Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-03531/USCOURTS-cand-3_15-cv-03531-16/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

Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

KAPU GEMS, et al.,

Plaintiffs,

v.

DIAMOND IMPORTS, INC., et al.,

Defendants.

Case No. 15-cv-03531-MMC 

ORDER GRANTING IN PART AND 

DENYING IN PART 

COUNTERDEFENDANTS’ MOTIONS 

TO DISMISS; AFFORDING 

COUNTERCLAIMANT LEAVE TO 

AMEND

Re: Dkt. Nos. 49, 59

Before the Court are the following two motions: (1) “Motion to Dismiss Diamond 

Imports, Inc.’s Counterclaim for Damages,” filed March 11, 2016, by 

plaintiffs/counterdefendants Kapu Gems and Kapu Gems Ltd., pursuant to Rule 12(b)(6) 

of the Federal Rules of Civil Procedure (hereinafter, “Kapu Gems Mot.”), and (2) “Motion 

to Dismiss Diamond Imports, Inc.’s Counterclaim for Damages,” filed May 31, 2016, by 

counterdefendant Kalpesh Vaghani (“Vaghani”), pursuant to Rules 12(b)(2) and 12(b)(4)-

(6) of the Federal Rules of Civil Procedure (hereinafter, “Vaghani Mot.”). 

Defendant/counterclaimant Diamond Imports, Inc. (“Diamond Imports”) has filed 

opposition to each motion, to which counterdefendants have separately replied. Having 

read and considered the papers filed in support of and in opposition to the motions, the 

Court rules as follows.1

//

 

1 By orders filed April 12, 2016, and August 9, 2016, the Court found the matters

appropriate for decision on the parties’ written submissions, vacated the hearings

scheduled for April 15, 2016, and August 12, 2016, and took the matters under 

submission.

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BACKGROUND

Counterdefendants Kapu Gems and Kapu Gems Ltd. are diamond importers and 

exporters located, respectively, in the Republic of India and the Hong Kong Special 

Administrative Region of the People’s Republic of China. (See First Amended Compl. 

(“FAC”) ¶ 1, 7.) On July 31, 2015, Kapu Gems and Kapu Gems Ltd. filed a complaint 

naming as defendants Diamond Imports, a California-based diamond importer and retail 

supplier, and Yair Yachdav, the “sole shareholder and President of Diamond Imports.” 

(See id. ¶¶ 2-3, 8.)2 Thereafter, on February 19, 2016, Diamond Imports filed six 

counterclaims against Kapu Gems and Kapu Gems Ltd., as well as against 

counterdefendant Vaghani, a resident of the Republic of India and “partner” of Kapu 

Gems and Kapu Gems Ltd. (see Countercl. ¶¶ 4, 7). The counterclaims are the subject 

of the instant motions and contain the following allegations.

In either June or August 2012 (see id. ¶¶ 10, 23), Kapu Gems and Diamond 

Imports entered an agreement to form “Kapu Gems USA,” a “joint venture” for 

“wholesaling diamonds to retailers and private buyers in the United States.” (See id. ¶¶ 

9-10.)3 Under the agreement, Diamond Imports was to receive 4% of all gross sales it 

“curated for the venture.” (See id. ¶ 23.) The sales would be executed as follows: “[t]he 

potential customer would call Diamond Imports . . . to negotiate the sale.” (See id. ¶ 18.) 

“After Diamond Imports successfully completed the sale,” Kapu Gems would “directly 

deliver[] the diamonds to the buyer”; in some cases, Diamond Imports would “wire[] the 

money to Kapu Gems,” and in other cases, “the money would be directly deposited in 

Kapu Gems’ account.” (See id. ¶ 18.)

After the parties entered the above agreement, Kapu Gems, “[i]n or about 2013,”

 

2

The FAC alleges claims for account stated, breach of contract, conversion, and 

replevin. 

3 Diamond Imports variously describes the agreement as an “oral partnership/joint 

venture” (id. ¶ 9), an “oral agreement, implied-in-fact contract” (id.), an “oral contract” (id.

¶ 23), and a “part oral, part written, implied-in-fact contract” (id. ¶¶ 26, 27).

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told Diamond Imports that Kapu Gems “needed to inspect” a “list” of Diamond Imports’

customers and prices. (See id. ¶ 11.) Kapu Gems said it wished “to ensure that 

Diamond Imports could deliver as an experienced diamond seller,” and “threatened to 

dissolve the venture” if Diamond Imports refused to share the information. (See id. ¶¶ 11, 

13.) After receiving Kapu Gems’ assurances that it would “never contact the customer[s] 

[on the list] without Diamond Imports’ knowledge and consent,” Diamond Imports shared 

the list with Kapu Gems (see id. ¶ 13) and, at some point, also “introduced” Kapu Gems, 

“[i]n furtherance of the . . . joint venture,” to some of its “long standing” customers, 

including online jewelry retailers Blue Nile, Brilliant Earth, and Ritani (see id. ¶ 12).

In 2014, Diamond Imports discovered that Kapu Gems had, contrary to its 

assurances, “directly solicited Blue Nile, Brilliant Earth, and Ritani” without Diamond 

Imports’ permission. (See id. ¶ 19.) In addition, “[s]everal other . . . customers” informed 

Diamond Imports that Kapu Gems had offered to sell diamonds to them “at a slightly 

lower price than what Diamond Imports could offer.” (See id.) Diamond Imports’ sales 

“dwindled as a result of Kapu Gems’ solicitations” of said customers. (See id.)

Also “[i]n or about 2014,” Kapu Gems “repudiat[ed] the existence of the venture[,] 

den[ied] Diamond Imports’ interest in the venture assets, and . . . convert[ed] venture 

assets to [its] own use.” (See id. ¶ 26). Although “[o]ver the span of the venture, 

Diamond Imports made $17 million in sales for the venture,” Kapu Gems has “refused to 

pay” Diamond Imports its 4% share thereof, causing Diamond Imports to suffer “$1 - $5 

million in damages.” (See id. ¶¶ 24, 27.)

Based on the foregoing, Diamond Imports alleges, as against all 

counterdefendants, the following six counterclaims: (1) “Breach of Part Oral, Part Written, 

and Implied by Conduct Contract” (First Cause of Action), (2) “Breach of Fiduciary Duty”

(Second Cause of Action), (3) “Constructive Fraud” (Third Cause of Action), (4) 

“Misappropriation of Trade Secrets” (Fourth Cause of Action), (5) “Interference with 

Business Relationship” (Fifth Cause of Action), and (6) “Unfair Competition” (Sixth Cause 

of Action). 

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LEGAL STANDARD

Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure “can be 

based on the lack of a cognizable legal theory or the absence of sufficient facts alleged 

under a cognizable legal theory.” See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 

699 (9th Cir. 1990). Rule 8(a)(2), however, “requires only ‘a short and plain statement of 

the claim showing that the pleader is entitled to relief.’” See Bell Atlantic Corp. v. 

Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). Consequently, “a 

complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 

allegations.” See id. Nonetheless, “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.” See id. (internal quotation, citation, and 

alteration omitted).

