1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 MICHAEL DEUTSCH, No. 1:19-cv-00281-DAD-SAB 12 Plaintiff, 13 v. ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 14 DOUGLAS W. COOK, (Doc. No. 13) 15 Defendant.
16 17 INTRODUCTION 18 On May 10, 2019, defendant Douglas W. Cook filed a motion to dismiss plaintiff Michael 19 Deutsch’s complaint. (Doc. 13-1.) On June 4, 2019, plaintiff filed his opposition. (Doc. No. 16.) 20 On June 11, 2019, defendant filed his reply. (Doc. No. 17.) A hearing on the motion was held on 21 June 18, 2019. Attorney Julia Wittman appeared telephonically on behalf of plaintiff, and 22 attorneys Shane Smith and Paul Gaus appeared on behalf of defendant. 23 The court has considered the parties’ briefs and oral arguments, and for the reasons set 24 forth below, the court grants defendant’s motion to dismiss with leave to amend. 25 BACKGROUND 26 A. The Venture 27 This dispute arises from a business venture of sorts that was never formalized in writing. 28 In his complaint, plaintiff alleges as follows. Defendant Cook is a medical doctor and surgeon 1 who invented the Dialfan, a medical device used in hernia repairs, in or about 2010. (Doc. No. 1 2 ¶¶ 1, 15.) The Dialfan consists of a mesh patch and a placement tool “with a plurality of 3 adjustable blades and a control to move the adjustable blades between a clustered position,” 4 allowing “the blades to be inserted in an opening in a ply of the mesh patch and an expanded 5 position to spread the mesh patch out in a planar fashion.” (Id. ¶ 16.) “Cook patented the Dialfan 6 and, on information and belief, directly owns all right, title, and interest in the Dialfan 7 technology.” (Id. ¶ 17.) Plaintiff Deutsch alleges that he paid attorneys’ fees for the Dialfan’s 8 patent. (Id. ¶ 4.) 9 In late 2010, “Cook approached Deutsch for help with commercializing the device, 10 knowing that Deutsch had achieved considerable success marketing and selling related medical 11 devices.” (Id. ¶¶ 2, 18.) “Cook wanted Deutsch to use his connections and experience in the 12 medical device industry so Cook, through Deutsch, could either market the device or find a 13 company to produce and sell the Dialfan under a licensing agreement with Cook in exchange for 14 paying Cook royalties on Dialfan sales.” (Id. ¶ 18.) “Cook also wanted Deutsch to contribute 15 money to promote the commercialization of the Dialfan.” (Id.) “In exchange,” Cook “promis[ed] 16 to reward Deutsch if they succeeded by sharing with Deutsch 49% of the profit Cook earned on 17 any sales.” (Id. ¶¶ 3, 18.) 18 “Deutsch agreed to work with Cook to commercialize the device,” but the parties “never 19 entered a partnership agreement, joint venture agreement, or any other contract governing their 20 efforts to bring the Dialfan to market (the ‘Venture’).” (Id. ¶¶ 3, 19.) At the beginning of the 21 Venture, the parties “did not agree upon a termination date nor did they set performance metrics 22 or deadlines for achieving sales goals.” (Id. ¶ 20.) 23 B. The Acts Supporting the Venture 24 “Trusting Cook, Deutsch invested significant amounts of time, money, and energy into 25 marketing Cook’s device . . ..” (Id. ¶ 4.) At defendant Cook’s request, on or about July 13, 2014, 26 plaintiff Deutsch loaned Cook $45,000 (“the Loan”) without interest for use with the Venture.1 27 1 Plaintiff clarifies this $45,000 interest-free loan was in addition to investments plaintiff had 28 1 (Id. ¶ 21.) “Deutsch provided the Loan with the expectation that profits from the Venture would 2 ultimately compensate him for the interest-free use of his money.” (Id.) “The Loan funds were 3 placed in a business checking account held by Precision-AWR, Inc. (‘PAWR’), a California 4 corporation formed by Cook to be the corporate form through which he ultimately would license 5 or sell the Dialfan.” (Id. ¶ 22.) Plaintiff contends he was “impoverished by providing the Loan 6 on an interest-free basis” and “never received any benefit in exchange for doing so.” (Id. ¶ 47.) 7 Defendant Cook repaid the loan in December 2016 without interest and has not “provided any 8 remuneration for the interest-free use of the Loan proceeds between 2014 and 2016.” (Id. ¶ 48.) 