 F.

Supp. 636, 647 (C.D. Cal. 1983); Maganallez v. Hilltop Lending

Corp., 505 F. Supp. 2d 594, 607 (N.D. Cal. 2007). In Brennan v.

Concord EFS, Inc., the Northern District determined that a

statement alleging only that “Bank One exercised such dominion

and control over Bank One, NA and Bank One Arizona that it [was]

liable according to the law for the acts of Bank One” was an

inadequate legal conclusion. 369 F. Supp. 2d 1127, 1136 (N.D.

Cal. 2005). 

Similarly, in Nordberg v. Trilegiant Corp., the Northern

District granted a motion to dismiss, stating that allegations of

“routine control by a parent [were] insufficient to support the

contention that a subsidiary is a mere instrumentality.” 445 F.

Supp. 2d 1082, 1102 (N.D. Cal. 2006). Additionally, in Long v.

Postorivo, the plaintiffs’ allegations “that Postorivo was the

founder and former CEO and president of National...that Postorivo

worked ‘in close coordination’ with National,...that Postorivo

personally assured [plaintiff] of the success of their business

transactions,” and that defendant sold off corporate assets to

prevent recovery were “only slightly beyond conclusory” and

insufficient to withstand defendants’ motion for judgment on the

pleadings. 2007 WL 2990457 at *1-2 (N.D. Cal. 2007). 

Other plaintiffs, however, have met the minimum factual

pleading threshold. In Maganallez v. Hilltop Lending Corp., the

Northern District found the following allegations sufficient to

allege alter ego liability: 

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“[Hilltop Lending] was inadequately capitalized, failed

to maintain corporate formalities and was designed to

limit the liability of Nguyen. There was such a unity

of interest and ownership between Nguyen and [Hilltop

Lending] that the individuality and separateness of

Nguyen and [Hilltop Lending] has ceased to exist and

adherence to the fiction of the separate existence of

[Hilltop Lending] would sanction fraud and promote

injustice.” 

505 F. Supp. 2d 594, 607 (N.D. Cal. 2007). 

Likewise, in In re Napster, Inc. Copyright Litigation, the

allegation that the defendant exercised “essentially full

operational control” over Napster was sufficient to withstand a

motion to dismiss. 354 F. Supp. 2d 1113, 1122 (N.D. Cal. 2005). 

Furthermore, in Dion LLC v. Infotek Wireless, Inc., the plaintiff

successfully alleged that 

“[t]he unity of interest and ownership between [the

defendants]...prevented the two from functioning as

separate entities...[The two companies] conduct[ed] the

same type of business, shared the same office space,

used the same business address, and had the same

bookkeeper, lawyers and CPA...[I]t would be inequitable

to allow [the defendant] to now assert a distinction

between the corporations to avoid liability.” 

2007 WL 3231738 at *3 (N.D. Cal. 2007). 

In this case, Qwest specifically alleges the following: 

Herakles is located at 1100 North Market Boulevard

in Sacramento, California. Compl., ¶ 6. The Data

Center is also housed at 1100 North Market Boulevard.

Compl., ¶ 12. 

Sandy Beaches, Riptide, and the now defunct Wavve

all operated out of 9322 Tech Center Drive, in

Sacramento, California. Compl., ¶¶ 7-8, 10. 

The Defendants share common officers and

directors. For example, Lou Kirchner is both the

President and CEO of Herakles, as well as the CEO of

Sandy Beaches, and he sits on the Board of Directors of

Sandy Beaches. As a further example, William Pollert

and Shawn Seale of the CapLease Defendants are also

officers of Riptide. 

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Finally, the Lease, RESA, and Sublease were all signed

by Diana Bushard as “Vice President of Legal.” Compl.,

¶ 53.

On information and belief, the Defendants have

substantially similar equitable ownership. Compl.,

¶ 53. 

On information and belief, the Defendants use the

same offices and employees. For example, on

information and belief, some of the senior managers of

the CapLease Defendants are part owners of the Data

Center. Sandy Beaches, Wavve, and Riptide have the

same address. Compl., ¶ 53. 

On information and belief, the Defendants use one

entity as a mere conduit for the affairs of the other,

e.g., the parent company merely uses the subsidiary to

take Qwest’s Lease payments (which, upon information

and belief, the parent company uses to remain

financially afloat) in one hand, and with the other

hand, misappropriates Qwest of the business that is the

essential purpose of the Lease. Compl., ¶ 53. 

