Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-02424/USCOURTS-cand-3_07-cv-02424-4/pdf.json

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

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

FIRST ADVANTAGE BACKGROUND SERVICES

CORP., a Florida corporation,

Plaintiff,

v.

PRIVATE EYES, INC., a California

corporation, DOES 1-10

Defendants. 

AND RELATED COUNTER-CLAIMS 

 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. C-07-2424 SC

ORDER GRANTING IN

PART AND DENYING IN

PART PLAINTIFF'S

MOTION TO DISMISS

DEFENDANT'S FIRST

AMENDED COUNTERCLAIM

I. INTRODUCTION

Now before the Court is a motion by Plaintiff and

Counterclaim-Defendant First Advantage Background Services ("First

Advantage") to dismiss the Fifth, Sixth, and Seventh causes of

action in Defendant-Counterclaimant Private Eyes, Inc.'s ("Private

Eyes" or "PEI") First Amended Counterclaim. Docket Nos. 32

("Motion"), 31 ("1st Am. CC"). Private Eyes opposed the Motion,

and First Advantage replied. Docket Nos. 41, 42. Having

considered the parties' submissions, the Court hereby GRANTS IN

PART and DENIES IN PART First Advantage's Motion for the reasons

set forth below.

II. BACKGROUND

The following summary addresses only those facts alleged in

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 1 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -2-

support of Private Eyes' First Amended Counterclaim, without

consideration or discussion of the facts presented by First

Advantage in its Complaint. 

Private Eyes performs background checks, including drug

tests, physical exams, and motor vehicle record checks ("MVRs")

for employers looking to hire and retain personnel. 1st Am. CC ¶

1. In 2002, Private Eyes entered into a verbal contract with

Coca-Cola Enterprises ("CCE") to perform background checks,

including MVR verification on new CCE applicants. Id. ¶ 8. 

Private Eyes was authorized by the verbal contract to subcontract

services to third-party vendors. Id. On March 29, 2002, Private

Eyes entered into a written contract with Employee Information

Services ("EIS"), First Advantage's predecessor. Id. ¶ 10. After

assuming the contract, First Advantage confirmed in writing that

it would not use any confidential information it received from

Private Eyes to solicit business from CCE. Id. ¶ 13, Exs. A, B. 

First Advantage further promised that it would not disclose any

confidential information it learned from Private Eyes to existing

or potential customers. Id. ¶ 13, Ex. B. 

Despite this agreement, Private Eyes alleges that in 2004,

First Advantage solicited MVR business from CCE. Id. ¶ 14. After

learning of this solicitation, rather than terminating the

relationship, Private Eyes negotiated with First Advantage and the

parties reached a settlement agreement pursuant to which First

Advantage would pay Private Eyes $1.80 for every MVR check it

conducted for CCE. Id. ¶ 17.

In spring 2005, Private Eyes learned that First Advantage was

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 2 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -3-

soliciting additional business from CCE, and had been disclosing

Private Eyes confidential and proprietary information to CCE. Id.

¶¶ 19-20. In September 2006, CCE decided to terminate its

relationship with Private Eyes, purportedly because it was unhappy

with the quality of work First Advantage had performed as Private

Eyes' subcontractor and because it was wary of the friction

between First Advantage and Private Eyes. Id. ¶ 21.

First Advantage sued Private Eyes in June 2007 alleging a

number of claims related to the same general business agreement. 

See Compl., Docket No. 1. Private Eyes filed a Counterclaim,

asserting eleven causes of action. See Docket No. 12

("Counterclaim" or "CC"). First Advantage moved to dismiss

certain causes of action in the Counterclaim, and the Court

granted that motion in part, allowing Private Eyes leave to amend

some of the claims. See Docket No. 30 ("1st CC Order"). Private

Eyes subsequently filed the First Amended Counterclaim, and First

Advantage brought the present motion to dismiss.

III. LEGAL STANDARD

A Federal Rule of Civil Procedure 12(b)(6) motion to dismiss

tests the sufficiency of the complaint. Dismissal pursuant to

Rule 12(b)(6) is appropriate if the plaintiff is unable to

articulate "enough facts to state a claim to relief that is

plausible on its face." Bell Atlantic Corp. v. Twombly, 127 S.

Ct. 1955, 1974 (2007). When evaluating a motion to dismiss, the

court accepts the facts as stated by the nonmoving party and draws

all reasonable inferences in its favor. See Everest & Jennings,

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 3 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -4-

Inc. v. Am. Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir. 1994). 

IV. DISCUSSION

A. Fifth Cause of Action: Intentional Interference With

Prospective Economic Advantage

Private Eyes' fifth cause of action is for intentional

interference with prospective economic advantage. 1st Am. CC ¶¶

48-55. To prevail on this claim, a plaintiff must show the

following elements:

(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.

Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153

(2003) (internal citation and quotation marks omitted). To

satisfy the third element of this test — the only element First

Advantage challenges here — "a plaintiff must plead and prove that

the defendant's acts are wrongful apart from the interference

itself." Id. at 1154 (citing Della Penna v. Toyota Motor Sales,

U.S.A., Inc., 11 Cal. 4th 376, 393 (1995)). An act "is

independently wrongful if it is unlawful, that is, if it is

proscribed by some constitutional, statutory, regulatory, common

law, or other determinable legal standard." Id. at 1159.

