Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-01745/USCOURTS-casd-3_06-cv-01745-10/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MOBIAPPS, INC., a Texas corporation,

Plaintiff,

CASE NO. 06cv1745-LAB (JMA)

[Related Case No. 

06cv1574-LAB (JMA)]

ORDER GRANTING IN PART AND

DENYING IN PART COUNTERDEFENDANT'S MOTION TO

DISMISS AND STRIKE

[Dkt Nos. 44, 54]

vs.

QUAKE GLOBAL, INC., a California

corporation,

Defendant.

________________________________

QUAKE GLOBAL, INC., a California

corporation,

Counter Claimant,

vs.

MOBIAPPS, INC., a Texas corporation;

INTRINSIX, INC., a Massachusetts

corporation; DOES 1 through 25,

inclusive,

Counter Defendants.

This matter is before the court on the motions of plaintiff/counterclaim defendant

MobiApps, Inc. ("MobiApps") to dismiss defendant/counterclaimant Quake Global, Inc.'s

("Quake") Fourth Claim (fraud) and Fifth Claim (breach of fiduciary duty and constructive

fraud) in Quake's First Amended Counterclaims ("FACC"), to strike Quake's prayer for

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punitive damages, and for oral argument on the motion in this dispute arising from the

design, manufacture, and marketing of mobile satellite communicationsdevices. Quake filed

an Opposition, and MobiApps filed a Reply. Pursuant to Civil Local Rule 7.1(d)(1), the court

finds the issues presented appropriate for decision on the papers and without oral argument.

Accordingly, MobiApp's Request for oral argument is DENIED. For the reasons discussed

below, MobiApp's Motion is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

Quake designs and manufactures satellite modems compatible with the ORBCOMM

satellite network using proprietary technology. MobiApps describes itself as a manufacturer

and provider of machine-to-machine cellular and satellite communications technologies

whose devices help companies track the location and monitor the operation of physical

assets in a wide range of global applications. Second Amended Complaint ("SAC") ¶ 4.

Quake's FACC alleges MobiApps approached Quake in January 2002 with a proposal that

Quake permit MobiApps to use Quake's design information for the limited purpose of

designing a smaller modem, with the assistance of MobiApp's selected designer, Intrinsix.

The objective was to produce a Radio Frequency Application Specific Integrated Circuit ("RF

ASIC") chip based on Quake's Q1500 RF design that both companies could use. In April

2002, Quake and MobiApps entered a Joint Product Development And License Agreement

("JDA") and a Product Purchase Agreement ("PPA"). Both agreements were amended and

restated in the February 2003 operative agreements.

The development process took much longer than anticipated, The project continued

into April 2005, when a test version of the RF ASIC failed to reach predetermined contractual

benchmarks. Although Quake represents it was willing to continue the collaboration despite

the missed contractual benchmark, Quake understood MobiApps elected to abandon the RF

ASIC project. The JDA contains a provision addressing that eventuality, and provides "the

design and development effort shall cease and the Amended and Restated Product Joint

Development and License Agreement and the Amended and Restated Product Purchase

Agreement shall terminate in their entirety" when the contract termination provision is

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1

 "MobiApps agrees that it will not sell or otherwise transfer possession of any RF ASIC

developed hereunder in any format other than as a component contained in an RF Module

manufactured by Quake. . . ." FACC Exh. A, JDA ¶ 7.4(a).

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invoked. FACC, Exh. A, JDA ¶ 2.7.3. In that event, "each party shall return to the other

party, any and all Intellectual Property and technical materials provided to the other party

under the Restated Agreement." FACC Exh. A, JDA ¶ 2.7.4. 

Quake alleges MobiApps breached the project termination terms. Quake alleges

MobiApps took the "test" version of the RF ASIC (containing Quake's proprietary information)

that had fallen short of the performance benchmarks, acquired or built an RF module to

house it in, and is now marketing satellite modems in competition with Quake, in

contravention of another JDA provision.1 Quake characterizes MobiApps' conduct as a

failure to abandon the project or agree to extend it, with an attempt instead "to escape

through a 'trap door' in the JDA which it claims permits it to keep and exploit Quake's

technology without honoring the commensurate consideration obligations." Opp. 4:13-18.