On information and belief, the Defendants

commingle corporate assets. For example, Qwest pays

rent to a common account for Sandy Beaches and

Herakles. Indeed, Herakles’ [sic] has presented itself

on its website as the owner of Sandy Beaches’ main

asset, the Data Center. Compl., ¶ 53. 

The circumstances surrounding the execution of the

Lease, RESA and Sublease, including the cost structure

and language of the three agreements establish that the

agreements should be construed together and that Sandy

Beaches should be construed as the real party-ininterest or that the Defendants should be treated as

one entity or the alter egos of each other. Compl.,

¶ 53. 

Honoring the Defendants’ corporate shells would

promote a fraud or injustice against Qwest because the

same officers, directors, and employees have caused

Herakles to breach its agreements and fiduciary duties

to Qwest, depriving Qwest of its ability to obtain and

serve customers...while simultaneously collecting rent

from Qwest under the Lease. Compl., ¶ 54. 

The above allegations are far from conclusory, and allege a

unity of interest that renders the Defendants’ separate entities

illusory. 

///

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Qwest’s allegations that it would be unjust to allow Defendants

to hide behind this illusory shield are sufficient as well. 

Accordingly, the Court finds that Qwest’s allegations that

Herakles, Sandy Beaches, and Riptide are the alter egos of one

another meet the requirements of Rule 8(a). 

 

B. Qwest’s Claims Against Defendants

1. Count I - False Advertising in Violation of the

Lanham Act, 15 U.S.C. § 1125, Sections 43(a) and

43(b) (Against Herakles/All Defendants)

“The elements of the Lanham Act § 43(a) false advertising

claim are: (1) a false statement of fact by the defendant in a

commercial advertisement about its own or another’s product;

(2) the statement actually deceived or has the tendency to

deceive a substantial segment of its audience; (3) the deception

is material, in that it is likely to influence the purchasing

decision; (4) the defendant caused its false statement to enter

interstate commerce; and (5) the plaintiff has been or is likely

to be injured as a result of the false statement, either by

direct diversion of sales from itself to defendant or by a

lessening of the goodwill associated with its products.” 

Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th

Cir. 1997).

Notably, Herakles does not challenge this Count in its

Motion to Dismiss. Additionally, Sandy Beaches raises a

challenge only on its own behalf stating, “All of these

allegations implicate Herakles’ conduct, but make absolutely no

mention of [Sandy] Beaches.” 

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Sandy Beaches’ Motion to Dismiss, 15:12-13. Similarly, Riptide

states, “Qwest’s Lanham Act allegations implicate only Herakles,

not Riptide.” Riptide’s Motion to Dismiss, 4:23-24. Neither

Sandy Beaches nor Riptide raised any challenges to the

sufficiency of the allegations against Herakles. Therefore,

Defendants’ collective lack of opposition to Qwest’s claim

against Herakles, coupled with Plaintiff’s alter ego allegations,

which could extend liability to all Defendants, are sufficient to

withstand Defendants’ Motions to Dismiss. 

Even if that were not the case, Plaintiff’s allegations are

independently sufficient to withstand a Motion to Dismiss. 

Plaintiff alleges that Herakles made numerous inaccurate or false

statements regarding Data Center ownership and services on

Herakles’ website. Plaintiff further alleges facts sufficient to

show that the statements were both material and damaging. These

allegations provide sufficient notice to allow Defendants to

answer the Complaint. Hence, Defendants’ Motions to Dismiss

Count I are DENIED.

2. Counts II - IV - Breach of Contract - Lease

(Against Sandy Beaches/All Defendants); RESA -

(Against Herakles/All Defendants); Sublease

(Against Herakles/All Defendants) 

To prove a breach of contract claim, Plaintiff must show:

1) a contract; 2) Plaintiff’s performance or excuse for

nonperformance; 3) Defendant’s breach; and 4) resulting damage to

the Plaintiff. Wise v. Southern Pac. Co., 223 Cal. App. 2d 50, 59

(1st Dist. 1963), overruled on other grounds by Applied Equipment

Corp. v. Litton Saudi Arabia Limited, 7 Cal. 4th 503 (1994). 