The Court dismissed this cause of action on the previous

motion, noting that Private Eyes had failed to "allege an

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 4 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

First Advantage addresses the statute of limitations in a

footnote. See Mot. at 6 n.5. Private Eyes calls the Court's

attention to this issue by mentioning in bold text that First

Advantage made the argument in a footnote, only to place

substantive argument of its own in a footnote on the same page. 

See Opp'n at 7 & n.2. Neither footnote is appropriate. A footnote

is the wrong place for substantive arguments on the merits of a

motion, particularly where such arguments provide independent bases

for dismissing a claim not otherwise addressed in the motion.

The Court can only assume that the parties placed the

arguments in question in footnotes because they lacked space in the

main text of their briefs. The Court therefore reminds the parties

that they are bound to follow this District's Civil Local Rules. 

Civil Local Rule 3-4(c)(2) governs the formatting of written text. 

Under that rule, the text of a brief must be double-spaced and may

not be smaller than 12-point standard font. The line-spacing

requirement has an exception for footnotes; the font-size

requirement does not. The use of footnotes to circumvent these

rules is improper. Both parties used the full 25 pages allotted in

their briefs, and if they had not squeezed their substantive

-5-

independently wrongful act outside a simple breach of contract." 

1st CC Order at 5. Private Eyes amended its counterclaim and

alleged three specific wrongful acts as predicates to this claim. 

See 1st Am. CC ¶ 52. First Advantage argues none of these

allegations is sufficient. The Court addresses each in turn.

1. Misappropriation of Trade Secrets

Private Eyes alleges that First Advantage improperly

disclosed Private Eyes' confidential information, including

Private Eyes' profit margins, in violation of the California

Uniform Trade Secrets Act, California Civil Code section 3426, et

seq. ("CUTSA"). See 1st Am. CC ¶ 52(a). First Advantage argues

that this allegation is deficient in three ways: first, Private

Eyes fails to adequately plead the existence of a trade secret;

second, CUTSA preempts Private Eyes' interference claim; and

third, the statute of limitations for a trade secret

misappropriation claim has already run.1

 See Mot. at 5-6.

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 5 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

arguments into single-spaced (and in Private Eyes' case, 10-point)

footnotes, they would have run out of space. It is counsel's

responsibility to prioritize arguments and edit briefs, not the

Court's. However, if the parties fail to abide by the Civil Local

Rules in future submissions, the Court will take on the editing

task by striking any footnote containing substantive argument or

any footnote containing text smaller than 12-point standard font. 

-6-

The Court addresses CUTSA preemption first, as it renders the

other two issues moot. First Advantage argues that CUTSA preempts

any common law claim that is based on conduct which could support

a trade secret claim. Mot. at 6. Private Eyes responds that the

California Supreme Court, in Reeves v. Hanlon, 33 Cal. 4th 1140

(2004), suggested that misappropriation of trade secrets can form

the basis of intentional interference claim. Opp'n at 6. The

Court reads Reeves differently. The defendants in Reeves were

found to have violated CUTSA for stealing a confidential client

list, and found to have committed intentional interference based

on wrongful acts including destruction of the plaintiffs' computer

files, misappropriation of confidential information, and improper

solicitation of plaintiffs' clients. Reeves, 33 Cal. 4th at 1155. 

Although the Reeves court acknowledged the misappropriation in its

discussion of interference, that decision does not foreclose

preemption here for a number of reasons. First, nothing in Reeves

suggests that the defendant there raised the issue of preemption. 

See San Jose Constr., Inc. v. S.B.C.C., Inc., 155 Cal. App. 4th

1528, 1545 (Ct. App. 2007) (appellate court refused to rule on

CUTSA preemption of intentional interference claim where defendant

had not raised the issue below). Second, the question in Reeves

was expressly limited to whether an employer could bring an

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 6 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -7-

intentional interference claim against a competitor that hired the

employer's former at-will employees. See Reeves, 33 Cal. 4th at

1148. Third, the wrongful acts beyond misappropriation were not

in dispute, so the preemption analysis would have had no impact on

the court's decision. See id. at 1147, 1154-55; see also PostX

Corp. v. Secure Data In Motion, Inc., No. C 02-04483 SI, 2004 U.S.

Dist. LEXIS 24260, at *11-13 (N.D. Cal. Nov. 20, 2004)(finding no

preemption where unfair competition claim relied on facts not

related to trade secret misappropriation). 

Other than Private Eyes' interpretation of Reeves, the

existing authority favors preemption. The only other California

Supreme Court decision bearing on the issue suggests that

following the passage of CUTSA, common law claims based on

misappropriation of trade secrets are preempted. See Cadence

Design Sys., Inc. v. Avant! Corp., 29 Cal. 4th 215, 224 (2002)

(plaintiffs are required to bring common law action for pre-CUTSA

misappropriation, and CUTSA action for subsequent

misappropriation). California Civil Code section 3426.7(b)

identifies three categories of cases — those based on breach of

contract, criminal remedies, and anything not based on

misappropriation of trade secrets — that are not preempted by

CUTSA. Courts have interpreted this to mean that all other claims

which are based on misappropriation of trade secrets are preempted

by CUTSA. Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d

1025, 1033-35 (N.D. Cal. 2005); Callaway Golf Co. v. Dunlop

Slazenger Group Americas, Inc., 318 F. Supp. 2d 216, 219-20 (D.