In analyzing a motion to dismiss, a district court must accept as true all material 

allegations in the complaint, and construe them in the light most favorable to the 

nonmoving party. See NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 

556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “Factual allegations must 

be enough to raise a right to relief above the speculative level[.]” Twombly, 550 U.S. at 

555. Courts “are not bound to accept as true a legal conclusion couched as a factual 

allegation.” See Iqbal, 556 U.S. at 678 (internal quotation and citation omitted).

DISCUSSION

By the instant motions, counterdefendants argue that each of the six 

counterclaims is subject to dismissal as to all counterdefendants. Additionally, 

counterdefendants argue the counterclaims against Kapu Gems Ltd. and Vaghani should 

be dismissed for various reasons specific to said counterdefendants, which arguments 

the Court considers first. 

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A. Alter Ego Liability: Kapu Gems Ltd. and Vaghani

Counterdefendants argue that the counterclaims should be dismissed against 

Kapu Gems Ltd. and Vaghani because the factual allegations of wrongdoing underlying 

each counterclaim “solely concern Kapu Gems.” (See Kapu Gems Mot. at 2:23.) 

Diamond Imports responds that its allegations against Kapu Gems apply equally to the 

other two counterdefendants, as Diamond Imports has alleged that Kapu Gems and 

Kapu Gems Ltd. are “alter ego[s]” of Vaghani, and that Kapu Gems and Kapu Gems Ltd. 

are a “common enterprise.” (See Opp. to Kapu Gems Mot. at 15:2, 15:13; Opp. to 

Vaghani Mot. at 3:9, 3:14.)4

Under the alter ego doctrine, courts, “in narrowly defined circumstances,” will 

pierce the “corporate veil,” i.e., will “disregard the corporate entity and . . . hold the 

individual shareholders liable for the actions of the corporation,” Mesler v. Bragg Mgmt.

Co., 39 Cal. 3d 290, 300, 301 (1985); under similar circumstances, the corporate entity 

may be “disregarded” and “another corporation” may be held liable. Greenspan v. LADT, 

LLC, 191 Cal. App. 4th 486, 512 (2010) (emphasis omitted). 

To pierce the corporate veil, Diamond Imports must prove two elements. First, it 

must show that “there is such a unity of interest and ownership between the corporation 

and the individual or organization controlling it that their separate personalities no longer 

exist.” Communist Party v. 522 Valencia, Inc., 35 Cal. App. 4th 980, 993 (1995). Factors 

that can support the first element include the “commingling of funds and other assets,”

the “use of the same office or business location,” the “employment of the same 

employees and/or attorney,” and the “failure to maintain arm’s length relationships among 

related entities.” See Greenspan, 191 Cal. App. 4th at 512-13 (internal quotation and 

citation omitted).

5

 Second, Diamond Imports must show that “there would be an 

 

4

The Court notes that the Counterclaim does not allege the corporate form of 

Kapu Gems or Kapu Gems Ltd. Diamond Imports has not, however, disputed that each 

entity has limited liability and that the corporate veil of Kapu Gems must be pierced in 

order for Vaghani and Kapu Gems Ltd. to be held liable for the actions of Kapu Gems.

5 Other factors include “treatment by an individual of the assets of the corporation 

as his own,” a “failure to maintain minutes or adequate corporate records,” an “identical 

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inequitable result if the acts in question are treated as those of the corporation alone.” 

Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc., 99 Cal. App. 4th 228, 244-45 (2002) (internal 

quotation and citation omitted).

Counterdefendants contend that Diamond Imports has failed to allege facts in 

support of either said element, as to either Vaghani or Kapu Gems Ltd. As to Vaghani, 

the Court agrees that neither element is adequately pleaded. In support of the first 

element, unity of interest, Diamond Imports relies entirely on conclusory statements. 

(See, e.g., Countercl. ¶ 7 (alleging “there existed, a unity of interest and ownership 

between [c]ounterdefendants Kapu Gems, Kapu Gems LTD, and Kalpesh Vaghani”; 

alleging “Vaghani carried on his business, exercising complete control and dominance of 

such business”).) Such allegations provide no facts as to the nature of Vaghani’s 

ownership of either Kapu Gems or Kapu Gems Ltd. and constitute no more than 

“formulaic recitation[s]” of the legal factors for unity of interest. See Twombly, 550 U.S. at 

555 (holding “formulaic recitation of the elements of a cause of action will not do”). 

Moreover, as to the second element, the Counterclaim contains no allegation that an 

inequitable result would occur if the corporate veil were not pierced to reach Vaghani, let 

alone any facts to support such a finding. 

As to Kapu Gems Ltd., the Court, again, agrees that the first element is not 

adequately pleaded. Although the Counterclaim contains an allegation that “Kapu Gems 

and Kapu Gems Ltd. have two websites listing the same address for both entities, the 

same contact people for both entities, the same phone numbers for both entities, and the 

same manufacturing site for both entities” (see Countercl. ¶ 7), counterdefendants are 

correct that the balance of the allegations in support of the first element constitute

 

equitable ownership in the two entities,” a “failure to adequately capitalize a corporation,”

the “use of a corporation as a mere shell,” the “diversion of assets from a corporation by 

or to a stockholder or other person or entity,” the “contracting with another with intent to 

avoid performance by use of a corporate entity as a shield against personal liability,” and 

“formation and use of a corporation to transfer to it the existing liability of another person 

or entity.” See Greenspan, 191 Cal. App. 4th at 512-13 (internal quotation and citation 

omitted).

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conclusory statements regarding the unity of interest of Kapu Gems and Kapu Gems Ltd. 

(see id. (alleging “Kapu Gems and Kapu Gems LTD. . . . are a common enterprise and 

have improperly commingled funds with each other, are alter egos of each other, and 

have otherwise engaged in other actions such that the debts and obligations of Kapu 

Gems are the debts and obligations of Kapu Gems LTD”)), and Diamond Imports submits 

no authority that the above-referenced factual allegation, standing alone, will suffice.

As to the second element, the Court also agrees with counterdefendants that 

Diamond Imports has failed to allege an inequitable result will occur if the Court declines 

to pierce the corporate veil of Kapu Gems to reach Kapu Gems Ltd. The sole reference 

to an inequitable result in the Counterclaim is that “[a]dherence to the fiction of the 

separate existence of Kapu Gems and Kapu Gems Ltd. would . . . promote injustice in 

that Diamond Imports could only look to each entity for satisfaction of its damages. . . . 

Finding otherwise, would promote an inequitable result.” (See Countercl. ¶ 7.) Alleged 

“difficulty in enforcing a judgment,” however, cannot satisfy the second element, see

Virtualmagic Asia, 99 Cal. App. 4th at 245 (internal quotation and citation omitted), in the 

absence of an adequate showing of “some conduct amounting to bad faith,” see

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 842 (1962) (“[I]t is 

not sufficient to merely show that a creditor will remain unsatisfied if the corporate veil is 

not pierced, and thus set up such an unhappy circumstance as proof of an ‘inequitable 

result.’”).

Accordingly, as alter ego is the sole proffered basis for liability of either Kapu 

Gems Ltd. or Vaghani, and Diamond Imports has failed to plead the two requisite

elements as to either said counterdefendant, all counterclaims against Kapu Gems Ltd. 

and Vaghani are subject to dismissal. 

