Sor Technology, LLC v. MWR Life, LLC

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 SOR TECHNOLOGY, LLC, Case No.: 3:18-CV-2358 JLS (NLS) 12 Plaintiff, ORDER GRANTING MOTION TO 13 v. DISMISS 14 MWR LIFE, LLC; YONI ASHUROV; (ECF No. 4) and DOES 1-10, [15] Defendants. [17] 18 Presently before the Court is Defendants MWR Life, LLC and Jonathon “Yoni” 19 Ashurov’s Motion to Dismiss Complaint (“Mot.,” ECF No. 4). Also before the Court is 20 Plaintiff SOR Technology, LLC’s Response in Opposition to (“Opp’n,” ECF No. 12) and 21 Defendants’ Reply in Support of (“Reply,” ECF No. 13) the Motion. After reviewing the 22 Parties’ arguments and the law, the Court GRANTS Defendants’ Motion. 23 BACKGROUND 24 Plaintiff SOR Technology, LLC is a California limited liability company that 25 provides “membership and closed user group programs around the world” with a 26 “technology and fulfillment service” that delivers “discounted travel offerings and related 27 membership services.” ECF No. 1 (“Compl.”) ¶ 2. 28 /// 1 Defendant MWR Life, LLC is a limited liability company doing business in Florida 2 that is “engaged in the sale of travel programs.” Id. ¶ 3. Defendant Jonathon “Yoni” 3 Ashurov is the CEO of MWR Life and lives and works in Florida. Id. 4 On February 3, 2017, the Parties entered into a written Technology and Services 5 Agreement (the “Agreement”). Id. ¶ 10. Under the Agreement, Plaintiff was to create a 6 website for Defendant MWR Life that looked and functioned similar to Plaintiff’s own 7 website. Id. ¶¶ 10–11. Plaintiff also was to incorporate into the website its proprietary 8 software, which included a reservation system and credit card payment capability. Id. 9 Plaintiff alleges it “invested substantial time, skill[,] and resources into the creation of [its 10 own] website, which . . . provided the template for [Defendant] MWR’s . . . website.” Id. 11 ¶ 12. 12 Plaintiff alleges that sometime in August of 2018, it discovered that Defendant 13 MWR Life had “reproduced, distributed, and/or otherwise copied a substantial portion of 14 the copyrighted elements of [its] [w]ebsite . . . without [its] authorization . . . .” Id. ¶ 15. 15 Plaintiff further alleges Defendant MWR Life owes it $86,383.47 for the development of 16 the website and that the payment is overdue in breach of the Agreement. Id. ¶ 38–39. 17 On September 6, 2018, Plaintiff sent a notice to Defendants requesting mediation. 18 Id. ¶ 13. Under the Agreement, the Parties are required to “attempt to resolve [any] dispute 19 in good faith through mediation” before filing a lawsuit. Id. Plaintiff alleges that it 20 requested Defendants agree on a date and specific mediator multiple times, but Defendants 21 “refus[ed] to cooperate in good faith with [Plaintiff] to resolve any dispute through 22 mediation.” Id. 23 Plaintiff sued Defendants on October 12, 2018, bringing claims for (1) copyright 24 infringement under 17 U.S.C. §§ 106 , 501; (2) trade dress infringement under 15 U.S.C. 25 § 1125(a); (3) aiding and abetting copyright and trade dress infringement; (4) breach of 26 contract for non-payment; and (5) breach of contract for failure of obligations under the 27 Agreement. See generally id. Defendants then filed the instant Motion. See generally 28 Mot. 1 LEGAL STANDARD 2 Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 3 defense that the complaint “fail[s] to state a claim upon which relief can be granted,” 4 generally referred to as a motion to dismiss. The Court evaluates whether a complaint 5 states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil 6 Procedure 8(a), which requires a “short and plain statement of the claim showing that the 7 pleader is entitled to relief.” Although Rule 8 “does not require ‘detailed factual 8 allegations,’ . . . it [does] demand more than an unadorned, the-defendant-unlawfully9 harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 10 Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a plaintiff’s obligation to 11 provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 12 conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 13 Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A 14 complaint will not suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further factual 15 enhancement.’” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 557 ). 16 To survive a motion to dismiss, “a complaint must contain sufficient factual matter, 17 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 18 Twombly, 550 U.S. at 570 ); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 19 when the facts pled “allow the court to draw the reasonable inference that the defendant is 20 liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 21 556). That is not to say that the claim must be probable, but there must be “more than a 22 sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent 23 with’ a defendant’s liability” fall short of a plausible entitlement to relief. Id. (quoting 24 Twombly, 550 U.S. at 557 ). Further, the Court need not accept as true “legal conclusions” 25 contained in the complaint. Id. This review requires context-specific analysis involving 26 the Court’s “judicial experience and common sense.” Id. at 678 . 27 /// 28 /// 1 ANALYSIS 2 Defendants argue the Court must dismiss Plaintiff’s Complaint for several reasons, 3 including failure to mediate before filing suit as required under the Parties’ Agreement. 4 Mot. at 7–12. The Court addresses this issue first and concludes that, because Plaintiff 5 failed to satisfy the contractual prerequisite of mediating prior to filing suit, the Court must 6 dismiss Plaintiff’s Complaint. 7 I. Incorporation by Reference 8 The Court must first determine what material it may properly consider. Defendants 9 attach to their Motion the Agreement, see Declaration of Jonathon “Yoni” Ashurov 10 (“Asurov Decl.”), Ex. 14, ECF No. 4-2, and several pre-suit email communications 11 regarding settlement and mediation. See id. Exs. 1–13. Plaintiff also attached the 12 Agreement and additional emails to its Opposition. See Declaration of Stuart Clark in 13 Support of Opposition to Defendants’ Motion to Dismiss (“Clark Decl.”), Exs. A–D, ECF 14 No. 12-1. 15 “Generally, district courts may not consider material outside the pleadings when 16 assessing the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil 17 Procedure.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) 18 (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). “There are two 19 exceptions to this rule: the incorporation-by-reference doctrine, and judicial notice under 20 Federal Rule of Evidence 201.” Id. Under the incorporation-by-reference doctrine, “a 21 defendant may seek to incorporate a document into the complaint ‘if the plaintiff refers 22 extensively to the document or the document forms the basis of the plaintiff’s claim.’” Id. 23 at 1002 (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)). The Court 24 may only consider those documents if the their “authenticity . . . is not contested” and “the 25 plaintiff’s complaint necessarily relies on them.” Parrino v. FHP, Inc., 146 F.3d 699 , 26 705–06 (9th Cir. 1998). 27 Addressing the Agreement first, the Court finds that Plaintiff’s Complaint refers 28 extensively to the Agreement. See, e.g., Compl. ¶¶ 10–11, 13, 15, 37–48. The Court also 1 finds the Agreement forms the basis of Plaintiff’s claims. And neither Party disputes the 2 authenticity of the document––indeed, both Parties have attached a redacted copy to their 3 briefs. See Clark Decl., Ex. A; Ashurov Decl., Ex. 14. The Court therefore incorporates 4 by reference the Agreement. 5 Turning to the emails between counsel, the Court finds them inappropriate to 6 incorporate by reference. Although Plaintiff alludes to the emails in its Complaint, see 7 Compl. ¶ 13, Plaintiff did not “refer[] extensively” to the emails, nor did the emails “form[] 8 the basis of . . . [P]laintiff’s claim[s].” See Ritchie, 342 F.3d at 908 . The Court therefore 9 may not consider the emails for the purposes of this Motion under Rule 12(b)(6). 