9 Plaintiff alleges that defendant Cook used the interest-free loan funds to pay expenses 10 relating to the Venture, which ultimately benefited Cook, as well as funds for his personal 11 expenses, including payment for legal fees. (Id. ¶ 24.) Plaintiff also alleges that he could have 12 profited by investing the $45,000 interest-free loan elsewhere. (Id. ¶ 25.) In addition to 13 plaintiff’s $45,000 interest-free loan to defendant Cook, plaintiff also alleges he contributed 14 $60,000 to cover the Venture’s expenditures, for which defendant Cook has not reimbursed him 15 “or otherwise pa[id] for any of these expenses.” (Id. ¶¶ 21, 29.) 16 Again at defendant Cook’s request, plaintiff worked to “increase the Dialfan’s market 17 appeal by identifying and working with manufacturers to develop a plastic disposable Dialfan 18 design and protypes, which Cook used to implant mesh in several of his hernia patients.” (Id. ¶ 19 26.) Additionally, plaintiff worked with two companies to develop a prototype mesh that 20 interfaced with the Dialfan. (Id.) 21 According to plaintiff, he expended “hundreds of hours marketing and generating 22 commercial interest in the Dialfan over a four year period from 2011 to 2015” without any 23 remuneration from defendant Cook. (Id. ¶¶ 27–28.) “At Cook’s request and Deutsch’s expense, 24 Deutsch displayed and promoted the Dialfan at dozens of trade shows attended by physicians 25 specializing in hernia treatments and by medical device sales and manufacturing companies . . ..” 26 (Id.) Plaintiff also expended efforts preparing educational materials “explaining the use of the 27 Dialfan and worked with regulatory authorities and consultants to satisfy requirements that would 28 allow for the commercialization of the Dialfan.” (Id.) 1 Plaintiff contends he successfully generated interest from “at least three medical device 2 manufacturers, including Novus Scientific, who expressed interest in licensing, producing, and 3 selling the Dialfan.” (Id. ¶ 30.) Plaintiff alleges defendant Cook “unreasonably failed [to contact 4 Novus Scientific] and refused to follow up [to negotiate a license], squandering the opportunity.” 5 (Id.) Plaintiff further asserts that his efforts have resulted in defendant Cook receiving other 6 inquiries from interested potential licensors. (Id. ¶ 31.) However, plaintiff avers that on or about 7 June 29, 2015, defendant Cook “unreasonably failed and refused to reach agreement with any 8 company and instead unilaterally decided not to cooperate with [plaintiff’s] efforts to promote the 9 Dialfan . . ..” (Id. ¶ 32.) Plaintiff claims he “timely protested defendant’s unwillingness to allow 10 [plaintiff] to continue to participate in the Venture and to recoup his investment.” (Id. ¶ 33.) 11 According to plaintiff, “[t]he parties thereafter spent many months and ultimately years 12 negotiating terms under which Deutsch would be able to recoup his investment upon Cook’s 13 successful commercialization of the Dialfan.” (Id. ¶ 34.) During the course of those negotiations, 14 defendant “continued to provide [plaintiff] information regarding [defendant’s] independent 15 efforts in furtherance of the Venture, and to propose and entertain proposals for sharing profits on 16 sales of the Dialfan.” (Id. ¶ 35.) Plaintiff contends he diligently and frequently followed up with 17 defendant regarding the Venture’s status. (Id. ¶ 36.) 18 In March 2017, defendant proposed retaining a third party to continue the Venture, with 19 plaintiff and defendant sharing in the resulting profits. (Id. ¶ 37.) However, according to 20 plaintiff, defendant “failed to identify and such third party and nothing came of [defendant’s] 21 proposal.” (Id.) 22 C. Communication Ends 23 In or around September 2018, defendant “suddenly refused to communicate further with 24 Deutsch regarding the Venture, leaving Deutsch no recourse to recover his investment and 25 leaving Cook, who wholly owns and controls the Dialfan technology, unjustly enriched by 26 Deutsch’s participation in the Venture and the commercial interest in the Dialfan that would not 27 have existed, but for Deutsch’s efforts and investment.” (Id. ¶ 38.) Defendant “received 28 opportunities to commercialize the Dialfan through licensing arrangements and opportunities to 1 produce and sell the Dialfan to interested physicians” through plaintiff’s “labor hours, money, and 2 effort in attempting to bring the Dialfan to market.” (Id. ¶¶ 49–50.) However, defendant 3 “suddenly ceased all efforts to work with [plaintiff] to take the Dialfan to market, and thereafter 4 failed and refused to deal fairly with [plaintiff]” by “arbitrarily and unfairly den[ying plaintiff] the 5 opportunity to continue working toward recouping his investment.” (Id. ¶ 51.) 