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 The parties dispute whether Qwest’s filing of this suit is 3

premature in light of contract provisions in the Lease purporting

to give Sandy Beaches an opportunity to cure. Construing all

pleadings in the light most favorable to Qwest, for purposes of

the current Motions the disputed Contract provision will be

interpreted as Qwest suggests, to indicate just one of the

remedies available to it. 

(continued...)

14

Defendants are correct that “[u]nder California law, only a

signatory to a contract may be liable for any breach.” Clemens

v. American Warranty Corp., 193 Cal. App. 3d 444, 452 (2d Dist.

1987). In reliance on that proposition, Defendants spend much of

their arguments pointing out that the allegations of breach of

the various agreements were not made against them individually,

but were made based on the actions of their Co-Defendants. At no

point do any of the Defendants argue that the allegations against

the actual parties to each contract are insufficient. 

As an example, Sandy Beaches states, “[w]hile the Complaint

is replete with allegations regarding Herakles’ conduct in

connection with various other claims and Agreements, Qwest does

not identify any conduct by [Sandy] Beaches that could support a

breach of contract claim against [Sandy] Beaches.” Sandy

Beaches’ Motion to Dismiss, 6:10-12. Sandy Beaches’ argument

serves to emphasize the thoroughness of the allegations against

Herakles, its alleged alter ego. 

Therefore, Defendants’ Motions fail. Plaintiff has pled all

elements of breach of contract as to each agreement. Since

Plaintiff has also pled sufficient facts to support the alter ego

liability of all Defendants, Defendants’ Motions to Dismiss

Counts II through IV are DENIED. 

3

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(...continued) 3

Case law cited by Defendants is inapposite because it involves a

standstill provision related to a settlement agreement and the

parties in that case disputed only the calculation of the

applicable period, not the application of the actual provision. 

See Willis Corroon Corp. of Utah, Inc. v. United Capital Ins.

Co., 1998 WL 30069 (N.D. Cal. 1998). 

15

3. Count V - Common Law and Cal. Civ. Code § 1573 -

Constructive Fraud - Breach of Fiduciary Duty

(Against Herakles/All Defendants)

“In its generic sense, constructive fraud comprises all

acts, omissions and concealments involving a breach of legal or

equitable duty, trust, or confidence, and resulting in damages to

another. Constructive fraud exists in cases in which conduct,

although not actually fraudulent, ought to be so treated-that is,

in which such conduct is a constructive or quasi fraud, having

all the actual consequences and all the legal effects of actual

fraud.” Barrett v. Bank of America, 183 Cal. App. 3d 1362, 1368-

1369 (4th Dist. 1986) (internal citations and quotations

omitted). 

The elements of constructive fraud are: 1) a fiduciary or

confidential relationship; 2) an act, omission, or concealment

involving a breach of that duty; 3) reliance; and 4) resulting

damage. Neilson v. Union Bank of California, 290 F. Supp. 2d

1101, 1142 (C.D. Cal. 2003). Breach of fiduciary duty

constitutes a constructive fraud. California Real Estate Loans,

Inc. v. Wallace, 18 Cal. App. 4th 1575, 1581 (1st Dist. 1993).

///

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 Herakles argues that Qwest cannot claim that a fiduciary 4

relationship arises out of the parties’ contractual obligations. 

This argument is misguided. Herakles relies on Rickel v. Schwinn

Bicycle Co., which states, “Plaintiffs have failed to allege

facts which imply that anything more than a contractual

relationship existed here; a fiduciary relationship does not

exist.” 144 Cal. App. 3d 648, 655 (2d Dist. 1983). However,

this ignores the preceding language, “California law is that

parties to a contract, by that fact alone, have no fiduciary

duties toward one another.” Id. at 654. This language would not

apply if the parties contracted to enter a fiduciary

relationship, as is alleged here. It would be an absurd result

indeed if the contract itself negated the fiduciary duties

arising from an alleged agency agreement. 

16

An agency relationship creates a fiduciary duty. Maganallez

v. Hilltop Lending Corp., 505 F. Supp. 2d 594, 608 (N.D. Cal.

