Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00533/USCOURTS-caed-2_06-cv-00533-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Contract Dispute

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28 This motion was determined to be suitable for decision without *

oral argument. L.R. 78-230(h).

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FUNCAT LEISURE CRAFT, INC., and )

SUB SEA SYSTEMS, INC., )

) 02:06-cv-0533-GEB-GGH

Plaintiffs, )

) ORDER*

v. )

)

JOHNSON OUTDOORS, INC., )

)

Defendant. )

)

Defendant Johnson Outdoors, Inc. (“Defendant”) moves to

dismiss several of Plaintiffs’ claims under Rule 12(b)(6), arguing

they fail to state a claim upon which relief can be granted. 

Defendant also argues Plaintiffs’ claim for fraud and deceit should be

dismissed because it is not pled with the particularity required by

Rule 9(b). Plaintiffs oppose the motion.

BACKGROUND

Plaintiff Sub Sea Systems, Inc. (“Sub Sea”) manufactures and

sells marine recreation products. (Am. Compl. ¶ 4.) In November

2002, Sub Sea and Richard Barker (“Barker”) entered into a joint

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venture and created Plaintiff FunCat Leisure Craft, Inc. (“FunCat”)

for the purpose of manufacturing an electric chaise lounger boat. 

(Id. ¶ 6.) FunCat obtained all the rights, including design rights,

to the Rave Kat Kruzer, an electric chaise lounger boat designed and

manufactured by another company. (Id. ¶ 7.) By making improvements

to “the flotation, manufacturing, systems reliability, and propulsion”

of the Rave Kat Kruzer, FunCat “create[d] an improved electric chaise

lounger boat,” the FunCat Chaise Lounger. (Id.) In February 2003,

Sub Sea began marketing and selling the FunCat Chaise Lounger under an

exclusive marketing agreement with FunCat. (Id. ¶ 9.) 

In or around June 2003, representatives of Leisure Life,

Ltd., a subsidiary of Defendant, contacted Barker about purchasing the

FunCat product line, including the FunCat Chaise Lounger. (Id. ¶ 10.) 

The parties began discussions relating to the sale of the FunCat

product line, and in August 2003 signed a Nondisclosure Agreement

(“NDA”) relating to those discussions. (Id. ¶¶ 12, 13.) During the

parties’ discussions, Defendant requested and Plaintiffs provided all

technical, manufacturing, and marketing information concerning the

FunCat Chaise Lounger. (Id. ¶ 14.) This information included

“critical design changes Plaintiffs were undertaking to the FunCat

Chaise Lounger in order to make the lounger easier to manufacture and

sell.” (Id. ¶ 15.)

After nearly a year of discussion, the parties could not

reach an agreement for the purchase and sale of the FunCat product

line, and discussions apparently ended. (Id. ¶ 16.) Then, in or

around January 2005, Defendant introduced its own electric chaise

lounger boat, the Escape. (Id. ¶ 17.) 

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Plaintiffs allege Defendant “copied the design of the FunCat

Chaise Lounger [and] incorporated the design changes that [Plaintiffs]

. . . disclosed to [Defendant] under the [NDA]” in the Escape. (Id.) 

Based on the above facts Plaintiffs have brought the following claims

against Defendant: (1) breach of contract (“Claim I”), (2) breach of

the covenant of good faith and fair dealing (“Claim II”), (3)

statutory misappropriation of trade secrets (“Claim III”), (4) common

law misappropriation of trade secrets (“Claim IV”), (5) trade dress

infringement (“Claim V”), (6) unfair competition (“Claim VI”), (7)

breach of confidence (“Claim VII”), (8) intentional interference with

prospective economic advantage (“Claim VII”), and (9) fraud and deceit

(“Claim IX”).

