Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-04301/USCOURTS-cand-3_07-cv-04301-6/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 28:1441 Petition for Removal- Negotiable Instrument

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CHARLES M. BROWN,

Plaintiff, No. C 07-4301 (EDL)

v. ORDER DENYING LEAVE TO AMEND; 

DENYING MOTION TO DISMISS

DEFAMATION CLAIM

WIRELESS NETWORKS, INC.,

Defendant.

___________________________________/

Now before the court are Plaintiff’s motion requesting leave to amend his complaint, and

Defendant Wireless Networks, Inc.’s (“WNI”) motion to dismiss Plaintiff’s defamation claim. 

Having carefully reviewed the parties’ papers and considered their arguments and the relevant legal

authority, the Court hereby denies Plaintiff’s request for leave to amend and WNI’s motion to

dismiss for the following reasons.

I. BACKGROUND

This breach of contract case was removed from state court on August 21, 2007. WNI

removed this action pursuant to 28 U.S.C. § 1441 after Plaintiff Charles Brown amended his

complaint to change his demand from $51,617.32 for breach of contract and $3,351.00 for common

counts to the same amount for breach of contract and $46,876.60 for common counts and wages due,

for a new total of $98,493.92 in damages. On September 5, 2007, Brown filed a third amended

complaint without seeking permission of this court. The court noted that Brown had not requested

leave to file an amended pleading pursuant to Rule 15(a) of the Federal Rules of Civil Procedure,

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and ordered that until it granted leave to amend, the second amended complaint was the operative

complaint.

On September 6, 2007, Brown filed yet another amended complaint, labeled as “errata” to

the third amended complaint (referred to herein as the fourth amended complaint). Brown did not

seek leave from the court to file this amended complaint. Brown filed the fourth amended complaint 

after WNI’s counsel notified his counsel that Brown had alleged no damages in his complaint. The

fourth amended complaint increased the amount of controversy again to a total of $98,653.92. WNI

moved to strike Brown’s fourth amended complaint on the grounds that it was filed in violation of

Federal Rule of Civil Procedure 15(a), which provides that each party has a right to amend its

pleadings once as a matter of course any time before a responsive pleading is served. The Court

granted that motion, but allowed Plaintiff to amend his complaint to restate the claims he previously

pled, noting that he could not file any subsequent complaints without the Court’s permission. See

10/23/07 Order. The Court also cautioned Brown that it would not be so lenient should he violate

federal procedural rules in the future.

On November 16, 2007, Brown filed a Third Amended Complaint (in reality, his fifth

amended complaint) that alleged, among other things, that Defendant WNI was an alter ego of Ruy

Rothschild de Souza, Wireless Networks do Brazil (“WNB”), and MRG International (“MRG”)

beginning in 2004 going forward. That complaint also included a defamation claim based on a

September 7, 2007 letter sent by de Souza to WNI shareholders, which Brown attached to the

complaint. Brown now seeks leave to amend to add de Souza, WNB, and MRG as defendants in this

action. WNI moves to dismiss the defamation claim.

II. PLAINTIFF’S MOTION FOR LEAVE TO AMEND

Federal Rule of Civil Procedure (“FRCP”) 15(a) requires that a plaintiff obtain either consent

or leave of court to amend its complaint once defendant has answered. “[L]eave shall be freely

given when justice so requires.” See, e.g., Morongo Band of Mission Indians v. Rose, 893 F.2d

1074, 1079 (9th Cir. 1990) (leave to amend granted with “extreme liberality”); Eminence Capital,

LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003) (same). Leave to amend is thus ordinarily

permitted unless the amendment is futile, untimely, would cause undue prejudice to defendants, or is

sought by plaintiffs in bad faith or with a dilatory motive. DCD Programs, Ltd. V. Leighton, 833

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 The mediation took place in January, after alter ego allegations were made, but before Plaintiff

sought leave to add new parties. Therefore, Defendant was prejudiced by having to participate in a

mediation while Plaintiff indicated he would seek leave to add new parties, but had not yet done so.

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F.2d 183, 186 (9th Cir. 1987); Foman v. Davis, 371 U.S. 178, 182 (1962). However, “late

amendments to assert new theories are not reviewed favorably when the facts and the theory have

been known to the party seeking amendment since the inception of the cause of action.” Kaplan v.

Rose, 49 F.3d 1363, 1370 (9th Cir. 1994) (citation omitted).

