Armored Group LLC v. Lutzker

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

Armore d Group LLC, ) No. CV-24-01516-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Monty Lutzker, et al., ) 12 ) 13 Defendants. ) ) 14 )

15 Before the Court is Defendants’ Motion to Dismiss (Doc. 27) and Request for 16 Judicial Notice in Support of their Motion to Dismiss (Doc. 28), Plaintiff’s Response (Doc. 17 29), and Defendants’ Reply (Doc. 30). For the following reasons, the Court now rules as 18 follows. 19 I. BACKGROUND 20 Plaintiff The Armored Group, LLC (“Plaintiff” or “TAG”) brings a variety of claims 21 arising out of a dispute with former employees, Defendants Monty Lutzker, Beau Gailey, 22 and Ryan Holden (“Defendants”). (Doc. 21). Plaintiff manufactures and supplies armored 23 vehicles globally. (Id. at 3). 24 Defendant Lutzker’s employment with TAG was terminated in December 2023. (Id. 25 at 5). The Amended Complaint does not allege when Defendants Holden or Gailey’s 26 employment ended, but the Court infers that they also left the company around this time. 27 The Complaint alleges that after Defendants’ employment ended, they began using a 28 company named “TAG Dynamics” to engage in competitive conduct. (Id. at 2). They also 1 allegedly appeared at a global industry conference in France with one of TAG’s 2 competitors in June 2024. (Id. at 2, 6). Plaintiff sent cease and desist letters to Defendants 3 Lutzker and Gailey in March 2024 and Defendant Holden in June 2024. (Id. at 6, 8, 10). 4 Notwithstanding these letters, Plaintiff alleges that Defendants have begun soliciting 5 TAG’s customers, contractors, former employees and using the moniker “TAG Dynamics” 6 to engage unlawful competitive activity. (Id. at 2). Plaintiff claims the solicitation of its 7 customers, employees, and contractors violates Defendants’ employment agreements with 8 TAG. (Id.). Moreover, Plaintiff claims that Defendants are liable under various common 9 law torts and federal statutes. (Id.). 10 Plaintiff filed this suit on June 21, 2024, and filed the operative Amended Complaint 11 (“FAC”) on August 30, 2024. (Doc. 1). Defendants subsequently filed their Motion to 12 Dismiss. (Doc. 27). Prior to the Court’s resolution of the present Motion, Plaintiff filed a 13 Motion for Preliminary Injunction. (Doc. 31). After holding an evidentiary hearing on 14 January 23 and January 24, 2025, and considering the parties’ briefing, the Court denied 15 Plaintiff’s Motion for Preliminary Injunction. (Doc. 72). The Court now turns its attention 16 to Defendant’s Motion to Dismiss. 17 II. LEGAL STANDARD 18 “To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must 19 meet the requirements of Rule 8.” Jones v. Mohave Cnty., No. CV 11-8093-PCT-JAT, 20 2012 WL 79882, at *1 (D. Ariz. Jan. 11, 2012); see also Int’l Energy Ventures Mgmt., 21 L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 203 (5th Cir. 2016) (Rule 12(b)(6) 22 provides “the one and only method for testing” whether pleading standards set by Rule 8 23 and 9 have been met); Hefferman v. Bass, 467 F.3d 596, 599–600 (7th Cir. 2006) (Rule 24 12(b)(6) “does not stand alone,” but implicates Rules 8 and 9). Rule 8(a)(2) requires that a 25 pleading contain “a short and plain statement of the claim showing that the pleader is 26 entitled to relief.” Fed. R. Civ. P. 8(a)(2). A court may dismiss a complaint for failure to 27 state a claim under Rule 12(b)(6) for two reasons: (1) lack of a cognizable legal theory, or 28 (2) insufficient facts alleged under a cognizable legal theory. In re Sorrento Therapeutics, 1 Inc. Secs. Litig., 97 F.4th 634, 641 (9th Cir. 2024) (citation omitted). A claim is facially 2 plausible when it contains “factual content that allows the court to draw the reasonable 3 inference” that the moving party is liable. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 4 Factual allegations in the complaint should be assumed true, and a court should then 5 “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. Facts 6 should be viewed “in the light most favorable to the non-moving party.” Faulkner v. ADT 7 Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013). “Nonetheless, the Court does not 8 have to accept as true a legal conclusion couched as a factual allegation.” Jones, 2012 WL 9 79882, at *1 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). 