Cleveland v. Ludwig Institute for Cancer Research Ltd

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

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11 DON CLEVELAND et al., Case No.: 19cv2141 JM (JLB)

12 Plaintiffs,

13 v. ORDER ON DEFENDANTS’

PARTIAL MOTION TO DISMISS

14 LUDWIG INSTITUTE FOR CANCER

SECOND AMENDED COMPLAINT

RESEARCH LTD. et al.,

15 WITH PREJUDICE

Defendant.

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18 Defendants Ludwig Institute for Cancer Research (“Ludwig”), Chi Van Dang,

19 Edward A. McDermott, Jr., and John L. Notter (“Defendants”) move to dismiss portions

20 of the Second Amended Complaint (“the SAC”) (Doc. No. 26) pursuant to Federal Rule of

21 Civil Procedure 12(b)(6). (Doc. No. 28.) The motion has been fully briefed and the court

22 finds it suitable for submission without oral argument in accordance with Civil Local Rule

23 7.1(d)(1). For the below reasons, Defendants’ motion is GRANTED IN PART and

24 DENIED IN PART.

25 I. BACKGROUND

26 According to the SAC, Plaintiffs Don Cleveland, Arshad Desai, Frank Furnari,

27 Richard Kolodner, Paul Mischel, Karen Oegema, and Bing Ren (“Plaintiffs”) are

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1 internationally acclaimed cancer research scientists and physicians. (¶ 1.) Ludwig is an

2 international nonprofit organization dedicated to finding a cure for cancer that operates

3 multiple cancer research branches. (¶¶ 1, 142.) In 1991, Ludwig entered into an

4 “Affiliation Agreement” (“the AA”) with the University of California at San Diego

5 (UCSD) to establish a San Diego Branch (“the Branch”). (¶ 51.) Ludwig agreed to conduct

6 “active” and “continuous” medical research to “discover, develop, or verify knowledge

7 related to causes, diagnoses, treatment, prevention and control of cancer.” (¶ 53.) Ludwig

8 also agreed to “bear the costs directly related to conducting the research program.” (¶ 62.)

9 The term of the AA is coterminous with a lease agreement for research facilities between

10 Ludwig and UCSD, which allows Ludwig to terminate the lease no earlier than December

11 31, 2023. (¶¶ 4, 16, 56.) In addition to leasing its facilities to Ludwig, UCSD agreed to:

12 (1) grant privileges for the practice of medicine at its hospital to qualified members of the

13 medical staff at the Branch; (2) grant “academic recognition and titles” to qualified Ludwig

14 employees; and (3) make full time equivalency positions available for Ludwig employees.

15 (¶ 154.)

16 Between 1996 and 2016, Ludwig hired Plaintiffs to work at the Branch. (¶¶ 26-32.)

17 In 2018, Ludwig announced that it would “cease funding the Branch and otherwise halt the

18 ‘continuous active conduct of medical research’ at the Branch.” (¶ 15.) Effective January

19 1, 2020, Ludwig “terminated all funding for Plaintiffs’ laboratories.” (¶ 18.) However,

20 “Ludwig continues to fund at least part of the rent due [to UCSD] and it continues to pay

21 the Plaintiffs’ own salaries and benefits, but nothing more.” (¶ 18.) As a result, Plaintiffs’

22 “[l]aboratories and ongoing translational research programs have ceased or substantially

23 curtailed ongoing research projects, except to the extent that they have access to outside

24 grants.” (Id.)

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1 Plaintiffs filed their initial Complaint on November 7, 2019. On June 17, 2020, this

2 court partially granted Defendants’ motion to dismiss Plaintiffs’ First Amended Complaint.

3 (Doc. No. 25.) On July 8, 2020, Plaintiffs filed the SAC, which contains claims against

4 Ludwig for: (1) breach of the AA; (2) breach of Plaintiffs’ IP agreements; (3) breach of

5 Plaintiffs’ lab contracts; (4) breach of the implied covenant of good faith and fair dealing;

6 (5) promissory estoppel under the AA; and (5) declaratory relief. Plaintiffs also bring

7 claims against all Defendants for defamation per se and false light invasion of privacy, but

8 Defendants do not move to dismiss those claims.

9 II. LEGAL STANDARDS

10 A complaint may be dismissed under for failure to state a claim on which relief can

11 be granted. Fed. R. Civ. P. 12(b)(6). “The purpose of a motion to dismiss under Rule

12 12(b)(6) is to test the legal sufficiency of the complaint.” N. Star Int’l v. Ariz. Corp.

13 Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). In ruling on a motion to dismiss under Rule

14 12(b)(6), the court analyzes the complaint and takes “all allegations of material fact as true

15 and construe[s] them in the light most favorable to the non-moving party.” Parks Sch. of

16 Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal may be based on the

17 lack of a cognizable legal theory or on the absence of facts that would support a valid

18 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A complaint

19 “‘must contain either direct or inferential allegations respecting all the material elements

20 necessary to sustain recovery under some viable legal theory.’” Bell Atl. Corp. v. Twombly,

21 550 U.S. 544, 562 (2007) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101,

22 1106 (7th Cir. 1984)). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic

23 recitation of the elements of a cause of action will not do.’” Ashcroft v. Iqbal, 556 U.S.

24 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “[C]ourts ‘are not bound to accept

25 as true a legal conclusion couched as a factual allegation.’” Twombly, 550 U.S. at 555

26 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Nor does a complaint suffice if it

27 tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at

28 678 (quoting Twombly, 550 U.S. at 557). Rather, the claim must be “‘plausible on its

1 face,’” meaning that the plaintiff must plead sufficient factual allegations to “allow[] the

2 court to draw the reasonable inference that the defendant is liable for the misconduct

3 alleged.” Id. (quoting Twombly, 550 U.S. at 570).

4 III. DISCUSSION

5 A. Third Party Beneficiaries

6 For the second time, Plaintiffs bring claims for breach of the AA. Plaintiffs allege

7 that Ludwig has a duty to fund “active, continuous medical research” at the Branch until at

8 least December 31, 2023, when the AA expires, and that Ludwig breached this duty

9 because its current funding renders active, continuous research under the AA “impossible.”

10 (¶ 156.) Because they are not parties to the AA, Plaintiffs again allege they are third party

11 beneficiaries of the AA. (¶ 153.) Ludwig argues that Plaintiffs fail to allege sufficient

12 facts supporting their theory that Plaintiffs were intended third party beneficiaries of the

13 AA. (Doc. No. 28-1 at 11.)

14 Under California law, courts determine third party beneficiary status based on:

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(1) whether the third party would in fact benefit from the contract, . . . (2)

16 whether a motivating purpose of the contracting parties was to provide a

benefit to the third party, and (3) whether permitting a third party to bring its

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own breach of contract action against a contracting party is consistent with

18 the objectives of the contract and the reasonable expectations of the

contracting parties.

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20 Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 829-30 (2019). Courts determine whether

21 these elements are met by “carefully examine[ing] the express provisions of the contract at

22 issue, as well as all of the relevant circumstances under which the contract was agreed to.”

23 Id. at 829. “All three elements must be satisfied to permit the third party action to go

24 forward.” Id. at 830.

25 1. Benefit in Fact

26 In its previous motion to dismiss, Ludwig did not dispute that Plaintiffs would in

27 fact benefit from the AA. (See Doc. No. 14-1.) This court nonetheless noted that “[t]o the

28 extent that Plaintiffs have received compensation from Ludwig (and continue to do so), as

1 well as opportunities to practice medicine, teach at UCSD, and conduct adequately funded

2 research for multiple years, Plaintiffs have benefited from the AA.” (Doc. No. 25 at 9.)

3 The court also noted, however, that “the few cases applying the first element of the

4 Goonewardene test suggest that, in order to establish that a third party ‘would in fact benefit

5 from the contract,’ the third party must have been at least somewhat identifiable at the time

6 when the contract was executed.” (Id. at 9-10.)

