Opinion
21-CV-2081-GPC-DEB
10-07-2022
IQVIA INC., a Delaware corporation; and IQVIA AG, a Swiss company; and DIMENSIONS HEALTHCARE LLC, a United Arab Emirates limited liability company, Plaintiffs, v. MEDIMPACT HEALTHCARE SYSTEMS, INC., a California corporation; MEDIMPACT INTERNATIONAL LLC, a California limited liability company; MEDIMPACT INTERNATIONAL HONG KONG, LTD., a Hong Kong corporation; and DALE BROWN, individually, Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT
[Dkt. No. 78.]
Hon. Gonzalo P. Curiel, United States District Judge.
Before the Court is Defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(b)(1). (Dkt. No. 78.) Plaintiffs filed an opposition. (Dkt. No. 82.) Defendants filed a reply. (Dkt. No. 85.) The Court finds that the matter is appropriate for decision without oral argument pursuant to Local Civ. R. 7.1(d)(1). Based on the reasoning below, the Court GRANTS in part and DENIES in part Defendants' motion to dismiss
Procedural Background
On December 13, 2021, Plaintiffs IQVIA Inc. and IQVIA AG (collectively “IQVIA”) filed a complaint for 1) misappropriation of trade secrets under the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836; 2) misappropriation of trade secrets under the California Uniform Trade Secrets Act (“CUTSA”); and 3) violations of Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c) against Defendants MedImpact Healthcare Systems, Inc. and Dale Brown (“Mr. Brown”); and 4) breach of fiduciary duty and duty of loyalty; and 5) civil conspiracy against Mr. Brown. (Dkt. No. 1, Compl.) On April 15, 2022, the Court granted Defendants' motion to dismiss with leave to amend. (Dkt. No. 59.)
On May 6, 2022, Plaintiffs IQVIA Inc., IQVIA AG and Dimensions Healthcare LLC (“Dimensions”) (collectively “Plaintiffs”) filed the operative first amended complaint (“FAC”) for 1) misappropriation of trade secrets under the DTSA; 2) misappropriation of trade secrets under CUTSA; and 3) violations of RICO against Defendants MedImpact Healthcare Systems, Inc. (“MHSI”), MedImpact International LLC (“MIL”) and MedImpact International Hong Kong Ltd. (“MI-HK”) (collectively “MedImpact”), and Mr. Brown; as well as 4) breach of fiduciary duty; and 5) civil conspiracy against Mr. Brown. (Dkt. No. 68, FAC) was filed on September 10, 2020, (id., Dkt. No. 131), with an amended answer filed on October 15, 2020, (id., Dkt. No. 134). The answer and amended answer included the affirmative defense of unclean hands. (Id., Dkt. No. 131 at 27; Id., Dkt. No. 134 at 27.) During discovery, the unclean hands defense alleged that MedImpact schemed to steal IQVIA's drug-to-diagnosis indication and contraindication edits trade secrets. (Id., Dkt. No. 357, Swedlow Decl., Ex. 2, IQVIA's Second Suppl. Response to Pls' Interrog. No. 8 at 26-30 (UNDER SEAL).)
Page numbers are based on the CM/ECF pagination.
On September 1, 2021, IQVIA filed a motion for leave to file a second amended answer to add counterclaims, now alleged in the FAC, which the Court denied on November 16, 2021. (Id., Dkt. Nos. 305, 360.) The Court found that IQVIA failed to demonstrate diligence under Federal Rule of Civil Procedure 16 in seeking to file the proposed pleading because they knew of the proposed claims as far back as February 2018 when similar counterclaims were raised in the prior arbitration. (Id.) Because the Court denied the request to file a counterclaim, on December 13, 2021, IQVIA Inc. and IQVIA AG filed a complaint, in this case, raising the same claims as the proposed counterclaim in the Related Case. (Dkt. No. 1, Compl.)
On January 23, 2018, MIL and MI-HK filed claims in arbitration against Dimensions with the Dubai International Financial Centre-London Court of International Arbitration (“DIFC-LCIA”) for breaches of the terms of the parties' Joint Venture Agreement (“JVA”) and Services and License Contract (“SLC”) with a Partial Final Award on Liability on April 16, 2019 and a Final Award on July 24, 2019. (Dkt. No. 87, Bennett Decl., Exs. 1, 2 (UNDER SEAL).)
Factual Background
Plaintiff IQVIA AG has its principal place of business in Switzerland and is wholly owned by Plaintiff IQVIA Inc., which has its principal place of business in Plymouth Meeting, Pennsylvania. (Dkt. No. 68, FAC ¶¶ 13, 14.) Plaintiff Dimensions Healthcare LLC (“Dimensions”) is incorporated in the United Arab Emirates (“UAE”). (Id. ¶ 15.) IQVIA AG is the controlling beneficial owner of Dimensions and has the exclusive power to control Dimensions' operations. (Id. ¶¶ 14, 15.) Defendant MHSI is a California corporation with its principal place of business in San Diego. California. (Id. ¶ 16.) MHSI wholly owns its subsidiary MIL, and MIL, in turn, wholly owns MI-HK. (Id.) Defendant Dale Brown was the former President of MHSI, former President of MIL, and a former Board member and General Manager of MedImpact Arabia (“MIA”). (Id. ¶ 19.)
In their opposition, Plaintiffs assert IQVIA Inc. recently moved its headquarters to New Jersey. (Dkt. No. 82 at 23 n. 12.) “ A PBM platform is a platform that allows patients to obtain insurance approvals for prescribed medicines through online, real-time insurance coverage approvals or denials for prescribed medicines, based upon clinical algorithms, plan design rules, and member eligibility.” (Dkt. No. 68, FAC ¶ 2, n. 2.)
“A PBM platform is a platform that allows patients to obtain insurance approvals for prescribed medicines through online, real-time insurance coverage approvals or denials for prescribed medicines, based upon clinical algorithms, plan design rules, and member eligibility.” (Dkt. No. 68, FAC ¶ 2, n. 2.)
In this case, Plaintiffs allege that, since 2011, Defendants schemed to steal confidential and proprietary trade secrets from Dimensions through a Joint Venture (“JV”), also called MIA, between MIL and Dimensions entered on February 1, 2012. (Id. ¶ 1 & n.1.) On January 1, 2014, MIL transferred its interest in the JV to MI-HK. (Id. n.1.) Specifically, Plaintiffs claim that MedImpact sought to build a new '[XXXXX] [XXXXX]” or a [XXXXX] with web services to take globally by incorporating Plaintiffs' trade secrets into MedImpact's existing platform. (Id. ¶ 2 (UNDER SEAL).)
At issue are Plaintiffs' confidential and proprietary drug-to-diagnosis indication and contraindication edits. (Id. ¶ 3.) “Drug-to-diagnosis indication edits provide a rejection alert when a patient requests to fill a prescription for a medication that is not used to treat that patient's medical diagnosis. For example, an indication edit would reject the incorrect prescription of an antibiotic-used to treat bacterial infections-for a viral infection, such as influenza. Relatedly, drug-to-diagnosis contraindication edits provide a rejection alert when a patient requests to fill a prescription for a medication that a result in an adverse drug event if the medication is taken by a patient with certain medical conditions.” (Id.) These edits save lives and minimize errors, fraud, waste, and/or abuse of medications and drive savings. (Id. ¶¶ 23-25.)
MedImpact did not have the ability to offer these edits before partnering with Dimensions in the JV and instead of investing resources to develop its own drug-to-diagnosis indication and contraindication edits, it took a “shortcut” and stole Plaintiffs' trade secrets. (Id. ¶ 5.) After the JV was terminated in 2017, MedImpact had to decide how to proceed without Dimensions' trade secrets concerning edits and retained [XXXXX]. (Id. ¶¶ 9, 45-48 (UNDER SEAL).) Plaintiffs allege that [XXXXX] is based on Plaintiffs' trade secrets. (Id. ¶ 91.) On April 5, 2018, an MIL employee instructed [XXXXX] that [XXXXX] (Id. ¶ 50.) That employee in June 2018 [XXXXX] (Id. ¶ 51.) In June 2018, other statements show that MedImpact was using Dimensions' trade secrets. (Id. ¶ 52.)