MobiApps' November 7, 2006 SAC names Quake as the sole defendant and alleges

causes of action for Breach Of Contract, Breach Of The Implied Covenant Of Good Faith

And Fair Dealing, Quantum Meruit, Interference With Prospective Economic Advantage,

Statutory Unfair Competition (CAL. BUS. & PROF. CODE I 17200, et seq.), and Declaratory

Judgment. Dkt No. 32. Quake's FACC names MobiApps and Intrinsix and alleges causes

of action for Breach Of Contract, Misappropriation Of Trade Secrets, Fraud In The

Inducement, Breach Of Fiduciary Duty, Constructive Fraud, and Common Law Unfair

Competition. Dkt No. 31. MobiApps now moves to dismiss Quake's Fourth Claim for Fraud

In The Inducement, to dismiss its Fifth Claim for Breach Of Fiduciary Duty And Constructive

Fraud, and to dismiss or strike its prayer for Punitive And Exemplary Damages. 

II. DISCUSSION

A. Legal Standards

A FED. R. CIV. P. ("Rule")12(b)(6) motion to dismiss tests the sufficiency of the

complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal of a claim under

this Rule is appropriate only where "it appears beyond doubt that the plaintiff can prove no

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set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355

U.S. 41, 45-46 (1957); Navarro, 250 F.3d at 732. Rule 12(b)(6) dismissal is warranted

where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds,

Inc.,749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989)

("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of

law"). Alternatively, dismissal is warranted where the complaint presents a cognizable legal

theory but fails to plead essential facts under that theory. Robertson, 749 F.2d at 534; see

Balistreri v. Pacific Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). When a Rule 12(b)(6)

motion is granted, leave to amend is ordinarily denied only when it is clear that the

deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight

Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). 

In reviewing Rule 12(b)(6) motions, the court must assume the truth of all factual

allegations and must construe them in the light most favorable to the nonmoving party,

including all reasonable inferences to be drawn from the facts alleged. Cahill v. Liberty Mut.

Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal conclusions need not be taken

as true merely because they are cast in the form of factual allegations. Roberts v.

Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); Western Mining Council v. Watt, 643 F.2d

618, 624 (9th Cir. 1981). When ruling on the motion, the court may consider the facts

alleged in the complaint, documents attached to the complaint, documents relied upon but

not attached to the complaint when authenticity is not contested, and matters of which the

Court takes judicial notice. Parrino v. FHP, Inc., 146 F.3d 699, 705-706 (9th Cir. 1998).

B. Fraud In The Inducement

"Fraud in the inducement is a subset of the tort of fraud. It 'occurs when the promisor

knows what he is signing but his consent is induced by fraud, mutual asset is present and

a contract is formed, which, by reason of the fraud, is voidable.'" Hinesley v. Oakshade

Town Center, 135 Cal.App.4th 289, 294-95 (2005), quoting Rosenthal v. Great Western Fin.

Securities Corp., 14 Cal.4th394, 415 (1996) (internal citation omitted). "The elements of

fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b)

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2

 MobiApps relies on a number of shareholder securities fraud or RICO cases in support of

its Motion. The court does not adopt as the pleading standard to state a fraud claim of those cases

decided under the more stringent requirements of the Private Securities Litigation Reform Act, but

rather the Rule 9(b) standards appropriate to this Motion.

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scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and

(e) resulting damages." Id., citing Lazar v. Superior Court, 12 Cal.4th 631, 638 (1996).

MobiApps relies on Rule 9(b) in support of its Motion to dismiss the fraud claim: "In

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

stated with particularity," although "[m]alice, intent, knowledge, and other condition of mind

of a person may be averred generally." Rule 9(b). Rule 9(b) imposes a heightened pleading

requirement compared to notice pleading. The pleading of fraud must be sufficiently detailed

so the defendant can prepare an adequate answer in defense of the allegations, "not just

deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th

Cir. 1985). "[M]ere conclusory allegations of fraud are insufficient." Moore v. Kayport

Package Exp., Inc. 885 F.2d 531, 540 (9th Cir. 1989). An averment of "the circumstances

constituting fraud" must identify what representation was made and why the statement or

omission complained of was false or misleading. In re GlenFed. Inc. Securities Litigation,

42 F.3d 1541, 1548 (9th Cir. 1994) (applying Rule 9(b) standards to dismiss fraud claim).2

Quake contends it has sufficiently pled fraud in the inducement:

Quake's claim is that during the course of negotiations

of the venture to develop the RF ASIC, MobiApps induced

Quake to reveal its proprietary trade secrets to it through a

pattern of representations which MobiApps subsequently

cavalierly disregarded, even though many of them are in the

signed writing. Quake is not merely claiming that there was

a single exchange wherein it was induced to change course;

rather it was a pattern of representations and assurances.