2007). The parties primary current disagreement is whether

Herakles is an agent of Qwest for purposes of the RESA. To

properly allege this fiduciary relationship and the remaining

elements of the Count, Qwest must meet Rule 9(b)’s particularity

requirements for pleading fraud. 

To meet its pleading threshold, Qwest specifically alleges

that Herakles was contractually obligated to act as its

“exclusive agent.” Herakles subsequently points to language in 4

the same paragraph to support its argument that Herakles is an

“independent contractor.” This apparently contradictory language

is not dispositive, however, because an independent contractor

can also be an “agent.” In re Coupon Clearing Service, Inc.,

113 F.3d 1091, 1100 (9th Cir. 1997); Channel Lumber Co., Inc. v.

Porter Simon, 78 Cal. App. 4th 1222, 1230 (3d Dist. 2000); City

of Los Angeles v. Meyers Bros. Parking System, Inc., 54 Cal. App.

3d 135, 138 (2d Dist. 1975). 

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“One who contracts to act on another’s behalf and is subject

to the other’s control...may still be acting as an agent and also

as an independent contractor.” In re Coupon Clearing Service,

Inc., 113 F.3d 1091, 1100 (9th Cir. 1997). “One of the chief

characteristics of an agency relationship is the authority to act

for and in the place of the principal for the purposes of

bringing him or her into legal relations with third parties.” 

DSU Aviation, LLC v. PCMT Aviation, LLC, 2007 WL 3456564, *5

(N.D. Cal. 2007). “The other important aspect in determining the

existence of an agency relationship is the degree of control

exercised by the principal over the activities of the agent.” 

Id. “If the principal has the right to control the agent's dayto-day operations, then an agency relationship exists. If,

however, the principal has no control over the day-to-day

operations and only has [the] right to dictate the end result of

the agent’s activities, then an ‘independent contractor’

relationship exists.” Figi Graphics, Inc. v. Dollar General

Corp., 33 F. Supp. 2d 1263, 1266 (S.D. Cal. 1998) (citing Coupon

Clearing Services at 1099-1100).

In DSU Aviation, the plaintiffs’ allegations that the

defendants were responsible for securing insurance and had the

authority to enter into contracts with third-parties were

sufficient to evidence that those plaintiffs had relinquished to

the defendants the “authority to transact...or manage some

affair.” DSU Aviation at *5 (citing Coupon Clearing Services at

1099). 

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The Southern District, in Figi Graphics, in analyzing a

motion to dismiss for lack of personal jurisdiction, determined

that allegations were insufficient to show the requisite “right

to control.” Figi Graphics at 1266. In that case there was no

evidence that the alleged principal decided where the alleged

agent would find its products, what products it would buy, from

whom it would purchase or the price it would pay. Id. at 1266-

1267. 

Plaintiff’s agency allegations similarly fall short of the

mark. Plaintiff alleges that under its contemplated agreement

with Wavve, “Wavve was to be the face of Qwest to Qwest’s

customers and prospective customers.” Compl., ¶ 12. However,

Plaintiff does not allege that this agreement ever came to

fruition. Rather, Plaintiff alleges that the three agreements

replacing the originally contemplated agreement “were intended to

and did provide Qwest with the same operational rights and

commitments that the contemplated agreement between Qwest and

Wavve envisioned; namely...a third-party manager who was the face

of Qwest at the Data Center.” Id. ¶ 14. Plaintiff otherwise

relies on the contract term “exclusive agent” and further alleges

that under the original contemplated agreement with Waave, “the

parties agreed that the manager under the RESA would conduct

themselves at all times as Qwest’s fiduciary and exclusive

agent.” Compl., ¶ 27. Qwest’s allegations do not show that

Qwest controlled Herakles in any manner or that Herakles had the

“authority to transact...or manage some affair” on Qwest’s

behalf. 

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Plaintiff’s allegations that Herakles acted as its agent are

wholly conclusory. Even without applying Rule 9(b)’s heightened

pleading standard, Qwest has not sufficiently alleged the

required elements to establish the existence of an agency

relationship and, therefore, is unable to establish the breach of

such a relationship. Hence, Defendants’ Motions to Dismiss

Count V are GRANTED, with leave to amend. 

4. Count VI - Violation of the Unfair Competition

Act, Cal. Bus. & Prof. Code §§ 17200, 17500 et

seq. (Against Herakles/All Defendants)

Herakles does not challenge the allegations in this Count. 