10 III. DISCUSSION 11 a. Judicial Notice 12 A court may take judicial notice of adjudicative facts only if they are “not subject 13 to reasonable dispute.” Fed. R. Evid. 201(b). The Ninth Circuit has held that “[c]ourts may 14 take judicial notice of some public records, including the ‘records and reports of 15 administrative bodies.’” United States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003) (citing 16 Interstate Nat. Gas Co. v. S. Cal. Gas Co., 209 F.2d 380, 385 (9th Cir. 1953)). However, 17 courts may not take judicial notice of facts that are in dispute or subject to varying 18 interpretations. See generally Sanz v. City of Vallejo, 2:19-CV-02134-TLN-DB, 2021 WL 19 2682162, at *3 (E.D. Cal. June 30, 2021). 20 Defendants request the Court take judicial notice of various publicly-available 21 records from the U.S. Patent and Trademark Office, Arizona Corporation Commission, 22 Delaware Division of Corporations, World Intellectual Property Organization, a United 23 Arab Emirates business license website, and screenshots of a non-party corporation and 24 competitor of Plaintiff’s website. (Doc. 28 at 2). Because the Court finds the Motion to 25 Dismiss resolvable without consideration of the proposed extraneous information, the 26 Court declines to grant Defendants’ request for judicial notice at this time. 27 b. Count I: False Association 28 Under the Lanham Act, a claim for false association has the following elements: (1) 1 the defendant used a word, term, name, symbol, or device (or any combination thereof) or 2 any false designation of origin, false or misleading description of fact, or false or 3 misleading representation of fact; (2) the usage was in commerce, in connection with goods 4 or services; (3) the usage is likely to cause confusion, or to cause mistake, or to deceive as 5 to the affiliation, connection, or association of such person with another person, or as to 6 the origin, sponsorship, or approval of his or her goods, services, or commercial activities 7 by another person; and (4) the plaintiff has been or is likely to be injured as a result of the 8 usage. Zekelman Indus. Inc. v. Marker, No. CV-19-02109-PHX-DWL, 2020 WL 1495210, 9 at *7–8 (D. Ariz. Mar. 27, 2020) (citing 15 U.S.C. § 1125(a)(1)(A)). A plaintiff need not 10 demonstrate it has a registered trademark in order to bring a claim for false association. See 11 EVIG, LLC v. Natures Nutra Co., 685 F. Supp. 3d 991, 997 (D. Nev. 2023) (“A false 12 association claim under subsection A, on the other hand, serves as the functional equivalent 13 of a traditional trademark infringement claim for unregistered marks and trade dress.”). 14 The FAC alleges that Defendants are using the name “TAG Dynamics” and 15 represented to one vendor that TAG Dynamics is a joint venture with Plaintiff. (Doc. 21 at 16 11). This allegation sufficiently satisfies the first element. 17 Less clear from the face of the Amended Complaint is whether Plaintiff has alleged 18 facts sufficient to meet the second element: Plaintiff says that TAG Dynamics is a “rival 19 business” elsewhere in the Complaint (Id. at 14) but fails to explain how the name TAG 20 Dynamics has been used in commerce in connection with goods and services. To the extent 21 Plaintiff purports that use of TAG Dynamics at Eurosatory 2024 constitutes false 22 association, the FAC fails to satisfy the second element. Any usage at the global industry 23 conference occurred outside of the United States, and the Supreme Court has held that 24 claims under § 1125(a)(1) of the Lanham Act “are not extraterritorial and extend only to 25 claims where the infringing use in commerce is domestic.” Abitron Austria GmbH v. 26 Hetronic Int’l, Inc., 600 U.S. 412, 415 (2023). 27 Moreover, the FAC fails to demonstrate facts that the usage is likely to cause or has 28 caused confusion. While it asserts that “Plaintiff has been irreparably injured, including 1 injury to its goodwill and reputation, which has resulted in lost revenues and profits and 2 further diminished goodwill,” it fails to set forth any facts to support that conclusion. (Doc. 3 21 at 12). Thus, the third and fourth elements of a false association claim are not satisfied, 4 either. 5 All told, the Court cannot draw a reasonable inference that Defendants are liable for 6 false association under the Lanham Act based on the allegations included in the Amended 7 Complaint. The claim must be dismissed. However, as the addition of supplemental facts 8 may cure the deficiencies identified in this Order, Plaintiff will be allowed leave to amend. 9 c. Count II: False Advertising 10 Plaintiff’s false advertising claim is a nearly verbatim copy of its false association 11 claim. (Doc. 21 at 12–13). “The Supreme Court and the Ninth Circuit have both drawn 12 sharp distinctions between claims brought under § 1125(a)(1)(A) and § 1125(a)(1)(B).” 