Opp. 421-5:2 (emphasis added).

However, the FACC is devoid of any explanation of what facts were represented and

why the statement(s) was false when made. 

Duringnegotiations, Quake expressed reservations about

the security of its intellectual property, including concerns that

MobiApps, being primarily based in Asia, would abscond with

Quake's intellectual property if disclosed by Quake and Quake

would be left without a remedy. MobiApps affirmatively

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represented that provisions they drafted and inserted in the

JDA and PPA, would fully protect Quake from having its

proprietary trade secrets misappropriated and that Quake's trade

secrets would be fully protected. Said representations were

made with the intention of inducing Quake to entrust its

proprietary intellectual property and trade secrets to

MobiApps.

FACC ¶ 44 (emphasis added).

Quake alleges that in agreeing to execute the JDA and PPA, Quake "reasonably

relied" on those generalized characterizations, whereas "[t]he representations were in fact

false. . . . FACC ¶¶ 45-46. Quake thus suggests it relied on MobiApps' purported

representations about the legal effect of contract provisions intended to address Quake's

confidentiality concerns that allegedly turned out to be false. Reliance on MobiApps'

representations regarding the legal effect of particular contract language is insufficient to

satisfy the element of false facts or fraudulent omissions inducing justified reliance,

particularly as the parties appear to have been represented by independent counsel during

the contract formation process. Reading the FACC as a whole, the only inference of false

factual representations appears to arise in connection withthe breach of contract allegations.

Quake is informed and believes and thereon alleges that the

true facts were that MobiApps used a pretextual termination to

eliminate Quake from the continuing development of the RF

ASIC for its own account, and continued to develop the product

using Quake's proprietary trade secrets without Quake's

involvement or permission.

FACC ¶ 46 (emphasis added). 

On that basis, Quake alleges it "has been damaged in its business as a consequence

of the foregoing," and "MobiApps acted with malice, oppression and fraud within the

meaning of California Civil Code § 3294. . ." FACC ¶¶ 47-48. The Fourth Claim thus relies

on conduct associated with the termination of the parties' contractual relationship rather than

its formation. Although the Fraud In The Inducement claim also expressly incorporates by

reference FACC ¶¶ 1-20, 22-24, 28-31, and 35-38, those paragraphs do not cure the

pleading defects. None of those paragraphs, taken together, states the claim because they

are devoid of any allegation MobiApps made any particular factual misrepresentation(s) in

the process of coming to terms with Quake for pursuit of their project upon which Quake

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detrimentally relied. The allegations from those paragraphs merely supply the additional

facts: MobiApps approached Quake because it wanted to develop a small modem

(transceiver) compatible with the ORBCOMM satellite system to use in its proposed

automobile telematics device (FACC ¶ 7), something MobiApps could not do on its own

(FACC ¶ 9); MobiApps proposed the two companies jointly develop a small RF ASIC to meet

MobiApp's size requirements which would contain Quake's transceiver design on a computer

chip (FACC ¶ 7); the parties executed the revised and amended JDA, which recites Quake's

contribution to the joint development project was "certain proprietary technologies enabling

the design of satellite communication projects for the ORBCOMM system as well as other

proprietary technologies with respect to wireless communications" (FACC ¶ 9); MobiApps

provided the monetary investment and chose the development house, counterclaim

defendant Intrinsix (FACC ¶ 9); "the venture was to create a new product incorporating

Quake's proprietary intellectual property, and upon completion of the RF ASIC to contract

specifications, each company would own one-half of the final RF ASIC product, and each

would have the right to exploit that product in conformance with the terms of the JDA and

PPA, which include cross-licensing provisions and limitations on manufacture, as well as

detailed provisions for protection of proprietary intellectual property," but "as reflected in the

JDA and PPA," MobiApps "was never to own Quake's intellectual property, nor would

MobiApps ever be able to exploit Quake's Q1500 design" on which the RF ASIC design was

based "beyond the term of the JDA and PPA" (FACC ¶ 10); "MobiApps invoked the provision

of [JDA] paragraph 2.7.3 on April 12, 2006, and declared the contract terminated" when

certain contractual benchmarks were not met, despite Quake's offer to continue the

development process (FACC ¶¶ 12-13).

