1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
8 Arizona Grain Incorporated, et al., No. CV-18-03371-PHX-GMS 9 Plaintiffs, ORDER 10 v. 11 Barkley Ag Enterprises LLC, et al., 12 Defendants. 13 Northern Agri Brands, LLC,
14 Counterclaim Plaintiff,
15 v. 16 Arizona Plant Breeders, Inc., et al., 17 Counterclaim 18 Defendants. 19 Northern Agri Brands, LLC,
20 Third-Party Plaintiff,
21 v.
22 Eric Wilkey, et al.,
23 Third-Party Defendants.
24 25 Pending before the Court is a motion by Counterclaim Defendants Arizona Plant 26 Breeders, Inc. and Arizona Grain, Inc. (jointly “APB”) to dismiss Counts One, Three, Four, 27 Five, Six, and Seven of the Counterclaims filed by Northern Agri Brands, LLC (“NAB”) 28 against APB for failure to state claims upon which relief may be granted. (Doc. 33.) APB’s 1 officers and directors, Eric Wilkey, K. Andrew Kroese, William Ken Dickey, Russell S. 2 Dickey, and Tod V. Dickey (collectively “APB officers”), have, on behalf of themselves 3 and their unnamed wives (“Jane Doe Defendants”), moved to dismiss all Counterclaims 4 for failure to state claims upon which relief may be granted and insufficient process. 5 Lockwood Seed and Grain (“Lockwood”), a distributor for APB, has moved to dismiss all 6 Counterclaims for improper venue and lack of personal jurisdiction, and has also joined in 7 APB’s motion to dismiss for failure to state claims. (Doc. 50.)1 For the following reasons, 8 the motions are granted in part and denied in part.2 9 BACKGROUND 10 The facts as alleged in NAB’s Counterclaims (Doc. 25) are as follows. NAB is a 11 seed company with an internal research and development division that sells seed products 12 to farms. Several of NAB’s seed products are varieties of triticale, a hybrid of wheat and 13 rye. NAB’s predecessor-in-interest Resource Seeds, Inc. owned an extensive triticale 14 library of breeding materials from which to select to cross lines to achieve preferred genetic 15 traits. Resource Seeds plant breeder Dr. Bob Matchett and field technician Oly Cantu 16 developed many triticale varieties, including the one at issue in this case, SY 158T. SY 17 158T is an “awned” triticale variety, meaning it has bristle-like appendages. 18 In 2014, Plant Variety Protection (PVP) Certificate No. 201200083 was issued to 19 Syngenta (NAB’s predecessor-in-interest and Resource Seeds’ successor-in-interest) 20 pursuant to 28 U.S.C. § 2482 for SY 158T. The PVP Certificate was subsequently assigned 21 to NAB. At all times relevant herein, the PVP Certificate for SY 158T was and remains in 22 full force and effect. NAB and its predecessors only authorized sales of PVP protected 23 triticale seed varieties with written notice containing statutorily designated language 24 signifying that: (1) the seed was protected under the Plant Variety Protection Act (PVPA); 25
1 APB and the APB officers are referred to herein collectively as “APB Defendants.” APB, 26 the APB officers, and Lockwood are referred to herein collectively as “Defendants.” 2 All parties have requested oral argument. Those requests are denied because the parties 27 have had an adequate opportunity to discuss the law and evidence and oral argument will not aid the Court’s decision. See Lake at Las Vegas Investors Group, Inc. v. Pac. Malibu 28 Dev., 933 F.2d 724, 729 (9th Cir. 1991). - 2 - 1 (2) unauthorized propagation or multiplication of the seed was prohibited; and (3) use of 2 the seed by the purchaser was authorized only for purposes of growing a commercial crop 3 of grain. NAB required such notice on all bags of triticale seed sold and on notices 4 accompanying all bulk sales of such triticale seed. In addition, NAB consistently and 5 prominently marked the varieties with statutory PVPA notices on its marketing and 6 promotional materials for such varieties. 7 Resource Seeds also developed awnless triticale varieties, which do not have the 8 bristle-like appendages of SY 158T. On October 19, 1999, the United States Patent and 9 Trademark Office issued United States Patent No. 5,969,219 (the “219 Patent” or the 10 “Patent”), entitled “Awn-inhibitor genes for triticale and their use.” The 219 Patent is 11 directed towards awn-inhibitor triticale genes. The Patent includes 36 claims, including 12 independent claims 1, 18, and 36 at issue in this case. Resource Seeds assigned the Patent 13 to Syngenta, and thereafter, Syngenta assigned the Patent to NAB. NAB and its 14 predecessors sold its seed in bags together with a limited label license prohibiting use of 15 the seed for any commercial purposes, including breeding or multiplication. 16 During his employment with Resource Seeds and Syngenta, technician Cantu had 17 access to all breeding materials and germplasm, including direct access to both awnless 18 and awned breeding materials of triticale and the crossing and progeny of triticale 19 undergoing various stages of generational breeding and selection. In 2010, Cantu 20 announced he was leaving Syngenta. Prior to leaving Syngenta, Cantu communicated with 21 Albert Carleton, the former owner and president of APB, to arrange a replacement job. 22 Cantu then secretly and without authority accessed, secured, and removed a portion of 23 triticale breeding materials and related information contained within confidential breeding 24 records, including records covering SY 158T, and took these materials to APB. At APB, 25 Cantu and Carleton used the materials to establish a directly competitive triticale breeding 26 program founded upon Syngenta’s triticale breeding materials. 