Both Sandy Beaches and Riptide argue that this claim is directed

only at Herakles and does not implicate them individually. 

Therefore, considering the lack of opposition to the allegations

against Herakles in conjunction with the above alter ego

allegations, Defendants’ Motions to Dismiss must fail. Hence,

the Motions to Dismiss Count VI are DENIED. 

5. Count VII - Common Law Unfair Competition (Against

All Defendants)

“Claim[s] of unfair competition can encompass a variety of

theories.” Self Directed Placement Corp. v. Control Data Corp.,

908 F.2d 462, 467 (9th Cir. 1990). There is some confusion among

the parties as to the theory of competition on which Qwest

relies. 

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Nevertheless, regardless of theory, in order for competition to

rise to the level of “unfair,” it must involve “wrongful conduct

such as fraud, misrepresentation, intimidation, coercion, [or]

obstruction.” Scudder Food Products v. Ginsberg, 21 Cal. 2d 596,

599 (1943) (quoting Katz v. Kapper, 7 Cal. App. 2d 1, 4 (2d Dist.

1935)). 

Defendants argue that Qwest only alleged one theory of

unfair competition, misappropriation. Under this theory

Plaintiff must prove that it “invested substantial time and money

in development of its...property,...that [D]efendant[s]

appropriated the property at little or no cost, and...that

[Qwest] has been injured by the [D]efendant[s]’ conduct.” Self

Directed at 467 (quoting Balboa Ins. Co. v. Trans Global

Equities, 218 Cal. App. 3d 1327, 1342 (3d Dist. 1990) (internal

quotations omitted)). 

Qwest alleges that Herakles misappropriated the names and

identities of customers and potential customers whose

relationships Qwest cultivated. Defendants counter that Qwest

could not have spent the requisite labor, skill, and money to

compile customer information since the visitors to the Data

Center provided their own information to Herakles via the visitor

sign-in sheets. 

Defendants’ argument is flawed for two reasons. First,

since Qwest alleges that Herakles was acting as Qwest’s

“exclusive agent” when Herakles acquired the relevant

information, it can be inferred that Qwest invested funds in

management fees to Herakles to acquire that data. 

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Second, it can also be inferred that Qwest invested time and

funds in cultivating customer and potential customer

relationships in the first place. 

Because this Court finds that Plaintiff adequately alleged a

claim for unfair competition based on misappropriation, there is

no need for this Court to address all additional potential unfair

competition claims that Plaintiff might have intended. 

Defendants’ Motion to Dismiss Count VII is DENIED. 

6. Count VIII - Tortious Interference with

Prospective Economic Advantage (Against

Herakles/All Defendants); Count IX - Tortious

Interference with Contract (Against Herakles/All

Defendants); Count X - Tortious Interference with

Contract (Against Herakles)

“In order for [Qwest] to prove tortious interference with

prospective economic advantage[(“TIPEA”)], it must show 1) an

economic relationship between the plaintiff and some third party,

with the probability of future economic benefit to the plaintiff;

2) [D]efendant[s’] knowledge of the relationship; 3) intentional,

wrongful acts on the part of [D]efendant[s] designed to disrupt

the relationship; 4) actual interference with or disruption of

the relationship; and 5) economic harm to the [P]laintiff

proximately caused by the acts of the [D]efendant[s].” Korea

Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153-1154

(2003). 

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“This tort...‘protects the expectation that the relationship

eventually will yield the desired benefit, not necessarily the

more speculative expectation that a potentially beneficial

relationship will arise.’” Id. at 1164 (quoting Westside Center

Associates v. Safeway Stores 23, Inc., 42 Cal. App. 4th, 507, 524

(5th Dist. 1996). Additionally, the requisite wrongfulness must

derive from something other than the fact of interference itself. 

Id. at 1153. “[A]n act is independently wrongful if it is

unlawful, that is, if it is proscribed by some constitutional,

statutory, regulatory, common law, or other determinable

standard.” Id. at 1159. Finally, Plaintiff need not prove that

Defendants specifically intended to interfere with its business

expectancy, but must show that Defendants “knew that the

interference was certain or substantially certain to occur as a

result of [their] action[s].” Id. at 1154. 