6 Plaintiff asserts that the “Dialfan is a commercially-viable and valuable medical device” 7 and contends, “[o]n information and belief, Cook routinely continues to use the Dialfan on his 8 own surgery patients, and profits from doing so.” (Id. ¶¶ 39, 40.) Plaintiff claims he cannot 9 recoup any portion of his investment because of defendant Cook’s unilateral decision to 10 discontinue the Venture. (Id. ¶ 41.) Plaintiff argues that as a matter of equity, defendant Cook 11 cannot be permitted to keep the benefits conferred upon him by plaintiff’s efforts. (Id. ¶ 53.) 12 Based on these allegations, plaintiff brings a single claim for unjust enrichment, construed 13 alternatively as a quasi-contract claim for restitution. (Id. at 7.) 14 LEGAL STANDARD 15 A motion to dismiss under Rule 12(b)(6) is a challenge to the sufficiency of the 16 allegations set forth in the complaint. Dismissal under Rule 12(b)(6) is proper where there is 17 either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a 18 cognizable legal theory.” Balistreri v. Pacifica Police Dep’t., 901 F.2d 696, 699 (9th Cir. 1988). 19 In considering a motion to dismiss for failure to state a claim, the court generally accepts as true 20 the allegations in the complaint, construes the pleading in the light most favorable to the party 21 opposing the motion, and resolves all doubts in the pleader’s favor. Lazy Y. Ranch LTD, 546 F.3d 22 580, 588 (9th Cir. 2008). 23 To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to 24 state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 25 (2007). “A claim has facial plausibility when the Plaintiff pleads factual content that allows the 26 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 27 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a 28 ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted 1 unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). “While a complaint attacked by a Rule 2 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to 3 provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions.” 4 Twombly, 550 U.S. at 555 (internal citations omitted). Thus, “bare assertions . . . amount[ing] to 5 nothing more than a ‘formulaic recitation of the elements’. . . are not entitled to be assumed true.” 6 Iqbal, 556 U.S. at 681. “[T]o be entitled to the presumption of truth, allegations in a complaint . . 7 . must contain sufficient allegations of underlying facts to give fair notice and to enable the 8 opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 9 In practice, “a complaint . . . must contain either direct or inferential allegations respecting all the 10 material elements necessary to sustain recovery under some viable legal theory.” Twombly, 550 11 U.S. at 562. To the extent that a deficient pleading can be cured by the allegation of additional 12 facts, however, a plaintiff should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. N. 13 Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted). 14 DISCUSSION 15 Defendant moves to dismiss plaintiff’s unjust enrichment claim and alternative quasi- 16 contract for restitution claim for the following reasons: (1) unjust enrichment cannot serve as an 17 independent cause of action; (2) plaintiff has not sufficiently alleged that he conferred any 18 benefits on defendant that defendant retained; and (3) restitution is not available where the parties 19 had the opportunity to contract with one another but neglected to do so. (See Doc. No. 13-1 at 6.) 20 For the reasons explained below, the court will grant defendant’s motion to dismiss with leave to 21 amend. 