Radus Tek Services, Inc. v. IDC Technologies

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 RADUS TEK SERVICES, INC., Case No. 5:24-cv-04793-PCP 8 Plaintiff, ORDER GRANTING MOTION TO 9 v. DISMISS 10 IDC TECHNOLOGIES INC., et al., Re: Dkt. No. 20 Defendants. [11] 12 Plaintiff Radus Tek Services, Inc. brings this lawsuit against defendants IDC 13 Technologies, Inc. and Tata Consulting Services, Ltd. (TCS) for economic injury it allegedly 14 suffered as a result of IDC’s failure to pay invoices it owed for services rendered by Radus Tek 15 employees that IDC staffed on TCS projects. TCS moves to dismiss for failure to state a claim 16 pursuant to Rule 12(b)(6). For the following reasons, the Court grants the motion to dismiss. 17 BACKGROUND 18 Radus Tek is a professional services firm that specializes in technology, consulting, 19 corporate training, staffing solutions, and software design and development. IDC is an information 20 technology staffing and consulting business. TCS is a global leader in IT services, consulting, and 21 business solutions. 22 TCS has a preferred partner program through which it contracts with companies like IDC 23 to provide personnel for TCS projects.1 IDC was formerly one of the companies in this program. 24 On December 19, 2019, Radus Tek entered into a professional services agreement with 25 IDC pursuant to which Radus Tek would supply personnel to TCS for IT services that TCS [27] 1 Although TCS disputes Radus Tek’s characterization of the partner program as a “preferred 1 provided to its client, Vanguard. Under this multi-tiered subcontracting structure, Vanguard 2 contracted with TCS, which contracted with IDC, which contracted with Radus Tek. Through this 3 arrangement, Radus Tek employees Syed Muhammed Raheel Hassan and Firoz Makati were 4 staffed on projects for Vanguard. Radus Tek submitted invoices to IDC each month for the work 5 that those employees performed, and IDC paid the amount of the invoices it received, often with 6 some delays of up to a couple of months, which it sometimes blamed on TCS. Under its contract 7 with IDC, Radus Tek was prohibited from communicating with IDC’s clients, including TCS, for 8 payment. Radus Tek had no contract with TCS. 9 Radus Tek alleges that IDC failed to pay fourteen overdue invoices for services rendered 10 by Hassan and Makati from June 2023 through December 2023. Radus Tek alleges that IDC owes 11 it $144,704 for those services. Radus Tek first contacted IDC about the unpaid invoices in 12 November 2023. In March 2024, IDC responded via email, apologizing for the delay and 13 explaining that the payment was not sent because of a failure in its vendor management system 14 and its transition to a new financial institution. IDC did not communicate with Radus Tek again 15 after that and did not pay the overdue invoices. Radus Tek alleges that IDC and its director, 16 Prateek Gattani, have been misappropriating funds owed to Radus Tek and other subcontractors in 17 an elaborate Ponzi scheme. 18 In 2023, TCS allegedly discovered a bribery scheme in which some of its employees had 19 favored certain staffing firms over others and accepted payments in exchange for jobs. Radus Tek 20 alleges that TCS responded by blacklisting certain firms, including IDC, but did not inform end21 clients, subcontractors, or second-tier subcontractors about the status of those firms. Radus Tek 22 alleges that TCS continued to hold out IDC as a preferred partner so as not to disrupt its business. 23 Radus Tek alleges that if it had known IDC was implicated in the bribery scheme, it would 24 have taken steps to mitigate potential damages from IDC’s failure to pay Radus Tek’s invoices, 25 such as by reassigning Hassan and Makati to other projects. 26 Radus Tek brings fourteen claims against IDC, Gattani, and TCS. The seven claims it 27 brings against TCS are: (1) negligent hiring of an independent contractor; (2) negligent 1 negligent misrepresentation; (5) negligence; (6) fraudulent concealment; and (7) violation of 2 California’s Unfair Competition Law (UCL). 3 TCS now moves to dismiss pursuant to Rule 12(b)(6). 