Superior Consulting Services v. Jennifer Steeves-Kiss

• Court: Court of Appeals for the Ninth Circuit
• Decided: September 12, 2019
• Docket: 18-15408
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS SEP 12 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

SUPERIOR CONSULTING SERVICES, No. 18-15408 INC., D/B/A YOUR FUTURE HEALTH AND D/B/A/ YFH, D.C. No. 3:17-cv-06059-EMC

Plaintiff-Appellant, MEMORANDUM* v.

JENNIFER L. STEEVES-KISS,

Defendant-Appellee.

Appeal from the United States District Court for the Northern District of California Edward M. Chen, District Judge, Presiding

Submitted September 10, 2019** San Francisco, California

Before: WALLACE, BEA, and FRIEDLAND, Circuit Judges.

Superior Consulting Services (“Superior”) appeals the district court’s

dismissal with prejudice of its First Amended Complaint for common law unfair

competition and conversion, as well as the district court’s order imposing sanctions

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). under Federal Rule of Civil Procedure 11. Reviewing de novo the district court’s

dismissal under Rule 12(b)(6), see Beckington v. Am. Airlines, Inc., 926 F.3d 595,

604 (9th Cir. 2019), and for abuse of discretion the questions whether the district

court erred in choosing not to grant leave to amend or in imposing sanctions under

Rule 11, see United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1172 (9th

Cir. 2016) (leave to amend); Havensight Capital LLC v. Nike, Inc., 891 F.3d 1167,

1171 (9th Cir. 2018) (sanctions), we affirm.

1. The district court properly considered the existence of Superior’s

confidentiality agreement (“Agreement”) with Procter & Gamble (“P&G”) in

ruling on the motion to dismiss, and doing so did not convert the ruling into one on

summary judgment. See Fed R. Civ. P. 12(d). The Agreement was properly

deemed incorporated by reference, because Superior’s First Amended Complaint

explicitly refers to the Agreement, and the Agreement “forms the basis of

[Superior’s] claims.” See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988,

1002 (9th Cir. 2018) (quoting United States v. Ritchie, 342 F.3d 903, 907 (9th Cir.

2003)); see also Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010)

(“We have extended the doctrine of incorporation by reference to consider

documents in situations where the complaint necessarily relies upon a document or

the contents of the document are alleged in a complaint, the document’s

authenticity is not in question and there are no disputed issues as to the document’s

2 relevance.”).

2. The district court properly granted Steeves-Kiss’s motion to dismiss.

Superior’s claims for common law unfair competition and common law civil theft,

as alleged in its First Amended Complaint, rely on the confidential nature of the

information that Steeves-Kiss allegedly used or misappropriated. If the Agreement

between Superior and P&G applied to Steeves-Kiss as an employee of P&G, it

expressly allowed Steeves-Kiss to use or reveal any information shared under the

Agreement after five years, and thus authorized her to use and reveal the

information at issue here when she allegedly did. But even if the Agreement did

not apply to Steeves-Kiss, the information would then have been revealed to her

outside a confidentiality agreement, and thus would have lost any arguably

confidential nature.

3. The district court did not abuse its discretion in dismissing Superior’s

First Amended Complaint with prejudice. The district court made an implicit

finding that any further amendment would be futile, particularly in light of the

Agreement and the lack of any arguably confidential or otherwise protected

information at issue. And Superior has not, on appeal, pointed to any specific

factual allegations or caselaw that support the new claims it now tries to assert.

4. The district court did not abuse its discretion in imposing sanctions under

Rule 11. The court acted within its discretion in concluding that Superior’s failure

3 to attach or to fully explain the terms of the Agreement—and specifically the fact

that its confidentiality requirements expired after five years—was misleading in

light of the reliance by the Complaint and First Amended Complaint (collectively,

the “Complaint”) on the Agreement, and that the Complaint lacked factual support

as a result. A court’s finding that a complaint is factually misleading is sufficient

to support Rule 11 sanctions. See Truesdell v. S. Cal. Permanente Med. Grp., 293

F.3d 1146, 1153 (9th Cir. 2002); Fed R. Civ. P. 11(b)(3). The district court’s

additional statement that sanctions were warranted because the Complaint

“contained no colorable basis to support a property right” conveyed the

determination that the Complaint was also legally frivolous. Superior argues that

the district court failed to consider whether its attorneys had “conducted a

reasonable and competent inquiry,” which is required to support Rule 11 sanctions

for frivolousness. See Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005)

(quoting Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002)). But

because the Complaint was both baseless and misleading, it necessarily follows

that the inquiry that preceded its filing was not “competent.” This was especially

egregious because Steeves-Kiss had alerted Superior to the language of the

Agreement after the initial Complaint was filed, but Superior continued to describe

it in a misleading manner in the First Amended Complaint.

5. The court also did not abuse its discretion by determining that the sanction

4 should be paid to Steeves-Kiss, that its amount should be a portion of her claimed

attorney’s fees and expenses, and that there was no need for an evidentiary hearing

on these issues. The district court implicitly concluded that nothing short of

“payment to [Steeves-Kiss] of . . . all of the reasonable attorney’s fees and other

expenses directly resulting from the violation” would adequately deter future

similar conduct. See Fed R. Civ. P. 11(c)(4). That conclusion was supported by

the unusually misleading nature of the Complaint as by well as the district court’s

finding that it may have been filed for an improper purpose. And the fee was

properly limited to “reasonable” expenses that had “directly result[ed] from the

violation.” Id. Superior has not established how Steeves-Kiss’s possible

indemnification by Shaklee Corporation has any bearing on whether fees were

appropriately awarded as a sanction under Rule 11, or on the proper amount of

those fees. The district court did not abuse its discretion by concluding that it

could resolve the purely legal indemnification issue, and that it could determine an

appropriate amount of sanctions, without an evidentiary hearing.

AFFIRMED.