RingCentral, Inc. v. Nextiva, Inc.

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9

10 RINGCENTRAL, INC., Case No. 19-cv-02626-NC 11 Plaintiff, ORDER GRANTING IN PART 12 AND DENYING IN PART v. DEFENDANTS’ MOTION TO 13 DISMISS NEXTIVA, INC., et al., 14 Re: Dkt. No. 57 Defendants. 15 16 17 In this business defamation lawsuit, defendants Nextiva, Inc. and UnitedWeb, Inc. 18 move to dismiss plaintiff RingCentral Inc.’s second amended complaint. See Dkt. No. 57. 19 Defendants argue that RingCentral still fails to allege facts supporting its claims. In its 20 amended complaint, RingCentral now alleges sufficient facts to support its claims, but still 21 fails to establish an alter ego relationship between the two Defendants. Accordingly, the 22 Court GRANTS IN PART and DENIES IN PART Defendants’ motion to dismiss. 23 I. Background 24 A. Allegations in the Second Amended Complaint 25 The facts alleged in the complaint are considered true for purposes of the motion to 26 dismiss. RingCentral provides cloud-based unified communication services. See Dkt. No. 27 32 ¶ 14. Nextiva is a competitor to RingCentral. Id. ¶ 15. UnitedWeb owns, operates, and 1 12, 15–16. 2 In mid-2018, Nextiva and UnitedWeb fabricated fictitious personas and created 3 fake online businesses using those personas. Id. ¶¶ 21–23. At least one of those websites 4 and personas were created by Nextiva’s IT director, Eric Sornoso, and hosted by Bluehost, 5 a UnitedWeb-affiliated company. See id. ¶ 26. During this time, Sornoso also operated a 6 business aimed at artificially boosting social-media rankings. Id. ¶ 26(a). Defendants then 7 used those fake personas and businesses to post fake, positive reviews of their own 8 services and fake, negative reviews of RingCentral’s services on various review platforms. 9 Id. ¶¶ 24–25, 26. As a result of these reviews, RingCentral lost at least one existing 10 customer and several prospective customers. Id. ¶ 34–35. 11 B. Procedural History 12 RingCentral filed its second amended complaint on March 20, 2020, alleging claims 13 for (1) interference with prospective economic advantage; (2) trade libel, Cal. Civ. Code 14 § 44(a), 45, 46(3); (3) defamation, Cal. Civ. Code §§ 44 et seq.; and (4) unfair competition, 15 Cal. Bus. & Prof. Code §§ 17200 et seq. See id. As the defamation claim was new, 16 RingCentral concurrently moved for leave to add that claim. See Dkt. No. 55. The Court 17 granted that motion on April 23, 2020. See Dkt. No. 61. 18 Defendants again move to dismiss RingCentral’s claims. See Dkt. No. 57. Because 19 the Court already addressed RingCentral’s defamation claim in its prior order (see Dkt. 20 No. 61), the Court declines to reconsider Defendants’ arguments regarding that claim here. 21 All parties have consented to the jurisdiction of a magistrate judge. See Dkt. Nos. 9, 51. 22 II. Legal Standard 23 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 24 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Under 25 Rule 8(a), a complaint must include a short and plain statement showing that the pleader is 26 entitled to relief. See Fed. R. Civ. P. 8(a). Although a complaint need not allege detailed 27 factual allegations, it must contain sufficient factual matter, accepted as true, to “state a 1 (2007). The Court need not accept as true “allegations that are merely conclusory, 2 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. 3 Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). A claim is facially plausible when it “allows 4 the court to draw the reasonable inference that the defendant is liable for the misconduct 5 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim also “must contain 6 sufficient allegations of underlying facts to give fair notice and to enable the opposing 7 party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9thCir. 2011). 8 III. Discussion 9 A. Trade Libel 10 Trade libel is the intentional disparagement of property that results in pecuniary 11 damage. Aetna Cas. & Sur. Co., Inc. v. Centennial Ins. Co., 838 F.2d 346, 351 (9th Cir. 12 1988). A claim for trade libel requires pleading: (1) a publication, (2) which induces other 13 not to deal with plaintiff, and (3) special damages. Id. Trade libel plaintiffs must also 14 identify specific details about the statements, including who made the statements. See 15 NPK Indus. v. Hunter, No. 15-cv-5461667, 2015 WL 5461667, at *4 (N.D. Cal. Sept. 16, 16 2015) (citing First Adv. Background Servs. Corp. v. Private Eyes, Inc., 569 F.Supp.2d 929, 17 937 (N.D.Cal.2008)) 18 Defendants first point out that some of the reviews quoted in RingCentral’s 19 complaint do not concern RingCentral’s services. See, e.g., SAC ¶ 25. Those reviews, 20 however, are not the subject of RingCentral’s defamation claim. 21 Next, Defendants argue that RingCentral fails to plead sufficient facts to support a 22 reasonable inference that Defendants made those reviews. The Court disagrees, however. 