1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 HAKAM MISSON, et al., Case No. 22-cv-01744-AGT
8 Plaintiffs, ORDER REGARDING DEFENDANTS’ 9 v. MOTION TO DISMISS AND MOTION TO STRIKE 10 LUIS FLORES ROBLES, et al., Re: Dkt. No. 13 Defendants. 11
12 13 Plaintiffs Hakam Misson and Simrat Mission have sued their former tenants, Luis Robles 14 and Mary Robles. The complaint asserts two federal claims—misappropriation under the Defend 15 Trade Secrets Act (DTSA), and violation of the Racketeer Influenced and Corrupt Organizations 16 Act (RICO)—and numerous state law claims, all arising from defendants’ alleged “scheme to 17 defraud and extort monies from Plaintiffs.” Defendants have moved to dismiss the complaint in 18 its entirety for failure to state a claim under Rule 12(b)(6), and for insufficient service of process 19 under Rule 12(b)(5). Defendants have also moved to strike certain allegations from the complaint 20 under Rule 12(f). For the reasons stated on the record and reiterated below, the motion to dismiss 21 under Rule 12(b)(6) is granted with leave to amend; the motion to dismiss under Rule 12(b)(5) is 22 denied; and the motion to strike under 12(f) is granted in part and denied in part.1 23 A. Rule 12(b)(6) 24 Plaintiffs’ DTSA and RICO claims are the asserted grounds for federal jurisdiction, and so 25 any deficiency in their adequacy also calls the Court’s subject matter jurisdiction into question. 26 On the facts currently alleged, neither federal claim is plausible. 27 1 DTSA Claim: “To succeed on a claim for misappropriation of trade secrets under the 2 DTSA, a plaintiff must prove: (1) that the plaintiff possessed a trade secret, (2) that the defendant 3 misappropriated the trade secret; and (3) that the misappropriation caused or threatened damage to 4 the plaintiff.” InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 657–58 (9th Cir. 5 2020). The DTSA also has a jurisdictional hook, requiring that the trade secret be “related to a 6 product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. 7 § 1836(b)(1); see Am. Career Coll., Inc. v. Medina, 2021 WL 5263858, at *6 (C.D. Cal. Sept. 28, 8 2021). 9 Plaintiffs’ DTSA claim is deficient in a number of respects. For starters, plaintiffs have 10 not adequately pleaded an actionable trade secret. The DTSA defines a “trade secret” as 11 information that “derives independent economic value, actual or potential, from not being 12 generally known to . . . another person who can obtain economic value from the disclosure or use 13 of the information” and that “the owner thereof has taken reasonable measures to keep . . . secret.” 14 18 U.S.C. § 1839(3). It is not clear from the complaint how plaintiffs’ alleged trade secret—a 15 property inspection report that plaintiffs ordered in February 2017 during the escrow phase of their 16 purchase of an apartment complex in Turlock, California—derives “independent economic value” 17 from being kept secret. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1012 n.15 (1984) 18 (explaining that “[t]he value of a trade secret lies in the competitive advantage it gives its owner 19 over competitors”); see also United States v. Chung, 659 F.3d 815, 826 (9th Cir. 2011). It is 20 likewise not clear how plaintiffs’ property inspection report has any nexus to interstate or foreign 21 commerce such that the DTSA even applies. 22 Plaintiffs have also failed to plausibly plead that they took reasonable measures to protect 23 the secrecy of their claimed trade secret. They allege that Hakam Mission emailed the property 24 inspection report to Luis Robles for an unidentified “very limited purpose and not for disclosure or 25 dissemination to any third party,” Compl. ¶ 26, but the complaint is devoid of any factual 26 allegations suggesting that Luis Robles owed plaintiffs a duty or otherwise understood and agreed 27 to keep the inspection report confidential. See Ruckelshaus, 467 U.S. at 1002 (“If an individual 1 information, or otherwise publicly discloses the secret, his property right is extinguished.”) 2 (emphasis added). Instead, plaintiffs simply allege “upon information and belief” that defendants 3 “were aware that the confidential and proprietary Confidential Inspection Report was a part of 4 Plaintiffs’ Trade Secrets.” Compl. ¶ 29. Plaintiffs further allege—again, without any factual 5 support—that defendants “misappropriated the Trade Secrets since they were acquired by 6 improper means.” Id. ¶ 59. Such conclusory assertions are insufficient to state a claim for relief 7 under the DTSA. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the 8 elements of a cause of action, supported by mere conclusory statements, do not suffice.”). 9 RICO Claim: Plaintiffs have also failed to allege facts sufficient to state a claim for 10 violations of, or conspiracy to violate, RICO. “The elements of a civil RICO claim are as follows: 11 (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as 12 ‘predicate acts’) (5) causing injury to plaintiff’s business or property.” Living Designs, Inc. v. E.I. 13 Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005) (internal quotation marks and 14 citation omitted). In addition, a plausible RICO claim must satisfy Rule 9(b)’s heightened 15 pleading standard and a variety of specific pleading allegations under the statute with respect to 16 the alleged enterprise, predicate acts, injury, and causation. See Edwards v. Marin Park, Inc., 356 17 F.3d 1058, 1065–66 (9th Cir. 2004) (“Rule 9(b)’s requirement that ‘in all averments of fraud or 18 mistake, the circumstances constituting fraud or mistake shall be stated with particularity’ applies 19 to civil RICO fraud claims.”) (simplified). The complaint does not come close to meeting these 20 requirements. 21 First, plaintiffs have not adequately pleaded the existence of an “enterprise” within the 22 meaning of RICO. See 18 U.S.C. § 1961(4) (defining “enterprise” to include “any individual, 23 partnership, corporation, association, or other legal entity, and any union or group of individuals 24 associated in fact although not a legal entity”). The complaint does not allege a legal entity and 25 fails to sufficiently allege an “association-in-fact” enterprise, which requires a common purpose, a 26 structure or organization, and sufficient longevity to accomplish its purpose. See Boyle v. United 27 States, 556 U.S. 938, 956 (2009); Odom v. Microsoft Corp., 486 F.3d 541, 552 (9th Cir. 2007) (en 1 Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001) (“[T]o establish liability 2 under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person’; 3 and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different name.”).
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 HAKAM MISSON, et al., Case No. 22-cv-01744-AGT
8 Plaintiffs, ORDER REGARDING DEFENDANTS’ 9 v. MOTION TO DISMISS AND MOTION TO STRIKE 10 LUIS FLORES ROBLES, et al., Re: Dkt. No. 13 Defendants. 11
12 13 Plaintiffs Hakam Misson and Simrat Mission have sued their former tenants, Luis Robles 14 and Mary Robles. The complaint asserts two federal claims—misappropriation under the Defend 15 Trade Secrets Act (DTSA), and violation of the Racketeer Influenced and Corrupt Organizations 16 Act (RICO)—and numerous state law claims, all arising from defendants’ alleged “scheme to 17 defraud and extort monies from Plaintiffs.” Defendants have moved to dismiss the complaint in 18 its entirety for failure to state a claim under Rule 12(b)(6), and for insufficient service of process 19 under Rule 12(b)(5). Defendants have also moved to strike certain allegations from the complaint 20 under Rule 12(f). For the reasons stated on the record and reiterated below, the motion to dismiss 21 under Rule 12(b)(6) is granted with leave to amend; the motion to dismiss under Rule 12(b)(5) is 22 denied; and the motion to strike under 12(f) is granted in part and denied in part.1 23 A. Rule 12(b)(6) 24 Plaintiffs’ DTSA and RICO claims are the asserted grounds for federal jurisdiction, and so 25 any deficiency in their adequacy also calls the Court’s subject matter jurisdiction into question. 26 On the facts currently alleged, neither federal claim is plausible. 27 1 DTSA Claim: “To succeed on a claim for misappropriation of trade secrets under the 2 DTSA, a plaintiff must prove: (1) that the plaintiff possessed a trade secret, (2) that the defendant 3 misappropriated the trade secret; and (3) that the misappropriation caused or threatened damage to 4 the plaintiff.” InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 657–58 (9th Cir. 5 2020). The DTSA also has a jurisdictional hook, requiring that the trade secret be “related to a 6 product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. 