Alternatively, in order for Plaintiff to properly allege

tortious interference with contract (“TIC”), Plaintiff must show

1) the existence of a valid contract with a third party;

(2) Defendants’ knowledge of that contract; (3) Defendants’

intentional acts designed to induce a breach or to disrupt the

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

contractual relationship, and (5) resulting damage. Bank of N.Y.

v. Fremont General Corp.,___ F.3d ___, 2008 WL 269458 (9th Cir.

2008). 

The intent requirement is the same for claims of tortious

interference with contract as it is for tortious interference

with prospective business advantage. See Korea Supply Co. at

1155-1157. 

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However, the California Supreme Court has cautioned against

conflating the claims stating, “Our courts should ... firmly

distinguish the two kinds of business contexts, bringing a

greater solicitude to those relationships that have ripened into

agreements, while recognizing that relationships short of that

subsist in a zone where the rewards and risks of competition are

dominant.” Id. at 1157 (quoting Della Penna v. Toyota Motor

Sales, U.S.A., 11 Cal. 4th 376, 378 (1995)). Though Plaintiff

can plead both causes of action simultaneously, claims for

tortious interference with contract do not require pleading that

Defendants’ conduct was independently wrongful because

“intentionally interfering with a contract is a wrong in and of

itself.” Id. at 1158.

Turning now to the pertinent allegations of Plaintiff’s

Complaint, Defendants challenge Qwest’s TIPEA claim as alleged in

Count VIII, arguing that Qwest has failed to identify specific

prospective customers with which it had a relationship. Qwest

alleges that it had relationships with prospective customers who

were in the market for the services Qwest provides and who had

taken steps toward engaging Qwest. Therefore, Qwest alleges that

it had existing relationships with a finite group of potential

customers sufficient to state a viable cause of action. 

Qwest’s allegations in that regard are more substantial than

those rejected in Janda v. Madera Community Hosp. 16 F. Supp. 2d

1181, 1189 (E.D. Cal. 1998). In that case, the court dismissed

the plaintiff’s TIPEA claim because he alleged only that the

defendants had interfered with his relationship with “‘future’

lost patients.” Id. 

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Qwest’s allegations differ because Qwest actually pointed

Defendants to prospective customers with whom Qwest had already

engaged in some form of relationship. The pool of parties in the

market for Qwest’s services is much smaller than the pool in the

market for a doctor’s services. Additionally, Qwest alleges that

Herakles, as manager of the Data Center, has access to the list

of prospective customers via the visitor logs. Therefore,

Qwest’s allegations are sufficient to satisfy its obligations

under Rule 8, and Defendants’ Motions to Dismiss Count VIII are

accordingly DENIED. 

Defendants also challenge Qwest’s TIC claim against all

Defendants (Count IX, for alleged interference with current

customer relationships) for failure to identify any specific

current customers. However, again for the purposes of Rule 8, it

is sufficient that Plaintiff identified “third party customers.” 

See Id. Qwest’s allegations point Defendants to a discrete group

of third parties with which Qwest had already contracted. 

Additionally, Qwest again alleges that Herakles would have known

of Qwest’s contracts with its customers via information gleaned

from its position as manager of the Data Center. Finally, Qwest

alleges that Herakles’ actions caused at least one of Qwest’s

customers to breach its agreement with Qwest. Therefore, Qwest

met its pleading burden as to Count IX and Defendants’ Motions to

Dismiss that Count are DENIED.

Finally, Defendants challenge Qwest’s allegation that

Herakles interfered with the Lease, as stated in Count X. Qwest

specifically repeated and realleged each and every one of the

Complaint’s prior allegations into this Count. 

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 This case was decided under a prior version of Rule 8. 5

However, the most recent amendments were stylistic only and did

not affect the substance of the Rule. 

25

Therefore, Qwest alleges that Herakles, Sandy Beaches, and

Riptide are alter egos of one another while it simultaneously

argues that Herakles interfered with the Sandy Beaches’ Lease. 

However, “[t]he tort duty not to interfere with contract

falls only on strangers.” Applied Equip. at 514. A party to the

contract cannot be held liable for tortious interference with

that contract. Id. Herakles could not, as a matter of law,

interfere with a contract to which it is alleged to be a party. 