4 LEGAL STANDARD 5 Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include a “short and plain 6 statement of the claim showing that the pleader is entitled to relief.” If the complaint fails to state a 7 claim, the defendant may move for dismissal under Federal Rule of Civil Procedure 12(b)(6). 8 Dismissal is required if the plaintiff fails to allege facts allowing the Court to “draw the reasonable 9 inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662 , 10 678 (2009). “Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a 11 cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. 12 Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 13 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 14 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 15 In considering a Rule 12(b)(6) motion, the Court must “accept all factual allegations in the 16 complaint as true and construe the pleadings in the light most favorable” to the non-moving 17 party. Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028 , 1029–30 (9th Cir. 2009). While legal 18 conclusions “can provide the [complaint’s] framework,” the Court will not assume they are correct 19 unless adequately “supported by factual allegations.” Iqbal, 556 U.S. at 679 . Courts do not “accept 20 as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 21 inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (quoting Sprewell 22 v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 23 ANALYSIS 24 A. Negligence claim 25 To prevail on a cause of action for negligence under California law, a plaintiff must 26 establish: (a) the defendant’s legal duty to use due and reasonable care; (b) a breach of such legal 27 duty; and (c) that the breach is the proximate or legal cause of the resulting injury. Ladd v. County 1 negligence is the existence of a duty to use due care toward an interest of another that enjoys legal 2 protection against unintentional invasion.” Bily v. Arthur Young & Co., 3 Cal. 4th 370, 397 (1992). 3 A duty of care may arise through statute, contract, or a special relationship between the parties. 4 Lichtman v. Siemens Industry, Inc., 16 Cal. App. 5th 914, 920 (2017). Generally, there is no duty 5 of care where a separate legal remedy already exists. Goonewardene v. ADP, LLC, 6 Cal. 5th 817 , 6 839 (2019) (explaining that where the law already provides “a full and complete remedy” for an 7 injury, “the imposition of a separate tort duty of care … is generally unnecessary”). 8 Radus Tek and TCS had no contractual relationship and Radus Tek does not allege that 9 TCS had any statutorily created duty of care. Radus Tek’s theory is instead that TCS had a special 10 relationship with Radus Tek giving rise to a duty of care. There are several factors (the “Biakanja 11 factors”) that courts consider to determine whether a special relationship exists, including: (a) the 12 extent to which the transaction was intended to affect the plaintiff, (b) the foreseeability of the 13 harm to the plaintiff, (c) the degree of certainty the plaintiff suffered injury, (d) the closeness of 14 the connection between the defendant’s conduct and the injury suffered, (e) the moral blame 15 attached to defendant’s conduct, and (f) the policy of preventing future harm. See Biakanja v. 16 Irving, 49 Cal. 2d 647, 650 (1958). The purpose of the special relationship doctrine is to extend 17 tort liability in circumstances where recovery might otherwise be impossible because the intended 18 beneficiary of a transaction was not a party to it. See, e.g., Lucas v. Hamm, 56 Cal. 2d 583 , 588–89 19 (1961); J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804 (1979). 