7 This time around, Ludwig again does not dispute that Plaintiffs have benefited in

8 fact from the AA by receiving compensation and professional opportunities. Instead,

9 Ludwig argues that Plaintiffs were not even somewhat identifiable at the time the AA was

10 executed because Plaintiffs do not allege they were being considered or recruited when the

11 AA was first executed in 1991. (Doc. No. 28 at 11.) Ludwig notes that the longest-tenured

12 Plaintiff, Dr. Cleveland, was not hired until December 1993. (Id.) As this court previously

13 found, however, “to the extent that the 1991 AA was amended and/or renewed in 2000,

14 2004, 2012, and 2015, (Doc. No. 21-1 at 35-48), at least some of the Plaintiffs were

15 employed by Ludwig at those later points in time.” (Doc. No. 25 at 9.) Although Plaintiffs

16 do not address the post-Goonewardene cases suggesting that the Plaintiffs must have been

17 at least somewhat identifiable in 1991, Ludwig does not dispute that some of the Plaintiffs

18 were identifiable because they were working for Ludwig when the AA was amended and/or

19 renewed.2 See also City of Oakland v. Oakland Raiders, Case No. 18-cv-07444-JCS, 2019

20 WL 3344624, at *14 (N.D. Cal. July 25, 2019) (describing the benefit in fact element as a

21 “relatively low hurdle”). Accordingly, Ludwig has not met its burden of showing that

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2 This court also previously found that “Goonewardene instructs that when an employer

25 executes a contract that will ‘generally’ benefit its employees, but its employees are not

signatories to the contract, that fact is insufficient to find those employees would ‘in fact’

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benefit from the contract in a way that supports their status as third party beneficiaries[.]”

27 (Doc. No. 25 at 9-10.) Plaintiffs do not dispute that, as employees, they merely “generally

benefited” from the AA. In its motion, however, Ludwig does not challenge the SAC on

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1 Plaintiffs fail to plausibly allege they benefited in fact from the AA.

2 2. Motivating Purpose

3 With respect to whether “a motivating purpose of the contracting parties was to

4 provide a benefit to the third party,” Goonewardene explained “the contracting parties must

5 have a motivating purpose to benefit the third party, and not simply knowledge that a

6 benefit to the third party may follow from the contract.” 6 Cal. 5th at 835. The court

7 emphasized that it is the contracting parties’ intent to benefit the third party that controls.

8 Id. at 835 (citations omitted). In its first motion to dismiss, Ludwig argued the AA was not

9 intended to benefit the Plaintiffs because the AA did not mention Plaintiffs “individually

10 or as a class.” (Doc. No. 14-1 at 15-16.) Ludwig argued that the AA “simply allocate[d]

11 costs and responsibilities between the Institute and UCSD.” (Id. at 16.) In opposition,

12 Plaintiffs argued they were intended beneficiaries because, even though they were not

13 individually mentioned in the AA, they were within the class of “professional scientists”

14 the AA required Ludwig to employ.3 (Doc. No. 15 at 13.) This court nonetheless found

15 that the “acquisition of necessary personnel” was merely the means by which Ludwig and

16 UCSD agreed to achieve their mutual mission. (Doc. No. 25 at 16-17.)

17 This time around, Ludwig again argues that nothing in the AA indicates a motivating

18 purpose to benefit Plaintiffs. (Doc. No. 28-1 at 12.) Ludwig also argues that the new facts

19 alleged in the SAC do not show an intent to benefit Plaintiffs. (Doc. No. 28-1 at 13-14.)

20 In opposition, Plaintiffs again argue they are within the class of persons the AA was

21 intended to benefit, (Doc. No. 29 at 13-14), but this time they emphasize that a recital in

22 the AA recognizes that “the research . . . . will provide the academic and scientific

23 environment needed to attract and retain . . . . scientific personnel of the high caliber and

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3 The only support Plaintiffs provided for this argument was a citation to Prouty v. Gores

27 Tech. Grp., 121 Cal. App. 4th 1225, 1232 (2004), which this court did not find controlling

or persuasive because the plaintiffs there were identifiable at the time the agreement at

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1 recognized international scientific reputation required for the most effective conduct of

2 said research.” (Doc. Nos. 29 at 14; 26-1 at 64.) Plaintiffs also argue that the new facts

3 alleged in its SAC concerning Dr. Cavenee’s involvement in the formation of the AA

4 support that “the anticipated arrival of and the parties’ desire to induce others like him”

5 was a motivating purpose for executing the AA. (Doc. No. 29 at 10.) Plaintiffs also cite

6 several additional pre-Goonewardene cases finding that unidentifiable parties were third

7 party beneficiaries to contracts because they were within the class of persons expressly

8 intended to benefit from those contracts. See Harper v. Wausau Ins. Co., 56 Cal. App. 4th

9 1079, 1087 (1997) (allowing a direct action against an insurance company to enforce the

10 terms of an insurance policy by the injured third party); Steve Schmidt & Co. v. Berry, 183

11 Cal. App. 3d 1299, 1313 (Ct. App. 1986) (finding the plaintiff had enforceable rights

12 against the defendant under a theory that the plaintiff was a member of a class that was

13 intended to be directly benefited by the defendant’s promise); Outdoor Servs., Inc. v.

14 Pabagold, Inc., 185 Cal. App. 3d 676, 681 (Ct. App. 1986) (“It is not necessary that an

15 express beneficiary be specifically identified in the contract; he or she may enforce it if he

16 or she is a member of a class for whose benefit the contract was created.”).

17 Again, however, nothing in the SAC,4 the AA, or the additional cases cited by

18 Plaintiffs cuts against this court’s previous finding that the agreement in the AA to acquire

19 necessary personnel was more than a means to an end. Although Ludwig and UCSD

20 clearly intended, when they executed the AA, to attract and retain scientific personnel who,

21 like Plaintiffs, were of internationally recognized high caliber, this does not, as Plaintiffs

22 essentially argue, automatically make them third party beneficiaries of the AA. The fact

23 that a fellow scientist, Dr. Cavenee, who is not a party in the instant lawsuit, was involved

24 in the formation of the AA and subsequent hiring of some Plaintiffs suggests, at most, that

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27 4 Plaintiffs’ new allegation that the AA was executed “for the specific purpose of funding

Cavenee,” (¶ 51), is conclusory and not based on any facts materially distinguishable from

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1 a motivating purpose of the AA was to benefit Dr. Cavenee. But the same cannot be said

2 of Plaintiffs, who were all hired years later. To find otherwise would suggest, unless

3 disclaimed otherwise, that when institutions join forces to achieve an end that necessitates

4 the subsequent hiring of qualified personnel, that those future employees, whoever they

5 turn out to be, were intended beneficiaries of the agreement. Certainly, the advancement

6 towards a treatment and cure for cancer contemplated in the AA necessitated not only the

7 resources of institutions like Ludwig and UCSD, but the commitment of reputable

8 scientists like Plaintiffs. As a matter of California contract law, however, Plaintiffs’ claims

9 are not afforded special status over any other employee plaintiffs whose jobs exist because

10 of an earlier agreement made by their employer to which they were not a party, and in

11 which they were not specifically identified. Accordingly, Plaintiffs have not sufficiently

12 alleged that a motivating purpose of the AA was to benefit them.