IQVIA claims that Defendants misused the partnership with Dimensions for their own gain and engaged in years-long theft of those trade secrets and exploited that theft by offering and/or providing these edits for sale in the United States, Australia, South Africa, Canada, Turkey, [XXXXX] as well as other locations. (Id. ¶ 8 (UNDER SEAL).) The theft continued even after IQVIA AG acquired Dimensions in 2016. (Id. ¶ 9.) Defendants avoided years of research and development time and saved tens of millions of dollars. (Id. ¶ 10.) Moreover, Defendants never disclosed that they had been stealing the trade secrets and offering them for sale, and in fact, they actively concealed these facts. (Id.) Further, Mr. Brown engaged in unlawful conduct while serving on the Board and as General Manager of the JV. (Id. ¶ 11.)
Discussion
A. Legal Standard as to Federal Rule of Civil Procedure 12(b)(6)
Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff is required only to set forth a “short and plain statement of the claim showing that the pleader is entitled to relief,” and “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
A complaint may survive a motion to dismiss only if, taking all well-pleaded factual allegations as true, it contains enough facts 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). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all facts alleged in the complaint, and draws all reasonable inferences in favor of the plaintiff. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009).
B. Request for Judicial Notice
Defendants filed a request for judicial notice of Exhibits 1, 2, and 11 through 16, documents filed or submitted in the prior arbitration, and Exhibits 3 and 4, publicly filed records of the Cayman Islands. (Dkt. No. 78-2, Ds' RJN.) Plaintiffs did not oppose.
On a Rule 12(b)(6) motion, the Court may not consider documents outside the complaint. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). The Ninth Circuit recognizes two exceptions to this general rule. First, documents which are properly attached to the complaint may be considered and if “the documents are not physically attached to the complaint, they may be considered if the documents' “authenticity . . . is not contested” and “the plaintiff's complaint necessarily relies” on them. Id. (citing Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998)). Second, a court may take judicial notice of “matters of public record.” Id.; see Fed.R.Evid. 201.
Under the first exception, the incorporation by reference doctrine, a document may be considered by the court “if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “The defendant may offer such a document, and the district court may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” Id. However, a court is not “required to accept as true allegations that contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010).
Plaintiffs seek judicial notice of certain documents that were either submitted or awarded during the prior arbitration, (Dkt. No. 78-2, Ds' RJN, Exs. 1, 2, 11-16). Because the Court “may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue”, U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992), the Court GRANTS Defendants' unopposed request for judicial notice of these documents. Additionally, the Court GRANTS Defendants' unopposed request for judicial notice of Exhibits 3 and 4 as they are publicly filed records of the Cayman Islands. See Fed.R.Evid. 201.
C. DTSA/CUTSA - Statute of Limitations
Defendants move to dismiss the DTSA and the CUTSA claims as time barred by the three-year statute of limitations, and, further, submit that tolling under fraudulent concealment or equitable estoppel cannot save the claims. (Dkt. No. 78-1 at 14-21.) Plaintiffs respond that fraudulent concealment or equitable estoppel, and equitable tolling apply to make the DTSA and CUTSA claims timely. (Dkt. No. 82 at 10-20.)
On a motion to dismiss based on the statute of limitations, the Court must assess whether “the running of the statute is apparent on the face of the complaint.” Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006) (quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (“When a motion to dismiss is based on the running of the statute of limitations, it can be granted only if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove that the statute was tolled.”)). Here, because the Court grants Defendants' request for judicial notice, it will consider the allegations in the complaint as well as the judicially noticed documents in determining whether the statute of limitations has run.
1. Accrual Date
The DTSA and CUTSA impose a three-year statute of limitations. 18 U.S.C. § 1836(d) ; Cal. Civ. Code § 3426.6. They also provide that “a continuing misappropriation constitutes a single claim of misappropriation.” 18 U.S.C. § 1836(d); see Cal. Civ. Code § 3426.6 (“a continuing misappropriation constitutes a single claim”).
“(d) Period of limitations.--A civil action under subsection (b) may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.” 18 U.S.C. § 1836(d).
“An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” Cal. Civ. Code § 3426.6
Defendants argue that both causes of action accrued on February 20, 2018 when Dimensions filed a counterclaim in the arbitration against MIL and MI-HK alleging they breached the JVA and SLC by using its “Diagnosis-to-Drug Indication and Contraindication checks.” (Dkt. No. 78-1 at 13.) They maintain that February 20, 2018 is when Plaintiffs should have discovered and did discover the alleged misappropriation that is asserted in the FAC. (Id.) In their opposition, Plaintiffs do not directly challenge the accrual date of February 20, 2018 but instead argue that their trade secret claims are timely because the limitations period should be tolled, from the filing of the counterclaim in the arbitration on February 20, 2018 to at least the dismissal of the counterclaim on April 16, 2019, during the time period when Defendants hindered Plaintiffs' diligence by blocking discovery for these claims. (Dkt. No. 82 at 10.)
Even though Plaintiffs implicitly appear to reject February 20, 2018 as the accrual date, they, in the FAC and opposition, do not affirmatively assert an accrual date of when the statute of limitations should have begun to run on the DTSA and CUTSA claims.
Therefore, relying on the accrual date of February 20, 2018, the DTSA and CUTSA causes of action, filed on December 13, 2021, are untimely unless a theory of tolling applies to excuse the untimely filing.
In the prior order, the Court had previously noted, based on the complaint and the judicially noticed documents, that on February 20, 2018, Dimensions was armed with some evidence to support counterclaims in the arbitration that Defendants were engaged in some sort of misappropriating conduct concerning their intellectual property, including “Diagnosis-to Drug Indication and Contraindication checks.” (Dkt. No. 59 at 14)
2. Equitable Estoppel/Fraudulent Concealment
“The doctrine of equitable estoppel, often referred to as fraudulent concealment, is based on the principle that a party ‘should not be allowed to benefit from its own wrongdoing.'” Estate of Amaro v. City of Oakland, 653 F.3d 808, 813 (9th Cir. 2011) (quoting Collins v. Gee West Seattle LLC, 631 F.3d 1001, 1004 (9th Cir. 2011)). For equitable estoppel, a plaintiff must plead “(1) knowledge of the true facts by the party to be estopped, (2) intent to induce reliance or actions giving rise to a belief in that intent, (3) ignorance of the true facts by the relying party, and (4) detrimental reliance.” Id. (quoting Bolt v. United States, 944 F.2d 603, 609 (9th Cir. 1991)). “[E]quitable estoppel applies when a plaintiff who knows of his cause of action reasonably relies on the defendant's statements or conduct in failing to bring suit.” Stitt v. Williams, 919 F.2d 516, 522-23 (9th Cir. 1990) (“This doctrine may be available when the defendant lulls the plaintiff into failing to bring suit.”). California applies the similar equitable estoppel factors as federal law. Lukovsky v. City & Cnty. of San Francisco, 535 F.3d 1044, 105152 (9th Cir. 2008) (“California equitable estoppel is thus similar to and not inconsistent with federal common law, as both focus on actions taken by the defendant which prevent the plaintiff from filing on time.”).
In Johnson v. Henderson, 314 F.3d 409, 414 (9th Cir. 2002), the Ninth Circuit also noted that:
[a] finding of equitable estoppel rests on the consideration of a nonexhaustive list of factors, including: (1) the plaintiff's actual and reasonable reliance on the defendant's conduct or representations, (2) evidence of improper purpose on the part of the defendant, or of the defendant's actual or constructive knowledge of the deceptive nature of its conduct, and (3) the extent to which the purposes of the limitations period have been satisfied.Id. (quoting Santa Maria v. Pacific Bell, 202 F.3d 1170, 1176 (9th Cir. 2000)).