13 EVIG, LLC, 685 F. Supp. 3d at 996. While the focus of false association claims is whether 14 the trade dress “causes confusion by leading consumers to think that two products from 15 different sources actually come from the same source,” false advertising claims focus on 16 “whether a defendant has made some false statement in advertising about the product that 17 fundamentally misrepresents its qualities.” Id. at 996–97. Other district courts within the 18 Ninth Circuit have rejected false advertising claims in cases like this one, where the thrust 19 of the plaintiff’s allegations is that “because defendant has allegedly copied plaintiff's trade 20 dress, it is falsely advertising its products as plaintiff's and causing consumer confusion.” 21 Id. at 997. 22 Here, the alleged misrepresentations are statements that Defendants’ work with 23 TAG Dynamics is sanctioned by TAG, including one statement to an unidentified vendor 24 that “TAG Dynamics was a joint venture with TAG.” (Doc. 21 at 12). As these allegations 25 mainly target Defendants’ alleged misrepresentations about their association with Plaintiff, 26 the allegations are much more akin to a false association claim, rather than a traditional 27 false advertising claim. Even assuming Plaintiff is alleging a claim distinguishable from its 28 false association claim, the Court finds that Plaintiff has not alleged facts sufficient to state 1 a claim upon which relief may be granted. 2 First, as noted above, any comments made outside of the United States are not 3 actionable under § 1125(a)(1) of the Lanham Act. Abitron, 600 U.S. at 415. Thus, Plaintiff 4 does not have a likelihood of success on the merits with respect to claims relating to 5 Defendants’ actions that took place at Eurosatory 2024. (Doc. 21 at 13). 6 With respect to the other alleged misrepresentation that TAG Dynamics was a joint 7 venture with Plaintiff, Plaintiff has not alleged facts to satisfy the elements of a false 8 advertising claim. To state a claim for false advertising under Section 43(a) of the Lanham 9 Act, Plaintiff must show that (1) Defendants made a false statement of fact in a commercial 10 advertisement; (2) the statement deceived or had the tendency to deceive a substantial 11 segment of its audience; (3) the deception was material, in that it was likely to influence 12 the purchasing decision; (4) the false statement entered interstate commerce; and (5) 13 Plaintiff has been or is likely to be injured as a result of the false statement. Enigma 14 Software Grp. USA, LLC v. Malwarebytes, Inc., 69 F.4th 665, 671 (9th Cir. 2023). 15 Under the first element the alleged misrepresentation must occur “in commercial 16 advertising or promotion.” 5 U.S.C. § 1125(a)(1)(B). The Ninth Circuit is clear that not all 17 commercial speech is “promotional” as to be actionable under the Lanham Act. Prager 18 Univ. v. Google LLC, 951 F.3d 991, 1000 (9th Cir. 2020). The alleged facts are severely 19 lacking as to the context of the statement, and as such, the Court is unable to determine 20 from the FAC whether the statement constituted commercial advertising or promotion. 21 Additionally, the statement must “misrepresent[] the nature, characteristics, 22 qualities, or geographic origin of his or her or another person's goods, services, or 23 commercial activities.” Id. Here, the alleged misrepresentation that “TAG Dynamics was 24 a joint venture with TAG” (Doc. 21 at 12) is at most a statement causing confusion as to 25 the origin of TAG Dynamic’s goods, services, or commercial activities rather than their 26 nature, characteristics, qualities, or geographic origin. In sum, Plaintiff has merely recited 27 the elements of a false advertising claim in a conclusory fashion without asserting facts 28 that give rise to a plausible inference of entitlement to relief. However, to the extent that 1 Plaintiff believes it has a false advertising claim distinctive of its false association claim, 2 Plaintiff may file an amended complaint with supplemental facts. 3 d. Count III: Unfair Competition 4 Defendants argue that Plaintiff’s common law unfair competition claim must be 5 dismissed because it is substantially identical to its failed Lanham Act claims. (Doc. 27 at 6 19). 