13 3. Objectives and Reasonable Expectations

14 As noted above, the third element in the Goonewardene test is whether “permitting

15 a third party to bring its own breach of contract action against a contracting party is

16 consistent with the objectives of the contract and the reasonable expectations of the

17 contracting parties.” 6 Cal. 5th at 830. This court previously found this element was not

18 satisfied because: (1) Plaintiffs could bring suit against Ludwig under their individual

19 employment agreements; (2) as a party to the AA, UCSD could bring suit against Ludwig

20 to enforce the terms of the AA; and (3) permitting Plaintiffs to sue potentially undermines

21 nonprofit organizations’ incentive to affiliate with universities to conduct socially

22 beneficial research for their mutual benefit. (Doc. No. 25 at 18-19.) Additionally, as

23 pointed out by Ludwig, the dispute resolution provision in the AA, which requires an initial

24 informal attempt at resolution followed by binding arbitration, is inconsistent with an intent

25 to permit Plaintiffs to bring suit to enforce the AA. (Doc. No. 28-1 at 15.) Accordingly,

26 this court determined that “there exists nothing in the AA evidencing a reasonable

27 expectation of the parties that third party enforcement rights by Ludwig’s lead researchers

28 against Ludwig for funding shortfalls were being created or contemplated in 1991.” (Doc.

1 No. 25 at 19.)

2 This time around, Plaintiffs do not resolve, or attempt to resolve, these particular

3 issues based on facts alleged in their SAC. Instead, Plaintiffs make several piecemeal

4 arguments, none of which are availing. First, Plaintiffs argue “there is nothing in the terms

5 of the AA that would suggest that UCSD is better situated to enforce the terms of the AA,

6 where it is the Plaintiffs that have been primarily damaged.” (Doc. No. 28 at 15.) As a

7 party to the AA, however, UCSD is obviously in a better position than Plaintiffs to sue

8 Ludwig for breach of the AA. Also, whether it was UCSD or Plaintiffs that were

9 “primarily” damaged is not the standard for determining Plaintiffs’ third party beneficiary

10 status, and it cannot reasonably be inferred that UCSD’s potential damages, though

11 different, were less significant than Plaintiffs’ alleged damages.

12 Second, Plaintiffs argue that in Goonewardene the absent employer, not the plaintiff

13 third party employee, was better situated to sue the defendant payroll processing company

14 because the “employer was primarily liable for a violation of wage and hour statutes and

15 could sue [the defendant] for indemnity if it was sued.” (Doc. No. 29 at 15.) These

16 particular facts in Goonewardene do not, however, suggest that UCSD is somehow in a

17 worse position to sue Ludwig than Plaintiffs. Key to Goonewardene’s holding that the

18 plaintiff was not a third party beneficiary was that a party to the contract was “available”

19 and “fully capable” of bringing a breach of contract claim, and that it was “not necessary

20 to effectuate the objectives of the contract” to allow the third party to the contract to sue to

21 enforce it. See 6 Cal. 5th at 836.

22 Third, Plaintiffs argue they are the only party that can “effectively” enforce the AA

23 because: (1) the “principal financial benefits of the AA flowed to Plaintiffs;” (2) UCSD is

24 not liable to Plaintiffs for Ludwig’s performance; and (3) although UCSD has rights under

25 the lease, “it is not clear what economic damages UCSD could assert.” (Doc. No. 29 at

26 16.) That Plaintiffs may have more incentive to enforce the AA does not necessarily mean

27 they are the only party that can effectively enforce the AA. Additionally, this argument

28 unreasonably presumes the only benefit UCSD gained by associating with Ludwig was

1 rent. As discussed in this court’s previous order, UCSD, as an educational and medical

2 institution, reasonably benefited from Ludwig’s performance under the AA in a variety of

3 ways at least some of which overlapped with Plaintiffs’ interests, (see Doc. No. 26 at 15-

4 16), yet UCSD has not joined the instant suit. Regardless, even if Plaintiffs are in a position

5 to more “effectively” enforce the provisions in the AA that benefit both Plaintiffs and

6 UCSD, this does not suggest that Ludwig intended to allow Plaintiffs to enforce the AA.

7 Fourth, Plaintiffs argue that ensuring ongoing cancer research and protecting

8 contractual rights are important policy reasons to allow Plaintiffs to sue under the AA.

9 (Doc. No. 29 at 16-17.) While these are indeed important policy reasons, public benefit is

10 not determinative of third party beneficiary status. See Raiders, 2019 WL 3344624, at *16

11 (“This Court is bound by the test set by the California Supreme Court [in Goonewardene],

12 which does not consider whether allowing suit by a third party would serve public interests

13 separate from the interests of the contracting parties.”). Plaintiffs’ policy argument also

14 ignores other potentially desirable policies, such as encouraging professional employees to

15 carefully consider their employment contracts, and encouraging research institutions and

16 universities to enter into flexible affiliation agreements.

17 Finally, Plaintiffs argue that “[t]he structure [of the AA] is . . . . precisely what one

18 would expect to find in a contract benefitting one or more donee beneficiaries [which are]

19 recognized as properly enforceable by the donee.” (Doc. No. 29 at 14.) In support of this

20 argument, Plaintiffs rely on Goonewardene while at the same time acknowledging that

21 Goonewardene “indicat[ed] that [the donee-creditor] categories were not themselves the

22 test.” (Id. at 15.) Indeed, Plaintiffs are correct that Goonewardene relegated the “donee-

23 creditor” distinction in third-party beneficiary jurisprudence. See 6 Cal. 5th at 829 (“[T]his

24 court has not relied primarily on those categories . . . . in the numerous cases in which we

25 have discussed and applied the third party beneficiary doctrine.”). Regardless, the facts do

26 not suggest that Plaintiffs are donees. As explained in Goonewardene, “[t]he classic donee-

27 beneficiary case involved a contract in which party A, in return for some consideration,

28 promised party B that it would pay nonparty T a sum that B wished to give to T as a gift[.]”

1 Id. at 828 n.3. There is nothing in the record to suggest, of course, that Ludwig, in return

2 for some consideration, promised UCSD that it would pay Plaintiffs a sum that UCSD

3 wished to give Plaintiffs as a gift. Plaintiffs make no allegation in their SAC even implying

4 that either Ludwig or UCSD ever intended to give Plaintiffs a gift.

5 Accordingly, Plaintiffs have not sufficiently alleged that permitting them to bring

6 their own breach of contract action against Ludwig under the AA is consistent with the

7 objectives of the AA and the reasonable expectations of the contracting parties. Moreover,

8 for the foregoing reasons, Plaintiffs have not sufficiently alleged they are third party

9 beneficiaries of the AA. Therefore, Plaintiffs have not alleged a plausible claim for breach

10 of the AA (Count II).

11 B. Breach of IP Agreements

12 Plaintiffs allege that by “first repudiating, then cutting and ultimately ceasing all

13 research support funding” Ludwig is continually breaching its obligation under their IP

14 agreements. (¶ 193.) For several reasons, Plaintiffs allege that a promise by Ludwig to

15 fund active, continuous research was incorporated into their IP agreements with Ludwig.

16 (¶ 190.) First, Plaintiffs allege that because the IP agreements were made in “consideration

17 of employment by” Ludwig, Ludwig’s policies were incorporated into the IP agreements.

18 (Id.) Second, Plaintiffs allege that Ludwig’s IP policy provides that Plaintiffs assigned

19 their IP rights to Ludwig “[i]n consideration of the research opportunities and support

20 provided by [Ludwig].” (¶¶ 187-88, 190.) Third, Plaintiffs argue that Ludwig’s promise

21 to UCSD in the AA to fund active, continuous research was incorporated into the IP

22 agreements because the IP agreements “reference that the sharing of royalties from [IP] is

23 as set out elsewhere, and in turn, royalty sharing is addressed in the [IP policy] and [AA].”

24 (¶ 190.)