Even though the Ninth Circuit has referred to equitable estoppel as fraudulent concealment, see Estate of Amaro, 653 F.3d at 813; Lukovsky, 535 F.3d at 1051 (“Equitable estoppel, on the other hand, focuses primarily on actions taken by the defendant to prevent a plaintiff from filing suit, sometimes referred to as ‘fraudulent concealment'”); Johnson, 314 F.3d at 414 (“Equitable estoppel, then, may come into play ‘if the defendant takes active steps to prevent the plaintiff from suing in time'-a situation that the Seventh Circuit terms ‘fraudulent concealment.'”), the elements to support equitable estoppel are distinct from fraudulent concealment.
Specifically, a plaintiff seeking to rely on fraudulent concealment must “plead facts showing that [the defendant] affirmatively misled it, and that [the plaintiff] had neither actual nor constructive knowledge of the facts giving rise to its claim despite its diligence in trying to uncover those facts.” Hexcel Corp. v. Ineos Polymers, Inc., 681 F.3d 1055, 1060 (9th Cir. 2012). “[F]raudulent concealment . . . requires a showing . . . the plaintiff was, in fact, ignorant of the existence of his cause of action.” Id. (quoting Wood v. Santa Barbara Chamber of Commerce, Inc., 705 F.2d 1515, 1521 (9th Cir. 1983)). Moreover, allegations of fraudulent concealment must be pled with particularity. Conmar Corp. v. Mitsui & Co. (USA), Inc., 858 F.2d 499, 502 (9th Cir. 1988) (“Conclusory statements are not enough.”). Under California law, fraudulent concealment requires a showing of “(1) when the fraud was discovered; (2) the circumstances under which it was discovered; and (3) that the plaintiff was not at fault for failing to discover it or had no actual or presumptive knowledge of facts sufficient to put him on inquiry.” Mills v. Forestex Co., 108 Cal.App.4th 625, 641 (2003). Although “it is generally inappropriate to resolve the fact-intensive allegations of fraudulent concealment at the motion to dismiss stage,” In re Rubber Chemicals Antitrust Litig., 504 F.Supp.2d 777, 789 (N.D. Cal. 2007), Plaintiffs must allege specific factual allegations of fraudulent concealment to survive a motion to dismiss, In re Transpacific Passenger Air Transp. AntitrustLitig., No. C 07-5634 CRB, 2011 WL 1753738, at *20-21 (N.D. Cal. May 9, 2011).
In their briefing, the parties conflate the elements of equitable estoppel and fraudulent concealment by raising arguments on certain elements of each tolling doctrine. Defendants move to dismiss arguing that the third element, “ignorance of the true facts by the relying party”, of equitable estoppel articulated in Estate of Amaro cannot be met as well as the first and third non-exhaustive factors, “reasonable reliance”, and “extent to which the purposes of the limitations period have been satisfied” articulated in Johnson cannot be satisfied. (Dkt. No. 78-1 at 14.) Plaintiffs oppose arguing that they have sufficiently alleged the elements of equitable estoppel to make their trade secrets claims timely under Estate of Amaro and they oppose Plaintiffs' argument on the two nonexhaustive factors of Johnson. (Dkt. No. 82 at 15.) In reply, Defendants maintain that Plaintiffs had constructive knowledge about the trade secret issues since at least February 2018 and did not lose that constructive knowledge. (Dkt. No. 85 at 7-8.)
Defendants do not reply to Plaintiffs' argument that the first, second and fourth elements of equitable estoppel established in Estate of Amaro. As such, these factors are not in dispute and the Court's analysis is not needed.
Plaintiffs cite to Estate of Amaro for the elements for “fraudulent concealment”; however, that case addressed equitable estoppel. (See Dkt. No. 82 at 15.)
a. Ignorance of the True Facts by the Relying Party
On the third Estate of Amaro factor, “ignorance of the true facts by the relying party”, the Ninth Circuit reiterated precedent stating that “a plaintiff can know, or suspect, that she has a cause of action and still be ‘ignorant of the true facts' of the case such as “when a plaintiff who knows of his cause of action reasonably relies on the defendant's statements or conduct in failing to bring suit.” Estate of Amaro, 653 F.3d at 813 (quoting Stitt v. Williams, 919 F.2d 516, 522 (9th Cir. 1990)). In other words, “the focus of the equitable estoppel analysis is not whether the plaintiff knew she had a cause of action-or even pursued some other form of litigation based on that knowledge-but whether the defendant's fraudulent concealment or misrepresentation deprived the plaintiff of a full understanding of the true facts, and thus, dissuaded the plaintiff from filing the claim at issue within the limitations period.” Id.
Here, Defendants maintain that Plaintiffs had at least constructive knowledge of the initial act of misappropriation that Defendants had incorporated and adopted the ability to manage diagnosis-to-drug indication and contraindication edits since at least February 2018. (Dkt. No. 78-1 at 14-15.) Plaintiffs argue that the statute of limitations should be tolled for about fourteen months from February 20, 2018, the date the counterclaim was filed in the arbitration to at least April 16, 2019, the date they withdrew the counterclaim based on Defendants' conduct in blocking or hindering discovery of the “true facts” to support their current claims. (Dkt No. 82 at 10.)
After a careful review of the allegations in the FAC and the judicially noticed documents, the Court concludes that Plaintiffs have sufficiently alleged equitable estoppel to survive a motion to dismiss based on Defendants' alleged conduct in blocking, hindering and affirmatively misrepresenting facts during the arbitration. See Johnson, 314 F.3d at 414 (“Equitable estoppel, then, may come into play “if the defendant takes active steps to prevent the plaintiff from suing in time”).
On January 23, 2018, MIL and MI-HK filed claims in arbitration against Dimensions with the DIFC-LCIA for breaches of the terms of the parties' JVA and SLC with a Partial Final Award on Liability on April 16, 2019 and a Final Award on July 24, 2019. (Dkt. No. 87, Bennett Decl., Exs. 1, 2 (UNDER SEAL).) According to the FAC, during the arbitration, on February 20, 2018, Dimensions filed a counterclaim for breach of contract against MIL and MI-HK for using Dimensions' “Diagnosis-to-Drug Indication and Contraindication checks.” (Dkt. No. 68, FAC ¶ 82 (UNDER SEAL).) Plaintiffs allege that at the time when the counterclaims were filed, they did not have actual or constructive knowledge of the underlying facts or a Rule 11 basis to file their trade secrets claims. (Id. ¶ 80.) It was not until August 2021 when MedImpact produced documents in the Related Case of MedImpact v. IQVIA, 19cv1865-GPC(DEB) that Plaintiffs procured the evidence through discovery. (Id.) According to the FAC, prior to the discovery in the Related Case, Plaintiffs “did not have actual or constructive knowledge that MedImpact was developing a new product to include drug-to-diagnosis edits stolen from Plaintiffs [XXXXX]); that Plaintiffs' drug-to-diagnosis edits had been shared with [XXXXX]; that MedImpact U.S.'s domestic PBM engine included drug-to-diagnosis edits stolen from (sic) MedImpact; or that MedImpact was offering Plaintiffs' drug-to-diagnosis edits for sale.” (Id. ¶ 89; see also id. ¶ 81)
Rule 11 imposes a duty on attorneys to certify that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well grounded in fact, legally tenable, and “not interposed for any improper purpose.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990).
