Compu-Link Corp. v. PHH Mortgage Corp.

8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 11 Compu-Link Corporation, doing business as No. 2:22-cv-00983-KJM-KJN Celink, a Michigan Corporation, 12 ORDER B Plaintiff, 14 v: 15 PHH Mortgage Corporation, a New Jersey Corporation, Defendant.

19 Plaintiff Compu-Link Corporation, which does business as “Celink,” services reverse | mortgages. It describes a reverse mortgage as “a loan available to seniors aged 62 or older that | allows them to borrow money against the value of their home.” Compl. § 27, ECF No. 1. Celink | alleges its competitor, defendant PHH Mortgage Corporation, breached a contract the two | companies had previously entered and also interfered with Celink’s clients’ contracts, among | other claims. PHH moves to dismiss Celink’s complaint. See generally Mot., ECF No. 12. The | court received full briefing and submitted the matter without hearing oral arguments. See | generally Opp’n, ECF No. 17; Reply, ECF No. 18; Min. Order, ECF No. 27. As explained in the | first section below, the court grants the motion in part with leave to amend. The parties also request leave to file several documents under seal. As explained in the second section below, the court denies that request without prejudice to renewal.

3 I. MOTION TO DISMISS 4 PHH moves to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). The parties are familiar with the legal standard for motions filed under that Rule, which the court applies here without restating it in full. See Mem. at 7, ECF No. 12-1 (discussing Bell Atl. Corp. v.Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009)); Opp’n at 6–7 (same). Compu-Link’s complaint includes nine claims: 9 1. Breach of Contract. Celink alleges PHH breached an agreement not to solicit Celink’s clients. See Compl. ¶¶ 77, 119–35. It is undisputed, however, that Celink’s complaint misquotes a key term of the relevant agreement. See Mem. at 5; Opp’n at 9 & n.4; Errata, ECF No. 21.

12 Celink now relies on a different theory of breach in its opposition brief than it did in its complaint. Compare, e.g., Opp’n at 11 (alleging “scrivener’s error” and similar mistakes) with, e.g., Compl. ¶¶ 126–27 (alleging breach of express terms). Celink does not allege PHH breached the non-solicitation provision as written in the agreement. Given this disconnect, the court dismisses the first claim with leave to amend.

17 2. Breach of the Implied Covenant of Good Faith. The covenant of good faith and fair dealing “is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party’s rights to the benefits of the agreement.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36 (1995). Celink alleges PHH used its agreement with Celink as cover for a scheme to steal Celink’s confidential information and clients. See, e.g., Compl. ¶¶ 142–44. These allegations allow a plausible inference that PHH wrongfully frustrated Celink’s rights under the agreement. The court denies the motion to dismiss this claim.

25 3.Tortious Interference with Contract. The elements of a claim for tortious interference with contract are “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” hiQ Labs, Inc. v. LinkedIn Corp., 31 F.4th 2 1180, 1191 (9th Cir. 2022) (quoting Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 3 1118, 1126 (1990)). Celink alleges it had contracts with two specific third parties (MAM and WAM), Compl. ¶¶ 150–57, PHH knew Celink had contracted with these third parties, id. ¶¶ 160, the third parties ended their contractual relationships with Celink at PHH’s urging, id. ¶¶ 88, 91, 161, 164, Celink was deprived of contract rights to make bids to the same third parties for future business, id. ¶¶ 105–16, 162–63, and Celink suffered financial harms as a result, id. ¶¶ 164–65.

8 When read in the light most favorable to Celink, these allegations support a claim for tortious interference with contract. The court denies the motion to dismiss this claim.

10 4. Inducement of Breach of Contract. The elements of a claim for an induced breach of contract are the same as the elements of a claim for tortious interference with a contract, but to prevail, a plaintiff must also prove a “contract was in fact breached.” Shamblin v. Berge, 166 Cal. App. 3d 118, 123 (1985) (quoting Dryden v. Tri-Valley Growers, 65 Cal. App. 3d 990, 995 (1977)). Celink alleges the third parties noted above breached their agreement to work exclusively with Celink. See Compl. ¶¶ 91, 179–181. However, in its opposition, Celink addresses only the breach of contract by one of the third parties (MAM). Opp’n at 16–17. Celink does not defend its claim about a different breach by the other third party (WAM). See id. The court thus dismisses this claim in part, with leave to amend.