DISCUSSION

I. Motion to Dismiss for Failure to State a Claim 

Dismissal under Rule 12(b)(6) for failure to state a claim

is proper only when a complaint exhibits either a “lack of a

cognizable legal theory or the absence of sufficient facts alleged

under a cognizable legal theory.” Balistreri v. Pacifica Police

Dept., 901 F.2d 696, 699 (9th Cir. 1988). The court must accept the

facts alleged in the complaint as true. Id. “A complaint should not

be dismissed ‘unless it appears beyond doubt that the plaintiff can

prove no set of facts in support of his claim which would entitle him

to relief.’” Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 248 (9th

Cir. 1997) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

A. Claims II, IV, VI, VII, VIII, and IX 

Defendant argues the California Uniform Trade Secrets Act

(“CUTSA”) preempts Claims II, IV, VI, VII, VIII, and IX since all

“rest on the same nucleus of facts as Plaintiffs’ statutory

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The CUTSA’s preemption clause, expressed in the negative, 1

reads in relevant part: 

(a) Except as otherwise expressly provided, this title does

not supersede any statute relating to misappropriation of a

trade secret, or any statute otherwise regulating trade

secrets. (b) This title does not affect (1) contractual

remedies, whether or not based upon misappropriation of a

trade secret, (2) other civil remedies that are not based upon

misappropriation of a trade secret, or (3) criminal remedies,

whether or not based upon misappropriation of a trade secret.

Cal. Civ. Code § 3426.7.

4

misappropriation [of trade secrets] claim . . . .” (Defs. Reply Pls.’

Opp’n (“Reply”) at 8.) Defendant relies on Accuimage Diagnostics

Corp. v. Terarecon. Inc., 260 F. Supp. 2d 941 (N.D. Cal. 2003), and

two cases applying Accuimage, Digital Envoy, Inc. v. Google, Inc., 370

F. Supp. 2d 1025 (N.D. Cal. 2005) and Callaway Golf Company v. Dunlop

Slazenger Group Americas, Inc., 318 F. Supp. 2d 216 (D. Del. 2004),

for the proposition that all common law claims based on allegations of

trade secret misappropriation are preempted by the CUTSA.1

In Accuimage, a developer of software for medical imaging

brought several claims against a competitor and former employee,

including claims for both common law misappropriation of trade secrets

and trade secrets misappropriation under the CUTSA. The district

court considered “whether the [C]UTSA preempts common law

misappropriation of trade secrets claims” and held that the CUTSA

“occupies the field in California.” Accuimage, 260 F. Supp. 2d at

953, 954. Plaintiffs concede that under Accuimage the CUTSA preempts

their common law misappropriation of trade secrets claim and state

they will “not pursue its fourth cause of action . . . .” (Pls’ Opp’n

to Defs.’ Mot. (“Opp’n”) at 2 n.1.) Therefore, Claim IV is dismissed. 

However, Plaintiffs argue the CUTSA does not preempt Claims II, VI,

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VII, VIII, and IX, since they may be pled “in the alternative to

claims for statutory trade secret misappropriation” “when the

existence of a trade secret is an open question, as it is here.” 

(Opp’n at 5, 6.)

Plaintiffs argue Defendant has not shown that Claims II, VI,

VII, VIII, and IX are based on the misappropriation of information

that constitutes a trade secret, and since no such showing is required

to prevail on these claims, they may plead them and the CUTSA claim in

the alternative. (Opp’n at 2-3.) Plaintiffs cite the Ninth Circuit

decision of City Solutions v. Clear Channel Communications, Inc., 365

F.3d 835 (9th Cir. 2004), in support of their position that their

claims may be pled in the alternative. In City Solutions, the

plaintiff brought two claims: one under the CUTSA and another for

common law unfair competition. The plaintiff prevailed at trial on

the unfair competition claim but not the CUTSA claim. On appeal the

Ninth Circuit rejected the defendant’s argument that, because the jury

did not find it liable on the CUTSA claim, it could not have found it

liable for unfair competition. City Solutions, 365 F.3d at 842. The

Circuit found that the jury could have found the defendant

misappropriated the plaintiff’s property, even if that property was

not found to be a trade secret. Id. Although the preemption question

itself was not before the Ninth Circuit, the decision in City

Solutions does indicate that common law and CUTSA claims based on the

same facts may be pled in the alternative.