27 In 2015, NAB observed awnless triticale varieties in various stages of growth and 28 development in APB test plots. NAB became concerned that the awnless triticale varieties - 3 - 1 observed in APB plots were either (1) the product of unauthorized use of NAB’s breeding 2 materials and other patented awnless triticale varieties that were misappropriated by Cantu 3 prior to his departure from Syngenta, or (2) the product of APB’s unauthorized and illegal 4 efforts to breed against NAB’s patented awnless triticale varieties, or (3) both. 5 During the summer of 2017, APB president Eric Wilkey proposed a license for 6 awnless triticale payable to NAB for the use of awnless varieties APB claimed to possess. 7 Wilkey confirmed APB was actively licensing a triticale variety to Lockwood for 8 distribution to the public. Wilkey further acknowledged that SY 158T, NAB’s awned 9 triticale, was “one of the parents” of APB’s “RAPTOR” triticale. 10 In September 2017, NAB obtained samples of APB’s RAPTOR triticale from 11 Lockwood. According to the seed bag label, the seed had been tested in September 2017 12 for germination and purity and claimed a lot number of “RAPTOR 17-1.” NAB planted 13 the RAPTOR triticale in areas immediately adjacent to SY 158T to perform agronomic 14 study. NAB then observed the growth of the two triticale varieties and compared the 15 information, concluding that RAPTOR was the same variety as SY 158T. According to 16 NAB, the plants in each test plot had identical characteristics. NAB then submitted samples 17 for scientific testing and obtained test results concluding RAPTOR branded triticale 18 genetically matched SY 158T triticale. 19 On October 19, 2018, APB filed suit against NAB. (Doc. 1.) The amended 20 complaint, filed March 14, 2019, requested declaratory judgments that APB had not 21 infringed the PVPA or misappropriated trade secrets and alleged tortious interference with 22 prospective business relations, unfair competition, aiding and abetting tortious conduct, 23 and civil conspiracy. (Doc. 16.) On April 16, 2019, NAB filed its answer and affirmative 24 defenses and alleged seven counterclaims against Defendants: (1) infringement under the 25 PVPA; (2) infringement of the 219 patent; (3) trade secret misappropriation pursuant to 26 Arizona law, (4) California law, and (5) federal law; (6) conversion; and (7) unjust 27 enrichment. (Doc. 25.) On May 31, 2019, APB filed this motion to dismiss Counts One 28 and Three through Seven on behalf of APB and all Counts on behalf of Third-party - 4 - 1 Defendants. (Doc. 33.) 2 DISCUSSION 3 I. Legal Standard 4 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 5 Procedure 12(b)(6), a complaint must contain more than a “formulaic recitation of the 6 elements of a cause of action”; it must contain factual allegations sufficient to “raise the 7 right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 8 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While “a complaint need not 9 contain detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief 10 that is plausible on its face.’” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th 11 Cir. 2008) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the 12 plaintiff pleads factual content that allows the court to draw the reasonable inference that 13 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 14 (2009) (citing Twombly, 550 U.S. at 556). The plausibility standard “asks for more than a 15 sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that 16 are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between 17 possibility and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 18 555) (internal citations omitted). 19 When analyzing a complaint for failure to state a claim, “allegations of material fact 20 are taken as true and construed in the light most favorable to the non-moving party.” Smith 21 v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). In addition, the Court must assume that all 22 general allegations “embrace whatever specific facts might be necessary to support them.” 23 Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). However, legal 24 conclusions couched as factual allegations are not given a presumption of truthfulness, and 25 “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a 26 motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). 27 / / / 28 / / / - 5 - 1 II. Analysis
2 A. Lockwood’s Motion to Dismiss for Lack of Jurisdiction and Improper 3 Venue 4 As an initial matter, in its Opposition to Lockwood’s motion to dismiss, NAB states 5 that “it is not asserting patent infringement, trade secret misappropriation, or conversion 6 claims against Lockwood.” (Doc. 53 at 2 n.2.) Accordingly, these claims are dismissed as 7 to Lockwood. 8 As to the remaining claims for infringement under the PVPA and unjust enrichment, 9 NAB must demonstrate that personal jurisdiction exists over Lockwood. “Where, as here, 10 there is no applicable federal statute governing personal jurisdiction, the law of the state in 11 which the district court sits applies.” Harris Rutsky & Co. v. Bell & Clements Ltd., 328 12 F.3d 1122, 1129 (9th Cir. 2003). Arizona Rule of Civil Procedure 4.2(a) allows state courts 13 to exercise personal jurisdiction to the extent permitted by the state and federal 14 constitutions. The Court must therefore examine whether exercising jurisdiction over 15 Lockwood comports with due process. Cybersell v. Cybersell, 130 F.3d 414, 416 (9th Cir. 16 1997). 17 Specific personal jurisdiction3 is appropriate when: (1) the defendant purposefully 18 directed its activities or consummated some transaction with the forum or a resident of the 19 forum, or performed some act by which it purposefully availed itself of the privileges of 20 conducting activities in the forum; (2) the claim arises out of or relates to the defendant’s 21 forum-related activities; and (3) the exercise of jurisdiction is reasonable. Harris, 328 F.3d 22 at 1129. NAB argues that exercise of specific personal jurisdiction over Lockwood is 23 appropriate because the unsigned licensing agreement between Lockwood and APB 24 provided by Lockwood in discovery, (Doc. 55-1), includes an Arizona choice of 25 law/jurisdiction clause and “raises the reasonable inference . . . that the agreement was 26 negotiated in Arizona, that royalties were paid to APB . . . and that Lockwood employees