B. Personal Jurisdiction: Vaghani

Vaghani, a citizen of the Republic of India, argues that the counterclaims asserted 

against him should be dismissed for the additional reason that Diamond Imports has 

failed to show he is subject to personal jurisdiction in California. 

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Diamond Imports, as “the party seeking to invoke jurisdiction,” bears “the burden 

of establishing that jurisdiction exists.” See Flynt Distributing Co., Inc. v. Harvey, 734 

F.2d 1389, 1392 (9th Cir. 1984). “When a district court acts on a defendant’s motion to 

dismiss [for lack of personal jurisdiction] without holding an evidentiary hearing, the 

plaintiff need make only a prima facie showing of jurisdictional facts to withstand the 

motion to dismiss,”

6

i.e., “the plaintiff need only demonstrate facts that if true would 

support jurisdiction over the defendant.” Doe v. Unocal Corp., 248 F.3d 915, 922 (9th 

Cir. 2001) (internal quotation, citation, and alteration omitted). Where a “plaintiff’s version 

of the facts” is “not directly controverted,” that version “is taken as true for the purposes of 

a [Rule] 12(b)(2) motion to dismiss.” Id.

Where, as here, “there is no applicable federal statute governing personal 

jurisdiction, the district court applies the law of the state in which the district court sits.” 

Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (citing Fed. 

R. Civ. P. 4(k)(1)(A)). California’s long-arm jurisdictional statute “permits the exercise of 

jurisdiction to the extent authorized by the Constitution of the United States,” and “[t]hus, 

the state and federal limits are coextensive.” See Flynt Distributing Co., 734 F.2d at 

1392.

“The basic federal rule is that the defendant must have certain minimum contacts 

with the forum such that the maintenance of the suit does not offend traditional notions of 

fair play and substantial justice.” See id. Personal jurisdiction may be either general or 

specific. See Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 F.3d 1082, 1086 (9th 

Cir. 2000). Diamond Imports has not relied on a showing of general jurisdiction. The 

Court thus turns to the question of specific jurisdiction.

Courts “employ[] a three-prong test to determine whether a party has sufficient 

minimum contacts to be susceptible to specific personal jurisdiction.” See Brayton 

Purcell LLP v. Recordon & Recordon, 575 F.3d 981, 985 (9th Cir. 2009). In particular, in 

 

6 No party has requested the Court conduct an evidentiary hearing.

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determining whether to exercise specific jurisdiction, courts consider whether “(1) the 

defendant has performed some act or consummated some transaction within the forum 

or otherwise purposefully availed himself of the privileges of conducting activities in the 

forum, (2) the claim arises out of or results from the defendant’s forum-related activities, 

and (3) the exercise of jurisdiction is reasonable.” See Bancroft & Masters, Inc., 223 F.3d 

at 1086.

Diamond Imports argues that this Court may exercise personal jurisdiction over 

Vaghani because (1) Diamond Imports has alleged alter ego liability against him through 

Kapu Gems, which entity is undisputedly subject to this Court’s jurisdiction,7and (2) as 

an individual, Vaghani has sufficient contacts with California to be subject to specific 

jurisdiction in this state. The Court addresses each said theory in turn.

1. Alter Ego

As noted, Diamond Imports first relies on its above-referenced alter ego theory to 

establish personal jurisdiction over Vaghani. In particular, Diamond Imports argues that, 

because it has alleged that the corporate veil of Kapu Gems should be pierced to reach 

Vaghani, it has also shown personal jurisdiction over Vaghani. Although Diamond 

Imports is correct that personal jurisdiction over a defendant may be premised on a 

showing that said defendant is the alter ego of a second defendant who has minimum 

contacts with the forum, see Flynt Distributing Co., 734 F.2d at 1393, Diamond Imports 

acknowledges that, before the Court may “disregard the corporate entity for jurisdictional 

purposes,” it must “make out a prima facie case under appropriate substantive law to 

establish alter ego liability.” (See Opp. to Vaghani Mot. at 7:15-16); Am. Tel. & Tel. Co. v. 

Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th Cir. 1996) (rejecting argument that 

“GBL’s domination and control over Keystone” allowed Court to exercise personal 

jurisdiction over GBL, where plaintiff “failed to make out a prima facie case that Keystone 

 

7

In its motion to dismiss, Kapu Gems has not argued that this Court lacks 

personal jurisdiction over it.

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was GBL’s alter ego”). As discussed above, Diamond Imports has not alleged facts

sufficient to support a finding that the corporate entity of Kapu Gems should be 

disregarded, and, as Vaghani points out, Diamond Imports, in submitting declarations 

and exhibits in support of personal jurisdiction, does not even attempt to make a prima 

facie showing to that effect.8 Accordingly, alter ego liability does not support the exercise 

of personal jurisdiction over Vaghani.

2. Minimum Contacts

In its opposition, Diamond Imports relies on certain activities of Vaghani, either 

occurring in or otherwise involving California, to show that (1) Vaghani has sufficient 

contacts to have purposefully availed himself of said forum, and (2) the instant 

counterclaims arose out of those contacts.9 That conduct includes visiting San 

Francisco, California, for the purpose of setting up the alleged “joint venture” that is the 

subject of several of the counterclaims, as well as for the purpose of meeting with one of 

the customers that Diamond Imports alleges counterdefendants unlawfully solicited. 

(See Foreman Decl. Ex. 4 ¶¶ 4, 6; Ex. 5.) 

In addressing such conduct in his reply, Vaghani does not argue that the contacts 

in question are insufficient to support either a finding of purposeful availment or a finding 

that Diamond Imports’ claims against him arise out of such conduct. Rather, Vaghani 

contends the “fiduciary shield doctrine” precludes jurisdiction because, in engaging in the 

 

8 Rather than attempt to “make a prima facie showing of the alter ego relationship”

by, for example, showing that Vaghani has “converted the assets of [Kapu Gems and 

Kapu Gems Ltd.] for [his] own use and dealt with them as if they were one,” see Flynt 

Distributing Co., 734 F.2d at 1393, said submissions, as discussed in the following 

section, only tend to show that Vaghani engaged in activities in California. 

9 Diamond Imports has submitted declarations and other evidence to show 

Vaghani conducted such activities. (See Foreman Decl. Exs. 3-7.) In his reply, Vaghani 

has moved to strike those exhibits, arguing that Diamond Imports may not rely on 

materials outside the pleadings on a motion to dismiss. To the extent that Vaghani’s 

motion is brought pursuant to Rule 12(b)(2) for lack of personal jurisdiction, rather than 

pursuant to Rule 12(b)(6) for failure to state a claim, the Court may rely on such material 

in deciding the motion. See Doe, 248 F.3d at 922 (holding “court may consider evidence”

on motion to dismiss under Rule 12(b)(2)). Accordingly, Vaghani’s motion to strike is 

hereby DENIED.

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above-referenced activities, he was “acting in his capacity as a representative of Kapu 

Gems and/or Kapu Gems Ltd., not in his personal capacity.” (See Vaghani Reply at 6:9-

11.) 

