Infectolab Americas LLC v. ArminLabs GmbH

Opinion

1 2 3 7 8 INFECTOLAB AMERICAS LLC, et al., Case No. 20-cv-03318-VKD

9 Plaintiffs, ORDER GRANTING IN PART AND 10 v. DENYING IN PART DEFENDANT’S MOTION TO DISMISS SECOND 12 Defendant. Re: Dkt. No. 51

13 15 Plaintiffs Infectolab Americas LLC (“Infectolab”) and IGeneX, Inc. (“IGeneX”) filed this 16 action alleging violation of the Lanham Act, 41 U.S.C. § 1125(a)(1), and asserting several state 17 law claims for relief.1 The Court previously granted a Rule 12(b)(6) motion by defendant 18 ArminLabs GmbH (“ArminLabs”) to dismiss three claims asserted only by Infectolab for 19 intentional and negligent interference with prospective economic advantage and tortious 20 interference with contract. Infectolab conceded the motion with respect to its claim for negligent 21 interference with prospective economic advantage, which was dismissed without leave to amend. 22 The Court dismissed the claims for intentional interference with prospective economic advantage 23 and for tortious interference with contract with leave to amend. Dkt. No. 43. 24 Plaintiffs filed a Second Amended Complaint (“SAC”) in which Infectolab reasserts its 25 claims for intentional interference with prospective economic advantage (Count IV) and tortious 26 1 The Court incorporates by reference the statement of background facts in its prior order (Dkt. 27 No. 43 at 2) and assumes the parties’ familiarity with those facts, which will not be repeated in 1 interference with contract (Count V). Dkt. No. 50. Infectolab also adds a claim for declaratory 2 relief (Count VI), seeking “judgment that its contract with AID [Autoimmun Diagnostika GmbH] 3 gives it the exclusive right to use the Products to test residents of the United States,” and that 4 ArminLabs’s “continued use of the Products to provide testing services to residents of the United 5 States both tortuously [sic] interferes with [Infectolab’s] contractual rights with AID as well as 6 interferes with [Infectolab’s] business relationships.” Id. ¶ 85. ArminLabs moves once again, 7 pursuant to Rule 12(b)(6) to dismiss the interference claims for failure to allege sufficient facts 8 stating a plausible claim for relief. Specifically, ArminLabs argues that the SAC fails to 9 sufficiently allege the disruption of any contract or economic relationship or demonstrating any 10 economic harm. Additionally, ArminLabs moves to dismiss the declaratory judgment claim as 11 needlessly duplicative and on the ground that Infectolab has not plausibly alleged any claim for 12 interference. Infectolab opposes the motion. Upon consideration of the moving and responding 13 papers,2 as well as the arguments presented at the motion hearing, the Court grants ArminLabs’s 14 motion to dismiss in part and denies it in part.3 16 A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) tests the legal 17 sufficiency of the claims in the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). 18 Dismissal is appropriate where there is no cognizable legal theory or an absence of sufficient facts 19 alleged to support a cognizable legal theory. Id. (citing Balistreri v. Pacifica Police Dep’t, 901 20 F.2d 696, 699 (9th Cir. 1990)). In such a motion, all material allegations in the complaint must be 21 taken as true and construed in the light most favorable to the claimant. Id. 22 However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere 23 conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Moreover, 24 2 After the motion hearing, and without leave of court, ArminLabs filed a supplemental brief in 25 support of its motion to dismiss. Dkt. No. 56. While the Court has considered ArminLabs’s unauthorized filing, it does not condone ArminLabs’s failure to seek leave beforehand and warns 26 ArminLabs against future noncompliance with the Court’s rules. See Civil L.R. 7-3(d).