JDA paragraph 2.7.3 provides that in the event the termination provision were

invoked, "the design and development effort shall cease." FACC ¶ 14. Quake alleges

MobiApps did not honor that provision. Instead, among other things, "either by itself or in

conjunction with Intrinsix, [MobiApps] has continued the project and is exploiting Quake's

intellectual property in derogation of the JDA" (FACC ¶ 14), has refused to return Quake's

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intellectual property as contractually required, and has "continued to develop subscriber

communication products utilizing that RF ASIC that are intended to directly compete with

Quake's products in violation of the JDA." FACC ¶¶ 15-18. A license incorporated into the

JDA would have permitted MobiApps to use Quake's Q1500 design, but the license

terminated pursuant to JDA paragraph 7.2 along with the JDA. FACC ¶ 20. FACC

paragraphs 22-24 and 28-31 allege Quake has performed all conditions and covenants

required of it under the JDA and damages.

The FACC also alleges "MobiApps acquired Quake's trade secrets with express

knowledge of circumstances giving rise to the duty to maintain its secrecy and limit its use,

including knowledge of the express terms governing confidentiality set forth in the JDA and

PPA." FACC ¶ 35 (emphasis added). Quake alleges MobiApps and Intrinsix "have

continued to utilize and exploit Quake's intellectual property and trade secrets, which they

received in confidence, and to wrongfully attempt to commercially exploit it," entitling Quake

to recover its actual losses as well as damages for unjust enrichment. FACC ¶¶ 36. The

effect of confidentiality agreements on fiduciary duty claims is discussed in the next section.

To survive dismissal, the fraudulent inducement for Quake to turn over its proprietary

information to MobiApps must be alleged in a fashion that shows "why a given statement

was false or misleading. . . when made." Hockey v. Medhekar, 30 F.Supp.2d 1209, 1213

(N.D. Cal. 1998) (emphasis added) ("plaintiffs cannot plead 'fraud by hindsight,' in which later

events are used to support the falsity of earlier statements"), citing GlenFed, 42 F.3d at

1548. MobiApps argues Quake has failed to plead fraud with the requisite specificity. Mot.

3:6-9; see U.S. Concord, Inc. v. Harris Graphics Corp., 757 F.Supp. 1053, 1057 (N.D. Cal.

1991)(holding vague allegations regarding the timing of fraudulent conduct spanning several

months, and lacking any identification of time, place, and contents of the misrepresentations,

"do not make the grade," because the plaintiff must establish it relied on the

misrepresentation in entering the contract), citing Rule 9(b) and Semegen, 780 F.2d at 731.

MobiApps contends the FACC "fails to allege any contemporaneous facts that would

show that MobiApps' alleged statements were false at any time, much less false when made

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as required." Mot. 4:2-3. Quake's allegations of a "pretextual termination" of the JDA relate

to a time frame three years after MobiApps purportedly represented "Quake's trade secrets

would be fully protected," and after contractual benchmarks established by mutual consent

failed to be achieved. Those circumstances permit only the most inchoate inference that

MobiApps intended somehow to deceive Quake at the inception of their contractual

relationship for the purpose of later misappropriating the proprietary technology. 

Moreover, the court construes MobiApps' purported assurances to be legal

conclusions rather than factual representations of the kind adequate to support the claim.

Quake "fails to allege facts which would show that Quake had a right to rely on MobiApps'

purported representations." Mot. 3:13-15. Quake contends MobiApps reassured it contract

language addressed its concerns about the protection of proprietary information. The court

concludes no reasonable factfinder could find Quake's purported reliance on MobiApp's

characterization of the contract's legal import constituted a justifiable inducement. 

Quake pleads "on information and belief" that MobiApps' termination of their

agreement was "pretextual," and its termination conduct (not its contract formation conduct)

constitutes "more than a garden variety breach, but one [i.e., a breach of contract] that rises

to the level of willful misappropriation." Opp. 6:18-21 (emphasis added). Factual

representations made during the contractual formation process that later turn out differently

than expected do not provide a foundation from which a factfinder can reasonably infer the

alleged misrepresentations were false at the time they were made or that they were made

with knowledge of their falsity and with the intent to induce reliance. See Smith v. Allstate

Ins. Co., 160 F.Supp.2d 1150, 1153-54 (S.D. Cal. 2001) (without pleading specific facts

indicating the alleged misrepresentations were false when made, "every breach of contract

[claim could] support a claim of fraud so long as the plaintiff adds to his complaint a general

allegation that the defendant never intended to keep her promise") (citation omitted).