Plaintiffs explain that prior to the evidence procured in August 2021, they did not know the specifics that MedImpact was using their stolen trade secrets of drug-to-diagnosis edits to develop that these trade secrets had been shared with [XXXXX] and they were offering Plaintiffs' drug-to-diagnosis edits for sale. (Id.) Instead, Plaintiffs allege the counterclaim in the arbitration concerned MedImpact's U.S.'s domestic PBM platform, did not relate to [XXXXX] and they only knew at the time that MedImpact's domestic PBM platform would be capable of performing diagnosis-editing in the future. (Id. ¶¶ 83, 84.) In other words, Plaintiffs did not understand the full scope of Plaintiffs' intended scheme to misappropriate their trade secrets. The FAC also alleges that the arbitration counterclaim was broad and included not only the drug-to-diagnosis edits but also other issues related to “web services, electronic prescribing capabilities, and controlled medications, among other things.” (Id. ¶ 85.) As such, when the counterclaim was filed in the arbitration, Plaintiffs claim they did not have actual or constructive knowledge of the details of MedImpact's misappropriation scheme.
Plaintiffs allege that Dimensions was “highly diligent” in pursuing the counterclaim in arbitration but MedImpact refused and blocked discovery into inspecting [XXXXX] and concealed evidence of its misuse of Plaintiffs' drug-to-diagnosis trade secrets during the entirety of the arbitration. (Id. ¶¶ 95, 96, 97, 98.) MedImpact's refusal or resistance to discovery sought by Dimensions was stated in Dimensions' expert reports dated December 14, 2018, January 17, 2019, February 12, 2019 and by the testimony of Dimensions' expert on February 24, 2019. (Id. ¶ 95.) In fact, MedImpact blocked Dimensions from inspecting [XXXXX] (Id. ¶ 98.)
In addition, from January 23, 2018 to July 24, 2019, the duration of the arbitration, Plaintiffs assert that MedImpact and Mr. Brown falsely and repeatedly denied that MedImpact had misused Dimensions' drug-to-diagnosis indication and contraindication edits. (Id. ¶¶ 99a-99k.) The FAC points to pleadings, arguments, witness statements, expert reports and sworn statements by Mr. Brown affirmatively denying or asserting that MedImpact did not perform drug-indication edits outside the JV or that MedImpact would not have use any of Dimensions' proprietary drug-to-diagnosis edits. (Id.) The FAC alleges false statements on September 23, 2018, December 14, 2018, January 3, 2019, and February 11, 2019. (Id.)
Based on this, the FAC alleges that Defendants fraudulently concealed their misuse of Plaintiffs' trade secrets by knowingly making false statements and concealing highly relevant evidence. (Id. ¶ 100.) They maintain that Dimensions justifiably relied on MedImpact's representations, and on March 6, 2019, it withdrew all its counterclaim in the arbitration. (Id. ¶ 101.) Dimensions wrote, [XXXXX] (Id. (UNDER SEAL).) But Dimensions informed the arbitrator that it [XXXXX].” (Id. ¶ 102.) According to Plaintiffs, at the time Dimensions withdrew its counterclaim, it had no basis to seek relief. (Id.)
In the withdrawal, Dimensions also stated [XXXXX] but this statement did not provide Plaintiffs with actual or constructive notice of any alleged misappropriation because it references potential business in [XXXXX] (Id. ¶ 104.) Moreover, reference to the PBM platform offered in [XXXXX] makes no reference to drug-to-diagnosis edits and the system had not yet been built. (Id.)
Therefore, at the time of withdrawal on March 6, 2019, Plaintiffs claim that they still did not have actual or constructive knowledge that 'Medimpact was developing a new product to include drug-to-diagnosis edits stolen from Plaintiffs ([XXXXX]; that Plaintiffs' drug-to-diagnosis edits had been shared with [XXXXX] that MedImpact U.S.'s domestic PBM engine included drug-to-diagnosis edits stolen from MedImpact; or that MedImpact was offering Plaintiffs' drug-to-diagnosis edits for sale.” (Id. ¶ 103.) Plaintiffs also suggest that even if they had notice of the claims at the time of withdrawal on March 6, 2019 or during the arbitration hearing held from February 18, 2019 to February 24, 2019, these dates were within the three-year statute of limitations period. (Id. ¶ 104.)
On February 21, 2019, Yousef Ghosheh of Dimensions testified during the [XXXXX] arbitration that the the name of the file sent by MedImpact to CamelR potentially including Dimensions' trade secrets, '[XXXXX]”but MedImpact refused to disclose the [XXXXX] during iovery. (Id. ¶ 105.) The FAC complains that even if Yousef Ghosheh's testimony put Plaintiffs on notice of a claim, it is within the statute of limitations period. (Id.)
The FAC alleges that despite Dimensions' diligence in timely pursuing these claims againsted Impact during the arbitration, Plaintiffs could not have discovered and did not discover the alleged claims until the summer of 2021 during discovery in the Related Case due to MedImpact's false statements and concealment in the arbitration. (Id. ¶ 106.)
On September 26, 2019,MedImpact filed the complaint in the Related Case. (Id. ¶ 107.) IQVIA filed an answer asserting an unclean hands defense based on MedImpact's misappropriation of the drug-to-diagnosis edits, among other things. (Id.) Plaintiffs allege that at the time the complaint was filed in the Related Case, they did not have a basis under Rule 11 to file a counterclaim againstMedImpact related to the drug-to-diagnosis edits. (Id. ¶ 108.) IQVIA Inc. and IQVIA AG served discovery requests regarding their unclean hands defense, and documents were not produced byMedImpact untilay 17, 2021 and more than half of the documents were produced on or after August 6, 2021. (Id. ¶¶ 109, 110.) In fact, in a March 2021 discovery response, IQVIA Inc. and IQ VIA AG withdrew their unclean hands defense due to the lack of a basis for the defense at the time. (Id. ¶ 111.)
As such. Plaintiffs did not leam about Medimpact's April 2018 instruction to [XXXXX] upload Plaintiffs' drug-to-diagnosis trade secrets into [XXXXX] until August 6, 2021. (Id. ¶ 112.) This instruction was made during the arbitration proceedings but was concealed by Medimpact. (Id.) The FAC explains that it was during depositions in September and October 2021 that Plaintiffs learned that Medimpact was offering which incorporated Defendants' drug-to-diagnosis trade secrets to customers outside the Territory of the JV. (Id.) Moreover, the misappropriating conduct post-date the arbitration because it was not until a October 12, 2021 court filing in the Related Case that Plaintiffs learned that [XXXXX] a “new product that will be used in the UAE” and had current prospective clients. (Id.) Therefore, Plaintiffs allege they could not have discovered these facts any earlier despite due diligence. (Id. ¶ 113.) Within three weeks of learning of Medimpact's April 2018 instruction. Plaintiffs sought leave to file a counterclaim in the Related Case. (Id. ¶ 115.) Once the Court denied the request for leave to file a counterclaim, Plaintiffs filed their complaint in this case within one week. (Id.)