7 The Arizona Supreme Court has declined to decide whether Arizona common law 8 recognizes a claim for unfair competition. Orca Commc’ns Unlimited, LLC v. Noder, 337 9 P.3d 545, 549 (Ariz. 2014). However, in previously assessing unfair competition claims, 10 Arizona courts have stated that the unfair competition doctrine “encompasses several tort 11 theories, such as trademark infringement, false advertising, ‘palming off,’ and 12 misappropriation.” Fairway Constructors, Inc. v. Ahern, 970 P.2d 954, 956 (Ariz. Ct. App. 13 1998). Courts applying Arizona law have declined to extend this interpretation to include 14 theories of fraud, trespass, or conversion. Joshua David Mellberg LLC v. Will, 96 F. Supp. 15 3d 953, 963 (D. Ariz. 2015). Courts have also found that “an unfair competition claim is 16 preempted unless it alleges elements that make it qualitatively different” from statutory 17 claims or other torts. See Fairway Constructors, Inc., 970 P.2d at 956 (Ariz. Ct. App. 1998) 18 (“We agree that an unfair competition claim is preempted unless it alleges elements that 19 make it qualitatively different from a copyright infringement claim.”); Joshua David 20 Mellberg LLC, 96 F. Supp. 3d at 963 (allowing plaintiff “amend the claim of unfair 21 competition based on misappropriation of confidential information that is not a trade 22 secret.”). 23 Although this issue is not clearly settled under Arizona law, the Count is 24 unconvinced that Plaintiff can bring a common law unfair competition claim based on 25 Defendants’ alleged conduct of “engaging in financial misconduct,” “withholding key 26 information about the company,” or “making disparaging remarks about the company.” 27 (Doc. 21 at 14). Those claims are not contemplated under other unfair competition rulings, 28 which have generally only found conduct in the realm of misappropriation to be actionable. 1 See generally Joshua David Mellberg LLC, 96 F. Supp. 3d 953; Fairway Constructors, 2 Inc., 970 P.2d 954. Additionally, Plaintiff’s unfair competition claim is likely preempted 3 to the extent it relies on Defendants’ alleged false association and false advertising, as 4 Plaintiff provides no explanation for how this claim differs from its Lanham Act claims. 5 Thus, that leaves Plaintiff’s allegation that Defendants have “engaged in palming 6 off or passing off by making false representations tending to induce buyers to believe the 7 misleading impression that Defendants’ work with TAG Dynamics is affiliated with or 8 sanctioned by TAG[.]” (Doc. 21 at 14). “Palming off” or “passing off” exists when a 9 defendant makes a false representation that tends “to induce buyers to believe that the 10 defendant’s product is that of the plaintiff.” Fairway Constructors, Inc., 970 P.2d at 956 11 (citations and quotations omitted). The Supreme Court and Ninth Circuit have recognized 12 that § 1125(a) of the Lanham Act applies to conduct that constitutes “passing off” and 13 “reverse passing off.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 32 14 (2003); Lamothe v. Atl. Recording Corp., 847 F.2d 1403, 1406 (9th Cir. 1988). Thus, 15 without evidence that Plaintiff’s “palming off” allegation is qualitatively different from its 16 false association claim, Plaintiff’s unfair competition claim is preempted to the extent it 17 relies on such conduct. As such, Plaintiff has failed to state a claim upon which relief can 18 be granted. However, as this claim could be remedied by additional facts or information 19 explaining how it differs from Plaintiff’s false association claim, Plaintiff will be granted 20 leave to amend. 21 e. Counts IV and V: Tortious Interference Claims 22 The elements of a tortious interference claim in Arizona are “(1) a valid contract or 23 business expectancy existed; (2) the interferer had knowledge of such business contracts 24 or expectancy; (3) there was intentional interference causing a breach of the contract or 25 business expectancy; and (4) resultant damages.” USI Ins. Servs. LLC v. Alliant Ins. Servs. 26 Inc., No. CV-23-00192-PHX-SMB, 2023 WL 3792749, at *9 (D. Ariz. June 2, 2023). 27 Moreover, Arizona courts have held that “an action for tortious interference with a business 28 relationship requires a business relationship evidenced by an actual and identifiable 1 understanding or agreement which in all probability would have been completed if the 2 defendant had not interfered.” Vazirani v. Annexus Distribs. AZ, LLC, No. 1 CA-CV 14- 3 0815, 2017 WL 443529, at *11 (Ariz. Ct. App. Feb. 2, 2017) (citing Dube v. Likins, 167 4 P.3d 93, 101 (Ariz. Ct. App. 2007)). 5 Here, Plaintiff has not alleged facts sufficient to establish its tortious interference 6 claims. With all three of the business expectancies that Plaintiff alleges Defendants 7 disrupted, Plaintiff fails to allege facts demonstrating the requisite showings that (1) the 8 business expectancies were not completed, or the contracts were breached; (2) the business 9 expectancies would have in all probability been completed had Defendants not interfered; 10 and (3) resultant damages. Specifically, Plaintiff’s Count IV does not allege that TAG was 11 in all likelihood going to purchase the company that Defendant Lutzker allegedly 12 purchased or that TAG suffered damages as a result of Defendant Lutzker’s purchase. 