Although the fiduciary shield doctrine “prevents the exercise of personal 

jurisdiction over an individual whose activities were performed solely in a corporate or 

employment capacity,” the doctrine, to the extent it remains viable, see Goehring v. 

Superior Court of San Diego, 62 Cal. App. 4th 894, 906 (1998) (noting California courts 

have suggested “[fiduciary shield] doctrine is inconsistent with California’s long-arm 

statute”), only shields corporate officers and does not apply to partners, see id. (holding 

“general partner who is allegedly liable on substantive grounds may [not] insulate himself 

or herself from jurisdiction merely because that partner has acted solely in his or her 

partnership capacity”). Here, Vaghani admits he is a “partner of Kapu Gems.” (See

Vaghani Decl. ¶ 2.) Consequently, his reliance on the fiduciary shield doctrine is 

unavailing.

Accordingly, as Vaghani has not challenged Diamond Imports’ showing as to 

minimum contacts and the fiduciary shield doctrine is inapplicable, Vaghani has failed to 

show the Counterclaim is subject to dismissal for lack of personal jurisdiction.

C. Insufficient Process and Improper Service: Vaghani

Vaghani next argues that the counterclaims against him should be dismissed 

pursuant to Rules 12(b)(4) and 12(b)(5) of the Federal Rules of Civil Procedure, for the 

reason that Diamond Imports failed to serve him in a manner that complies with the 

requirements for service set forth in Rule 4 of the Federal Rules of Civil Procedure. 

First, Vaghani, who is, as noted, a resident of the Republic of India, argues that he 

was not served in compliance with the terms of the Hague Service Convention.10 

 

10 The Hague Service Convention is a multilateral treaty, ratified by the United 

States and thirty-one other countries, that “provide[s] a . . . way to serve process abroad,”

assures “that defendants sued in foreign jurisdictions . . . receive actual and timely notice 

of suit,” and “facilitate[s] proof of service abroad.” See Volkswagenwerk 

Aktiengesellschaft v. Schlunk, 486 U.S. 694, 698 (1988). 

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Diamond Imports does not dispute that its service of Vaghani did not so comply, but 

argues that it nonetheless has accomplished service under Rule 4(e)(2)(A) by personally 

delivering the summons and Counterclaim to Vaghani.

Where, as here, however, a claimant seeks to serve an individual “at a place not 

within any judicial district of the United States,” Rule 4(f), not Rule 4(e), applies. See

Fed. R. Civ. P. 4(f); Fed. R. Civ. P. 4(e) (providing for “serv[ice] in a judicial district of the 

United States”). Pursuant to Rule 4(f), such individual must be served “by any 

internationally agreed means of service that is reasonably calculated to give notice, such 

as those authorized by the Hague Convention on the Service Abroad of Judicial and 

Extrajudicial Documents.” See Fed. R. Civ. P. 4(f)(1); see also Volkswagenwerk 

Aktiengesellschaft, 486 U.S. at 705 (noting “compliance with the Convention is 

mandatory in all cases to which it applies”). Vaghani asserts that “India is a party to the 

Hague Convention” and “does not permit” any method of international service of process 

“other than through the Central Authority.” (See Vaghani Mot. at 11:2, 11:13.) Diamond 

Imports does not argue to the contrary, nor does it dispute Vaghani’s assertion that he 

was not served through the Central Authority. (See Devendra Decl. ¶ 3.) Consequently, 

Diamond Imports has failed to show compliance with Rule 4(f).

Second, Vaghani asserts that the summons with which he was purportedly served 

is inadequate because it “does not state the name and address of Diamond Imports’

attorney, is not signed [by the Clerk of Court] and does not bear the court’s seal.” (See

Vaghani Mot. at 9:20-21); Fed. R. Civ. P. 4(a)(1) (providing “summons must,” inter alia, 

“state the name and address of the plaintiff’s attorney,” “be signed by the clerk,” and 

“bear the court’s seal”). Vaghani has submitted a copy of the summons he received, 

which document, as Vaghani states, lacks the name and address of Diamond Imports’

attorney, the signature of the Clerk, and the seal of the Court. (See Vaghani Decl. Ex. 1.) 

Diamond Imports has not offered any evidence to the contrary, and, consequently, has 

failed to show compliance with Rule 4(a).

As a result of the above-noted deficiencies, Diamond Imports has failed to show 

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Vaghani has been properly served. Where, as here, a claimant is unable to satisfy its 

burden of proving valid service, the Court has discretion to dismiss the action. See

Stevens v. Sec. Pac. Nat’l Bank, 538 F.2d 1387, 1389 (9th Cir. 1976). Accordingly, the 

counterclaims asserted against Vaghani will be dismissed.11

D. Conclusion as to Kapu Gems Ltd. and Vaghani

To the extent counterdefendants seek dismissal of all counterclaims against 

Vaghani and Kapu Gems Ltd., the Court, in light of the above-noted deficiencies as to the 

allegations of alter ego liability against both said parties and service of Vaghani, will grant 

the motions to dismiss. 

E. Failure to State a Claim: All Counterdefendants

Counterdefendants also argue that each of the six asserted counterclaims fails to 

state a claim for relief, and, consequently, is subject to dismissal with respect to all 

counterdefendants. The Court considers the sufficiency of each counterclaim in turn.

1. First Cause of Action: Breach of Part Oral, Part Written, and Implied by 

Conduct Contract

“A cause of action for breach of contract requires pleading of a contract, plaintiff’s 

performance or excuse for failure to perform, defendant’s breach and damage to plaintiff 

resulting therefrom.” McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2006). 

Counterdefendants argue Diamond Imports has failed to plead the first, third, and fourth 

said elements.

a. Sufficiency of the Allegations as to the Existence of a Contract

Counterdefendants identify two asserted deficiencies in Diamond Imports’

pleading of the existence of a contract; specifically, counterdefendants argue (1) it cannot 

be determined which terms of the alleged contract were agreed to in writing, which were 

 

11 Under some circumstances, a Court, upon a finding that a claimant has failed to 

serve valid process, may exercise its discretion to quash service rather than dismiss the 

action. See id. Here, however, as discussed above, the Counterclaim is subject to 

dismissal in its entirety as to Vaghani on other grounds, thus warranting dismissal on this 

ground as well.

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agreed to orally, and which were agreed to by implication, and (2) Diamond Imports has 

failed to allege who represented the parties in executing the contract.

As to counterdefendants’ first argument, the Court agrees that the contract claim is 

subject to dismissal for the reason that Diamond Imports has failed to identify which 

terms were oral, which terms were written, and which terms are implied, nor is the form 

by which the terms were allegedly agreed upon otherwise apparent.

12

 See Cal. Code 

Civ. Procedure § 430.10(g) (providing claim for breach of contract is subject to dismissal 

if “it cannot be ascertained from the pleading whether the contract is written, is oral, or is 

implied by conduct”). For example, although Diamond Imports alleges that “potential 

customer[s] would call Diamond Imports at its San Francisco office to negotiate the sale,”

and “Diamond Imports [would] wire the money to Kapu Gems” or “directly deposit[]” the 

money “in Kapu Gems’ account” (see Countercl. ¶ 18), it is unclear whether such 

allegations purport to describe terms expressly agreed upon by the parties in writing or 

orally, or terms impliedly arising from the parties’ conduct, or are merely facts describing 

the behavior of the parties after the agreement was formed.

