case 2:07-cv-01724-geb-cmk document 520 filed …...apr 17, 2009 · case 2:07-cv-01724-geb-cmk...

1 BOUTIN GIBSON DI GIUSTO HODELL INC.Chris Gibson, SBN 073353

2 Maralee MacDonald, SBN 208699555 Capitol Mall, Suite 1500

3 Sacramento, California 95814-4603

TeL. (916) 321-44444

QUILLING, SELANDER, CUMMISKEY & LOWNDS, P.e.5 Michael J. Quiling (Tex. Bar No. 16432300) - Admitted Pro Hac Vice

Brent J. Rodine (Tex. Bar No. 24048770) - Admitted Pro Hac Vice6 2001 Bryan Street, Suite 1800

Dallas, Texas 752017 Telephone: (214) 871-2100

Facsimile: (214) 871-21118

Attorneys for Michael 1. Quiling9 Receiver of Defendants Secure Investment Services, Inc.,

American Financial Services, Inc., and Lyndon Group, Inc.10

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA, SACRAMENTO DIVISION

SECURITIES AND EXCHANGE13 COMMISSION,

Case No. 2:07-cv-01724 GEB CMK

14 Plaintiff, NOTICE OF RECEIVER'S MOTIONTO COMPEL PAYMENT OFPREMIUM SHARE FROM CLIFFORDA. PALM, JR. (BAU-R&LJ

15 v.

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SECURE INVESTMENT SERVICES, INC.,AMERICAN FINANCIAL SERVICES, INC.,LYNDON GROUP, INC., DONALD F.NEUHAUS, and KIMBERLY A. SNOWDEN,

Defendants.

Date:Time:Department:

May 18,20099:00 a.m.

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TO: THE PARTIES AND ALL COUNSEL OF RECORD:

On May 18, 2009 at 9:00 a.m., or as soon thereafter as the matter may be heard before the

Honorable Garland E. Burrell, Jr., at the U.S. District Court for the Eastern District of California,

501 I Street, Sacramento, California, Michael J. Quiling, the Receiver appointed in these

proceedings, ("Receiver"), wil move this the Court to issue an order to compel Clifford A. Palm,

Jr. to pay his share of the premium on the BAU-R&L policy, and upon failure to pay his share of

- 1 -

Notice of Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr.(BAU-R&LI

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Case 2:07-cv-01724-GEB-CMK Document 520 Filed 04/17/2009 of 40

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the premium, that his ownership and beneficial interest in the policy be automatically forfeited

and be replaced by an allowed claim on the receivership estate for $1,000.00 in his favor.

The motion wil be based upon Receiver's Motion and Brief in Support, the papers on file

in this matter and any testimony or argument received by the Court during the hearing on the

motion. A proposed order is submitted contemporaneously with this motion.

Respectfully submitted,

BOUTIN GIBSON DI GIUSTO HODELL INC.

Dated: April 17,2009. By lsi Maralee MacDonaldMaralee MacDonaldAttorneys for Receiver of DefendantsSecure Investment Services, Inc.,American Financial Services, Inc., andLyndon Group, Inc.

15 CERTIFICATE OF CERTIFIED MAIL SERVICE

16 I hereby certify that on the 17th day of April, 2009, a copy of this Notice was served onall interested parties through the Court's electronic filing system. In addition, a copy of this

17 motion was served on by U.S. Certified Mail, Return Receipt Requested on the followinginvestor named as owner of the BAU-R&L Policy at his last known address:

Clifford A. Palm, Jr.6244 Longford Drive, #3Citrus Heights, CA 95621

lsi Michael J QuilingMichael J. Quiling

- 2 -Notice of Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr.

(BAU-R&LJ

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CERTIFICATE OF SERVICE

I hereby certify that on the 17th day of April, 2009, a copy of this Notice was served onall interested parties through the Court's electronic fiing system. In addition, a copy of thismotion was served on the following other persons by First Class U.S. Mail:

Bazzle John Wilson1291 Nunneley RoadParadise, CA 95969

Ernest Jeremias5022 17th Avenue, Apt. 1

Brooklyn, NY 11204

lsi Maralee MacDonaldMaralee MacDonald

- 3 -Notice of Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr.

(BAU-R&LJ

144872.1


BOUTIN GIBSON DI GIUSTO HODELL INC.Chris Gibson, SBN 073353Maralee MacDonald, SBN 208699555 Capitol Mall, Suite 1500

Sacramento, California 95814-4603TeL. (916) 321-4444

QUILLING, SELANDER, CUMMISKEY & LOWNDS, P.C.Michael J. Quiling (Tex. Bar No. 16432300) - Admitted Pro Hac ViceBrent J. Rodine (Tex. Bar No. 24048770) Admitted Pro Hac Vice2001 Bryan Street, Suite 1800Dallas, Texas 75201Telephone: (214) 871-2100Facsimile: (214) 871-2111

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20 TO:

Attorneys for Michael J. QuilingReceiver of Defendants Secure Investment Services, Inc.,American Financial Services, Inc., and Lyndon Group, Inc.


EASTERN DISTRICT OF CALIFORNIA, SACRAMENTO DIVISION

SECURITIES AND EXCHANGECOMMISSION,


Plaintiff, RECEIVER'S MOTION TO COMPELPAYMENT OF PREMIUM SHAREFROM CLIFFORD A. PALM, JR.(BAU-R&LJ

v.

SECURE INVESTMENT SERVICES, INC.,AMERICAN FINANCIAL SERVICES, INC.,LYNDON GROUP, INC., DONALD F.NEUHAUS, and KIMBERLY A. SNOWDEN,

Defendants.

Date:Time:Department:

May 18,20099:00 a.m.

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THE HONORABLE GARLAND E. BURRLL, JR., UNITED STATES DISTRICTJUDGE:

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22 Michael 1. Quiling, the Receiver appointed in these proceedings ("Receiver"), fies this

23 Motion to Compel Payment of Premium Share and in support of such would show the following:

24 BACKGROUND FACTS25

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1. By Orders dated August 24, 2007 (Dkt. No. 27) and October 30, 2007 (Dkt. No.

80), the Receiver was appointed by this Court.

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Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr. (BAU-R&LJ

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1 2. On June 11, 2008, the Receiver fied a Motion for Authorization to Abandon the

2 BAU-R&L Policy (Dkt No. 185) which was granted by Order of the Court of July 28,2008 (Dkt.

3 No. 254). Continuously throughout 2008, the Receiver has been contacting the investors who

4 hold small fractional ownership interests in the multiple owner policies, of which the BAU-R&L

5 policy is one, for the purpose of trying to convince those investors to transfer their ownership

6 interest to the Receiver. One of the partial owners of the policy is Clifford A. Palm, Jr. ("Palm")

7 who, according to the books and records of the insurance company owns a 0.31262944% interest

8 in the policy and is a beneficiary of the same percentage.

9 3. The Receiver is pleased to report to the Court that as of the filing of this motion,

10 all of the investors have executed forms transferring their ownership interests in the BAU-R&L

11 policy to the Receiver. However, despite repeated efforts, the Receiver has been unable to get

12 Palm to transfer his interest. Therefore, the Receiver can only assume Clifford A. Palm, Jr.

13 refuses to transfer his interest.

14 4. Clifford A. Palm, Jr.'s share of the premium on the BAU-R&L Policy since the

15 time the Receiver was appointed is $201.65 and wil be $100.82 per year in the future.

16 5. Accordingly, the Receiver seeks an order from this Court compellng Clifford A.

17 Palm, Jr., to pay the Receiver $201.65 for his share of the premiums plus his percentage share of

18 all additional premiums as they become due. Should Palm fail to do so, the Receiver seeks an

19 order forfeiting Palm's ownership and beneficial interest in the BAU-R&L Policy to the

20 receivership estate.

21 ARGUMENT AND AUTHORITIES22

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6. It is well-setted that District Courts have broad powers and wide discretion to

determine appropriate relief for federal equity receiverships. Securities & Exchange Comm 'n v.

Ellott, 953 F.2d 1560, 1569-70 (lIth Cir. 1992); see also Securites & Exch. Comm'n v. Hardy,

803 F.2d 1034, 1037 (9th Cir.1986). In applying equitable principles, courts in this district often

- 2 -Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr. (BAU-R&LJ

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1 use the theories of unjust enrichment and quasi-contract to achieve equity when one party has

2 paid obligations benefiting another.

3 7. Unjust enrichment is not an independent cause of action, but a general principle

4 supporting various equitable remedies. Mauro v. General Motors Corp., 2008 WL 2775004, *6

5 (E.D. CaL. Jul. 15,2008); Walker v. USAA Cas. Ins. Co., 474 F.Supp.2d 1168, 11 74 (ED. CaL.

6 2007). The elements supporting unjust enrichment are (l) the receipt of a benefit and (2) the

7 unjust retention of it at another's expense. Weststyn Dairy 2 v. Eades Commodites Co., 280

8 F.Supp.2d 1044, 1057 (E.D. CaL. 2003). A "benefit" includes any advantage obtained by the

9 recipient or expenses paid on his behalf. Ghirardo v. AntonioU, 924 P.2d 996, 1003, 14 Cal.4th

10 39,51 (CaL. 1996); see also Process Specialties, Inc. v. Sematech, Inc., 2001 WL 36105562, *20

11 (E.D. CaL. 2001).

12 8. Courts often redress unjust enrichment under the theory of quasi-contract or

13 quantum meruit. Such relief does not require a contract and exists independent of the parties'

14 privity, intent, or promises. Fid. & Deposit Co. of Md. v. Harris, 360 F.2d 402, 409 (9th Cir.

15 1966); McBride v. Boughton, 123 CaL. App. 4th 379, 388 n.6 (2004). Courts wil imply an

16 obligation to pay when one party, in equity and good conscience, should not be permitted to keep

17 a benefit without paying for it. us. v. Healy Tibbitts Const. Co., 607 F.Supp. 540, 542 (N.D.

18 CaL. 1985) (citing DOBBS, REMEDIES 224 (West 1973); 66 Am.Jur.2d, §§ 2, 3). Equity wil

19 typically require payment as measured by the benefit received. Davis v. Leal, 43 F.Supp.2d

20 1102, 1112 (E.D. CaL. 1999).

21 9. To prevent unjust enrichment, courts have upheld the right of one party to pay an

22 obligation for another and seek restitution for that amount. For example, in Page v. Podol, 4

23 Cal.App.2d 229 (1935), a separated couple held property together as joint tenants. When that

24 property was sold, both parties became liable for the tax obligation. Plaintiff paid the entire tax

25 obligation and fied a suit in equity to recover defendant's proportional share. The court noted

26 that "(tJhe soundness of this doctrine has been upheld by innumerable decisions of courts of the

27 highest authority in many jurisdictions, and it is so obviously just and reasonable that it is matter

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1 of wonder that it should ever have been called in question." Id. The court reversed the decision

2 below and awarded plaintiff the right to recover a proportional share of the obligation owed by

3 defendant.

4 10. Through this motion, the Receiver asks the Court to exercise its equitable powers

5 in a similar manner and compel Palm to pay his proportional share of premiums for the BAU-

6 R&L policy. To date, the Receiver has paid 100% of those premiums since September 7, 2007,

7 for a total of $64,500.00. While other joint owners of that policy have agreed to transfer their

8 interest to the Receiver in exchange for the Receiver's payment of the premiums and a claim

9 against the estate, Palm has not. Accordingly, Palm has unjustly benefited by maintaining his

10 0.31262944% ownership without paying a proportional share of the premiums. See CAL. Cry.

11 CODE § 3521 ("No person can be permitted to enjoy the benefits of a transaction while rejecting

12 the burdens of it. ").

13 1 1. To avoid unjust enrichment, the Court should compel Palm to pay (l) $201.65 to

14 the Receiver for Palm's 0.31262944% share of the premiums paid to date and (2) Palm's

15 proportional share of all future premiums on an annual basis as invoiced by the Receiver. i

16 Should Palm fail to pay these obligations in a timely manner, the Court should order his

17 ownership interest in the BAU-R&L policy forfeited to the receivership estate. In the event of

18 forfeit, the Receiver would replace Palm's ownership interest in the BAU-R&L policy with an

19 allowed claim against the receivership estate in the amount of $ 1 ,000.00 (the amount of the

20 original investment).

21 12. As noted above, the Court has "broad powers and wide discretion to determine the

22 appropriate relief in an equity receivership." Ellott, 953 F.2d at 1569-70. This includes the

23 discretionary authority to deny Palm's ordinary contract rights when they are "inimical to

24 receivership purposes." See us. v. Vanguard Inv. Co., Inc., 6 F.3d 222, 226 (4th Cir. 1993).

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1 Palm's share of the next premium payment will be $100.82. That amount, however, will increase in the futuresince premium obligations for the BAU-R&L policy are scheduled to increase annually. At this time, the Receiverdoes not know how much those future premium obligations wil be and, therefore, would give Palm advance noticeby an invoice.


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1 That is exactly what the Receiver asks the Court to do here. Palm currently has a contractual

2 right to 0.31262944% of death benefits from the BAU-R&L policy even if the Receiver pays all

3 of the premiums for that policy. This Court should impose upon Palm an equitable obligation to

4 pay his share of the premiums or else forfeit his ownership interest to the receivership estate in

5 exchange for an allowed claim for $1,000.00. Doing so would both serve the interests of equity

6 and keep the BAU-R&L policy in force for the benefit of all defrauded investors.

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13. Given the fact that Palm wil not respond and would not be in position to protect

the policy from lapsing if the Receiver abandons the policy and does not pay the next premium,

one can certainly argue that Palm would be better off by a forfeiture and allowance of a claim.

At least that way he would have something - a claim - if he or another person representing Palm

ever surfaces.

WHEREFORE, premises considered, the Receiver requests that upon final hearing and

consideration of this matter, that the Court issue an order compelling Clifford A. Palm, Jr. to pay

$201.65 to the Receiver plus his share of all future premiums as they become due on pain of

forfeiture of his ownership interest, and for such other and further relief, general or special, at

law or in equity, to which the Receiver may show himself justly entitled.

Submitted this 17th day of April, 2009.Respectfully submitted,

lsi Michael.! QuilingMICHAEL J. QUILLING (Tex. Bar No. 16432300)BRENT J. RODINE (Tex. Bar No. 24048770)QUILLING, SELANDER, CUMMISKEY

& LOWNDS, P.C.

Chris Gibson, SBN 073353Maralee MacDonald, SBN 208699BOUTIN GIBSON DI GIUSTO HODELL INC.Attorneys for Receiver


144872.1


CERTIFICATE OF CERTIFIED MAIL SERVICE

2 I hereby certify that on the 17th day of April, 2009, a copy of this motion was served onall interested parties through the Court's electronic fiing system. In addition, a copy of thismotion was served on by U.S. Certified Mail, Return Receipt Requested on the followinginvestor named as owner of the BAU-R&L Policy at his last known address:

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CERTIFICATE OF SERVICE

I hereby certify that on the 17th day of April, 2009, a copy of this motion was served onall interested parties through the Court's electronic filing system. In addition, a copy of thismotion was served on the following other persons by First Class U.S. Mail:


Ernest Jeremias5022 1 7th Avenue, Apt. 1Brooklyn, NY 11204



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BOUTIN GIBSON DI GIUSTO HODELL INe.Chris Gibson, SBN 073353Maralee MacDonald, SBN 208699555 Capitol Mall, Suite 1500

Sacramento, California 95814-4603TeL. (916) 321-4444

QUILLING, SELANDER, CUMMISKEY & LOWNDS, P.C.Michael J. Quiling (Tex. Bar No. 16432300) - Admitted Pro Hac ViceBrent J. Rodine (Tex. Bar No. 24048770) - Admitted Pro Hac Vice2001 Bryan Street, Suite 1800Dallas, Texas 75201Telephone: (214) 871-2100

Facsimile: (214) 871-2111

Attorneys for Michael J. QuilingReceiver of Defendants Secure Investment Services, Inc.,American Financial Services, Inc., and Lyndon Group, Inc.


EASTERN DISTRICT OF CALIFORNIA

SACRAMENTO DIVISION

SECURITIES AND EXCHANGECOMMISSION,


Plaintiff, APPENDIX OF AUTHORITIES INSUPPORT OF RECEIVER'S MOTIONTO COMPEL PAYMENT OFPREMIUM SHARE FROM CLIFFORDA. PALM, JR. (BAU-R&LJ

v.

SECURE INVESTMENT SERVICES, INC.,AMERICAN FINANCIAL SERVICES, INC.,LYNON GROUP, INC., DONALD F.NEUHAUS, and KIMBERLY A. SNOWDEN, Date:

Time:Department:

May 18,20099:00 a.m.

10Defendants.