22 A. Unjust Enrichment 23 1. Unjust Enrichment as a Standalone Claim 24 Defendant moves to dismiss plaintiff’s complaint because “[t]he weight of authority in 25 California—beginning with several Court of Appeal decisions—holds that unjust enrichment is 26 not an independent cause of action.” (Doc. No. 13-1 at 7.) All the California court decisions 27 cited by defendant in support of this argument were issued before the Ninth Circuit’s decisions in 28 Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015), and Bruton v. Gerber 1 Prods. Co., 703 F. App’x 468, 470 (9th Cir. 2017).2 (See id.) In opposition to the pending 2 motion, plaintiff states that while “California courts are split on the question whether unjust 3 enrichment, standing alone, is a recognized cause of action in California,” plaintiff’s claim may 4 proceed as a quasi-contract claim for restitution. (Doc. No. 16 at 5–7) (citing Wong v. 5 Tomaszewski, No. 2:18-cv-00039-MCE, 2019 WL 1979252, *3 n.4 (E.D. Cal. May 3, 2019) 6 (noting a split authority regarding viability of unjust enrichment claims under California law); 7 ESG Capital Partners, LP v. Stratos, 828 F.3d 1023, 1038 (9th Cir. 2016) (“While California 8 case law appears unsettled on the availability of such a cause of action, this Circuit has construed 9 the common law to allow an unjust enrichment cause of action through quasi-contract.”) (citing 10 Astiana, 783 F.3d at 762). Plaintiff concedes there is no contract between himself and defendant, 11 and thus plaintiff has no adequate remedy at law. (Id. ¶ 54.) 12 In 2017, the Ninth Circuit clarified the long-standing inconsistency in California law, 13 recognizing that independent claims for unjust enrichment may proceed. See Bruton, 703 F. 14 App’x at 470; Williams v. Facebook, Inc., 384 F. Supp. 3d 1043, 1057 (N.D. Cal. 2018) (noting 15 that the Ninth Circuit clarified that unjust enrichment claims can proceed, but holding plaintiffs 16 failed to satisfy Rule 9(b)’s heightened pleading requirements) (citing Bruton, 703 F. App’x at 17 470); DeArmey v. Hawaiian Isles Kona Coffee Co., No. 8:19-cv-00432-JVS-KES, 2019 WL 18 6723413, *6 (C.D. Cal. July 22, 2019) (holding that plaintiff’s unjust enrichment claim may 19 proceed); see also Astiana, 783 F.3d at 762 (upholding plaintiff’s unjust enrichment consumer 20 claim as distinct from unfair competition, false advertising, and fraud claims); Hartford Cas. Ins. 21 Co. v. J.R. Mktg., LLC, 61 Cal. 4th 988, 1000 (2015) (allowing independent claim for unjust 22 enrichment to proceed in an insurance dispute); Ghirardo v. Antonioli, 14 Cal. 4th 39, 54 (1996) 23 (recognizing independent cause of action for unjust enrichment relating to a real estate 24 transaction). Therefore, the court rejects defendant’s argument that unjust enrichment is not a 25 viable claim as a matter of law. 26 /////
27 2 Citation to this unpublished Ninth Circuit opinion is appropriate pursuant to Ninth Circuit Rule 28 1 2. Plaintiff’s Unjust Enrichment Claim and Quasi-Contract Claim for Restitution 2 a. Unjust Enrichment 3 An unjust enrichment claim requires the “receipt of a benefit and [the] unjust retention of 4 the benefit at the expense of another.” Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726 5 (2000). To state a claim, a plaintiff must affirmatively allege that the defendant received a benefit 6 at plaintiff’s expense. See AccuImage Diagnostics Corp v. Terarecon, Inc., 260 F. Supp. 2d 941, 7 958 (N.D. Cal. 2003); Williams, 384 F. Supp. 3d at 1057. “The term ‘benefit’ ‘denotes any form 8 of advantage.’” Ghirardo, 14 Cal. 4th at 51. “Thus, a benefit is conferred not only when one 9 adds to the property of another, but also when one saves the other from expense or loss.” Id. 10 (holding that an unjust enrichment claim allowed property sellers to recoup a sum they paid on 11 underlying promissory note but inadvertently undercalculated amount owed by buyers). 12 Thus, in ESG Capital Partners, the Ninth Circuit held that the plaintiff’s complaint was 13 sufficient in alleging that defendants received and unjustly retained $350,000 at plaintiff’s 14 expense where: (1) defendants received nearly $3 million from plaintiff; (2) defendants promised 15 to hold the deposit in a client trust account; (3) defendants promised the funds would be 16 refundable; (4) defendants actually placed those funds in a client trust account; and (5) defendants 17 paid themselves $350,000 with those funds. ESG Capital Partners, 828 F.3d at 1039 (holding 18 plaintiff sufficiently stated alternative claim under quasi-contract for same reasons as unjust 19 enrichment theory). 