Bridgepoint Construction Services Incorporated et al v. Lassetter et al

Filing 19

ORDER granting 14 Defendant's Motion to Dismiss. Count II of Plaintiffs' Complaint is dismissed with prejudice, and Plaintiffs may amend Counts I, III, and IV. Plaintiffs must file any Amended Complaint by August 2, 2016. If Plaintiffs fail to timely file an Amended Complaint, the Clerk shall dismiss this action without further Order of the Court. Signed by Judge John J Tuchi on 7/19/16.(LSP)

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1 WO NOT FOR PUBLICATION 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Bridgepoint Construction Services Incorporated, et al., 10 Plaintiffs, 11 12 13 No. CV-16-00078-PHX-JJT ORDER v. James Lassetter, Defendant. 14 15 16 At issue is Defendant James Lassetter’s Motion to Dismiss (Doc. 14, MTD), to 17 which Plaintiffs Bridgepoint Construction Services, Inc. and Norm Salter filed a 18 Response (Doc. 15, Resp.) and Defendants filed a Reply (Doc. 16, Reply). The Court 19 heard oral argument on the Motion on June 27, 2016. (Doc. 18.) For the reasons that 20 follow, the Court grants Defendant’s Motion to Dismiss. 21 I. BACKGROUND 22 In the Complaint (Doc. 1, Compl.), Plaintiffs allege the following facts. Non-party 23 Martin Newton formed Vista Oceano La Mesa Venture LLC (“Vista”) to develop a real 24 estate project in Santa Barbara, California. (Compl. ¶ 21.) Newton also formed Plaintiff 25 Bridgepoint Construction Services, Inc. (“Bridgepoint”) with his cousin, Plaintiff Norm 26 Salter, which provided construction services for the project. (Compl. ¶¶ 15, 21.) In order 27 to complete the project and qualify for a $9.45 million bank loan, Newton contacted 28 Defendant, who agreed to join the project through his entity Tenacious Adventures LLC 1 (“Tenacious”). (Compl. ¶¶ 19, 22.) Tenacious invested $3 million, and Vista was 2 restructured with Tenacious as the sole member and Point III Holdings LLC (“Point 3 III”)—solely owned by Newton—as the manager. (Compl. ¶¶ 22, 23.) Unforeseen 4 conditions and increased costs caused the project to be over budget and underfunded. 5 (Compl. ¶¶ 27, 28, 35.) Part of this shortfall was made up by Bridgepoint using its own 6 funds. (Compl. ¶ 36.) Vista and Bridgepoint drafted an amended development services 7 agreement, during which time Newton, with the alleged knowledge and approval of 8 Defendant, represented to Plaintiffs that they would share in the profits of the project by 9 receiving Point III’s share of the waterfall profit-sharing provision in the Vista operating 10 agreement. (Compl. ¶¶ 31, 32.) Newton and Defendant also orally promised that 11 Bridgepoint would be paid first, before any other amounts were paid to anyone except the 12 bank. (Compl. ¶ 38.) 13 Plaintiffs allege Newton made these representations in the ordinary course of his 14 responsibilities as manager of Vista, with Defendant’s knowledge, participation, 15 encouragement, and consent. (Compl. ¶ 57.) Plaintiffs allege that both Newton and 16 Defendant knew that these representations were false and made them with the intent to 17 defraud Plaintiffs. (Compl. ¶ 52.) Plaintiffs further allege that Newton and Defendant 18 knowingly and willfully conspired to cause a breach of fiduciary duties owed by Newton 19 to Plaintiffs, by requiring and encouraging Plaintiffs to finance the construction project 20 without any intention of reimbursing them. (Compl. ¶ 70.) 21 In the end, Vista earned a $7.3 million profit on the project, and Plaintiffs allege 22 $6.9 million “was diverted to Defendant in Arizona in order to render Vista judgment 23 proof.” (Compl. ¶ 45.) Plaintiffs therefore claim Defendant became indebted to Plaintiffs 24 for money had and received by Defendant for the use and benefit of Plaintiffs. (Compl. 25 ¶ 85.) Plaintiffs also claim Bridgepoint has not received its orally promised share of the 26 profits from the project. (Compl. ¶ 43.) 