Pursuant to Local Rule 5-133(i), the Receiver, by and through its counsel of record,

respectfully submits the following copies of authority cited in and in support of its Motion to

Compel Payment of Premium Share (BAU-R&LJ:

1.

2.

Mauro v. General Motors Corp., 2008 WL 2775004, *6 (E.D. CaL. Jul. 15,2008);

Process Specialties, Inc. v. Sematech, Inc., 2001 WL 36105562, *20 (E.D. CaL.

27 2001).

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Respectfully submitted,

BOUTIN GIBSON DI GIUSTO HODELL INC.

4 Dated: April 17, 2009 By lsi Maralee MacDonaldMaralee MacDonaldAttorneys for Receiver of DefendantsSecure Investment Services, Inc.,American Financial Services, Inc.,and Lyndon Group, Inc.

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10 CERTIFICATE OF CERTIFIED MAIL SERVICE

11 I hereby certify that on the 17th day of April, 2009, a copy of this Appendix was servedon all interested parties through the Court's electronic fiing system. In addition, a copy of this

12 motion was served on by U.S. Certified Mail, Return Receipt Requested on the followinginvestor named as owner of the BAU-R&L Policy at his last known address:

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20 CERTIFICATE OF SERVICE



21 I hereby certify that on the 17th day of April, 2009, a copy of this Appendix was servedon all interested parties through the Court's electronic filing system. In addition, a copy of this

22 motion was served on the following other persons by First Class U.S. Mail:

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Ernest Jeremias5022 17th Avenue, Apt. 1

Brooklyn, NY 11204


- 2 -Appendix of Authorities in Support of

Receiver's Motion to Compel Payment of Premium Share from Clifford A. Palm, Jr. (BAU-R&LJ

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Westlaw.Slip CopySlip Copy, 2008 WL 2775004 (E.D.Cal.)

COnly the Westlaw citation is currently available.United States District Court,E.D. California.

Damon MAURO and John Paikai, On Behalf OfThemselves And All Others Similarly Situated,

Plaintiffs,v.

GENERAL MOTORS CORPORA TION, Defendant.No. CiV. S-07-892 FCD CCH.

July 15,2008.

Karen Marie Leser Grenon, Nathan Zipperian, PHV,Shepherd Finkelman Miller & Shah, LLP, San Diego,CA, Mark F. Anderson, Kemnitzer, Anderson,Barron & Ogilvie LLP, San Francisco, CA, forPlaintiffs,A. Erin Dwyer, PH V, Figari and Davenport LLP,Dallas, TX, Patricia M. Coleman, Dykema GossettLLP, Los Angeles, CA, Peter M. KellettPro HacVice, Timothy A. Daniels, PHV, Dykema GossettPLLC, Detroit, MI, for Defendant.

MEMORANDUM AND ORDER

FRANK C. DAMRELL. JR., District Judge.*1 This matter is before the court on General MotorsCorporation's ("defendant") motion to dismiss JohnPaikai's ("plaintiff') !: first amended complaintpursuant to Federal Rule of Civil Procedure

12(b)(6).11 Defendant asserts that plaintiffscomplaint fails to state a claim upon which relief canbe granted because Florida law prohibits therequested relief. Defendant also argues the classclaims fail as a matter of law because I) the proposedclass is not ascertainable and 2) the claims areunsuitable for class treatment because not all classmembers have valid claims. (Def.'s Mem. of P, & A.,fied May 2, 2008 ("MTD") at I -2.) Plaintiff opposesthe motion or, in the alternative, seeks leave to amendhis complaint.

FN 1. Plaintiff Damon Mauro was dismissedby the parties pursuant to a stipulation fied

April 28, 2008,

PN2, All further references to a "Rule" areto the Federal Rules of Civil Procedure.

Page i

For the reasons set forth below, defendant's motion todismiss plaintiffs first amended complaint is

GRANTED in part and DENIED in part. Plaintiff is

b I FNlgranted leave to amend as set forth e ow,~

FN3. Because oral argument will not be ofmaterial assistance, the court orders thismatter submitted on the briefs. E.D, CaL.

L.R. 78-230(h).

BACKGROUND

Plaintiffs claims arise from the following alleged

facts: The tires on 2004, 2005, and 2006 Pontiac

GTOs are "prone to failure because the suspensionsystem and alignment settings (and specifically thecamber settings) are improperly designed, assembled,

and/or installed, causing, inter alia, uneven andpremature tire wear and failure, as well as causing theinside front tires to graze the struts during normal

operation and use."(Pl.'s First Am. Compl., filedApril 03, 2008 ("PAC") ~ 2.) The subject GTOs werebuilt by defendant, General Motors Corporation

("GM"), on the same platform as Australia's HoldenMonaro ("Monaro"), which is manufactured by theGM subsidiary GM Holden Limited. (ld. ~ 3.) TheMonaros were equipped with 235 mm wide tiresmounted on 17" wheels. (ld) However, the vehiclesat issue were equipped with 245 mm wide tiresmounted on 17" wheels when sold as GTOs withinthe United States, (fd)

On September 20, 2005, plaintiff purchased a new2005 Pontiac GTO from Allen 1. Pontiac ("Allen"),an authorized Pontiac GTO dealer in Seebriiig,Florida, through a written sales contract. (ld. ~ 4.)Plaintiffs GTO came with standard 1 r wheels andBF Goodrich tires. (fd. ~ 7.) On April 20, 2006,plaintiff took his GTO to Yarbrough Tire

("Yarbrough") in Lake Placid, Florida in response tofinding his tires significantly worn after 12,003 miles.(I d ~ 8.) Yarbrough determined that the tires neededreplacement. (Jd.) Plaintiff paid Yarbrough $1895.14for four new wheels and tires. (Jd.)

Plaintiff took his GTO to Allen in October 2007,


Slip Copy, 2008 WL 2775004 (E.D.Cal.)

because he thought it was pulling to the left. (ld. ~9,) Allen realigned the vehicle, explaining that thealignment, specifically the camber, was out ofspecification. (ld.) Later, on December i 7, 2007,plaintiff returned to Yarbrough to purchase four newtires due to inner shoulder wear, despite having usedthe tires for only 20,369 miles and rotating themaccording to schedule. (Jd. ~ 10.)The tires cost$568.13. (Jd.)

*2 Defendant provided plaintiff and each owner andlessee of the subject vehicles with a 3 year, 36,000mile bumper-to-bumper factory warranty. (Jd. ~ 11.)

Plaintiff filed the instant action on November 15,2007 on behalf of himself and all others similarlysituated. Plaintiff asserted class action claims for: l)violations of the Florida Deceptive and Unfair TradePractices Act ("FDUTP A"), Fla, Stat. section501.0 i et seq.; 2) breach of warranty; and 3) unjustenrichment. Plaintiff filed a first amended complainton April 3, 2008, modifying certain factualallegations but asserting the same causes of actionagainst defendant. Defendant now moves to dismissplaintiffs first amended complaint for failure to statea claim upon which relief can be granted. FN4

FN4. Pursuant to the parties' joint motion,this case was consolidated with O'Connor v.General Motors Corp., Civ. 8-07-892

FCD/GGH because of their common issuesof fact. (Consolidated Case Order, fied May19,2008.)

STANDARD

On a motion to dismiss, the allegations of thecomplaint must be accepted as true. Cru:: v. Beto, 405U.S. 319.322.92 S.Ct. 1079,31 L.Ed.2d 263 (1972).The court is bound to give plaintiff the benefit ofevery reasonable inference to be drawn from the"well-pleaded" allegations of the complaint. RetailClerks In!'! Ass'n v. Schermerhorn, 373 U.S. 746.753n. 6, 83 S.C. 1461. 10 L.Ed.'ìd 678 (1963). Thus, theplaintiff need not necessarily plead a particular fact ifthat fact is a reasonable inference from facts properlyalleged. See id.

Nevertheless, it is inappropriate to assume that theplaintiff "can prove facts which it has not alleged orthat the defendants have violated the ... laws in ways

i us,",,

that have not been alleged." Associated Gen.

Contractors of Calif. Inc. v. Calif Slate Council ofCarpenters, 459 U.S. 519. 526. 103 S.Ct. 897,74L.Ed.2d 723 (i 983). Moreover, the court "need notassume the trth of legal conclusions cast in the formof factual allegations." United States ex reI. Chunie

v. Ringrose, 788 F.2d 638. 643 n. 2 (9th Cir.1986).

Ultimately, the court may not dismiss a complaint in

which the plaintiff has alleged "enough facts to statea claim to relief that is plausible on its face." Bell

,-'tlantic Corp. v. Twomblv, --- U.S. n__. n__. 127S.C!. 1955. 1974, 167 L.Ed.2d 9'19 (2007) Only

where a plaintiff has not "nudged (his or herJ claimsacross the line from conceivable to plausible," is thecomplaint properly dismissed. Id. "(AJ court maydismiss a complaint only if it is clear that no reliefcould be granted under any set of facts that could beproved consistent with the allegations," Swierkiewiczv. SOl'ema NA.. 534 U.S. 506. 5 J4. J''ì S.C!. 992,152 L.Ed.2d i (2002) (quoting Hudson v. Kin? &Spalding, 467 U.S. 69. 73, 104 S.C!. ')229, 81L.Ed.2d 59 (1984)).

In ruling upon a motion to dismiss, the court may

consider only the complaint, any exhibits thereto, andmatters which may be judicially noticed pursuant toFederal Rule of Evidence 201. See A1ir v. Little Co.OrMan' Hospiia!, 844 F.2d 646. 649 (9th Cir.1988);Isu::u Motors LId v. Consumers Union or UnitedStates, Inc.. 12 F.Supp.2d 1035, 1042CC.D.CaI.1998).

ANALYSIS

Preliminarily, the court must decide what law appliesin this case. In arguing their positions on the motion,the parties dispute whether Florida or California lawis applicable, For example, defendant moves todismiss, arguing all of plaintiffs claims fail under

Florida law. Plaintiff responds that his claims are

sustainable, at times citing California law but at other

times relying on Florida law. Ultimately, this disputeexists because the complaint does not clearlyestablish what law applies to the individual claims.

While the complaint is brought by a Florida residentand cites the FDUTP A, plaintiff does not allege factsestablishing that Florida law applies via contract orotherwise. Therefore, before reaching the merits ofthe substantive causes of action, the court must

consider the issue of the applicable law.



*3 This case was brought pursuant to federaldiversity jurisdiction. (FAC , 17.) When exercisingdiversity jurisdiction, a federal district court mustapply federal procedural law and the substantive lawof the forum state, which includes the choice-of-Iaw

rules of that state. Erie v. Tompkins, 304 U.S. 64. 58S.C!. 817. 82 L.Ed. 1188 (1938); Patlon v. Cox, 276

FJd 493. 495 (9th Cir.2002) (citing Klaxon Co. v.Stemor Electric A.ffg. Co.. 313 U.S. 487. 496. 6 IS.Ct. 10"'0. 85 L. Ed. 1477 (194) )). Accordingly, todetermine the suffciency of the complaint, the courtmust apply the pleading requirements of the FederalRules of Civil Procedure and California substantivelaw to each cause of action. If there is a choice-of-law question, the court must follow the law whichCalifornia would apply in that circumstance.

In certain circumstances, California's choice-of-law

rules require a court to apply the law of another

jurisdiction. The first situation occurs when theparties have incorporated a choice-of-law clause intheir express agreement. California courts willgenerally follow the law specified in the clause.Nedllovd Lines B. V. v. Superior Court. 3 Cal.4th 459,464, I) Cal.Rptr.2d 330. 834 P.2d 1148 (1992)

(citing Smilh, Valentino & Smith, Inc., v. SURerior

Court, 17 Cal.3d 491. 495-96,131 CaL. Rptr. 374. 55lP.2d 1206 (1976)).FN5

FN5. There are circumstances whereCalifornia law may trump a contractualchoice-of-Iaw provision. Nedllovd, 3 Cal.4that 465-66, 1 1 Cal.Rptr.2d 330, 834 P.')d1 148. However, since neither part hasalleged that a choice-of-Iaw clause governs

this case, the court does not consider herein

those exceptions.

The second situation occurs when no formal choice-of-law selection has been made, but a non-resident

proponent has invoked the law of anotherjurisdiction. Once the foreign law has been invoked,California follows a three-step "governmental interestanalysis" to address conflict-of-Iaw claims. Wash.

Mut. Bank v. Superior Court, 24 Cal.4th 906. 919,103 Cal.Rptr.2d 320. J5 PJd 107J (200n For thefirst step, the proponent must identify the applicablelaw of the proposed state and show that it materiallydiffers from California law.Jd. If differences exist,the second step is to "determine what interest, if any,

~ ..0.. ..

each state has in having its own law applied to thecase,"Jd. (citation omitted). If multiple states have an

interest, the third step is to "select the law of the state

whose interests would be 'more impaired' if its lawwere not applied."Jd (citation omitted),

Here, neither part has alleged that a choice-of.law

clause exists in the subject contract. Nor has eitherparty addressed California's "governmental interestanalysis" to establish that a foreign state's law should

be applied. Thus, having brought this action in thiscourt under federal diversity jurisdiction, the courtmust apply, as the default, the substantive law ofCalifornia to all c1aims.FNti

FN6. The court makes this finding forpurposes of resolving the instant motion.However, plaintiff is granted leave to amendto allege facts supporting application of

Florida law. Defendant may thereafterreassert its claim that Florida law precludesplaintiffs claims. Nonetheless, the court

notes that its decision herein would likelyremain the same under Florida law, as it isakin to California law in the respects relatedto this motion.

i. Class Certifcation

The court first considers defendant's challenges to theclass action allegations. If the class allegations fail,diversity jurisdiction will be destroyed because

plaintiffs individual claims do not meet the $75,000threshold. (F AC " 8, 10.) As a result, the courtwould not have subject matter jurisdiction over thisaction. 28 U.sC. § 1332(8).

Plaintiff alleges the following class pursuant toFederal Rule ofCíviJ Procedure 23:

*4 All current and former owners and lessees ofmodel year 2004, 2005 and 2006 Pontiac GTOs

purchased or leased in the State of Florida (the"Class").

(FAC ~ i 9.) "Excluded from the Class definition areofficers and employees of GM, its subsidiaries and itsdealers, anyone sustaining injuries as a result of thedefect alleged herein, as well as any judge to whomthe action is assigned."(1 d.)


Slip Copy, 2008 WL 2775004 (E.D.CaL)

Rule ')3(a) sets foiih four prerequisites necessary tostate a class action claim. Plaintiff must allege factsdemonstrating: (1) "numerous" affected persons; (2)"common questions" of law and fact; (3) that thenamed representative's claim is "typical" of the class;and (4) that the class is "adequately" represented. SeeRutledge 1'. Elecn'ic Hose & RuMer Co., 51 I F.id

668.673 (9th Cir.1975).

Once the prerequisites enumerated in Rule 23(a) aresatisfied, at least one of the requirements of Ru Ie

n(b) must be met. A IIchem !'ods. v. Windsor. 521U.S. 591, 614. i 17 S.C!. 2231, 138 L.Ed.2d 689li. A class action brought pursuant to Rule23(b)(3), like plaintiffs action here, requires that (1)"questions of law or fact common to the members ofthe c lass predominate over any questions affectingindividual members;" and (2) that the class actiondevice is superior to other available methods for fairand efficient adjudication of the controversy. Id; seealso Valenrino v, Carier-Wallace, Inc., 97 F.3d

1227. 1 234 (9th Cir, 1996).

Plaintiffs complaint alleges facts establishing all ofRule 23 's requirements. (PAC iiii 19-25.) Yet,defendant contends that the class should be dismissedbecause it is: a) not suffciently ascertainable, b)

flawed since it includes members who could notindividually bring suit, and c) is "inherently

problematic." .E(MTD at 8-1 I.)

FN7. Notably, defendant did not challengethe virtually identical class claims in theconsolidated O'Connor case. Rather,defendant answered that complaint. The

only difference in the class definitions is theinclusion of 2006 GrO models in thepresent case.

a. Ascertainable Class

Defendant contends that the class is impossible toidentify. (Jd at 9.) A class is suffciently defined if itis "administratively feasible for the court to

detennine whether a particular individual is amember." O'Connor v. Boeing N. Am., Inc.. J 84F.R.D. 31 i. 319 (C.D.CaI.1998); see also Buford v.H & R Block, 168 F.R.D, 340, 347 (S.D.Ga.1996)("(TJhe description of the class must be sufficientlydefinite to enable the court to determine if a

~ ~.O ~

particular individual is a member of the proposedclass") (quoting Potlil7Rer v. Miami, 720 F.Supp, 955,957 IS.D.Fla.1989)). However, "not all classmembers need to be ascertained prior to classcertification. "H effeijnger v. Elec. Data .5)'s. Corp.,No. 07-00 J 01, 2008 U.S. Dist. LEXIS 5296, at *54(9th CIr, Jan. 7,2008); see O'Connor, 168 F.R.D, atil. "It is sufficient if they are ascertainable' at some

point during the case. , "Heffeijnger, 2008 U.S. Dist.LEXlS 5296, at *54 (quoting Fainbrul1 v. Sw. CrediiS1's., 246 F.R.D, 128. 133 (E.D.N.Y.2007)).

