143 F. Supp. 3d 961
N.D. Cal.2015Background
- In Sept 2013 Kim and Babineau discussed forming a business to analyze consumer credit‑card datasets; Kim alleges an oral agreement (50/50 ownership, shared management); Second Measure disputes any partnership.
- Between 2013–2014 the parties worked together on datasets, signed tandem NDAs, split some costs; Kim alleges he was excluded in Sept 2014 when Babineau and Chou blocked his access to servers and work product.
- Babineau and Chou incorporated Second Measure (Jan 2015); Second Measure alleges Kim had terminated involvement earlier and later was offered (but did not perform) an 8% consulting equity deal.
- Kim removed the state complaint to federal court and asserted counterclaims against Second Measure, Babineau, and Chou for breach of (express and implied) joint venture/partnership, breach of fiduciary duty, and conversion.
- Second Measure moved to dismiss under Fed. R. Civ. P. 12(b)(6) and alternatively for a more definite statement; the magistrate judge denied the motion, finding the counterclaims sufficiently pleaded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kim adequately pleaded formation of an express joint venture/partnership | Alleged oral agreement (Sept 2013), 50/50 ownership/profits, division of management, joint work and shared expenses | Pleading lacks usual indicia (co‑ownership of property, profit sharing) and is implausible without a single entity selection | Pleading sufficient; oral partnership/joint venture may exist and allegations permit plausible inference of such formation |
| Whether Kim must first seek dissolution and an accounting before suing partners | Exception applies where a partner has been wrongfully excluded and converted partnership assets; pleadings allege such exclusion | Prior cases require dissolution/accounting as prerequisite | Under CRUPA (Cal. Corp. Code §16405(b)) accounting is not required; even under common‑law exception the facts alleged fall within the exclusion/ conversion exception; no prerequisite here |
| Whether withdrawal by Babineau in Sept 2014 permitted him to compete and bar claims | Kim contends Babineau wrongfully ousted him and appropriated opportunities; fiduciary duties survive dissolution for ongoing partnership opportunities | If partnership dissolved by withdrawal, partner may reengage in same business | Even if withdrawal occurred, fiduciary duties and caselaw (Leff/Page) prohibit dissolving to appropriate partnership opportunities; allegations suffice to plausibly show wrongful appropriation |
| Whether Kim sufficiently alleged partnership property and conversion | Kim alleges shared servers, datasets, work product, expenses and entitlement to assets/profits; conversion alleged when access was blocked | Abstract business ideas or goodwill are not convertible; pleadings fail to identify partnership property or damages | Allegations that Kim was entitled to share of concrete assets and profits (servers, datasets, investments) are adequate to state conversion and damages |
Key Cases Cited
- Weiner v. Fleischman, 54 Cal.3d 476 (California Supreme Court) (partnership and joint venture law are virtually the same; formation may be oral)
- Leff v. Gunter, 33 Cal.3d 508 (California Supreme Court) (partner’s duty not to exploit a partnership opportunity survives withdrawal)
- Holmes v. Lerner, 74 Cal.App.4th 442 (California Court of Appeal) (existence of partnership determined from intent, conduct, and circumstances)
- Corrales v. Corrales, 198 Cal.App.4th 221 (California Court of Appeal) (discussing accounting prerequisite and its exceptions)
- Gherman v. Colburn, 72 Cal.App.3d 544 (California Court of Appeal) (exception to accounting where one partner repudiates existence of partnership and converts assets)
- Page v. Page, 55 Cal.2d 192 (California Supreme Court) (continuing fiduciary obligations when one partner attempts to exclude copartner from opportunity)
- Miller v. Hall, 65 Cal.App.2d 200 (California Court of Appeal) (partner appropriating business records/goodwill may be required to account)
- Moore v. Regents of Univ. of Cal., 51 Cal.3d 120 (California Supreme Court) (conversion requires interference with plaintiff’s ownership/right of possession)
- Oakdale Vill. Group v. Fong, 43 Cal.App.4th 539 (California Court of Appeal) (partner can be liable to another for conversion of partnership property)
- Fremont Indem. Co. v. Fremont Gen. Corp., 148 Cal.App.4th 97 (California Court of Appeal) (certain intangible business assets may be converted when definite/recordable)