27 3 NAB relies solely on the exercise of specific jurisdiction, not general jurisdiction, in its claim against Lockwood. (Doc. 53 at 13n.4.) Thus, the Court addresses only specific 28 jurisdiction here. - 6 - 1 . . . travelled to Arizona in connection with this Agreement,” (Doc. 53 at 6). Moreover, 2 NAB asserts that Lockwood “sold seed protected by NAB’s PVPA certificate to an Arizona 3 entity.”4 Id. 4 Lockwood cites Bristol-Myers Squibb Co. v. Superior Court of California, San 5 Francisco County, 137 S. Ct. 1773 (2017), for the proposition that a “defendant’s 6 negotiation and entry into a contract with a forum resident, standing alone, is not enough 7 to confer personal jurisdiction over the defendant in that forum for torts allegedly 8 committed outside the forum.” (Doc. 59 at 5.) Unlike NAB, however, the plaintiffs in 9 Bristol-Myers were not domiciled in the state where the action was brought—the court 10 even distinguished its case from a case where specific personal jurisdiction existed by 11 stating, in part, “here the nonresidents’ claims involve . . . no harm to California residents.” 12 Id. at 1782. And unlike Lockwood, the Bristol-Myers defendant was not alleged to have 13 engaged in “relevant acts” with its contract partner in the forum; nor was it alleged that that 14 the harm caused by the Bristol-Myers defendant originated with its contract partner, as 15 NAB alleges here. Id. at 1783. Finally, Bristol-Myers is particularly inapposite here, where 16 NAB has brought suit in its home state, because the court concluded in dicta that the non- 17 resident plaintiffs “could probably sue together in their home States” (though it did not 18 explain whether that was because the plaintiffs’ home states were the location of their harm 19 or the location of their residence (or both)). Id. 20 Although a “contract with an out-of-state party alone can[not] . . . establish 21 sufficient minimum contacts in the other party’s home forum,” if the contract demonstrates 22 that the defendant contemplated a long-term interdependent relationship in the forum state, 23 the defendant cannot argue that its relationship to that state is “random,” “fortuitous,” or 24 “attenuated.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 482 (1985). In Burger King, 25 Burger King, a Florida corporation, brought an action in Florida federal district court when
26 4 It is unclear whether NAB is referring to its allegation that Lockwood provided NAB with RAPTOR, or whether it is referring to an email from Dianna Alexander of Lockwood to 27 Carolyn Grzecka and Eric Wilkey of APB discussing Lockwood selling the accused triticale seed back to Arizona Grain in Arizona (Doc. 58-3). Regardless, NAB has not 28 alleged that Lockwood sold RAPTOR to any consumer in Arizona. - 7 - 1 Rudzewicz, a Burger King franchise owner, refused a termination order and continued to 2 operate a Burger King restaurant in Michigan. Id. The court found that although Rudzewicz 3 did not maintain offices in or ever visit Florida, the franchise dispute grew directly out of 4 “a contract which had a substantial connection with [Florida]” because Rudzewicz 5 deliberately “reach[ed] out beyond” Michigan and “entered into a carefully structured 20- 6 year relationship that envisioned continuing and wide-reaching contacts with Burger King 7 in Florida.”5 Id. at 479–480. Consequently, the court held that the Florida district court’s 8 exercise of jurisdiction did not offend due process. 9 Lockwood argues that its contract with APB does “not create an ongoing 10 relationship in [Arizona]; instead . . . it create[s] an ongoing relationship for obligations in 11 [California].” Bartel v. Tokyo Elec. Power Co., Inc., 371 F. Supp. 3d 769, 786–87 (S.D. 12 Cal. 2019). But unlike the plaintiff in Bartel who provided no evidence that the defendant 13 “reached out and invoked the benefits or protections” of the forum state’s laws, id. at 787, 14 NAB has shown that Lockwood agreed to an Arizona choice of law/jurisdiction clause and 15 has raised “the reasonable inference” that the Lockwood/APB agreement “was negotiated 16 in Arizona, that royalties were paid to APB . . . and that Lockwood employees . . . travelled 17 to Arizona in connection with this Agreement,” (Doc. 53 at 6). The Court agrees with NAB 18 that Lockwood’s license agreement with APB provides sufficient evidence to support a 19 prima facie case for specific personal jurisdiction. 20 Because Lockwood is subject to personal jurisdiction in the District of Arizona, it 21 “resides” here, 28 U.S.C.A. § 1391(c),6 and venue is proper, 28 U.S.C.A. § 1391(b).7
22 5 The 20-year contract required franchisees to pay monthly royalties, advertising and sales promotion fees, and rent. Franchisees also agreed to submit to Burger King’s exacting 23 regulation of every conceivable aspect of their operations. The documents also emphasized that Burger King’s operations are conducted and supervised from the Miami headquarters, 24 that all relevant notices and payments must be sent there, and that the agreements were made in and enforced from Miami. 25
6 “(c) Residency.--For all venue purposes-- (2) an entity with the capacity to sue and be 26 sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject 27 to the court’s personal jurisdiction with respect to the civil action in question . . .”