Plaintiffs class definition specifically identifies the

make, model, and years of specific owners andlessees, while excluding certain individuals. (F AC ~J 9.) Plaintiff further alleges that defendant either

maintains or has access to records that can identifyeach class member. (ld ~ 2 i .)While defendantcontends that sales or transfers may make classidentification impossible, the court disagrees, Sales

records, public fiings, and other means are

potentially available to identify a finite number ofclass members. Taken in the light most favorable tothe plaintiff, the class is sufficiently ascertainable

from the pleaded facts, and thus, defendant's motionto dismiss on this issue is DENIED.

b. Flawed Class

*5 Defendant contends the class is fundamentallyflawed since it includes members who cannot

individually bring suit because they were not harmed.(MTD at 9.) This includes:

J. Persons who purchased a GTO and never hadany problem with the tires;

2. Persons who first experienced any tire problemswith their GTO after the expiration of the warranty;

3. Persons who never sought any warranty repairfrom GM for tire wear;

4. Persons who sought and received warrantyrepairs for tire wear;

5. Persons who purchased a GTO but no longerown or use the vehicle and who did not experienceany problem with the tires prior to disposing of thevehicle.



(ld at lO).

Defendant's argument only relates to the breach ofexpress warranty claim, yet defendant contends thatif this claim is insuffcient, class certification for allclaims is improper and all class claims should be

dismissed..E(ld.) The court disagrees. Defendant has

not demonstrated that the class claims for unjustenrichment and unfair competition are prone to thesame flaws. Indeed, those claims are not subject tothe same contractual restrictions as the breach ofexpress warranty claim and, therefore, would not

exclude the same class members. As such, dismissalof all class claims because of one allegedly deficientclaim is not appropriate. Defendant's motion to

dismiss all class claims on the grounds of a flawedclass relating to one claim is DENIED.

FN8. The cases defendant cited to supportclass dismissal are distinguishable from thepresent case. They either deal with instances

where the plaintiff lacked standing torepresent the class, or where no one hadbeen injured. See (MTD at 9.) Here, thecomplaint alleges actual injuries to plaintiffand other class members. (FAC ~~ 7-13.)

However, defendant is correct that the class claim forbreach of express warranty is insuffcient. As setforth below, the substantive allegations are deficientand/or the class is too broad. See Discussion infra atPart iv. Accordingly, for the reasons set forth below,

as to the specific class allegations for breach of

express warranty, defendant's motion to dismiss isGRANTED.

c. Inherent Class Problems

Defendant contends that the class allegations for thebreach of express warranty claim should be dismissedbecause individual issues will predominate overcommon issues of fact. (MTD at 11.) Defendantasserts that the diffculty of demonstrating that eachclass member has met the specific requirements ofthe warranty must be dealt with on an individualbasis. (MTD at 11,) Since the court has alreadydetermined that the class claim for this cause ofaction is insuffcient, it need not reach this alternativeargument for dismissal of the claim.Notwithstanding, the court notes that this argument is

.. -e;....

more appropriately raised at the class certificationstage. In re Wal-Mart Stores. Inc" 505 F,Supp.2d

609.615 (N.D.Ca1.2007) (stating that courts havemade it clear that "dismissal of class allegations atthe pleading stage should be done rarely and that thebetter course is to deny such a motion because 'theshape and form of a class action evolves only throughthe process of discovery, "') (citations omitted).

2. Unjust Enrichment

Defendant asserts that "there is no claim of unjust

enrichment under Florida law when a val id contractgoverns the transaction. "(MTD at 2, 7.) However, thecourt considers defendant's contention under

Califomia law, having determined it to be the

applicable law for this case.

*6 Defendant's argument is untenable. Under

Califomia law, plaintiff may alternatively pleadbreach of contract and unjust enrichmentI. FN9SC aims.- ee, e.g., Huskinwn & Brown v. Wolf' 32

CalAth 453, 9 Cal.Rptr.3d 693. 84 P,3d 379 (2004)

(plaintiff law firm maintained cause of action forbreach of contract, unjust enrichment, and quantummeruit); Snownel' v. Harrah's Emm't, Inc., 35 CalAth1054. 29 CaL.Rptr.3d 33, 112 P.3d ì8 (2005)

(plaintiff hotel guest maintained unfair competition,breach of contract, unjust enrichment, and falseadvertising class claims), Thus, while ultimatelyplaintiff may not recover damages under boththeories, that a valid contract may exist between theparties is no bar to pleading, in the alternative, aclaim of unjust enrichment.

FN9. This is consistent with Federal Rule ofCivil Procedure 8Cd), which allows altemate

and inconsistent claims in pleadings.

Finally, the court notes for clarification that there isno cause of action in Califomia for "unjustenrichment." Melchior v, New Line Prods., Inc., 106Cal.AppAth 779, 793. 131 Cal.Rptr.2d 347 (2003).Rather, it is "a general principle, underlying variouslegal doctrines and remedies."Id. (citation omitted)."It is synonymous with restitution." Id (citationomitted). Nevertheless, mislabeling a cause of action

is not fatal to the complaint, so long as the necessaryfacts of that claim are properly pled. See, e,g., Mazurv. Ebav 1nc.. ::W08 U.S. Dis!. LEXrS 1656 J at *42,2008 WL 61 8988 (N.D.Cal. Mar, 4. 2008) ("(PJutting



substance over form, this court holds that plaintiffmay validly seek restitution damages independent ofhow it is labeled."); DOlT v. Yahoo! Inc.. 2007 U.S.Dist. LEXIS 59 J 26. ')007 WL 22 15445 (N.D.Cal.Julv 30. 20072 (denying a motion to dismiss a

mislabeled unjust enrichment claim). Therefore, thecourt considers plaintiffs complaint in general todetermine if an appropriate cause of action can beascertained from the alleged facts which would giverise to a restitutionary remedy.

Quasi-contract, implied walTanty of merchantability,and various torts are all examples of claims supportedby a cursory review of the complaint's factual

allegations. See (FAC ~~ 2- I 2); i Witkin. Summan)of Cal Law (10th ed. 20052 Contracts, SS 1015,

1016, at J 104- ) 105 (stating that unjust enrichment isa basis for obtaining restitution based on quasi-

contract). As such, the court finds that plaintiff hassufficiently pled a cause of action which wouldsupport damages based on a theory of unjustenrichment. Accordingly, defendant's motion todismiss this claim is DENIED.

3. FDUTPA Violations

Defendant moves to dismiss the FDUTPA claimbecause of insuffcient facts alleging "deception."

(MTD at 7-8.) As the court finds that California lawapplies, it considers this claim under the CaliforniaBusiness and Professions Code section J 7200 et seq.,commonly known as the Unfair Competition Law("UCL"), which is California's equivalent toFDUTPA. The UCL states that "unfair competitionshall mean and include any unlawful, unfair orfraudulent business act or practice and unfair,deceptive, untrue or misleading advertising. "Cal.Bus. & Prof Code § 17200 (Deering 2008).

*7 Under the "fraud prong" of the UCL, actualdeception is not necessary. Buller v. Sutler Health.J 60 CaL.AppAth 981. 987. 74 Ca1.Rptr.3d 47 (20082

("A violation can be shown even if no one wasactually deceived, relied upon the fraudulent practice,or sustained any damage."). Plaintiff only needs toshow "that members of the public are likelydeceived."ld Moreover, even California courts,under their stricter pleading requirements, hesitate todismiss VCL claims on demurrer. WiWams v GerberProds'. Co., 523 F.3d 934, 939 (9th Cir.20082

("Whether a practice is decepti ve, fraudulent, or

J aöi. v

unfair is generally a question of fact wh ich requires

'consideration and weighing of evidence from both

sides' and which usually cannot be made ondemUlTer.") (quoting McKell v. Washington Mutua!,

lnc., 142 CaJ.AppAth 1457. 14)'.49 Cal.Rptr.3d 227(2006)). Nevertheless, the seemingly minimalstandard for pleading a UCL violation does have alower limit. See Berrvman v. Merit Prop. Mçrmt.,

lnc., 152 Cal.AppAth 1544. 1557. 62 Cal.Rptr.3d 177

(20072 ( "Absent a duty to disclose, the failure to doso does not support a claim under the fraudulentprong of the VeL."); Bardin v. DainilerChri'slerCorp.. 136 Ca1.ApD4th 1255. 1'75. 39 Cal.RptrJd634 ('0062 (finding that to be deceived about an

alleged automobile defect, "members of the publicmust have had an expectation or an assumption"about the materials used in manufacturing the

vehicle ).

As stated previously, the federal pleading standards

do not require that all facts be plead; facts may bereasonably inferred from other facts properly allegedin the complaint. See Discussion supra pp. 4.

5.However, in support of this claim, plaintiff simplyalleges that GM's conduct was "likely to misleadconsumers." (FAC ~ 29.) No additional facts arealleged in the complaint to substantiate this assertion.Thus, it is diffcult to infer from the complaint how orwhy class members were likely to be misled or underwhat knowledge and obligation GM was operating.Plaintiffs allegation is more a recitation of a legal

requirement than a statement of fact, which isinsuffcient to allege a viable claim. (F AC , 29.)Because the court must not assume plaintiff canprove facts or causes of action he has not alleged, theunfair competition claim is insuffcient. Associated,

459 U.S. 519. 526, ) 03 S.e. 897, 74 L.Ed.2d 723

Ll. Accordingly, defendant's motion to dismissthis claim is GRANTED.

4. Breach of Express Warranty

Finally, defendant moves to dismiss the breach ofexpress walTanty claim, asserting that plaintiff andclass members have not alleged they met thewarranty requirements that would have placed anobligation to repair on GM. (MTD at 5-6.)Specifically, defendant contends the complaint failsto allege that plaintiff and each class member l)presented their automobile to a GM dealership forrepair; 2) were refused service; and 3) the dealership


- .~i _..,..J

Slip Copy, 2008 WL 2775004 (ED.Cal.)

was given reasonable time to perform the repairs.(ld) Defendant asserts these conditions are requiredby the terms of the warranty. (MTD Part A, ExhibitA.)

*8 Traditional contract law applies to the breach ofexpress warranty claim.L. DaughertiJ 1'. American

Honda Motor Co., Inc.. i 44 CaLAppAth 824. 830. 5 iCaLRptr.3d i 18 (006) ("The law governing express

warranties is clear. A warranty is a contractual

promise.") To properly plead the elements of abreach of express warranty claim in California, "onemust allege the exact terms of the warranty, plaintiffsreasonable reliance thereon, and a breach of thatwarranty which proximately causes plaintiff injury."Willams 1', Beechnut Nutritiun Corp., 185

Cal.App.3d 135, i 42, 2;9 Cal.Rptr. 605 (J 986).While the more liberal federal pleading rules do notrequire such specific allegations, the facts allegedmust at least demonstrate that plaintiff can prove a"plausible" cause of action for breach of express

warranty. rwomblv, i 27 S.C!. at i 974; Associated,459 U.S. at 5;6.

FN I O. Neither part has pled that anyCalifornia statute governs, or relates to, thebreach of express warranty cause of action.

Here, the complaint alleges that plaintiff took hisGTO to a "Pontiac dealership because he thought itwas pulling to the left."(FAC ~ 9.) He alleges that heneeded replacement tires within two months of therealignment.(ld. ~ i O.)He also alleges the mileage of

his vehicle was less than 36,000 miles and he requestthe repairs within three years of purchase. See(ld. ~~9-iO.)The warranty states that, "(tJo obtain warrantyrepairs, take the vehicle to a Pontiac dealer facilitywithin the warranty period and request the needed

repairs. A reasonable time must be allowed for thedealer to perform necessary repairs."(MTD at 3.)Drawing all reasonable inferences from these facts,plaintiff has adequately alleged that he met thewarranty requirements, and that defendant failed tomeet its duty of repair.

Defendant argues, nonetheless, that these allegationssuggest plaintiff is trying to recover under a warrantyguaranteeing the performance or quality of the

suspension, tires, and alignment. (Def. 's Reply toOpp'n, filed May 30, 2008 ("Reply") at 2.) Defendantcontends no such performance was provided.(ld.)

t'äg~ /

The court disagrees with defendant's interpretation ofthe complaint. Plaintiff alleges tire and alignment

problems due to the "improperly designed,

assembled, and/or installed suspension system andalignment settings."(FAC ~~ 7, 12.) The allegationsrelate to defendant's failure to repair and replace

items under the warranty, not its failure to ensureoverall perfonl1ance and quality of the vehicle, (/d)Alleging that the defects were covered under the

warranty, plaintiff cites the warranty which provides,

"any vehicle defect related to materials or

workmanship" will be covered. (ld.) The word "any"is broad enough to include the alleged defects,Whether or not they are actually included is to bedetern1ined at a later stage. For pleading purposes,

however, it is suffcient that plaintiff alleged thesubject defects are covered under the warranty

provided by OM. Therefore, plaintiffs individualclaim for breach of express warranty is suffcientlypled in the complaint.

*9 Defendant also contends that a class claim forbreach of express warranty is inappropriate because

not all class members have satisfied the necessaryconditions that would enable them to bring individualclaims. (MTD at 5.) It is a prerequisite to the duty ofrepair under an express warranty that a defect

manifest itself. Daugherty. J 44 Cal.AppAth at 831,5 ¡ CaLRptr,3d 1 J 8 (rejecting recovery under anexpress warranty when automobile owners did notexperience problems within the warranty limits).Courts that have held otherwise have "apparently

confused concepts of express and implied1" "FNJl/d. (" . dwarran,/. ~ . citations omitte ).

FN 11. The cases plaintiff cites to show thatdefects do not need to be discovered or

manifested to recover damages aredistinguishable. They are based on breach ofimplied warranties.

Here, the complaint's sole allegation that ties all classmembers to the breach of express warranty claim isthe following: "plaintiffs have performed each andevery duty required of them under the terms of thewarranties, except as may have been excused orprevented ...." (F AC ~ 39.) With no other factsrelating to any actions by or towards the class

members, the allegation is, once again, more akin to astatement of a legal requirement than a factualallegation. Also, plaintiff contradicts the allegation,


Slip Copy, 2008 WL 2775004 (E.D.CaL.)

in his opposition, by indicating that many class

members have not experienced issues from the defector presented their vehicles to an authorized dealer forrepair. (Opp'n at 16,) Moreover, it appears

implausible that all class members are still within the3 year, 36,000 mile constraints of the warranty.Presumably, some 2005 models were sold as early as2004, in which case the 3 year warranty could haveexpired in 2007. It is also likely that some classmembers have exceeded the 36,000 mile limit. Thoseclass members would not have actionable breach ofexpress warranty claims. See Doughert!'. 144CaL.AppAth at 83 J, 5 i CaL. Rptr.3d I J 8. Thecomplaint's present class allegations as to this claimare therefore deficient, and defendant's motion todismiss this cause of action is GRANTED.

5. Lealie to Amend

Plaintiff requested leave to amend his first amendedcomplaint in the event the court found any of thecauses of action deficient. (Opp'n at 20.) Federal Ruleof Civil Procedure i 5(a) states that "(tJhe courtshould freely give leave when justice so requires. "Inhis opposition, plaintiff sets forth additional factswhich support the class claims. For example, plaintiffstates that GM knew about the defects prior to sellingthe subject vehicles, concealed the defects from thepublic, received numerous complaints and hasrefused to correct the defects. (fd at 2, 51

CaL.Rptr.3d 118.) Plaintiff also alleges thatconsumers have been denied warranty coverageand/or have been charged for repairs relating to thewarranty. (Id at 5. 5 J CaL.Rptr.3d 118.) Finally,

plaintiff asserts that defendant's conduct has beenuniformly directed to other class members, (Jd. at 6,5 i Cal.Rptr.3d I J 8.) These additional facts, amongothers, may bolster and suffciently correct thedeficiencies identified herein. Accordingly, the courtgrants leave to amend the first amended complaint.

CONCLUSION

* i 0 Based on the foregoing analysis, the court makesthe following orders:

1, Defendant's motion to dismiss is:

(A) DENIED in part and GRANTED in part as tothe sufficiency of the class allegations;

~ -o~ -

(8) GRANTED as to the FDVTPA claim,construed as a VCL claim under California law;

(C) DENIED as to the unjust enrichment claim;

(D) GRANTED as to the breach of expresswarranty claim with respect to the class allegations,but DENIED as to plaintiff's individual claim.