Here, Brown was the President of WNI until about July 13, 2007, and he was at the epicenter

of the business’s operations during almost all of the relevant time period alleged in his complaint. In

addition, the majority of events alleged in Brown’s complaint took place from 2001-2005, not

recently. And he did not uncover the basis of his alter ego allegations in discovery, since very little

discovery has occurred in this case, as the parties acknowledged at the hearing. See Fourth

Amended Complaint ¶¶ 6, 9-13. Therefore, Brown had knowledge of the basis for alleging alter ego

allegations from the time he filed.

Yet Brown did not seek leave to add the alleged alter egos as defendants until March 4, 2008. 

However, months earlier he referenced his intent to add an additional party defendant in his

opposition to Defendant’s motion to strike. In his August 29, 2007 filing, he alleged that Mr. de

Souza was pilfering from WNB on his own behalf and running the company as his “personal

fiefdom.” By the time Brown generally sought leave to file an amended complaint to add the alter

ego parties, the parties had already participated in a mediation,1

 WNI had filed its answer and

counterclaim and Brown filed his answer, and Brown had already filed multiple amended complaints

in this action without Court permission.

In addition, Plaintiff’s alter ego allegations are extremely conclusory and bare. See Fourth

Amended Complaint ¶ 3. At the hearing, Plaintiff’s counsel noted that Plaintiff had only learned of

the lack of shareholder meetings in the last six months, but these allegations are not in the proposed

complaint. Furthermore, it is not clear what, if any, relevance recent events since the case was filed

have to Plaintiff’s theory. Cf. Platt v. Billingsley, 234 Cal. App. 2d 577, 587 (1965) (upholding alter

ego finding where substantial evidence supported trial court’s finding that “[a]t all relevant times,

the corporation was influenced, dominated and controlled by defendants”) (emphasis added).

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In sum, Plaintiff’s dilatory behavior, Plaintiff’s earlier knowledge of the facts underlying his

alter ego allegations, especially in light of the fact that Plaintiff has already filed multiple amended

complaints in this case, many without permission, and the prejudice caused by the fact that the

parties already participated in mediation, warrant denial of Plaintiff’s motion for leave to amend his

complaint.

III. DEFENDANT’S MOTION TO DISMISS

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in

the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). Review is limited to

the contents of the complaint. Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381,

385 (9th Cir. 1995). To survive a motion to dismiss for failure to state a claim, a complaint

generally must satisfy only the minimal notice pleading requirements of Federal Rule of Civil

Procedure 8. Rule 8(a)(2) requires only that the complaint include a “short and plain statement of

the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). 

The statement need only give the defendant “fair notice of the claim and the grounds upon

which it rests.” Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007) (citing Bell Atlantic Corp. v.

Twombly, 127 S.Ct. 1955, 1964-65 (2007)). All allegations of material fact are taken as true. 

Erickson, 127 S.Ct. at 2200. However, 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.” Bell Atlantic, 127 S.Ct. at 1964-65 (citations and

quotations omitted). Rather, the allegations in the complaint “must be enough to raise a right to

relief above the speculative level.” Id. at 1965. A motion to dismiss should be granted if the

complaint does not proffer enough facts to state a claim for relief that is plausible on its face. See id.

at 1966-67. 

On September 7, 2007, WNI, through its Chairman Mr. de Souza, sent a letter to its

shareholders regarding the litigation that Brown had instituted against WNI, among other things. 

See LaLonde Decl., Ex. A. When Brown filed his operative amended complaint on November 16,

2007, he added a cause of action for defamation, based on this letter. WNI now moves to dismiss

that cause of action on the grounds that it is barred as a matter of law by California’s litigation

privilege. 

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“A privileged publication or broadcast is one made . . in any . . . judicial proceeding.” Cal

Civ Code § 47(b). It has been given broad application, and while “originally enacted with reference

to defamation,” it applies to any communication. Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990). 

“The usual formulation is that the privilege applies to any communication (1) made in judicial or

quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the

objects of the litigation; and (4) that have some connection or logical relation to the action.” Id. 

“[T]he connection or logical relation which a communication must bear to litigation in order for the

privilege to apply, is a functional connection. That is to say, the communicative act – be it a

document filed with the court, a letter between counsel or an oral statement – must function as a

necessary or useful step in the litigation process and must serve its purposes. This is a very different

thing from saying that the communication’s content need only be related in some way to the subject

matter of the litigation.” Rothman v. Jackson, 49 Cal. App. 4th 1134, 1146 (1996).