Based on the detailed, factual allegations presented in the FAC concerning Plaintiffs' diligence and Medimpact's attempt to block and hinder discovery into the underlying facts to support the misappropriation trade secret claims, the Court concludes that Plaintiffs have sufficiently alleged “ignorance of the true facts by the relying party” to support equitable estoppel to stop the clock and toll the statute of limitation during the period of the arbitration, from February 20, 2018 to at least March 6, 2019 when Plaintiffs withdrew the counterclaim. See McMahon v. Valenzuela, Case No. 2:14-cv-02085-CAS(AGRx), 2015 WL 5680305, at *13 (C.D. Cal. Sept. 24, 2015) (“'[polling' in the context of the equitable estoppel doctrine ‘refers to suspending or stopping the running of a statute of limitations' and ‘is analogous to a clock stopping, then restarting'”). Even though Plaintiffs suspected the initial misappropriation at the time Dimensions filed the counterclaim in the arbitration, Plaintiffs have alleged Defendants' conduct prevented and dissuaded Plaintiffs from learning and knowing the true facts. Whether Defendants, in fact, engaged in such conduct are issues of fact that the Court cannot resolve on a motion to dismiss.
b. Reasonable Reliance on the Defendant's Conduct or Representations
On the first Johnson non-exhaustive factor, reasonable reliance on the defendant's conduct or representations, the FAC alleges that Dimensions justifiably relied on MedImpact's representation and on March 6, 2019, it withdrew all its counterclaims in the arbitration. (Dkt. No. 68, FAC ¶ 101.) While Defendants point to language that Plaintiffs did not reasonably rely when Dimensions withdrew the counterclaim because at that time it was ‘[XXXXX]” with Medimpact's use of Dimensions' protectable confidential information, (Dkt. No. 82 at 20), whether a plaintiff's reliance was reasonable “depends on a myriad of factual questions.” Vu v. Prudential Prop. & Casualty Ins. Co., 26 Cal.4th 1142, 1153 (2001) (equitable estoppel as a defense to statute of limitations). Accordingly, taking the allegations in the FAC as true, the Court concludes Plaintiffs have sufficiently alleged reasonable reliance on Defendants' conduct.
c. Extent to Which the Purposes of the Limitations Period Have Been Satisfied
On the third Johnson non-exhaustive factor, the extent to which the purposes of the limitations period have been satisfied, Defendants argue that the purpose of enforcing the statute of limitations is to encourage plaintiffs to pursue claims diligently and protect defendants from defending stale claims. (Dkt. No. 78-1 at 20-21.) Plaintiffs respond that the purpose of the statute of limitations is to provide timely notice to Defendants of Plaintiffs' claims which has been met because Defendants have been on notice of the claims since the arbitration. (Dkt. No. 82 at 22 n. 11.)
The purpose of a statute of limitation is “repose, elimination of stale claims, and certainty about a plaintiff's opportunity for recovery and a defendant's potential liabilities.” Young v. United States, 535 U.S. 43, 47 (2002) (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). Setting a deadline to file a complaint encourages diligence by plaintiffs and protects defendants against “stale or unduly delayed claims.” In re Neff, 824 F.3d 1181, 1185 (9th Cir. 2016). Yet, the purpose of equitable estoppel is to toll the limitations period when a defendant engages in fraudulent conduct to prevent the plaintiff from filing a timely suit. See Johnson, 314 F.3d at 414.
Here, because Plaintiffs have sufficiently alleged equitable estoppel based on Defendants' alleged conduct in preventing Plaintiffs from discovering the true facts on the DTSA and CUTSA claims, whether the purposes of the statute of limitations have been met is a disputed question of fact not appropriate on a motion to dismiss.
3. Pleading Facts with the Requisite Particularity
Finally, Defendants argue that Plaintiffs have not plead any new and relevant facts with the requisite particularity but instead simply allege that Mr. Brown denied wrongdoing or MedImpact withheld discovery. (Dkt. No. 78-1 at 21.) Plaintiffs respond that they have provided details as to the alleged affirmative statements and what was concealed. (Dkt. No. 82 at 21-22.)
“The plaintiff must demonstrate that he relied on the defendant's misconduct in failing to file in a timely manner and “must plead with particularity the facts which give rise to the claim of fraudulent concealment.” Guerrero v. Gates, 357 F.3d 911, 920 (9th Cir. 2004) (plaintiff's equitable estoppel defense to statute of limitations was barred where plaintiff “failed to plead with particularity any . . . fraudulent behavior”).
Plaintiffs have provided detailed allegations, with the requisite particularity, to support equitable estoppel. They allege specific dates, identified the author or speaker, the content of the statements and why the statements were false. (Dkt. No. 68, FAC ¶¶ 99(a)-(k).) Plaintiffs allege instances when Mr. Brown falsely denied that MedImpact misappropriated Dimensions' trade secret and instances when Mr. Brown affirmatively asserted that MedImpact did not misuse Dimensions' trade secrets. (Id.) They also claim that Heather Bates, MedImpact's expert, affirmatively and falsely stated that MIL and MedImpact do not perform drug-indication edits outside the JV. (Id.) MedImpact's allegations are not mere denials of liability but include affirmative misrepresentations. Accordingly, Defendants' argument that Plaintiffs have failed to allege the requisite particularity concerning equitable estoppel is without merit and the court DENIES Defendants' motion to dismiss on this ground.
Defendants also challenge Plaintiffs' allegation that MedImpact or Mr. Brown lied in denying wrongdoing or that MedImpact withheld evidence. (Dkt. No. 78-1 at 22.) However, these are factual issues that the Court is unable to determine on a motion to dismiss.
In conclusion, the Court DENIES Defendants' motion to dismiss the DTSA and CUTSA based on the statute of limitations. Because the Court concludes that Plaintiffs have sufficiently alleged equitable estoppel to toll the statute of limitations, the Court need not address equitable tolling under federal and state law.
The Court also need not address Defendants' summary argument that the discovery rule, continuing violation and continuous accrual theories of tolling do not apply. (Dkt. No. 78-1 at 23.)
D. RICO
Defendants argue that the RICO cause of action fails for lack of distinctness. (Dkt. No. 78-1 at 23-24.) In response, Plaintiffs do not address the substantive law on distinctness but argue that to the extent MedImpact pled the same enterprise and persons in the Related Case, then either the RICO claims in both cases survive or both claims must fail. (Dkt. No. 82 at 22.)
In the Related Case, the RICO claim survived a motion to dismiss because IQVIA did not move to dismiss the RICO claims based on lack distinctness but on other grounds. (Case No. 19cv1865-GPC(DEB), Dkt. No. 107.)
The FAC alleges that all Defendants, comprising of a parent company, two subsidiaries, and an officer, qualify as “persons” and the same Defendants are members of an associated-in-fact “enterprise” or the “MedImpact RICO Enterprise.” (Dkt. No. 68, FAC ¶¶ 139, 140.) It also summarily claims that each member of the MedImpact RICO Enterprise is separate and distinct from the Enterprise. (Id. ¶ 141.)
In order to establish RICO liability under § 1962(c), a plaintiff “must allege and prove the existence of two distinct entities: (1) a ‘person'; and (2) an ‘enterprise' that is not simply the same ‘person' referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). The term “enterprise” is defined as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). “A plaintiff cannot meet RICO's distinctness requirement by alleging that a RICO enterprise is comprised of entities within a corporate family and that those individual corporate entities are the RICO persons.” Geovector Corp. v. Samsung Elecs. Co. Ltd., Case No. 16-cv-02463-WHO, 2016 WL 6662996, at *5 (N.D. Cal. Nov. 10, 2016); Chagby v. Target Corp., 358 Fed. App'x 805, 808 (9th Cir. 2009) (theory that “an enterprise existed between Target Corporation and its wholly-owned subsidiaries fails to meet the distinctiveness requirement of civil RICO claims”).
While “a plaintiff may name all members of an associated-in-fact enterprise as individual RICO persons,” the individual members must be “'separate and distinct' from the enterprise they collectively form.” Moran v. Bromma, 675 Fed. App'x 641, 645 (9th Cir. 2017) (quoting River City Mkts., Inc. v. Fleming Foods W., Inc., 960 F.2d 1458, 1461-62 (9th Cir. 1992) (“a single individual or entity cannot be both the RICO enterprise and an individual RICO defendant”) and Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 F.3d 353, 361 (9th Cir. 2005) (if the “enterprise” consisted only of [corporate defendant] and its employees, the pleading would fail for lack of distinctiveness.”)). Therefore, a plaintiff must allege that the individual members are separate and distinct from the enterprise. See id.; Ice Cream Distrib. of Evansville, LLC v. Dreyer's Grand Ice Cream, Inc., No. 09-5815 CW, 2010 WL 3619884, at *5 (N.D. Cal. Sept. 10, 2010) (“[A] § 1962(c) claim [cannot] be based on a RICO enterprise comprised of a corporation, a wholly-owned subsidiary and an employee of that corporate family if these entities were also plead as the RICO persons.”).