2. Plaintiffs motion to amend his first amended

complaint is GRANTED.

IT is SO ORDERED

E.D.CaL.,2008.Mauro v. General Motors Corp.Slip Copy, 2008 WL 2775004 (E.D,Cal.)

END OF DOCUMENT


West law,Slip CopySlip Copy, 2001 WL 36105562 (E.D.Cal.)

Hanly the Westlaw citation is currently available.United States District Court,E.D. California.

PROCESS SPECIALTIES, INC., a Californiacorporation, Plaintiff,

v.SEMA TECH, INC., a Delaware corporation,

Defendant.No. CiV. S-00-414 FCD PAN.

Nov, 8, 2001.

Named Expert: ALAN 1. COX

MEMORANDUM AND ORDERlJ

¡Missing Textæ evidentiary ruling which thecourt entertains after it has heard alldispositive pretrial motions. Moreover, themotion is not appropriate in conjunction

with the pending motion for summary

judgment. Accordingly, the motion issummarily DENIED WITHOUTPREJUDICE, without further discussion.

Amended and Redacted

FRANK C. DAMRELL, JR., District Judge.* 1 This matter is before the court on the followingmotions: (I) plaintiff Process Specialties, Inc.'s("PSI") motion to modify the pretrial schedulingorder to allow it to designate an additional expert

witness; (2) defendant Sematech, Inc.'s ("Sematech")motion to exclude the testimony of PSI's expert AlanSematech's ¡missing textæ alternative motion for

summary adjudication regarding monetary reliefunder California's unfair competition law.

The court heard oral argument on June 15,2001. Bythis order, the court now renders its decision.

FACTUAL BACKGROUNDFN3

PSI is a privately held company that manufactures

commercial semiconductor products, including "testwafers," at its plant in Tracy, California. Test wafersare partially processed silicon discs which are utilizedto develop and test equipment, or "tools," used to

Page I

manufacture microchips (sometimes called"semiconductor devices" or computer "chips"),Morris Dec!. in Opp'n to Def.'s MSJ, filed June I,2001 ("Morris Dec!."), ~ I_2.FN4

Sematech, a nonprofit, tax-exempt Delaware

corporation headquartered in Austin, Texas, is a

consortium of the largest microchip manufacturers in

the United States.FN5Sematech was created in 1987,

as a cooperative effort among sem iconductor

manufacturing finns and the United Statesgovernment, to regain United States superiority inmicrochip manufacturing from the Japanese. SeeJ2U.s c. § 460 1. FN6 A t the ti me, it appeared that

Japanese companies had an unfair advantage overUnited States companies because Japanesecompanies worked collusively with each other inresearch and development, under the direction oftheir government, in a manner which would violateUnited States antitrust laws. Sematech was fonned inresponse to this perceived threat. Morris Dec!., ~ 6.

The enabling legislation passed by Congress in 1987

authorized the provision of substantial government

funds to Sematech. See 15 U.sc. § 460'). In 1988,Sematech entered into a Memorandum ofUnderstanding ("MOU") with the United Statesgovernment regarding the government's involvementwith Sematech. Id; Falstad Aff. in Supp. of Def.'sMSJ, fied under seal May 17,2001 ("Falstad Aff ."),Ex. 4. The MOU states that the federal subsidies shallbe used to "( c Jonduct research on advanced

semiconductor manufacturing techniques. "FalstadAff., Ex. 4 at 2. The MOU further specifies thatSematech shall have "a charter agreed to by allrepresentatives of the semiconductor industr that areparticipating members of Sematech ...." Id at 3. TheMOU also requires Sematech to submit to an annualindependent audit to ensure that it has complied withits charter every year that it received federal

subsidies. Id.

Sematech's corporate charter provides that it was

formed "exclusively" for "scientific and educationalpurposes," and that its principal purpose is "researchand development." Id at Ex. 3. The charterspecifically prohibits Sematech from engaging in the"commercial sales of semiconductor products." Jd


Slip Copy, 2001 WL 36J05562 (E.D.Ca!.)

*2 From 1988 through 1996, Sematech received $848million in funds from the United States government,

which equals approximately half of its expenses

during that period. The members of Sematech

provided the other half of Sematech's funding.

Sematech also received approximately $40 millionfrom the state of Texas during this time frame, in theform of a 20-year lease for its facility at a nominalrent of $2 per year, payable to the University of

Texas CUT"). The lease also prohibits Sematechfrom engaging in commercial sales of "any" product.Brown Dec!. in Opp'n to Def.'s MSJ, filed June 1,2001 subject to grotective order ("Brown Dec!. re:MSJ"), Ex. 39. N7Lastly, Sematech has receivedmillions of dollars in loaned or donated equipmentfi'om tool manufacturers. Brown Dec!. re: MSJ, Exs.10-14; Barfield Aff. in Supp. of Def.'s MSJ, filed

under seal May 17,2001 ("BarfieldAff."),~3.

Since i 997, Sematech has not received any fundingfrom the federal government. PSI alleges that,beginning in 1994, Sematech executives began

"plotting" ways in which Sematech could replace thefederal subsidies scheduled to be lost in 1997. SeeOpp'n to MSJ at 5. One such idea was to manufactureand sell commercial test wafers FN8 in competition

with existing suppliers. Jd PSI alleges that from J 994

(the year Sematech entered the commercial test wafermarket) to 1997 (the year Sematech's federal funding

terminated), Sematech executives disguised the sales,in order to avoid loss of Sematech's federal funding,

favorable lease, and tax-exempt status. Jd

For instance, PSI alleges Sematech's sales brochure

provided to test wafer customers stated that "Due tolegal restrictions, Sematech may only provide waferprocessing services that are not available from anyother source."Morris Dec!., Ex. 1. In addition,Sematech's standard test wafer customer contractincludes a provision whereby the customer representsthat the semiconductor products being provided bySematech are not available from any other supplier.Brown Decl. re: MSJ, Ex. 153.

In early J 995, PSI learned that Sematech had begunselling commercial test wafers, and that at least inone instance, was charging substantially below PSI's

price for the same product. Morris Dec!., ~ s 7-8, 16and Ex 3. PSI president Edward Morris telephoned

Sematech's Operations Manager, Chris Sallee, to

i Q.5~.:

complain about Sematech's entry into the commercialtest wafer market.d at ~ 9; Brown Dec!. re: MSJ, Ex.

1010. A seri es of letters between counsel for

Sematech and counsel for PSI followed. MorrisDec!., Exs. 2-6, 8. In that correspondence, Sematecli

told PSI that it had no intention of providing "wafer

processing services that other private sector suppliersare capable of providing. "Jd at Ex. 2.Et

In an attempt to resolve the dispute, Sematech and

PSI arranged a meeting for September 27, 1995. Jd

at ~ 14.At the meeting, Morris alleges that Seinatechrepresentatives denied they were selling test wafers atal!. Jd at ~ I 5.This denial was made despite Morris'reliance on the sales brochure given to Sematech's

clients (referenced above). Nothing was resolved atthe meeting.

*3 PSI alleges, however, that it left the meeting

feeling "appeased" due to Sematech's representationsthat it did not intend to compete with private

suppliers of the same products. In i 997, PSIdiscovered that Sematech had not been true to itsword, and it was selling, and had been since 1994,

commercial test wafers of the same type that PSI andits competitors could and were producing. Jd at ~ s16- J 7.

The Test Wafer Market

The test wafer market is but a fractional part of thesemiconductor industry.ld at ~ 4. Next to Seinatech,PSI is the largest supplier of test wafers in the UnitedStates. Cox Report_attached as Ex. 4 to the SwansonAff. in Supp. of Def.'s MSJ, filed under seal May 17,2001 ("Swanson Aff."). According to PSI, there areonly approximately seven companies in the UnitedStates that sell test wafers, including PSI and

Sematech. Morris Decl., ~ 23. According to

Sematech, there are at least 15 other companies thatsell test wafers in the United States, including IBMand Seaway. Teece Report at I 4-15 attached as Ex. ito Teece Decl. in Supp. of Def.'s MSJ, filed under

seal May 17, 2001. Tool manufacturers are

Sematech's and PSI's primary customers for testwafers. Barfield Aff., ~ 4. Test wafers are also

produced, and purchased, by foreign companies.

Mewes Dep. at 87 attached as Ex. 7 to Swanson Aff.; Cox Report, Ex. 4 to Swanson Aff., at Table 3.However, PSI states that less than. 8% of its sales areto foreign buyers. Morris Dec!., ~ 23.


Slip Copy, 2001 WL 36105562 (E.D.Ca!.)

As microchips become more and more technicallysophisticated, the tools used to make them becomemore complex and sophisticated as weI!. Similarly, asthe tools become more complex, the test wafers usedby the tool manufacturers must also become morecomplex. Thus, to succeed in the test wafer market, acompany must purchase, on an ongoing basis, evermore technically sophisticated and complex tools inorder to manufacture the test wafers needed by toolmanufacturers. These tools are extremely expensive,Morris Decl., ~ 18,

Additionally, to increase power, transistors printed onmicrochips have become smaller and smaller, and arenow measured in tenths of microns, From i 995 to200 I, the "geometries" of the patterns printed on

integrated circuits has gone from ,5 microns, to .35microns, to .25 microns, to .18 microns. Each ofthese reductions in the geometries of the transistorsrequired a new generation of manufacturing tools toimprint and engrave the patterns on the chips. In tum,each generation of manufacturing tools required anew generation of test wafers to calibrate them. See¡d

The Instant Litigation

PSI fied this action in state court in January 2000,alleging causes of action for unfair competition

pursuant to California Business and Professions Codesection I 7200 et seq. and unjust enrichment.

Sematech removed the action to this court shortlythereafter. On October 24, 2000, PSI filed itsAmended Complaint, alleging causes of action for (J)attempted monopolization pursuant to Section 2 of

the Sherman Act, (2) unfair competition pursuant toSection 17')00, and (3) unjust enrichment.

* 4 PSI contends that, given its privileged position inthe market, Sematech unfairly competes with PSI,and other test wafer manufacturers, by selling

commercial test wafers. PSI argues that Sematech's

sale of commercial test wafers violates its corporatecharter, the terms of its federal subsidies, and its leasewith UT. PSI further argues that these sales violatefederal tax laws, because Sematech, a tax-exempt,

nonprofit corporation, has not reported the revenue

from these commercial sales, or paid income taxthereon. PSI contends that no private, tax-paying testwafer manufacturer can compete with Sematech

l '-0....

because of Sematech's access to free tools, obviouslylow overhead, and tax-exempt status. Theseadvantages, PSI asserts, allow Sematech to price itstest wafers substantially below those of itscompetitors. Additionally, Sematach's presence in thetest wafer market has prevented other private

competitors from acquiring the latest generation oftools, See Opp'n to MSJ at 8-9.

As an example of Sematech's affect on the test wafermarket, PSI points to its current situation. At thistime, Sematech is the OI7()' manufacturer with tools toproduce sub-.25 micron 8 inch test wafers. Thosetools were donated to Sematech years ago, and areoperated in Sematech's virtually rent-free facility inAustin, Texas, Brown Dec!. re: MSJ, Exs. lO-14.

PSI desires to sell sub-.25 mocron 8 inch wafers, butit must first purchase the necessary tools, which costin excess of $ I 0 million. MOITis Dec!., ~ 20. This

amount is greater than PSI's gross annual revenue. Jd.Thus, PSi would have to "bet the company" in orderto purchase the tools, and risk not being able to sellenough test wafers to recoup the cost of

the tools. Jd.

That risk is very real, PSI contends. If PSI does

purchase the tools, Sematech's extremely low

overhead allows it to cut its price for sub-.25 micron8 inch wafers to a level below PSI's cost, thereby

effectively driving PSI out of business. PSI points to

Sematech's pricing of .35 micron test wafers in 1995.At that time, Sematech was charging half of what PSIneeded to charge for the same wafer, in order for PSIto tum a profit. Jd at ~ s 8, 21, & Ex. 1. Thus, PSI

has not purchased the tools necessary to manufacturesub-.25 micron 8 inch wafers. Jd at ~ 21.As a result,PSI contends, Sematech has a monopoly on thatproduct, because no private competitor can take therisk of competing./d

Sematech does not deny that it has entered thecommercial test wafer market, but argues that itspresence in the market is lawful and fair. Sematech

contends that its charter and the MOU do not prohibitit from engaging in the commercial sale of test wafersbecause the prohibition against the sale of"commercial semiconductor products" does notencompass test wafers. Falstad Aff., Ex, 3, Moreover,Sematech argues that its sales of test wafers do notviolate its lease with UT; the lease only prohibits theestablishment of a "retail" center, and UT is aware,


Slip Copy, 2001 WL 36105562 (E.D.CaJ.)

and does not object, to Sematech's sales of testwafers. See Def.'s P. & A. in Supp. of MSJ, fiedunder seal May 17, 2001 ("Def.'s MSJ"), at 5.Sematech asserts the "fees" collected from the salesof test wafers are necessary to offset some of the

costs of running Sematech's research facility, theAdvanced Tool Research and Development Facility("A TDF"). Barfield Dec!., ~ 4. Finally, Sematech

argues that its entry into the test wafer market has notharmed PSI; since 1995, PSI's revenues havedoubled, its profit margin has increased from 40% to60%, and it has bought new tools and built newproduction facilities. Morris Dep. at 520, 8 J 6, 855,964, and 120 i attached as Ex. 3 to the Swanson Aff.

STANDARDS

Modification of Pretrial Scheduling Order

*5 A pretrial scheduling order "shall not be modifiedexcept upon a showing of good cause."Fed.R.Civ.P.l.. The district court may modify the pretrialschedule "if it cannot reasonably be met despite thediligence of the party seeking the extension."

Johnson 11. Mammoth Recreations, Inc., 975 F.2d604. 609 (9th Cir. i 992). The "good cause" standardset forth in Rule i 6 primarily focuses upon the

diligence of the party requesting theamendment."Although the existence or degree of

prejudice to the part opposing the modification

might supply additional reasons to deny a motion, thefocus of the inquiry is upon the moving party'sreasons for seeking modification. "Id

Summary Judgment/Summary Adjudication

The Federal Rules of Civil Procedure provide forsummary judgment when "the pleadings, depositions,answers to interrogatories, and admissions on file,together with affidavits, if any, show that there is nogenuine issue as to any material fact and that themoving part is entitled to a judgment as a matter oflaw."Fed.R.Civ.P. 56(c). One of the principalpurposes of the rule is to dispose of factuallyunsupported claims or defenses. Celotex Corp. v.Catrett, 477 U.S. 317.325 (1986).

In considering a motion for summary judgment, thecourt must examine all the evidence in the light mostfavorable to the non-moving part. United States 11.Diebold Inc" 369 U.S. 654, 655 (J 96')). If the

i l.ó"'''

moving part does not bear the burden of proof attrial, he or she may discharge his burden of showingthat no genuine issue of material fact remains bydemonstrating that "there is an absence of evidenceto support the non-moving party's case." Celatex,477 U.S. at 325. Once the moving part meets the

requirements of Rule 56 by showing there is anabsence of evidence to suppoi1 the non-moving

part's case, the burden shifts to the party resistingthe motion, who "must set forth specific factsshowing that there is a genuine issue for triaL."Anderson v. Liherty LoM". Inc" 477 U.S. 242, 256íJ. Genuine factual issues must exist that "can beresolved only by a finder of fact, because they may

reasonably be resolved in favor of either part." Id.at 250'in judging evidence at the summary judgmentstage, the court does not make credibilitydeterminations or weigh conflicting evidence. SeeT. lV £Iec. Serv., Inc. v. Pacific £Iec. Contractors

Ass'n, 809 F.2d 626, 630-3 i (9th Cir.1987ì (citingMatsushita Elec. Indus. Co" Ltd. v. Zenith Radio

Corp" 475 U.S. 574, 587 (1986)). The evidencepresented by the parties must beadmissible.Fed.RCiv.P. 56(e). Conclusory,

speculative testimony in affidavits and moving

papers is insuffcient to raise genuine issues of fact

and defeat summary judgment. See Falls RiverwaFRealtv, Inc. v. Cit)! o(Niagara Falls, 754 F.2d A9. 57(2d Cif. J 985); Thornhil Publ'g Co" Inc. v. GTECorp., 594 F.2d 730, 738 (9th Cir. J 979).

Rule 56 also allows a court to grant summary

adjudication on part of a claim or defense.