25 “For the terms of another document to be incorporated into the document executed

26 by the parties the reference must be clear and unequivocal[.]” R.W.L. Enters. v. Oldcastle,

27 Inc., 17 Cal. App. 5th 1019, 1027-28 (2017) (quotation marks and citation omitted). Here,

28 the acknowledgment in the IP agreements that they were made “in consideration of

1 employment” is not a clear and unequivocal reference to Ludwig’s IP policy indicating an

2 intent to incorporate the policy, or any Ludwig policy, into the IP agreements. Regardless,

3 almost all of Plaintiffs’ IP agreements specifically provide that royalties will be shared “as

4 set out” in the IP policy.5 (See, e.g., Doc. No. 26-7 at 4 ¶ 2.) This shows intent to

5 incorporate the IP policy into the IP agreements. The IP policy, however, merely states

6 that Plaintiffs give up their IP rights in exchange for “research opportunities and support

7 provided by [Ludwig].” (See Doc. No. 26-5 at 23.) As Ludwig points out, Plaintiffs’

8 allegations make clear they have already been provided with “research opportunities and

9 support.” (Doc. No. 28-1 at 25.) Contrary to Plaintiffs’ argument otherwise, (see Doc. No.

10 29 at 28), it cannot be reasonably inferred that Ludwig’s promise to provide “research

11 opportunities and support” was a promise to do so perpetually, even if Ludwig had done

12 so for years without interruption.

13 Additionally, in contrast to the IP policy, nothing in the IP agreements suggests the

14 parties intended to incorporate any of the terms of the AA, especially terms that do not

15 directly implicate IP. That the IP agreements specifically reference the IP policy, but not

16 the AA, indicates an intent not to incorporated the AA. Accordingly, it cannot be

17 reasonably inferred that the parties intended to incorporate Ludwig’s promise in the AA to

18 conduct active, continuous research into Plaintiffs’ IP agreements.

19 In opposition, Plaintiffs cite Boyd v. Oscar Fisher Co., 210 Cal. App. 3d 368, 378

20 (Ct. App. 1989), in which the court held that (1) “[c]ourts will construe together several

21 documents concerning the same subject and made as part of the same transaction even

22 though the documents were not executed contemporaneously and do not refer to each

23 other,” and (2) “[i]t is generally a factual question whether several documents were

24 intended to govern the same transaction.” Id. (citations omitted). As recognized in Boyd,

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27 5 The sole exception is the IP agreement for Dr. Cleveland, which states more generally

that royalties will be shared “on such terms and conditions as [Ludwig] will from time to

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1 however, under California law “[s]everal contracts relating to the same matters, between

2 the same parties, and made as parts of substantially one transaction, are to be taken

3 together.” CAL. CIV. CODE § 1642 (emphasis added). Here, the AA and IP agreements do

4 not refer to each other, were not executed contemporaneously, and were not executed by

5 the same parties. Plaintiffs nonetheless point to Holguin v. Dish Network LLC, 229 Cal.

6 App. 4th 1310, 1322 (2014) in which the court found that “[w]here . . . . the written

7 instruments are all part of the same transaction, they may be considered together even when

8 the counterparties to each instrument are different.” Holguin is distinguishable and

9 unpersuasive, however, because in Holguin the court found that purchasing cable,

10 telephone, and internet services through AT&T was all part of the same transaction, even

11 though the plaintiffs were required to sign agreements with multiple vendors. Id. at 1315-

12 15. The court reasoned: (1) most of the multiple documents signed by the plaintiffs

13 referenced each other and were executed mostly at the same time; (2) the vendors were in

14 “substantial interrelationships;” and (3) the plaintiff customer initiated the order for

15 bundled services in a single document. Id. at 1320-22. Although the execution of the AA

16 in 1991 and the execution, years later, of Plaintiffs’ IP agreements are related transactions,6

17 they are not reasonably part of the same transaction, at least not to the extent that the

18 purchase of bundled home cable, internet, and phone services through a singled company

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21 6 As stated by Plaintiffs, the initial term of the 1991 AA, which was dependent on the term

of the lease with UCSD, was six years, but the AA automatically renewed until 2009. (Doc.

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No. 29 at 24.) The term of the AA was subsequently extended to February 28, 2026, but

23 Ludwig exercised its option to an early termination so that the term would expire December

31, 2023. (Id.) Plaintiffs entered into the IP agreements in 1995 (Cleveland), 1997

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(Kolodner), 2001 (Ren), 2003 (Desai and Oegema), and 2012 (Mischel). (See Doc. No.

25 21-3 at 94-105.) Although Ludwig and UCSD amended and/or renewed the AA in 2000,

2004, 2012, and 2015, (Doc. No. 21-1 at 35-48), including amendments that addressed the

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Plaintiffs’ IP rights, the lengthy and incongruent periods between hiring Plaintiffs and

27 amending/extending the AA (and the fact that the agreements involved different parties)

do not allow for a finding, inferred or otherwise, that the AA and IP agreements were part

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1 is part of the same transaction. Accordingly, Plaintiffs have not pled a plausible breach of

2 their IP agreements (Count VI).

3 D. Breach of Lab Contracts

4 In their SAC, Plaintiffs allege that Ludwig breached their respective “lab contracts”

5 by not providing them with sufficient funding. (¶¶ 217-303.) Attached to the SAC are

6 seven letters from Ludwig, drafted between 1993 and 2015, offering employment to each

7 Plaintiff individually. (Doc. Nos. 26-8 to 26-14.) Five of the letters contain an offer to

8 provide “a core budget each year” for “laboratory support.” The letters to Drs. Oegema,

9 Ren, and Desai offer between $250,000 and $300,000. (Doc. Nos. 26-9 to 26-11.) The

10 letters to Dr. Mischel and Dr. Furnari offer “up to” $600,000 and $650,700, respectively.

11 (Doc. Nos. 26-8, 26-14.) The letters state that “laboratory support” includes “your

12 salary/benefits, salaries/benefits of others in your group, supplies, travel, and so on.” (See,

13 e.g., Doc. No. 26-8 at 3.) The remaining two letters to Dr. Cleveland and Dr. Kolodner

14 offer “core support” in an “expected” amount of $325,000 and $600,000, respectively,

15 “[a]ssuming a constant budget.” (Doc. Nos. 26-12, 26-13.) Plaintiffs allege, and Ludwig

16 apparently does not dispute, that these offers were accepted in writing thereby forming

17 binding bilateral contracts.7 (¶¶ 220, 232, 244, 256, 268, 281, 294.) Additionally, with

18 respect to the offers to Drs. Mischel, Kolodner, and Cleveland, Plaintiffs allege that “[a]t

19 or about the same time” as the offers were accepted Ludwig “assured” them that the amount

20 of the “core” budget would be “sufficient” for them to conduct “ongoing translational

21 research” and “continuous active research.” (¶¶ 222, 272, 285.) Plaintiffs allege that

22 Ludwig breached its obligation to provide a “core” budget to each Plaintiff by “limiting

23 the amount it funded to [the respective Plaintiff’s] own salary and benefits, but refusing to

24 provide funds for salaries/benefits of others performing services in [their labs], supplies,

25 travel and other expenses of operating [their labs].” (¶¶ 228, 239, 251, 263, 276, 289, 301.)

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7 (See Doc. No. 28-1 at 28 n.11) (“[F]or purposes of this motion, Defendants will assume

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1 In other words, Plaintiffs allege Ludwig breached their respective lab contracts because (1)

2 Ludwig is not paying for anything other than their own salaries and benefits, and/or (2)

3 Ludwig is not providing funding that is “sufficient” for “ongoing translational research”

4 and “continuous active research.”