None of the authority cited by Defendant supports a

different conclusion. Accuimage did not hold that all common law

claims based on an allegation of trade secret misappropriation are

preempted by CUTSA. Rather, it held only that the plaintiff could not

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bring a common law misappropriation of trade secrets claim in addition

to a CUTSA claim. Accuimage, 260 F. Supp. 2d at 953-54. Neither

Callaway nor Digital indicate Accuimage should be extended as

Defendant argues. In fact, Callaway supports Plaintiffs’ position

that its claims may be pled in the alternative. See Callaway, 318 F.

Supp. 2d at 218, 220 (stating “until it is shown that the information

[allegedly misappropriated] is entitled to trade secret protection, it

is premature to rule whether [the common law claims] are preempted

under CUTSA” and “if a fact finder were to find that [the allegedly

misappropriated information was a] trade secret[], then [the] common

law claims for conversion and unjust enrichment [would be] preempted

by CUTSA.”) Therefore, Defendant’s motion to dismiss Claims II, VI,

VII, VIII, and IX based on preemption is denied.

B. Claim II

Defendant also seeks dismissal of Claim II, Plaintiffs’

claim for breach of the duty of good faith and fair dealing, arguing

Plaintiffs have failed to demonstrate a “special relationship” existed

between Plaintiffs and Defendant. Plaintiffs argue “[Defendant’s]

independent duty not to interfere with [Plaintiffs’] prospective

economic advantage” entitles Plaintiffs to maintain Claim II. (Opp’n

at 8.) However, the inquiry whether a “special relationship” exists

requires finding the following characteristics are present in the

contract: “(1) the contract must be such that the parties are in

inherently unequal bargaining positions; (2) the motivation for

entering the contract must be a nonprofit motivation, . . . (3)

ordinary contract damages are not adequate, . . . (4) one party is

especially vulnerable because of the type of harm it may suffer and of

necessity places trust in the other party to perform; and (5) the

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other party is aware of this vulnerability.” Martin v. U-Haul Co. of

Fresno, 204 Cal. App. 3d 396, 413 (1988) (citation omitted). Since

Plaintiffs have failed to allege the existence of a “special

relationship” under Martin, this tort claim is not actionable.

Plaintiffs argue that even if Count II is not an actionable

tort, they may maintain it and seek only contract damages. However,

Plaintiffs have alleged a breach of the NDA in Claim I. To the extent

Plaintiffs suffered any damages based on the breach of the duty of

good faith and fair dealing, those damages may be recovered through

Claim I; therefore, when limited to contract damages, Claim II is

redundant of Claim I. See McWilliams v. Holton, 248 Cal. App. 2d 447,

451 (1967) (stating “‘[i]n every contract there is an implied covenant

that neither party shall do anything which will have the effect of

destroying or injuring the right of the other party to receive the

fruits of the contract . . . .”). Accordingly, Defendant’s motion to

dismiss Claim II is granted.

C. Claim VI 

Defendant also seeks dismissal of Claim VI, Plaintiffs’

claim for unfair competition in violation of California Business and

Professions Code § 17200 (“section 17200"), arguing Plaintiffs have

not stated the alleged unlawful business act with reasonable

particularity. Here, Plaintiffs allege Defendant “engaged in . . .

unfair competition by . . . taking advantage of . . . the

misappropriation of confidential [and other] information maintained by

Plaintiffs and [by] the infringement of [P]laintiffs’ trade dress.” 

(Am. Compl. ¶ 50.) Thess allegations sufficiently state the unlawful

business act underlying Claim VI. Therefore, Defendant’s motion to

dismiss Claim VI is denied.

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Defendants argue that even if Claim VI is not dismissed in

its entirety, the portion of Claim VI which requests monetary damages

must be dismissed because monetary damages are not available under

section 17200. Plaintiffs respond, without citing any authority, that

“FunCat is entitled to monetary recovery [under Claim VI].” (Opp’n at

10.) In Claim VI Plaintiffs allege that they have suffered damages

“in excess of $600,000" and that they are entitled to disgorgement of

“all money . . . obtained by [Defendant]” through unfair competition. 