28 7 “(b) Venue in general.--A civil action may be brought in--(1) a judicial district in which - 8 - 1 Lockwood’s motion is therefore denied as to lack of personal jurisdiction and improper 2 venue. 3 B. Claims Against Corporate Officers and Jane Doe Defendants 4 NAB brings seven claims against the APB Officers and names their wives as Jane 5 Doe Defendants: Eric Wilkey (president of APB and AGI, serves on the Board of Directors 6 of both) and Jane Doe Wilkey; K. Andrew Kroese (vice president of APB and AGI, CFO 7 of AGI, Board of Directors of APB) and Jane Doe Kroese; William Ken Dickey (vice 8 president of APB and AGI, Board of Directors of both) and Jane Doe Dickey; Russell S. 9 Dickey (corporate secretary of APB, Board of Directors of AGI) and Jane Doe Dickey; and 10 Tod V. Dickey (Board of Directors of AGI) and Jane Doe Dickey. 11 With respect to each of the corporate officers, NAB alleges personal liability “for 12 actions alleged herein against APB because [they] authorized, directed, and/or participated 13 in the tortious conduct.” (Doc. 25 at 16.) In addition, NAB alleges that Eric Wilkey “offered 14 to pay to NAB a royalty on certain ‘awnless’ triticale varieties”; that “according to Wilkey, 15 APB proposed a license for awnless triticale payable to NAB from APB for the use of 16 awnless varieties APB claimed to possess”; that “Wilkey also confirmed APB is actively 17 licensing a triticale variety to Lockwood Seed and Grain for distribution to the public”; and 18 that “Wilkey further acknowledged that SY 158T is ‘one of the parents’ of the RAPTOR 19 triticale.” (Doc. 25 at 25.) No further allegations are made specifically against the APB 20 Officers and no specific allegations are made against the “Jane Doe” Defendants. 21 NAB submits that although it is “working with limited facts about the inner 22 workings of APB” at the pre-discovery stage, it is “likely that each of the named individual 23 defendants knew of the rights owned by NAB and its predecessors, and authorized or 24 directed the breeding program that infringed on NAB’s patent/PVP rights, misappropriated 25 NAB’s trade secret rights, and wrongfully took control or dominion over the SY 158T 26 seeds in violation of the limited label licenses.” (Doc. 35 at 19.) Although it is true that 27
any defendant resides, if all defendants are residents of the State in which the district is 28 located . . .” - 9 - 1 NAB’s Counterclaims “do[] not contain any specific factual allegations regarding [the 2 Third-party Defendants’] involvement in the actions giving rise to this lawsuit,” Blantz v. 3 California Dep’t of Corr. & Rehab., Div. of Corr. Health Care Servs., 727 F.3d 917, 927 4 (9th Cir. 2013), “[w]hen the entire factual context is considered, it is clear that [NAB] has 5 ‘nudged [its] claim[ ]’” that APB’s corporate officers were aware of the unlawful behavior 6 alleged by NAB “across the line from conceivable to plausible,” Soo Park v. Thompson, 7 851 F.3d 910, 928 (9th Cir. 2017) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009)). 8 “The Twombly plausibility standard . . . does not prevent a plaintiff from pleading facts 9 alleged upon information and belief where the facts are peculiarly within the possession 10 and control of the defendant or where the belief is based on factual information that makes 11 the inference of culpability plausible. . . . We relax pleading requirements where the 12 relevant facts are known only to the defendant.” Id. 13 Here, where NAB alleges APB infringed on NAB’s rights to PVPA- and patent- 14 protected triticale varieties, the inference of APB’s corporate officers’ culpability is 15 plausible. NAB alleges that APB President Eric Wilkey made statements that show his 16 awareness and control of the violations alleged here. Unlike in Blantz, where “common 17 sense require[d] [the court] to reject the allegation that the Chief Medical Officer for the 18 state-wide prison system, who sits on the Governing Body, was personally involved in the 19 decision to terminate Blantz as an independent contractor nurse at Calipatria state prison 20 or to give her a negative job reference,” 727 F.3d at 927, it is not implausible to assume 21 that if APB’s president was aware of the alleged violations, the other corporate officers 22 named here were similarly aware. 23 Defendants also move to dismiss all claims as to the Jane Doe Defendants because 24 they assert that NAB’s claims against the Jane Doe Defendants are too conclusory. Citing 25 Doe v. United States, 2018 WL 2431774, at *1 (D. Ariz. May 30, 2018), Defendants argue 26 that claims against a defendant’s spouse cannot survive a motion to dismiss if such 27 allegations are simple assertions that all relevant acts were committed during a marriage 28 and on behalf of a marital community. But Doe’s holding that the defendant husband could - 10 - 1 not plausibly have engaged in sexual acts with the plaintiff prisoner for the benefit of his 2 marital community, id., is inapposite in this case where the APB Officers allegedly 3 committed torts for financial gain. “The controlling question, in determining liability of the 4 marital community for the tort of the spouse, is whether the tort is calculated to be, is done 5 for, or results in a benefit to the community.” Id. “A claim has facial plausibility when the 6 plaintiff pleads factual content that allows the court to draw the reasonable inference that 7 the defendant is liable for the misconduct alleged.” Id. at *7. Here, it is reasonable to infer 8 that if, as NAB alleges, the APB Officers committed the alleged acts for financial gain, 9 they did so for the benefit of their marital community. See Ariz. Rev. Stat. Ann. § 25-211 10 (“All property acquired by either husband or wife during the marriage is the community 11 property of the husband and wife except for property that is: 1. Acquired by gift, devise or 12 descent. 