5 Ludwig argues that “contrary to Plaintiffs’ claims, the [lab contracts] do not amount

6 to binding agreements by [Ludwig] to never reduce research funding, or even to provide a

7 minimum amount of funding each year.”8 (Doc. No. 28-1 at 28.) Although Plaintiffs do

8 not concede that Ludwig was empowered to reduce funding, they do not explicitly allege

9 that Ludwig can never reduce funding. As described above, Plaintiffs’ claims are primarily

10 based on the “core” budgets promised to them in their offer letters. Drs. Oegema, Ren, and

11 Desai were expressly promised a specific amount of “core budget” each year. Dr. Mischel

12 and Dr. Furnari were promised “up to” a specific amount of “core budget,” which

13 necessarily implies some minimum level of funding. Additionally, Drs. Kolodner and

14 Cleveland were allegedly promised, outside of their written lab contracts, a “core” budget

15 that would be “sufficient” to conduct “ongoing translational research” and “continuous

16 active research,” which also necessarily implies some minimum level of funding. Finally,

17 five Plaintiffs were expressly promised lab budgets that “include” more than just their own

18 salary and benefits. Although Plaintiffs conspicuously fail to allege that they are not being

19 funded, or will not be funded, at the specific amounts promised to them in their lab

20 contracts, all Plaintiffs allege they are only being funded at an amount that is sufficient to

21 cover their own salaries and benefits, but not for other expenses of “operating” the labs.

22 (See ¶¶ 228, 239, 251, 263, 276, 289, 301.) Plaintiffs also allege the “required” total annual

23 budgets, and the total amount Ludwig is paying or has informed Plaintiffs it will be paying,

24

25

26

8 In support of this argument, Defendants point out that offer letters for Dr. Kolodner and

27 Dr. Cleveland acknowledge that budgets are negotiated yearly. (Doc. No. 28-1 at 28

(citing Doc. Nos. 26-12 and 26-13).) However, the remaining offer letters contain no such

28

1 fall short by millions of dollars. (See ¶ 120.)

2 Certainly, there are questions as to why, for example, providing $6.5 million in 2020

3 instead of Plaintiffs’ desired $13 million, or continuing to pay Plaintiffs’ salaries through

4 2023, is insufficient for any of the Plaintiffs to conduct any “ongoing translational

5 research” or “continuous active research.” Plaintiffs’ artfully worded SAC also raises

6 questions as to whether all research has stopped, as opposed to just all research funding

7 from Ludwig. (See, e.g., ¶¶ 18 (alleging that ongoing translational research programs have

8 ceased or have been “substantially curtailed . . . to the extent that they have access to

9 outside grants”); 19 (“Ludwig’s conduct in cutting research funding . . . . forc[ed] a

10 shutdown of the Branch’s activities”); 121 (“The retaliatory cuts . . . . made it impossible

11 for the Plaintiffs to continue to operate their [l]aboratories . . . . [T]he budgeted amounts

12 for 2020 and 2021 are not even sufficient to pay Ludwig’s lease with UCSD and Plaintiffs’

13 salaries, much less fund the cost of research in the [l]aboratories[.]”); 138 (“Ludwig’s

14 actions have made it impossible for Plaintiffs to continue their research at the Branch”);

15 215 (“Plaintiffs’ research has been halted mid-stream”).) At the very least, however,

16 Plaintiffs sufficiently allege a plausible breach of their lab contracts because they allege

17 that Ludwig is not paying for anything other than their own salaries and benefits, and that

18 Ludwig is not providing funding that is “sufficient” for “ongoing translational research”

19 and “continuous active research.”

20 E. Breach of the Implied Covenant

21 Every contract contains an implied covenant of good faith and fair dealing. Cates

22 Constr., Inc. v. Talbot Partners, 21 Cal. 4th 28, 43 (1999). The covenant “exists merely to

23 prevent one contracting party from unfairly frustrating the other party’s right to receive the

24 benefits of the agreement actually made.” Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317, 349

25 (2000). The covenant requires “that neither party do anything that will injure the right of

26 the other to receive the benefits of the contract.” Habitat Tr. for Wildlife, Inc. v. City of

27 Rancho Cucamonga, 175 Cal. App. 4th 1306, 1332 (2009). Whether conduct meets this

28 criteria is determined on a “case by case basis” depending on the “contractual purposes and

1 reasonably justified expectations of the parties.” Careau & Co. v. Sec. Pac. Bus. Credit,

2 Inc., 222 Cal. App. 3d 1371, 1395 (1990). “If the allegations do not go beyond the

3 statement of a mere contract breach and, relying on the same alleged acts, simply seek the

4 same damages or other relief already claimed in a companion contract cause of action, they

5 may be disregarded as superfluous as no additional claim is actually stated.” Id.

6 1. Affiliation Agreement

7 Because Plaintiffs have not pled they are “parties” to the AA, and have not

8 sufficiently pled they are, third party beneficiaries to the AA, Plaintiffs cannot allege they

9 have rights under the AA that could be injured. Plaintiffs plead no additional facts to

10 support their conclusory allegation, upon which their implied covenant claim depends, that

11 they are intended beneficiaries of the AA. (See ¶ 160.) The allegations also appear to be

12 superfluous with Plaintiffs’ breach of contract claim. Thus, Plaintiffs had no reasonably

13 justifiable expectation under the AA that Ludwig would fund active, continuous research

14 at a particular level. Accordingly, Plaintiffs have not sufficiently pled a claim for breach

15 of the implied covenant with respect to the AA.

16 2. Lab Contracts

17 In their opposition to the instant motion, Plaintiffs argue they have brought a claim

18 for breach of the implied covenant with respect to their lab contracts. (Doc. No. 29 at 17.)

19 In their SAC, however, Plaintiffs merely allege that they entered into lab contracts,

20 performed under the lab contracts, and that Ludwig is required to perform under the lab

21 contracts. (¶¶ 162-65, 166.) Plaintiffs plead no facts to support a claim that Ludwig

22 injured, as opposed to simply breached, its obligations under Plaintiffs’ lab contracts. The

23 allegations are thus clearly superfluous with Plaintiffs’ breach of contract claim. See also

24 Guz, 24 Cal. 4th at 352 (“To the extent the implied covenant claim seeks simply to invoke

25 terms to which the parties did agree, it is superfluous.”). Accordingly, Plaintiffs have not

26 sufficiently pled a claim for breach of the implied covenant with respect to the lab contracts.

27

28

1 3. IP Agreements

2 Plaintiffs allege that under the implied covenant in the IP agreements Ludwig had a

3 duty to refrain from “arbitrary and unreasonable conduct” that has the effect of preventing

4 Plaintiffs from receiving the fruits of their bargain under their IP agreements. (¶ 201.)

5 Plaintiffs further allege that by “eliminating” research funding Ludwig “unfairly interfered

6 with” Plaintiffs’ royalty rights under the IP agreements. (¶ 202.) For three unavailing

7 reasons, Ludwig argues this claim should be dismissed.

8 First, Ludwig argues that Plaintiffs’ allegations that Ludwig engaged in “arbitrary”

9 and “unfair” behavior are conclusory. (Doc. No. 28-1 at 26.) While the terms “arbitrary”

10 and “unfair” might be conclusory, Plaintiffs’ allegations that Ludwig interfered with

11 Plaintiffs’ potential future royalties by “eliminating” funding for the research (¶ 202) and

12 by “unilaterally ceas[ing] all research support funding for Plaintiffs’ labs” (¶ 203) are

13 specific and factual. Second, Ludwig argues that “Plaintiffs cannot use the implied

14 covenant to manufacture an obligation for [Ludwig] to provide funding at pre-2019 levels

15 when such an obligation is nowhere to be found in the IP [a]greements.” (Id.) In their

16 implied covenant claim, however, Plaintiffs do not allege that Ludwig agreed, expressly or

17 impliedly, to keep funding at pre-2019 levels. Rather, Plaintiffs allege that Ludwig

18 breached the implied covenant in their IP agreements by “eliminating” research funding.

