Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00393/USCOURTS-caed-2_07-cv-00393-16/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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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

QWEST COMMUNICATION, No. 2:07-cv-00393-MCE-KJM

Plaintiffs,

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 (collectively “CapLease Defendants”), 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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 Unless otherwise stated, all further references to a Rule 1

are to the Federal Rules of Civil Procedure.

 Because oral argument will not be of material assistance, 2

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h).

 The factual assertions in this section are based on the 3

allegations in Plaintiff's FAC unless otherwise specified, and is

largely identical to that included within the Court's

concurrently filed Memorandum and Order adjudicating the Motion

to Dismiss filed on behalf of the other Defendants in the instant

lawsuit. It is repeated here for the purposes of clarity.

2

Pursuant to Federal Rule of Civil Procedure 12(b)(6) , the 1

CapLease Defendants filed the present Motion to Dismiss all

counts as to the CapLease Defendants for failure to state a

claim. As set forth below, the Motion will be DENIED.2

BACKGROUND3

This action arises from the circumstances surrounding the

performance of three contracts, which governed the construction,

occupation, and management of a data center (“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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3

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. Either Surferr LLC then assigned its rights in the RESA

to Riptide, who subsequently re-assigned those rights to

Herakles, or Surferr LLC assigned its rights directly to

Herakles. Qwest alleges that Herakles is now both its

competitor/sublessor tenant and 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 and an alleged oral agreement

between Qwest and Herakles require 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 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, and Sandy

Beaches 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.

On April 21, 2008, Plaintiff filed its First Amended

Complaint (“FAC”) in this Court under federal question

jurisdiction. Plaintiff alleges multiple causes of action in its

FAC, namely: deceptive advertising, breach of contract,

constructive fraud, 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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5

Plaintiff seeks both compensatory and punitive damages,

restitution, disgorgement, specific performance, and statutory

attorney’s fees and costs. 

On May 8, 2008, the CapLease Defendants filed this Motion to

Dismiss Qwest’s Counts I (False Advertising on a conspiracy

basis), VIII (Common Law Unfair Competition on a conspiracy

basis), X (Tortious Interference with Prospective Economic

Advantage on a conspiracy basis), XII (Tortious Interference with

Contract on a conspiracy basis), XIV (Tortious Interference with

Contract), and XVI (Aiding and Abetting) as to the CapLease

Defendants. The CapLease Defendants challenge Qwest’s FAC

pursuant to Rule 12(b)(6), asserting that Qwest failed to allege

sufficient facts to establish a claim on which relief may be

granted. 

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). 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.” Conley v.

Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). 

///

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6

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. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964-65

(2007) (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. 235-236 (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”).

If the court grants a motion to dismiss a complaint, it must

then decide whether to grant leave to amend. The 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 only denied 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).

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7

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.” Twombly, 127 S. Ct. 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.

Rule 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,

671-72 (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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8

ANALYSIS

1. Conspiracy (Counts I, VIII, X, and XII)

“[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. 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

Ins. Co. v. Great Western Financial Corp., 69 Cal. 2d 305, 316

(Cal. 1968); See also Quelimane Co. v. Stewart Title Guaranty

Co., 19 Cal. 4th 26, 47 (Cal. 1998) (citing Chicago Title, 69

Cal. 2d 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.” Chicago Title,

69 Cal. 2d at 316 (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.” 

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Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 784 (1979) (internal

citations and quotations omitted). 

The CapLease Defendants assert that Qwest’s conspiracy

allegations fail because, even if taken as true, they do not show

concerted wrongful action or illicit agreement by the CapLease

Defendants. The CapLease Defendants note that “concerted

wrongful action” is the basis for conspiracy liability, and claim

that Qwest has pled none. Janken v. GM Hughes Electronics, 46

Cal. App. 4th 55, 78 (2d Dist. 1996). The CapLease Defendants

also assert that Qwest’s allegations are legal conclusions, which

are thus insufficient to give the required factual support to

Qwest’s claims. 