2. Acquired after service of a petition for dissolution of marriage, legal separation 13 or annulment . . .”). 14 Defendants also assert that the claims against the Jane Doe Defendants should be 15 dismissed because the use of “Jane Doe” to identify a defendant is generally disfavored in 16 federal courts and NAB has provided no explanation for its failure to identify the Jane Doe 17 Defendants by name. However, because NAB has properly identified the APB Officers, 18 the Court will allow NAB 90 days to discover the names of the Jane Doe Defendants and 19 amend the complaint accordingly. Defendants’ motion to dismiss all claims as to the APB 20 Officers and the Jane Doe Defendants is therefore denied at this stage, and the Court 21 includes these Defendants in its below analysis. 22 C. Count One: Infringement of PVP Certificate No. 201200083 23 NAB alleges Defendants “used, conditioned, marketed, sold, and/or stocked NAB’s 24 triticale varieties in the United States in violation of the PVPA” and “dispensed NAB’s 25 triticale varieties, in a form which can be propagated, without restriction to other growers, 26 in violation of the PVPA.” (Doc. 25 at 26.) However, as PVP Certificate 201200083 covers 27 only the SY 158T triticale variety, (Doc. 25-1), and SY 158T is the only triticale variety 28 named in connection with the PVPA in NAB’s Counterclaims, the Court will only address - 11 - 1 Defendants’ alleged “use[], condition[ing], market[ing], [sale], and/or stock[ing]” and 2 “dispens[ing]” of SY 158T in this Count, despite NAB’s use of the plural term “triticale 3 varieties” (emphasis added). 4 Defendants challenge the assertion that its RAPTOR triticale is identical to NAB’s 5 protected SY 158T variety but concede that they must treat that allegation as true for 6 purposes of a 12(b)(6) motion. Defendants nevertheless argue that they cannot be held 7 liable under the PVPA for dispensing SY 158T unless they had actual or constructive notice 8 that the seed was a protected variety at the time of dispensing. See Syngenta Seeds, Inc. v. 9 Delta Cotton Co-op., Inc., 457 F.3d 1269, 1275 (Fed. Cir. 2006) (“The trial court's 10 construction of the provision erroneously omits a necessary element of an infringement 11 claim under § 2541(a)(6): that the accused infringer had notice that the seed it was 12 dispensing was PVPA protected.”). NAB counters that notice is “not [an] element[] that 13 must be established by the PVP certificate owner,” but rather an “affirmative defense[] that 14 must be raised by the counter defendant,” (Doc. 35 at 8.); however, NAB provides no 15 authority for this assertion. 16 Nevertheless, NAB asserts that “at all times relevant herein, the Counterclaim 17 Defendants and Third-party Defendants had actual notice and knowledge that the SY 158T 18 variety was federally protected by the PVPA,” (Doc. 25 at 19.), in part because “NAB and 19 its predecessors only authorized sales of the PVP protected triticale seed varieties with 20 written notice containing statutorily designated language signifying that the seed was 21 protected under the PVPA.”8 (Doc. 25 at 19.) Although the PVP Certificate for SY 158T, 22 No. 201200083, was not issued until June 25, 2014, NAB asserts that this statutory 23
8 “Owners may give notice to the public by physically associating with or affixing to the 24 container of seed of a variety or by fixing to the variety, a label containing either the words ‘Unauthorized Propagation Prohibited’ or the words ‘Unauthorized Seed Multiplication 25 Prohibited’ and after the certificate issues, such additional words as ‘U.S. Protected Variety.’ In the event the variety is distributed by authorization of the owner and is received 26 by the infringer without such marking, no damages shall be recovered against such infringer by the owner in any action for infringement, unless the infringer has actual notice 27 or knowledge that propagation is prohibited or that the variety is a protected variety, in which event damages may be recovered only for infringement occurring after such notice.” 28 7 U.S.C.A. § 2567. - 12 - 1 language was required on all its seed bags “at all relevant times,” (Doc. 25 at 19.), 2 presumably including the years after SY 158T was developed but before the PVP 3 Certificate was issued. Taking NAB’s factual assertions as true, this would mean that at 4 any time APB Defendants encountered an SY 158T seed bag, even prior to the issuance of 5 the PVP Certificate, they were on notice that unauthorized propagation was prohibited 6 under the PVPA. However, even under the favorable standard of a motion to dismiss, NAB 7 has not plausibly alleged that Lockwood had notice that the seeds it purchased from APB 8 Defendants were PVPA protected. Even if the statutory language was always present on 9 NAB’s bags, it is not reasonable to infer that APB Defendants would be using those same 10 bags in reselling SY 158T as RAPTOR to Lockwood—nor has NAB provided any factual 11 allegations to support this idea. This claim is accordingly dismissed as to Lockwood. 