(Am. Compl. ¶¶ 51, 53.) Under section 17200, Plaintiffs may not

recover damages or seek disgorgement of money obtained by unfair

competition. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th

1134, 1144-45 (2003) (stating monetary damages and disgorgement of

property obtained through unfair business practices are not available

remedies under section 17200). Therefore, to the extent Claim VI

seeks monetary damages or disgorgement of property from Defendant, it

is dismissed. 

D. Claim VIII

Defendant seeks dismissal of Claim VIII, Plaintiffs’ claim

for intentional interference with prospective economic advantage,

arguing Plaintiffs have failed to allege the existence of an economic

relationship and wrongful conduct independent of any alleged

interference. The claim identifies the exclusive marketing agreement

between FunCat and Sub Sea as the economic relationship allegedly

interfered with. (Am. Compl. ¶ 61.) This allegation is sufficient to

put Defendant “on notice of which [economic] relationship[] [it]

allegedly disrupted.” Accuimage, 260 F. Supp. 2d at 957. Since

Plaintiffs’ claim includes an allegation of “interference with an

existing contract . . . [,] it is not necessary [for Plaintiffs to

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allege] that [D]efendant’s conduct [was] wrongful apart from the

interference with the contract itself.” Quelimane Co. v. Stewart

Title Guaranty Co., 19 Cal. 4th 26, 55 (1998) (citation omitted). 

Therefore, Defendant’s motion to dismiss Claim VIII is denied.

II. Motion to Dismiss for Failure to Plead with Particularity

 Defendant seeks dismissal of Claim IX, Plaintiffs’ claim for

fraud and deceit, for failure to plead with the particularity required

by Rule 9(b). Plaintiffs argue the allegations of fraud satisfy the

requirements of Rule 9(b).

In diversity cases where the cause of action is fraud, the

substantive elements of fraud are determined by state law. See Moore

v. Brewster, 96 F.3d 1240, 1245-46 (9th Cir. 1996). These elements,

however, must be pled in accordance with the requirements of Rule

9(b). See id. The Ninth Circuit has held that to satisfy Rule 9(b)’s

particularity requirement, the plaintiff must plead facts explaining

why the alleged misrepresentation was false when it was made. In re

GlenFed, Inc., Sec. Lit., 42 F.3d 1541, 1548 (9th Cir. 1994). A

plaintiff may do this in a number of ways: by pointing to either

inconsistent contemporaneous statements or information which was made

by or available to the defendant, id., or to later statements made “by

the defendant along the lines of ‘I knew it all along.’” Id. at 1549

n.9. However, the requirement precludes a plaintiff “from simply

pointing to a defendant’s statement, noting that the content of the

statement conflicts with the current state of affairs, and then

concluding that the statement in question was false when made.” Smith

v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1153 (S.D. Cal. 2001).

Defendant argues Claim IX does not meet the requirements of

Rule 9(b) because it merely makes a conclusory allegation that

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Defendant had no intention of buying the FunCat product line when it

began discussions with Plaintiffs. Plaintiffs argue rather obliquely

that Defendant’s introduction of the Escape just a few months after

stating it had “no interest in building a craft similar to the FunCat

Chaise Lounger” reveals that Defendant entered into discussions with

Plaintiffs fraudulently. (Am. Compl. ¶ 17.) However, Plaintiffs’

allegations and argument do no more than point out “that the content

of [Defendant’s] statement conflicts with the current state of

affairs, and then conclud[e] that the statement in question was false

when made.” Smith, 160 F. Supp. 2d at 1153. Consequently, Plaintiffs

have not pled Claim IX with the required particularity. Defendant’s

motion to dismiss Claim IX is granted. 

CONCLUSION

For the reasons stated above, Defendant’s motion to dismiss

Claims II, IV, IX, and Claim VI to the extent it seeks monetary

damages or disgorgement of property from Defendant is granted. 

Defendant’s motion is denied in all other respects.

If Plaintiffs opine any identified deficiency can be cured,

Plaintiffs are granted leave to file a Second Amended Complaint within

fifteen days of the date on which this Order is filed. 

IT IS SO ORDERED.

Dated: July 24, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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