However, Qwest’s FAC alleges that the CapLease Defendants

agreed with Herakles to increase revenue and reduce costs of the

Data Center by alleged wrongful conduct such as false advertising

under the Lanham Act (Count I), unfair competition (Count VIII),

and tortious interference with prospective economic advantage and

contract (Counts X and XII - customer contracts). In its prior

Order, this Court held that Qwest’s allegations within these

Counts of the wrongful acts committed by Herakles and the other

Defendants and Qwest’s resulting damage was sufficient to state a

claim, and thus the only remaining element at issue is the

“formation and operation of the conspiracy.” Chicago Title, 69

Cal. 2d at 316. 

To provide factual support to its allegations, Qwest points

to a memorandum (“Memo”) allegedly sent from the CapLease

Defendants to Herakles:

///

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 The CapLease Defendants provided the Memo to this Court in 4

their Request for Judicial Notice. This Court reviews the Memo

for the purpose of this Motion to Dismiss as its content was

alleged in the FAC, and construes all facts in the manner most

favorable to Qwest. 

10

...advising generous bonuses be paid to Herakles’ Lou

Kirchner for bringing in customers (which CapLease knew

was possible only if Herakles competed with Qwest

contrary to its obligations under the RESA) and for

keeping the Data Center costs tight (which CapLease

knew was only possible by Herakles’ actions that

prevented Qwest from obtaining the benefits of the

Lease and the RESA, namely to have a manager for

serving Qwest’s customers, and the rights given to

Qwest concerning the build-out, power, and cooling

requirements). 

See FAC ¶¶ 58, 188. Further, Qwest notes in its Opposition that

the Memo also includes comments by the CapLease Defendants

stating that “our worst-case scenario would be if Qwest were to

rent the West colo. to one large customer and draw its full power

allotment.” Qwest alleges that this Memo evidences the CapLease 4

Defendants’ agreement with Herakles to unlawfully deprive Qwest

of its rights under the RESA, and shows the CapLease Defendants’

direct involvement in Data Center operations in furtherance of

the alleged conspiracy. Thus, an inference of alleged conspiracy

based on the acts of the parties involved is proper. Chicago

Title, 69 Cal. 2d at 316. 

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 The cases cited by CapLease as countering inferential 5

pleading in a conspiracy action are each distinguishable from the

instant case, and thus are of no consequence. Love v. The Mail

on Sunday, 2006 WL 4046180, at *15 (C.D. Cal. 2006) (pleading

failed because plaintiff alleged no facts in support of

conspiracy allegation); Orloff v. Metropolitan Trust Co., 17

Cal. 2d 484, 488, (Cal. 1941) (pleading failed because it lacked

an allegation of damage); Kidron v. Movie Acquisition Corp., 40

Cal. App. 4th 1571, 1582 (2nd Dist. 1995) (affirming nonsuit

where plaintiff failed to prove participation or interest in the

commission of the offense).

 The CapLease Defendants are correct in asserting that 6

Qwest’s inclusion in its Opposition of a document, not referenced

in Qwest’s FAC, is improper, and this Court will disregard this

document for the purpose of this Motion to Dismiss. Lee v.

County of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)

(complaint includes documents physically attached to the

complaint, or necessarily relied on by the complaint and whose

authenticity is not contested); Clegg v. Cult Awareness Network,

18 F.3d 752, 754-55 (9th Cir. 1994) (noting that review under a

motion to dismiss is limited to the contents of the complaint). 

11

This inferential understanding of the pleading requirements

of a conspiracy allegation has held fast following the Supreme

Court’s holding in Twombly. See, e.g., Franklin v. Allstate 5

Corp., 2007 WL 1991516, at *7 (N.D. Cal. 2007) (noting that a

plaintiff is not required to allege specific facts with respect

to the formation of the alleged conspiracy; “it is sufficient to

allege facts from which the existence of a conspiracy may be

inferred”). Therefore, Qwest’s pleading of the CapLease

Defendants’ conspiracy with Herakles is “enough to raise a right

to relief above the speculative level.” Bell Atl. Corp. v. 6

Twombly, 127 S. Ct. 1955, 1965 (2007). Accordingly, the CapLease

Defendants’ Motion to Dismiss Counts I, VIII, X, and XII is

DENIED. 