20 Although the Biakanja factors appear to weigh against finding that a special relationship 21 existed between TCS and Radus Tek, the Court need not undertake that analysis because a full and 22 adequate remedy for Radus Tek’s economic injury is already available at law. An action for 23 breach of contract against IDC, which Radus Tek also brings here, provides an adequate legal 24 remedy for IDC’s alleged failure to pay the outstanding invoices.2 Crucially, California law also 25 includes various statutory and common law doctrines setting forth the circumstances under which [26] 27 2 The practical obstacle that IDC’s potential insolvency might pose to Radus Tek’s recovery, 1 a third party like TCS may be found vicariously liable for a contracting party’s breach. See, e.g., [2] Cal. Labor Code § 218.8 (making constructor contractors liable for certain wages owed to any 3 subcontractor’s employees); Barrett v. Hammer Builders, Inc., 195 Cal. App. 2d 305, 317 (1961) 4 (explaining that a corporation is liable for contracts entered into by its agent). To the extent that 5 Radus Tek seeks to recover the damages resulting from IDC’s contractual breach from TCS, it 6 must rely on these existing doctrines of third-party liability. Cf., e.g., Goonewardene, 6 Cal. 5th at 7 839 (declining to recognize negligence cause of action against payroll company that erroneously 8 calculated an employee’s wages because “California law already provides the employee with a full 9 and complete remedy [against the employer] for any wage loss the employee sustains as a result of 10 the payroll company’s negligent conduct”). 11 Because California law provides an adequate non-tort remedy for the contractual breach 12 alleged here, Radus Tek fails to state a claim for negligence against TCS. 13 B. Negligent hiring, supervision, and retention claims 14 Under California law, the employees of an independent contractor are barred from 15 asserting negligent hiring, supervision, and retention claims against the hirer of that contractor. 16 Camarago v. Tjaarda Dairy, 25 Cal. 4th 1235 , 1244 (2001). The two exceptions to that general 17 rule are the special (or peculiar) risk doctrine and the retained control exception. Under the special 18 risk doctrine, a person who hires an independent contractor to do inherently dangerous work can 19 be held liable for tort damages when the contractor causes physical injury to others by negligently 20 performing the work. Toland v. Sunland Hous. Grp., Inc., 18 Cal. 4th 253, 256 (1998). Under the 21 retained control exception, the hirer of an independent contractor may be liable for physical injury 22 to an employee of the contractor if they retain control over the work and exercise that control in a 23 way that affirmatively contributes to the injury. Hooker v. Department of Transportation, 27 Cal. 24 4th 198, 202 (2002). 25 Radus Tek concedes that the special risk doctrine, as it is conventionally understood, does 26 not apply to TCS’s conduct here because Radus Tek did not suffer a physical injury and the work 27 that TCS hired IDC to do was not inherently dangerous under the established meaning of that 1 application is strictly limited to physical injuries, Radus Tek contends that the doctrine’s rationale 2 applies equally to certain high-risk business arrangements that create a foreseeable risk of harm to 3 third parties. Radus Tek argues that the type of multi-tiered subcontracting relationship at issue 4 here creates particular vulnerabilities that should be addressed by expanding the special risk 5 doctrine, whose core policy purposes are compensating injuries, spreading risk to the party best 6 able to bear it, and incentivizing proper safeguards. 7 Radus Tek may be correct that the type of multi-tiered subcontracting at issue here creates 8 a high risk of foreseeable harm that existing tort doctrine is inadequate to remedy because such 9 arrangements insulate from liability those parties most capable of bearing risk and preventing 10 harm. But multi-tiered subcontracting is not the first business arrangement to create new financial 11 risks that strain the ability of existing tort doctrine to appropriately allocate liability, and the 12 special risk doctrine’s physical injury requirement has nonetheless persisted. It is not this federal 13 court’s role to expand California tort liability beyond the limits articulated by the California 14 legislature and California courts. 15 Radus Tek also argues that the retained control exception applies here. That doctrine is 16 inapposite. It applies only when an employee of a contractor suffers a physical injury. Radus Tek 17 meets neither of those requirements. 18 Accordingly, Radus Tek fails to state a claim for negligent hiring, supervision, and 19 retention. 