As to counterdefendants’ second argument, that Diamond Imports has failed to 

plead the terms of the alleged contract because it has not “allege[d] who from Diamond 

Imports and/or Kapu Gems supposedly agreed to enter into the contract and whether 

such person was authorized to do so” (see Kapu Gems Mot. at 7:13-16),13 the Court is 

unpersuaded. Counterdefendants cite no authority holding that Diamond Imports must 

allege the identities of the individuals who represented each party in executing the 

 

12 Counterdefendants also argue that Diamond Imports’ allegation that the contract 

was partially implied-in-fact is deficient because Diamond Imports has “not alleged a 

course of conduct from which a promise may be implied.” (See Kapu Gems Mot. at 8:3.) 

It is not clear from the pleading, however, which, if any, terms Diamond Imports is 

alleging are implied.

13 While counterdefendants also argue that the allegation that Diamond Imports 

has “performed all conditions, covenant[s] and promises it was required to perform under 

the contract . . . merely parrots [a] legal element” and thus is conclusory, such argument 

was made for the first time in the reply briefs. (See Kapu Gems Reply at 2:18-22; 

Vaghani Reply at 8:10-17.) Accordingly, the Court has not addressed it herein. 

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alleged contract. To the contrary, as counterdefendants acknowledge, a contract may be 

pleaded by its legal effect, which requires “alleg[ing] the substance of its relevant terms.” 

See McKell, 142 Cal. App. 4th at 1489 (internal quotation and citation omitted). Diamond 

Imports has alleged that the parties agreed that Diamond Imports would “curate[]” sales 

on behalf of Kapu Gems USA and, in return, was entitled to receive 4% of such gross 

sales. (See Countercl. ¶ 23.) By such allegations, Diamond Imports has adequately pled 

the alleged contract’s “relevant terms”; as the identities of the parties’ representatives are 

not terms, relevant or otherwise, of the contract, Diamond Imports was not required to 

plead them.

b. Sufficiency of the Allegations as to Breach 

Diamond Imports alleges four breaches, specifically, that Kapu Gems (1) 

“repudiat[ed] the existence of the venture,” (2) “den[ied] Diamond Imports’ interest in the 

venture assets,” (3) “convert[ed] venture assets to [its] own use,” and (4) “refused to pay 

Diamond Imports its 4% share of the gross sales.” (See Countercl. ¶¶ 23-26.) Although 

counterdefendants do not contest the adequacy of the fourth claimed breach, 

counterdefendants point out, and the Court agrees, that the first, second, and third 

allegations are inadequate to plead breach, for the reason that Diamond Imports has not 

adequately pleaded the existence of a joint venture between the parties. 

A joint venture is “an undertaking by two or more persons jointly to carry out a 

single business enterprise for profit.” April Enter., Inc. v. KTTV, 147 Cal. App. 3d 805, 

819 (1983) (internal quotation and citation omitted). “The elements necessary for [the] 

creation [of a joint venture] are: (1) joint interest in a common business; (2) with an 

understanding to share profits and losses; and (3) a right to joint control.” Id. Here, 

Diamond Imports has alleged an understanding to share profits by alleging it was entitled 

to 4% of the gross sales; Diamond Imports has alleged no facts, however, showing the 

parties had a joint interest in Kapu Gems USA, the parties agreed to share losses 

sustained by Kapu Gems USA, or the parties each had a right of control over Kapu Gems 

USA.

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Although not clearly stated, Diamond Imports appears to argue that it is not 

required to plead any of the above elements other than the sharing of profits. Such 

position is, however, contrary to California law. See, e.g., Simmons v. Ware, 213 Cal. 

App. 4th 1035, 1056 (2013) (holding “joint participation in the management and control of 

the business” is “[a]n essential element” of a joint venture; further holding “[a]bsent such 

right, the mere fact that one party is to receive benefits in consideration of services 

rendered or for capital contribution does not, as a matter of law, make him a . . . joint 

venturer”) (internal quotation and citation omitted).

Accordingly, to the extent Diamond Imports is relying on a breach of an alleged 

joint-venture contract, the Court finds the allegations are inadequate. Nevertheless, as 

counterdefendants have not contested the adequacy of the above-referenced fourth 

breach, the counterclaim for breach of contract is not subject to dismissal for failure to 

allege breach.

c. Sufficiency of the Allegations as to Damages

Diamond Imports alleges that, as a result of Kapu Gems’ failure to pay Diamond 

Imports its share, Diamond Imports has “suffered $1 - $5 million in damages.” (See

Countercl. ¶ 27.) As counterdefendants point out, however, said figure is inconsistent 

with Diamond Imports’ allegation that it made a total of $17 million in sales on behalf of 

Kapu Gems USA, as 4% of $17 million is only $680,000.14 Accordingly, Diamond Imports 

fails to allege facts in support of its claimed damages.

Relying on Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F. 

Supp. 2d 1035 (C.D. Cal. 1998), counterdefendants further argue that “the claim for 

breach of contract should be dismissed as a matter of law” because Diamond Imports 

has not “specifically indicated . . . special damages.” (See Kapu Gems Mot. at 8:12-15.) 

Although Diamond Imports in response notes that Isuzu Motors concerned the pleading 

 

14 Although Kapu Gems has not argued that Diamond Imports has failed to allege 

any harm resulting from the other breaches, the Court notes that such failure also 

warrants dismissal.

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requirements for a trade libel claim, see Isuzu Motors Ltd., 12 F. Supp. 2d at 1046-47, the 

same rule for pleading special damages also applies in the context of contract law, see, 

e.g., Colvig v. RKO Gen., Inc., 232 Cal. App. 2d 56, 69 (1965) (holding “[d]amages which 

may be said to be the normal and natural result of the breach complained of may be 

denominated general damages and pleaded accordingly, while those suffered as a 

consequence, though not necessarily the certain result of the breach, must be pleaded 

specially”) (internal quotation and citation omitted). 

Nonetheless, Diamond Imports’ failure to plead special damages does not 

preclude its claim. A breach of contract claimant may seek, but is not required to seek, 

recovery of special damages, and failure to plead “[s]pecial damage” merely prevents a 

claimant from being “permitted to give evidence of it at the trial.” See id. at 69. As a 

result, Diamond Imports’ counterclaim for breach of contract is not subject to dismissal on 

the ground that Diamond Imports failed to plead special damages.

d. Conclusion as to Breach of Contract

In light of the above-noted deficiencies, namely, Diamond Imports’ failure to 

identify the form of the terms of the alleged contract and failure to allege facts to support 

the amount of damages it has claimed, the First Cause of Action is subject to dismissal 

as to all counterdefendants.

2. Second Cause of Action: Breach of Fiduciary Duty

“The elements of a cause of action for breach of fiduciary duty are: (1) existence of 

a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by 

the breach.” See Gutierrez v. Girardi, 194 Cal. App. 4th 925, 932 (2011) (internal 

quotation and citation omitted). 