13 (Doc. 21 at 15). Nor does Plaintiff allege that Defendant’s interference with its line of credit 14 from Commercial Bank resulted in Plaintiff not receiving the line of credit. (Id.). Plaintiff’s 15 allegations that Defendants’ statements created a misleading impression that TAG 16 Dynamics was sanctioned by TAG also fails to state a plausible claim, as Plaintiff points 17 to no specific business expectancy that was in all probability going to be completed and 18 that was disrupted. (Id.). As noted above, plaintiffs must identify an “actual and identifiable 19 understanding or agreement” to successfully plead a tortious interference claim; 20 generalized assertions that conduct disrupted relationships is not enough. Lastly, “assisting 21 and engaging [Plaintiff’s] competitors” fails to state a plausible claim for relief, as well. 22 (Id.). As such, Plaintiff’s Count IV must be dismissed in its entirety. However, as 23 supplemental facts may cure the identified deficiencies, Plaintiff will be allowed leave to 24 amend with respect to this claim. 25 With respect to Count V, Plaintiff admits later in the FAC that the contract was 26 completed. (See Doc. 21 at 19). As such, the Court finds that additional facts could not cure 27 the deficiencies and that leave to amend would be futile. 28 /// 1 f. Count VI: Civil Conspiracy 2 “Under Arizona law, a claim of civil conspiracy must be based on an underlying 3 tort[.]” Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011). 4 Plaintiff has not stated a plausible claim for relief for any of the tort claims included in its 5 FAC. Thus, Plaintiff has failed to state a plausible claim for relief on its civil conspiracy 6 claim, and this claim must be dismissed. If Plaintiff files a second amended complaint 7 supplying additional facts that remedy its other tort claims and believes it has a valid civil 8 conspiracy claim, Plaintiff may include it in its amended complaint. 9 g. Count VII: Breach of Fiduciary Duty 10 Defendant Lutzker argues that Plaintiff’s claim that he breached fiduciary duties to 11 Plaintiff must be dismissed, as Plaintiff is a Nevada LLC and under Nevada law, LLC 12 managers only owe fiduciary duties if such duties are expressly established in the LLC’s 13 operating agreement. (Doc. 27 at 23). 14 Because Plaintiff is a Nevada LLC (Doc. 21 at 2), Nevada law applies. See Ariz. 15 Rev. Stat. Ann. § 29-390(A)(1)–(2) (“Subject to subsection D of this section, the law of 16 the jurisdiction of formation of a foreign limited liability company governs both of the 17 following: [t]he internal affairs of the company [and] [t]he liability of a member as a 18 member and a manager as a manager for a debt, obligation or other liability of the 19 company”); AMERCO v. Shoen, 907 P.2d 536, 538 n.1 (Ariz. Ct. App. 1995), corrected 20 (Aug. 29, 1995) (“Because AMERCO is a Nevada Corporation, and because this lawsuit 21 concerns fiduciary relations between shareholders and management, where there is a 22 choice of law to be made, the law of Nevada, the place of incorporation, should apply.”); 23 Brown v. Hope, No. 1 CA-CV 20-0059, 2021 WL 503249, at *2 (Ariz. Ct. App. Feb. 11, 24 2021) (“CMEGO was established as a limited liability company organized under Nevada 25 law, so Nevada law controls the method and effect of dissolution.”). 26 “A claim for breach of fiduciary duty under Nevada law requires a plaintiff to 27 demonstrate a fiduciary duty exists, that duty was breached, and the breach proximately 28 caused the damages.” JPMorgan Chase Bank, N.A. v. KB Home, 632 F. Supp. 2d 1013, 1 1024 (D. Nev. 2009). The Nevada Supreme Court has clarified that while an LLC’s 2 members, managers, and other involved persons can contract to fiduciary duties, “such 3 duties do not necessarily exist otherwise, aside from the implied covenant of good faith 4 and fair dealing.” Israyelyan v. Chavez, 466 P.3d 939 (Nev. 2020); Muney v. Arnould, 524 5 P.3d 491 (Nev. 2023) (“Today, in agreement with the Israyelyan court, we too find that the 6 plain language of NRS 86.298 does not impose fiduciary duties upon LLCs other than the 7 duties of good faith and fair dealing, unless LLC members contract to additional duties.”). 