distinguishing between “collective allegations” and “failure to allege particular details” for specific defendants in complaint
How later courts described this case
- distinguishing between “collective allegations” and “failure to allege particular details” for specific defendants in complaint
- in fraud-based action, Rule 9 “does not allow a CV-90 (10/08
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
Present: Hon. Michael R. Wilner, U.S. Magistrate Judge
Veronica Piper n/a
Deputy Clerk Court Reporter / Recorder
Attorneys for Plaintiff: Attorneys for Defendant:
n/a n/a
Proceedings: ORDER DISMISSING ACTION
SUMMARY
1. The defense moved to dismiss Plaintiff Beatport’s third attempt at pleading
viable federal court jurisdiction over the parties and a plausible cause of action for trade
secret theft. After yet more extensive motion practice and another rollicking hearing, the
Court concludes that the current iteration of the complaint — like its predecessors — does
not adequately meet the standards applicable under federal law. The Court therefore
dismisses the action without leave to amend.
RELEVANT FACTS AND PROCEDURAL BACKGROUND
2. The following facts are asserted in Plaintiff's Second Amended Complaint
(SAC (Docket # 73)) and taken as true.
The Parties
3. Plaintiff Beatport is an American company involved in the digital music
industry. In early 2018, it acquired substantially all of the assets of Pulselocker.
Pulselocker was a San Francisco company that developed proprietary technology for DJs.
(SAC 2-3.)
4. Defendant SoundCloud Limited is an English company with its principal
place of business in Germany. For purposes of this decision (and without trying to pick a
political fight about the meaning or current state of Brexit), SoundCloud Limited will be
referred to as “SoundCloud Europe.” SoundCloud Europe provides subscription-based
music and other audio services worldwide. (SAC § 4.)
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 1 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
5. Defendant SoundCloud Inc. is an American company with a business
office in Los Angeles. This decision will refer to SoundCloud Inc. as “SoundCloud US.”
SoundCloud US is a wholly owned subsidiary of SoundCloud Europe. Among other things,
SoundCloud US “provides research and development services” to SoundCloud Europe.
(SAC 5-6.)
6. At paragraphs 6-8 of the Second Amended Complaint, Plaintiff alleges that
SoundCloud Europe (parent) and SoundCloud US (subsidiary): (a) have a principal-agent
relationship; and (b) are alter egos of each other. The alter ego allegation is based on the
parties’ common name, high-level officers, blog and social media accounts, and a general
“unity of interest” by which the companies “hold themselves out to the public as a single
unitary entity.” (SAC § 6-7.)
7. For these reasons, Plaintiff's complaint “collectively refer[s] to” both entities
as “SoundCloud,” except in certain specified sections of the pleading. (SAC § 8.) At the
hearing, the Court confirmed with Plaintiffs experienced lawyer that the appropriate way
to read the complaint is, essentially, to substitute “SoundCloud Europe” and
“SoundCloud US” in every allegation that uses the single, defined term “SoundCloud.”
The Allegations of Theft
8. The gist of Plaintiffs grievance is that SoundCloud (be it SoundCloud
Europe, SoundCloud US, or both) lured Pulselocker into a German conference room and
stole Pulselocker’s non-public, proprietary technology. The awkward parenthetical in the
preceding sentence provides the crux of the defense dismissal motion.
9. The Second Amended Complaint clearly alleges that SoundCloud Europe
“falsely led Pulselocker to believe that it [SoundCloud Europe] was interested in acquiring
Pulselocker or its assets.” (SAC § 10.) SoundCloud Europe then “induced Pulselocker to
disclose its [Pulselocker’s] proprietary trade secret information.” (SAC § 11.)
10. In early October 2017, Pulselocker and SoundCloud Europe “executed a
non-disclosure agreement.”! (SAC § 31.) After that, “Pulselocker began by providing
1 The parties agreed that the NDA would be governed by English law and that the
parties “submit to the non-exclusive jurisdiction of the English courts” in case of a dispute.
(Docket # 32-2 at 3.) In earlier motion practice, Plaintiff opposed the defense request that the
Court take judicial notice of the parties’ agreement. (Docket # 43.) Even so, Plaintiff
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 2 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
SoundCloud” — that is, using the dual-defined term, SoundCloud Europe and
SoundCloud US — “with access to documents and data” regarding the Pulselocker
technology. (SAC § 32.)