27 Based on the preceding allegations, Plaintiffs bring the following claims against 28 Defendant: Conspiracy to Commit Fraud (Count I), Conspiracy to Breach a Fiduciary -2- 1 Duty (Count II), Fraudulent Transfer (Count III), and Money Had and Received (Count 2 IV). (Compl. ¶¶ 48–89.) Defendant now moves to dismiss all of Plaintiffs’ claims against 3 him. 4 II. LEGAL STANDARD 5 Rule 12(b)(6) is designed to “test[] the legal sufficiency of a claim.” Navarro v. 6 Block, 250 F.3d 729, 732 (9th Cir. 2001). To survive dismissal for failure to state a claim 7 pursuant to Rule 12(b)(6), a complaint must contain more than “labels and conclusions” 8 or a “formulaic recitation of the elements of a cause of action”; it must contain factual 9 allegations sufficient to “raise a right to relief above the speculative level.” Bell Atl. 10 Corp. v. Twombly, 550 U.S. 544, 555 (2007). While “a complaint need not contain 11 detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief that is 12 plausible on its face.’” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 13 2008) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the 14 plaintiff pleads factual content that allows the Court to draw the reasonable inference that 15 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 16 (2009) (citing Twombly, 550 U.S. at 556). The plausibility standard “asks for more than a 17 sheer possibility that a defendant has acted unlawfully.” Id. 18 When analyzing a complaint for failure to state a claim for relief under Federal 19 Rule of Civil Procedure 12(b)(6), the well-pled factual allegations are taken as true and 20 construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 21 F.3d 1063, 1067 (9th Cir. 2009). Legal conclusions couched as factual allegations are not 22 entitled to the assumption of truth, Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and 23 therefore are insufficient to defeat a motion to dismiss for failure to state a claim. In re 24 Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). 25 III. ANALYSIS 26 As a threshold matter, the Court must decide which state’s substantive law applies 27 in this dispute. This is a diversity action under 28 U.S.C. § 1332. When a federal court 28 sits in diversity, it must look to the forum state's choice of law rules to determine the -3- 1 controlling substantive law. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 2 (1941). Arizona’s choice-of-law test looks for the state with the most significant 3 relationship to the claim. Bobbitt v. Milberg LLP, 801 F.3d 1066, 1071 (9th Cir. 2015). 4 The choice of law analysis in this case is straightforward. The underlying 5 transaction in this dispute is a land development project in California. The alleged 6 fraudulent misrepresentations took place in California and the potential damage would be 7 felt by a California corporation and a California citizen. The only connection to Arizona 8 is Defendant’s Arizona citizenship. Therefore, the Court finds the state of California has 9 the most significant relationship to this claim and California law applies. 10 A. 11 Plaintiffs claim that Defendant and Newton conspired to defraud them of their 12 share of money due from the project. (Compl. ¶¶ 48–63.) Where a plaintiff alleges fraud 13 or misrepresentation, Federal Rule of Civil Procedure 9(b) imposes heightened pleading 14 requirements. Specifically, “[a]verments of fraud must be accompanied by ‘the who, 15 what, when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp. 16 USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 17 (9th Cir. 1997)). The heightened pleading requirements of Rule 9(b) apply even where 18 “fraud is not a necessary element of a claim.” Vess, 317 F.3d at 1106. So long as a 19 plaintiff alleges a claim that “sounds in fraud” or is “grounded in fraud,” Rule 9(b) 20 applies. Id. “While a federal court will examine state law to determine whether the 21 elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) 22 requirement that the circumstances of the fraud must be stated with particularity is a 23 federally imposed