Del. 2004) (applying California law); AccuImage Diagnostics Corp.

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 7 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -8-

v. Terarecon, Inc., 260 F. Supp. 2d 941, 953-54 (N.D. Cal. 2003);

Convolve, Inc. v. Compaq Computer Corp., 00 CV 5141 (GBD),

2006 U.S. Dist. LEXIS 13848, at *24-26 (S.D.N.Y. Mar. 29, 2006)

(applying California law). 

Here, Private Eyes specifically alleged facts supporting a

CUTSA violation in the First Amended Counterclaim. See 1st Am. CC

¶ 52(a). As such, this claim is a common law claim based on trade

secret misappropriation, and is therefore preempted by CUTSA. The

Court need not consider the statute of limitations or the adequacy

of Private Eyes' pleading, as neither would affect the preemption

ruling, even if Private Eyes prevailed.

2. Breach of Confidence

In further support of its intentional interference claim,

Private Eyes alleges that First Advantage engaged in wrongful

conduct by "[i]mproperly disclosing PEI's confidential and

proprietary information to CCE in violation of its agreement to

maintain the confidential nature of this information, a common law

breach of confidence." 1st Am. CC ¶ 52(b). First Advantage

asserts two deficiencies with this claim: first, CUTSA preempts

this claim; second, the facts alleged give rise to a contract

claim, not a tort claim. See Mot. at 7. The Court agrees with

First Advantage.

The facts Private Eyes included in the First Amended

Counterclaim in support of its allegation of breach of confidence

are identical to those it offered in support of its

misappropriation claim. Compare 1st Am. CC ¶ 52(a) ("Improperly

disclosing PEI's proprietary and confidential information to CCE

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 8 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -9-

in violation of [CUTSA]") with 1st Am. CC ¶ 52(b) ("Improperly

disclosing PEI's confidential and proprietary information to CCE

in violation of its agreement to maintain the confidential nature

of the information, a common law breach of confidence"). The only

difference alleged is the existence of a contract, which is

inadequate to avoid preemption. The intentional interference

claim based on these facts is still a common law claim based on

facts which would amount to the misappropriation of trade secrets,

and is thus preempted by CUTSA for the reasons outlined above. 

See supra Section IV(A)(1).

Even without CUTSA preemption, the claim would still fail. 

The facts alleged in paragraph 52(b), supporting the breach of

confidence claim, are nearly identical to the facts alleged in the

first Counterclaim, which the Court previously found inadequate. 

Compare 1st Am. CC ¶ 52(b) with CC ¶ 52 ("disclosing PEI's

confidential and proprietary information despite an agreement not

to do so"); see also 1st CC Order at 5. The central problem with

this claim remains that it alleges nothing beyond a simple breach

of contract, which is inadequate to support a claim for

intentional interference. See JRS Prods., Inc. v. Matsushita

Elec. Corp. of Am., 115 Cal. App. 4th 168, 181-82 (Ct. App. 2004)

(party to a contract cannot recover on a claim for intentional

interference with prospective economic advantage based on conduct

that would otherwise amount to a breach of the parties' contract). 

Private Eyes argues that a claim for breach of confidence is a

tort claim, and does not require a contract. Opp'n at 9. It is

irrelevant that in some other case, with different pleadings and

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 9 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -10-

different facts, a claim for breach of confidence does not require

a contract; here, Private Eyes has plead a contract, and has plead

the breach of that contract as the basis for its interference

claim.

3. Trade Libel

Private Eyes' final basis for satisfying the third element of

its intentional interference claim is that First Advantage

committed wrongful conduct by "[e]ngaging in common law trade

libel, injurious falsehood, and/or disparagement by falsely

stating to CCE that PEI was incompetent to perform the services

for CCE and that First Advantage could do a superior job." 1st

Am. CC ¶ 52(c). First Advantage argues that this claim falls

short of the specificity required for pleading trade libel, that

Private Eyes did not adequately plead special damages, and that

the specific statements at issue are not actionable.

Private Eyes argues that trade libel is distinct from

defamation, and that the former does not require the specific

pleading that the latter does. Opp'n at 10. "Trade libel is more

like unfair competition than true libel and is not actionable as

defamation." Films of Distinction, Inc. v. Allegro Film Prods.,

Inc., 12 F. Supp. 2d 1068, 1081 (C.D. Cal. 1998). However, this

difference does not diminish the pleading requirements in a trade

libel claim. See, e.g., Eldorado Stone v. Renaissance Stone,

Inc., No. 04-cv-2562 JM, 2005 U.S. Dist. LEXIS 45237, at *10-11

(S.D. Cal. Aug. 9, 2005) (dismissing trade libel claim where

plaintiff failed to identify the author or speaker, recipient,

time, and location of each allegedly libelous statement); Films of

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 10 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -11-

Distinction, 12 F. Supp. 2d at 1081 n.8 ("In the Ninth Circuit, a

product defamation or trade libel claim must be based on specific

statements, and the defamatory character of the language must be

apparent from the words themselves.")(citation and internal

quotation marks omitted). Nothing in the First Amended

Counterclaim gives any indication of who from First Advantage made

the allegedly libelous statements, to whom they made those

statements, when they made the statements, or what exactly they

said. Without this information, the claim is deficient. This

alone is sufficient basis to grant the motion.