11. Later that month, at the invitation of SoundCloud Europe and
SoundCloud US, Pulselocker’s key personnel “gave SoundCloud [Europe and
SoundCloud US] a guided tour of Pulselocker’s trade secret technology.” (SAC 4 33.) At
the request of SoundCloud Europe and SoundCloud US, “the Berlin meeting also included
a detailed discussion with [SoundCloud Europe’s and SoundCloud US’s] engineering
operations leadership on how to integrate Pulselocker’s technology with [SoundCloud
Europe’s and SoundCloud US’s] existing platform.” (Id.)
12. During the Berlin meeting, the founder and chief product officer of
SoundCloud Europe and SoundCloud US spoke privately with a Pulselocker
representative. The SoundCloud executive “attempted to recruit [the Pulselocker
employee] by offering him a job with” SoundCloud Europe and SoundCloud US. (SAC
4] 36.) The Pulselocker employee rejected the offer.
13. However, several weeks later, Pulselocker’s former CEO “announced that he
had joined” SoundCloud Europe and SoundCloud US. (SAC § 37.) And, in October 2018,
the former Pulselocker CEO announced on behalf of SoundCloud Europe and
SoundCloud US that “Pulselocker’s spirit lives on.” (SAC 4 43.)
14. Based on that announcement, Beatport concluded that SoundCloud Europe
and SoundCloud US improperly stole some or all of the Pulselocker technology that
Pulselocker presented at the Berlin meeting one year earlier. (SAC § 44.) In the charging
allegations for Plaintiffs federal trade secret theft cause of action,? Plaintiff contends that
SoundCloud Europe and SoundCloud US “acquired the trade secret information under
false pretenses.” (SAC § 49.) The complaint alleges that SoundCloud Europe and
SoundCloud US “misappropriate[d] the trade secret information” and “us[ed] it to
acknowledged that the NDA “does not seem to controvert any fact alleged in the complaint.” (Id.
at 3-4.)
2 The two causes of action in the Second Amended Complaint allege violations of the
federal [18 U.S.C. § 1836] and state [Cal. Civ. C. § 3426 et seq., although not cited in the SAC]
trade secrets statutes. The parties agree that the elements of the offenses are substantively the
same. The complaint makes clear that the two sets of claims rely on the same factual assertions
regarding the SoundCloud entities.
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 3 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
substantially reduce the development time necessary to bring a competing product and
service to market.” (SAC § 50.) The pleading does not otherwise distinguish between acts
that the two SoundCloud entitles took.
Additional Allegations About SoundCloud Europe and SoundCloud US
15. Ina section of the Second Amended Complaint entitled “Personal
Jurisdiction” (SAC ¥ 9-18), Plaintiff pled additional facts about the two SoundCloud
companies. The complaint alleges that SoundCloud Europe: knew that Pulselocker was
headquartered in California; obtained secrets that Pulselocker kept in a data room in
California; and has a website that is accessible from California. (SAC 4 10-12.) Without
providing specific details, the complaint asserts that SoundCloud Europe “used agents
based in California” such as SoundCloud US “to perform some or all of the acts of
misappropriation.” (SAC § 13.)
16. Additionally, although not pled in the current iteration of the complaint,
Plaintiff proffered in a surreply submission that it could allege that SoundCloud Europe
contacted Pulselocker’s California headquarters to discuss the potential purchase of the
company and to propose the Berlin meeting. (Docket # 93 at 2.)
17. More generally, the complaint alleges that SoundCloud Europe: owns and
asserts patent and trademark rights in the United States; prices its online services in U.S.
dollars; earns a majority of its annual revenue from U.S. customers; and has executives
and a subsidiary (SoundCloud US) who “perform their duties” in the United States. (SAC
4] 14-18.) Attached to Plaintiffs opposition to the dismissal motion are documents from
other lawsuits in which SoundCloud US pled broadly that it provides “business
development and related services, as well as research and development services” for
SoundCloud Europe. (Docket # 80 at 64.)
Procedural History
18. ‘Plaintiffs original complaint named the two SoundCloud entities as
defendants. It also named the former Pulselocker CEO as a defendant complicit in the
trade secret theft. (Docket # 1.) The Court granted the defense’s request to dismiss the
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 4 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
original complaint with leave to amend on jurisdictional and substantive grounds.?