rule.” Id. Conspiracy to Commit Fraud 24 Plaintiff’s Complaint does not state the circumstances that constitute the alleged 25 fraud with the particularity required by Rule 9(b). The majority of the allegations in the 26 Complaint are directed at conduct by Newton—or Newton and Defendant together—and 27 the remaining claims against Defendant individually are insufficient. At oral argument, 28 Plaintiffs cited Swartz v. KPMG, 476 F.3d 756 (9th Cir. 2007), to suggest they are not -4- 1 required to allege the particular fraud or false statements made by each and every 2 defendant or identify every detail in furtherance of the conspiracy. (June 27, 2016 Hr’g 3 Tr. at 128-29.) However, Plaintiffs must identify, at a minimum, the role of Defendant in 4 the alleged fraud. See Swartz, 476 F.3d at 765. And while Plaintiffs need not identify 5 every detail, there must be enough detail to plausibly support their allegations against 6 Defendant. See Vess, 317 F.3d at 1106. 7 Here, Plaintiffs’ claim fails to allege enough factual non-conclusory allegations to 8 support the claim that Defendant conspired to commit fraud. The bulk of the allegations 9 are against Newton and Defendant together, and the Complaint fails to allege any specific 10 acts or role by Defendant. This is insufficient under Rule 9(b). Further, the Complaint 11 fails to allege facts to support an inference that Defendant, and not Tenacious as sole 12 member of Vista, had a role in the fraud. Without alter ego allegations, the Court cannot 13 disregard the corporate forms of the parties to the alleged agreement, and the Court does 14 not find enough facts in the Complaint to state a claim to relief against Defendant that is 15 plausible on its face. Thus, the Court dismisses Plaintiffs’ claim of Conspiracy to Commit 16 Fraud (Count I), but grants Plaintiffs leave to amend if they can allege facts to plausibly 17 support an inference that Defendant is individually liable and had a specific role in the 18 conspiracy to commit fraud. 19 B. 20 Plaintiffs claim Defendant conspired with Newton to cause a breach of fiduciary 21 duties owed by Newton to Plaintiffs. (Compl. ¶¶ 64–76.) Liability arising from 22 conspiracy assumes that the co-conspirator is legally capable of committing the 23 underlying tort or that he or she owes a duty to plaintiff recognized by law. Applied 24 Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 457 (Cal. 1994). A non-fiduciary 25 cannot conspire to breach a duty owed only by a fiduciary. Am. Master Lease LLC v. 26 Idanta Partners, Ltd., 171 Cal. Rptr. 3d 548, 566 (Ct. App. 2014) (citing Everest Inv’rs 8 27 v. Whitehall Real Estate Ltd. P’ship XI, 123 Cal. Rptr. 2d 297 (Ct. App. 2002)). 28 Conspiracy to Breach Fiduciary Duty As a non-fiduciary, Defendant is legally incapable of breaching the fiduciary duty -5- 1 owed to Plaintiffs. The underlying dispute in this Complaint involves a transaction 2 between Bridgepoint and Vista, and Defendant is at least three levels removed from any 3 dealings with Plaintiffs. Defendant is the sole member of Tenacious, which in turn is the 4 sole member of Vista, which was involved in an arm’s length transaction with Plaintiff 5 Bridgepoint, of which Plaintiff Salter is a minority shareholder. Considering the non- 6 conclusory allegations of the Complaint, it is less than plausible that Defendant had any 7 individual responsibility or owed any fiduciary duty to Plaintiffs. Because Defendant 8 cannot commit a breach of fiduciary duty, the underlying tort in the alleged conspiracy, 9 he cannot be liable for a conspiracy to breach that duty. See Am. Master, 171 Cal. Rptr. 10 3d at 566. Thus, the Court dismisses with prejudice Plaintiffs claim of Conspiracy to 11 Breach a Fiduciary Duty (Count II). 12 C. 13 Plaintiffs allege that Newton and Defendant “by and through their entities” 14 conspired to delay, hinder, and defraud a creditor. (Compl. ¶¶ 77–83.) Under California 15 law, a fraudulent transfer occurs when a debtor makes a transfer with actual intent to 16 hinder, delay, or defraud any creditor of the debtor. Cal. Civil Code § 3439.04(a)(1). 