SeeFed.R.Civ.P. 56(a) ("A part seeking to recoverupon a claim (may move) for a summary judgment inthe party's favor upon all or any part thereof. "); seealso Allstate Ins. Co. v. Madan, 889 F.Supp. 37A,

378-79 (CD.Cal. 1995). The standard applied to amotion for summary adjudication is the same as thatdescribed above for a motion for summaryjudgment.Fed.R.Civ.P. 56(8), (cì; Mora v. Cheni-

Tronics, Inc" 16 F.Supp.?d 1192, 1200(S.D.CaI.1998ì

ANALYSIS

1. PSI'S MOTION TO MODIFY THEPRETRIAL SCHEDULING ORDER TODESIGNATE AN ADDITIONAL EXPERT

*6 PSI moves for leave to amend the pretrial


Slip Copý, 2001 WL 36105562 (E.D.Ca!.)

scheduling order dated December 8, 2000, todesignate an additional expert, Carmen R. Eggleston,to testify regarding non-profit, tax-exempt

corporations. It is Eggleston's expert opinion thatsince approximately 1996, Sematech has not

qualified for tax exemption as defined in 26 USc. §50 J(c)(6), despite the fact that it has filed tax returns

as a non-profit, tax-exempt Delaware corporation

every year since 1988. Alternatively, Eggleston

posits that even if Sematech had qualified for taxexemption during this time period, its commercial

test wafer business constituted an "unrelated trade orbusiness activity" which generated income thatshould have been reported by Sematech and

subjected to federal income taxation.

PSI avers that this testimony is relevant to all three ofits claims. Furthermore, PSI contends that the needfor designating an expert to testify regarding

Sematech's abuse of its tax exempt status could nothave been anticipated on March 2, 200 i, the expertdesignation deadline. It was not until the end of

March 200 I, after the deposition of Sematech

comptroller Jack Ball and the belated production of

Sematech's tax returns by its accountant,PricewaterhouseCoopers ("PwC"), that PSI could

have (and did) discover the need for such an expert.

Sematech opposes the motion, arguing that PSIshould have known of the need to designate a taxexemption expert long ago, and that PSI has not beendiligent in this matter. The court is not persuaded by

PNIOSematech's arguments.-

While the general subject of Sematech's tax exemptstatus has been an issue in this case from itsinception, the more specific issue of whether

Sematech might be violating federal tax laws inclaiming its exemption is a new one. According toPSI's counsel, Sematech reneged on its promise toproduce its tax returns in late 2000. Brown Decl. inSupp. of Mot. to Mod. PSG, fied June 8, 2001

("Brown Dec!. re: PSG"), ~ s I -5. PSi only obtainedthe relevant tax returns, spanning the years i 995-i 999, on February 18, 200 I, when PwC finallyproduced them. Spaletta Dec!. in Supp. of Mot. to

Mod. PSG, fied June 8, 2001, ir 6. As discovery wasdrawing to a close around this time, PwC's belated

production occurred in the midst of a flurry of

document productions, discovery responses anddepositions.ld at ir 7.

J '-b"' ~

Moreover, PSI did not have the opportunity to deposeSematech comptroller Jack Ball, who had overseen

the preparation of the i 995- 1999 tax returns, untilMarch 28, 2001. Brown Dec!. re: PSO, ir 8. PSiretained Eggleston, and brought the instant motion todesignate Eggleston less than two months later. Onthis record, the court finds that PSI has been diligentin discovering the need to retain Eggleston, and inbringing the issue to the court's attention as soon as

practicable. See Mammoth Recreations, 975 F.2d at609.

The court further finds that Sematech has failed todemonstrate how it would be prejudiced by thegranting of PSI's motion. Sematech will be permittedto designate a rebuttal expert. In addition, it bearsnoting that this case was fied only 18 months ago.Discovery has proceeded at a remarkably fast pace,given the magnitude and complexity of this case.Even assuming the granting of PSI's motion todesignate Eggleston causes a minor delay inscheduling the trial in this matter, Sematech offers noreason why such delay would prejudice it in any way.

*7 Accordingly, PSI's motion to modify the pretrialscheduling order to designate Carmen R. Egglestonas an expert witness is GRANTED.

II. SEMATECH'S MOTION FOR SUMMARYJUDGMENT

Sematech moves for summary judgment on all threeof PSI's causes of action. PSI opposes the motion,

arguing that triable issues of material fact exist as toall of its claims. The parties' arguments will be

addressed seriatim,

A. Attempted Monopolization Under the ShermanAct § 2

In order to prevail on its attempted monopolization

claim under Section 2 of the Sherman Act, 15 U .sc.

U, PSI must demonstrate (I) specific intent tocontrol prices or destroy competition; (2) predatory

or anti-competitive conduct directed at accomplishingthat purpose; (3) a dangerous probabil ity of achievingmonopoly power; and (4) causal antitrust injury,Rebel Oil Co., Inc, v. A ¡¡antic Richfield Co., 5) FJd)421. )434 (9th Cír.)995).


SJip.C~-;ý, 200 I WL 36 J 05562 (ED.Cal.)

i. Specific Intent to Monopolize

Sematech argues that PSI has no evidence of

Sematech's specific intent to control prices or destroycompetition. Rather, Sematech contends that theundisputed evidence shows that it has merely

"competed vigorously" in the test wafer market, andthat such competition is not evidence of its specificintent to destroy competition. See Def.'s MSJ at 10:9-1 1.

PSI, however, offers evidence that in 1998,

Sematech's A TDF Director wrote a memo to

Sematech's CEO, proposing that Sematech have itsmember companies agree to use their infiuence withthe tool companies to "consolidate all manufacture oftest wafers for equipment suppliers and other externalcustomers at SEMA TECH."Brown Decl. re: MSJ,Ex. 4 i 5. It is up to the trier of fact to determine

whether this evidence satisfies PSI's burden of proofon the element of specific intent to excludecompetition. Sematech's assertion that this evidenceis not relevant, because PSI cannot prove that theplan was actually implemented or endorsed by

Sematech and the memo was written in 1998 (fouryears after Sematech entered the test wafer market),is without merit. Regardless of whether the plan wasexecuted and when it was devised, the memo isevidence of Sematech's intent, and it is for a jury todecide the weight of such evidence.

Moreover, specific intent may be proved by inferencefrom conduct. See HUnT-Wesson Foods, Inc. v. RaguFoods. Inc.. 627 F.2d 919, 926 (9th Cir.1980). PSIhas offered evidence indicating that in 1995,

Sematech priced its .35 micron test wafers at lessthan half the price charged by its biggest competitor,PSI, a private company with much higher operatingcosts. Morris Dec!., ~ 16. From this conduct, a jurymight infer that Sematech intended to drive thecompetition out of business. Additionally, PSI offerssubstantial evidence concerning Sematech's decisionto enter the test wafer market. Brown Decl. re: MSJ,Exs. 36,47, 59, 153-54, 193-94, 197,237-39, 666.

Said evidence suggests that Sematech was aware ofthe limitations on its conduct, including those

limitations imposed by its charter, the MOU, and itstax-exempt status; yet, it decided nonetheless to enterthe commercial test wafer market in directcompetition with companies such as PSI. A jury may

ra¡;c u

find this evidence probative on the issue ofSematech's intent to exclude its competition, sinceSematech entered the market despite apparent legalrestrictions prohibiting its entry into the market.

*8 Sematech's motion for summary judgment on thisbasis is denied.

2. Predatory or Anti-competitive Conduct

Sematech argues that PSI has no evidence of

predatory or anti-competitive conduct. In Sematech's

view, PSI objects to Sematech's mere presence in themarket, which, Sematech contends, is not actionableunder Section 2 of the Sherman Act.

PSI argues that Sematech violated multiple laws inentering the commercial test wafer business, and thatthese violations of law constitute "predatory or anti.competitive" conduct. ln other words, PSL argues that

the conduct element of a Section 2 claim may be

established by proof that Sematech violated some lawextrinsic to the antitrust laws, which its competitors

were obliged to follow. See Farle)! Transp. Co.. Inc.v. Sama Fe Trail Tramp Co" 786 F.2d 1342. 1347-

48 (9th Cir.1986), superceded by rule on other

grounds, 103 F.3d 868 (9th Cir.1996) (Section 2liability established based on defendants' violation ofthe Interstate Commerce Commission's tariffregulations); see also Western Concrete StructuresCo. v. Mitsui & Co. (U.S.A.), Inc.. 760 F.2d 1013,

1018 (9th Cir. 1985) (holding that importing steel atprices less than permitted by U.S. import regulationsconstituted "predatory conduct" for purposes ofSection 2).FNII

The court agrees with PSI. As recognized by the

ABA section on antitrust law,

(WJhere conduct contributes to establishing ormaintaining monopoly power, a court will be

especially likely to find that conduct predatory or

anti competitive if it is also improper for reasons

extrinsic to the antitrust laws. Thus, false advertising,

product disparagement, the fiing of baseless legalproceedings, and the violation of regulatory

requirements have all been held to satisfy the secondelement of a monopoliztion claim.

ABA Section of Antitrust Law, Antitrust Law



Developments (4th Ed.1997) at 248; see, e.g., LosAngeles Land Co. v. Brunswick Corp., 6 F.3d 142.2,14.27 (9th Cir. J 993) (defendant committed

"anticompetitive" acts when it prepared a false andmisleading market survey, delayed transmittal ofplaintiffs financing application, and interfered with

plaintiffs ability to enter a contract with a thirdpart); Hum-Wesson Foods, 627 F.2d at 926

(recognizing that certain acts, including false andmisleading advertising, when performed by an entitywith "market power" could harm competition

sufficient to state a claim under Section 2); AbcorCom. v. Akf Int'l, Inc.. 9 i 6 F.2d 924. 928.30 (4thCir.1990) (considering whether plaintiff submittedsuffcient evidence of defendant's "anti-competitive"

conduct, including, among other things,discriminatory and deceptive pricing, misuse ofconfidential financial and customer information,

misrepresentation, and hiring of plaintiffsemployees).

Here, PSI alleges that Sematech violated the

following: (I) its Certificate ofIncorporation; (.2) theMOU; (3) its lease with UT; (4) federal tax laws; and(5) and the National Cooperative Research andProduction Act of 1993 ("NCRPA"). The court

addresses, in detail, each of these alleged illegal actsunder its discussion of PSI's unfair competition

claim. FN 12It will be sufficient here to address PSI's

evidence concerning violation of the federal tax laws,as it provides a clear basis for denying Sematech's

motion. Moreover, to survive summary judgment PSiis only required to raise a triable issue of fact relatingto at least one of the above.

*9 PSI proffers evidence that Sematech operates itstest wafer business in contravention of federal taxlaws. See Eggleston Report and evidence citedtherein. FN 11Thus, PSi argues, by competing againsttaxpaying private companies in the test wafer marketwhile themselves circumventing the tax laws, a

reasonable jury could conclude that Sematech

engaged in predatory or anticompetitive conduct. Byexploiting its tax-exempt status, and other benefits,including its federal and state subsidies and free

equipment, Sematech is able to price its products "inan irrational way without regard to costs (because ithas none)."See Pi"s Supp. Brief in Opp'n to Def.'sMSJ, fied July 5, 2001, at 4:7-8. The court agreesthat PSI's evidence, if believed by a trier of fact,could satisfy this element of proof. See Western

l ~bt. I

Concrete, 760 F.2d at 1018 (recognizing that conductis actionable under Section 2 where it "is not truecompetition ... (iJts purpose is to create a monopolyby means other than fair competition") (internalquotations and citation omitted)); Aspen Skiin,? Co. v,Aspen Highlands Skiin,? Corp.. 472 U.S. 585. 605li ("If a firm has been attempting to excluderivals on some basis other than efficiency, it is fair tocharacterize its behavior as predatory") (internalquotations and citation omitted)). Sematech's motion

for summary judgment on this basis is denied.

3. Dangerous Probability of Obtaining MonopolyPower

Sematech argues that PSi also has no evidence insupport of this element. Whether there is a dangerousprobability of achieving monopoly power requires aninquiry into the relevant product and geographic

market, and the defendant's economic power in thatmarket. See Spectrum Sports. Inc. v. McQuilan, 506U.S. 447, 456 & 459 (1993); see also ImageTechnical Sen's., Inc. v. Eastman Kodak Co., 125FJd 1195, 1202 (9th Cir. i 997) ("To demonstratemonopoly power by circumstantial evidence, 'aplaintiff must: (I) define the relevant market, (2)

show that the defendant owns a dominant share ofthat market, and (3) show that there are significantbarriers to entry and (that) existing competitors lack

the capacity to increase their output in the short

run. "') (quoting Rebel Oil, 5 J F.3d at J 434 )).

(a) The Relevant Market

"Defining the relevant market is a factual inquiryordinarily reserved for the jury." Olt:: v. St. Peter'sCom/v. Hosp., 861 F.2d 1440. 1446 (9th Cír.1988)(citation omitted). The geographic market includesthe "area of effective competition '" where buyers

can turn for alternate sources of supply,"Id. (internalquotations and citations omitted).

It is undisputed that the product market is the

commercial test wafer industry. psr claims that therelevant geographic market is the United States.Sematech argues that the relevant market isworldwide. While it is true that some foreign

manufacturers make test wafers, and that some

United States manufacturers sell test wafers abroad,PSI presents compelling evidence that the relevantgeographic market should be confined to the United


Slip Copy, 2001 WL 36105562 (E.D.Ca!.)

States. Such evidence includes the following:

*) 0 (1) The percentage of foreign transactions in testwafer sales is extremely low. Cox Report, Ex. 4 toSwanson Aff., at 17- i 8 (concluding that U.S.customers of test wafers bought wafers from foreignsuppliers in only de minimis amounts).

(2) From 1995 to 2000, PSI's foreign sales of testwafers amounted to only .8% of its total sales. MorrisDecl., ~ 23,

(3) From 1995 to 1999, Sematech's foreign sales oftest wafers represented only i .5% of its total sales.Brown Dec!. re: MSJ, Ex. 22.

(4) Two of the world's largest suppliers ofsemiconductor equipment,-and-purchase test wafersexclusively from U.S,-based test wafer suppliers.Brown Decl. re: MSJ, Ex. H (Barnhart Dep. at 16: 18-23; 17:8-17), Ex. I (Patrick Dep. at I 7: 12-24; 22:5-8)

(5) PSI and Noel, another test wafer manufacturer,

consider their major competitors to be only a handfulof U.S. companies. Brown Dec!. re: MSJ, Ex. J

(Pearce Dep. at 53 :3-54: 11); Morris Decl ., ~ 23.

The Ninth Circuit stated in Rebel Oil that a "market"is "the group of sellers or producers who have theactual or potential ability to deprive each other ofsignificant levels of business." 51 F.3d at 1434(internal quotations and citation omitted). Becausethe sales of test wafers to and by foreign

manufacturers is so small, a jury could find that therelevant market excludes such companies. Thus,

PSI's evidence raises a triable issue of fact as to thedefinition of the relevant geographic market. FN 14

(b) Market Power

Assuming the trier of fact is persuaded by PSI'sevidence and determines that the relevant geographicmarket is the United States, PSI's offers evidence thatSematech's current market share in the United Statesis 42%. See Cox Report, Ex. 4 to Swanson Aff. Incertain circumstances, a market share of this

magnitude can be suffcient to demonstrate adangerous probability of obtaining monopoly power.Rebel Oil, 51 FJd at 1438 ("ARCO's market share of44 percent is suffcient as a matter of law to support a

finding of market power, if entry barriers are highand competitors are unable to expand their output inresponse to supra-competitive pricing.")

Seinatech argues that here no such entry or expansionbarriers exist.

(c) Barriers to Entry

Entry barriers are "additional long-run costs that were

not incurred by incumbent firms but must be incurredby new entrants" or "factors in the market that deterentr while permitting incumbent finns to eam

monopoly returns."r'NI5 Los Angeles Land Co.. 6 FJdat 14')7-28. In evaluating entry barriers, courts focuson their ability to constrain not "those already in the

market, but '" those who would enter but areprevented from doing so," United Stares v, 51'116)

Enters., 903 F.2d 659.672 n. 21 (9th Cir.19901.

Here, Seinatech contends that there are no significantbarriers to entry into the test wafer market because(1) there are no government licensing requirements;(2) four companies, IBM, Noel, TTl Silicon, andIMT, have entered the market since Sematech began

selling test wafers and have remained viable; and (3)there are numerous "potential entrants," including allsemiconductor manufacturers since they already havethe tools and expertise to make test wafers,

Sematech's members for the same reasons, andforeign suppliers who are already making test wafers.