For all the foregoing reasons, the Rule 12(b)(6) Motion to dismiss Quake's Count Four

Fraud In The Inducement cause of action is GRANTED.

\\

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C. Breach Of Fiduciary Duty And Constructive Fraud

California law recognizes two types of fiduciary duties: those imposed by law and

those undertaken by agreement. GAB Bus. Services, Inc. v. Lindsey & Newsom Claim

Services, Inc., 83 Cal.App.4th 409, 416 (2000), overruled on other grounds in Reeves v.

Hanlon, 33 Cal.4th 1140 (2004). Those imposed by law are limited to "certain technical legal

relationships such as those between partners or joint venturers, . . . husbands and wives .

. . guardians and wards, trustees and beneficiaries, principals and agents, and attorneys and

clients." Id. Quake clarifies it "is not claiming a technical fiduciary relationship; it alleges a

fiduciary relationship arising from promisesmade by MobiApps and concomitant entrustment

of its proprietary intellectual property," a claim Quake contends is not covered by the JDA

terms. Opp. 8:27-9:3. MobiApps moves to dismiss Quake's Count Five breach of fiduciary

duty and constructive fraud cause of action on the ground Quake has not alleged, nor can

it allege, the type of relationship required for fiduciary duties to attach. 

As MobiApps argues: "It is a well-settled principle that parties to a contract do not by

necessary implication become fiduciaries." Mot. 5:3-5, quoting City Solutions, Inc. v. Clear

Channel Communications, Inc., 201 F.Supp.2d 1048, 1049 (N.D.Cal. 2002), citing

Gonsalves v. Hodgson, 38 Cal.2d 91, 99 (1951). "Nor are fiduciary obligations imposed

simply because the parties to a contract reposed trust and confidence in each other." City

Solutions, 201 F.Supp.2d at 1049 ("The existence of a detailed confidentiality agreement

suggests arms-length dealings between co-equals"), citing Girard v. Delta Towers Joint

Venture, 20 Cal.App.4th 1741, 1749 (1993); see GAB Bus. Services, 83 Cal.App.4th at 417;

see also Davies v. Krasna, 14 Cal.3d 502, 511 (1975) (holding an author's submission of a

story to a playwright in confidence, which the playwright incorporated into a successful play,

may have created "a duty [on the part of the playwright] to refrain from unauthorized

disclosure of the idea, but [the circumstances of the transaction] are insufficient to impose

upon him the fiduciary-like duties that arise from a confidential relationship"). Fiduciary

obligations will be recognized only when the person so charged "either knowingly

undertake[s] to act on behalf and for the benefit of another, or . . . enter[s] into a relationship

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3

 The existence of confidentiality agreements supports an inference that no fiduciary

relationship was established or intended. See City Solutions, 201 F.Supp.2d at 1049 ("The existence

of a detailed confidentiality agreement suggests arms-length dealings between co-equals"); see also

Worldvision Enterprises, Inc. v. American Broadcasting Cos., Inc., 142 Cal.App.3d 589, 595 (1983)

("The mere fact that in the course of their business relationships the parties reposed trust and

confidence in each other does not impose any corresponding fiduciary duty in the absence of an act

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which imposes that undertaking as a matter of law." Comm. on Children's Television, Inc.

v. Gen Foods Corp., 35 Cal.3d 197, 221 (1983). 

The thrust of this cause of action is that MobiApps allegedly retained Quake's

proprietary trade secrets -- in the form of its retention of the RF ASIC product containing

Quake's proprietary information -- in violation of the JDA terms regarding the return of

property upon the termination of the JDA. See FACC ¶ 56. Quake seeks an Order to

compel MobiApps to convey all such property to Quake, as provided in the JDA. In deciding

a Rule 12(b)(6) motion, the court need not accept as true legal conclusions cast as facts,

such as Quake's contention "MobiApps assumed the duties of a trustee with respect to

information that was to be used exclusively for the benefit of Quake and MobiApps jointly."