Here, Plaintiffs have not alleged in the FAC or argued in opposition that each member of the enterprise is separate and distinct from the enterprise. Because Plaintiffs have not alleged distinctness as required under RICO, the Court GRANTS Defendants' motion to dismiss. See Chang v. Noh, Case No. 2:17-cv-06205-RGK-JC, 2017 WL 7411155, at *4 (C.D. Cal. Nov. 27, 2017) (dismissing RICO claims for alleging that Noh, Yoon, and Park are RICO persons and that together they formed an associated-in-fact enterprise but fail to allege how the enterprise and the alleged RICO persons are distinct from each other).
As such, the Court declines to address Defendants' additional arguments seeking dismissal for failing to allege domestic injury and concrete injury. See id. at *4 n. 1 (“Because the Court g[r]ants the Motion as to the RICO claim for failure to sufficiently allege the enterprise element, the Court need not address Defendants' additional arguments for dismissal, namely that Chang failed to plead the predicate acts with the requisite degree of particularity, relatedness between the acts and continuity.”).
E. Breach of Fiduciary Duty
Defendants argue that (1) Cayman law applies to the fiduciary duty claim under the internal affairs doctrine; (2) the Court should decline supplemental jurisdiction over the cause of action because Plaintiffs failed to plead Dimensions' principal place of business in the FAC; and (3) under Cayman law, the breach of fiduciary duty claim fails to state a claim because Mr. Brown, as a board member and general manager of the Joint Venture, did not owe a fiduciary duty to IQVIA AG and IQVIA Inc. given that they were not members of the Joint Venture and did not owe a fiduciary duty to Dimensions since they have not alleged a “special relationship.” (Dkt. No. 78-1 at 24-27.) In response, Plaintiffs argue that Defendants have not established that Cayman Law applies due to several questions of fact not amenable on a motion to dismiss. (Dkt. No. 82 at 25-27.) Irrespective of which law applies, they claim that as a fiduciary Mr. Brown owed a fiduciary duty to the JV, as the corporation and its shareholders, Dimensions, MI-HK and MIL. (Id. at 27-28.) They also argue that whether a special relationship existed between Mr. Brown and Dimensions is a question of fact not to be decided at this stage. (Id.)
Defendants also argue that the breach of fiduciary duty claim is an impermissible derivative action under Cayman law, and if California law applies, the breach of fiduciary duty claim is time barred, and preempted. (Dkt. No. 78-1 at 29-30.)
The FAC claims that Mr. Brown breached his fiduciary duty to the JV and Plaintiffs “by misusing Plaintiffs' confidential information in violation of confidentiality agreements; partnering with Dimensions under false pretenses; directly participating in making materially false and/or misleading statements to Plaintiffs about the purpose of the Joint Venture (concealing Defendants' fraudulent scheme from Plaintiffs); misusing Plaintiffs' confidential information; diverting opportunities away from the Joint Venture; and serving MedImpact's ulterior motives and engaging in self-dealing. (Dkt. No. 68, FAC ¶ 164.) All named Plaintiffs allege a breach of fiduciary duty claim against Mr. Brown, (Dkt. No. 68, FAC ¶¶ 161-166), yet the parties do not dispute that this cause of action applies solely to Mr. Brown's alleged fiduciary duty to Plaintiff Dimensions and not IQVIA Inc. or IQVIA AG. (See Dkt. No. 78-1 at 29; Dkt. No. 82 at 27-28 (solely arguing that Mr. Brown owed a breach of fiduciary duty to Dimensions).) Therefore, the Court considers only Dimensions' breach of fiduciary duty claim against Mr. Brown.
As a threshold matter, the parties dispute which law applies to the breach of fiduciary duty cause of action. “A federal court sitting in diversity must look to the forum state's choice of law rules to determine the controlling substantive law.” Mazza v. Am. Honda Motor Co., 666 F.3d 581, 589 (9th Cir. 2012) (quoting Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1187 (9th Cir.), opinion amended on denial of reh'g, 273 F.3d 1266 (9th Cir. 2001)); Downing v. Abercrombie & Fitch, 265 F.3d 994, 1005 (9th Cir. 2001) (“In a diversity case, federal courts apply the substantive law of the forum in which the court is located, including the forum's choice of law rules.”).
California has adopted and codified the “internal affairs doctrine,” which requires a court to apply the law of the state of incorporation to those matters concerning the internal affairs of a corporation. State Farm Mut. Auto. Ins. Co. v. Superior Ct., 114 Cal.App.4th 434, 442 (2003); Vaughn v. LJ Int'l, Inc., 174 Cal.App.4th 213, 223 (2009): Cal. Corp. Code § 2116 (“The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere.”). “The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs-matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders-because otherwise a corporation could be faced with conflicting demands.” Lidow v. Superior Ct., 206 Cal.App.4th 351, 358-59 (2012) (quoting Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) (internal quotation marks omitted)).
Matters that typically fall under the internal affairs doctrine and “which involve primarily a corporation's relationship to its shareholders include steps taken in the course of the original incorporation, the election or appointment of directors and officers, the ad/option of by-laws, the issuance of corporate shares, preemptive rights, the holding of directors' and shareholders' meetings, methods of voting including any requirement for cumulative voting, shareholders' rights to examine corporate records, charter and by-law amendments, mergers, consolidations and reorganizations and the reclassification of shares.” Lidow, 206 Cal.App.4th at 359.
California recognizes a limited exception to the internal affairs doctrine “where, with respect to the particular issue, some other state has a more significant relationship . . . to the parties and the transaction[.]” Id. at 359 (quoting Restatement 2d Conflicts of Laws, § 309). In Lidow, after reviewing precedent on the application of this “exception”, the court of appeals commented “that courts are less apt to apply the internal affairs doctrine when vital statewide interests are at stake, such as maintaining the integrity of California security markets and protecting its citizens from harmful conduct. . . [and] when less vital state interests are at stake (e.g., whether a foreign corporation headquartered in another state pays promised dividends to its shareholders, or whether the shareholder of a foreign corporation must fulfill certain procedural requirements set before bringing a derivative suit), courts are more apt to apply the internal affairs doctrine.” Id. at 362 (declining to apply internal affairs because wrongful termination in violation of public policy concerns conduct beyond corporate governance and implicate California's vital state interest in protecting its residents from harmful conduct such as retaliation and wrongful termination).
The California Supreme Court has suggested and the Ninth Circuit has applied the internal affairs doctrine, the state of the law of incorporation, to breach of fiduciary duty claims. In Nedlloyd, even though the California Supreme Court found that the choice-of-law provision applied to the plaintiff's breach of fiduciary duty claim, it also noted that it would reach the same conclusion based on the internal affairs doctrine. Nedlloyd Lines B.V. v. Superior Ct., 3 Cal.4th 459, 471 (1992) (“even in the absence of a choice-of-law clause, Hong Kong's overriding interest in the internal affairs of corporations domiciled there would in most cases require application of its law.”). The Ninth Circuit has stated, “[c]laims involving ‘internal affairs' of corporations, such as the breach of fiduciary duties, are subject to the laws of the state of incorporation.” Davis & Cox v. Summa Corp., 751 F.2d 1507, 1527 (9th Cir. 1985) superseded on other grounds as stated in Mattel, Inc. v. MGA Entm't, Inc., 705 F.3d 1108, 1110 (9th Cir. 2013); see also In re Verisign, Inc., Derivative Litig., 531 F.Supp.2d 1173, 1215 (N.D. Cal. 2007) (claims related to internal affairs of a corporation include “claims for breach of fiduciary duty, accounting, unjust enrichment, rescission, constructive fraud, corporate waste, breach of contract, gross mismanagement, and restitution”); Voss v. Sutardja, No. 14-01581-LHK, 2015 WL 349444, at *9 (N.D. Cal. Jan. 26, 2015) (in a case concerning breach of fiduciary duty claim and others, applying Bermuda law and rejecting the plaintiff's argument that an exception to internal affairs doctrine should apply simply because of the company's extensive contacts with California); Booth v. Strategic Realty Trust, Inc., No. 13-04921-JST, 2014 WL 3749759, at *8 (N.D. Cal. July 29, 2014) (applying Maryland law to a breach of fiduciary duty claim based on the internal affairs doctrine); Vaughn, 174 Cal.App.4th at 223-25 n. 5 (applying internal affairs doctrine to breach of fiduciary duty).