7 § 1836(b)(1); see Am. Career Coll., Inc. v. Medina, 2021 WL 5263858, at *6 (C.D. Cal. Sept. 28, 8 2021). 9 Plaintiffs’ DTSA claim is deficient in a number of respects. For starters, plaintiffs have 10 not adequately pleaded an actionable trade secret. The DTSA defines a “trade secret” as 11 information that “derives independent economic value, actual or potential, from not being 12 generally known to . . . another person who can obtain economic value from the disclosure or use 13 of the information” and that “the owner thereof has taken reasonable measures to keep . . . secret.” 14 18 U.S.C. § 1839(3). It is not clear from the complaint how plaintiffs’ alleged trade secret—a 15 property inspection report that plaintiffs ordered in February 2017 during the escrow phase of their 16 purchase of an apartment complex in Turlock, California—derives “independent economic value” 17 from being kept secret. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1012 n.15 (1984) 18 (explaining that “[t]he value of a trade secret lies in the competitive advantage it gives its owner 19 over competitors”); see also United States v. Chung, 659 F.3d 815, 826 (9th Cir. 2011). It is 20 likewise not clear how plaintiffs’ property inspection report has any nexus to interstate or foreign 21 commerce such that the DTSA even applies. 22 Plaintiffs have also failed to plausibly plead that they took reasonable measures to protect 23 the secrecy of their claimed trade secret. They allege that Hakam Mission emailed the property 24 inspection report to Luis Robles for an unidentified “very limited purpose and not for disclosure or 25 dissemination to any third party,” Compl. ¶ 26, but the complaint is devoid of any factual 26 allegations suggesting that Luis Robles owed plaintiffs a duty or otherwise understood and agreed 27 to keep the inspection report confidential. See Ruckelshaus, 467 U.S. at 1002 (“If an individual 1 information, or otherwise publicly discloses the secret, his property right is extinguished.”) 2 (emphasis added). Instead, plaintiffs simply allege “upon information and belief” that defendants 3 “were aware that the confidential and proprietary Confidential Inspection Report was a part of 4 Plaintiffs’ Trade Secrets.” Compl. ¶ 29. Plaintiffs further allege—again, without any factual 5 support—that defendants “misappropriated the Trade Secrets since they were acquired by 6 improper means.” Id. ¶ 59. Such conclusory assertions are insufficient to state a claim for relief 7 under the DTSA. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“Threadbare recitals of the 8 elements of a cause of action, supported by mere conclusory statements, do not suffice.”). 9 RICO Claim: Plaintiffs have also failed to allege facts sufficient to state a claim for 10 violations of, or conspiracy to violate, RICO. “The elements of a civil RICO claim are as follows: 11 (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as 12 ‘predicate acts’) (5) causing injury to plaintiff’s business or property.” Living Designs, Inc. v. E.I. 13 Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005) (internal quotation marks and 14 citation omitted). In addition, a plausible RICO claim must satisfy Rule 9(b)’s heightened 15 pleading standard and a variety of specific pleading allegations under the statute with respect to 16 the alleged enterprise, predicate acts, injury, and causation. See Edwards v. Marin Park, Inc., 356 17 F.3d 1058, 1065–66 (9th Cir. 2004) (“Rule 9(b)’s requirement that ‘in all averments of fraud or 18 mistake, the circumstances constituting fraud or mistake shall be stated with particularity’ applies 19 to civil RICO fraud claims.”) (simplified). The complaint does not come close to meeting these 20 requirements. 21 First, plaintiffs have not adequately pleaded the existence of an “enterprise” within the 22 meaning of RICO. See 18 U.S.C. § 1961(4) (defining “enterprise” to include “any individual, 23 partnership, corporation, association, or other legal entity, and any union or group of individuals 24 associated in fact although not a legal entity”). The complaint does not allege a legal entity and 25 fails to sufficiently allege an “association-in-fact” enterprise, which requires a common purpose, a 26 structure or organization, and sufficient longevity to accomplish its purpose. See Boyle v. United 27 States, 556 U.S. 938, 956 (2009); Odom v. Microsoft Corp., 486 F.3d 541, 552 (9th Cir. 2007) (en 1 Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001) (“[T]o establish liability 2 under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person’; 3 and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different name.”). 