(Docket # 52.)
19. The former CEO remained a defendant in the First Amended Complaint.
Plaintiff also beefed up the details of the theft allegations, (which, in the original
complaint, were quite vague). (Docket # 59.) Even so, after a hearing on the defense’s
renewed dismissal motion, Plaintiff agreed to amend the complaint further. (Docket # 67.)
20. The resulting third attempt omitted the Pulselocker CEO as a putative
defendant. It also made clear that the misappropriation of the technology occurred at the
Berlin meeting, not through later actions or the post-game recruitment of the CEO.
PERTINENT FEDERAL LAW
21. Acomplaint may be dismissed under Rule 12(b)(6) for failure to state a claim
based on the lack of a cognizable legal theory or the absence of facts alleged under such a
theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).
22. Acomplaint need not plead detailed factual allegations, but the complaint
must contain enough facts to establish a “plausible” entitlement to relief that is more than
merely speculative. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Factual allegations must
be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (citations omitted). Rather, the facts as alleged in the
complaint “must plausibly suggest an entitlement to relief, such that it is not unfair to
require the opposing party to be subjected to the expense of discovery and continued
litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)
23. Acourt must accept a plaintiffs factual allegations as true and must view all
inferences in a light most favorable to plaintiff. Zimmerman v. City of Oakland, 255 F.3d
734, 737 (9th Cir. 2001). Nevertheless, a pleading will be rejected if it offers labels,
conclusions, or a formulaic recitation of the elements of a cause of action. Iqbal, 556 U.S.
at 678.
kok *
3 The Court incorporates and takes as read aspects of its earlier order in rendering
this decision.
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 5 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
24. A federal court may exercise jurisdiction over a non-resident defendant when
that party has “certain minimum contacts” with the forum state. Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945). The Supreme Court has emphasized that the
minimum contacts analysis “focuses on the relationship among the defendant, the forum,
and the litigation.” Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984).
25. Of particular importance are “the defendant’s contacts with the forum State
itself, not the defendant’s contacts with persons who reside there.” Walden v. Fiore, 571
U.S. 277, 285 (2014). Entering into “a contractual relationship that envisioned continuing
and wide-reaching contacts in the forum State” or “physical entry into the State — either
by the defendant in person or through an agent, goods, mail, or some other means — is
certainly a relevant contact.” Id.
26. However, “it is the defendant’s conduct that must form the necessary
connection with the forum State”; a defendant’s contacts or relationship with a plaintiff,
“standing alone, is an insufficient basis for jurisdiction.” Id. at 286 (citing Rush v.
Savchuk, 444 U.S. 320, 332 (1980)). Moreover, a defendant’s “knowledge of a plaintiffs
connection to a forum” is not enough to establish a basis for jurisdiction; “Walden requires
more.” Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1069 (9th Cir. 2017).
27. That “more” is an analysis of the non-resident’s “contacts with California” to
determine whether that party’s “suit-related conduct [ ] create[d] a substantial connection
with” the state. Id. at 1070. This component of the jurisdictional analysis requires a
showing that “the claim arises out of or relates to the defendant’s forum-related activities.”
Dole Food Co., Inc. v. Watts, 303 F.3d 797, 802 (9th Cir. 2002).
28. A specific jurisdiction analysis that relies on an out-of-state defendant’s
knowledge that: the infringed party “resided in California”; its trade secrets were located
in California; and that the infringed business “suffered harm” in California, does not
allege contacts that “qualify as expressly aiming conduct under Walden.” Medimpact
Healthcare Systems, Inc. v. IQVIA Holdings, Inc., 2020 WL 1433327 at *11 (S.D. Cal.
2020).
29. In Medimpact, the district court found a complaint’s assertion that “the
alleged misappropriation [ ] was conducted outside of California” in foreign nations was
insufficient to establish jurisdiction in the absence of allegations of other acts related to
the theft. Id. at *9. See also E*Healthline.com v. Pharmaniaga Berhad, 2018 WL
5296291 (E.D. Cal. 2018) (phone calls and e-mails with California company insufficient to
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 6 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
establish jurisdiction; no substantive in-state meetings related to trade secret theft, and
parties agreed to foreign jurisdiction in contract for joint venture); Hempel v. Cydan
Development, Inc., 2018 WL 5777491 (D. Nev. 2018) (site of confidential material
(controlled by plaintiff) not focus of jurisdictional analysis; site of theft and parties’
agreement “drive the minimum contacts inquiry”). An allegation that jurisdiction may be
based on a foreign company’s targeting or aiming the impact of its misconduct toward a
particular location is “outdated” and superseded per Walden and Axiom. Medimpact, 2020
WL 14383327 at *10.