27 3 All parties have expressly consented that all proceedings in this matter may be heard and finally 1 “the court is not required to accept legal conclusions cast in the form of factual allegations if those 2 conclusions cannot reasonably be drawn from the facts alleged.” Clegg v. Cult Awareness 3 Network, 18 F.3d 752, 754-55 (9th Cir. 1994). 4 Rule 8(a)(2) requires only “a short and plain statement of the claim showing that the 5 pleader is entitled to relief.” This means that the “[f]actual allegations must be enough to raise a 6 right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 7 (2007) (citations omitted). However, only plausible claims for relief will survive a motion to 8 dismiss. Iqbal, 556 U.S. at 679. A claim is plausible if its factual content permits the court to 9 draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. A plaintiff 10 does not have to provide detailed facts, but the pleading must include “more than an unadorned, 11 the-defendant-unlawfully-harmed-me accusation.” Id. at 678. 12 Documents appended to or incorporated into the complaint or which properly are the 13 subject of judicial notice may be considered along with the complaint when deciding a Rule 14 12(b)(6) motion. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). 16 The tort of intentional interference with contract is closely related to the tort of intentional 17 interference with prospective economic advantage, and the two causes of action share many of the 18 same elements. Robi v. Five Platters, Inc., 918 F.3d 1439, 1442 n.4 (9th Cir. 1990); Pac. Gas & 19 Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990). “The chief practical distinction 20 between interference with contract and interference with prospective economic advantage is that a 21 broader range of privilege to interfere is recognized when the relationship or economic advantage 22 interfered with is only prospective.” Pac. Gas & Elec. Co., 50 Cal. 3d at 1126; see also AlterG, 23 Inc. v. Boost Treadmills LLC, 388 F. Supp. 3d 1133, 1151 (N.D. Cal. 2019) (same). 24 A. Count IV: Intentional Interference with Prospective Economic Advantage 25 To state a claim for intentional interference with prospective economic advantage, 26 Infectolab must allege (1) an economic relationship between Infectolab and some third party, with 27 the probability of future economic benefit to Infectolab; (2) ArminLabs’s knowledge of the 1 disruption of the relationship; and (5) economic harm to Infectolab proximately caused by the acts 2 of ArminLabs. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003). 3 Additionally, the third element requires Infectolab to “plead intentional wrongful acts on the part 4 of the defendant designed to disrupt the relationship,” and those wrongful acts must be separate 5 and apart from the interference itself. Id. at 1154. The tort of “interference with prospective 6 advantage does not require proof of a legally binding contract.” Pac. Gas & Elec. Co., 50 Cal. 3d 7 at 1126. “Nevertheless, courts have made clear that ‘[t]he law precludes recovery for overly 8 speculative expectancies by initially requiring proof’ that it is ‘reasonably probable that the 9 prospective economic advantage would have been realized but for defendant’s interference.’” 10 AlterG, Inc., 388 F. Supp. 3d at 1149 (quoting Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 42 11 Cal. App. 4th 507, 522 (1996)). 12 At the motion hearing, Infectolab confirmed that this claim is based solely on its economic 13 relationships with customers, and not on Infectolab’s February 26, 2020 “Exclusive Supply 14 Agreement” (“Agreement”) or relationship with AID. Dkt. No. 55. Here, Infectolab says that 15 there are at least nine United States customers who previously used ArminLabs’s testing services, 16 but who began using Infectolab’s services after March 2020 when ArminLabs stopped accepting 17 blood samples from the United States due to the COVID-19 pandemic. Dkt. No. 50 ¶¶ 44-45. Of 18 these nine customers, the SAC alleges that there are two clinics—one in the northeastern United 19 States and another in Florida—to which Infectolab previously had marketed its services. 