First Advantage also argues that Private Eyes did not

adequately plead special damages. See Mot. at 8; Isuzu Motors

Ltd. v. Consumers Union of United States, Inc., 12 F. Supp. 2d

1035, 1047 (C.D. Cal. 1998) ("under California law, 'a cause of

action for damages for trade libel requires pleading and proof of

special damages in the form of pecuniary loss.' Leonardini [v.

Shell Oil Co.], 216 Cal. App. 3d [547,] 572 [Ct. App. 1990]"). 

Private Eyes merely alleges that the libelous statements "harmed

PEI's business relationship with CCE." 1st Am. CC ¶ 52(c). It

does not allege the amount of business it had from CCE prior to

First Advantage allegedly making these statements, how much it had

after, or the value of the business. Private Eyes alleges a total

loss of "$4-5 million" on the intentional interference claim as a

whole, including the two preempted acts, but never provides

specific damages for the claim based on trade libel. This is the

same figure that Private Eyes alleges as total damages for all of

its claims. See 1st Am. CC ¶ 22. As such, it is impossible to

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 11 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -12-

determine what, if any, damage to its relationship with CCE

Private Eyes claims to have suffered just as a result of the

libelous statements. 

Finally, the parties dispute whether the allegedly libelous

statements are actionable as trade libel or are protected as

opinion under the First Amendment. An assertion of incompetence

may be actionable. See Kahn v. Bower, 232 Cal. App. 3d 1499, 1609

(Ct. App. 1991) ("Therefore the statements conveying an imputation

of incompetence appear actionable as against the objection that

they lack the requisite factual content."). However, in order to

determine if the specific statements at issue here are actionable

or protected, the Court would need to consider the exact comments

in their full context. See Opp'n at 10-11; Overstock.com v.

Gradient Analytics, Inc., 151 Cal. App. 4th 688, 701 (Ct. App.

2007). By failing to provide the specific details of the alleged

trade libel, Private Eyes has also deprived the Court of the

details and context necessary to rule on this issue. Private Eyes

suggests that the Court cannot reach this question at this stage

of the proceedings because the Court is limited to review of the

pleadings. It is precisely for this reason, however, that Private

Eyes must include adequate detail in the pleadings.

4. Ruling on Intentional Interference

To the extent Private Eyes' claim for intentional

interference with prospective economic advantage is based on

wrongful acts amounting to trade secret misappropriation, the

claim is preempted by CUTSA and is therefore dismissed with

prejudice. The claim based on common law breach of confidence is

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 12 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -13-

dismissed with prejudice. The claim based on trade libel is

dismissed without prejudice. Private Eyes may amend its pleading

to address the deficiencies described above. Private Eyes may

not, in amending its pleading, add new wrongful acts as possible

foundations for the intentional interference claim. If Private

Eyes chooses to amend the claim, it shall be limited to the claim

based on trade libel.

B. Sixth Cause of Action: Fraud - False Promise I

Private Eyes alleges in the Sixth Cause of Action that First

Advantage committed fraud by (1) falsely promising in 2002 and

2003 not to solicit business from CCE; and (2) falsely promising

in 2003 and 2005 not to disclose Private Eyes' confidential and

proprietary information to CCE. 1st Am. CC ¶¶ 56-70. Under

California law, a cause of action for fraud based on a false

promise must allege: (1) a material misrepresentation, (2)

knowledge of its falsity, (3) intent to defraud or induce

reliance, (4) justifiable reliance, and (5) resulting damage. See

Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). 

In addition to alleging the foregoing elements, a claim for

fraud must meet the heightened pleading requirements of Federal

Rule of Civil Procedure 9(b). To satisfy Rule 9(b), "allegations

of fraud must be specific enough to give defendants notice of the

particular misconduct which is alleged to constitute the fraud

charged so that they can defend against the charge and not just

deny that they have done anything wrong." Bly-Magee v. Cal., 236

F.3d 1014, 1019 (9th Cir. 2001) (internal quotations omitted).

"Averments of fraud must be accompanied by 'the who, what, when,

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 13 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -14-

where, and how' of the misconduct charged." Vess v. Ciba-Geigy

Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v.

Pickett, 137 F.3d 616, 627 (9th Cir. 1997)).

