Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-01524/USCOURTS-cand-5_05-cv-01524-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

** E-filed on 7/13/05 **

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SYNAPSIS, LLC,

 Plaintiff,

 v.

EVERGREEN DATA SYSTEMS, INC., et al.,

 Defendants.

Case Number C 05-01524 JF

ORDER GRANTING MOTION TO

DISMISS OF EVERGREEN DATA

SYSTEMS, INC., BRUCE R.

MCALLISTER, AND STEVEN J.

DEMARTINI

[Docket No. 36]

Defendants Evergreen Data Systems, Inc. (“Evergreen”), Bruce R. McAllister

(“McAllister”), and Steven J. DeMartini (“DeMartini”) move to dismiss certain claims pursuant

to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be

granted and pursuant to Federal Rule of Civil Procedure 9 for failure to plead fraud adequately. 

Plaintiff Synapsis, LLC (“Synapsis”) opposes the motion. The Court has read the moving and

responding papers and considered the oral arguments of counsel presented on June 10, 2005. For

the reasons set forth below, the motion will be granted with leave to amend. 

I. BACKGROUND

Synapsis is an electronic forms and laser printing company. On September 21, 1992,

Synapsis’ predecessor entered into a “Sales Agent Agreement” with Evergreen, a business forms

Case 5:05-cv-01524-JF Document 55 Filed 07/13/05 Page 1 of 8
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1

 Synapsis does not include in its complaint allegations regarding the identity of Evans or

his relationship to Synapsis and/or McAllister. This omission appears to be of no consequence,

as Evans is not named as a defendant.

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

distributor. Compl. ¶ 11 & Ex. 1. The Sales Agent Agreement appointed Evergreen as Synapsis’

“non-exclusive selling representative in the Area and exclusive selling representative for parties

listed on Schedule B to actively promote and solicit orders for the Manufacturer Products or any

components thereof for the term of this Agreement.” Compl., Ex. 1. Almost four years later, by

letter dated April 11, 1996, Evergreen’s president acknowledged to Synapsis the “intellectual

property value” of the Synapsis products being marketed by Evergreen under Evergreen’s name

and agreed to use those products “solely within the limitations of the existing marketing

agreements between Synapsis and Evergreen.” Compl., Ex. 2. Evergreen further agreed not to

use those products “without written permission from Synapsis, or knowingly in direct

competition with Synapsis.” Id. In 1998, “the ownership of Evergreen changed hands to

[McAllister] and [DeMartini].” Compl. ¶ 12. Through early 1999, Synapsis and Evergreen

“enjoyed a good, working relationship.” Id. On May 10, 2000, Synapsis, McAllister, and Bruce

Evans1 (“Evans”) entered into a “Mutual Non-Disclosure Agreement,” which imposed certain

restrictions on the recipients of “Confidential Information,” as defined by the agreement,

including that the “Recipient shall not use the Confidential Information for its own use or for any

purpose except to evaluate whether it desires to enter into a business transaction with the

Disclosing Party, or as necessary to carry out the terms of such business transaction.” Compl.,

Ex. 3.

Synapsis alleges that, in late 2002, its “level of business was reduced by more than 60%.” 

Compl. ¶ 13. McAllister and DeMartini are alleged to have stated falsely that the causes of

Synapsis’ reduction in business were the “bad times in the economy, ‘dot-com’ firms going out

of business and the reluctance of businesses to spend monies on electronic forms.” Id. However,

Synapsis became suspicious that “something was amiss” when it received a phone call in late

October 2002 on the phone line dedicated to Synapsis-Evergreen business from a customer for

Case 5:05-cv-01524-JF Document 55 Filed 07/13/05 Page 2 of 8
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2

 ISF has filed a separate motion to dismiss, which currently is set for hearing on July 22,

2005.

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

whom Synapsis had not created an order. Id. ¶ 14. Synapsis alleges that McAllister, DeMartini,

and Evergreen in fact had “entered into other business relationships” in violation of the Sales

Agent Agreement and were “secretly diverting business from [Synapsis] through an in house

technical service center.” Id. ¶ 13.

On January 10, 2005, Synapsis filed the instant action against Evergreen, McAllister,

DeMartini, Ireland San Filippo, LLP (“ISF”), and “Does 1 through 10,” alleging violations of the

Racketeer Influenced and Corrupt Organizations Act (“RICO”), breach of contract, intentional

and negligent interference with prospective economic advantage, fraud, trade libel and slander,

and false advertising and seeking funds allegedly due from all Defendants except ISF. 

Evergreen, McAllister, and DeMartini now move to dismiss five of the claims, as discussed

below.2

II. LEGAL STANDARD

A complaint may be dismissed for failure to state a claim upon which relief can be

granted for one of two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts

under a cognizable legal theory. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Robertson v.

Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). For purposes of a motion to

dismiss, all allegations of material fact in the complaint are taken as true and construed in the

light most favorable to the nonmoving party. Clegg v. Cult Awareness Network, 18 F.3d 752,

754 (9th Cir. 1994). Although the Court generally may not consider any material beyond the

pleadings when ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure

12(b)(6), Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997), it may consider documents that

are attached to and part of the complaint, Durning v. First Boston Corp., 815 F.2d 1265, 1267

(9th Cir. 1987). A complaint should not be dismissed “unless it appears beyond doubt the

plaintiff can prove no set of facts in support of his claim that would entitle him to relief.” Clegg,

18 F.3d at 754. However, the Court “is not required to accept legal conclusions cast in the form

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged.” Id.

at 754-55. Motions to dismiss generally are viewed with disfavor under this liberal standard and

are granted rarely. See Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997).

III. DISCUSSION

A. RICO

Synapsis alleges that all Defendants except ISF have violated RICO. The RICO statute

provides, in pertinent part, that 

[i]t shall be unlawful for any person employed by or associated with any

enterprise engaged in, or the activities of which affect, interstate or foreign

commerce, to conduct or participate, directly or indirectly, in the conduct of such

enterprise’s affairs through a pattern of racketeering activity or collection of

unlawful debt.

18 U.S.C. § 1962(c). A RICO claim must allege the separate identities of an enterprise and a

person employed or associated with such enterprise. Chang v. Chen, 80 F.3d 1293, 1299 (9th

Cir. 1996). However, Synapsis’ allegations that “Defendants” have invested their income from

specified “illegal operations to operate an enterprise engaged in interstate commerce,” Compl. ¶

20, that McAllister and DeMartini “have maintained an interest in or control of such an

enterprise through a pattern of racketeering activity,” id. ¶ 21, and that “Defendants are employed

by or associated with such an enterprise,” id. ¶ 22, fail to satisfy this pleading requirement.

In addition, Synapsis has failed to meet the heightened pleading requirements imposed by

Federal Rule of Civil Procedure 9 (“Rule 9”) with respect to its allegation of mail fraud. Rule 9

requires fraud to be pled with particularity, see Fed. R. Civ. P. 9(b), and the Ninth Circuit has

applied Rule 9 in RICO actions alleging mail fraud as the predicate act, see Lancaster Cmty.

Hosp. v. Antelope Valley Hosp., 940 F.2d 397, 405 (9th Cir. 1991). Synapsis alleges that

“Defendants” committed mail fraud when they “fraudulently sold Plaintiff’s trademarked

technology . . . via either email [sic], the Internet, or express carriers which involved inter-state

transactions.” Compl. ¶ 19. However, Synapsis does not allege, for example, when and where

the fraudulent sales occurred, to whom the sales were made, or how each Defendant was

involved in the alleged mail fraud. Because Synapsis has not alleged a separate enterprise or

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3

 Synapsis argues that it has alleged interference with some prospective economic

advantage separate from interference with the Sales Agent Agreement itself. However, this

reading of the complaint is not supported by Synapsis’ factual allegations, which focus on the

contractual relationship between Synapsis and Evergreen.

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

satisfied the pleading requirements of Rule 9, its RICO claim will be DISMISSED with leave to

amend.

B. Breach of Contract

Synapsis alleges that “all Defendants” breached (1) the Sales Agent Agreement between

Synapsis and Evergreen, (2) the “confirmation letter” of April 11, 1996, from Evergreen’s

president to Synapsis, Compl. ¶ 11, and (3) the Mutual Non-Disclosure Agreement among

Synapsis, McAllister, and Evans. Evergreen, McAllister, and DeMartini argue that Synapsis

inappropriately has named all Defendants in the breach-of-contract claim, and they move for

dismissal of McAllister and DeMartini from all claims involving breach of the Sales Agent

Agreement and dismissal of Evergreen and DeMartini from all claims involving breach of the

Mutual Non-Disclosure Agreement. Synapsis consents to dismissal of DeMartini from the

breach-of-contract claim. See Opp’n at 10. Because McAllister was not a party to the Sales

Agent Agreement and Evergreen was not a party to the Mutual Non-Disclosure Agreement, and

Synapsis fails to allege any other claims upon which these non-parties can be liable for breach of

contract, Defendants’ motion will be GRANTED with leave to amend.

C. Interference with Prospective Economic Advantage

As its complaint currently reads, Synapsis appears to allege that McAllister and

DeMartini intentionally and negligently interfered with the “existing contractual relationship”

between “Plaintiff and Defendants” through which “Defendants would market Plaintiff’s

electronic forms to Specific Installed Customer Bases” and, “[w]hen customers purchased the

electronic forms, Plaintiff would personalize the forms to fit each customer’s specific business

requirements.”3 Compl. ¶¶ 38-39, 44-45. However, corporate agents and employees acting for

and on behalf of a corporation cannot be held liable for inducing a breach of the corporation’s

contract under the doctrine of interference with prospective economic advantage. Shoemaker v.