*)) 1t is undisputed that there are no government

licensing requirements in the test wafer industry.However, PSI has offered evidence to demonstratethat other entry barriers exist. First, regarding theentry of other companies into the test wafer market,PSI offers the following evidence:

(I )-makes R&D wafers at cutting edge geometriesand does not participate in the commercial test wafermarket. Also, tool suppliers do not buy test wafers insignificant quantities from-because they are tooexpensive (-'s average test wafer costs $3,700

compared to the industr's average price of $150).Brown Dec!. re: MSJ, Ex. I (Patrick Dep. at 34: 15-35:6,38:6-17), Ex, H (Barnhart Dep, at 50:14-20),Ex. A (Henderson Dep. at 131:24-132:1); Cox

Report, Ex, 4 to Swanson Aff.


Slip Copy, 200 i WL 36 J 05562 (E.D.Ca!.)

(2) Noel is not a new entrant into the test wafermarket; a company called SiFab was founded by

Leon Pearce and had been in the test wafer businesssince 1985; SiFab went bankrupt and Mr. Pearce

reincarnated the company as Noel in 1996. BrownDec!. re: MSJ, Ex, J (Pearce Dep, at 39:24-41: 12),

(3) TTl Silicon is not a new manufacturer of testwafers; it is a broker that distributes test wafers and isthus not a supplier but a customer of test wafers,Morris Dec!., ~ 23.

(4) IMT, while admittedly a new entrant, has hadelTatic sales making its long-term viability highlyquestionable. Cox Report, Ex. 4 to Swanson Aff., at28.

Based on the above, PSI has demonstrated a triableissue of fact regarding barriers to entry into the testwafer market Moreover, "the fact that entry hasoccun-ed does not necessarily preclude the existenceof 'significant' entr barriers. If the output orcapacity of the new entrant is insuffcient to takesignificant business away from the predator, they areunlikely to represent a challenge to the predator's

market power." Rehel Oil, 5 J F.3d at 1440. Here,

PSI submits evidence that IMT's sales in 2000 were

$ J million in comparison to Semtach's sales of $15milion. See Cox Report, Ex. 4 to Swanson Aff., at28. A jury could reasonably conclude that IMT wouldnot have suffcient capacity to seriously challenge

Sematech.

Second, PSI offers evidence to show that there aresignificant capital costs to enter the test wafer marketSuch capitol costs are a well-recognized ban-ier toentry. Rehel Oil, 51 F.3d at 1439. PSI's President

Edward Morris declares that the cost of entr,

including buying the necessary equipment,

constructing a facility, hiring personnel, and

recruiting customers, is approximately $25-30

million. Morris Dec!., ~ 24. The high cost of entr ismost clearly demonstrated when one compares it tothe size of the entire test wafer market in 2000 whichwas $35.5 million. Even entry on a modest scale

requires millions of dollars. The founder of Noelestimated that to enter the wafer business buying allused equipment and offering only the simplest and

most common test wafers would cost $5 million.Brown Dec!. re: MSJ, Ex, J (Pearce Dep. 115:22-

I20:20)

* i 2 Finally, Sematech's evidence concerning

"potential entrants" into the test wafer market is notrelevant to the determination of entry barriers, While

the existence of potential entrants bears on market

definition, the concept of entry ban-iers refers toconditions that are likely to inhibit other firms fTom

entering the market on a substantial scale in responseto an increase in the incumbent's prices. See ABASection of Antitrust Law, Antitrust LawDevelopments (4th ed. i 997). Thus, entry barriers arethe structural barriers and other aspects of the Ì11arket

that make entry difficult or easy depending on

whether they exist See Rebel Oil, 51 F.3d at i 439.PSI has raised a triable issue of fact regarding thecapital costs involved in entering the test wafer

market, and thus, it is for a jury to decide whether

such evidence is a suffcient barrier to entry.

For all of the above reasons, PSI has submitted

suffcient evidence to create a triable issue of factregarding entry barriers, but this does not end theinquiry because PSi must also show that ban-iers toexpansion exist.

(d) Barriers to Expansion

The ability of an alleged monopolist to control outputand prices "depends largely on the ability of existingfirms to quickly increase their own output in responseto a contraction by the defendant" Rebel Oil, 51F.3d at 1441. Competitors may not be able toincrease output ifthere are ban-iers to expansion.

Sematech argues that there are no barriers toexpansion in the test wafer market because the

evidence shows that Sematech's competitors have

expanded since Sematech entered the market and willcontinue to be able to do so, Sematech relies on thefollowing; (1) the sales of half of the test wafer

manufacturers in the market grew over the last year;(2) PSi has excess capacity; (3) PSI's revenues have

increased two-fold since Sematech's entry into themarket; (4) PSI's profit margins have increased from40% to 60% since Sematech entered the market; (5)PSI has constructed two new facilities sinceSematech's entry into the market and is planning afourth facility; and (6) IBM is in the test wafermarket and varies its production and sales of testwafers as it sees fit. See Def.'s MSJ at 18-19.


Slip Copy, 200 J WL 36 J 05562 (E.D,Ca!.)

PSI does not dispute the facts regarding increased

profits, but rather, it argues that the above facts donot describe the true market realities in whichbarriers to entry exist. Because of Sematech's

presence in the market, PSI asserts that existing testwafer manufacturers are inhibited from expanding, orrather modernizing, their faciJities in the face ofSematech's ability to price its wafers without regard

to its competitors. As an example, PSI sets forth thetestimony of Gerald Henderson, Chairman of TacticalFabs, Currently, Sematech offers 12 inch test wafersat .25 micron geometries. Tatical Fabs does not ownthe equipment to produce this size wafer, and itwould have to buy the equipment to compete with

Sematech. However, Mr. Henderson was not willingto buy the equipment because Sematech is selling 12inch .25 micron wafers for $70, The cost to TacticaJFabs for the new equipment would be $JO million,requiring it to price the wafers at $300-400 per wafer.Accordingly, Tactical Fabs intends to continue tooffer its current lithography products so long as itremains profitable but it expects the market to lastonly "another couple (ofJ years," Brown Dec!. re:MSJ, Ex. A (Henderson Dep. 18:12-19:1, J48:21-149:5, 152:17-25, 155:22-156:5, 160:9-15). PSI

asserts that it is in a similar situation. PSI can

produce test wafers with geometries no smaJler than

.35 microns. When it became apparent that themarket would be shifting to test wafers with smallergeometries, PSI intended to buy the necessary, new

equipment, but decJined to do so because of

Sematech's position in the market. As a result, PSIcannot compete for the sub-.35 micron business

which is increasing in demand. Morris Dec!., ~ 20-22;Hammond Report attached as Ex. 13 to Swanson Aff.

* 13 The above evidence raises a triable issue of factregarding barriers to expansion. A jury could findthat barriers to expansion exist because Sematech canprice the latest technology without regard to theconstraints faced by its competitors, including the

costs to buy new equipment, to build or rent facilities,and to pay taxes on their revenues. PSI's evidence

shows that this is not a circumstance where

Sematech's competitors can "quickly respond to

(Sematech's) attempt to raise prices abovecompetitive levels," and thus, PSI has demonstrated

barriers to expansion, Rebel Oil. 51 F.3d at 144 i.

4. Antitrust Inj u ry

Sematech argues that PSI has suffered no injury as aresult of Sematech's marketplace actions, and thus,cannot prove this element of its claim. Todemonstrate antitrust injury, "a plaintiff must provethat his loss flows from an anti-competitive aspect oreffect of the defendant's behavior, since it is inimicalto the antitrust Jaws to award damages from acts thatdo not hurt competition." Rebel OiL, 51 F.3d at 1433

PSI submits evidence that its losses stem from

Sematech's entry into the commercial test wafer

industry in violation of multiple laws (see supra

Section H.A.2,), and its continued sales. See Cox

Report, Ex. 4 to Swanson Aff.; Wagner Report

attached as Ex. i 5 to Swanson Aff. These are thevery acts which PSI complains of in its attemptedmonopolization claim. Thus, summary judgment onthis element is unwarranted.

5. Statute of Limitations

Sematech argues that PSI's attempted monopolizationclaim is barred by the applicable four-year statute oflimitations. PSI disagrees, on the basis thatSematech's continued sales of test wafers triggers thecontinuing violations doctrine, effectively renewing

PSI's claim until such time as the wrongs cease,

The continuing violations doctrine allows thebringing of an action beyond the four-year limitationperiod provided by antitrst law. The Ninth Circuithas declared that "(a) continuing vioJation is one inwhich the plaintiff s interests are repeatedly invadedand a cause of action arises each time the plaintiff isinjured." PacelndZls., Inc, li, Three

Phoenix Co., 813F .2d 234. 237 (9th Cir.1987). In cases of continuingviolations, the limitations period begins at the "lastovert act" by the defendant, which must be (l) a newand independent act that is not merely a reaffirmationof a previous decision that (2) inflicts "new andaccumulating" injury on the plaintiff. Id at 238.

Sematech contends that their continued sales of testwafers merely reaffrms their original decision toenter the market, rendering such acts insuffcient toresurrect a cause of action under the continuing

violations doctrine. The court disagrees. Each newsale is, in fact, a new and independent act that

potentially intlcts new and accumulating injury onPSI. See, e.g., Klehr li, A.O Smith Corp., 52l U.S,179,189(1997).


SliprC~~;' 2001 WL 36105562 (E.D,Cal.)

*14 Where a violation is final in its impact, such as apermanent boycott of plaintiffs business, or when anactionable wrong is inherently permanent at initiationwithout further acts, then suit must be brought withinthe limitations period. See, e,g., In re MultidistrictVehicle Air Pollution, 59J F,2d 68. 71 (9th Cir. J979)(quoting Poster Exchange, Inc. v. NaI'l Screen Serv,Corp.. 5 J 7 F. "'d i i 7. J 26-27 (5th Cir. J 975)). Such isnot the case at bar. Each sale is a new and discrete

act, purportedly effectuated in order to drive the

competition out of business. See Klehr, 521 U.S, atil (continuing sales is trigger to restart the statute oflimitations in the context of RICO); see alsoColumbia Steel Casting Co, v, Portland Gel1 Elec.Co" JJI F.3d 1427. 1444 (9thCir.1996).

Because the continuing violations doctrine applies tothe acts underlying Sematech's alleged attempt to

monopolize the commercial test wafer market, thestatute of lim itations does not bar PSI's Section 2claim.

B. Unfair Competition Under California Businessand Professions Code Section 17200

The law prohibits "unfair competition" which isdefined as "any unlawful, unfair or fraudulentbusiness act or practice ...." CaL. Bus. & Prof.Code §17200 (hereinafter "VCL"). The Legislature intendedthis "sweeping language" to include" 'anything thatcan properly be called a business practice and that atthe same time is forbidden by law.'" Stop Youth

Addition, Inc, v. Luck)! Stores, l/7c.. 17 Ca1.4th 553,

560 (1998) (quoting Bank ofthe West v, SlIP,O.. 2Cal.4th 1254. 1266 (1992 )), Because Section 17200

is written in the disjunctive, it establishes three

varieties of un fair competition-acts or practices that

are unlawful, or unfair, or fraudulent. Cel-Tech

Communications, Inc, v, Los Angeles Cellular TeL.Co., 20 Cal.4th i 63. J 80 (1999). "When determiningwhether a practice is 'unlawful,' section 17200

'borrows' violations of other laws, and makes themindependently actionable under the UCL." A icco, Inc.v, Ins, Co, o(Norih Am.. 2001 WL 767884 (July 10.200 i ) (citing Ce!- Tech, 20 CalAth at 180)."Virtually any law-federal, state or local-can serve as

a predicate" for a UCL claim, "unless the' defendantis privileged, immunized by another statute, or thepredicate statute expressly bars its enforcement"

under the UCL. Slevens v, Sup.Ct.. 75 Cal.App. 4th

.ägt: J J

594. 602 (1999).

1. "Unlawful" Business PracticelNI6

Sematech argues preliminarily that PSI may not statea VCL claim where, as here, PSi had no private rightof action for Sematech's alleged violation of the

underlying statutes, Sematech's argument misstatesthe law. "(I)t is irrelevant whether a private right of

action is imp i ied under the predicate statute wherethe action is brought under the (UCL), for conduct

violating the underlying law," Stevens, 75 Cal.App.

4th at 604 (citing Stop Youth Addiction J 7 Cal.4th at562).

* i 5 As previously mentioned, PSi asserts thatSematech violated the following: (l) its Certificate ofIncorporation; (2) the MOU (which in tum resulted ina violation of the False Claims Act-3 i U .S.c. § 3729

et seq.); (3) its lease with VT; (4) federal tax laws;

and.(5) the NCRPA.l1

(a) Certificate of Incorporation

Sematech is a Delaware corporation. Under Delawarelaw, an act of a corporation in excess of its powers

while not invalid, may be challenged in a proceedingby a shareholder against a present or former officer ordirector or in a proceeding by the Attorney General toenjoin the unauthorized business.Del.Code Ann., Tit.8, § 124 ('00 i ì. Thus, a violation of a Delaware

corporation's certificate of incorporation (charter)

could constitute an "unlawful" act.

Here, PSI argues that Sematech violated its charter intwo ways: (l) it engaged in the commercial sale of

test wafers in contravention of its charter's mandate

that it exclusively perform "scientific and

educational" activities; and (2) it violated its charter'sfurther prohibition against "commercial sales ofsemiconductor products." Falstad Aff., Ex. 3.

Sematech contends that it did not violate eitherprovision.

As a preliminary issue, Sematech argues that PSI'sclaim fails because it cannot rely on an out-of-statelaw as a predicate for a VCL claim, However,

Sematech has not cited any authority, nor is the courtaware of any, prohibiting PSi from doing so. Instead,California law on the VCL emphasizes the broad


Slip Copy, 2001 WL 36J05562 (E.D.Ca!.)

nature of a UCL claim. See Cel-Tech, ')0 CaI.4th at18 I. Hew/eii v. SQuaw Vallev Ski Corp., 54 Cal.App.4i 499, 531-32 (i 997) (the "unlawful" practices

prohibited by the UCL are "any practices forbiddenby law, be it civil or criminal, federal, state ormunicipal, statutory, regulatory, or coun-made")(quoting Saunders \I. SlIPCt.. 27 Ca!.App. 4th 832,838-39 (1994)). Accordingly, the coun finds that PSImay brina its UCL claim based on a violation of

'" FNI8Delaware law.-

PSI has submitted sufficient evidence to demonstratea triable issue of fact that Sematech violated its

charter. First, PSI submits evidence that once

Sematech realized its federal funding would end, itstudied the commercial test wafer market, and despiteknowing that it would be directly competing withprivate companies such as PSI, it nonetheless enteredthe market. Brown Dec! re: MSJ, Exs. 36, 412;

Barfield Aff., ~ 4, Sematech established a marketingdepartment for the sale of test wafers, and its saleswent from $565,000 to about $14.8 million in 2000.Brown Dec!. re: MSJ, Ex. F (Mayo Dep. 34: 11-35: 1),Ex. 22. Sematech also researched the prices itscompetitors charged, and then targeted itscompetition in the test wafer market by lowering itsprices on those products for which it had existingcompetition, and lowering prices where it did not.See, e,g., Brown Dec!. re: MSJ, Exs. 80, 268-69,

Such evidence raises a genuine issue of material factas to whether Sematech was exclusively engaging in

"scientific and educational" activities.

* J 6 Second, PSI submits evidence to refuteSematech's argument that its sales of test wafers donot violate its charter's prohibition against the sale of"commercial semiconductor products" because testwafers are not "semiconductor products." For

example, in a 1994 letter from Sematech's OperationsManager, Chris Sallee, to the owner of Tactical Fabs,Mr. Sallee wrote,

(UJnder Sematech's operating documents, we arelegally prohibited fTom commercially sellingsemiconductor products solely for revenue. Thisprecludes us fTom selling wafers or wafer processingservices to Tactical Fabs/Telemark for resale.

Said evidence is suffcient to create a triable issue offact since the jury could believe that Sematech knewthe sale of test wafers constituted the commercial sale

~.D- --

of a "semiconductor product." FNI9

(b) MOU

PSI contends that Sematech violated the terms of theMOU, which in tum resulted in violation of the FalseClaims Act, 3 J USc. § 3729 et seq ("FCA").

Specifically, PSI asserts that Sematech violated the

MOU by failing to describe its test wafer sales in its1994 and 1995 annual operating plans submitted tothe Department of Defense, and in failing to disclosethe revenues it received from its sales of test wafersin its required, audited financial statements. Brown

Dec!. re: MSJ, Ex. D (Daverse Dep.), Exs. 10-14,

Under the FeA, any person who knowingly uses a

false record or statement to obtain a claim forpayment by the Government is liable for up to trebledamages and civil penalties, Hagood \I. SonomaCount)! Water A Renc)!, 81 FJd 1465. 1476-77 (9thCir.1996). PSI contends that had Sematech disclosed

its sales of test wafers, which violated its charter andthe enabling legislation's purpose of "research anddevelopment," the federal government wou Id not

have continued Sematech's funding.