19 5. Tortious Interference with Prospective Economic Advantage. To state a claim for tortious interference with prospective economic advantage, a plaintiff must allege “the defendant knowingly interfered with an economic relationship between the plaintiff and some third party, which carries the probability of future economic benefit to the plaintiff.” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1141 (2020) (quotation marks and alterations omitted) (quoting Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003)). The defendant must have committed some “independently wrongful” act, i.e., a wrongful act independent of the interference itself. Id. at 1142. “[A]n 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. (quoting Korea Supply, 29 Cal. 4th at 1159). Celink does not allege PHH’s actions were independently wrongful in this sense. Celink alleges only that PHH “acted in a manner designed to disrupt Celink’s relationship with WAM and MAM and divert WAM and MAM’s subservicing business to itself.” Compl. ¶ 197. The court dismisses this claim, with leave to amend.

5 6. Indemnification. Celink alleges its contract with PHH requires PHH to indemnify Celink for losses incurred as a result of a “material breach” of their agreement or as a result of PHH’s “gross negligence, willful misfeasance, or bad faith.” Compl. ¶ 203. This claim thus rests in part on Celink’s dismissed claim for breach of contract. To that extent, the court dismissed it in part with leave to amend. The court denies the motion to dismiss to the extent the indemnification claim rests on Celink’s viable claim that PHH intentionally frustrated Celink’s rights under their agreement in violation of the implied covenant of good faith. See Compl.

12 ¶¶ 142–48.

13 7. Unfair Competition. Celink alleges PHH violated California’s Unfair Competition Law, which forbids “any unlawful, unfair or fraudulent business act or practice.” Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999) (quoting Cal. Bus. & Prof.

16 Code § 17200). Celink first appears to argue PHH’s conduct was “fraudulent” because it was “deceptive,” but Celink does not explain which of PHH’s alleged actions support this claim. See Opp’n at 18. The complaint, in turn, simply incorporates all of its previous allegations, which span more than 200 paragraphs. See Compl. ¶ 211. Such a broad and generic assertion does not satisfy the requirements of Federal Rule of Civil Procedure 9(b), which requires a plaintiff to “state with particularity the circumstances constituting fraud.” Celink’s generalized cross- reference does not give PHH “notice of the particular misconduct” or allow it to “defend against the charge” rather than “just deny that [it has] done anything wrong.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). Celink also argues PHH’s conduct was “unlawful” under the Business and Professions Code because PHH violated unspecified state and federal antitrust laws. Compl.

27 ¶¶ 214–16. This simple legal conclusion does not suffice to support Celink’s claim, especially in the antitrust context. See Twombly, 550 U.S. at 555. The court dismisses this claim, with leave to amend.

3 8. Unjust Enrichment. Celink asserts an independent claim for unjust enrichment. See Compl. ¶¶ 224–30. PHH argues California courts do not recognize independent claims for unjust enrichment. Mot. at 20. This court has interpreted California law as allowing independent claims for unjust enrichment as quasi-contract claims for restitution. See, e.g., Obertman v. Electrolux Home Care Prod., Inc., 482 F. Supp. 3d 1017, 1027–28 (E.D. Cal. 2020). California law remains uncertain, but that uncertainty is usually unnecessary to resolve when, as is true in this case, Celink can assert an equivalent equitable claim in any event. See, e.g., Stark v. Patreon, Inc., ___ 10 F.Supp. 3d ___, No. 22-03131, 2022 WL 7652166, at *10 & n.6 (N.D. Cal. Oct. 13, 2022). The court denies the motion to dismiss this claim.

12 9. Attorneys’ Fees and Costs. Celink asserts a claim for attorneys’ fees and costs under its contract with PHH. Compl. ¶¶ 231–33. It also seeks attorneys’ fees and costs as a remedy.

14 See id. at 36. Federal district courts do not ordinarily permit independent claims for attorneys’ fees and costs. See, e.g., Mull v. Motion Picture Indus. Health Plan, 937 F. Supp. 2d 1161, 1181 (C.D. Cal. 2012). The court thus dismisses Celink’s claim for fees and costs, without leave to amend. Celink may request attorneys’ fees and costs as a remedy if it ultimately prevails.

18 II. REQUEST TO FILE UNDER SEAL 19 Celink and PHH have asked to seal copies of some crucial contracts. Req. to Seal, ECF No. 30. “[T]he courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Commc’ns, 435 U.S. 589, 597 (1978) (footnote omitted). Although that right is not absolute, “a ‘strong presumption in favor of access’ is the starting point.” Kamakana v. City of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (quoting Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003)). This presumption “is ‘based on the need for federal courts, although independent—indeed, particularly because they are independent—to have a measure of accountability and for the public to have confidence in the administration of justice.’” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1096 (9th Cir. 2016) (quoting United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995)).