20 Although the northeastern clinic reportedly expressed interest in Infectolab’s services, both clinics 21 declined Infectolab’s business in favor of ArminLabs’s cheaper prices. The SAC further alleges 22 that when ArminLabs stopped accepting blood samples from the United States, these two clinics 23 began using Infectolab’s services. Id. Infectolab claims that these customers’ current use of 24 Infectolab’s services “demonstrates that there is a substantial portion of the market that would use 25 [Infectolab]’s testing services (for which the Products would be used) but for [ArminLabs]’s 26 improper use of the Products.” Id. ¶ 45. 27 ArminLabs moves to dismiss this claim, arguing that Infectolab fails to identify any 1 the time of ArminLabs’s alleged interference. Indeed, courts have held that “that the ‘relationship’ 2 that forms the basis of the intentional interference tort must have existed at the time of the 3 allegedly tortious conduct.” O’Connor v. Uber Techs., Inc., 58 F. Supp. 3d 989, 997 (N.D. Cal. 4 2014) (citing cases). Here, the SAC suggests that the alleged interference occurred at least as 5 recently as 2019, when Infectolab says it marketed its testing services to the clinic in the 6 northeastern United States. Dkt. No. 50 ¶ 44. There is no allegation that Infectolab had an 7 existing relationship with that clinic, or any other customer referred to in the SAC, at the time of 8 ArminLabs’s alleged interference. And at oral argument, Infectolab confirmed that it is not 9 claiming that it had any such existing relationships at that time. Dkt. No. 55. Simply alleging 10 relationships with potential customers is insufficient to state a claim because “[n]ot requiring an 11 allegation of an existing relationship ‘allows recovery no matter how speculative the plaintiff’s 12 expectancy. It assumes what normally must be proved, i.e., that it is reasonably probable the 13 plaintiff would have received the expected benefit had it not been for the defendant’s 14 interference.’” Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-cv-05847-WHO, 2013 15 WL 5694452 at *21 (N.D. Cal. Oct. 18, 2013) (quoting Westside Ctr. Assocs., 42 Cal. App. 4th at 16 523). 17 Infectolab nonetheless contends that it has alleged a plausible claim based on a “protected 18 expectancy” of business with customers in the United States. See Swingless Golf v. Taylor, No. C 19 08–05574 WHA, 2009 WL 2031768, at *4 (N.D. Cal. July 7, 2009) (“[I]t is well settled in 20 California that a plaintiff must establish an existing economic relationship or a protected 21 expectancy with a third person, not merely a hope of future transactions.”). Here, Infectolab 22 argues that it had such a “protected expectancy” of business based on its claimed exclusive right to 23 “use the Products to offer services to United States customers” under the Agreement with AID. 24 Dkt. No. 52 at 8. The SAC’s allegations, however, indicate that the United States market in 25 question consists of “physicians and patients” generally, who may choose services from suppliers 26 other than Infectolab, including plaintiff IGeneX, who also competes with Infectolab regarding 27 tick-borne illness testing services and is not alleged to use any AID Products. See Dkt. No. 50 1 hindsight and the fact that it was able to establish certain customer relationships in the wake of the 2 COVID-19 pandemic. At best Infectolab has alleged a hope of future transactions in the general 3 market for tick-borne illness testing services, which is insufficient to establish a basis for a 4 plausible claim for relief. The law “‘protects the expectation that the relationship will yield 5 desired benefit not necessarily the more speculative expectation that a potentially beneficial 6 relationship will eventually arise.’” O’Connor, 58 F. Supp. 3d at 997 (quoting Westside Ctr. 7 Assocs., 42 Cal. App. 4th at 524). 