12 NAB also asserts that in 2017, Wilkey acknowledged that SY 158T is one of the 13 parents of the RAPTOR triticale. Defendants argue this statement leads “to the reasonable 14 inference that . . . RAPTOR was a lawfully developed plant variety derived by crossing SY 15 158T with another triticale variety.” (Doc. 33 at 6.) Construed in the light most favorable 16 to NAB, the allegations are sufficient to infer that the APB Defendants would have been 17 on notice that SY 158T was PVPA protected, even if Defendants encountered SY 158T 18 before the PVP certificate was issued in 2014. NAB has thus stated a claim for infringement 19 of the PVPA sufficient to survive a motion to dismiss against the APB Defendants. 20 Defendants additionally argue that NAB’s Counterclaims fail to state a claim for 21 PVPA infringement pursuant to 7 U.S.C. § 2566, which requires the filing of a complaint 22 or counterclaim for infringement within one year of the infringement being “known to the 23 owner.” Defendants argue that NAB’s Counterclaims fail because “NAB first suspected 24 infringement back in 2015” and “the most recent PVPA infringement alleged in the 25 Counterclaims occurred in September 2017.” (Doc. 33 at 7.) But NAB’s suspicions do not 26 constitute knowledge under 7 U.S.C. § 2566. And the fact that the alleged infringement 27 occurred in September of 2017 does not necessarily mean that NAB had knowledge then, 28 either. Instead, as NAB notes in its Response to the Motion to Dismiss, NAB did not know - 13 - 1 that APB’s RAPTOR variety genetically matched SY 158T in violation of the PVPA until 2 it received the results of a scientific comparison of the two varieties on July 10, 2018. As 3 NAB’s Counterclaims were filed on April 16, 2019, its Counterclaim for PVPA 4 infringement was timely filed. APB Defendants’ motion is denied with respect to this 5 claim. 6 D. Count Two: Infringement of the 219 Patent (APB Officers Only) 7 NAB alleges APB Defendants “directly infringe the ‘219 patent by making, using, 8 selling, or offering to sell or license certain awnless triticale varieties in the United States 9 without authority from NAB or its predecessors, within the United States in violation of 35 10 U.S.C. § 271(a).”9 (Doc. 25 at 27.) APB does not challenge this claim as to itself in its 11 motion to dismiss; thus, the Court addresses it only with respect to the APB Officers. 12 NAB alleges that in 2017, Wilkey “offered to pay to NAB a royalty on certain 13 ‘awnless’ triticale varieties” and that “according to Wilkey, APB proposed a license for 14 awnless triticale payable to NAB from APB for the use of awnless varieties APB claimed 15 to possess.” While these statements would have indicated Wilkey was “mak[ing] . . . [a] 16 patented invention” in violation of 35 U.S.C. § 271(a), the 219 Patent expired on December 17 3, 2016, 20 years after the filing date of December 3, 1996. See 35 U.S.C.A. § 154.10 Thus, 18 in 2017, the APB Officers would not have been guilty of patent infringement even if they 19 were growing NAB’s awnless triticale varieties. 20 However, NAB also alleges that in 2015, persons who were authorized by APB to 21 tour test plots that had been planted by APB discovered the presence of awnless triticale 22 varieties in various stages of growth and development. NAB suggests that these varieties 23
9 “(a) Except as otherwise provided in this title, whoever without authority makes, uses, 24 offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the 25 patent.” 35 U.S.C.A. § 271.
26 10 “(2) Term.--Subject to the payment of fees under this title, such grant shall be for a term beginning on the date on which the patent issues and ending 20 years from the date on 27 which the application for the patent was filed in the United States or, if the application contains a specific reference to an earlier filed application or applications under section 28 120, 121, 365(c), or 386(c) from the date on which the earliest such application was filed.” - 14 - 1 were the product of APB’s efforts to breed NAB’s awnless triticale varieties in violation 2 of the Patent. As the Court has already determined that “[NAB] has ‘nudged [its] claim[ ]’” 3 that APB’s corporate officers were aware of the unlawful behavior alleged by NAB “across 4 the line from conceivable to plausible,” Soo Park v. Thompson, 851 F.3d 910, 928 (9th Cir. 5 2017) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009)), APB’s motion is denied as to 6 NAB’s infringement claim against the APB Officers. 7 E. Counts Three, Four, and Five: Trade Secret Misappropriation Pursuant to Ariz. Rev. Stat. Ann. § 44-401(4)), Cal. Civ. Code § 3246.1(D), 18 8 U.S.C. § 1836 9 NAB argues that its breeding materials, seedstock, parental lines, and accompanying 10 data and logs constitute trade secrets under Ariz. Rev. Stat. Ann. § 44-401(4) (AUTSA), 11 Cal. Civ. Code § 3246.1(D) (CUTSA), and 18 U.S.C. § 1836 (DTSA) “because they are 12 scientific and technical information . . . deriving independent economic value from not 13 being generally known to, and not being readily ascertainable through proper means by, 14 another person who can obtain economic value from the disclosure or use of the 15 information.” (Doc. 25 at 29.) NAB alleges APB Defendants misappropriated these trade 16 secrets because they acquired them from a person who knew or had reason to know that 17 the trade secrets were acquired by improper means (presumably field technician Cantu) 18 and disclosed or used them without express or implied consent, at a time when APB 19 Defendants knew or had reason to know that the trade secrets were acquired under 20 circumstances requiring their secrecy to be maintained or their use to be limited. See Ariz. 21 Rev. Stat. Ann. § 44-401(2). NAB appears to rely on APB’s alleged growth and 22 development of awnless triticale varieties and APB’s distribution of RAPTOR, a genetic 23 match of SY 158T, as evidence of this misappropriation, but does not explicitly state that 24 in its pleadings. 