FACC ¶ 52 (emphasis added). A fair reading of the FACC substantiates Quake actually

relies for its counterclaims, including this one, on the terms of the contracts:

At all relevant times hereto, a confidential and fiduciary

relationship existed between Quake and MobiApps by virtue of

the representations contained in the JDA and PPA, pursuant

to which Quake reposed trust and confidence in MobiApps

by disclosure of its confidential and proprietary information

to MobiApps.

FACC ¶ 50 (emphasis added).

Quake alleges it imparted its valuable information to MobiApps "because MobiApps

induced Quake to trust and confide in the integrity and fidelity of MobiApps by its promise

to honor the terms of the JDA and PPA." FACC ¶ 51 (emphasis added). The court finds

that characterization describes the general obligations and reliance of all parties who

execute contracts for consideration. The remedy for breaches of contractually assumed

obligations (including confidentiality agreements) lies in actions for breach of contract,

irrespective of the degree of trust placed by one party in the "integrity and fidelity" of the

other to perform as promised.3

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creating or establishing a fiduciary relationship known to law"). Quake alleges no such "act." 

4

 Stevens, a self-educated inventor with less than a high school education, consulted Marco,

a lawyer and officer of a company capable of manufacturing plaintiff's invention, who agreed to

complete the engineering and to prosecute a patent application for the invention. Stevens assigned

the rights to his invention to Marco in return for royalties. Marco subsequently induced Stevens to

release all further rights by falsely telling him the patent was invalid. Stevens, 147 Cal.App.2d at 362-

64, 370. On that basis, the court determined a factfinder could conclude Marco had fraudulently

procured the release. Id. at 374. The Stevens court held plaintiff stated a prima facie case of fraud

and breach of contract because a jury could find that defendant had fraudulent procured a release

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The pleadings establish Quake and MobiApps negotiated a business transaction

intended to benefit both companies equally, as memorialized in the JDA and PPA. No

inference can be drawn from the FACC allegations or the JDA that MobiApps was in a

superior position to Quake or that MobiApps accepted any obligations beyond those

memorialized in the JDA, in particular some fiduciary or trustee role. Explicit language in

the JDA is incompatible with Quake's characterizations of the parties' relationship:

Nothing in this Restated Agreement shall cause or be deemed

to cause the parties to be partners or joint venturers with, or

agent[s] or employees of, each other. The parties are

independent contractors, and neither party shall have any right

or power to create any obligation or responsibility on behalf of

the other party.

FACC Exh. A, JDA § 14.8 (emphasis added).

Both sides acknowledge and rely on the JDA as controlling their respective rights and

obligations. Express terms of the JDA permit no inference other than that the parties were

co-equal collaborators who joined forces to jointly develop particular products with the aim

of a future purchase and sale relationship beneficial to both. See, e.g. FACC Exh, A, JDA

"Recitals" at p. 1. Quake implicitly acknowledges the parties formally agreed that Quake's

technology was proprietary, and MobiApps' access to it was for an authorized, if limited,

purpose. FACC ¶ 49. Quake cannot demonstrate MobiApps undertook to act on behalf of

Quake, assumed a position superior to Quake's in the enterprise they jointly undertook, or

otherwise dealt on unequal terms in their arms-lengthbusiness transaction, or that MobiApps

expressly accepted any legally cognizable fiduciary duty towards Quake. 

Quake's argument Stevens v. Marco, 147 Cal.App.2d 357 (1956) is "on all fours" with

this case is not persuasive as supporting its fiduciary duty claim.4 As distinguished by

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of rights to an invention and "the parties were allied in an enterprise similar to [a joint venture]."

Stevens, 147 Cal.App.2d at 374. 

5

 That characterization was supported by facts not present here permitting the court to

acknowledge such indices as: Marco was in a superior position to Stevens because only Marco was

aware of the details of the confidential application process; and a "secret" invention was entrusted

to Marco for development and exploitation in return for royalties.

6

 "A joint venture is a distinct entity virtually identical to a partnership, and capable of

contracting -- that is, acquiring obligations -- in its own name." Victor Valley Transit Authority v.

Workers' Compensation Appeals Bd., 83 Cal.App.4th 1068, 1076 (2000).

7

 Other authority Quake offers in opposition to the Motion is similarly distinguishable.

Roberts v. Heim, 123 F.R.D. 614 (N.D.Cal.1988) involved a dispute between general and limited

partners under securities law, a relationship where partners are recognized as trustees for each

other, with recognized fiduciary obligations arising automatically by virtue of that relationship.