17 While Plaintiffs’ allegation mirrors the statutory language, the claim is self-defeating. 18 Because this claim is against Defendant individually, Plaintiffs’ allegation that he acted 19 by and through his entity precludes his individual responsibility. Thus, the Court 20 dismisses Plaintiff’s claim of Fraudulent Transfer (Count III), but grants Plaintiffs leave 21 to amend. 22 D. 23 Plaintiffs claim Defendant is indebted to Plaintiffs for money intended for their 24 benefit. (Compl. ¶¶ 84–89.) Under California law, a claim for money had and received 25 arises when one person receives money which belongs to another. Avidor v. Sutter’s 26 Place, Inc., 151 Cal. Rptr. 3d. 804, 816 (Ct. App. 2013). Plaintiffs further state that under 27 California law they do not need to plead this claim with any specificity. (Resp. at 10.) 28 However, while state law may apply to the elements of the claim, the federal pleading Fraudulent Transfer Money Had and Received -6- 1 rules still control. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996) 2 (noting federal courts sitting in diversity apply state substantive law and federal 3 procedural law.) 4 Here, Plaintiffs have failed to allege facts to plausibly show how Defendant has 5 their money, and more importantly, how he acquired this money in his individual 6 capacity. As discussed, this dispute involves two entities: Bridgepoint and Vista. 7 Plaintiffs’ allegations are that money or profits from the project were received by Vista 8 (Compl. ¶ 45), the sole member of which was Tenacious. Without an alter ego claim, or a 9 plausible fraudulent transfer claim, the Court cannot plausibly infer that Defendant is 10 individually liable for receiving money Plaintiffs themselves allege was received by Vista 11 but meant for Plaintiffs. 12 Further, because this claim is grounded in fraud, Plaintiffs must plead with the 13 particularity required by Rule 9(b). See Vess, 317 F.3d at 1106. Plaintiffs allege that 14 Defendant knew they had a claim to a portion of the funds from the project, and that 15 Defendant, not Vista or Tenacious, somehow received their money over a two-year 16 period. This is insufficient under Rule 9(b). As with Plaintiffs’ other claims, the Court 17 cannot plausibly infer from Plaintiffs’ non-conclusory allegations that Defendant is 18 individually liable to the Plaintiffs for Money Had and Received. Thus, the Court 19 dismisses this claim (Count IV), but grants Plaintiffs leave to amend. 20 IV. CONCLUSION 21 The Court finds that Plaintiffs’ Complaint fails to meet the pleading requirements 22 of Rules 8(a) and 9(b). Considering only the non-conclusory, factual allegations, 23 Plaintiffs’ Complaint fails to state a claim under which relief can be granted. Further, 24 because the allegations in the Complaint relate to a dispute surrounding an arm’s length 25 transaction involving multiple entities, the Complaint fails to state how any of the alleged 26 actions can be attributed to Defendant in his individual capacity. Therefore, the Court 27 dismisses without prejudice Counts I, III, and IV. Because it does not appear Plaintiff can 28 -7- 1 cure the defects in Count II, Conspiracy to Breach a Fiduciary Duty, the Court dismisses 2 it with prejudice. See Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). 3 IT IS THEREFORE ORDERED granting Defendant’s Motion to Dismiss (Doc. 4 14). Count II of Plaintiffs’ Complaint is dismissed with prejudice, and Plaintiffs may 5 amend Counts I, III, and IV. 6 IT IS FURTHER ORDERED that Plaintiffs must file any Amended Complaint 7 by August 2, 2016. If Plaintiffs fail to timely file an Amended Complaint, the Clerk of 8 Court shall dismiss this action without further Order of the Court. 9 Dated this 19th day of July, 2016. 10 11 Honorable John J. Tuchi United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8-

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