The parties dispute whether, under the facts alleged, counterdefendants owed 

Diamond Imports a fiduciary duty. “Whether a fiduciary duty exists is generally a 

question of law.” Marzec v. Calif. Pub. Emp. Retirement Sys., 236 Cal. App. 4th 889, 915 

(2015). “Before a person can be charged with a fiduciary obligation, he [1] must either 

knowingly undertake to act on behalf and for the benefit of another, or [2] must enter into 

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a relationship which imposes that undertaking as a matter of law.” City of Hope Nat’l

Med. Ctr. v. Genentech, Inc., 43 Cal. 4th 375, 386 (2008) (internal quotation and citation 

omitted). 

A “joint venture” is, under the second alternative set forth in City of Hope, one type 

of relationship that imposes a “fiduciary obligation to act on behalf of and for the benefit of 

another as a matter of law,” id. (internal quotation and citation omitted), and, as currently 

alleged, the counterclaim for breach of fiduciary duty relies exclusively on the existence 

of a joint venture. (See Countercl. ¶ 29 (“Kapu Gems [has] breached the duty of care 

imposed by Corporations Code § 16404(c) to the venture and to [c]ounterclaimants.”)

15

 

For the above-stated reasons, however, Diamond Imports has failed to allege a joint 

venture, and, as a result, has failed to allege a relationship between the parties that 

would give rise to a fiduciary duty as a matter of law.

Despite the Counterclaim’s exclusive reliance on the existence of a joint venture in 

alleging breach of fiduciary duty, Diamond Imports, in apparent reliance on the first of the 

above two alternatives, argues “[a] fiduciary duty also exists in the context of a 

confidential relationship.” (See Opp. to Kapu Gems Mot. at 6:15, 7:23; Opp. to Vaghani 

Mot. at 14:22.) Under California law, however, transmission of confidential information, 

without more, is insufficient to give rise to a fiduciary relationship, because information

may “be transmitted in the course of arms length negotiations between businessmen who 

can profit from its exploitation.” See Davies v. Krasna, 14 Cal. 3d 502, 510, 511 (1975) 

(holding, where parties were “engaged in the business of selling and exploiting ideas for 

movies,” defendant may have had “a duty to refrain from unauthorized disclosure of the 

idea, but . . . [did not have] fiduciary-like duties that arise from a confidential 

relationship”); see also City of Hope, 43 Cal. 4th at 391, 392 (noting “one party 

entrust[ing] its affairs, interests or property to another . . . standing alone is [not] 

 

15 See Cal. Corporations Code § 16404(a) (providing “fiduciary duties a partner 

owes to the partnership and the other partners are the duty of loyalty and the duty of care 

set forth in subdivisions (b) and (c)”). 

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determinative of the existence of a fiduciary relationship”; further noting “mere receipt of 

confidential information does not create fiduciary duty”) (citing Chodos, The Law of 

Fiduciary Duties, § 1:21). 

Accordingly, the Second Cause of Action is subject to dismissal as to all 

counterdefendants, as Diamond Imports has alleged neither a joint venture, nor an 

adequate factual basis to support a finding that any counterdefendant undertook to act on 

behalf of Diamond Imports.

3. Third Cause of Action: Constructive Fraud

“Constructive fraud allows conduct insufficient to constitute actual fraud to be 

treated as such where the parties stand in a fiduciary relationship.” Estate of Gump v. 

Gump, 1 Cal. App. 4th 582, 601 (1991). A claim for “[c]onstructive fraud arises on a 

breach of duty by one in a confidential or fiduciary relationship to another which induces 

justifiable reliance by the latter to his prejudice.” Id. (quoting Cal. Civ. Code § 1573)

(emphasis omitted).

Relying on the existence of a fiduciary relationship arising out of the parties’

“venture agreement,” Diamond Imports alleges that Kapu Gems committed constructive 

fraud by “excluding Counterclaimants Diamond Imports from their interest in the venture,”

and “by securing an advantage over Counterclaimants by misleading Counterclaimants to 

their prejudice.” (See Countercl. ¶ 34.) 

Such allegations fail at the outset because, for the above-stated reasons, Diamond 

Imports has not alleged a fiduciary relationship between counterdefendants and Diamond 

Imports. Moreover, as counterdefendants point out, the constructive fraud counterclaim 

is subject to dismissal for the additional reason that it does not comply with Rule 9(b) of 

the Federal Rules of Civil Procedure, which imposes heightened pleading requirements 

for “[a]verments of fraud,” and mandates that “the alleged fraud must be specific enough 

to give defendants notice of the particular misconduct so that they can defend against the 

charge and not just deny that they have done anything wrong.” See Vess v. Ciba-Geigy 

Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotation, citation, and 

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alteration omitted); Sonoma Foods, Inc. v. Sonoma Cheese Factory, LLC, 634 F. Supp. 

2d 1009, 1021 (N.D. Cal. 2007) (holding Rule 9(b) applies to claim for constructive fraud). 

In particular, such averments must “be accompanied by ‘the who, what, when, where, 

and how’ of the misconduct charged.” See id. (internal citation omitted). Here, the 

above-referenced allegations are so vague that it is not possible to discern, even at a 

broad level, what conduct Diamond Imports is relying on to show fraud, much less any 

specific information regarding the particular individual(s) who committed the alleged 

wrongful acts, or the time or place at which, or manner in which, said wrongful acts

occurred.

Accordingly, the Third Cause of Action is subject to dismissal as to all 

counterdefendants.

4. Fourth Cause of Action: Misappropriation of Trade Secrets

As noted, Diamond Imports alleges that Kapu Gems misappropriated trade secrets 

by “convincing” Diamond Imports to provide Kapu Gems with a copy of Diamond Imports’

customer and pricing list, assuring Diamond Imports that Kapu Gems “would never 

contact the customer[s] without Diamond Imports’ knowledge and consent,” and then 

proceeding to “directly contact[] Diamond Imports’ customers and offer[] to sell diamonds

to them at a slightly lower price . . . without Diamond Imports’ knowledge or consent.” 

(See Countercl. ¶¶ 41-42.) 

Counterdefendants first argue that said allegations fail to state a claim for 

misappropriation of trade secrets, for the reason that Diamond Imports has not kept its 

customer and pricing list confidential. A customer list qualifies as a “‘[t]rade secret’ if it 

‘[d]erives independent economic value, actual or potential, from not being generally 

known to the public or to other persons who can obtain economic value from its 

disclosure or use’ and ‘[i]s the subject of efforts that are reasonable under the 

circumstances to maintain its secrecy’.” See Reeves v. Hanlon, 33 Cal. 4th 1140, 1155 

(2004) (quoting Cal. Civ. Code § 3426.1(d)). Here, in support of dismissal,

counterdefendants point out that the Counterclaim discloses some of the information on 

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Diamond Imports’ customer and pricing list, specifically, the identities of “three of 

[Diamond Imports’] allegedly largest customers: Blue Nile, Brilliant Earth, and Ritani.” 