4 Second, the complaint fails to satisfy Rule 9(b)’s heightened pleading standard, which 5 “requires a pleader of fraud to detail with particularity the time, place, and manner of each act of 6 fraud, plus the role of each defendant in each scheme.” Lancaster Cmty. Hosp. v. Antelope Valley 7 Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991); see also Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 8 993, 998 (9th Cir. 2010) (“Rule 9(b) requires a party to ‘state with particularity the circumstances 9 constituting fraud or mistake,’ including ‘the who, what, when, where, and how of the misconduct 10 charged.’”) (citation omitted). Plaintiffs’ general allegations that defendants “committed multiple 11 acts including, without limitation, violation of 18 U.S.C. § 1341 through mail and wire fraud” over 12 a period “spanning many years” for the “unlawful purpose of intentionally defrauding Plaintiffs,” 13 see Compl. ¶¶ 101, 104, 105, fall far short of this standard. And there is not a single allegation 14 specific to Mary Robles and her alleged role in defendants’ “scheme to defraud.” See Swartz v. 15 KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (“Rule 9(b) does not allow a complaint to merely 16 lump multiple defendants together.”). 17 Third, as to injury and causation, plaintiffs fail to allege facts to support their conclusory 18 assertion that “[a]s a direct result of Defendants’ Scheme and conspiracy, Plaintiff has suffered 19 financial loss of at least $300K and Plaintiffs have suffered ongoing economic losses as a result of 20 the Scheme that will be proven at trial,” Compl. ¶ 111. See Canyon Cnty. v. Syngenta Seeds, Inc., 21 519 F.3d 969, 972 (9th Cir. 2008) (explaining that “a civil RICO plaintiff must show: (1) that his 22 alleged harm qualifies as injury to his business or property; and (2) that his harm was “by reason 23 of” the RICO violation, which requires the plaintiff to establish proximate causation”). Finally, 24 because plaintiffs have not plausibly alleged a substantive violation of RICO, their claim for 25 conspiracy to violate RICO also fails. See Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir. 26 2000). 27 As noted on the record, the Court has serious doubts about whether defendants’ alleged ] *2 (N.D. Cal. Sept. 19, 2014) (explaining that RICO “is focused on long-term criminal conduct, 2 || not on sporadic activity or on garden-variety tort or contract claims”). Nevertheless, plaintiffs are 3 granted leave to amend if they can make a good faith effort to cure the above deficiencies. 4 State Law Claims: Because it is unclear whether plaintiffs will be able to state a viable 5 federal claim, the Court declines to address defendants’ arguments supporting dismissal of the 6 || state law claims at this juncture. See 28 U.S.C. § 1367(c)(3). 7 || B. Rule 12(b)(5) 8 Defendants’ motion to dismiss for insufficient service of process under Rule 12(b)(5) is 9 || denied. However, plaintiffs must serve Mary Robles in accordance with the applicable Federal 10 || Rules of Civil Procedure, with any amended complaint. 11 C. Rule 12(f) 12 Defendants’ motion to strike the allegations regarding Luis Robles’s non-payment of child g 13 support, see Compl. Jf 44 & 98, under Rule 12(f) is granted. The motion is otherwise denied. wee 8 15 To the extent plaintiffs wish to pursue this action in federal court, they may file an a 16 || amended complaint by January 28, 2023, to cure the identified defects in the federal claims. 3 17 || Plaintiffs are advised that further pleading deficiencies will likely result in dismissal with 18 || prejudice. The Court declines to address the state law claims until a federal claim is adequately 19 || alleged. This case is stayed in all other respects, including discovery, until the Court is satisfied 20 || that subject matter jurisdiction has been established. 21 IT ISSO ORDERED. 22 Dated: November 25, 2022 23 24 ALEX G. TSE 25 United States Magistrate Judge 26 27 28