23 As the Court previously stated in its order granting RingCentral leave to amend, 24 RingCentral alleged that Nextiva’s IT director was responsible for registering a domain 25 name, “digitalbrandentertainment.com,” for a fake business and posted a fake review with 26 that persona. See id. ¶ 26(a). RingCentral also alleged that this domain was hosted by a 27 UnitedWeb-affiliated company. Id. ¶¶ 26(a), (b). 1 negative reviews, which were not affiliated with the “digitalbrandentertainment.com” 2 domain. But RingCentral’s complaint alleges more than just one domain name. 3 RingCentral identifies a host of fake domains posing as “verified users.” See SAC ¶ 25. 4 These allegations allow the reasonable inference that Defendants or its agents indeed 5 created fake domains and posted reviews affiliated with those domains, some of which 6 were used to praise Nextiva’s services, while others were used to denigrate RingCentral’s 7 services. Twombly and Iqbal require only plausibility, not certainty. These allegations 8 suffice to raise a plausible inference that Defendants were responsible for the reviews. 9 Defendants also contend that the alleged reviews were merely statements of opinion 10 and are not actionable under the First Amendment. “While ‘pure’ opinions are protected 11 by the First Amendment, a statement that ‘may . . . imply a false assertion of fact’ is 12 actionable.” Partington v. Bugliosi, 56 F.3d 1147, 1153 (9th Cir. 1995) (quoting 13 Milkovich v. Lorain Journal Co., 497 U.S. 1, 19 (1990)). To determine whether a 14 statement contains an assertion of objective fact, the Ninth Circuit uses a three-part test: 15 “(1) whether the general tenor of the entire work negates the impression that the defendant 16 was asserting an objective fact, (2) whether the defendant used figurative or hyperbolic 17 language that negates that impression, and (3) whether the statement in question is 18 susceptible of being proved true or false.” Id. (citing Unelko Corp. v. Rooney, 912 F.2d 19 1049, 1053 (9th Cir. 1990)); see also Obsidian Fin. Grp., LLC v. Cox, 740 F.3d 1284, 20 1293 (9th Cir. 2014). 21 The negative reviews in question all purport to be from actual clients of 22 RingCentral. See SAC ¶ 26. They also state that RingCentral doubled prices, refused to 23 cancel lines, and billed for numbers they did not use. Id. These statements are susceptible 24 of being proved true or false. And the “general tenor” of the statements do not negate the 25 impression that the speakers were asserting objective facts. Indeed, each statement was 26 posted on an online review website, suggesting that the speakers intended to convey 27 objective truths about their experience with RingCentral’s services. The reviews were also 1 facts. Partington, 56 F.3d at 1153. 2 Finally, Defendants argue that RingCentral failed to allege that it suffered special 3 damages as a result of their alleged actions. Under California law, a trade libel plaintiff 4 “must also prove that the statement played ‘a material and substantial part in inducing 5 others not to deal with [the plaintiff].’” Piping Rock Partners, Inc. v. David Lerner 6 Assocs., 946 F. Supp. 2d 957, 981 (N.D. Cal. 2013) (quoting Erlich v. Etner, 224 Cal. App. 7 2d 69, 73 (1964)). Here, RingCentral identifies one customer, Woven, who cancelled its 8 account with RingCentral due to “[o]nline reviews especially from trustpilot.com.” SAC 9 ¶ 34. RingCentral also identifies several prospective customers who declined to purchase 10 RingCentral’s products because of “online reviews.” Id. ¶ 35.1 11 Defendants argue that RingCentral failed to adequately allege that these damages 12 were proximately caused by its alleged conduct. Indeed, RingCentral does not allege that 13 Defendants were responsible for any negative review on trustpilot.com. But Woven and 14 the prospective RingCentral customers spoke of online reviews generally in addition to 15 specific reviews. While RingCentral must eventually prove that those customers actually 16 read the reviews supposedly posted by Defendants and that those reviews played a 17 substantial and material role in their decision to pursue other services, it is enough at this 18 stage that RingCentral identified the damages with specificity and that RingCentral’s 19 allegations are plausible. 20 Accordingly, the Court DENIES Defendants’ motion to dismiss RingCentral’s trade 21 libel claim. 22 B. Interference with Prospective Economic Advantage 23 Interference with prospective economic advantage requires “(1) an economic 24 relationship between the plaintiff and some third party, with the probability of future 25 economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) 26