8 Moreover, under Nev. Rev. Stat. Ann. § 86.928, any fiduciary duties must be “expressly 9 prescribed by the articles of organization or the operating agreement.” Nev. Rev. Stat. Ann. 10 § 86.298. “In Nevada, a ‘fiduciary relationship is deemed to exist when one party is bound 11 to act for the benefit of the other party. Such a relationship imposes a duty of utmost good 12 faith.’” HP Tuners, LLC v. Cannata, No. 318CV00527LRHWGC, 2019 WL 3848792, at 13 *4 (D. Nev. Aug. 15, 2019) (citing Giles v. General Motors Acceptance Corp., 494 F.3d 14 865, 880–81 (9th Cir. 2007)). Of note, Nevada Supreme Court has indicated that the 15 implied covenant of good faith does not amount to a fiduciary duty of utmost good faith 16 and loyalty. See Renown Health v. Holland & Hart, LLP, 437 P.3d 1059, at *2 (Nev. 2019) 17 (citing Sandra K. Miller, What Fiduciary Duties Should Apply to the LLC Manager After 18 More Than a Decade of Experimentation?, 32 J. Corp. L. 565, 595 (2007) (“The implied 19 covenant of good faith is not a fiduciary duty and is arguably narrower in scope than a 20 fiduciary duty.”)). 21 Plaintiff asserts that Defendant Lutzker owed the fiduciary duties of loyalty, utmost 22 good faith, and a high degree of care. (Doc. 21 at 4). Plaintiff does not allege that these 23 fiduciary duties were articulated in its operating agreement or articles of organization, and 24 as such, Plaintiff’s does not demonstrate that fiduciary duty existed. The claim will be 25 dismissed, but Plaintiff will be granted leave to amend to provide additional facts from 26 which the Court can reasonably infer that Plaintiff’s operating agreement or articles of 27 organization imposed fiduciary duties upon Defendant Lutzker. 28 /// 1 h. Count VIII: Defamation 2 Defendants move to dismiss Plaintiff’s defamation claim because Plaintiff fails to 3 supply requisite facts about the statements or show that the statements were defamatory 4 statements of objective fact. (Doc. 27 at 25).1 5 Under Arizona common law, a defamatory statement “must be false and must bring 6 the defamed person into disrepute, contempt, or ridicule, or must impeach [that person]’s 7 honesty, integrity, virtue, or reputation.” Sign Here Petitions LLC v. Chavez, 402 P.3d 457, 8 462 (Ariz. Ct. App. 2017). In assessing defamation claims, courts first consider “whether, 9 under all the circumstances, a statement is capable of bearing a defamatory meaning.” Id. 10 at 463 (citing Yetman v. English, 811 P.2d 323, 331 (Ariz. 1991)). This step considers 11 whether the statement can be reasonably understood to state or imply an objective fact. Id. 12 Courts must consider whether the general tenor and impression created by the statement 13 could be considered defamatory by a reasonable listener, as well. Id. Next, the court must 14 determine whether the statement’s allegedly defamatory meaning was, in fact, conveyed. 15 Id. at 464. 16 Arizona courts have emphasized the importance of thorough factual allegations in 17 defamation actions, “because the context and language of an allegedly defamatory 18 statement is crucial to the court’s analysis.” BLK III, LLC v. Skelton, 506 P.3d 812, 817 19 (Ariz. Ct. App. 2022), as amended (Feb. 17, 2022) (citation omitted). “That is, without 20 knowing the precise language of the statement allegedly uttered, the court cannot analyze 21 whether the statement is objectively verifiable as true or false—a critical question in 22 determining whether a defamation action may lie.” Id. (citations omitted). Instead, a 23 “plaintiff must clearly and specifically allege the content and context of the challenged 24 statements and why and how they were defamatory.” Id. at 817–18. 25 Plaintiff’s allegations are factually insufficient: assertions that Defendants have 26 27 1 Defendants do not move to dismiss Plaintiff’s defamation claim as it pertains to Defendant Gailey’s alleged statement that Plaintiff was “merely a broker and has no 28 manufacturing capability.” (Doc. 27 at 26). As such, that claim will proceed. 1 spread falsehoods, “concocted a reckless narrative about TAG’s financial statements,” 2 “shar[ed] disparaging remarks,” and “leaked inaccurate and untruthful information” do not 3 allow the Court the opportunity to analyze what the statements even were, let alone whether 4 they were objectively verifiable as true or false. (Doc. 21 at 19). Nor does the allegation 5 that “Defendants stated that TAG Dynamics was a joint venture with TAG” sufficiently 6 detail the precise language, content, and context of the allegedly defamatory statements. 7 (Id. at 20). As such, Plaintiff’s defamation claim, with the exception of the statements not 8 included in Defendants’ Motion, is dismissed. Because additional facts could remedy 9 Plaintiff’s claims, Plaintiff will be granted leave to amend. 10 i. Counts IX and X: Breach of Contract 11 In Arizona, restrictive covenants are generally disfavored and strictly construed 12 against employers. Under Arizona law, 13 [a] restrictive covenant is reasonable and enforceable when it protects some legitimate interest of the employer beyond the 14 mere interest in protecting itself from competition such as preventing competitive use, for a time, of information or 15 relationships which pertain peculiarly to the employer and which the employee acquired in the course of the employment. 