20 C. Negligent misrepresentation claim 21 To state a claim for negligent misrepresentation, a plaintiff must allege: (1) a 22 misrepresentation of material fact; (2) without reasonable grounds for believing it to be true; (3) 23 intent to induce another’s reliance; (4) justifiable reliance; and (5) resulting damage. Majd v. Bank 24 of Am., N.A., 243 Cal. App. 4th 1293, 1307 (2015).3 [25] 26 3 Federal Rule of Civil Procedure 9(b) establishes a heightened pleading standard for fraud claims. Under Rule 9(b), a plaintiff must “specif[y] the time, place and specific content of the alleged 27 fraudulent representation; the identity of the person engaged in the fraud; and the circumstances 1 Radus Tek alleges that TCS misrepresented a material fact when it represented that IDC 2 was a preferred partner, and therefore a trustworthy company, even though it knew IDC was 3 involved in bribery and was no longer a preferred partner. According to Radus Tek, this 4 representation occurred in two letters from TCS to the National Stock Exchange of India. In 5 TCS’s June 2023 letter, it stated that after learning of the alleged bribery scheme, TCS “launched a 6 review to examine the allegations” and concluded that “(i) this does not involve any fraud by or 7 against the Company and no financial impact; (ii) the issue relates to breach of Company’s Code 8 of Conduct by certain employees and vendors providing contractors; and (iii) no key managerial 9 person of the Company has been found to be involved.” In the October 2023 letter, TCS stated that 10 it had concluded its investigation and, as a result, “6 vendor entities, their owners and affiliates 11 have been debarred from doing any business with TCS.” It also described steps TCS would take to 12 enhance its governance measures. 13 Radus Tek does not plead facts to show that the statements TCS made in those letters were 14 false. Radus Tek alleges that TCS terminated IDC’s preferred partner status at some point after 15 discovering the bribery scheme, and although Radus Tek implies that IDC was among the six 16 vendor entities referenced in the October 2023 letter, it does not specifically allege as much. Nor [18] up). Additionally, “merely attributing a misrepresentation to a corporate entity is inadequate; a 19 specific person must be named, or at least identified.” Id. The Ninth Circuit has not decided whether Rule 9(b) applies to negligent misrepresentation claims, and district courts are split on the [20] question. Compare Petersen v. Allstate Indem. Co., 281 F.R.D. 413 (C.D. Cal. 2012) (holding that 21 negligent misrepresentation claims are not subject to the heightened pleading standards of Rule 9(b)), and Bernstein v. Vocus, Inc., No. 14-cv-01561-TEH, 2014 WL 3673307 , at *5 (N.D. Cal. 22 July 23, 2014) (same), with Gilmore v. Wells Fargo Bank N.A., 75 F. Supp. 3d 1255, 1270 (N.D. Cal. 2014) (holding that negligent misrepresentation claims are subject to the heightened pleading 23 standards of Rule 9(b)), and Microsoft Corp. v. Hon Hai Precision Indus. Co., 2020 WL 5128629 , at *10 (N.D. Cal. Aug. 31, 2020) (same); cf. Najarian Holdings LLC v. Corevest Am. Fin. Lender [24] LLC, 2020 WL 5993225 , at *5 (N.D. Cal. Oct. 9, 2020) (cleaned up) (“The Ninth Circuit has not 25 yet decided whether Rule 9(b)’s heightened pleading standard applies to a claim for negligent misrepresentation, but most district courts in California hold that it does …. Also … two 26 unpublished Ninth Circuit opinions have affirmed a district court’s dismissal of negligent misrepresentation claims for failing to plead the circumstances surrounding the alleged 27 misrepresentation with particularity.”). The Court need not decide this question because Radus 1 does it allege that, at the time TCS sent the October 2023 letter to the National Stock Exchange of 2 India, it was untrue that six vendors had been barred from doing business with the company. 3 Because Radus Tek does not specifically allege when IDC’s preferred partner status was 4 terminated, it does not specifically allege that any representation TCS made that IDC was a 5 preferred partner occurred after IDC was, in fact, no longer a preferred partner. Radus Tek thus 6 fails to allege that TCS made any misrepresentation. 