8 The SAC thus fails to state a plausible claim for intentional interference with prospective 9 economic advantage based on alleged relationships with customers, and ArminLabs’s motion to 10 dismiss that claim is granted. Infectolab having already had an opportunity to amend this claim, 11 and there being no indication that Infectolab has additional facts it may allege to remedy the 12 defects addressed in this order, its claim for interference with prospective economic relationship is 13 dismissed without leave to amend. 14 B. Count V: Tortious Interference with Contract 15 To state a claim for tortious interference with contractual relations, Infectolab must plead 16 facts demonstrating (1) a valid contract between plaintiff and a third party; (2) ArminLabs’s 17 knowledge of this contract; (3) ArminLabs’s intentional acts designed to induce a breach or 18 disruption of the contractual relationship; (4) actual breach or disruption of the contractual 19 relationship; and (5) resulting damage. Pac. Gas & Elec. Co., 50 Cal. 3d at 1126; AlterG, Inc., 20 388 F. Supp. 3d at 1149. Infectolab bases this claim on its Agreement with AID. Dkt. No. 50 21 ¶¶ 74-80; Dkt. No. 50-1. The SAC alleges that ArminLabs’s conduct “has resulted in a disruption 22 of [Infectolab’s] contractual relationship and has interfered with [Infectolab’s] right to be the party 23 with the exclusive right to use the Products to provide testing services to residents of the United 24 States.” Dkt. No. 50 ¶ 78. ArminLabs moves to dismiss this claim on the ground that the SAC 25 does not allege sufficient facts demonstrating any disruption in Infectolab’s Agreement with AID. 26 “To state a claim for disruption of a contractual relation, the plaintiff need not show the 27 defendant induced an actual or inevitable breach of the contract. It is sufficient to show the 1 contract more burdensome or costly.” Golden West Baseball Co. v. City of Anaheim, 25 Cal. App. 2 4th 11, 51 (1994) (emphasis added). Infectolab has not alleged any facts demonstrating that its 3 ongoing supplier relationship with AID has changed or been harmed in any way. See AlterG, Inc., 4 388 F. Supp. 3d at 1152 (“The complaint does not allege that Defendants intentionally acted to 5 disrupt Woodway’s supply of treadmills to AlterG, or that the supply was actually disrupted. 6 Indeed, [t]o this day, Woodway continues to supply treadmills to AlterG.”) (quotations omitted). 7 While Infectolab argues that its “ability to perform under the [A]greement has become more 8 costly, as a result of [ArminLabs]’s conduct” (Dkt. No. 52 at 5), the SAC, including the particular 9 paragraphs cited by Infectolab (see Dkt. No. 50 ¶¶ 41, 68-70, 76), alleges no such facts. And at 10 oral argument Infectolab confirmed that it is not claiming that it has been unable to perform its 11 contractual obligations due to ArminLabs’s alleged conduct. Dkt. No. 55. 12 Infectolab nonetheless claims that the value of its Agreement with AID has diminished as a 13 result of ArminLabs’s conduct. Here, Infectolab alleges that ArminLabs interfered with 14 Infectolab’s “exclusive right to use the Products to provide testing services to residents of the 15 United States,” and that Infectolab “has been forced to engage in expensive, time consuming, and 16 often unsuccessful marketing and sales efforts in order to attempt to secure customers who are 17 using [ArminLabs]’s testing services for which the Products would be used.” Dkt. No. 50 ¶¶ 47, 18 78. ArminLabs argues that “there is no benefit that Infectolab expects to receive from AID 19 beyond a supply of AID products.” Dkt. No. 53 at 4. However, under Infectolab’s interpretation 20 of the Agreement, which for purposes of resolving the present motion is deemed true,4 Infectolab’s 21 expected benefits under the Agreement include not merely a supply of Products from AID, but 22 also the “exclusive right to use the Products to provide testing services to residents of the United 23 States.” Dkt. No. 50 ¶ 78; see also Dkt. No. 50-1. 