(See Kapu Gems Mot. at 12:22.) The Court is not persuaded. Even assuming, 

arguendo, that a post-misappropriation disclosure in a pleading alleging such 

misappropriation would preclude a finding of confidentiality, counterdefendants here do 

not contend Diamond Imports has disclosed the pricing information for said three 

customers, or the names or pricing information of other customers, nor do 

counterdefendants contend that such information is generally known. Consequently, 

counterdefendants have not shown that the list, considered as a whole, is not 

confidential. See Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1521 (1997) (rejecting 

defendant’s argument that, because “identity of prospective customers . . . [was] 

generally known,” customer list was not trade secret, where list included “names, 

addresses, . . . contact persons, [and] pricing information”).

Counterdefendants next argue that they did not misappropriate the customer and 

pricing list, but, rather, that Diamond Imports voluntarily shared the list with them. Again, 

the Court is unpersuaded. For purposes relevant here, a party misappropriates a trade 

secret when it “use[s] . . . a trade secret of another without express or implied consent”

and “[a]t the time of . . . use, knew or had reason to know that his or her knowledge of the 

trade secret was acquired under circumstances giving rise to a duty to . . . limit its use.” 

See Cal. Civ. Code § 3426.1(b)(2)(B)(ii). Diamond Imports has alleged that Kapu Gems 

assured Diamond Imports that it would not use the list to solicit business from Diamond 

Imports’ customers, which allegation would support a finding that Kapu Gems acquired 

the list with “reason to know that [its] knowledge of the trade secret was . . . [a]cquired 

under circumstances giving rise to a duty to” not use the list to solicit business. See id. 

Diamond Imports has further alleged that, without first obtaining Diamond Imports’

authorization, Kapu Gems solicited sales from Diamond Imports’ customers, i.e., it 

“use[d]” the list. See id. Such allegations state a claim for misappropriation of trade 

secrets under the above-referenced statutory provision. See id.; see also Morlife, Inc., 56 

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Cal. App. 4th at 1524 (noting California courts “have equated acts of solicitation [of 

customers] with . . . ‘misappropriation’ of protected information”).

Accordingly, counterdefendants have failed to show the Fourth Cause of Action is 

subject to dismissal.

5. Fifth Cause of Action: Interference with Business Relationship

“The five elements for intentional interference with prospective economic 

advantage,” i.e., interference with a business relationship, are “(1) an economic 

relationship between the plaintiff and some third party, with the probability of future 

economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) 

intentional acts on the part of the defendant designed to disrupt the relationship; (4) 

actual disruption of the relationship; and (5) economic harm to the plaintiff proximately 

caused by the acts of the defendant.” See Youst v. Longo, 43 Cal. 3d 64, 71 n.6 (1987). 

Diamond Imports alleges that it had relationships with “customers [who] 

consistently purchased diamonds from Diamond Imports and Yachdav on a revolving 

cycle,” and that “[m]any” of these relationships have been in existence “for the past 30+ 

years.” (See Countercl. ¶ 46.) Diamond Imports further alleges that Kapu Gems was 

aware of said relationships through the parties’ “venture,” as well as “Kalpesh Vaghani’s 

close working relationship with Diamond Imports’ president,” and “Kapu Gems[’]

insistence that Diamond Imports share its customer and price list.” (Id. ¶ 47.) Diamond 

Imports alleges Kapu Gems interfered with said relationships when it “circumvented 

Diamond Imports and solicited Blue Nile, Brilliant Earth, Ritani, and other customers.” 

(Id. ¶ 48.) According to Diamond Imports, “its sales dwindled as a result of Kapu Gems’

solicitations,” and it has “los[t] a majority of its long term customers.” (Id. ¶¶ 48-49.)

Counterdefendants contend such allegations fail to state a claim for interference 

with prospective economic advantage, for the reason that Diamond Imports has not pled 

“lost contracts, failed negotiations, or other concrete facts” that would show an actual 

disruption of any existing relationship with a customer. (See Kapu Gems Mot. at 15:4-6.) 

As an initial matter, the Court is unpersuaded that Diamond Imports must allege an

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existing contract or contract negotiations in order to allege an existing business 

relationship, as such relationship “need not be a contractual relationship,” see Roth v. 

Rhodes, 25 Cal. App. 4th 530, 546 (1994), and, although an existing business 

relationship may be shown by ongoing negotiations, see Sybersound Records, Inc. v. 

UAV Corp., 517 F.3d 1137, 1151 (9th Cir. 2008), such circumstance is but one “example”

of a sufficient showing, see id.

Nevertheless, “an existing relationship is required,” see id., and the Court finds 

Diamond Imports has failed to allege it had an existing relationship with any of the 

customers at issue. To show such an existing relationship, courts “requir[e] proof the 

business relationship contained the probability of future economic benefit to the plaintiff.” 

Westside Cntr. Assoc. v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507, 522 (1996)

(internal quotation and citation omitted) (emphasis in original). Interference with a

plaintiff’s relationship with a “hypothetical” buyer, see id., or a “potential” customer is 

insufficient to support a claim of interference with prospective economic advantage 

because the likelihood of future benefit is too “speculative.” See Rheumatology 

Diagnostics Lab., Inc. v. Aetna, Inc., 2013 WL 5694452, at *20 (N.D. Cal. 2013) (internal 

quotation and citation omitted).

Diamond Imports’ allegation that the customers at issue “consistently purchased 

diamonds from Diamond Imports . . . on a revolving cycle throughout the years” (see

Countercl. ¶ 46) is, in essence, an allegation that said customers have purchased 

diamonds from Diamond Imports in the past. Such allegations are inadequate to show a 

probability of future benefit to Diamond Imports because, if Diamond Imports must win 

the business of its prior customers every time it makes a sale to them, such customers 

only amount to potential future customers. See New Kids on the Block v. News Am. 

Publ’g, Inc., 971 F.2d 302, 310 (9th Cir. 1992) (“[I]t is no tort to beat a business rival to 

prospective customers.”) (internal quotation and citation omitted). In order to allege a 

probability of future economic benefit from its prior customers, Diamond Imports must 

allege additional facts showing that said customers were regular customers with whom 

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Diamond Imports had an ongoing business relationship, and to whom Diamond Imports 

had historically made sales with a consistency that could be expected to continue, due, 

for example, to the nature of the business. See, e.g., Rickards v. Canine Eye 

Registration Foundation, Inc., 704 F.2d 1449, 1456 (9th Cir. 1983) (characterizing 

veterinarians’ provision of services to “regular clients” as “ongoing business 

relationship”). 

Accordingly, the Fifth Cause of Action is subject to dismissal as to all 

counterdefendants, as Diamond Imports has failed to allege facts to show a probability of 

future economic benefit from its prior customers.16 

6. Sixth Cause of Action: California’s Unfair Competition Law (“UCL”)

“California’s UCL prohibits unfair competition by means of any unlawful, unfair or 

fraudulent business practice.” See Birdsong v. Apple, Inc., 590 F.3d 955, 959 (9th Cir. 

2009) (citing Cal. Bus. & Prof. Code §§ 17200-17210). “Each prong of the UCL is a 

separate and distinct theory of liability.” See id.