Qwest finds no relief in its argument that it is pleading in

the alternative. Though Plaintiff is correct that it could plead

alternative and inconsistent theories for relief, Plaintiff

failed to do so here. “Inconsistent allegations can be made in

separate claims or defenses under Federal Rule of Civil Procedure

8(e)(2), but no authority is known...which permits blowing hot

and cold in the same cause of action.” Steiner v. Twentieth 5

Century-Fox Film Corp., 140 F. Supp. 906, 908 (D.C. Cal. 1953);

See also Friendship Medical Center, Ltd. v. Space Rentals,

62 F.R.D. 106 (N.D. Ill. 1974).

Qwest inadvertently acknowledges its pleading failure in its

Opposition to the Defendants’ Motions to Dismiss. Qwest

addresses an unpublished case raised by Herakles and states that

because that plaintiff had included allegations of alter ego in

every cause of action, it was appropriate for the court to

dismiss. See Rachford v. Air Line Pilots Ass’n, Int’l, 2006 WL

1699578 (N.D. Cal. 2006). 

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Qwest cannot avoid the fact that it similarly incorporated its

alter ego allegations into Count X, thereby depriving itself of

its own cause of action. Qwest’s claim against Herakles cannot

stand, and Defendant’s Motion to Dismiss that claim will be

GRANTED, with leave to amend. 

 7. Count XI - Unjust Enrichment (Against Herakles/All

Defendants)

Defendants are correct that “[u]njust enrichment is not a

cause of action...or even a remedy, but rather ‘a general

principle, underlying various legal doctrines and remedies....It

is synonymous with restitution.” McBride v. Boughton, 123 Cal.

App. 4th 379, 387 (1st Dist. 2004) (quoting Melchior v. New Line

Productions, Inc., 106 Cal. App. 4th 779, 793 (2d Dist. 2003)). 

Indeed, “[u]njust enrichment has...been characterized as

describing ‘the result of a failure to make restitution....’” 

Id. (quoting Dunkin v. Boskey, 82 Cal. App. 4th 171, 198 n.15

(1st Dist. 2000)).

However, this Court must “ignore [e]rroneous or confusing

labels...if the complaint pleads facts which would entitle the

plaintiff to relief." McBride (quoting Saunders v. Cariss, 224

Cal. App. 3d 905, 908 (4th Dist. 1990)). The court in McBride

looked “to the actual gravamen of [the] complaint to determine

what cause of action, if any, [was] stated, or could have [been]

stated if given leave to amend. In accordance with this

principle, [the court] construed [the] purported cause of action

for unjust enrichment as an attempt to plead a cause of action

giving rise to a right to restitution.” Id. at 387-388. 

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 Voytko cited a prior version of Rule 8, but the subsequent 6

amendments to the Rule have merely been in form, not substance. 

27

This construction is consistent with the liberal pleading

standards embodied in Rule 8. See Ritchie v. United Mine Workers

of America, 410 F.2d 827, 832 (6th Cir. 1969) (“The designation

of counts is not controlling of the interpretations to be placed

on these claims.”). “A pleading, according to the liberal

concepts of Rule 8, is to be judged by its substance rather than

by its form or label.” In re Blewett, 14 B.R. 840, 842 (9th Cir.

1981). “It would be improper to dismiss a claim which raises a

cognizable cause of action where that claim is mislabeled.” Id.

(quoting Voytko v. Ramada Inn of Atlantic City, 445 F. Supp. 315,

325 (D.C.N.J. 1978)).6

“There are several potential bases for a cause of action

seeking restitution. For example, restitution may be awarded in

lieu of breach of contract damages when the parties had an

express contract, but it was procured by fraud or is

unenforceable or ineffective for some reason.” McBride at 388. 

“Alternatively, restitution may be awarded where the defendant

obtained a benefit from the plaintiff by fraud, duress,

conversion, or similar conduct. In such cases, the plaintiff may

choose not to sue in tort, but instead to seek restitution on a

quasi-contract theory.” Id. 

Riptide challenges this Count, arguing that it is

inconsistent with Qwest’s allegations that the parties expressly

contracted with one another. Riptide Motion to Dismiss, 3:8-13,

12:11-15. “Under California law, unjust enrichment is an action

in quasi-contract. 