While California case law and Ninth Circuit precedent support the application of the internal affairs doctrine to a claim for breach of a fiduciary duty, if a claim implicates a broader public interest that California has a vital interest in protecting, then the doctrine does not apply. See Kaul v. Mentor Graphics Corp., No. 16-CV-02496-BLF, 2016 WL 6249024, at *9 (N.D. Cal. Oct. 26, 2016), aff'd, 730 Fed. App'x 437 (9th Cir. 2018) (holding that the law of the state where a company is incorporated should apply to breach of fiduciary duties unless there was no choice-of-law clause in the agreement and it is an unusual case where a different state has a more significant relationship to the parties and corporation).
Here, Defendants argue that Cayman law applies based on California conflict of law principles adopting the internal affairs doctrine. (Dkt. No. 78-1 at 26-27.) In response, without arguing in favor or against Cayman law, Plaintiffs maintain that three issues need to be determined before the application of Cayman law and these issues have not been addressed by Defendants and involve a factual inquiry. (Dkt. No. 82 at 25-27.) Specifically, Plaintiffs argue that there is an issue of whether the internal affairs doctrine applies to exempted companies incorporated and existing under the Cayman Island laws, whether the dispute is the type of internal organizational issue that is covered by the internal affairs doctrine and whether the exception applies where one state has a “more significant relationship” to the parties and the transaction. (Id. at 25-26.) In reply, Defendants do not address the three issues raised in Plaintiffs' opposition, and instead, suggest that because Plaintiffs have argued for the application of California law, and “conceded its claim, the Court need not address Cayman law.” (Dkt. No. 85 at 14.)
Defendants have not provided legal authority that a party can concede or waive conflict of law principles.
The parties' positions on the application of Cayman law are not clear and a full analysis of California's conflict of law principles have not been conducted by the parties. The Court declines to conduct an analysis without the parties' positions and without full legal analysis on the issue. Therefore, the Court DENIES Defendants' motion to dismiss the breach of fiduciary duty claim.
Because the threshold issue of which law applies to the breach of fiduciary duty claim has not been resolved, the Court declines to address Defendants' additional arguments that the breach of fiduciary duty claim is an impermissible derivative action under Cayman law and if California law applies, the fiduciary duty claim is time barred and preempted.
1. Rule 12(b)(1) - Subject Matter Jurisdiction
Defendants also move to dismiss the breach of fiduciary duty claim under Rule 12(b)(1) for Plaintiffs' failure to plead diversity jurisdiction by omitting Dimensions' principal place of business, and therefore the Court should decline supplemental jurisdiction over the state law claim. (Dkt. No. 78-1 at 27.) Plaintiffs respond that the Court has diversity jurisdiction over the case and it may consider documents outside the complaint to support subject matter jurisdiction. (Dkt. No. 82 at 29-30.) Defendants did not reply.
Under Rule 12(b)(1), a party may move to dismiss for lack of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). A Rule 12(b)(1) jurisdictional challenge may be facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Id. When evaluating a facial attack, the court assumes the truth of the complaint's allegations and draws all reasonable inferences in plaintiff's favor. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). Where the attack is factual, however, “the court need not presume the truthfulness of the plaintiff's allegations.” Safe Air for Everyone, 373 F.3d at 1039. In resolving a factual dispute as to the existence of subject matter jurisdiction, a court may review extrinsic evidence beyond the complaint without converting a motion to dismiss into one for summary judgment. Id.; McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988)
“Given their limited jurisdiction, federal courts have repeatedly held that a complaint must include allegations of both the state of incorporation and the principal place of business of corporate parties.” Harris v. Rand, 682 F.3d 846, 850 (9th Cir. 2012). For diversity purposes, a corporation's principal place of business is “the place where [the] corporation's high level officers direct, control, and coordinate the corporation's activities” or the “nerve center.” Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010). Typically, the principal place of business is where the corporation maintains its headquarters. Id. at 93.
Defendants make a facial challenge to subject matter jurisdiction arguing Plaintiffs failed to allege Dimensions' principal place of business. In response, Plaintiffs present the declaration of Dimensions' in-house counsel stating that Dimensions' principal place of business, since 2009, has been in the UAE. (Dkt. No. 82-1, Shanti Decl. ¶ 3.) However, because Defendants present a facial challenge, the Court may not consider the declaration of Shanti. Notwithstanding the declaration, the Court may consider documents incorporated by reference in the FAC without converting the motion into one for summary judgment. In opposition, Plaintiffs also ask the Court to consider the JV agreement which was filed in the Related Case under the incorporation by reference doctrine. (Dkt. No. 82 at 29 & n. 18.)
The Court may consider documents outside the complaint under the incorporation by reference doctrine. See Ritchie, 342 F.3d at 908 Here, because the FAC discusses and references the Related Case, the Court takes judicial notice of documents filed in that case. See Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking judicial notice of briefs, transcripts, and various other court filings from a related case).
While the JV agreement does not provide an assertion that Dimensions' principal place of business is in the UAE, it states Dimensions is a limited liability company established under the UAE laws with a registered address in the UAE. (Case No. 19cv1865-GPC(DEB), Dkt. No. 452-35, Swedlow Decl., Ex. 41 at 4, 27 (UNDER SEAL).) Moreover, in the Related Case, MedImpact alleged that Dr. Omar Ghosheh, a co-founder of Dimensions until his retirement, is a resident of Dubai, UAE. (Dkt. No. 93, FAC ¶ 22.) Dr. Ghosheh was also the General Manager/CEO of Dimensions. (Dkt. No. 198-2, Shanti Decl. ¶¶ 22, 24.) Further, Dimensions is a UAE company with three offices in the UAE and provides services to customers in the Middle East. (Dkt. No. 595, Dr. Ghosheh Decl. ¶ 2.)
Here, while the FAC alleges that Dimensions is incorporated in the UAE, it does not allege its principal place of business. (Dkt. No. 68, FAC ¶ 15.) However, the documents considered under the incorporation by reference doctrine provide support that Dimensions' principal place of business or its nerve center where its officers or directors conduct the corporation's activities is in the UAE and sufficient to survive a motion to dismiss. Therefore, the Court DENIES Defendants' motion to dismiss for lack of subject matter jurisdiction.
F. Conspiracy
Defendants argue that the conspiracy claim is preempted by CUTSA and because conspiracy is not a stand-alone cause of action, the claim must be dismissed. (Dkt. No. 78-1 at 31.) Plaintiffs disagree maintaining that because they have adequately pled their other cause of action, this claim should survive. (Dkt. No. 82 at 31.)
“The elements of an action for civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design.... In such an action the major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity.” Applied Equip. Corp. v. Litton Saudia Arabia Ltd., 7 Cal.4th 503, 511 (Cal. 1994) (citation and quotation marks omitted). “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” Id. at 510-11. A conspiracy must be activated by the commission of an actual tort. Id. at 511.
In support of the preemption argument, Defendants merely cite to the Court's preemption analysis in the Related Case without conducting their own independent analysis. However, the Related Case involves different underlying facts than in this case. Thus, the Court DENIES Defendants' motion to dismiss the conspiracy cause of action as not factually or legally supported.