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

Myers, 801 P.2d 1054, 1068 (Cal. 1990). McAllister and DeMartini were Evergreen’s corporate

agents for purposes of the Sales Agent Agreement between Synapsis and Evergreen and thus

cannot be held liable for interfering with the agreement by inducing its breach. Accordingly,

Synapsis’ claims for both intentional and negligent interference with prospective economic

advantage will be DISMISSED with leave to amend.

D. Fraud

Synapsis alleges that several actions on the part of “[a]ll Defendants” constitute fraud. 

First, Synapsis appears to allege that McAllister engaged in promissory fraud with respect to his

representations in the Mutual Non-Disclosure Agreement that he would “hold all of Plaintiff’s

proprietary information, as defined by that agreement, as confidential and proprietary and would

not disclose it to any person not authorized by Plaintiff.” Compl. ¶ 48. Second, Synapsis

appears to allege that “Defendants” engaged in promissory fraud with respect to written

representations that they would “(i) hold Plaintiff’s proprietary information in confidence, (ii) use

Plaintiff’s services exclusively for all sales involving Oracle financial software applications and

other Specific Installed Customer Bases, and (iii) use Plaintiff’s services exclusively for all sales

falling within the exclusive parameters of the contract.” Id. ¶ 49. A claim of promissory fraud

must be based on a promise that is made without any intention of performing it at the time it is

made. Muraoka v. Budget Rent-A-Car, Inc., 206 Cal. Rptr. 476, 481 (Ct. App. 1984). Synapsis

has failed to allege that Defendants had no intention of fulfilling these promises at the time they

were made. Synapsis’ broad allegations that “[t]he representations were false and at the time that

they were made, each defendant making the representation was aware of their falsity,” Compl. ¶

51, appear, based on the sentences immediately following them, to refer only to the third category

of Synapsis’ allegations of fraud, see infra. Accordingly, the apparent claims for promissory

fraud will be DISMISSED with leave to amend.

Third, Synapsis alleges that, from 2001 to the present, McAllister and DeMartini falsely

represented to Synapsis, orally and in writing, “that the drop in sales was due to the economy and

other factors external to Defendants’ business operations, and that Defendants were complying

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

with all of their contractual obligations.” Compl. ¶ 50. Defendants argue that Synapsis has

failed to allege injury or damage from these representations and that Synapsis also has failed to

satisfy the heightened pleading requirements of Rule 9. Synapsis adequately has alleged damage

through its allegations that “Defendants” were concealing from Synapsis that they had “begun to

do business with a competitor of Plaintiff in violation of the contractual obligations owed to

Plaintiff” and that they engaged in unauthorized use of Synapsis’ proprietary technology

“specifically to replace Plaintiff, lower the cost of goods sold and increase the profits of

Defendants.” Id. ¶ 51. The clear implication of these allegations is that, had McAllister and

DeMartini not made the allegedly fraudulent representations, Synapsis would not have relied on

the assurances to its detriment. Synapsis has failed to satisfy the heightened pleading

requirements of Rule 9 for allegations of fraud. Although Synapsis has alleged that McAllister

and DeMartini made fraudulent statements, it has failed to allege with particularity when in the

period from 2001 to the present the statements were made, which statements were made in

writing and which were made orally, and to whom the statements were made. Accordingly, this

claim for fraud also will be DISMISSED with leave to amend.

IV. ORDER

Good cause therefore appearing, IT IS HEREBY ORDERED that the motion to dismiss

of Evergreen, McAllister, and DeMartini is GRANTED with leave to amend. 

DATED: July 13, 2005

/s/ (electronic signature authorized)

JEREMY FOGEL

United States District Judge

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Case No. C 05-01524 JF

ORDER GRANTING MOTION TO DISMISS OF EVERGREEN DATA SYSTEMS, INC., BRUCE R. MCALLISTER,

AND STEVEN J. DEMARTINI

(JFEX1)

This Order has been served upon the following persons:

Patricia L. Bonheyo

trish.bonheyo@lw.com

Daniel C. DeCarlo

decarlo@lbbslaw.com

Manuel Albert Martinez

MMartinez@steinlubin.com, msaephan@steinlubin.com

Michael Navid Radparvar

radparvar@lbbslaw.com

Jeffrey F. Sax

jsax@sswesq.com

Shawn A. Toliver

toliver@lbbslaw.com, nebreda@lbbslaw.com

H Joseph Nourmand

H Joseph Nourmand Law Offices

660 S. Figueroa Street 

24th Floor

Los Angeles, CA 90017

Case 5:05-cv-01524-JF Document 55 Filed 07/13/05 Page 8 of 8