20 Here, plaintiff claims defendant Cook received the following benefits and savings: (1) the 21 interest-free loan from plaintiff, which has since been repaid without interest, for use toward the 22 Venture, the Dialfan’s patent, and/or paying defendant’s legal fees3; (2) plaintiff contributed an 23 additional $60,000 of his own funds to pay for the Venture’s expenses, for which has not been 24 reimbursed by defendant; (3) plaintiff worked with manufacturers to design and develop 25 3 It is unclear from the complaint whether plaintiff is alleging that his interest-free loan to 26 defendant that was used to pay for attorney’s fees associated with the Dialfan’s patent is distinct from his allegation that defendant Cook used the interest-free loan to pay his personal legal fees. 27 (See Doc. No. 1 ¶¶ 4, 24.) In any event, resolution of the pending motion to dismiss does not require the court to address whether plaintiff could be entitled to interest on an interest-free loan 28 1 prototypes for the Dialfan; (4) plaintiff worked with two companies to develop prototypes that 2 interfaced with the Dialfan; (5) plaintiff developed educational materials explaining the Dialfan’s 3 use, which defendant could use to market the Dialfan; (6) plaintiff marketed the Dialfan at dozens 4 of trade shows; (7) plaintiff successfully generated the medical device industry’s interest in the 5 Dialfan; (8) plaintiff met with consultants and regulatory officials in an effort to properly license 6 the Dialfan, resulting in defendant’s increased position to market the Dialfan and have 7 relationships with industry members; (9) plaintiff devoted hundreds of hours marketing the 8 Dialfan; (10) defendant saved time, effort, and money by not paying plaintiff for his services, the 9 value of which exceeds $75,000; and (11) defendant uses the Dialfan on his surgery patients and 10 profits as a result. (Doc. No. 1 ¶¶ 26–29, 40, 44–52; Doc. No. 16 at 8–9.) In opposing the 11 pending motion to dismiss, plaintiff argues that “[a]s the sole owner of the intellectual property 12 associated with the Dialfan, [defendant] benefited from [plaintiff’s] efforts in developing a market 13 and interest in the Dialfan, whether or not [defendant] proved capable of capitalizing on such 14 interest.” (Doc. 16 at 8.) While not explicitly pled in his complaint, plaintiff suggests in his 15 opposition that defendant now retains a competitive advantage, where he “now knows which 16 tactics worked well, and which were less productive in generating commercial interest in the 17 Dialfan” through plaintiff’s efforts. (Id.) 18 In contrast, defendant argues that an unjust enrichment claim is not cognizable where he 19 merely decided not to license the Dialfan and has not earned any profits from it. (Doc. No. 13-1 20 at 9–10.) Therefore, defendant argues, plaintiff is seeking a windfall because he is requesting 21 more than what the purported agreement with defendant entitles him to. (Id.) Defendant relies 22 upon the decision in Peterson v. Cellco Partnership, 164 Cal. App. 4th 1583, 1593 (2008), for the 23 proposition that “[t]he mere fact that a person benefits another is not of itself sufficient to require 24 the other to make restitution therefore.” However, the undersigned finds the Peterson decision to 25 be inapplicable here because in that case the court held only that the plaintiffs’ unjust enrichment 26 claim was premised upon the California Insurance Code, which provided a separate recovery for 27 violations of the code. Id. at 1593–95. 