16 17 Bed Mart, Inc. v. Kelley, 45 P.3d 1219, 1221 (Ariz. Ct. App. 2002) (cleaned up). Generally, 18 non-compete and non-solicitation restrictions are enforceable if they are reasonable with 19 respect to duration, geographic scope, and the range of activities affected. Traditions 20 Health LLC v. Paulson, No. CV-23-01876-PHX-SMB, 2023 WL 6318015, at *3 (D. Ariz. 21 Sept. 28, 2023) (citations omitted). 22 Plaintiff attached the relevant agreements to its FAC. (See Doc. 21-1). The 23 agreement provides post-employment restrictions on soliciting employees or contractors 24 engaged by TAG; soliciting client, customers, or subcontractors or inducing or encouraging 25 any of TAG’s business relations to cease doing business with TAG; and “work[ing] on, 26 plan[ning], prepar[ing] for, organiz[ing] or engag[ing]” in any business activities in the 27 Restricted Field within the Business Territory. (Id. at 9). The relevant Business Territory, 28 as defined by the non-competition agreement, “means the entire United States, Africa, 1 Middle East, Central America, and South America.” (Id. at 6). The “Restricted Field” 2 provision limits activities within the business of selling and marketing armored vehicles. 3 (Id. at 7). The non-competition restriction and client and employee non-solicitation 4 agreements have a 12-month limit for Defendant Holden and a 24-month limit for 5 Defendant Gailey. (Id. at 6–7; Doc. 21-2). The agreement also contains provisions 6 prohibiting the unauthorized disclosure or use of confidential company information. (Id. at 7 8). 8 Here, Plaintiff has not stated a claim upon which relief may be granted, as the non- 9 competition and non-solicitation restrictive covenants are unreasonable in scope and thus 10 unenforceable. The geographic scope is extremely broad, encompassing several continents 11 and the entire United States. “This Court, applying Arizona law, has not favored restrictive 12 employment provisions with unlimited geographical reach.” Karp v. Avella of Deer Valley 13 Inc., No. CV13-1885 PHX DGC, 2013 WL 5435212, at *1 (D. Ariz. Sept. 30, 2013) 14 (collecting cases); see also Olliver/Pilcher Ins., Inc. v. Daniels, 715 P.2d 1218, 1220 (Ariz. 15 1986) (finding statewide scope to be overbroad). Worldwide geographic scopes have been 16 found reasonable where the business is conducted internationally and where the restriction 17 is limited in scope in other respects. See Cont’l Promotion Grp., Inc. v. Garvin, No. CV 18 08-0070-PHX-SRB, 2009 WL 10673482, at *5 (D. Ariz. May 22, 2009). However, under 19 Arizona law, courts are hesitant to find that a company has a legitimate protectable interest 20 in areas that they never worked. See Elec. Payment Providers, Inc. v. Kennedy, No. 1 CA- 21 CV 20-0382, 2021 WL 6087642, at *4 (Ariz. Ct. App. Dec. 23, 2021) (“[Plaintiff] has 22 provided no controlling legal authority demonstrating they have a protectable interest in 23 denying defendants the right to compete in geographic areas in which they never provided 24 service while working for [Plaintiff]. To be sure, Arizona law is contrary.”). Here, Plaintiff 25 has not alleged that the restriction is tailored to protect its legitimate business interests or 26 that Defendants themselves ever did business in any of the areas outlined in the agreement. 27 To that end, the prohibition on contacting any of TAG’s business relations is 28 unenforceable, as Arizona courts typically restrict solicitation only of “individuals with 1 whom the Defendants have formed a meaningful relationship.” Nouveau Riche Corp. v. 2 Tree, No. CV08-1627-PHX-JAT, 2008 WL 5381513, at *5 (D. Ariz. Dec. 23, 2008); Karp, 3 2013 WL 5435212, at *1. Plaintiff’s FAC does not provide facts showing the non- 4 solicitation restriction is narrowly tailored to Defendants’ meaningful contacts. 5 Moreover, the Courts is skeptical of the enforceability of the restriction on any 6 activities related to the business of selling and marketing armored vehicles, as well. 7 Typically, courts favor activity restraints that are “limited to the particular specialty of the 8 present employment.” Compare Valley Med. Specialists v. Farber, 982 P.2d 1277, 1285 9 (Ariz. 1999) (rejecting non-compete prohibition on doctor’s practice of all medicine rather 10 than only his specialty), with Bed Mart, Inc. v. Kelley, 45 P.3d 1219, 1223 (Ariz. Ct. App. 11 2002) (accepting prohibition on subsequent employment at mattress stores specifically, 12 because plaintiff could still obtain employment in his specific area of sales expertise— 13 mattresses—at other furniture and department stores). 