25 APB Defendants argue that, regarding the materials that Cantu allegedly brought to 26 APB in 2010, NAB has not “state[d] sufficient factual allegations that APB and the Third- 27 Party Defendants obtained those trade secrets from Mr. Cantu when they knew or should 28 - 15 - 1 have known that Mr. Cantu acquired them through improper means. Instead, NAB baldly 2 alleges only that: ‘On information and belief, Cantu misappropriated the TS and breeding 3 information at the direction and request of APB.’” (Doc. 33 at 8.) Moreover, APB 4 Defendants argue that NAB’s state law claims are stale. See Ariz. Rev. Stat. Ann. § 44- 5 406; Cal. Civ. Code § 3426.6.11 6 NAB’s allegations that Cantu misappropriated confidential breeding materials, 7 seedstock, parental lines, and accompanying data and logs are supported by NAB’s 8 allegations that it observed the growth of awnless triticale in APB’s test plots and that 9 RAPTOR was a genetic match for SY 158T. Moreover, the claims cannot be determined 10 to be stale at this stage, as it is not yet clear at what point NAB discovered Cantu’s 11 misappropriation. 12 APB Defendants also argue that the CUTSA claim should be dismissed because 13 NAB does not allege conduct by APB Defendants that occurred in California. But APB 14 Defendants do not dispute that Lockwood is a licensee of APB that sells RAPTOR in 15 California. And NAB has alleged that it obtained samples of RAPTOR in 2017 distributed 16 by Lockwood and found that those samples genetically matched SY 158T. NAB argues 17 that use of a trade secret “has been equated with ‘commercial use,’ and has been liberally 18 defined to include both the sale of the trade secrets themselves, as well as the ‘commercial 19 operation’ of those trade secrets within profit-seeking endeavors,” Aspen Tech., Inc. v. M3 20 Tech., Inc., 569 F. App’x 259, 265 (5th Cir. 2014); APB Defendants cite no caselaw to the 21 contrary. Thus, because NAB alleges that APB sold SY 158T to a licensee who then sold 22 it in California as recently as 2017, NAB has alleged facts sufficient to establish APB 23 Defendants’ use of NAB’s trade secrets under both CUTSA and DTSA.12 APB Defendants’
24 11 “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 25 discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.” 26
12 DTSA applies to “any misappropriation of a trade secret . . . for which any act occurs on 27 or after . . . the enactment of [the] Act” on May 11, 2016. Avago Techs. U.S. Inc. v. Nanoprecision Prod., Inc., No. 16-CV-03737-JCS, 2017 WL 412524, at *8 (N.D. Cal. Jan. 28 31, 2017). - 16 - 1 motion is therefore denied as to Counts Three through Five. 2 F. Count Six: Conversion 3 NAB claims APB Defendants “intentionally engaged in acts of wrongful control or 4 dominion over the triticale seed in derogation of NAB’s possessory right thereto, seriously 5 interfering with NAB’s right to control the seed, by virtue of interfering with NAB’s 6 exclusive rights to the seed.” (Doc. 25 at 33-34.) To establish a claim for conversion, a 7 plaintiff must show “ownership or right to possession of property, wrongful disposition of 8 the property right and damages.” Kremen v. Cohen, 337 F.3d 1024, 1029 (9th Cir. 2003). 9 As APB Defendants argue, the only authority NAB would have to show ownership or right 10 to possession of “the seed” derives from the 219 Patent or protection under the PVPA. 11 (Doc. 33 at 9.) But these two authorities sufficiently provide NAB a claim for conversion. 12 APB Defendants argue that the Patent cannot establish NAB’s ownership over the 13 seed covered by the Patent because the Patent expired in 2016. However, NAB alleges 14 APB Defendants were interfering with NAB’s exclusive rights by growing and developing 15 awnless triticale varieties in violation of the Patent when those varieties were still protected 16 in 2015. APB Defendants also argue that Dow Chemical Co. v. Exxon Corp., 139 F.3d 17 1470 (Fed. Cir. 1998), establishes that “patent law preempts torts that would offer patent- 18 like protection to subject matter addressed by federal law.” (Doc. 33 at 10.) Yet the Dow 19 Chemical court relied on a Supreme Court decision analyzing whether an Ohio trade secrets 20 statute clashed with the objectives of federal patent laws, namely: providing an incentive 21 to invent, promoting the full disclosure of inventions, and ensuring that things in the public 22 domain cannot be removed by the States. 139 F.3d at 1474. The Dow Chemical court then 23 held that a state law tort claim “is not preempted by the federal patent law, even if it requires 24 the state court to adjudicate a question of federal patent law, provided the state law cause 25 of action includes additional elements not found in the federal patent law cause of action 26 and is not an impermissible attempt to offer patent-like protection to subject matter 27 addressed by federal law.” 139 F.3d at 1473. Here, a cause of action for conversion relying 28 on the authority of a patent does not “clash” with the objectives of providing an incentive - 17 - 1 to invent, promoting the full disclosure of inventions, and ensuring that things in the public 2 domain cannot be removed by the States. APB Defendants have cited no other authority 3 for the proposition that a cause of action for conversion based on the authority of a patent 4 is preempted by patent law. APB Defendants’ motion is denied with respect to NAB’s 5 claim for conversion of triticale varieties covered by the patent. 