1. Promise Not to Solicit CCE Business

Private Eyes alleges that First Advantage repeatedly promised

not to solicit certain business from CCE, beginning when Private

Eyes and First Advantage's predecessor, EIS, first entered into a

contract. See 1st Am. CC ¶ 57, Ex. A. This promise was made in

person at an August 2003 meeting, as well as in writing in March

2002 and October 2003. Id. ¶ 57(a), Exs. A, B. Despite this

promise, First Advantage allegedly solicited the MVR business from

CCE in 2004. Id. ¶¶ 14, 63. When Private Eyes learned that First

Advantage was soliciting the MVR business from CCE, the parties

negotiated a settlement, pursuant to which First Advantage would

pay Private Eyes a commission of $1.80 for each MVR search First

Advantage performed for CCE. Id. ¶¶ 16, 17. After purportedly

operating under this settlement for approximately one year,

Private Eyes learned that First Advantage had not paid the full

amount of the commissions due, and was soliciting additional

business from CCE. Id. ¶¶ 18-19. Private Eyes asserts that the

statute of limitations for this claim should be tolled until at

least June 2005, when it learned that First Advantage was again

soliciting business from CCE. Id. ¶¶ 68, 69.

First Advantage challenges this claim on a number of grounds. 

First, the Court previously held that the 2005 settlement

"operates as a bar to reopening the controversy or tolling the

statute of limitations." Mot. at 9-10; 1st CC Order at 6. 

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 14 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -15-

Second, Private Eyes failed to plead justifiable reliance. Mot.

at 11. Third, Private Eyes has not alleged the facts necessary

for application of equitable estoppel. Id. at 12. Finally, First

Advantage argues that Private Eyes cannot invoke the doctrine of

equitable tolling.

Nothing in the First Amended Counterclaim resolves the

central problem the Court previously identified. The parties

settled the dispute relating to First Advantage's solicitation of

the MVR business from CCE in 2005. See 1st CC Order at 6. With

regard to the settlement agreement, Private Eyes asserts in its

Opposition that First Advantage "falsely represented its intention

to make such payments, and in fact did not intend to make such

payments after a short period of time." Opp'n at 12. That

purportedly false representation may form the basis of a separate

claim, but it does not allow Private Eyes to revive a dispute that

the parties settled. See Oakland Raiders v. Oakland-Alameda

County Coliseum, Inc., 144 Cal. App. 4th 1175, 1192-93 (Ct. App.

2006); Doran v. N. State Grocery, Inc., 137 Cal. App. 4th 484, 492

(Ct. App. 2006). Similarly, Private Eyes asserts that because

First Advantage at least partially complied with the settlement

terms until June 2005, Private Eyes could not have known First

Advantage's promise was false until that time. Opp'n at 12. That

may be true with regard to the promise to pay $1.80 per MVR (i.e.,

the settlement), but not with regard to the original promise not

to solicit. Private Eyes knew that the promise not to solicit was

false before it entered into the settlement (else there would have

been nothing to settle), so the settlement has no bearing on when

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 15 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -16-

Private Eyes learned of the solicitation. 

Private Eyes next argues that it has the right to choose

between rescission and damages. Id. at 13. If Private Eyes were

alleging that the promise to pay $1.80 per MVR were fraudulent,

this might be the case. See Engalla v. Permanente Med. Group, 15

Cal. 4th 951, 979 (1997); but see Le Clerq v. Michael, 88 Cal.

App. 2d 700, 702 (Ct. App. 1948) ("A delay in rescission is

evidence of a waiver of the fraud and an election to treat the

contract as subsisting."). The false promise alleged here is the

agreement not to solicit business from CCE. The parties already

settled that issue, so Private Eyes cannot raise it again.

However, Private Eyes alleges that after the parties settled

the dispute and agreed to payments for the MVR business, it

discovered that First Advantage was soliciting other businesses

from CCE, violating the non-solicit agreement anew. 1st Am. CC ¶¶

18-19. In its Motion, First Advantage only addresses the MVR

solicitation. On Reply, First Advantage asserts that the statute

of limitations for any violation of the non-solicitation agreement

began to run as soon as Private Eyes knew about the solicitation

of the MVRs, in April 2004. Reply at 9-10. 

The Court agrees with First Advantage. The wrongful act

alleged in this claim is the making of a false promise, not the

solicitation of business from CCE or the breach of a nonsolicitation agreement. 1st Am. CC ¶¶ 56-70; see also Lazar, 12

Cal. 4th at 638 (elements of false promise fraud). If First

Advantage committed fraud, it did so at the time it made a false

promise with the intent that Private Eyes would rely on that

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 16 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -17-

promise. If the promise not to solicit business from CCE was not

false when made, subsequent solicitation does not make it false,

even if that solicitation might support other claims, such as

breach of contract. If the promise was false at the time it was

made, it is not more false for having been broken repeatedly. 

Even if the MVR solicitation and the non-MVR solicitation are

separate violations of the parties' prior agreement, they do not

constitute separate acts of fraud. Private Eyes knew, or had

reason to know, that the promise not to solicit was false before

it entered into the settlement agreement. 

Having considered the issue twice, the Court sees no reason

to do so a third time, as no new facts consistent with those in

the First Amended Counterclaim could cure this defect. Private

Eyes' claim for false promise fraud based on First Advantage's

alleged promise not to solicit business from CCE is therefore

dismissed with prejudice.

2. Promise Not To Disclose Private Eyes' Confidential

Information

As a second part of the Sixth Cause of Action, Private Eyes

alleges that First Advantage falsely promised not to disclose

Private Eyes' confidential and proprietary information to CCE. 