19 (¶¶ 202-03.) Third, Ludwig argues that under Ludwig’s IP policy, as well as federal law

20 regarding NIH grants, Plaintiffs are required to assign their inventions to Ludwig, and

21 therefore Ludwig cannot “renege” on its obligations in the IP agreements. (Doc. No. 28-1

22 at 26-27.) Ludwig does not dispute, however, that it is obligated to share some IP royalties

23 with Plaintiffs regardless of the assignment of IP rights to Ludwig. Therefore, this

24 argument is not particularly relevant to Plaintiffs’ allegation that by ceasing its own

25 research funding, Ludwig interfered with IP development, which in turn interfered with

26 Plaintiffs’ potential future royalties under their IP agreements. Accordingly, Ludwig has

27 not met its burden of showing that Plaintiffs fail to plead a plausible breach of the implied

28 covenant in their IP agreements.

1 F. Promissory Estoppel

2 Plaintiffs allege that Ludwig should be estopped under the AA from discontinuing

3 to fund active, continuous research at the Branch. (¶¶ 206-16.) “In California, under the

4 doctrine of promissory estoppel, ‘[a] promise which the promisor should reasonably expect

5 to induce action or forbearance on the part of the promisee or a third person and which

6 does induce such action or forbearance is binding if injustice can be avoided only by

7 enforcement of the promise.” Kajima/Ray Wilson v. L.A. Cty. Metro. Transp. Auth., 23

8 Cal. 4th 305, 310 (2000). The elements of promissory estoppel are: (1) a clear and

9 unambiguous promise; (2) reliance by the party to whom the promise is made; (3)

10 reasonable and foreseeable reliance; and (4) injury to the party asserting estoppel. US

11 Ecology Inc. v. State of California, 129 Cal. App. 4th 887, 901 (2005).

12 1. Threshold Matters

13 a. Third Party Beneficiaries

14 As a threshold matter, Ludwig argues that Plaintiffs’ promissory estoppel claim fails

15 because Plaintiffs are not intended third party beneficiaries of the AA. (Doc. No. 30 at 28-

16 1 at 21.) District courts have dismissed promissory estoppel claims where the plaintiffs

17 were not third party beneficiaries of the agreement in which the promise was allegedly

18 made. For example, in Trans-World Int’l, Inc. v. Smith-Hemion Prods., Inc., 972 F. Supp.

19 1275, 1287 (C.D. Cal. 1997), the court found, without discussion, that “only expressly

20 intended beneficiaries may recover on a promissory estoppel claim.”9 As Plaintiffs point

21 out, however, in Aronowicz v. Nalley’s, Inc., 30 Cal. App. 3d 27, 44 (Ct. App. 1972), the

22

23

9 See also hiQ Labs, Inc. v. LinkedIn Corp., 273 F. Supp. 3d 1099, 1119 (N.D. Cal. 2017),

24

aff’d and remanded, 938 F.3d 985 (9th Cir. 2019); Sacramento E.D.M., Inc. v. Hynes

25 Aviat’n Indus., No. 2:13-CV-0288-KJN, 2017 WL 1383289, at *39 (E.D. Cal. Apr. 18,

2017), aff’d in part, rev’d in part and remanded sub nom. Sacramento E.D.M., Inc. v.

26

Hynes Aviat’n Indus., Inc., 761 F. App’x 678 (9th Cir. 2019); Bond v. Cal W. Reconvey.

27 Corp., No. C12-01523 HRL, 2012 WL 2150313, at *4 (N.D. Cal. June 12, 2012);

Cleveland v. Aurora Loan Servs., LLC, No. C 11-0773 PJH, 2011 WL 2020565, at *5 (N.D.

28

1 court rejected the defendant’s argument that there is no cause of action based on promissory

2 estoppel where there is no “gratuitous promise” to the plaintiffs. See also Shuler v. Walter

3 E. Heller W. Inc., 956 F.2d 1168 n.7 (9th Cir. 1992) (noting that Aronowicz “might

4 conceivably support a promissory estoppel claim” even though the plaintiffs were not third

5 party beneficiaries). Additionally, in West v. JPMorgan Chase Bank, N.A., 214 Cal. App.

6 4th 780, 803 (2013), the court expressly stated that promissory estoppel applies not only to

7 promisees, but to third persons.10 See also Flextronics Int’l USA, Inc. v. Sparkling Drink

8 Sys. Innovation Ctr. Ltd, 186 F. Supp. 3d 852, 868 (N.D. Ill. 2016) (citing Aronowicz to

9 support its finding that “California law follows the Restatement (Second) of Contracts,

10 which allows persons other than the promisee to recover for promissory estoppel, provided

11 that the promisor reasonably should have expected the non-promisee plaintiff to rely on the

12 promise.”). Ludwig argues that Aronowicz is distinguishable because, in a concurring

13 opinion, Judge Merrill cited Aronowicz as an example of a case “[w]here third parties have

14 been permitted to assert rights flowing from a promise [because] the third party has been .

15 . . . an alter ego of the promisee[.]” See C. R. Fedrick, Inc. v. Sterling-Salem Corp., 507

16 F.2d 319, 323 (9th Cir. 1974) (Merrill, J., concurring). Ludwig cites no authority, however,

17 supporting that third party beneficiary status depends on an alter ego analysis. Moreover,

18 Judge Merrill went on to find that, under California law, third parties should be able to

19 enforce promises under a promissory estoppel theory as long as “a promisor knows that a

20 third party may reasonably rely on his offer.” Id. Based on the above, Plaintiffs are not

21

22

10 The West court stated:

23

24 The elements of promissory estoppel are (1) a promise, (2) the promisor

should reasonably expect the promise to induce action or forbearance on the

25 part of the promisee or a third person, (3) the promise induces action or

26 forbearance by the promisee or a third person (which we refer to as

detrimental reliance), and (4) injustice can be avoided only by enforcement of

27 the promise.

28

1 precluded from bringing a claim for promissory estoppel under the AA simply because

2 they are not third party beneficiaries of the AA. As discussed below, Plaintiffs allege, and

3 it is reasonable to infer, that Ludwig knew that Plaintiffs would rely on its promise to

4 UCSD to conduct active, continuous research.

5 b. Consideration

6 As another threshold matter, Ludwig argues that “it is well settled that promissory

7 estoppel applies only ‘when no actual consideration was given’ for the alleged promise.”

8 (Doc. No. 28-1 at 20.) Ludwig argues that Plaintiffs received consideration in the form of

9 salaries and employment. (Id. at 21.) Plaintiffs do not dispute they received consideration

10 for their work for Ludwig at UCSD. Rather, they argue that promissory estoppel is

11 foreclosed only where consideration is given, not received, by a plaintiff promisee. (Doc.

12 No. 29 at 21.) Plaintiffs argue “[t]he only consideration Plaintiffs gave under the AA for

13 Ludwig’s promises of research funding for the duration of the AA was reliance.” (Id.)

14 Plaintiffs are correct that in cases where the plaintiffs are promisees, promissory

15 estoppel is foreclosed if the plaintiffs provide consideration to the promisor. “Cases have

16 characterized promissory estoppel claims as being basically the same as contract actions,

17 but only missing the consideration element[.]” US Ecology, 129 Cal. App. 4th at 906. The

18 purpose of promissory estoppel “is to make a promise binding, under certain

19 circumstances, without consideration in the usual sense of something bargained for and

20 given in exchange.” Youngman v. Nev. Irr. Dist., 70 Cal. 2d 240, 249 (1969). “If the

21 promisee’s performance was requested at the time the promisor made his promise and that

22 performance was bargained for, the doctrine is inapplicable.” Id. Thus, “where the

23 promisee’s reliance was bargained for, the law of consideration applies; and it is only where

24 the reliance was unbargained for that there is room for application of the doctrine of

25 promissory estoppel.” Id. In other words, “[i]f actual consideration was given by the

26 promisee, promissory estoppel does not apply.” Fleet v. Bank of Am. N.A., 229 Cal. App.