As a preliminary matter, WNI relies on certain materials outside the complaint in support of

its motion. The Court may consider the September 2007 letter from de Souza on a motion to

dismiss, as it was attached to the complaint. Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.,

896 F.2d 1542, 1555 n.19 (9th Cir. 1989). However, the Court may not consider facts in Daniel

Herling’s declaration regarding Plaintiff’s counsel’s suggestion to him that he would file a

shareholder derivative suit, as these facts are neither alleged in the complaint nor judicially

noticeable.

The allegedly defamatory letter from de Souza to WNI shareholders consists of fourteen

paragraphs and describes the reasons that de Souza called a shareholders meeting and elected a new

board. The letter describes the company’s challenges, operations, business plan, and internal

problems, and notes that the business plan presented by Brown in 2002 contained unrealistic

assumptions. The letter also notes that Brown did not cooperate with de Souza’s attempts to

facilitate the process between the Brazilian and United States WNI engineers. The letter then states

that since Brown resigned, he has attempted to raise multiple obstacles to thwarting the company’s

success, including delaying access to the company’s records and commencing legal action against

the company. The letter describes Brown’s claim in his suit in one paragraph, and notes that his

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tactics are costing WNI time and money. The letter then notes that the company intends to

vigorously defend the suit.

WNI argues that it sent the letter because seven shareholders filed declarations in support of

Brown’s ex parte temporary restraining order application, and they alleged that they had not

received sufficient information from WNI about WNI’s status. WNI also claims that the letter was

designed to address a potential shareholder derivative suit. However, these factual contentions are

not apparent on the face of the letter and may not be considered on this motion to dismiss.

Nor is it clear, at least at this stage in the litigation, that the letter in its entirety functioned as

a “necessary or useful step in the litigation process” and served the purposes of that process. 

Rothman, 49 Cal. App 4th at 1146. The “test can be satisfied only by communications which

function instrinsically, and apart from any consideration of the speaker’s intent, to advance a

litigant’s case.” Id. at 1148. The letter itself does not request, for example, shareholders to act as

witnesses in the case. Nor does it appear to be solely a legal communication seeking support from

the stockholders for its defenses and counter-claims against Brown. Rather, the letter includes more

general communications about the status of the company, the challenges confronting it, and Brown’s

business plans. While it addresses Brown’s litigation in part, it is not clear that the entire letter

served to advance WNI’s litigation.

In reply, WNI relies heavily on Neville v. Chudacoff, 160 Cal. App. 4th 1255 (2008), which

did not directly concern California’s litigation privilege. Neville held that a lawyer’s letter to a

business’s customers was a “writing made in connection with an issue under consideration or review

by a . . . judicial body” under California’s anti-SLAPP statute. Id. at *1-2 (citing Code Civ. Proc. §

425.16). The Court noted that whether the letter is protected under the litigation privilege informs

the analysis of whether the letter is protected under the anti-SLAPP statute. The letter in Neville,

drafted a few months before the employer commenced litigation against a former employee, warned

that the employee had breached a contract and misappropriated trade secrets, and suggested to the

customers that to avoid potential involvement in any ensuing litigation they should not do business

with the former employee. Id. The employee commenced a defamation action. The Court found

that the letter was “in connection with” the issues in the lawsuit. The letter here is distinguishable

from the letter in Neville. First, at least the first half of de Souza’s letter does not directly deal with

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Brown’s suit. It is also not clearly an attempt to mitigate potential damage in the litigation, as it

does not instruct shareholders not to talk with Brown or help him with his litigation. While the

portion of the letter updating the shareholders about Brown’s claim for money damages may well be

a privileged communication to inform shareholders of the status of the litigation, the entire letter

does not necessarily warrant the same level of privilege as the letter at issue in Neville. See Neville

v. Chudacoff, 160 Cal. App. 4th at 1265. Dismissal of the entire defamation claim at this early stage

in the litigation on the basis of California’s litigation privilege is therefore not warranted.

IV. CONCLUSION

For the foregoing reasons, Plaintiff’s motion for leave to amend is DENIED and Defendant’s

motion to dismiss the defamation claim is DENIED.

IT IS SO ORDERED.

Dated: April 24, 2008 

ELIZABETH D. LAPORTE

United States Magistrate Judge

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