1st Am. CC ¶ 57. According to Private Eyes, First Advantage made

this promise in writing in October 2003, then broke the promise,

and then renewed the promise during a conference call in June

2005. Id. ¶ 57(b), Ex. B. First Advantage moves to dismiss this

claim because it falls outside the statute of limitations, because

it is preempted by CUTSA, and because Private Eyes failed to

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 17 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

The Court grants First Advantage's Request for Judicial

Notice. Docket No. 36.

-18-

satisfy the requirements of Federal Rule of Civil Procedure 9(b). 

The fraud claim accrued as soon as Private Eyes knew, or had

reason to suspect, that First Advantage was disclosing

confidential information to CCE. Kline v. Turner, 87 Cal. App.

4th 1369, 1373-74 (Ct. App. 2001); Garamendi v. SDI Vendome S.A.,

276 F. Supp. 2d 1030, 1040 (C.D. Cal. 2003). As above, the claim

here is for making a false promise, not for disclosing

confidential information. Thus, the question is when First

Advantage made the allegedly false promise, and when Private Eyes

became aware of that falsity, not when First Advantage allegedly

disclosed the proprietary and confidential information. 

Private Eyes alleges it did not learn of the alleged

disclosures of confidential information until after June 2004,

which would bring its claims within the statute of limitations. 

1st Am. CC ¶ 70. On the face of the pleading, that would be

sufficient. But First Advantage argues that Private Eyes knew of

at least some of the disclosures prior to April 2004, and thus

knew of the allegedly false promise at that time. Reply at 15. 

Specifically, First Advantage claims that because Private Eyes

alleges that it learned of the solicitation in April 2004, and

subsequently argued that the disclosure of confidential

information happened at the same time as the solicitation, that

Private Eyes must have known about the disclosure. See Mot. at

10; 1st Am. CC ¶ 16; Opp'n to Mot. to Dismiss CC, Docket No. 25

("First Opposition") at 2.2 There is no basis for this conclusion

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 18 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -19-

in any of the pleadings or briefs Private Eyes has submitted. 

That Private Eyes now knows the solicitation and disclosure were

simultaneous does not necessarily mean it knew this in April 2004. 

Whether Private Eyes should have known is not something that can

be determined solely from the pleadings. The parties will need to

offer evidence on this issue either at summary judgment or at

trial. See Kline, 87 Cal. App. 4th at 1374 ("Generally, statute

of limitations issues raise questions of fact that must be tried;

however, when the uncontradicted facts are susceptible of only one

legitimate inference, summary judgment is proper."). The Court

therefore concludes that the claim for false promise fraud based

on the agreement not to disclose confidential information is

within the statute of limitations.

First Advantage next argues that because the claim is based

on disclosure of confidential information, it is preempted by

CUTSA. Mot. at 16; Reply at 10. Private Eyes responds that the

First Amended Counterclaim alleges disclosure of "confidential and

proprietary information" which is not limited to protectible trade

secrets. Opp'n at 16-17. First Advantage interprets CUTSA

preemption to extend to any common law claim sharing a common

nucleus of fact with a CUTSA claim for misappropriation, even if

the misappropriated information is not a protectible trade secret. 

Contrary to First Advantage's arguments, nothing in Digital Envoy

or Convolve supports expanding preemption that far. In Digital

Envoy, claims sharing an "identical nucleus of facts" with a trade

secret misappropriation claim were preempted. 370 F. Supp. 2d at

1034-35. The court explicitly distinguished its holding from that

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 19 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -20-

of PostX because the claims at issue in PostX shared facts with a

trade secret claim, but also had other, non-identical facts. 

Compare id. with PostX, 2004 U.S. Dist. LEXIS 24260 at *11-13. 

Similarly, Convolve only extends its holding to those cases that

could have been brought under CUTSA. See 2006 U.S. Dist. LEXIS

13848 at *22-26 ("The California UTSA, like other UTSAs, preempts

all claims based on misappropriation of trade secrets that are not

specifically exempted by its § 3426.7(b) savings clause.")

(emphasis added). By its own terms, however, CUTSA only provides

remedies for misappropriation of trade secrets, not of any

confidential information, and defines that term specifically. See

Cal. Civ. Code. §§ 3426.1(b),(d), 3426.2, 3426.3. 

If the confidential information First Advantage allegedly

disclosed was in fact a protectible trade secret, the claim will

be preempted. At least some of the confidential information in

question comprised protectible trade secrets. Private Eyes argued

this very point in support of its interference claim. See supra

Section IV.A.2; Opp'n at 5-6. The confidential information at

issue included "pricing information and profit margins", which are

protectible trade secrets. 1st Am. CC ¶ 59; see Opp'n at 5-6

(citing Whyte v. Schlage Lock Co., 101 Cal. App 4th 1443, 1455-56

(Ct. App. 2002); Courtesy Temporary Serv., Inc. v. Camacho, 222

Cal. App. 3d 1278, 1288 (Ct. App. 1990)). To the extent the claim

is based on these trade secrets, it cannot go forward. However,

Private Eyes may continue to pursue the claim for false promise,

so long as the confidential information at the foundation of the

claim is not a trade secret, as that term is defined in CUTSA. 