10 II. Failure to Mediate 11 Neither party disputes that the Agreement requires the Parties to mediate before 12 engaging in litigation. Section 20(b) of the Agreements states: 13 Prior to filing a lawsuit, the Parties agree to attempt to resolve the dispute in good faith through mediation conducted by a [14] mediator to be mutually selected. Mediation will be conducted 15 in San Diego County, California, unless otherwise agreed to by the Parties in writing signed by both Parties. The [P]arties will [16] share the costs of the mediator and mediation equally. Each 17 [P]arty will cooperate fully and fairly with the mediator and will attempt to reach a mutually satisfactory compromise to the [18] dispute within thirty (30) days after it is referred to the mediator. [19] 20 Section 20(a) of the Agreement further provides that the Agreement “shall be construed in 21 accordance with and governed by the laws of the State of California.” Thus, “the [C]ourt 22 analyzes this dispute . . . under California contract law, as dictated by the agreement.” 23 Bellingham Marine Indus., Inc. v. Del Rey Fuel, LLC, No. CV 12-05164 MMM (MANx), [24] 2012 WL 12941958 , at *2 n.16 (C.D. Cal. Oct. 19, 2012). 25 When a contract clause makes mediation a condition precedent to filing a lawsuit, 26 “[f]ailure to mediate . . . warrants dismissal.” Delamater v. Anytime Fitness, Inc., 722 F. 27 Supp. 2d 1168, 1180–81 (E.D. Cal. 2010) (quoting Brosnan v. Dry Cleaning Station, Inc., 28 No. C-08-2028 EDL, 2008 WL 2388392 , at *1 (N.D. Cal. June 6, 2008)). “Consequently, 1 the [C]ourt must determine whether the complaint should be dismissed for failure to allege 2 a necessary element of [P]laintiff’s claims, i.e., mediation prior to the filing of the 3 [C]omplaint.” Bellingham Marine Indus., 2012 WL 12941958 , at *2. 4 Defendants argue that the Court must dismiss the Complaint because Plaintiff failed 5 to comply with the mandatory mediation provision of the Agreement. Mot. at 10. Plaintiff 6 does not dispute that the Parties did not mediate. See generally Opp’n. Instead, Plaintiff 7 argues that (1) Defendants cannot enforce the provision because they breached the 8 Agreement by not cooperating with Plaintiff’s efforts to mediate in a timely manner, Opp’n 9 at 9–13; and (2) not all of Plaintiff’s claims in its Complaint arise under the Agreement 10 and, thus, the mediation provision does not apply. Opp’n at 13–14. The Court finds both 11 arguments unpersuasive. 12 First, the Court finds Plaintiff failed adequately to plead it completed, or was 13 otherwise excused from, mediation prior to bringing this action. Despite Plaintiff’s 14 argument that Defendants “stonewalled and sabotaged [its] repeated mediation efforts,” 15 Opp’n at 7, the Complaint never states that Defendants actually refused to mediate. In fact, 16 Plaintiff concedes that Defendants never indicated they were unwilling to mediate, merely 17 that Defendants never “actually committed to mediate.” Id. at 14 (emphasis omitted). By 18 failing to plead completion of mediation prior to filing suit, Plaintiff fails to state a required 19 aspect of its claims. 20 Plaintiff contends that it did not mediate because Defendants breached the 21 Agreement which excused its obligation to mediate. Opp’n at 15–17. This is based on 22 Plaintiff’s argument that the Agreement contains a “time is of the essence clause,” which, 23 according to Plaintiff, Defendants breached by refusing to mediate in a timely manner. Id. 24 Because of this alleged breach, Plaintiff argues Defendants cannot enforce the mediation 25 provision against Plaintiff. Id. Section 20(b) of the Agreement states that “[e]ach party 26 will cooperate fully and fairly with the mediator and will attempt to reach a mutually 27 satisfactory compromise to the dispute within thirty (30) days after it is referred to the 28 mediator.” The plain meaning of this clause is that the thirty-day window to complete the 1 mediation begins only after the Parties actually refer the matter to the mediator, not when 2 a party files notice requesting mediation. Indeed, Plaintiff concedes that “the Agreement 3 does not specify a deadline for appointing the mediator.” Opp’n at 15. Because the Parties 4 had yet to refer the matter to a mediator, the thirty-day clock never began to tick. Plaintiff 5 does not point to any other provision in the Agreement that would require the mediation to 6 start within a specific time. The Court therefore will not impose a time limit the Parties 7 never agreed upon in their contract. 