6 Regarding a claim for conversion under the authority of the PVPA, APB references 7 its argument under Count One that NAB has failed to allege that APB had notice that SY 8 158T was PVPA-protected. For the reasons articulated in the Court’s analysis of Count 9 One, that argument fails. APB’s motion is denied with respect to NAB’s claim for 10 conversion of SY 158T. 11 G. Count Seven: Unjust Enrichment 12 NAB argues that Defendants “were enriched by their acquisition and use of NAB’s 13 triticale germplasm, pedigree information concerning NAB’s products, and other 14 proprietary triticale breeding information.” (Doc. 25 at 34.) NAB further argues that 15 Defendants’ enrichment caused NAB damage without justification, and that there is no 16 remedy available at law for that damage. NAB apparently refers to technician Cantu’s 17 alleged theft in 2010, APB’s alleged subsequent production of SY 158T and patented 18 awnless triticale, and Lockwood’s sale of SY 158T. NAB’s claim for unjust enrichment 19 therefore arises out of some of the same facts and circumstances as its claim for trade secret 20 misappropriation. 21 “Any claim that is based on, or rooted in, or inescapably relies on, misappropriation 22 is preempted” by the AUTSA. Unisource Worldwide, Inc. v. Swope, 964 F. Supp. 2d 1050, 23 1059 (D. Ariz. 2013). In other words, “if proof of a non-[A]UTSA claim would also 24 simultaneously establish a claim for misappropriation of trade secrets, it is preempted 25 irrespective of whatever surplus elements or proof were necessary to establish it.” Id. This 26 contrasts with claims “largely based on conduct unrelated to” misappropriation of trade 27 secrets, such as “claims for intentional interference with contractual relationship and 28 prospective economic advantage . . . alleg[ing] that Defendants interfered with and - 18 - 1 disrupted [Plaintiff’s] business relationships by soliciting his clients and misleading them,” 2 or claims “that Defendants are maintaining possession of [Plaintiff’s] computer without his 3 authorization.” Kovesdy v. Kovesdy, No. C 10-02012 SBA, 2010 WL 3619826, at *3 (N.D. 4 Cal. Sept. 13, 2010). Here, NAB relies heavily on fact allegations that are based on or 5 rooted in misappropriation of trade secrets. NAB brought these claims over APB’s 6 development of awnless triticale because it believes that variety is “either (1) the resulting 7 product of unauthorized use of NAB’s breeding materials and other patented awnless 8 triticale varieties that were misappropriated by Cantu prior to his departure from Syngenta 9 Seeds, Inc. or (2) the product of APB’s unauthorized and illegal efforts to breed against 10 NAB’s patented awnless triticale varieties, or (3) both.” (Doc. 25 at 25.) NAB brought 11 claims based on APB and Lockwood’s sale of RAPTOR triticale because “RAPTOR 12 branded triticale genetically matched NAB’s SY 158T triticale variety.” (Doc. 25 at 26.) 13 NAB has not provided any factual allegations in support of unjust enrichment that are not 14 related to theft of APB’s proprietary information. This claim is therefore preempted by the 15 AUTSA. Defendants’ motion is granted with respect to unjust enrichment.13 16 CONCLUSION 17 NAB has plausibly stated a claim as to APB Defendants on Counts One through 18 Six. The Court will allow NAB 90 days to discover the names of the Jane Doe Defendants 19 and amend the complaint accordingly. As NAB is not asserting patent infringement, trade 20 secret misappropriation, or conversion claims against Lockwood, Counts Two through Six 21 are dismissed as to Lockwood. As NAB has failed to state a claim against Lockwood on 22 infringement of the PVP certificate, Count One is dismissed as to Lockwood. Count Seven 23 is preempted by the AUTSA and is accordingly dismissed as to all Defendants. 24 / / / 25 / / / 26 / / / 27
13 As the parties did not discuss AUTSA preemption with respect to the conversion claim, 28 the Court does not consider that argument here. - 19 - 1 IT IS THEREFORE ORDERED that Counterclaim and Third Party Defendants’ 2|| Motion to Dismiss (Doc. 33) and Third Party Defendant Lockwood Seed and Grain’s 3 || Motion to Dismiss for Lack of Personal Jurisdiction, Improper Venue, and Failure to State 4|| aClaim (Doc. 50) are GRANTED IN PART and DENIED IN PART as set out below: 5 1. NAB’s Counterclaims (Doc. 25) One, Two, Three, Four, Five, and Six shall 6 || be dismissed without prejudice as to Lockwood. Counterclaim Seven shall be dismissed || without prejudice as to all Counterclaim Defendants and Third Party Defendants. 8 2. The claims above are dismissed with leave to amend. NAB shall have 30 || days from the date of this Order to file amended counterclaims, if they wish to do so. 10 3. NAB shall have 90 days to discover the names of the Jane Doe Defendants 11 || and amend the counterclaims accordingly. 12 Dated this 7th day of November, 2019. 13 Wi, 14 A Whacrsay Fotos 15 Chief United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 - 20 -