14 Lastly, Plaintiff’s FAC purports no facts to support that the durations of the 15 restrictions are reasonable. Generally, restrictive covenants are found reasonable if they are 16 only as long as necessary to replace the employee and train a replacement or give the 17 replacement a chance to demonstrate his effectiveness to do the job. Amex Distrib. Co. v. 18 Mascari, 724 P.2d 596, 604 (Ariz. Ct. App. 1986). Restrictive covenants may also be found 19 reasonable if the duration lasts as long as necessary to render confidential information 20 obsolete. See generally Bed Mart, 45 P.3d at 1223. Plaintiff has not alleged facts 21 demonstrating how the durations are justified relative to training replacements, rendering 22 confidential information obsolete, or its other legitimate business interests beyond 23 providing conclusory assertions. 24 While Arizona courts allow for severance of unenforceable provisions, courts 25 cannot add terms or rewrite provisions. Karp, 2013 WL 5435212, at *2. The contracts 26 contain severability clauses. (See Docs. 21-1 at 10, 21-2 at 6). However, because the FAC 27 lacks any facts that shed light on Plaintiff’s legitimate business interests, the Court cannot 28 determine what terms should be stricken and “blue pencil” the agreement to salvage its 1 reasonableness. 2 With respect to the confidentiality provision, Plaintiff has not clearly alleged that 3 Defendants Holden and Gailey are in breach of contract. Plaintiff’s FAC alleges that 4 Defendants have breached the confidentiality provisions “by using and disclosing 5 Plaintiff’s proprietary, confidential and trade secret information to compete against 6 Plaintiff” but does not provide facts beyond these conclusory allegations. (Doc. 21 at 21– 7 22). While the confidentiality provision is likely enforceable, the FAC does not allege facts 8 that, taken as true, state a claim for relief for breach of contract. As with Plaintiff’s other 9 claims, additional facts may remedy the identified deficiencies and as such, Plaintiff will 10 be granted leave to amend. 11 IV. CONCLUSION 12 All told, “whether a complaint states a plausible claim for relief will . . . be a context- 13 specific task that requires the reviewing court to draw on its judicial experience and 14 common sense.” Iqbal, 556 U.S. at 679. A district court should normally grant leave to 15 amend unless it determines that the pleading could not possibly be cured by allegations of 16 other facts. Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 17 1990). 18 While Plaintiff only needs to allege enough facts to “plausibly give rise to an 19 entitlement to relief,” that has not occurred here. Iqbal, 556 U.S. at 679. Therefore, the 20 Amended Complaint fails to satisfy the pleading standards set forth by Rule 8 and 12(b)(6), 21 and its dismissal is both warranted and necessary. One of Plaintiff’s claims cannot be cured 22 with further amendment and is thus futile. See Bonin v. Calderon, 59 F.3d 815, 845 (9th 23 Cir. 1995) (“Futility of amendment can, by itself, justify the denial of a motion for leave to 24 amend.”). Specifically, Plaintiff’s Count V – Tortious Interference with Contract is 25 dismissed in its entirety. Plaintiff cannot allege additional relevant facts consistent with its 26 Amended Complaint that would save this claim. See Schreiber Distrib. Co. v. Serv-Well 27 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986) (“If a complaint is dismissed for failure 28 to state a claim, leave to amend should be granted unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure 2| the deficiency.”). However, Plaintiff will be granted leave to amend Counts One through Four and Six through Ten to cure the other deficiencies identified by the Court throughout 4| this Order. Accordingly, 5 IT IS ORDERED that Defendants’ Request for Judicial Notice (Doc. 28) is denied. 6 IT IS ORDERED that Defendants’ Partial Motion to Dismiss (Doc. 27) is granted. 7 IT IS FURTHER ORDERED that Plaintiffs Counts I, II, WI, IV, VI, VII, EX, and 8 | X are dismissed without prejudice and with leave to amend. Plaintiff must file an Amended Complaint by March 28, 2025. 10 IT IS FURTHER ORDERED that Plaintiff's Count VIII: Defamation is dismissed 11 | in part, in accordance with this Order, without prejudice and with leave to amend. 12 IT IS FURTHER ORDERED that Plaintiffs Count V is dismissed with prejudice and without leave to amend. 14 Dated this 28th day of February, 2025. 15 16 7 LG 18 19 20 21 22 23 24 25 26 27 28