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An action based on quasi-contract cannot lie where a valid

express covering the same subject matter exists between the

parties.” Gerlinger v. Amazon.com, Inc., 311 F. Supp. 2d 838,

856 (N.D. Cal. 2004); see also Kessler v. Sapp, 169 Cal. App. 2d

818, 824 (2d Dist. 1959). 

Plaintiff again argues that it is pleading in the

alternative. However, “[e]ven though Rule 8(e)(2)...allows a

party to state multiple, even inconsistent claims, it does not

alter a substantive right between the parties and accordingly

does not allow a plaintiff [to invoke] state law to an unjust

enrichment claim while also alleging an express contract.” 

Gerlinger at 856. Since Qwest incorporated all prior

allegations, including those stating that the parties expressly

contracted with one another, into its claim for restitution,

Count XI must fail. The Defendants’ Motions to Dismiss Count XI

are GRANTED, with leave to amend. 

8. Count XII - Civil Conspiracy (Against All

Defendants)

“[C]ivil conspiracy is not a separate and distinct cause of

action under California law.” Accuimage Diagnostics Corp. v.

Terarecon, Inc., 260 F. Supp. 2d 941, 947 (N.D. Cal. 2003). “To

state a cause of action for conspiracy, the complaint must allege

(1) the formation and operation of the conspiracy, (2) the

wrongful act or acts done pursuant thereto, and (3) the damage

resulting from such act or acts. 

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General allegations of agreement have been held sufficient, and

the conspiracy averment has even been held unnecessary, providing

the unlawful acts or civil wrongs are otherwise sufficiently

alleged.” Chicago Title at 316. 

“The conspiracy ‘may be inferred from the nature of the acts

done, the relations of the parties, the interests of the alleged

conspirators, and other circumstances.” Id. (internal quotations

and citations omitted). “As long as two or more persons agree to

perform a wrongful act, the law places civil liability for the

resulting damages on all of them, regardless of whether they

actually commit the tort themselves. The effect of

charging...conspiratorial conduct is to implicate all...who agree

to the plan to commit the wrong as well as those who actually

carry it out.” Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 784

(1979) (internal citations and quotations omitted). 

Nevertheless, it is logical that a party cannot conspire

with itself. See Webber v. Inland Empire Investments, 74 Cal.

App. 4th 884, 910 (4th Dist. 1999) (“If [the defendant] was the

alter ego of all the corporations, there could be no

coconspirators.”) As in Count XI, Qwest incorporated its alter

ego allegations into this claim, ultimately sabotaging its

viability because of those allegations. 

Hence, Defendants’ Motions to Dismiss Count XII are GRANTED,

with leave to amend.

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9. Count XIII - Aiding and Abetting (Against All

Defendants)

“Liability may ... be imposed on one who aids and abets the

commission of an intentional tort if the person (a) knows the

other's conduct constitutes a breach of duty and gives

substantial assistance or encouragement to the other to so act or

(b) gives substantial assistance to the other in accomplishing a

tortious result and the person's own conduct, separately

considered, constitutes a breach of duty to the third person. 

Mere knowledge that a tort is being committed and the failure to

prevent it does not constitute aiding and abetting. As a general

rule, one owes no duty to control the conduct of another....” 

Fiol v. Doellstedt, 50 Cal. App. 4th, 1318, 1326 (2d Dist. 1996)

(internal citations and quotations omitted). 

The very elements of this cause of action show that, as in

Counts X and XII, a party cannot aid and abet itself. The cause

of action presumes the presence of more than one party. Since

Plaintiff incorporated its alter ego allegations into this cause

of action, it defeated its own argument. Hence, Defendants’

Motions to Dismiss Count XIII are GRANTED, with leave to amend. 

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 Because oral argument will not be of material assistance, 7

the Court ordered this matter submitted on the briefing. E.D.

Cal. Local Rule 78-230(h). 

31

CONCLUSION

Pursuant to Rule 12(b)(6), Defendants’ Motions to Dismiss

Counts I-IV and VI-IX are DENIED and Defendants’ Motions to

Dismiss Counts V and X-XIII are GRANTED with leave to amend.7

Plaintiff is directed to file a Second Amended Complaint, should

he choose to do so, not later than thirty (30) calendar days

following the date of this Order.

IT IS SO ORDERED. 

Dated: March 20, 2008

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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