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12

2. Tortious Interference with Contract (Count XIV - Lease)

In order for Qwest to properly allege tortious interference

with contract (“TIC”), Qwest must show 1) the existence of a

valid contract between Qwest and a third party; (2) the CapLease

Defendants’ knowledge of that contract; (3) the CapLease

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 New York v. Fremont General Corp., 523 F.3d 902,

909 (9th Cir. 2008). As noted in this Court’s Order, Qwest need

not prove that the CapLease Defendants specifically intended to

interfere with the Lease, but must show that they “knew that the

interference was certain or substantially certain to occur as a

result of [their] action[s].” Korea Supply Co. v. Lockheed

Martin Corp., 29 Cal. 4th 1134, 1154 (2003). Further, Qwest’s

claims of TIC do not require pleading that the CapLease

Defendants’ conduct was independently wrongful because

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

itself.” Id. at 1158. 

Qwest asserts that it sufficiently alleged each element of

TIC. First, Qwest alleged the existence of the Lease between

Qwest and Sandy Beaches, and incorporated the Lease into the FAC

by attachment. Second, Qwest alleged that the CapLease

Defendants were aware of the Lease. 

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Third, Qwest alleged the CapLease Defendants tortiously induced

breach of the Lease by causing Sandy Beaches to “breach the

confidentiality provisions of the Lease by publicly disclosing

the existence of and terms and conditions of the Lease.” FAC at

¶ 167. Fourth, Qwest alleged the actual breach of the

confidentiality provisions of the Lease by stating that the

CapLease Defendants “disclosed or caused to be disclosed this

information in numerous filings with the United States Securities

& Exchange Commission, including in its Form S-11....” Id. at

¶ 54(b). Further, Qwest alleges Sandy Beaches failed to request

or obtain permission from Qwest for such disclosure as required

under the Lease, and the CapLease Defendants similarly failed to

obtain permission from Qwest. Id. Finally, Qwest alleged the

CapLease Defendants’ interference “continues to injure Qwest,”

that Qwest “has no adequate remedy at law for the irreparable

harm,” and that Qwest will prove the amount of damages, to the

extent possible, at trial. Id. at ¶ 168. 

The CapLease Defendants challenge Qwest’s allegations of TIC

on three grounds: 1) that Qwest does not mention how the CapLease

Defendants tortiously interfered with the Lease; 2) that Qwest

failed to allege how its damage under this Count resulted from

the CapLease Defendants’ actions; and 3) that the securities laws

require the disclosure of the Lease terms, and therefore no

liability can flow from the alleged disclosure. 

Qwest’s allegations in paragraphs 54 and 167 of the FAC are

sufficient to show intentional acts by the CapLease Defendants 

designed to induce a breach of the Lease. 

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14

Qwest alleges that the CapLease Defendants received a copy of the

Lease from Sandy Beaches, and thus it is reasonable to infer that

the CapLease Defendants were aware of the confidentiality

provisions when they allegedly disclosed or caused to be

disclosed the existence of the terms and conditions of the Lease. 

This inference lends sufficient support to the requirement that

the CapLease Defendants “knew that the interference was certain

or substantially certain to occur as a result of [their]

action[s].” Korea Supply, 29 Cal. 4th at 1154. While the

CapLease Defendants conclude that Qwest’s allegations are

insufficient to show an “intentional act designed to induce a

breach or to disrupt the contractual relationship,” they fail to

explain their reasoning.

Qwest’s allegations of damage are similarly sufficient. 

Qwest alleged in paragraphs 167 and 168 that the CapLease

Defendants’ wrongful interference with the Lease through the

disclosure of confidential information “continues to injure

Qwest.” Qwest claims both irreparable harm and possible damages

to be proven at trial. Id. at ¶ 168. As with the other Counts

held sufficient by this Court, Qwest adequately claims damages

resulting from the alleged acts of the CapLease Defendants, and

thus the CapLease Defendants’ second argument fails. 