30. Federal courts “will not impute” a subsidiary corporation’s forum contacts to
an out-of-state parent in the absence of a pleading that plausibly “spelled out” a basis to
disregard their legitimate corporate forms. Axiom, 874 F.3d at 1071 n.5 (citing Holland
American Line Inc. v. Wartsilla North Amer. Inc., 485 F.3d 450, 459 (9th Cir. 2007)).
kE*
31. Federal Rule of Civil Procedure 4(k)(2) may provide an alternative basis for
asserting jurisdiction over a foreign defendant. Under the rule, a district court may
exercise personal jurisdiction over a party that “is not subject to jurisdiction in any state’s
courts of general jurisdiction” if doing so is “consistent with the United States
Constitution.”
32. Analysis of Rule 4(k)(2) jurisdiction is “nearly identical” to traditional federal
jurisdictional principles, except “rather than considering contacts between the defendant
and the forum state, we consider contacts with the nation as a whole.” Holland American
Line, 485 F.3d at 462; Axiom, 874 F.3d at 1072.
□□ OK
33. <A plaintiff must plead a defendant’s alleged conduct — or misconduct — with
reasonable specificity. It is a basic pleading defect for a complaint to “lump” parties
together and to fail to distinguish between named defendants. Vendavo, Inc. v. Price f(x)
AG, 2018 WL 1456697 at *4 (N.D. Cal. 2018) (dismissing trade secret complaint for “lack
of specificity” in pleading theft by related companies); Ansara v. Maldonado, 2020 WL
2281476 at *6 (D. Nev. 2020) (plaintiffs broad allegations of statutory violations against
several parties “fail to distinguish between defendants, and thus do not provide fair notice
of the claims against them”; citing Twombly); see also United States v. Corinthian
Colleges, 655 F.3d 984, 997 (9th Cir. 2011) (in fraud-based action, Rule 9 “does not allow a
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 7 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
complaint to merely lump multiple defendants together, but requires plaintiffs to
differentiate their allegations when suing more than one defendant”); United States ex rel.
Swoben v. United Healthcare Ins. Co., 848 F.3d 1161, 1184 (9th Cir. 2016) (distinguishing
between “collective allegations” and “failure to allege particular details” for specific
defendants in complaint).
ANALYSIS
34. Plaintiffs third version of the complaint is inadequate to properly plead
federal jurisdiction over SoundCloud Europe. Plaintiff has not plausibly alleged that
SoundCloud Europe has minimum contacts with California sufficient to justify requiring
the company to defend the action here.
35. Directly put, the Second Amended Complaint says virtually nothing about
SoundCloud Europe’s contacts with California regarding the trade secret issue. That is,
the complaint is silent in pleading facts that set out this defendant’s “suit-related conduct”
sufficient to create “a substantial connection with” the state. Axiom, 874 F.3d at 1070.
36. Most of the facts pled to justify jurisdiction address general aspects of
SoundCloud Europe’s business. It’s a large tech company that sells products via its
website in California, the United States, and elsewhere in the world. It also has
executives who travel to California, presumably to interact with personnel at its
California-based subsidiary. That may be enough to establish that SoundCloud Europe
“purposely availed” itself of California in its day-to-day operations.
37. However, those general allegations don’t address the fundamental issue here
— what are SoundCloud Europe’s claim-related contacts with the state that justify
exercising jurisdiction? Dole Food, 303 F.3d at 802. At most, Plaintiff pleads (or, in a
further amended complaint, hopes to plead) that SoundCloud Europe contacted
Pulselocker in California to set up a meeting at which the trade secrets were to be swiped.
The meeting itself occurred in Germany, though, under the terms of a contract pointing to
English law and courts for potential relief. No substantial California contact there.
38. And yes, Plaintiffs secrets had originally been stored in a data room in
California. But the complaint makes reasonably clear that the Pulselocker team sent this
information to Germany and took it with them to present to SoundCloud Europe’s tech
team. Regardless, the situs of Plaintiffs conduct (where it chooses to house its IP) is
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 8 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
irrelevant to evaluating SoundCloud Europe’s contact with California as part of the trade
secret theft scheme. Hempel, 2018 WL 5777491.