G Shareholder Standing Rule
Defendants argue that the shareholder standing rule bars any claims by IQVIA AG, as a parent of Dimensions, and IQVIA Inc., as a parent of IQVIA AG, for failing to allege their own independent injuries because they license the alleged trade secrets to customers and act through Dimensions. (Dkt. No. 78-1 at 31-32.) Plaintiffs respond that IQVIA AG and IQVIA Inc.'s claims are not barred by the shareholder standing rule because they are possessors of the trade secrets and have alleged their own independent harm. (Dkt. No. 82 at 30-31.) In reply, Defendants do not address whether IQVIA AG and IQVIA Inc's status as possessors support their separate independent harm distinct from Dimensions and merely reiterate that the FAC alleges that IQVIA AG and IQVIA Inc. license the alleged trade secrets to customers through Dimensions. (Dkt. No. 85 at 15.)
There are two standing doctrines: Article III or “constitutional standing”, see Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), raised on a Rule 12(b)(1) motion, and “prudential standing” raised on the Rule 12(b)(6) motion, see Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 126 (2014). Because Defendants move to dismiss under Rule 12(b)(6) and shareholder standing is a prudential limitation on a federal court jurisdiction, they are asserting Plaintiffs lack prudential standing. “Prudential standing” is a doctrine that is not derived from Article III and is “'not exhaustively defined' but encompass[es] . . . at least three broad principles: “the general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked.” Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 126 (2014) (citation and internal quotation marks omitted).
The shareholder standing rule is a prudential limitation on the exercise of federal court jurisdiction holding that “[g]enerally, a shareholder must assert more than personal economic injury resulting from a wrong to the corporation. A shareholder must be injured directly and independently of the corporation.” Shell Petroleum, N.V. v. Graves, 709 F.2d 593, 595 (9th Cir. 1983) (internal citations omitted); Vigilante.com, Inc. v. Argus Test.com, Inc., No. 04-CV-00413-MO, 2005 WL 2218405, at *8 (D. Or. Sept. 6, 2005) (citation omitted) (“To avoid the limitations imposed by the shareholder standing rule, “[a] shareholder must be injured directly and independently of the corporation.”). loss of return on investment and Defendants' avoided costs. (Id. ¶¶ 54-55, 63-64, 67-69, 74, 79.)
On the DTSA and CUTSA claims, IQVIA AG and IQVIA Inc. have sufficiently alleged independent, separate harm based on their status as possessors of the trade secrets and because the issue of whether IQVIA AG and IQVIA Inc. are possessors is intertwined with the merits of the claims, dismissal is not appropriate at the motion to dismiss stage. See Boston Scientific Corp. v. BioCardia, Inc., 524 F.Supp.3d 914, 918 (9th Cir. 2021) (dismissal improper under Rule 12(b)(6) prudential standing analysis because whether the plaintiff owned the trade secret required a resolution of facts that go to the merits of the plaintiff's claims).
The elements of a misappropriation claim under the DTSA requires the plaintiff to prove “(1) that the plaintiff possessed a trade secret, (2) that the defendant misappropriated the trade secret; and (3) that the misappropriation caused or threatened damage to the plaintiff.” InteliClear, LLC v. ETC Global Holdings, Inc., 978 F.3d 653, 657-58 (9th Cir. 2020) (citing 18 U.S.C. § 1839(5)).
As to conspiracy, the only other remaining cause of action by IQVIA AG and IQVIA Inc., Defendants argue that because conspiracy is not a standalone cause of action but relies on an underlying tort, then the shareholder standing rule also applies to this claim, or in other words, because the shareholder standing rule bars the DTSA and CUTSA causes of action, then the conspiracy claim also fails. (Dkt. No. 78-1 at 33.) Because the Court denies dismissal of the DTSA and CUTSA claims based on the shareholder standing rule, the conspiracy claim also necessarily survives. Thus, the Court DENIES Defendants' motion to dismiss based on the shareholder standing rule.
H. Claim Preclusion
Defendants maintain that MIL and MI-HK should be dismissed as defendants under the doctrine of claim preclusion because there is an identity of claims between the counterclaims raised in the arbitration and the claims in this case as both cases concerned Dimensions' drug-to-diagnosis indication and contraindication edits. (Dkt. No. 78-1 at 33-34.) Plaintiffs oppose contending that there is not an identity of claims because the conduct in this case concerns post-arbitration conduct of continuing misappropriation and acts to cover up the misappropriation which is conduct distinct from those alleged in the arbitration. (Dkt. No. 82 at 24-25.) Defendants did not reply on this issue. (See Dkt. No. 85.)
Under claim preclusion, a final judgment bars “successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.” Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). “[C]laim preclusion prevents parties from raising issues that could have been raised and decided in a prior action-even if they were not actually litigated. If a later suit advances the same claim as an earlier suit between the same parties, the earlier suit's judgment ‘prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.'” Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp., Inc., 140 S.Ct. 1589, 1595-96 (2020) (quoting Brown v. Felsen, 442 U.S. 127, 131 (1979)). The elements of claim preclusion are “(1) an identity of claims, (2) a final judgment on the merits, and (3) privity between parties.” V.V.V. & Sons Edible Oils Ltd. v. Meenakshi Overseas, LLC, 946 F.3d 542, 545 (9th Cir. 2019) (quoting Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 322 F.3d 1064, 1077 (9th Cir. 2003) (internal quotation marks omitted)).
In assessing whether there is an “identity of claims”, the Ninth Circuit directs courts to look at four factors which are not to be applied mechanistically:
(1) whether the two suits arise out of the same transactional nucleus of facts;
(2) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (3) whether the two suits involve infringement of the same right; and (4) whether substantially the same evidence is presented in the two actions.Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (citation omitted). While all four factors are considered, “[r]eliance on the transactional nucleus element is especially appropriate because the element is ‘outcome determinative.'” ProShipLine Inc. v. Aspen Infrastructures LTD, 609 F.3d 960, 968 (9th Cir. 2010) (quoting Mpoyo, 430 F.3d at 988). “Whether two events are part of the same transaction or series depends on whether they are related to the same set of facts and whether they could conveniently be tried together.” Media Rights Techs., Inc. v. Microsoft Corp. 922 F.3d 1014, 1027 (9th Cir. 2019) (quoting Western Sys., Inc. v. Ulloa, 958 F.2d 864, 871 (9th Cir. 1992) and citing Restatement (Second) of Judgments § 24 (1982)). “If the harm[s] arose at the same time, then there was no reason why the plaintiff could not have brought [both] claim[s] in the first action. The plaintiff simply could have added a claim to the complaint.” Id. (quoting Howard, 871 F.3d at 1039). In contrast, “'[i]f the harm[s] arose from different facts,' then a party is not obligated to bring both claims on pain [sic] of preclusion.” Id. As the United States Supreme Court recently confirmed “[s]uits involve the same claim (or cause of action) when they aris[e] from the same transaction, or involve a ‘common nucleus of operative facts.'” Lucky Brand Dungarees, Inc., 140 S.Ct. at 1595. Where two claims are grounded in different conduct, different subject and different times, they do not share a “common nucleus of operative facts.” Id.
Here, the two suits do not arise out of the same transactional nucleus of facts. Part of this case involves continuing misappropriation that occurred after the conclusion of the arbitration. (Dkt. No. 68, FAC ¶¶ 49, 68, 69, 112.) Therefore, Defendants have not shown that there is an identity of claims between the allegations in the counterclaim with the causes of action in this case. Accordingly, the Court DENIES Defendants' motion to dismiss MIL and MI-HK as defendants.
Conclusion
Based on the reasoning above, the Court GRANTS in part and DENIES in part Defendants' motion to dismiss. Specifically, the Court GRANTS Defendants' motion to dismiss the RICO cause of action and DENIES the remaining causes of action.
IT IS SO ORDERED.