Sematech disputes that it fied a "false" claim withthe government, but argues that even if it did, PSIcannot maintain its UCL claim based on violation ofthe FCA because the FCA bars actions by privateparties based on information that was publiclydisclosed. See31 U.S.c. § 3730(e)(4)(A).FN20

Sematech is correct. PSI has not shown thatSematech's manufacture of test wafers was nor

publicly disclosed or that PSI was the "originalsource" of any information upon which the allegedFCA violation is based. In fact, PSI admits in itsopposition that the Department of Defense wasspecifically informed of Sematech's sales of testwafers in its 1996 and 1997 annual operating plans.

See Opp'n to MSJ at 32. Such disclosure meets therequirements of Section 3730(e) (4)( A).-i

Ambulance Selï'., inc. v, State orCA, 202 F.3d 1238,1243 (9th Cir.2000), cert. denied, 529 U.S. 1099(2000). Additionally, the court notes that Sematech's

sales of test wafers was certainly known in theindustry generally, in light of Sematech's aggressive

marketing and increasing sales, and thus, was likelydisclosed through the "news media" as contemplatedby Section 3730(e)(4)(A).

;, i 7 Therefore, violation of the FeA is not a proper


l - r '"


basis for PSI's claim under the UCL. However, thisfinding is not fatal to PSI's claim since the court findsthat PSI has shown other "un lawful" conduct whichmay properly serve as predicate offenses. Also, aswill be discussed below, Sematech's violation of theMOU, in conjunction with other conduct, can be abasis for finding that Sematech engaged in "unfair"conduct violative of the UCL.

(c) Lease with UT

Sematech argues that its lease with UT does notprohibit the commercial sales of test wafers, and evenif it did, UT has stated that it does not believe thatSematech's sales are in contravention of the lease.Swanson Aff., Ex. 2 (Wilson Dep. 35:11-21; 47:23-48:24). Sematech's lease with UT provides,

Lessee may use the Leased Premises for the purposeof conducting research and development in the areasof semiconductor, micro electronics, (andJ computertechnology.... Lessee may use the Leased Premisesto conduct miscellaneous retail and/or salesoperations necessary to support Lessee's employees,

... including, but not limited to vending and cafeteriaoperations and employee ticket sales; '" No otherretail or sales operations of any kind shall be carriedon by Lessee... unless prior written approval for suchoperations is obtained from Lessor ...

Brown Dec!. re: MSJ, Ex. 39 at 14-15. From the plainlanguage of the lease, the court cannot find as a

matter of law that Sematech's sale of test wafers didnot violate the terms of the lease. Additionally, evenif the court found to the contrary, PSI submits

evidence to refute Sematech's contention that UTacquiesced in Sematech's sales of test wafers; thisevidence includes: (I) UT was not told until 1998

that Sematech sold test wafers, and at that timeSematech stated that it was providing wafer

processing "services" to members and suppliers on acost recovery basis for the overall benefit of the

industry (Brown Decl. re: MSJ, Ex. E (Wilson Dep.133:6-25), Ex. 43); (2) UT only learned thatSematech had competitors for its test wafer businessa few months prior to the deposition of itsrepresentative, James Wilson FN21(ld. at Ex. E(Wilson Dep, 138:4-9)); (3) UT first learned thatSematech was selling test wafers to non-members onthe day of Mr. Wilson's deposition (ld. at 40: 12-4r:19; 151:15-152:24)); and (4) at the time of Mr.

J a¡,ç ¡ J

Wilson's deposition (April 5, 200 I) UT believed thatSematech's "wafer processing services" were an"incidental activity" from which Sematech did notprofit (ld. at 152:25- 1 54: 13)). Such evidence raises a

triable issue of fact.

Based on the above, PSI's claim under the UCL mayalternatively proceed on the basis of a violation of theUT lease.

(d) Federal Tax Laws

For the same reasons as stated in Section lJ.A.2,supra, PSI has raised a triable issue of fact thatSematech violated federal tax laws when it failed torepOli and pay taxes on the income it received fromits commercial test wafer sales. See United States v,American Bar Endowment, 477 U.S. 105,114 (1986)(the "purpose of the unrelated business income tax

was to prevent tax-eXempt organizations from

competing unfairly with businesses whose earnings

were taxed). Said violation of federal tax laws canserve as a predicate offense under the UCL. Stevens,

75 Cal.App. 4th at 602; Ballard v. Equifèix, 27F.Supp.2d r 20 i (E.D.CaI.1998) (holding thatviolation of the Fair Debt Collection Practices Act,

15 U.S.Co § 1697 et seq., could serve as predicate forUCL claim).

(e) Conclusion as to Unlawful Business Practices

* 18 In sum, the court denies Sematech's motion forsummary judgment as to PSI's claim under the ueLbecause PSI has raised a triable issue of factregarding whether Sematech entered the commercial

test wafer business in violation of its Certificate ofIncorporation (and thus, in violation of Delaware

law), its lease with UT, and federal tax laws.

2. "Unfair" Business Practices

Although not required in light of the above findings,the court will also now consider below the parties'arguments concerning the "unfair" and "fraudulent"prongs of the UCL. In eel-Tech, the CaliforniaSupreme Court articulated a two-part test fordetermining whether a practice is actionable underthe "unfair" prong of the UCL. First, the court mustdetermine whether the legislature provided a "safeharbor" for the defendant's conduct. If the answer is


Slip Copy, 2001 WL 36 I 05562 (E.D.Cal.)

yes, the conduct is not actionable under the UCL; ifthe answer is no, the court must determine whether

the defendant's conduct is "unfair." The court definedunfair conduct as conduct that (a) "threatens anincipient violation of an antitrust law," or (b)"violates the policy or spirit of one of those laws

because its effects are comparable to or the same as aviolation of the law," or (c) "otherwise significantly

threatens or harms competition." Cei- Tech, 20

Cal.4th at 187.

Neither party contends that a legislative safe harborexists for Sematech's test wafer business; thus, thecourt must determine whether Sematech'sparticipation in the test wafer business is "unfair."First, for the reasons described in Section II .A. supra,plaintiff has raised a triable issue of fact thatdefendant's conduct violates Section 2 of the

Sherman Act. Accordingly, PSi has raised sufficientevidence to show that Sematech's conduct "threatensan incipient violation of an antitrust law."Jd

Sematech's reliance on CarIeI' v. Variflex. 101

F.Supp.2d 1261 IC.D.CaI.2000) is misplaced. There,the plaintiff was unable to show a violation of theSherman Act or California's antitrust law, theCartwright Act, and thus, the court held that plaintiffhad not met the first prong of the Cel- Tech test. The

CarIeI' court also found that the plaintiff failed topresent sufficient evidence that competition had beenharmed by the defendant's conduct, and accordingly,the plaintiff could not establish either the second orthird prong of Ce/.Teeh's test. In contrast, here PSIhas raised sufficient evidence to withstand

Sematech's motion for summary judgment on itsSherman Act claim, and such evidence is alsosufficient to withstand Sematech's motion as to PSI'sVCL claim.

This case is analogous to the facts of Cel-Tech. The

defendant in Cel-Tech had been granted wholesale

duopoly status in the cellular service business by thefederal government. The California Supreme Courtupheld the lower court's finding that the defendant

used its legally privileged status in violation of the

VeL by making fair and honest competition in thecellular equipment business impossible. 20 Cal.4th at187-191. Like Sematech, the defendant in Cel.Tech,was using a federally conferred privilege for oneactivity (cellular service) to enable its unfair

competition in another unrelated activity (cellularequipment sales). Similarly, Sematech has used its

federally conferred privilege (semiconductor research

and development) to enable its unfair competition inan unrelated activity (the commercial sale of testwafers)

* i 9 The court notes that PSI is also able to meet thesecond and th ird prongs of the Cel. Tech test. Thus,even without the court's finding regarding PSI'sSherman Act claim, PSI would still be able to assertits VCL clairn. PSI submits evidence that (1) becauseSematech has virtually no costs in producing testwafers, it is able to irrationally price its products

without regard to its competitors; (2) Sematech's

conduct has prevented its competitors from

participating in the market because they cannot

justify the expense necessary to invest in the most

technologically advanced equipment; (3) Sematech's

conduct has injured its competition; both PSI and

Tactical Fabs have lost sales and have been preventedfrom buying new equipment; and finally, (4)Sematech knew when it entered the test wafer marketthat it may be violating various legal restrictions onits conduct, yet it decided to enter the market

nonetheless, taking full advantage of its privilegedstatus as a non-profit R&D consortium to engage inthe commercial sale of test wafers. Brown Decl. re:MSJ, Ex. L (Barfield Dep. 91:2-93:18,100:25.102:16,109:16-1 11:21,115:4-24), Exs. 153-54,177,

181-82, 193, 197, 202-04, 666; Morris Decl., ~ 20;Cox Report, Ex. 4 to Swanson Aff. This evidence

raises a triable issue of fact as to whether Sematechhas violated the "policy or spirit" of the antitrust lawsor otherwise threatened or harnied competition.

3. "Fraudulent" Business Practices

PSI raises for the first time in its supplemental briefsubmitted to the court on July 5, 2001 l'N11 thatSematech's conduct also violates the "fraudulent"prong of the UCL. Specifically, PSI argued thatSematech has committed "fraud" on the publicbecause the taxpayers who funded Sematech, in theamount of $850 million dollars, thought they werepaying for "research and development," not

commercial sales for Sematech's profit. The courtdoes not consider this argument because it was raisedfor the first time in PSI's supplemental brief; a briefwhich Sematech did not have an opportunity torespond. Additionally, consideration of the argumentis not necessary since the coui1 finds alternative basesfor the denial of Sematech's motion for summary


Slip Copy, 200 I WL 36 I 05562 (E.D.CaL.)

judgment as to the UCL claim.

4. Statute of Limitations

Finally, Sematech argues that PSI's UCL claim isbarred by the applicable four-year statute oflimitations. SeeCaL. Bus. Prof.Code § i 7208. Again,Sematech's contention fails. PSI contends that thecontinuing violations doctrine applies to its UCLclaim, and the court agrees.

As a preliminary matter, the couii finds that thecontinuing violations doctrine has been applied tounfair competition claims in California, as suggestedby PSI. See Suh v. Yang, 987 F.Supp. 783, 796

(N.D.Cal. I 997) (citation omitted).FN23

Secondarily, Sematech's attempt to persuade thiscourt to characterize its presence in the marketplaceas a single alleged wrong, distinct from the

subsequent acts of selling test wafers, is unavailing.The act of "entering the marketplace" is the act ofselling a product or service in the market. Indeed,

presence in the marketplace without sales would

render this action moot, because PSI could not havesuffered any injury from the mere presence ofSematech in the marketplace.

*20 For the reasons discussed more fully above, thiscourt concludes that Sematech's continuing sales of

commercial test wafers also constitutes a continuingviolation under the UCL. Accordingly, PSI's UCLclaim is not barred by the statute of limitations.

C. Unjust Enrichment

Although courts often use the terms "unjustenrichment" and "quantum meruit" synonymously,

the distinction between them is legally significant.Quantum meruit (contract implied-in-fact) is anequitable remedy under which a plaintiff who hasrendered services or materials benefitting thedefendant may recover the reasonable value thereof.In re De Lauremiis El7ertainnient Group, Inc:.. 963F.2d 1269 (9th Cir.1992). Unjust enrichment

(contract implied-in-Iaw), on the other hand,describes recovery for the value of a benefit retainedwhen, on the grounds of fairness and justice, the lawcompels a legal and moral obligation to pay. SeePhilpott 11. Superior Court, i Cal.2d 512. 521 (J 934 );

i. ..b"" .,.

see alsoRestatement (First) Restitution. § 1 (i 936).

PSI's claim is for unjust enrichment. To establish aclaim for unjust enrichment, PSI must show thatSematech (1) received a benefit and (2) unjustlyretained that benefit at the expense of another.

Lectrodi'ver 11. Seou!bank. 77 Cal.App. 4th 7;3. 7'6(2000). Benefit means any type of advantage. FirstNationwide Sa1'. 11. Perm i 1 CaL.App. 4th 1657,J 662 (J 992). The doctrine of unjust enrichment isapplicable, however, only when the propert soughtto be returned, in equity and good conscience,

belongs to the plaintiff. Western Pac. R. Corp \i.Western Pac. R. Co" 206 F.2d 495. 500 n. 7 (9thCir. i 953).

Sematech argues that privity between the parties isrequired to establish an action for unjust enrichment,

i.e., that PSI conferred a benefit on Sematech whichit seeks to have returned. The court disagrees; there isno such requirement under California law.Sematech's argument is improperly premised on

cases discussing quantum meruit. As discussed

supra, quantum meruit is legally distinct from unjustenrichment, and while quantum meruit does requireprivity, unjust enrichment does not. See, e.g,Maglica 1'.. Maq!ica, 66 Cal.App. 4th 442, 449JJ (holding that the plaintiff must have bestowedthe benefit on the defendant as a prerequisite torecovery in quantum meruit action); but see Fidelin'& Deposit Co. O(MCI1i!and 11. Harris. 360 F.;d 402(9th Cir.1966) (holding that liability under contractimplied-in-law is not contractual, but is imposed evenin the absence of privity to prevent unjust

enrichment); see alsoRestatenient (First). Restitution,§§ 133, 136 (J936) (discussing restitution of benefitsacquired from third parties at another's expense).

Here, Sematech has received a benefit, in the form ofsubstantial revenues, from its commercial sales oftest wafers. Cox Report, Ex. 4 to Swanson Aff.

Sematech also contends that PSI must establish thatSematech had knowledge of the benefit conferred inorder to be obligated to make restitution. See Def'sMSJ at 38. Sematech's argument is misplaced asknowledge is only relevant in instances of mistakenconferral of a benefit. See First Nariol1wide, 11

Cal.App. 4th at 1662 (transferee without knowledge

of mistake may retain benefit if he has detrimentallychanged position thereon). Here, PS1 is seeking

restitution based on allegedly tortious conduct nol


Slip Copy, 200 I WL 36 I 05562 (E.D.Cal.).

mistaken conferral of benefits; thus, Sematech's

knowledge is of no relevance to this inquiry.

*21 Lastly, Sematech argues that PSI cannot showthat Sematech has benefitted at PSI's expense thuswarranting summary judgment on this claim. PSIopposes on the basis that Sematech has engaged inillegal conduct directly depriving PSI of its share ofthe test wafer market. In fact, PSI has offered

evidence that Sematech has captured a substantialshare of the test wafer market since entering the

market in 1995. See Cox Report, Ex, 4 to Swanson

Aff.; Wagner Report, Ex 15 to Swanson Aff. Thisevidence when viewed in the light most favorable toPSI raises an issue of material fact as to whether

Sematech has unjustly retained a benefit which inequity and good conscience belongs to PSI.Accordingly, Sematech's motion for summary

judgement on this claim is denied.

III. SEMA TECH'S MOTION FOR SUMMARYADJUDICATION REGARDING MONETARYRELIEF UNDER THE UCL.

Sematech argues that, in the event the court declinesto grant summary judgment on PSI's UCL claim, thecourt should grant summary adjudication in its favorregarding PSI's demand for monetary relief under theUCL. Because the court denies Sematech's motionwith respect to PSI's UCL claim, it now turns toSematech's alternative motion for summaryadjudication.

Specifically, Sematech seeks an adjudication that PSImay not be awarded restitution under CaliforniaBusiness and Professions Code section 17203

because PSI has no propert right in Sematech's salesof test wafers. Sematech further argues that PSI maynot employ the doctrine of disgorgementof profitsunder Section In03. PSi disagrees, arguing thatdisgorgement of profits made from unfair conducthas been recognized as a form of restitutionary reliefunder California law. Moreover, PSI asserts thatSection r 7203 is extremely broad, permitting the

court to use its equitable powers to do what isnecessary to prevent the use of unfair business

practices and to make PSI whole.

PSI is correct. As recently held by the Californiacourt of appeal in Korea Siwplv Co. v. Lockheed

Marrin Corp., 200J WL 808347, *4-5 (July 18,

200 i ), a plaintiff may seek under the UCLdisgorgement of profits unjustly .eamed by thedefendant. E1In Korea Supply, the defendant madethe exact argument Sematech makes here-thatplaintiff was limited under the UCL to an award of"restitution" which required that plaintiff have anownership interest in the monies it sought from thedefendant; because plaintiff did not have such apropert interest, it was not entitled to proceed with

its UCL claim. ¡d. at *4.