39. There’s nothing in the complaint that clearly or plausibly pleads that
SoundCloud Europe did, well, anything in California related to its alleged theft of
Plaintiffs technology. That’s fatal to a claim that this federal court has jurisdiction over
the European entity. Walden, 571 U.S. at 286; Axiom, 874 F.3d at 1070; Healthline.com,
2018 WL 5296291; Hempel, 2018 WL 5777491; Medimpact, 202 WL 1433327.
40. To get around this obvious problem, Plaintiff tries to transfer SoundCloud
Europe's contacts with California to those of its subsidiary, SoundCloud US. Two key
problems. First, the complaint does not plausibly allege facts sufficient to disregard the
corporate distinctions between the two entities. Plaintiffs conclusory allegation that one
company is the alter ego of the other (based on minimal facts about common executives
and joint ownership that certainly apply to all related companies) doesn’t provide a
legitimate basis for jurisdiction over the foreign company. Axiom, 874 F.3d at 1071;
Holland American Line, 485 F.3d at 459. In the same vein, Plaintiffs general contention
that SoundCloud US has acted as SoundCloud Europe’s agent in various ways is not
adequate to establish that the American entity does so for all purposes, including for the
conduct alleged in the complaint.
41. Second — and more crucially — the Second Amended Complaint is entirely
silent in alleging any facts linking SoundCloud US to any misconduct at all. Read
broadly, the complaint essentially alleges that both companies simultaneously took all
actions necessary to steal Plaintiffs technology and develop their competing project.
That’s just implausible on its face. It’s obviously conclusory for a litigant to say that
A and B (and C and D) all did the same thing to me, without making any attempt to
distinguish between the parties or to explain in any way the basis for their alleged
culpability. Iqbal, 556 U.S. at 678; Vendavo, 2018 WL 1456697 at *4; Ansara, 2020 WL
2281476 at *6.
42. The complaint is also unsupported by any legitimate factual assertions that
SoundCloud US did anything — in California, or elsewhere — as part of the defense’s
scheme. Rather, in order to allege jurisdiction over both companies, Plaintiff relies on a
formulation that (i) SoundCloud Europe (or, perhaps SoundCloud US) stole the trade
secrets, (ii) SoundCloud Europe has a close relationship with SoundCloud US, and (iii)
SoundCloud US generally has ties to California. But, as with the foreign entity, that
chain of vague allegations is insufficient to plausibly plead that SoundCloud US
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 9 of 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 19-847 MRW Date July 13, 2020
Title Beatport LLC v. SoundCloud Ltd
participated in the alleged misconduct here. Plaintiff has not pled a plausible, non-
speculative, fact-based claim of trade secret theft against the American subsidiary.
Twombly, 550 U.S. at 555.
43. Plaintiffs tacked-on argument for jurisdiction under Rule 4(k) fares no
better. SoundCloud Europe certainly has broader ties to the United States as a whole
than simply to California. Its website is likely viewable in all 50 states, and the revenue it
derives from the entire nation is even more considerable than what it earns locally. But
the complaint alleges no facts establishing that the claim-related conduct — when
aggregated from around the nation — is any greater than the (non-existent) facts involving
SoundCloud Europe’s alleged California-based trade secret thieving. Holland American
Line, 485 F.3d at 462; Axiom, 874 F.3d at 1072. Rule 4(k) does not provide an adequate
substitute basis for jurisdiction.
kok *
44. _ Plaintiffs factual allegations in favor of jurisdiction over the SoundCloud
entities are far too vague, conclusory, and speculative to fairly require them to defend
themselves in federal trade secret litigation. Starr, 652 F.3d at 1216. After more than a
year of legal wrangling over three iterations of pleading, it’s clear that Plaintiff cannot
properly allege a basis for subjecting either the European company or its American
affiliate to this Court’s jurisdiction. The Court therefore dismisses the Second Amended
Complaint without leave to amend.
4 Because the Court concludes that it does not have jurisdiction over the defendants,
it declines to address the parties’ contentions regarding the substantive causes of action.
CV-90 (10/08) CIVIL MINUTES - GENERAL Page 10 of 10