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 20 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -21-

If, in subsequent pleadings or briefs, or at trial, it is

established that the disclosures on which Private Eyes bases this

claim were trade secrets, the claim will be dismissed with

prejudice. 

Finally, First Advantage asserts that the claim is

inadequately pled, both in terms of the specificity required for

Rule 9(b) and in terms of the elements of false promise. The

Court disagrees. As noted above, see supra Section IV.B, the

purpose of the Rule 9(b) pleading requirements is to ensure that

the pleadings are specific enough to put defendants on notice of

precisely what the alleged wrongful conduct is, so that they may

prepare a defense. See Bly-Magee, 236 F.3d at 1019. Here,

Private Eyes has specifically pled the "who, what, when, where,

and how" of the allegedly false promise. Cooper, 137 F.3d at 627. 

In an October 8, 2003, letter from Richard Heitzman of First

Advantage to Sandra James of Private Eyes, First Advantage agreed

that it may not disclose Private Eyes' confidential information to

(1) First Advantage employees, unless such disclosure is necessary

to complete the parties' transaction; (2) any First Advantage

employees for the purpose of providing background checks; (3) any

third parties not providing consulting services related to this

transaction between the parties; or (4) any third parties, unless

they are performing drug screening services on behalf of Private

Eyes. See 1st Am. CC Ex. B. This detail is sufficient for First

Advantage to understand the misconduct it is alleged to have

committed.

Addressing the elements of a claim for false promise, First

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 21 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -22-

Advantage challenges the allegations of material promise,

justifiable reliance, and damages. The Court considers each in

turn. With regard to materiality of the promise, First Advantage

claims that nothing in the First Amended Counterclaim supports the

conclusion that the promise not to disclose proprietary

information in June 2005 was material when made. See Mot. at 17;

Reply at 10-11. 

As a threshold matter, the Court notes the parties'

distressing lack of precision in discussing which promises are at

issue. The Court focuses, as should the parties, on the claims

set forth in the First Amended Counterclaim. The promises

underlying the claims for false promise fraud are those made at

the outset of the parties' business relationship in 2002 and 2003. 

See 1st Am. CC ¶ 57. The crux of the claim as pled is that First

Advantage falsely promised not to solicit business from CCE and

not to disclose information to CCE in 2003, and based on those

promises, Private Eyes agreed to enter business with First

Advantage. Both parties repeatedly stray from these promises in

their briefs. Other promises, discussions, and negotiations may

be relevant, but do not form the basis of the claims in the

pleading. For example, the promise to pay for MVR business after

the settlement is not the false promise at the core of the claim —

as pled, even if false, it was only a basis for tolling the

statute of limitations on the fraud claim. See 1st Am. CC ¶ 68. 

Going forward, the Court encourages the parties to focus on the

actual claims.

Returning to the question of whether or not Private Eyes has

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 22 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -23-

alleged a material promise, the Court finds that it has. Private

Eyes bases its claim on the original promise not to disclose,

which was made as early as October 2003. See Opp'n at 17; 1st Am.

CC ¶ 57, Ex. B. Private Eyes clearly alleges that, absent this

promise, it would not have entered into the business relationship

with First Advantage. 1st Am. CC ¶ 58.

First Advantage next argues that by the June 2005 conference

call, Private Eyes was aware of other numerous misrepresentations

First Advantage had made, so it was unreasonable to rely on that

promise. Mot. at 18; Reply at 11. This argument fails. First, as

above, it does not address the actual promise that is the

foundation of the claim. Second, Private Eyes explains in the

First Amended Counterclaim the basis for its reliance: First

Advantage had represented itself as an honest and ethical business

partner, and at the time of the reliance, Private Eyes was not yet

aware of First Advantage having broken other promises. 1st Am. CC

¶ 62. First Advantage may later provide evidence that the

reliance was not justified, but without going beyond the pleading,

the claim is adequate.

Finally, First Advantage argues that Private Eyes fails to

allege damages as a result of its reliance on the promise not to

disclose. Mot. at 19. Yet again, the argument focuses solely on

the June 2005 reaffirmation of the promise and ignores the

original promise which is part of the claim. In the First Amended

Counterclaim, Private Eyes alleges that it was harmed by the

disclosure of confidential information because CCE used that

information to gain concessions from Private Eyes, which

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 23 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -24-

diminished Private Eyes' profit margins and cost Private Eyes at

least $500,000. 1st Am. CC ¶¶ 64-66.

Private Eyes has adequately pled a counterclaim for fraud

based on First Advantage's allegedly false promise not to disclose

Private Eyes' confidential and proprietary information.

C. Seventh Cause of Action: Fraud - False Promise II

In the Seventh Cause of Action, Private Eyes alleges that

First Advantage falsely promised that it would go through Private

Eyes to bill CCE. 1st Am. CC ¶¶ 71-80. First Advantage argues

that this claim falls short of the Rule 9(b) requirements, that

Private Eyes failed to plead all of the elements of false promise

fraud, and that the claim is barred by the litigation privilege. 