Finally, the CapLease Defendants challenge Qwest’s

allegations based on the disclosure of confidential information

to the SEC. The CapLease Defendants assert that Qwest’s use of

this disclosure as a basis for liability is faulty, because the

disclosure is legally required, and thus falls within an exception

contained in the confidentiality provision of the lease. 

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15

The Lease provides for the disclosure of confidential information,

as required by law, with certain restrictions. Section 15.8(6)

of the Lease states:

Without the prior consent of the other party, neither

party shall disclose to any third person ... the

existence or purpose of this Agreement, the terms and

conditions hereof ... except as may be required by law,

regulation or court or agency order or demand, and then

only after prompt prior notification to the other party

of such required disclosure.[] Qwest's remedy for any

violation of this Section 15.8(6) shall not include

termination of this Agreement or abatement of Rent.

See FAC Exhibit B 15-16.

The Securities Act of 1933 calls for a description of a

company’s business, information about the management structure of

the company, a description of the security offered for sale,

financial statements certified by independent accountants and a

list of company property. See generally 17 C.F.R. §§ 230.400-

230.494. Form S-11, a registration filing required for real

estate holding companies, is more detailed, and is specifically

cited by Qwest as the basis of one of the disclosures at issue. 

See FAC ¶ 54(b). In Items 13, 14 and 15, Form S-11 asks for a

description of real estate interests, including properties and

mortgages. However, Form S-11 asks for a general description of

properties and loan terms, not the names of the occupant of the

property as allegedly disclosed in the instant case. Notably,

the CFR sections dealing with disclosures under the Securities

Act of 1933 do not detail any sort of shield from litigation

regarding filings with the SEC. See Id. Nor do they

exhaustively address the level of detail with which the filer

must proceed in completing their securities disclosures. See Id.

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 The three cases cited by the CapLease Defendants in their 7

Motion to support their “legally required” argument do not deal

with either confidentiality agreements or SEC disclosures, and

thus are not on point here. See, e.g., Mason v. Western Union

Telegraph Co., 52 Cal. App. 3d 429, 439 (2d Dist. 1975); Stockton

Morris Plan Co. v. California Tractor & Equipment Corp., 112

Cal. App. 2d 684, 689 (3d Dist. 1952); Szold v. Medical Bd. of

California, 127 Cal. App. 4th 591, 599 (4th Dist. 2005).

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The CapLease Defendants generally point to 17 C.F.R.

§ 230.400 et seq., as requiring the disclosure of information in

the lease agreements per the Securities Act of 1933, 15 U.S.C.

§ 77 et seq. The CapLease Defendants specifically cite only an

SEC Legal Bulletin, which notes that “except in unusual

circumstances, disclosure required by Regulation S-K or any other

applicable disclosure requirement is not an appropriate subject

for confidential treatment.” SEC Legal Staff Legal Bulletin

No. 1 (with Addendum). The CapLease Defendants thus fail to

highlight relevant disclosure requirements reaching the

specificity of the alleged disclosure. The CapLease Defendants

also fail to provide case law showing any general privilege or

immunity from liability that extends to SEC filings. Without 7

more, this Court cannot hold that the alleged disclosure meets

the exception to the confidentiality agreement and allow the

CapLease Defendants to avoid liability. Accordingly, the

CapLease Defendants’ Motion to Dismiss Count XIV is DENIED. 

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3. Aiding and Abetting (Count XVI)

“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, 1325-26 (2d Dist.

1996) (internal citations and quotations omitted). 

Under California law, “liability for aiding and abetting

depends on proof the defendant had actual knowledge of the

specific primary wrong the defendant substantially assisted.”

Casey v. U.S. Bank National Ass'n, 127 Cal. App. 4th 1138,

1145-46, 26 Cal.Rptr.3d 401, 406 (4th Dist. 2005) (emphasis

added). Liability is found when the defendant “knew that a tort

had been, or was to be, committed, and acted with the intent of

facilitating the commission of that tort.” Id. at 1146 (citing

Gerard v. Ross, 204 Cal. App. 3d 968, 983 (1988)). 