24 Contending that sales and marketing efforts do not form any part of Infectolab’s 25 contractual obligations to AID for which Infectolab can plausibly expect any benefit in return, 26 4 The parties dispute the meaning of the Agreement’s terms, including Infectolab’s contentions 27 regarding its “sole right to use the Products in the Territory” (see Dkt. No. 50-1 section 2.01), and 1 ArminLabs maintains that any alleged diminution in contract value necessarily must flow from 2 increased burdens or costs in Infectolab’s performance under the Agreement. Dkt. No. 56 at 1. 3 While cases cited by the parties do concern contractual performance, at least some decisions seem 4 to broadly recognize that “a claim for intentional interference is viable if the defendant’s conduct 5 renders the contract less valuable to the plaintiff,” where “a non-party to the contract interferes 6 with the contracting parties’ expectations regarding their relationship, making the contract less 7 valuable to the plaintiff (either by increasing its obligations or decreasing the benefit it expects in 8 return).” Signal Hill Serv., Inc. v. Macquarie Bank Ltd., No. CV 11-1539 MMM (JEMx), 2013 9 WL 12244056, at *35 (C.D. Cal. June 12, 2013) (emphasis added); see also Upper Deck Co. v. 10 Panini Am., Inc., 469 F.Supp.3d 963, 982 (S.D. Cal. 2020) (“Where interference makes enjoyment 11 of a contract ‘more expensive or burdensome’ there may be actionable disruption; an actual 12 breach of a contract is not required.”) (emphasis added) (citing Pac. Gas & Elec. Co., 50 Cal. 3d at 13 1127); De Jur-Amsco Corp. v. Janrus Camera, Inc., 155 N.Y.S.2d 123, 125-126 (N.Y. Sup. Ct. 14 1956) (granting temporary injunctive relief where the plaintiff showed that its contractual 15 performance was more difficult and defendant’s sales interfered with the plaintiff’s exclusive 16 distributorship contract with a third party, making the contract of less value), cited with approval 17 by Pac. Gas & Elec. Co., 50 Cal. 3d at 1129 n.7. Here, Infectolab alleges that ArminLabs has 18 interfered with Infectolab’s exclusive right under the Agreement to use AID Products to provide 19 testing services to United States residents, in effect undermining the exclusivity of that right, 20 requiring Infectolab to compete with ArminLabs for customers in the United States, and rendering 21 the Agreement less valuable. Construing the SAC’s material allegations as true and construing 22 them in the light most favorable to Infectolab, as this Court is obliged to do on the present motion, 23 the Court finds that Infectolab has for pleading purposes alleged sufficient facts to state a claim for 24 tortious interference with contract. ArminLabs’s motion to dismiss this claim is denied. 25 C. Count VI: Declaratory Judgment 26 ArminLabs moves to dismiss Infectolab’s claim for declaratory relief, arguing that it is 27 needlessly duplicative of Infectolab’s interference claims. “A claim for declaratory relief is 1 Washington Mut. Bank, 637 F.Supp.2d 700, 707 (N.D. Cal. 2009). “The existence of another 2 adequate remedy does not preclude a declaratory judgment that is otherwise appropriate.” Fed. R. 3 || Civ. P.57. As discussed above, the Court has granted ArminLabs’ motion to dismiss the claim for 4 || intentional interference with prospective economic advantage, without leave to amend. As for 5 Infectolab’s claim for tortious interference with contract, the Court concludes that the claim for 6 || declaratory relief is duplicative, and Infectolab has not persuasively shown that its claim for 7 declaratory judgment is otherwise appropriate with respect to potential future conduct by 8 ArminLabs that has not yet occurred and where ArminLabs is not a party to the Agreement. 9 || ArminLabs’s motion to dismiss this claim is granted without leave to amend. 10 || IV. CONCLUSION 11 Based on the foregoing, ArminLabs’s motion to dismiss is granted in part and denied in 12 || part as follows: ArminLabs’s motion to dismiss Count IV for intentional interference with 13 prospective economic advantage and Count VI for declaratory judgment is granted without leave 14 || toamend. ArminLabs’s motion to dismiss is denied with respect to Count V for tortious 3 15 interference with contract. a 16 IT IS SO ORDERED. 2 17 |) Dated: April 21, 2021

19 Unig E, Me Marcle VIRGINIA K. DEMARCHI 20 United States Magistrate Judge 21 22 23 24 25 26 27 28