28 ///// 1 Defendant also argues that plaintiff Deutsch acted in his own self-interest to receive 49% 2 of profits, which prohibits him from obtaining restitutionary relief. (Doc. No. 17 at 4) (citing 3 Dinosaur Dev., Inc. v. White, 216 Cal. App. 3d 1310, 1315 (1989) (“A person who, incidentally 4 to the performance of his own duty or to the protection or the improvement of his own things, has 5 conferred a benefit upon another, is not entitled to contribution”)). However, White is also 6 distinguishable from the present case in that it involved a local government conditioning its 7 approval for a landowner to construct a public thoroughfare on the landowner’s property on 8 construction of a similar thoroughfare for a neighbor’s landlocked property. White, 216 Cal. App. 9 3d at 1312–13. The California Court of Appeal specifically noted that its decision in that case 10 was “limited to the peculiar situation presented.” Id. While the plaintiff’s construction project in 11 White would ultimately benefit the neighbor’s property, the court in that case highlighted that the 12 government conditioned its approval on improvement of defendant’s property, but that the 13 defendants had not directly requested the construction from plaintiff. Id. at 1316. Here, however, 14 plaintiff’s complaint alleges that defendant Cook made numerous requests of plaintiff Deutsch. 15 While according to the allegations of the complaint defendant has not capitalized from 16 licensing the Dialfan, plaintiff does allege that defendant “routinely continues to use the Dialfan 17 on his own surgery patients, and profits from doing so.” (Doc. No. 1 ¶¶ 26, 40.) Somewhat 18 similar to the allegations in ESG Partners, 828 F.3d at 1039, here plaintiff alleges that defendant 19 Cook received a $45,000 interest-free loan from plaintiff for the Venture; the loan funds were 20 placed into the PAWR account; and defendant used some of the $45,000 loan to pay his personal 21 expenses. (Id. ¶¶ 4, 21–24, 45–50.) Plaintiff also alleges that he incurred $60,000 in expenses in 22 addition to spending significant time and energy marketing the Dialfan, cultivating industry 23 contacts, and preparing the Dialfan for commercialization. (Id. ¶¶ 26–30.) However, unlike the 24 allegations of the complaint found to be sufficient in ESG Partners, where the defendants 25 allegedly promised plaintiff funds held in a trust account were refundable but nonetheless 26 misappropriated those funds, here plaintiff does not allege how plaintiff expected to be 27 reimbursed should the Venture not proceed or in what way funds loaned were unjustly retained by 28 defendant Cook. (See generally Doc. No. 1.) At the hearing on the pending motion, plaintiff’s 1 counsel suggested that plaintiff can allege additional facts concerning his expectations in this 2 regard and the basis therefore. 3 Accordingly, the court will dismiss plaintiff’s unjust enrichment claim with leave to 4 amend. Any amended complaint plaintiff elects to file must allege facts clarifying plaintiff’s 5 expectations regarding reimbursement for costs and defendant’s assurances, if any, regarding 6 defendant’s willingness to proceed with licensing the Dialfan and plaintiff having the opportunity 7 to recoup his costs. 8 b. Quasi-contract Claim for Restitution 9 Alternatively, “[w]hen a plaintiff alleges unjust enrichment, a court may ‘construe the 10 cause of action as a quasi-contract claim seeking restitution.’” Astiana, 783 F.3d at 762 (finding 11 plaintiff’s allegation that she was entitled to relief because defendant “entic[ed]” plaintiffs to 12 purchase their products through “false and misleading” labeling, and that defendant was “unjustly 13 enriched” as a result to be sufficient) (quoting Rutherford Holdings, LLC v. Plaza Del Rey, 223 14 Cal. App. 4th 221, 231 (2014)). Courts can “construe the cause of action as a quasi-contract 15 claim seeking restitution” to avoid an unjust benefit conferred to the defendant “through mistake, 16 fraud, coercion, or request.” Astiana, 783 F.3d at 762 (quoting 55 Cal. Jur. 3d Restitution § 2) 17 (emphasis added). 18 Here, plaintiff alleges that he provided the $45,000 interest-free loan to defendant Cook 19 on or about July 13, 2014, at Cook’s request. (Id. ¶¶ 21, 45.) Plaintiff further alleges that 20 defendant Cook requested that plaintiff work to “increase the Dialfan’s market appeal by 21 identifying and working with manufacturers to develop a plastic disposable Dialfan design and 22 prototypes, which Cook used to implant mesh in several of his hernia patients.” (Id. ¶ 26.) “At 23 Cook’s request and Deutsch’s expense, Deutsch displayed and promoted the Dialfan at dozens of 24 trade shows attended by physicians specializing in hernia treatments and by medical device sales 25 and manufacturing