8 Plaintiff similarly fails to plead Defendants waived their ability to enforce the 9 mediation provision because of their delay in mediating. Nothing in the Complaint shows 10 that Defendants intentionally relinquished their right to enforce the Agreement. See City 11 of Ukiah v. Fones, 64 Cal. 2d 104, 108 (1966). 12 Second, Plaintiff fails to show the claims do not fall under the Agreement. Under 13 California law, courts must read and interpret contracts as a whole, to the extent possible. 14 See Cal. Civ. Code § 1641 (“The whole of a contract is to be taken together, so as to give 15 effect to every part, if reasonably practicable, each clause helping to interpret the other”). 16 Courts should strive to reconcile contradictory or inconsistent terms in a way that gives 17 effect to the parties’ intent. Cal. Civ. Code § 1652 ; see also Fernandez v. K-M Indus. 18 Holding Co., Inc., 646 F. Supp. 2d 1150, 1160 (N.D. Cal. 2009). 19 Section 20(b) of the Agreement does not state the applicable scope of claims covered 20 under that provision. Section 20 of the Agreement does, however, contain other clauses 21 that state the scope of those provisions. For example, Section 20(a) states that the Parties 22 “hereby agree that all actions to enforce this Agreement may be brought in the federal or 23 state courts located in San Diego County . . . .” (emphasis added). Section 20(c) states the 24 Parties waive “any right . . . to a trial by jury with respect to any litigation directly or 25 indirectly arising out of, under or in connection with this [Agreement].” (emphasis added). 26 Finally, Section 20(d) states that there is no liability for any “special, indirect or 27 consequential damages arising out of or related to the subject matter of this [A]greement 28 . . . .” (emphasis added). Section 20(b) merely refers to a “lawsuit” being filed. The Court 1 will assume that the lawsuit referred to in Section 20(b) extends to the same scope as the 2 lawsuits contemplated in other provisions in Section 20. To harmonize the slightly 3 different language in the different provisions of Section 20, the Court interprets Section 4 20(b)’s scope to same extent as the provisions surrounding it, which reach any actions 5 “arising out of or related to the Agreement.” 6 The Ninth Circuit has held that the similar “language ‘arising in connection with’ 7 reaches every dispute between the parties having a significant relationship to the contract 8 and all disputes having their origin or genesis in the contract.” Simula, Inc. v. Autoliv, Inc., [9] 175 F.3d 716, 721 (9th Cir. 1999) (collecting cases broadly construing the language 10 “arising out of or relating to this Agreement”). 11 Here, there is no dispute that Plaintiff’s fourth and fifth causes of action for breach 12 of contract fall under the mediation requirement in the Agreement. Plaintiff argues that its 13 first, second, and third causes of action for copyright infringement, trade dress 14 infringement, and aiding and abetting do not arise out of or relate to the Agreement. Opp’n 15 at 13–14. The Court disagrees. The copyright and trade dress claims both stem from the 16 website and software Plaintiff created and permitted Defendants to use pursuant to the 17 Agreement. The Court will need to determine whether Defendant copied aspects of the 18 Website not allowed under the terms of the Agreement. And the aiding and abetting claim 19 necessarily relies on a finding of infringement. Consequently, this dispute has “its origin 20 or genesis” and a “significant relationship” to the Agreement. The Court therefore 21 concludes that all of the causes of action arise from the Agreement and are subject to the 22 mediation prerequisite to filing suit. 23 CONCLUSION 24 Based on the foregoing, the Court GRANTS Defendant’s Motion to Dismiss (ECF 25 No. 4) and DISMISSES WITHOUT PREJUDICE Plaintiff’s Complaint. The dismissal 26 is without prejudice so that Plaintiff may refile its claims once it has fulfilled its obligation 27 to mediate prior to filing suit. See Salinas Valley Mem’l Healthcare Sys. v. Monterey 28 /// 1 || Peninsula Horticulture, Inc., No. 17-CV-07079-LHK, 2019 WL 2569545 , at *7 (N.D. Cal. 2 21, 2019). 3 IT IS SO ORDERED. 4 ||Dated: August 28, 2019 . tt f Le 5 on. Janis L. Sammartino 6 United States District Judge