Plaintiff, in Korea Supply, was a Korean corporationdoing business as a manufacturer's representative inthe sale of military equipment to the Korean

government. In i 995 and i 996, plaintiffs client,MacDonald Dettwiller ("MacDonald"), and LoralCorporation (HLoral") (the predecessor of defendant

Lockheed Martin Corporation ("Lockheed"))submitted competing bids to sell military equipmentto the Republic of Korea. Loral's bid was accepted

even though MacDonald's bid was lower and itsequipment superior. If MacDonald's bid was

accepted, plaintiff would have earned a $30 milliondollar commission. Plaintiff brought an action againstLockheed for interference with prospective economicadvantage and unfair competition under the UCLbased on violation of the Foreign Corrupt Practices

Act (15 U.S.c. § 78dd-2).Jd at *1.

*22 In reversing the trial court's grant of Lockheed's

demurrer to the UCL claim, the court held thatplaintiff had adequately alleged a UCL claim inpraying for the disgorgement of profits unjustlyearned by Lockheed.

Section In03 authorizes the court to fashion

remedies to prevent, deter, and compensate for unfairbusiness practices. In addition to injunctions, itauthorizes orders that are necessary to prevent

practices that constitute unfair competition and tomake 'orders or judgments ... as may be necessary torestore' to persons in interest any money or propertacquired by unfair competition.

¡d. at *4 (citing Cortez, 23 Cal.4th at 176).Ð: Thecourt rejected Lockheed's argument that the abovelanguage limited plaintiff to injunctions and/or

"restitution" orders which required a defendant toreturn money belonging to the plaintiff (i.e ., ordersrequiring the return of money taken from a personwho had an ownership interest in it).Id. at *4-



5.Relying on the California Supreme Court's decisionin Kraus v. Trinill' Mgl1t. Servs., 23 Cal.4th i J6, 127(2000), the court concluded that plaintiff may seek anorder requiring Lockheed to surrender all profitsearned as a result of its unfair business practices Suchan order was permitted "regardless of whether those

profits represent money taken directly from faperson) who (was the) victifmJ of the unfairpractice."fd at *5 (citing Kraus, ')3 CaL4th at 127).

The Supreme Court made clear in Kraus that inaddition to restoring propert or money to a personholding an ownership interest in it,

Section i 7203also grants the couli the power to makeorders necessary to prevent the use of unfair business

practices. Such orders may encompass broaderrestitutionary relief, including disgorgement of allmoney so obtained even when it may not be possibleto restore all of that money to direct victims of thepractice

Kraus, 23 CalAth at 1 ')9 (emphasis added).Moreover,the cOUli in Kraus recognized that ordersfor disgorgement may have "deterrent force beyondthat of injunctions coupled with restitutionary orders"and in certain cases may be " 'necessary to preventthe use or employment ... of any practice whichconstitutes unfair competition.'" ¡d. at 137 (citingCaL. Bus. & Prof.Code § 17203).

Accordingly, based on Korea Supply, thÍs courtdenies Sematech's motion for summary adjudicationregarding PST's claim for monetary relief under theUCL. PN26 PSI is entitled to seek disgorgement of

Sematech's profits earned as a result of the alleged

unfair business practices.FN27

CONCLUSION

I. Sematech's motion to exclude the testimony of

PSI's expert Alan J. Cox is summarily DENIEDWITHOUT PREJUDICE.

2. PSI's motion to modify the pretrial schedulingorder to designate Carmen R. Eggleston as an expertwitness is GRANTED.

a. Sematech shall have to and including July 30, 200 Ito designate a rebuttal expert.

*23 b. Any report of said rebuttal expert is due on orbefore September 28, 200!.

c. Depositions may be taken of Eggleston and

Sematech's rebuttal expert any time after thedisclosure to PSI of Sematecli's expeIi's report but no

later than October 29, 200!.

d. The court will hold a mid-litigation conference on

November r 6, 200 I at 10:00 a.m. The parties aredirected to fie a joint status report by November 6,2001.

e. The previous final pre-trial conference and jurytrial dates of August 17 and November J3, 2001,respectively, are vacated.

3, Sematech's motion for summary judgment isDENIED.

4. Sematech's motion for summary adjudicationregarding monetary relief under California's unfaircompetition law is DENIED,

IT is SO ORDERED.

FN 1. Pursuant to the court's order, datedNovember 8, 200 i, unsealing thismemorandum and order, the court hereby reoissues this order, originally fi led under seal

on August 16, 2001, in redacted form. Theredactions are indicated herein by dash

marks, and appear at pages 22:2 i and 25 :2-4.

FN3. The facts recited herein are taken fromthe parties' briefs and evidence submitted inconjunction with the pending motions.

Where disputed, PSI's version of the factsare taken as true. The court overrules

Sematech's objection to PSI's "Statement ofUndisputed Facts in Opposition toSematech's Motion for Summary Judgment,or in the Alternative, SummaryAdjudication," filed June 8, 2001. While PSIlabeled the document a "Statement ofUndisputed Facts," it is actually a statementof "disputed" facts which is properly filed inopposition to a motion for summary


Slip Copy, 2001 WL 36105562 (E.D.Ca!.)

judgment. ED. CaL. L.R. 56-260(b).

FN4. The court overrules Sematech's

objection, filed June 8, 2001, to the MorrisDeclaration. Said declaration does not

purport to offer "expert testimony," either

technical, economic, legal, or otherwise.

Rather, it offers the lay opinion testimony ofMr. Morris based on his experience in thetest wafer market; said testimony is properlyconsidered. Alternatively, there are factsstated in the declaration which support thatMr. Morris may be qualified to testifY as tosome expert opinions. Additionally, thecourt does not rely on any portions of Mr.Morris' declaration which are argumentativeor without foundation.

(B) to develop techniques to usemanufacturing expertise for themanufacture of a variety of semiconductorproducts; and

(2) in order to achieve the purpose set outin paragraph (I), to provide a grant

program for the financial support ofsemiconductor research activitiesconducted by Sematech.

15 USc. § 4601(a) & íQ.

FN5. The present members of Sematech are:IBM, Intel, Motorola, Hewlett Packard,Advanced Microdevices, Texas Instruments,Phillips, TSMC, ST Microelectronics,Infinion Technology, Hynix, Conextent, andAgere Systems. See Pl.'s Opp'n to Def.'sMSJ, filed June i, 2001 subject to protectiveorder ("Opp'n to MSJ"), at 3 n. 4.

FN7. The court overrules Seniatech'sobjection, filed June 8, 200 I, to the BrownDeclaration. Said declaration properly

authenticates the attached exhibits, themajority of which were authenticated atdeposition.

(a) Findings

FN8. PSI's claims do not involve theproduction of "new" semiconductorproducts by Sematech, i.e., so called"cutting edge" test wafers. Rather, its claimsonly involve test wafers which psr and otherprivate competitors could have made withcommercially available equipment which

they owned or which they could and wouldhave acquired but for Sematech'sparticipation in the market.

FN6. 15 U.S.c. § 460 I reads in relevant part:

The Congress finds that it is in thenational econom ic and security interestsof the United States for the Department ofDefense to provide financial assistance tothe industry consortium known as

Sematech for research and development

activities in the field of semiconductor

manufacturing technology.

FN9. Responding to a similar complaint byanother test wafer company, Tactical Fabs,Inc., Sematach's Chris Sallee wrote,

"(UJnder SEMA TECH's operatingdocuments, we are legally prohibited fromcommercially selling semiconductorproducts solely for revenue. "Brown Dec!.

re: MSJ, Ex. 666.(b) Purposes

The purposes of this subchapter are- FN 1 O. For the sake of brevity, the court

omits from this discussion the extensive

bickering contained in the parties' briefs asto who said what, and when.(i) to encourage the semiconductor

industry in the United States-

(A) to conduct research on advancedsemiconductor manufacturing techniques;and

FNll. Cost Mamt. Sel1'.. Inc. v. WashingtonNatural Gas Co" 99 F .3d 937, 953 (9thCir. i 9961. relied on by Sematech, does nothold to the contrary. While the court in Cost



Mqmt. reached a different result from thecourts in Farley and Western Concrete, itdid not prohibit a finding of "predatory"

conduct based on a violation of law extrinsicto the antitrust laws. Rather, the court did

not follow the holdings in Farley and

Western Concrete because in Cost Mqmt.,

the plaintiff was not itself subject to thegoverning tariff. As will be explained infra,here, PSI asserts violations of law which areapplicable to both PSI and Sematech, andthus, the distinction drawn in Cost Mqmt. isnot applicable. Moreover, the court notes thelimited applicability of all three cases. Therationale for the decisions in Farley,

Western Concrete, and Cost Mqnit. was

based on the courts' findings that the facts inthose cases presented claims closelyanalogous to traditional predatory pricingclaims. Here, predatory pricing is not atissue. Therefore, the cases are not factuallyon point; however, the court relies on themin so far as they stand for the general

proposition that a Section 2 violation may beshown by evidence of violation of lawsextrinsic to the antitrust laws.

parties. Here, the conflicting expert reports

demonstrate that triable issues of fact remainfor a jury. See Aveni Dennison Corp v.

AceQ Brands, Inc., 2000 WL 986995. *12IC.D.CaI.2000) ("In light of the (c)onflictingevidence and expert opinions, this Courtmay not weigh the evidence as presented bythe parties. The inferences to be drawn fromthe parties' evidence could weigh in favor ofeither party.")

FN 15. In Rebel Oil, the court stated that the~ sources of entry ban-iers are: (1) legallicense requirements; (2 control of an

essential or superior resource; (3)

entrenched buyer preferences for establishedbrands; (4) capital market evaluations

imposing higher capitol costs on new

entrants; and ... (5) economies of scale." 51FJd at 1439.

FN 12. Such claim requires that the courtaddress whether the asserted predicateoffenses are "forbidden by law." Stop Youth

A ddition, Inc. v. Luck)! Stores, Inc., i 7Cal.4th 553.560 (1998).

FN i 6. The court rejects Sematech's "j udicialabstention" argument as inapposite. Thecases cited by Sematech each involve a

highly-regulated industry (i.e., the insuranceindustry) and/or plaintiff had an alternative

remedy that was either available ormandatory. See Def.'s MSJ at 32-34. In thiscase, the test wafer industry is not regulated

whatsoever, and PSI has no other forum toredress its damages; accordingly, this courtwill decide the matter.

FN 13. It is Ms. Eggleston's expert opinionthat (l) Sematech lost its tax-exempt status

in i 996 when its mission changed from

assisting the industr to assisting its membercorporations; (2) Sematech's test wafer

business constituted an "unrelated trade orbusiness activity" which generated incomewhich should have been (but was not)reported by Sematech and subjected totaxation; and (3) Sematech has failed todisclose on IRS Fonn 990 the existence ofits commercial test wafer business.

FN 17. PSI conceded in its opposition that itdoes not have a UCL claim based on theNCRP A since the Act does not prohibit anyconduct by Sematech. See Opp'n to MSJ at37:20-22. The NCRPA simply conferscertain benefits on research and production

ventures that satisfy its terms, including arelaxed antitrust standard and single (nottreble) damages if their activities arechallenged under the antitrust laws.

FN) 4. Sematech's expert, David Teece,

disputes many of the findings made by PSI'sexpert, Alan Cox, set forth above. On amotion for summary judgment, the courtcannot weigh the evidence presented by the

FN 18. NO!lj1est Mortgage. Inc. v. Sup. Ct., 72Cal.App. 4th 214 (1999), relied on bySematech, does not require a contraryholding. There, the question presented was

whether a UCL action could be grantednationwide class certification when some ofthe actions complained of were performed


Slip Copy, 2001 WL 36105562 (E.D,Cal.)

out of state and effected out of stateplaintiffs with no nexus to California. Thecourt held that with respect to these claims

only, the lack of any nexus to Californiamade it inappropriate to apply the UCL. Thecourt did not decide whether an out-of-statelaw could serve as a predicate for a UCLclaim because no out-of-state laws wereinvolved,

Moror Car DrAm., Inc., v. Reebok ¡nf'l, Ltd.,909 F.Supp. 1353, i 363~64 (9thCir.1995).Stutz does not rule upon whether

the "continuing violations" doctrine appliesto unfair competition claims. Moreover,

although the Ninth Circuit has not directlydecided this question, recent Ninth Circuitdecisions have generously applied thisequitable doctrine in many other contexts. Infact, at least one California district court hasdirectly applied the continuing violations

doctrine to an unfair competition claim. See

Suh, 987 F.Supp. at 796;see also Draper P.Coeur Rochester, Inc.. 147 F.3d I 104. 1 107(9th Cir, I 998) (court applied the continuingviolations doctrine to a Title VlJ claim); see

also Gufowskv v. County or Placer, 108

F.3d ì56. 259 (9th Cir. 1997) (court appliedthe continuing violations doctrine to a §1983 action).

FNJ 9. Moreover, since this lawsuit was

filed, Sematech amended its Certificate ofI ncorporation to state that the term

"semiconductor products" means onlyfinished chips. Falstad Aff., Ex. 3, While

Sematech contends that the amendment wasonly a "clarification" of its charter, the trierof fact could treat the amendment as anadmission that Sematech's sales of testwafers before the amendment were inviolation of its charter.

FN20.Section 3730(e)(4)(A) provides, "Nocourt shall have jurisdiction over an action

... based upon the public disclosure ofallegations or transactions in a criminal,civil, or administrative hearing, in a

congressional, administrative, orGovernment Accounting Offce report,hearing, audit, or investigation, or from thenews media, unless the action is brought bythe Attomey General or the person bringingthe action is an original source of the

information. "

FN24.Korea Supply is the first Californiacase to squarely address the issue presented

by this motion. The cases cited by both

parties, though instructive of the issue

generally, do not directly address thequestion presented here. See, e.g., Corie: v.Puro/ afor A ir Filtration Products Co.. 23CalAth 163, 176 (2000) (the court expresslystated that it did not consider whether an

award of back wages would be proper undera "disgorgement of benefit theory").

FN25.Section 17203 states in relevant part,

FN21. Mr. James Wilson was designated byUT as the person most knowledgeable aboutthe lease between UT and Sematech andabout Sematech's disclosures to UT about itstest wafer business.

The court may make such orders ... asmay be necessary to prevent the use oremployment by any person of any practicewhich constitutes unfair competition, ...01'as may be necessary to restore to anyperson in interest any money or propert,real or personal, which may have beenacquired by means of such unfaircompetition.

FN22. After the hearing on Sematech's

motions, the court permitted the parties tosimultaneously file supplemental briefs tofurther address the issues raised at the

hearing. The "fraud" prong of the UCL wasnot discussed at the hearing. CaL. Bus. & Prof.Code & i 7203 (emphasis

added):

FN23. Sematech cites the Stutz case, whichaddresses whether the "discovery rule"applies to unfair competition claims. Slur:

FN26. In its reply, Sematech argues thatshould the court decide that PSI may

proceed under the UCL pursuant to a


Slip Copy, 2001 WL 36 J 05562 (E.D.Cal.) ~ -o~ - ~

"disgorgement of benefits" theory, itnonetheless seeks an order that PSI is notentitled to "retitution" under the UCL. SeeDef.'s Reply on Mot. for Sum. Adjud., filedunder seal June 8, 2001, at 8:4- I 1. The courtdeclines to make such a bright-line order.The relevant cases discuss "disgorgement ofprofits" as a form of "retitutionary" relief.See, e.g., ABC 111('1 Traders, 1nc. v.!'vla(sushita Dec. Corp DrAm., J4 Cal.4th¡ 247. 1268 (i 997) ("on its face, section¡ 7203 authorized injunctive relief to prevent

unfair competition and/or restitution (i.e"disgorgement) of money or propertwrongfully obtained"). Although this maynot be technically true in some instances, theCalifornia Supreme Court recognized inKraus that "an order that a defendant

disgorge money obtained through an unfairpractice may include a restitutionaryelement, but is not so limited."23 Cal.4th

i 27. Thus, some disgorgement orders mayalso classify as "restitution" orders, and it isnot necessary to make a distinction betweenthe two theories of recovery when plaintiffis entitJed to either type of relief under theUCL. Moreover, it is worth noting that PSIhas expressly stated that it is not seeking

"restitution" as that term is defined bySematech but rather seeks relief under theUCL under a "disgorgement of benefits"theory. See Pl.'s Opp'n to Mot. for Sum.Adjud., fied June I, 200 J subject to

protective order ("Opp'n re: Sum. Adjud."),at 6:4-6.

FN27. PSI only seeks to disgorge "thatportion of Sematech's ilicit profits that areproportionate to PSI's share of the test wafermarket," had Sematech not engaged inunfair competition. See Opp'n re: Sum.Adjud. at 8:16-19.

E.D.Cal.,200 1.Process Specialties, Inc. v, Sematech, Inc.Slip Copy, 2001 WL 36J05562 (E.D.Cal.)

END OF DOCUMENT


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