Concha v. London, 62 F.3d 1493 (9th Cir. 1995) involved a dispute between fiduciaries of an ERISA

plan and plan administrators (accountants, actuaries, and attorneys) as co-fiduciaries. Michelson

v. Hamada, 29 Cal.App.4th 1566 (1994) involved a dispute between a principal and agent. Church

of Scientology International v. Eli Lilly & Co., 848 F.Supp. 1018 (D.D.C. 1994) (applying District of

Columbia law) found a question of fact existed as to whether a church and it public relations firm had

a fiduciary relationship. 

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MobiApps, Stevens involved claims of breach of contract and fraud, not breach of fiduciary

duty, although the court characterized the parties' relationship as fiduciary,5 in the context

of an enterprise similar to a joint venture,6 a relationship expressly disclaimed by these

parties. JDA at ¶ 14.8. In addition, Stevens is factually distinguishable.7

For all the foregoing reasons, the court finds Quake has not pled a cognizable claim

for breach of fiduciary duty. Absent a fiduciary relationship, Quake cannot state a claim for

constructive fraud. See In re Harmon, 250 F.3d 1240, 1249 n.10 (9th Cir. 2001)

("Constructive fraud is a unique species of fraud applicable only to a fiduciary or confidential

relationship"), citing Assilzadeh v. Cal. Fed. Bank, 82 Cal.App.4th 399, 415 (2000).

Moreover, the court concurs with MobiApps' characterization that"Quake's constructive fraud

allegations (to the extent they can be parsed from Quake's breach of fiduciary duty

allegations) are wholly conclusory and are lacking in any factual detail whatsoever." Mot.

9:10-4, citing FACC ¶¶ 50-54. The Motion to dismiss Quake's Fifth Cause of Action for

Breach of Fiduciary Duty and Constructive Fraud is GRANTED.

\\

D. Punitive And Exemplary Damages

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A Rule 12(f) motion to strike “may be used to strike any part of the prayer for relief

when the damages sought are not recoverable as a matter of law.” Bureerong v. Uvawas,

922 F.Supp. 1450, 1479 n.34 (C.D. Cal. 1996). MobiApps moves to dismiss or strike

Quake's punitive or exemplary damages request in connection with its Third, Fourth, Fifth,

and Sixth causes of action on grounds "the parties expressly agreed in the JDA that

damages of this nature were not recoverable" Mot. 9:20-22. The Fourth and Fifth Claims

are dismissed through this Order. The FACC's Third Claim alleges violation of the Uniform

Trade Secrets Act, CAL.CIV.CODE §§ 3425, et seq., and its Sixth Claim alleges common law

unfair competition. MobiApp's characterizes each of the FACC causes of action for which

Quake seeks punitive damages as concerning "MobiApps' alleged conduct in connection

with the negotiation and performance of the JDA." Mot. 10:6-15, citing FACC ¶¶ 35, 43-45,

50-53, 59, and citing CAZA Drilling, Inc. v. TEG Oil & Gas U.S.A., Inc., 142 Cal.App.4th 453,

467, 471-72 (2006) (upholding a grant of summary judgment based on a contractual

limitation of liability clause which did not exempt a party from all liability, but merely limited

its responsibility with respect to economic damages), citing Farnham v. Superior Court, 60

Cal.App.4th 69, 74 (1997) ("Although exemptions from all liability for intentional wrongs,

gross negligence and violations of law have been consistently invalidated [citations], we have

not found any case addressing a limitation on liability for intentional wrongs, gross

negligence or violations of the law"). 

The JDA provides, in pertinent part:

9.4 Limitations of Liability. EXCEPT AS OTHERWISE

SPECIFIED IN THIS AGREEMENT, NEITHER PARTY SHALL,

UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER

PARTY FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL

INCIDENTAL, OR EXEMPLARY DAMAGES (INCLUDING

WITHOUT LIMITATION, LOST PROFITS, LOSS OF

ANTICIPATED BUSINESS, LOSS OF DATA, OR BUSINESS

LOSSES) EVEN IF SUCH DAMAGES ARE FORESEEABLE,

AND EVEN IF THE BREACHING PARTY HAS BEEN

APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES

OCCURRING. THE LIMITATIONS OF THIS SECTION 9.4

SHALL NOT PRECLUDE CLAIMS FOR ACTUAL AND

DIRECT DAMAGES, INCLUDING WITHOUT LIMITATION

EXPENSES AND CHARGES INCURRED BY A PARTY AS A

RESULT OF THE OTHER PARTY'S BREACH AND EXPENSES

AND CHARGES TO MITIGATE DAMAGES RESULTING FROM

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8

 "All contracts which have for their object, directly or indirectly, to exempt any one from

responsibility for his own fraud, or willful injury to the person or property of another, or violation of

law, whether willful or negligent, are against the policy of the law." CAL. CIV. CODE § 1668