7 Accordingly, Radus Tek fails to state a claim for negligent misrepresentation.4 8 D. Fraudulent concealment claim 9 To state a claim for fraudulent concealment a plaintiff must allege that: (1) the defendant 10 concealed or suppressed a material fact; (2) the defendant had a duty to disclose the fact to the 11 plaintiff; (3) the defendant intentionally concealed or suppressed the fact with intent to defraud; 12 (4) the plaintiff was unaware of the fact and would have acted differently if they had known; and 13 (5) the plaintiff suffered damages as a result. Marketing West, Inc. v. Sanyo Fisher Corp., 6 Cal. 14 App. 4th 603, 612–13 (1992). 15 Absent a fiduciary relationship, a duty to disclose arises only when parties are in a 16 relationship that “come[s] into being as a result of some sort of transaction.” Bigler-Engler v. 17 Breg, Inc., 7 Cal. App. 5th 276, 311 (2017). “Such a transaction must necessarily arise from direct 18 dealings between the plaintiff and the defendant; it cannot arise between the defendant and the 19 public at large.” Id. at 312 . Such relationships include those between “seller and buyer, employer 20 and prospective employee, doctor and patient, [and] parties entering into any kind of contractual 21 arrangement.” Id. at 311 . The transaction about which parties have a duty to disclose material facts 22 is the transaction giving rise to the relationship. LiMandri v. Judkins, 52 Cal. App. 4th 326 , 337 23 (1997). 24 Radus Tek contends that after TCS discovered the bribery scheme it had a duty to disclose 25 to Radus Tek IDC’s participation in that scheme, the eventual termination of IDC’s preferred [27] 4 TCS contends that Radus Tek also fails to allege that TCS intended to induce Radus Tek’s 1 partner status, and its blacklisting at TCS. Radus Tek argues that TCS’s duty to disclose that 2 information to Radus Tek derived from TCS’s ostensible agency relationship with IDC.5 3 Ostensible agency requires three elements: (1) the principal must intentionally or negligently cause 4 a third party to believe the agent has authority (2) the third party must reasonably believe in the 5 agent’s authority; and (3) the third party must detrimentally rely on that belief. Associated 6 Creditors’ Agency v. Davis, 13 Cal. 3d 374, 399 (1975). Here, Radus Tek maintains that TCS 7 caused Radus Tek to believe IDC was its agent by continuing to hold out IDC as a preferred 8 partner after it discovered the bribery scheme, that Radus Tek reasonably believed in IDC’s 9 authority, and that Radus Tek detrimentally relied on TCS’s representation that IDC was its agent 10 in conducting its business relationship with IDC. 11 The problem with Radus Tek’s argument is that ostensible agency, like any other theory of 12 agency, provides a means for holding a principal liable for the actions of its agent. That, however, 13 is not what Radus Tek seeks to do through its fraudulent concealment claim. Radus Tek does not 14 contend that TCS should be liable for fraudulent concealment undertaken by IDC. Instead, Radus 15 Tek relies on its ostensible agency theory in seeking to hold TCS liable for its own alleged acts of 16 fraudulent concealment. Radus Tek cites no California precedents suggesting that the existence of 17 an ostensible agency relationship between a principal and an agent not only subjects the principal 18 to liability for the agent’s acts but also imposes upon the principal an affirmative duty to disclose 19 certain information to third parties. 20 Further, Radus Tek has not alleged facts to show that, if TCS did conceal material facts 21 about its relationship with IDC, it did so with an intent to defraud Radus Tek. Radus Tek alleges 22 only that TCS generally wanted to ensure its business was not disrupted. 