Dfinity USA Research LLC v. Bravick

Background

Dfinity USA Research LLC alleged that it employed Eric Bravick from May 4, 2020, through July 23, 2021. Dfinity alleged that it gave Bravick computers, servers, hard drives, and other equipment worth approximately $197,883. Their employment contract required Bravick to return company property when his employment ended and left disputes arising from the employment relationship subject to California law.

Dfinity alleged that Bravick did not return the equipment after his employment ended. Dfinity made written requests for its return and caused the Palo Alto Police Department to contact Bravick. According to the complaint, Bravick did not respond to those communications or return the equipment. Dfinity filed five causes of action: breach of contract, conversion, civil penalties under California Penal Code section 496(c), restoration of property under California Civil Code section 1712, and unjust enrichment or a constructive trust.

Bravick moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. He challenged the section 496(c) civil-penalties claim and the unjust-enrichment or constructive-trust claim.

Judicial Notice

The court denied Bravick’s request to take judicial notice of two emails sent on Dfinity’s behalf. The emails’ meaning and whether they gave Bravick sufficient notice were reasonably disputable. The court also declined to treat the emails as part of the complaint because the complaint did not directly mention them, refer to them extensively, or rely on them as the basis of the section 496(c) claim.

Civil Penalties Under California Penal Code Section 496(c)

Section 496(c) permits a person injured by a violation of section 496(a) or (b) to seek three times the actual damages, costs, and reasonable attorney’s fees. The court explained that a section 496(a) violation requires allegations that property was stolen or obtained through theft, that the defendant knew this, and that the defendant received or possessed the property.

The court rejected Bravick’s argument that Dfinity had to allege that he currently possessed or controlled the equipment. Current possession was not an element of the alleged violation. The court also held that Dfinity sufficiently alleged, at the pleading stage, that Bravick knowingly concealed or withheld the equipment. The court therefore denied the motion to the extent it argued that the section 496(c) claim was inadequately pleaded.

The court separately accepted Bravick’s argument that the section 496(c) claim was barred by California’s presumption against extraterritoriality. That presumption generally prevents a California statute from applying to conduct outside California unless the statute’s language, purpose, subject matter, or history clearly shows otherwise. The court held that the employment contract’s California choice-of-law clause did not overcome that presumption.

The court found no clear legislative intent for section 496 to apply broadly to conduct occurring in other states. As alleged, the wrongful withholding that supported Dfinity’s section 496(c) claim occurred solely in Michigan. The court therefore granted the motion as to the section 496(c) claim on extraterritoriality grounds, with leave to amend because the court could not conclude that amendment would be futile.

Unjust Enrichment and Constructive Trust

The court explained that an unjust-enrichment claim may be treated as a quasi-contract claim, meaning a claim seeking restitution even without enforcing an express contract. The existence of an express contract did not automatically prevent Dfinity from pursuing an alternative quasi-contract theory because Dfinity also alleged conversion and Bravick did not concede that a valid contract existed.

The court nevertheless granted the motion as to unjust enrichment because Dfinity’s complaint did not indicate that the claim was based on a quasi-contract theory. That dismissal was with leave to amend as stated in the order.

A constructive trust is generally a remedy rather than an independent claim, but the court noted that it is commonly pleaded as a separate claim. The court declined to dismiss the constructive-trust claim on that basis and held that Dfinity adequately alleged facts supporting the remedy: identifiable equipment, Dfinity’s right to that equipment under the employment contract, and Bravick’s alleged wrongful retention of it. The court therefore denied the motion as to the constructive-trust claim.

Disposition

Judge Edward J. Davila granted Bravick’s motion to dismiss in part. The court dismissed Dfinity’s section 496(c) civil-penalties cause of action as barred by the presumption against extraterritoriality and dismissed the unjust-enrichment claim for failure to state a claim. The motion was otherwise denied. The court granted Dfinity leave to amend and required any amended complaint to be filed within 14 days of the order’s posting.