9

 Only Quake's FACC alleged separate causes of action for fraud or fiduciary duty breaches

(Fourth and Fifth Claims). In arguing for dismissal of Quake's breach of fiduciary duty claim,

MobiApps states: "To the extent Quake's claim is not dismissed, MobiApps requests that the Court

grant it leave to amend its complaint to allege a similar claim for breach of fiduciary duty against

Quake." Mot. p. 8 n.4. The request is now moot.

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THE OTHER PARTY'S BREACH.

FACC Exh. A, JDA ¶ 9.4 (emphasis added).

Quake characterizes the JDA ¶ 9.4 as an attempt to exempt a party from liability for

willful conduct (Opp. 9:27-10:8) and argues the "purported contractual waiver of punitive

damages violates public policy," relying on CAL. CIV. CODE § 16688 and Stirlen v. Supercuts,

Inc., 51 Cal.App.4th 1519, 1529-30 (1997). However, the Stirlen court did not separately

address the question whether the contractual restriction at issue there (restricting the

remedies for violation of the parties' employment contract -- including an arbitration clause

and a limitation on the amount of any monetary award "not to exceed the amount of actual

damages for breach of contract," expressly excluding any other "money damages [and]

exemplary damages" -- among other things) violated public policy, but rather resolved the

question presented through analysis under unconscionability of contract provision principles.

MobiApps argues the JDA type of bargained-for exchange does not violate public

policy, and the limitation applies equally to MobiApps, distinguishing Stirlen, where the court

found the remedy provisions at issue to be so "egregiously one-sided" as to render the

contract unenforceable. Reply p. 10 n.6. MobiApps argues CAL.CIV. CODE § 1668 does not

apply here because, by its terms, the JDA only limits liability, and only for certain types of

damages, while expressly permitting "claims for actual and direct damages." Reply 9:6-12.

This Order eliminates the separately-pled fraud causes of action from this litigation.9

However, Quake's FACC also alleges "malice, oppression and fraud within the meaning of

California Civil Code § 3294" associated with its Sixth Claim for Common Law Unfair

Competition (FACC ¶ 61) and seeks punitive damages associated with that claim. The

court notes MobiApps' SAC prays for punitive damages associated with its own Fifth Claim

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for statutory unfair competition (CAL. BUS. & PROF. CODE §§ 17200, et seq.) "to the extent

such damages are . . . not precluded by the damages limitation set forth in section 9.4 of the

JDA." SAC 11:1-3; Reply 9:23-10:2. The court finds the issue of punitive damages

associated with either side's unfair competition claims is not adequately presented through

this Motion, and the court expresses no opinion at this time on those claims or the effect of

JDA § 9.4 on the availability of punitive damages associated with those claims. Accordingly,

the Motion to strike Quake's punitive damages claim is DENIED.

E. Leave To Amend Would Be Futile

When the court determines a party cannot allege "other facts consistent with the

challenged pleading" that would cure the deficiencies, dismissal of the deficient claim without

leave to amend is proper. Schreiber Distrib. Co. v. Serv-Well Furniture Co. Inc., 806 F.2d

1393, 1401 (9th Cir. 1986). For the reasons discussed above, the court concludes the

deficiencies in Quake's pleading of its Fourth and Fifth causes of action cannot be cured

through repleading, warranting dismissal of those claims with prejudice.

III. CONCLUSION AND ORDER

For all the foregoing reasons, IT IS HEREBY ORDERED:

1. MobiApps' Motion To Dismiss the FACC Fourth Claim for fraud in the

inducement is GRANTED.

2. MobiApps' Motion To Dismiss the FACC Fifth Claim for breach of fiduciary duty

and constructive fraud is GRANTED.

3. MobiApps' Motion To Dismiss Or Strike the FACC prayer for punitive and

exemplary damages is DENIED.

IT IS SO ORDERED.

DATED: May 9, 2007

HONORABLE LARRY ALAN BURNS

United States District Judge

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