companies . . ..” (Id. ¶¶ 27–28.) Plaintiff also contends that defendant 26 “personally benefitted from the interest-free Loan because he used Loan funds for expenses 27 unrelated to the Venture’s objective of promoting the Dialfan.” (Id. ¶ 46.) Therefore, plaintiff’s 28 allegations that defendant “requested and received benefits at [plaintiff’s] expense including, but 1 not limited to, the interest-free Loan used for PAWR’s expenses, as well as labor hours, money, 2 and effort expended to market the Dialfan” (Doc. No. 1 ¶ 45) sufficiently demonstrate plaintiff 3 acted in response to defendant’s requests. See Astiana, 783 F.3d at 762. 4 Even when one has received a benefit from another, he is required to make restitution 5 “only if the circumstances of its receipt or retention are such that, as between the two persons, it 6 is unjust for him to retain it.” Ghirardo, 14 Cal. 4th at 51. A “party who does not know about 7 another’s mistake, and has no reason to suspect it, may not be required to give up the benefit if he 8 also relied on it to his detriment.” Id. In other words, “innocent recipients may be treated 9 differently than those persons who acquire a benefit with knowledge.” Id. at 52. The court may 10 infer from the allegations of the complaint, if proven, that this is not a case where the defendant 11 was blind to plaintiff’s efforts given plaintiff’s numerous allegations regarding defendant’s 12 requests. 13 For reasons discussed in subsection (a), however, the court concludes that the complaint 14 does lack sufficient allegations regarding plaintiff’s expectations for reimbursement, the basis for 15 those expectations, and any assurances from defendant to proceed with attempting to license the 16 Dialfan. Accordingly, plaintiff’s alternative quasi-contract claim for restitution will also be 17 dismissed with leave to amend. 18 3. In quantum meruit 19 In opposing the pending motion to dismiss plaintiff relies upon the decision in Earhart v. 20 William Low Co., 25 Cal. 3d 503, 511, 515 n.5 (1979), an action in quantum meruit, for the 21 propositions that “performance of services at another’s behest may itself constitute [a] ‘benefit’ . . 22 ..” and “it is enough that the plaintiff has rendered the very performance for which the defendant 23 bargained. Service or forbearance rendered at the defendant’s request is regarded as having been 24 received by him.” (Doc. No. 16 at 8) (citing Earhart, 25 Cal. 3d at 511, 515 n.5) (noting “relaxed 25 . . . judicial definition of ‘benefit’ in order to grant recovery to a party who had justifiably relied 26 on another’s request for performance” where the defendant contracted with an architect to create 27 resort plans, the architect complied with the defendant’s requests, and the defendant nonetheless 28 ///// 1 abandoned the project) (citing Bodmer v. Turnage, 105 Cal. App. 2d 475, 475–78 (1951)).4 2 The decisions in Earhart and Bodmer both address situations involving written contracts. 3 See Earhart, 25 Cal. 3d at 506 (“[t]hese negotiations culminated in a construction contract which 4 was to become binding when defendant obtained the requisite financing,” though defendant never 5 received financing); Bodmer, 105 Cal. App. 2d at 475 (“[defendant] entered into a written 6 contract with the plaintiff”). As such, their applicability here–where there was no contract–is 7 subject to question. 8 Additionally, Bodmer was an action brought in quantum meruit, and the claims in Earhart 9 included elements of both quantum meruit and unjust enrichment. 5 See Earhart, 25 Cal. 3d at 10 505, 510–11; Bodmer, 105 Cal. App. 2d at 476–77. Here, plaintiff has not squarely alleged an 11 action in quantum meruit. (See generally Doc. No. 1.) Nonetheless, the essence of plaintiff’s 12 allegations appear to sound in quantum meruit. See Cal. Spine & Neurosurgery Inst. v. United 13 Healthcare Ins. Co., No. 19-cv-02417-LHK, 2020 WL 887833, *3 (N.D. Cal. Feb. 24, 2020) 14 (noting that the elements of quantum meruit are: “(1) that the plaintiff performed certain services 15 for the defendant, (2) their reasonable value, (3) that they were rendered at defendant’s request, 16 and (4) that they are unpaid.”) (citation omitted). However, the complaint before the court lacks 17 allegations that plaintiff reasonably expected reimbursement for his expenditures and efforts 18 should the project cease to proceed. For these reasons, plaintiff will also be granted leave to 19 amend his complaint to specify any claim in quantum meruit and allege facts in support of such a 20 claim consistent with Federal Rule of Civil Procedure 11. See Cook, 911 F.2d at 247 (holding 21 court may afford plaintiff with leave to amend if pleadings can be cured by allegation of 22 additional facts). 23 /////