27 1 As Defendants note, some of these customers closed their inquiry in early 2018, before 1 intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual 2 disruption of the relationship; and (5) economic harm to the plaintiff proximately caused 3 by the acts of the defendant.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 4 1134, 1153 (2003) (quoting Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 42 Cal. App. 5 4th 507, 521–22 (1996)). 6 Defendants raise three arguments in support of their motion to dismiss 7 RingCentral’s interference claim. None are persuasive. 8 First, Defendants argue that RingCentral failed to identify the disruption of any 9 business relationship with a specific third party containing the possibility of future 10 economic benefits. See Dkt. No. 57. RingCentral, however, alleged that at least one of its 11 then-existing clients cancelled its account due to negative online reviews. See SAC ¶ 34. 12 This established commercial relationship certainly contains the probability of future 13 economic benefit. See AlterG, Inc. v. Boost Treadmills LLC, 388 F. Supp. 3d 1133, 1152 14 (N.D. Cal. 2019). RingCentral also identified various potential client customers who cited 15 negative online reviews as their reason for not purchasing its services. Id. ¶ 35. While 16 sparse, RingCentral’s allegations suggest that these prospective customers would not have 17 “closed [their] inquir[ies]” into RingCentral’s services but for Defendants’ alleged 18 misconduct. See id. 19 Defendants’ second and third arguments are closely related to their trade libel 20 arguments discussed above. See Dkt. No. 57. Interference with prospective economic 21 advantage is actionable only if the underlying conduct is independently wrongful of the 22 interference itself. Korea Supply, 29 Cal. 4th at 1153. As explained above, Defendants’ 23 underlying conduct consists of trade libel and defamation, which are independently 24 tortious acts. Likewise, Defendants’ argument that RingCentral failed to link its 25 allegations of damages to Defendants’ alleged misconduct fails for reasons stated above. 26 Accordingly, the Court DENIES Defendants’ motion to dismiss RingCentral’s 27 interference with prospective economic advantage claim. 1 C. Unfair Competition 2 The UCL prohibits any “unlawful, unfair, or fraudulent business act or practice.” 3 Cal. Bus. & Prof. Code § 17200; see also Cel-Tech Commc’ns, Inc. v. Los Angeles 4 Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). “Because Business and Professions Code 5 section 17200 is written in the disjunctive, it establishes three varieties of unfair 6 competition—acts or practices which are unlawful, or unfair, or fraudulent.” Cel-Tech, 20 7 Cal. 4th at 180. “Each prong of the UCL is a separate and distinct theory of liability.” 8 Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). 9 Here, RingCentral has stated claims for trade libel, defamation, and interference 10 with prospective economic advantage. RingCentral’s UCL claim therefore survives as 11 well. The Court DENIES Defendants’ motion to dismiss RingCentral’s UCL claim. 12 D. Alter Ego Liability 13 Defendants argue that UnitedWeb should be dismissed because RingCentral has not 14 adequately alleged alter ego liability. Under California law, alter ego liability is 15 appropriate when two requirements are met: “First, where there is such a unity of interest 16 and ownership that the individuality, or separateness, of the said person and corporation 17 has ceased; and, second, where adherence to the fiction of the separate existence of the 18 corporation would ... sanction a fraud or promote injustice.” In re Schwarzkopf, 626 F.3d 19 1032, 1038 (9th Cir. 2010) (internal quotation marks and citation omitted). The first 20 requirement looks to factors such as the “[c]ommingling of funds and other assets [and] 21 failure to segregate funds of the separate entities . . .; the treatment by an individual of the 22 assets of the corporation as his own . . .; the disregard of legal formalities and the failure to 23 maintain arm’s length relationships among related entities . . .; [and] the diversion [of 24 assets from a corporation by or to a] stockholder or other person or entity, to the detriment 25 of creditors, or the manipulation of assets . . . between entities so as to concentrate the 26 assets in one and the liabilities in another.” Id. (quoting Assoc. Vendors, Inc. v. Oakland 27 Meat Co., Inc., 210 Cal. App. 2d 825, 837–40 (1962) (alterations in original)). 1 || UnitedWeb and Nextiva share multiple executives, have the same place of business, 2 || principal shareholders, and file their annual reports on the same dates. SAC 7§ 15-16. 3 || These allegations, while striking, are not sufficient to establish an alter ego relationship. 4 || They do not suggest that UnitedWeb and Nextiva comingle funds or disregard legal 5 || formalities. Schwarzkopf, 626 F.3d at 1038. 6 Accordingly, the Court GRANTS Defendants’ motion to dismiss UnitedWeb. The 7 Court is mindful, however, of the fact that information that could conceivably establish an 8 || alter ego relationship is likely within Defendants’ control. Thus, RingCentral may seek 9 || leave to amend its complaint if it discovers facts suggesting an alter ego relationship. 10 |} IV. Conclusion 11 The Court GRANTS IN PART Defendants’ motion to dismiss UnitedWeb. The 12 || Court otherwise DENIES IN PART Defendants’ motion to dismiss RingCentral’s second 13 || amended complaint. RingCentral may not add new claims or parties without further leave 14 || of the Court. 15 IT IS SO ORDERED. 16 5 17 || Dated: April 29, 2020 Lee ——— NATHANAEL M. COUSINS 18 United States Magistrate Judge 19 20 21 22 23 24 25 26 27 28