27 4th 1403, 1413 (2014); see also Anthony v. Iron Mountain, Inc., Case No. CV 20-05932-

28 AB (ASx), 2020 WL 5793449, at *13 (C.D. Cal. Sept. 25, 2020).

1 Although Plaintiffs allege they relied on Ludwig’s promise to conduct active,

2 continuous research in deciding to work for Ludwig, Plaintiffs’ commitment to work for

3 Ludwig was not requested at the time Ludwig promised to conduct active, continuous

4 research. Additionally, Plaintiffs’ commitment was clearly not bargained-for in exchange

5 for this promise because Plaintiffs did not agree to work for Ludwig until years later.

6 Moreover, Ludwig did not make the promise to Plaintiffs, so Plaintiffs are not promisees

7 of that particular promise. The only point at which Ludwig requested Plaintiffs’

8 performance, and that performance was bargained-for, was when Ludwig made promises

9 to Plaintiffs in their individual employment agreements. Here, however, Plaintiffs seek

10 promissory estoppel based on the AA, not their employment agreements. Ludwig does not

11 address this distinction, and Ludwig cites no authority suggesting that a non-party to a

12 promise can give bargained-for consideration in exchange for that promise. Accordingly,

13 because Plaintiffs did not give bargained-for consideration in exchange for Ludwig’s

14 promise under the AA, Plaintiffs’ promissory estoppel claim under the AA is not foreclosed

15 on this ground.

16 2. Clear and Unambiguous Promise

17 With respect to the first element to a promissory estoppel claim, Plaintiffs allege (1)

18 “[u]nder the [AA], Ludwig clearly and unambiguously promised to conduct ‘continuous,

19 active medical research’ at UCSD for the term of the [AA],” and (2) this “required that

20 Ludwig provide a level of funds for research that was consistent with the level of funding

21 provided, per capita, to the Plaintiffs in past years.” (¶ 207-08.) Ludwig argues that in

22 order to be clear and unambiguous, the promise must be made “expressly.” (Doc. No. 28-

23 1 at 21 (citing Salsgiver v. Am. Online, Inc., 147 F. Supp. 2d 1022, 1029 (C.D. Cal. 2000),

24 aff’d, 32 F. App’x 894 (9th Cir. 2002)).) Here, the promise Ludwig made to UCSD to

25 conduct active, continuous medical research was made “expressly” in the AA. Although

26 the promise was not made to Plaintiffs, Ludwig does not argue that the promise needed to

27 be made directly to Plaintiffs.

28 Ludwig also argues that in order to be clear and unambiguous, the promise cannot

1 be based on past practice, custom, or inference. (Doc. No. 28-1 at 21-22 (citing, inter alia,

2 Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 409 (9th Cir. 1992)).)

3 Plaintiffs’ allegation that Ludwig was required to provide funding at historical levels is

4 likely based on past practice, custom, and inference. Indeed, Plaintiffs concede “[t]here is

5 . . . . clearly no specific funding level.” (Doc. No. 27 at 32:18-19.) However, the promise

6 to conduct active, continuous research is not necessarily based on past practice, custom,

7 and inference. While there is certainly some ambiguity as to what “active, continuous

8 research” entails, as discussed above, arguably, it may reasonably be inferred to mean

9 something other than “clos[ing] the Branch and ending . . . . the research program.” (See

10 ¶ 211.) Although a close call, at this stage in the litigation, Plaintiffs sufficiently allege a

11 clear and unambiguous promise.

12 3. Actual Reliance

13 Plaintiffs allege they relied on Ludwig’s “performance of its promises under the

14 [AA]” by leaving their previous jobs, establishing labs at UCSD, recruiting UCSD students

15 to work at the labs, applying for research grants, serving as professors without additional

16 compensation, giving up IP rights, and “enter[ing] into discussions with third parties in for-

17 profit ventures regarding the commercialization of Plaintiffs’ research.” (¶ 212.) Ludwig

18 argues that Plaintiffs fail to plead actual reliance because Plaintiffs negotiated their own

19 individual employment agreements and do not even allege they read the AA before joining

20 the Branch. (Doc. No. 28-1 at 22-23.) Here, Plaintiffs do not allege any facts supporting

21 how or why they specifically relied on the AA instead of solely relying on their individual

22 employment agreements. But they do specifically allege that they relied on Ludwig’s

23 promise in the AA to conduct active, continuous research. (¶ 212.) Additionally, at this

24 stage in the litigation, it is reasonable to infer that when Plaintiffs were first offered

25 employment with Ludwig in San Diego, they were aware that Ludwig entered into an

26 agreement with UCSD to conduct long-term research at UCSD’s facility. Accordingly,

27 Plaintiffs sufficiently allege reliance.

28

1 4. Reasonable and Foreseeable Reliance

2 Plaintiffs allege their reliance was reasonable because “Ludwig is an extraordinarily

3 well-funded charitable institution” and “would normally be expected to have been held to

4 a higher standard of conduct respecting its commitment to maintaining the research

5 required under the [AA] than would a for profit institution.” (¶ 213.) Plaintiffs also allege

6 their reliance was foreseeable because Ludwig knew they were renowned research

7 scientists with other opportunities, and by “pointing to the secure funding and long-term

8 commitment under the [AA]” and “encouraging” them to apply for grants and embark on

9 long-term research projects. (¶ 214.) Ludwig argues Plaintiffs’ alleged reliance was not

10 reasonable because: (1) Plaintiffs admit the AA required no guaranteed level of funding;

11 (2) even if they relied on the AA, the AA gives Ludwig discretion over the research; (3)

12 Plaintiffs could not have relied on a promise to continue funding at historical levels through

13 2023 because when they were hired, the term of the AA expired well before 2023; and

14 (4) Plaintiffs allege no fact supporting the reasonability or foreseeability of their reliance.

15 (Doc. No. 28-1 at 23-24.) Overall, at this early stage in the litigation, Plaintiffs sufficiently

16 plead it was reasonably foreseeable to Ludwig, or that Ludwig knew, that Plaintiffs would

17 rely on Ludwig’s promise to UCSD to conduct active, continuous research, at least to the

18 extent that Plaintiffs expected Ludwig would not, as alleged, “close the Branch and end. .

19 . . the research program.” (See ¶ 211.) Accordingly, Plaintiffs sufficiently plead reasonable

20 and foreseeable reliance. Based on the above, Plaintiffs have sufficiently alleged a claim

21 for promissory estoppel under the AA.11

22 G. Declaratory Relief

23 Plaintiffs again bring a claim, under California Code of Civil Procedure § 1060, for

24 a declaration regarding the parties’ rights, duties, and obligations under the AA and IP

25 agreements. (¶ 145-47.) California’s declaratory relief statute provides that “[a]ny person

26

27

28

11

1 interested . . . . under a contract, or who desires a declaration of his or her rights or duties

2 with respect to another . . . . may, in cases of actual controversy relating to the legal rights

3 and duties of the respective parties . . . . ask for a declaration of rights or duties. CAL. CIV.

4 PROC. CODE § 1060. “To qualify for declaratory relief, [a plaintiff] would have to

5 demonstrate its action presented two essential elements: ‘(1) a proper subject of declaratory

6 relief, and (2) an actual controversy involving justiciable questions relating to [the

7 plaintiff’s] rights or obligations.’” Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872,

8 909 (Cal. Ct. App. 2013) (quoting Wilson & Wilson v. City Council of Redwood City, 191

9 Cal. App. 4th 1559, 1582 (Cal. Ct. App. 2011)). However, a claim for declaratory relief

10 “may be refused . . . . in the discretion of the trial court if it appears that the determination

11 is not necessary or proper at the time and under all the circumstances.” Moss v. Moss, 20

12 Cal. 2d 640, 642 (1942); CAL. CIV. PROC. CODE § 1061. Additionally, a court may dismiss

13 a declaratory relief claim if the claim is duplicative of, substantially similar to, or

14 commensurate with relief sought under another cause of action. See Mangindin v. Wash.