3 When, as here, documents are filed with motions “more than tangentially related to the merits of a case,” id. at 1101, such as a motion to dismiss, a party who asks to keep them secret “must meet the high threshold of showing that ‘compelling reasons’” support that request, Kamakana, 447 F.3d at 1180 (quoting Foltz, 331 F.3d at 1136). This standard applies even if the documents have previously been filed under seal or are covered by a generalized protective order, including a discovery-phase protective order. See Foltz, 331 F.3d at 1136. To decide whether the party requesting sealing has carried its burden, the court balances the requesting party’s reasons for secrecy with the public’s interests in disclosure. See Kamakana, 447 F.3d at 1179. The interest in secrecy generally outweighs the public’s interest only if a document will “become a vehicle for improper purposes,” such as the gratification of “private spite,” the promotion of “public scandal,” the reiteration of “libelous statements,” or the revelation of “information that might harm a litigant’s competitive standing.” Nixon, 435 U.S. at 598 (citations and quotation marks omitted). If a court decides to grant a request to seal, it must explain its reasons and may not rely on “hypothesis or conjecture.” Kamakana, 447 F.3d at 1179 (quoting Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995)).

18 The parties have not explained the basis for their request to file documents under seal beyond a brief statement that the documents “are confidential and protected from disclosure to the general public.” Opp’n at 7 n.2. In light of the strong presumption in favor of access to court records, and in the face of all-too-frequent and overbroad motions to seal, federal courts deny motions to seal that rely on such “a general category of privilege.” See Kamakana, 447 F.3d 23 1184. A party who wishes to keep its documents secret must point out a “specific linkage” between its interests in secrecy and those documents. See id. “[C]onclusory offerings do not rise to the level of ‘compelling reasons’ sufficiently specific to bar the public access to the documents.” Id. at 1182. If a party does not “articulate with any specificity how disclosure” would cause it harm, its request to seal must be denied. Tevra Brands LLC v. Bayer HealthCare LLC, No. 19-04312, 2020 WL 1245352, at *3 (N.D. Cal. Mar. 16, 2020). The court denies the request for leave to file under seal, without prejudice to renewal with the necessary showing of compelling reasons if possible.

3 At the same time, the court notes some of the documents the parties request to file under seal have already been filed publicly as attachments to a request for judicial notice. See RJN Exs. A–D, ECF No. 13-1. In a previous order, the court provisionally granted the parties’ request to seal those documents until the court resolved their request on the merits, see Order (Oct. 27, 2022), ECF No. 28, but the previously filed exhibits to the request for judicial notice have remained available on the public docket. Under this District’s Local Rules, if a request to file under seal is denied, “the Clerk will return to the submitting party the documents for which sealing has been denied.” E.D. Cal. L.R. 141(e)(1). That process is not available for the publicly filed exhibits to the request for judicial notice. The court will accordingly seal those documents without considering them and deny the request for judicial notice as moot. If a party requests the court rely on those documents in the future, it must either file them publicly or justify their filing under seal.

15 III. CONCLUSION 16 The court grants in part the motion to dismiss (ECF No. 12) as follows: 17  Claim 1 is dismissed with leave to amend.

18  Claim 4 is dismissed in part with leave to amend as specified above.

19  Claim 5 is dismissed with leave to amend.

20  Claim 6 is dismissed in part with leave to amend as specified above.

21  Claim 7 is dismissed with leave to amend.

22  Claim 9 is dismissed without leave to amend.

23  The motion is otherwise denied.

24 The Clerk’s Office is instructed to seal the documents previously filed at ECF No. 13-1, which the court has not considered in resolving the motion to dismiss. The requests to seal (ECF Nos. 20 and 30) are denied without prejudice to renewal, as specified above.

1 The court issues the following Rule 16 scheduling order after reviewing the parties’ joint status report, ECF No. 31, and after considering the discussion at the scheduling conference, see Mins., ECF No. 33: 4  Any amended complaint or statement of an intent to stand on the original 5 complaint must be filed by January 20, 2023. Deadlines for responsive pleadings 6 and Rule 12 motions will be governed by the Federal Rules and this District’s 7 local rules.

8  Initial disclosures shall be completed within fourteen days of the date PHH files 9 its responsive pleading.

10  Party fact discovery shall be completed by July 28, 2023.

11  Non-party fact discovery shall be completed by September 29, 2023.

12  Experts shall be disclosed and reports served by December 15, 2023.

13  Rebuttal experts shall be disclosed and reports served by January 26, 2024.

14  All discovery shall be completed and all discovery motions shall be filed by 15 March 1, 2024.

16  The parties shall attend a settlement conference or participate in private mediation 17 no later than April 5, 2024, and file a report on the status of settlement with court 18 by that date. Any request for a court-convened settlement conference must be 19 filed on the docket of this action.

20  All dispositive motions shall be filed by May 3, 2024 and heard by June 7, 2024.

21 This order resolves ECF Nos. 12, 13, 20 and 30.

22 IT IS SO ORDERED.

23 DATED: December 27, 2022.