24 4 Plaintiff’s counsel raised the decision in Bodmer at the hearing on the pending motion to 25 dismiss, though plaintiff did not discuss the case or specifically reference quantum meruit in the opposition to the motion. 26 5 “Although the paths of quantum meruit and unjust enrichment have, for at least a century, 27 diverged, they do share a common ancestry. Some discussions, indeed, still use the terms interchangeably. Some carefully distinguish them . . .. It is a field fraught with hidden pitfalls.” 28 1 4. Third Restatement on Restitution and Unjust Enrichment 2 Defendant argues that the parties “declined to enter into a contract,” thus precluding relief 3 under the Third Restatement on Restitution and Unjust Enrichment § 2, comment (d) (2011). 4 (Doc. No. 17 at 5–6). Section 2, comment (d), provides: 5 The limitation of § 2(3) is traditionally expressed by denying restitution to a claimant characterized as “officious,” an 6 “intermeddler,” or a “volunteer.” . . . . Because contract is strongly preferred over restitution as a basis for private obligations (see 7 Comment c), restitution is not usually available to a claimant who has neglected a suitable opportunity to make a contract beforehand. 8 9 Restatement (Third) of Restitution and Unjust Enrichment § 2 cmt. d (2011). Defendant 10 acknowledges that “no California authority has explicitly adopted this provision in the Third 11 Restatement.” (Id.) 12 First, viewing the pleadings in a light most favorable to the nonmoving party, plaintiff 13 does not allege that the parties declined to enter into a contract. (See generally Doc. No. 1.) 14 Instead, plaintiff alleges “the parties never reached or entered a formal agreement,” the parties 15 “never entered a partnership agreement, joint venture agreement, or any other contract governing 16 their efforts to bring the Dialfan to market . . . .,” and “[a]t the time the parties began the Venture, 17 they did not agree upon a termination date nor did they set performance metrics or deadlines for 18 achieving sales goals.” (Doc. No. 1 ¶¶ 3, 19, 20.) However, the allegations of the complaint 19 cannot be plausibly read to mean the parties affirmatively “declined to enter into a contract,” as 20 defendant now suggests. (Doc. No. 17 at 5–6.) 21 In any event, the court is not persuaded by the comment to the Restatement’s application 22 to this case. Taking the allegations in a light most favorable to plaintiff, as the court must on a 23 motion to dismiss, plaintiff does not appear to have offered himself up as a volunteer (i.e., as an 24 “officious intermeddler”). Instead, plaintiff alleges that defendant Cook requested that he take 25 certain actions to advance the Venture, which also allegedly benefited himself, and plaintiff 26 complied with those requests. (See Doc. No. 1 ¶¶ 21–22, 24, 26–32, 40, 44–52.) While contract 27 is strongly preferred over restitution (Restatement (Third) of Restitution and Unjust Enrichment § 28 2 cmt. d), the traditional limitation espoused by this Restatement comment relating to an 1 | “officious” claimant does not appear to be implicated under the facts alleged in plaintiff's 2 | complaint. Accordingly, the court rejects defendant’s argument in this regard. 3 CONCLUSION 4 For the reasons set forth above, defendant’s motion to dismiss the complaint (Doc. No. 5 | 13) is granted with leave to amend. Plaintiff will be provided thirty (30) days from the date of 6 | this order to file an amended complaint which complies with this order or to file a notice with the 7 | court indicating that he will not amend. 8 | IT IS SOORDERED. a " 9 Li. wh F Dated: _ February 27, 2020 Sea 1" S098 10 UNITED STATES DISTRICT JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15