23 Accordingly, Radus Tek fails to state a claim for fraudulent concealment. [26] 5 Radus Tek proposes an additional novel theory that a special relationship between TCS and [27] Radus Tek gives rise to a duty of disclose. But even if such a special relationship existed, which is 1 E. UCL claim 2 The UCL prohibits business practices that are: (1) unlawful; (2) unfair; or (3) fraudulent. [3] Cal. Bus. & Prof. Code § 17200 ; Cel-Tech Commc’ns v. L.A. Cellular Tel. Co., 20 Cal. 4th 163 , 4 180 (1999). “Each ‘prong’ of the UCL provides a separate and distinct theory of liability.” Hadley 5 v. Kellogg Sales Co., 243 F. Supp. 3d 1074, 1089 (N.D. Cal. 2017) (quoting Lozano v. AT&T 6 Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007)). The primary forms of relief available 7 under the UCL are restitution and injunctive relief. Freeman v. ABC Legal Servs., Inc., 877 F. 8 Supp. 2d 919, 923 (N.D. Cal. 2012). 9 Radus Tek contends that TCS’s alleged misrepresentation of IDC’s preferred partner status 10 after it terminated that status upon discovery of IDC’s involvement in the bribery scheme violated 11 the unlawful, unfair, or fraudulent prongs of the UCL. Radus Tek, however, has not pleaded facts 12 sufficient to show that it is entitled to any form of relief available under the UCL. 13 To pursue injunctive relief under the UCL, a plaintiff must show that “there is [a] 14 reasonable probability that the past acts complained of will recur.” Colgan v. Leatherman Tool 15 Group, Inc., 135 Cal. App. 4th 663, 702 (2006). “An injunction will not be granted where at the 16 time of the hearing conditions have so changed that no unlawful act is threatened.” Mallon v. City 17 of Long Beach, 164 Cal. App. 2d 178, 189 (Cal. Ct. App. 1958). Radus Tek has not alleged facts 18 sufficient to show that there is a reasonable probability that TCS will misrepresent the preferred 19 partner status of its contractors generally, or IDC in particular, in the future, or that Radus Tek will 20 rely on that preferred partner designation in making business decisions, especially in light of the 21 economic loss it allegedly suffered by relying on that designation in continuing to do business 22 with IDC after its repeated failure to pay overdue invoices. Conditions have changed significantly 23 since TCS’s alleged misconduct: Radus Tek alleges that IDC is no longer a preferred partner of 24 TCS; Radus Tek has ceased doing business with IDC, which allegedly faces more than 90 breach 25 of contract cases in federal and state courts; and Radus Tek has now learned information that 26 would reasonably prevent it from either contracting with IDC or relying on TCS’s representations 27 about the status of its subcontractors. Cf. Nacarino v. KSF Acquisition Corp., 642 F. Supp. 3d 1 her to evaluate product claims and make appropriate purchasing decisions going forward, 2 || injunctive relief would serve no meaningful purpose as to that plaintiff.”). It is highly unlikely, and 3 certainly not reasonably probable, that the harm Radus Tek allegedly suffered will recur. Radus 4 || Tek therefore lacks standing to seek injunctive relief. 5 As for restitution, it is IDC, not TCS, that allegedly failed to pay Radus Tek the funds it 6 || was owed. Radus Tek does not allege that TCS failed to pay IDC for the work completed by Radus 7 Tek employees. It was IDC that failed to convey the funds to Radus Tek. IDC is thus the party 8 || purportedly in possession of the funds in which Radus Tek claims an ownership interest. 9 || Accordingly, IDC is the party from which Radus Tek could seek restitution under the 10 || circumstances here. Relief under the UCL, however, is only available where legal remedies are 11 inadequate, and Radus Tek has not shown that its contractual claim against IDC is legally 12 || tnadequate. See Sonner v. Premier Nutrition Corp., 971 F.3d 834 , 843-44 (9th Cir. 2020); Grausz 13 v. Hershey Co., 691 F. Supp. 3d 1178 , 1193 (S.D. Cal. 2023) (“[W]here monetary damages provide 14 || an adequate remedy, a federal court may not consider the merits of equitable claims for 3 15 || restitution.”). To the contrary, the legal claims it brings against IDC in this litigation indicate a 16 || precisely the opposite. 3 17 Accordingly, Radus Tek fails to state a claim for violation of the UCL. 1g CONCLUSION 19 For the foregoing reasons, the Court grants TCS’s motion to dismiss. Radus Tek may file 20 || an amended complaint within 21 days of this order. 21 IT IS SO ORDERED. 22 || Dated: February 24, 2025 23 Ze 24 b Cop □ P. Casey Pitts 25 United States District Judge