15 Mut. Bank, 637 F. Supp. 2d 700, 707-08 (N.D. Cal. 2009); City of Cotati v. Cashman, 29

16 Cal. 4th 69, 80 (2002).

17 1. Affiliation Agreement

18 Ludwig argues that Plaintiffs’ claim for declaratory relief under the AA fails because

19 under California law a party who is not “legally interested” in a contract lacks standing to

20 seek declaratory relief.12 (Doc. No. 28-1 at 20.) In support of this argument, Plaintiffs cite

21 several cases in which the court dismissed claims for declaratory relief where the plaintiffs

22

23

12 Ludwig also argues, for the first time, that Plaintiffs lack Article III standing to bring

24

their claim for declaratory relief under the AA because they are not third party beneficiaries

25 of the AA. (Doc. No. 28-1 at 18-19.) Unfortunately, Ludwig provides almost no

substantive analysis on the issue, and cites no case in which a federal court found that a

26

plaintiff lacked Article III standing to bring a claim for declaratory relief under California

27 law with respect to a contract under which the plaintiff was not a party or third party

beneficiary. Regardless, Ludwig’s motion to dismiss Plaintiffs’ declaratory relief claim

28

1 were not parties to, or third party beneficiaries of, the contract at issue. See D. Cummins

2 Corp. v. U.S. Fid. & Guar. Co., 246 Cal. App. 4th 1484, 1493 (2016) (finding that an

3 “indirect interest” in the contract was insufficient); Richter v. CC-Palo Alto, Inc., 176 F.

4 Supp. 3d 877, 901 (N.D. Cal. 2016) (plaintiffs must allege a legally protected interest or

5 right relating to their legal rights, not just a controversy over the legal duties of the

6 defendants); Blank v. Kirwan, 39 Cal. 3d 311, 331 (1985) (no legal interest in a contract to

7 which the plaintiff was not a party); Gillies v. La Mesa Lemon Grove & Spring Val. Irr.

8 Dist., 54 Cal. App. 2d 756, 762 (1942) (judiciable contract disputes require an “enforceable

9 contractual right in the plaintiffs”); see also Lafferty v. Wells Fargo Bank, 213 Cal. App.

10 4th 545, 570 (2013) (no standing where the contract was not made “made for the benefit”

11 of the plaintiffs); Fladeboe v. Am. Isuzu Motors Inc., 150 Cal. App. 4th 42, 55 (2007).

12 Plaintiffs do not dispute that without third party beneficiary status, their claims for

13 declaratory relief under the AA fail.13 (See Doc. No. 29 at 9 n.2.)

14 Here, Plaintiffs are undoubtably interested in Ludwig’s duty to UCSD to fund active,

15 continuous research under the AA. As discussed above, however, Plaintiffs fail to plead

16 that this interest is more than an indirect one, or that Plaintiffs can enforce the AA.

17 Plaintiffs’ interest is also distinguishable from those in cases involving trusts, insurance

18 policies, or regulations where the court found that a party can have sufficient interest even

19 when not directly affected by the contract or regulation that is the subject of the action. See

20 D. Cummins, 246 Cal. App. 4th at 1493 (distinguishing these cases because “all of the

21 parties included in the declaratory relief actions had a legal interest in, or would be directly

22 affected by, any interpretation of the terms of the insurance policies or regulation in

23 question”). Furthermore, Plaintiffs’ claims for declarations regarding Ludwig’s funding

24

25

26

13 Plaintiffs’ opposition consists of a footnote that contains a citation to a case that had

27 nothing to do with injunctive relief or third party beneficiary law, and an unsupported

assertion that Ludwig is barred under Rule 12(g)(2) from challenging subject matter

28

1 obligations under the AA are essentially that Ludwig breached the AA, which is duplicative

2 of and substantially similar to their breach of contract claim. Finally, it does not appear

3 necessary or proper at this stage to determine the contours of Ludwig’s obligation to UCSD

4 to fund active, continuous research under the AA given that the issue of Ludwig’s research

5 funding obligations to Plaintiffs can be resolved, at least in part, by litigating Plaintiffs’

6 claims related to the breach of their lab contracts. Accordingly, Plaintiffs have not

7 sufficiently alleged a plausible claim for declaratory relief under the AA.14

8 2. IP Agreements

9 Plaintiffs also seek a declaration that they have “no further obligations” under their

10 IP agreements, and have the right to “all uses” of their IP. (Doc. No. 26 at 54.) This is

11 duplicative of, substantially similar to, and commensurate with the relief sought under

12 Plaintiffs’ previously dismissed recission claim, (see Doc. No. 25 at 36), as well as

13 Plaintiffs’ claim for breach of the covenant of good faith and fair dealing under the IP

14 agreements. The contours of Ludwig’s obligations with respect to Plaintiffs’ royalty rights

15 under the IP agreements can be resolved, at least in part, by litigating Plaintiffs’ implied

16 covenant claim. Indeed, Plaintiffs allege no facts to support their declaratory relief claim

17 beyond those used to support their implied covenant claim. (See ¶¶ 145-47.) Under the

18 circumstances, therefore, Plaintiffs’ rights under the IP agreements do not appear to be a

19 proper subject for declaratory relief. See Gen. of Am. Ins. Co. v. Lilly, 258 Cal. App. 2d

20 465, 470 (1968) (“The object of the statute is to afford a new form of relief where needed

21 and not to furnish a litigant with a second cause of action for the determination of identical

22 issues.”). Accordingly, Plaintiffs fail to allege a plausible claim for declaratory relief

23 regarding their IP agreements.

24

25

26

14 Plaintiffs also seek declaratory relief with respect to Plaintiffs’ terms of employment.

27 (See ¶ 147:6-18 (clause six); see also ¶¶ 84-85 (discussing Section 7 of Ludwig’s Member-

Track Appointment and Promotion Policy).) Ludwig does not challenge this particular part

28

1 IV. CONCLUSION

2 For the foregoing reasons, Defendants’ Partial Motion to Dismiss is GRANTED IN

3 ||PART. Plaintiffs’ claim for declaratory relief (Count I) is DISMISSED with respect to

4 || Plaintiffs’ claims based on the AA and IP agreements. As noted above, Defendants do not

5 ||move to dismiss Plaintiffs’ claim for declaratory relief regarding the length of their terms

6 employment. (See § 147:6-18.) Plaintiffs’ claim for breach of the AA (Count IJ) is

7 DISMISSED. Plaintiffs’ claim for breach of the implied covenant in the AA and lab

8 ||agreements (Count IID) is DISMISSED. Defendants do not move to dismiss Plaintiffs’

9 ||claims against all Defendants for defamation per se (Count IV) or false light (Count V).

10 || Plaintiffs’ claim for breach of the IP agreements (Count VI) is DISMISSED. All

11 |/dismissals are without prejudice. Defendants’ motion to dismiss Plaintiffs’ claim for

12 || breach of the implied covenant in their IP agreements (Count VII), Plaintiffs’ claim for

13 || promissory estoppel under the AA (Count VII), and Plaintiffs’ claims for breach of their

14 || lab contracts (Counts IX-XV) is DENIED. Accordingly, Plaintiffs claim for breach of the

15 ||implied covenant in their IP agreements (Count VII), promissory estoppel under the AA

16 |}(Count VI), and breach of their lab contracts (Counts [IX-XV) are NOT DISMISSED.

17 || Plaintiffs do not request leave to amend the SAC. Accordingly, Defendants are to file their

18 || Answer to the SAC within 21 days of the date of this order.

19 IT IS SO ORDERED. = .

20 || DATED: November 25, 2020. 7. tly, —

7] FREY T. (MILLER

ited States District Judge

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