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Qwest asserts its aiding and abetting claim against the

CapLease Defendants on the first prong of common law test,

alleging that the CapLease Defendants knew the other Defendants’

actions constituted a breach of duty and the CapLease Defendants

gave “substantial assistance or encouragement to the other

[Defendants] to so act.” Fiol, 50 Cal. App. 4th at 1325. First,

Qwest asserts its FAC adequately alleges the CapLease Defendants’

knowledge of the other Defendants’ duties to Qwest and of the

other Defendants’ wrongful conduct. See FAC at ¶¶ 175-180

(alleging the CapLease Defendants’ knowledge of the Lease, RESA,

and Sublease, as well as their knowledge of each Defendant’s

wrongful conduct as alleged throughout the FAC). Specifically,

Qwest alleges that the CapLease Defendants “advised the other

Defendants - regarding all aspects of the DataCenter - their

conduct of business with customers and potential customers, and

their actions vis a vis Qwest, and the rights and obligations of

the Lease, RESA, and Sublease.” Id. at ¶ 177. Further, Qwest

states that the CapLease Defendants are “thus directly aware of

and encouraged ... [the other Defendants] to respectively take

the actions (and omissions) that Qwest alleges above are

breaches....” Id. (emphasis added). 

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 The CapLease Defendants assert that Qwest’s allegations 8

reach only constructive knowledge, and not actual knowledge, and

thus are insufficient to state a claim. This assertion is

unfounded. Qwest alleges direct awareness of the other

Defendants’ duties owed to Qwest as shown through the CapLease

Defendants’ advisement to the other Defendants of the rights and

obligations required under the contracts at issue. Notably, the

CapLease Defendants challenge Qwest’s allegation of advisement

only with respect to Qwest’s substantial assistance and

encouragement allegation. 

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Combined with Qwest’s earlier allegations as incorporated into

this Count, Qwest sufficiently alleges the CapLease Defendants’

actual knowledge of both the duties owed to Qwest by the other

Defendants and the other Defendants’ wrongful conduct.8

Second, Qwest asserts its allegations concerning the

CapLease Defendants’ “substantial assistance or encouragement” of

the other Defendants are equally sufficient. Fiol, 50 Cal. App.

4th at 1325. Qwest points to paragraphs 177 (alleging the

CapLease Defendants’ advisement) and 188 (referencing the Memo)

for support. The CapLease Defendants discount the alleged

advisement, stating that this conduct is “legitimate and

commonplace,” and that their actions are “merely incident to the

CapLease Defendants’ role as a diversified real estate investment

trust providing financing with respect to the DataCenter.” 

(Def’s Rply. in Sup. of Mot. to Dis. 8:10-12.) 

However, in In re First Alliance Mortgage Co., the Ninth

Circuit held that substantial assistance and encouragement is

found even in “‘ordinary business transactions’ a bank performs

for a customer ... if the bank actually knew those transactions

were assisting the customer in committing a specific tort.” 471

F.3d 977, 994-95 (9th Cir. 2006) (citing Casey, 127 Cal. App. 4th

at 1145). 

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As noted above, Qwest sufficiently alleged the CapLease

Defendants’ knowledge of the other Defendants’ tortious conduct. 

Moreover, Qwest’s allegations that the CapLease Defendants

encouraged the other Defendants in their wrongful conduct,

through advisement via their financial role (FAC at ¶ 177) and

through recommendations of bonuses to reward and encourage the

same tortious conduct (FAC at ¶ 188) is sufficient to allege

aiding and abetting under California law. Qwest sufficiently

alleged that the CapLease Defendants “knew that a tort had been,

or was to be, committed, and acted with the intent of

facilitating the commission of that tort.” Casey, 127 Cal. App.

4th at 1146 (citing Gerard v. Ross, 204 Cal. App. 3d at 983). 

Accordingly, the CapLease Defendants’ Motion to Dismiss Count XVI

is DENIED.

CONCLUSION

The CapLease Defendants’ Motion to Dismiss all counts of

Qwest’s FAC as to the CapLease Defendants (Counts I, VIII, X,

XII, XIV, and XVI) under Rule 12(b)(6) is DENIED. 

IT IS SO ORDERED.

Dated: August 18, 2008

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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