The Court agrees that the claim does not satisfy Rule 9(b), and

dismisses the claim without reaching the other two issues.

Private Eyes offers the following limited description of the

alleged promise in the First Amended Counterclaim:

In or about October 2006, FIRST ADVANTAGE

promised that all services it was then

performing for CCE would be billed through

PEI. The representation was made by Julie

Waters of FIRST ADVANTAGE in an e-mail to

Sandra James dated November 10, 2006, wherein

she agreed to resume the normal practice of

billing for services through PEI, thus

allowing PEI to collect a profit on the

services, if PEI paid for all outstanding

invoices. 

1st Am. CC ¶ 72. This paragraph contains the entire description

of "the who, what, when, where, and how" of the alleged false

promise. Cooper, 137 F.3d at 627. This description is far from

sufficient. 

To begin with, it is internally inconsistent as to whether

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 24 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

Where a plaintiff alleges the contents of a document in the

complaint, but does not attach the document, the defendant may

provide that document to the court, and the court may consider it

on a Rule 12(b)(6) motion to dismiss. See, e.g., Branch v.

Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994). First Advantage has

provided the email to the Court as Exhibits F and G to the Ratinoff

Declaration.

-25-

the promise was made in October or November of 2006. In its

Opposition, Private Eyes claims that the representations were made

over the course of that two month period. Opp'n at 19. The Court

will draw favorable inferences on Private Eyes' behalf, but there

must be a limit. Nothing on the face of the pleading describes an

ongoing discussion or course of communication. Even if the Court

were to infer such a dialog, the Court could not infer the

specific details necessary to satisfy Rule 9(b).

Moving from the pleading to the specific email alleged as the

basis of the claim, the Court still finds the claim deficient.3

Attached to the email in question is a letter which states that if

Private Eyes pays First Advantage receipts already due, First

Advantage is willing to discuss resuming services under the terms

of the parties' agreement. See Ratinoff Decl. Exs. F, G. Even if

the Court were to assume that "resuming our services under the

terms of our agreement" meant that First Advantage would bill its

services to CCE through Private Eyes (an assumption not actually

supported in the pleading), Private Eyes has not alleged that it

paid the money due, that the parties had the subsequent

discussion, or that First Advantage actually agreed to process its

billing in that manner.

Private Eyes asserts that it did not attach the email to its

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 25 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -26-

pleading out of fear that the email would be taken out of the

context of the ongoing discussions between the parties. Opp'n at

19-20. Essentially, Private Eyes chose to give the Court no

context for the allegedly false promise, rather than the full

context. Private Eyes is responsible for its own pleading. 

Filling in an entire narrative of facts that supposedly support a

claim for fraud is not the responsibility of the Court or First

Advantage. Private Eyes correctly notes that Rule 9(b) does not

require it to set forth every fact in support of its claim, or to

have all of the necessary evidence prior to conducting discovery. 

However, while discovery may be necessary to provide evidence

supporting the claim, discovery should not be necessary for

Private Eyes to state, with particularity, what First Advantage

supposedly promised. 

Private Eyes states that First Advantage "misunderstands" the

nature of the Seventh Cause of Action. This is not surprising

since it is unclear in the pleading what the Seventh Cause of

Action alleges. This same deficiency led the Court to dismiss the

claim once before. See 1st CC Order at 8. Despite having had the

opportunity to fix the ambiguities and allege, with specificity,

who promised what to whom, and when, Private Eyes has failed to do

so. Rather than supplementing the allegations, Private Eyes

removed some facts, added new ones, and alleged that the promise

in question was made in a letter that it now admits does not

contain the full promise. The Court will not indulge Private Eyes

in a third attempt to satisfy Rule 9(b), as doing so might lead to

a claim based on an entirely new, third set of ambiguous facts. 

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 26 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 -27-

The Seventh Cause of Action is therefore dismissed with prejudice.

V. CONCLUSION

For the reasons set forth above, First Advantage's Motion to

Dismiss Private Eyes' First Amended Counterclaim is GRANTED IN

PART and DENIED IN PART. The Court ORDERS as follows:

1. With respect to the Fifth Cause of Action, Private Eyes'

claim for intentional interference with prospective

economic advantage based on wrongful acts of trade

secret misappropriation and breach of confidence is

dismissed with prejudice. The claim for intentional

interference based on a wrongful act of trade libel is

dismissed without prejudice. Private Eyes may amend its

pleading no later than thirty days from the date of this

order. Private Eyes may not allege a new wrongful act

as a basis for this claim.

2. With respect to the Sixth Cause of Action, Private Eyes'

claim for false promise fraud based on the promise not

to solicit business from CCE is dismissed with

prejudice. The claim for false promise fraud based on

the promise not to disclose confidential and proprietary

information survives, only to the extent that the

confidential and proprietary information in question is

not a trade secret, as defined in CUTSA.

3. The Seventh Cause of Action for false promise fraud

based on First Advantage's promise to bill CCE through

Private Eyes is dismissed with prejudice. 

IT IS SO ORDERED.

Dated: March 5, 2008 

UNITED STATES DISTRICT JUDGE 

Case 3:07-cv-02424-SC Document 46 Filed 03/05/08 Page 27 of 27