Counterdefendants first argue that Diamond Imports has failed to state a claim for 

relief under the UCL because the Counterclaim fails to provide notice of the specific 

conduct on which the Sixth Cause of Action is based. The Court agrees. A UCL 

claimant must identify the “particular section of the statutory scheme which was violated”

and “state with reasonable particularity the facts supporting the statutory elements of the 

violation.” See Khoury v. Maly’s of Calif., Inc., 14 Cal. App. 4th 612, 619 (1993). In its 

opposition, Diamond Imports states it is relying on, “among other things,” the facts that 

 

16 Counterdefendants also contend Diamond Imports was required to plead “how 

or when” it “discovered” that it had lost sales, and “the dollar amount by which Diamond 

Imports’ sales ‘dwindled.’” (See Kapu Gems Mot. at 15:11-14.) As counterdefendants

have cited no authority, and the Court has found none, holding a claimant must plead 

such details in order to state a claim, the Court does not find the Fifth Cause of Action is 

subject to dismissal on said basis. Further, contrary to counterdefendants’ argument that 

Diamond Imports has not “identif[ied] the cause of [the alleged] reduction in sales,”

Diamond Imports has alleged that the “proximate cause” is “Kapu Gems’s circumvention 

of Diamond Imports to solicit Diamond Imports’ customers with slightly lower priced 

diamonds.” (See Countercl. ¶ 49.) 

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support its counterclaims for violations of “California Civil Code § 1573 (constructive 

fraud), California Corporations Code § 16404(c) (breach of fiduciary duty) and California 

Civil Code § 3426 et seq. (misappropriation of trade secrets).” (See Opp. to Kapu Gems 

Mot. at 13:24-14:1.) Any such predicate, however, is not made clear from the allegations 

in support of the Sixth Cause of Action, which incorporates by reference the entirety of 

the factual allegations made in the Counterclaim.17 Accordingly, the Sixth Cause of 

Action is subject to dismissal.

In addition, counterdefendants argue that, to the extent Diamond Imports asserts a 

claim under the fraudulent business practice prong of the UCL, Diamond Imports has 

failed to satisfy the above-referenced heightened pleading requirements of Rule 9(b) of 

the Federal Rules of Civil Procedure.18 In its opposition, Diamond Imports contends it 

has adequately alleged fraudulent conduct under Rule 9(b) by alleging that 

“[c]ounterdefendants had represented that they would not contact the customers without 

Diamond Import[‘s] knowledge and consent,” and subsequently engaged in the very 

conduct in which they said they would not engage, i.e., “directly solicit[ing] customers 

without Diamond Imports’ knowledge.” (See Opp. to Kapu Gems Mot. at 13:20-23.) 

The Court finds Diamond Imports has failed to plead fraudulent conduct under the 

UCL with the requisite particularity. See Vess, 317 F.3d at 1106 (holding allegations 

sounding in fraud must “be accompanied by ‘the who, what, when, where, and how’ of 

the misconduct charged”) (internal quotation and citation omitted). Diamond Imports has 

not identified the particular individuals who “represented” that they would not solicit 

Diamond Imports customers or who undertook the alleged soliciting. See U.S. ex rel. Lee 

 

17 Moreover, the Court has found the allegations as to constructive fraud and 

breach of fiduciary duty insufficient to state a claim.

18 The heightened pleading requirements of Rule 9(b) apply to claims under the 

UCL only to the extent such claims are based on fraudulent conduct. See Vess, 317 

F.3d at 1103-04 (holding, where “fraud is not a necessary element of a claim” asserted by 

plaintiff, but plaintiff nonetheless relies on “some fraudulent” conduct “in support of” said 

claim, “only the allegations of fraud are subject to Rule 9(b)’s heightened pleading 

requirements”).

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v. SmithKline Beecham, 245 F.3d 1048, 1051 (9th Cir. 2001) (holding plaintiff’s allegation 

that defendant “knowingly . . . changed control numbers [on various tests] to wrongfully 

represent . . . the laboratory results” failed to satisfy Rule 9(b), where plaintiff did not 

“identify the . . . employees who performed the tests”). Further, Diamond Imports has not 

alleged where the parties were when the representations were made, and has not 

alleged whether they were made in person or by some other mode of communication. 

Accordingly, to the extent the Sixth Cause of Action is based on the fraudulent business 

practice prong of the UCL, it is subject to dismissal for the additional reason that the 

allegations are insufficient to meet the pleading requirements of Rule 9(b).19

F. Leave to Amend

Although counterdefendants seek dismissal without leave to amend, the Court will 

afford Diamond Imports leave to amend each dismissed counterclaim, as none of the 

deficiencies noted above appear to be of the type that are incapable of amendment, see

Balistreri, 901 F.2d at 701 (holding leave to amend “should be granted if it appears at all 

possible that the plaintiff can correct the defect”) (internal quotation and citation omitted), 

and the Court has not ruled previously on the sufficiency of the allegations made in 

support thereof, see Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990) 

(listing previous amendment among factors considered by court in determining whether 

to afford leave to amend).

CONCLUSION

1. As against Kapu Gems Ltd. and Vaghani, the motions to dismiss are hereby 

 

19 Although counterdefendants also argue that Diamond Imports has failed to state 

a UCL claim under the unfairness prong because “Diamond Imports does not engage in 

the type of balancing test that is required under [that] prong” (see Kapu Gems Mot. at 

16:22-24 (citing Baba v. Hewlett Packard Co., 2010 WL 2486353 (N.D. Cal. 2010)), 

counterdefendants cite no authority for the proposition that a claimant is required to 

perform such an analysis in its pleading. Accordingly, the Sixth Cause of Action is not 

subject to dismissal on that basis. Additionally, to the extent counterdefendants initially 

sought dismissal of Diamond Imports’ prayer for treble damages, the Court notes that 

Diamond Imports has “withdraw[n] this request.” (See Opp. to Kapu Gems Mot. at 13 

n.3.)

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GRANTED, and the Counterclaim is hereby DISMISSED in its entirety as to said 

counterdefendants.

2. As against Kapu Gems, to the extent counterdefendants seek dismissal of the 

First, Second, Third, Fifth, and Sixth Causes of Action, the motions to dismiss are hereby 

GRANTED, and said counterclaims are hereby DISMISSED as to said counterdefendant; 

to the extent counterdefendants seek dismissal of the Fourth Cause of Action, the 

motions to dismiss are hereby DENIED.

3. If Diamond Imports wishes to amend its Counterclaim to cure the above-noted

deficiencies, Diamond Imports shall file its First Amended Counterclaim no later than 

August 26, 2016. In addition, should Diamond Imports again name Vaghani as a 

counterdefendant, Diamond Imports must re-serve him with the summons and amended 

pleading.

20

 

4. In the event Diamond Imports does not amend within the time provided, the 

Counterclaim will proceed only as to the Fourth Cause of Action, and only as against 

Kapu Gems.

IT IS SO ORDERED.

Dated: August 12, 2016

MAXINE M. CHESNEY

United States District Judge

 

20 At this juncture, the Court has not set a deadline for such service. See Fed. R. 

Civ. P. 4(m) (providing 90-day time limit for service “does not apply to service in a foreign 

country under Rule 4(f)”).

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