Global Acquisitions Network et al v. Bank of America Corporation et al

Filing 38

ORDER GRANTING DEFENDANTS MOTION TO DISMISS WITH LEAVE TO AMEND CERTAIN CLAIMS 21 by Judge Dean D. Pregerson: The Court GRANTS the motion to dismiss as to all claims against BAC. However, the Court grants Plaintiffs leave to amend their complaint to add an allegation of alter ego liability against BAC and to add Bank of America, N.A. and BANA Holding Corporation as defendants. Additionally, the Court grants leave to amend the four fraud-based claims (Claims 5, 6, 7, 8) to plead, if possible, additional facts to meet Rule9(b)s particularity requirements, and to amend the conspiracy claim (Claim 9). Because it would be futile to amend the claims for negligence (Claim 2), breach of fiduciary duty (Claim 3), and accounting (Claim 11), the Court dismisses those claims without leave to amend. The conversion claim (Claim 10) is also dismissed without leave to amend, per Plaintiffs agreement that it does not apply to BAC. (lc). Modified on 2/19/2013. (lc).

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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GLOBAL ACQUISITIONS NETWORK,
a Wyoming corporation; SHAWN
CORNEILLE, an individual,

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Plaintiffs,
v.
BANK OF AMERICA CORPORATION,
a Delaware corporation;
ORIANA CAPITAL PARTNERS,LLC,
a Connecticut limited
liability company; ZANCO, a
company of unknown business
form, HLB FINANCIAL, LLC, a
company of unknown form; W/C
INVESTMETN HOLDINGS INC., a
Florida corporatin; DEXTER
CHAPPELL, an individual;
VALERIE CHAPPELL, an
individual; JON LEARY, an
individual; GLEN McINERNEY
also known as LARRY BENNETT,
an individual; CHRISTOPHER
RAY ZANCO, an individual;
BERNARD WOODSON, an
individual,
Defendants.
___________________________

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Case No. CV 12-08758 DDP (CWx)
ORDER GRANTING DEFENDANTS’ MOTION
TO DISMISS WITH LEAVE TO AMEND
CERTAIN CLAIMS
[Dkt. No. 21]

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Before the Court is Defendant Bank of America Corporation’s

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(“BAC”) Motion to Dismiss (Dkt. No. 21) all claims against it by

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Plaintiffs Global Acquisitions Network (“GAN”) and Shawn Corneille,

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GAN’s CEO and President.

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Civ. P. 12(b)(6) and Fed. R. Civ. P. 9(b).

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against BAC include negligence, breach of fiduciary duty, fraud in

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the inducement, fraud, intentional and negligent misrepresentation,

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and conspiracy.1

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and the other defendants, punitive damages, and an accounting.

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Plaintiffs also brought a claim for conversion (Claim 10) against

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“All Defendants,” but agree with BAC that this claim does not apply

BAC’s motion is made pursuant to Fed. R.
Plaintiffs’ claims

Plaintiffs seek $2.5 billion in damages from BAC

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to BAC and should be dismissed as to BAC.

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parties’ submissions, the court adopts the following order.

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I.

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Having considered the

BACKGROUND
Plaintiffs allege the following facts.

Plaintiffs are the

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owners of two collateralized mortgage obligations (“CMOs”) that

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have a combined face value of approximately $2.5 billion.

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¶ 20.)

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(collectively, the “Oriana Defendants”) agreed to use the CMOs as

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collateral for an approximately $18 million non-recourse loan to

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Plaintiffs.

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returned to Plaintiffs.

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Plaintiffs that they would be the only parties funding the loan,

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and that they would obtain a line of credit from Bank of

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America/Merrill Lynch to do so.

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executed a written contract for this transaction, which was dated

(Compl.

Defendants Dexter Chappell and Oriana Capital Partners

(Compl. ¶¶ 21, 25.)

After one year, the CMOs would be

(Compl. ¶ 22.)

The Oriana Defendants told

(Compl. ¶¶ 27, 28.)

The parties

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Plaintiffs’ complaint names a number of additional
defendants and includes certain other claims not brought against
BAC. Many of the other defendants were voluntarily dismissed by
Plaintiffs on January 2, 2013. (Dkt. 23.)
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effective February 1, 2012.2

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provided that within 24 hours of its execution, Plaintiffs would

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transfer the CMOs to the Oriana Defendants’ account,3 and Oriana

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would transfer the loan funds five to ten days later.

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41, 42 & Ex. 1 ¶¶ 5, 7.)

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(Compl. ¶ 41 & Ex. 1.)

The agreement

(Compl. ¶¶

Before entering into the contractual agreement for the loan

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and before transferring the CMOs, Plaintiffs told the Oriana

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Defendants that they would need an assurance from Bank of

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America/Merrill Lynch that the Oriana Defendants had the financial

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capacity to obtain the financing for the loan or to fund it in cash

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themselves.

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a conference call was allegedly held on February 9, 2012, at

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approximately 7:56 a.m., between Plaintiffs, the Oriana Defendants,

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and a Bank of America Bank Officer whose name Plaintiffs believe

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was Tom Hazlet or Hazlit.

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identified as originating from the number 800-432-1000, which

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Plaintiffs allege is a Bank of America phone number.

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33.)

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Officer, Hazlet or Hazlit, told Plaintiffs that Bank of America was

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the primary financial institution with which the Oriana Defendants

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did business and that it would be the institution funding the

(Compl. ¶¶ 29, 31.)

To address Plaintiffs’ concerns,

(Compl. ¶¶ 33, 34.)

The call was

(Compl. ¶

During this call, both the Oriana Defendants and the Bank

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An addendum to the agreement includes a provision modifying
the effective date of the agreement to February 22, 2012. (Compl.
¶ 51 & Ex. 4.) The copy of that addendum included in Exhibit 4 of
the complaint is signed only by Defendant Chappell; Plaintiff
Corneille’s signature line is blank. (Ex. 4.)
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The parties executed multiple addenda to the agreement that
both added other entities as lenders and changed the account to
which Plaintiffs should transfer the CMOs. The account was changed
from a first Fidelity account to an E*Trade account and then to a
Fidelity account with a different number than the first. (Compl.
¶¶ 48-52 & Ex. 4.)
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credit line for Plaintiffs’ non-recourse loan.

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Additionally, the Bank Officer stated that the Oriana Defendants

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had access to a credit line and had the financial resources to fund

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the loan.

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(Compl. ¶ 35.)

(Compl. ¶ 37.)

Based on these assurances from the Oriana Defendants and the

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Bank of America Bank Officer, Plaintiffs decided to transfer the

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CMOs to the Oriana Defendants.

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Fidelity account designated by the Oriana Defendants between

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February 27 and 29, 2012, and they confirmed receipt of the CMOs.

The CMOs were delivered to the

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(Compl. ¶¶ 40, 46, 47 & Ex. 3.)

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Defendants told Plaintiffs that they would be unable to fund the

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loan within the contractually required time period, so the parties

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agreed to extend the payout deadline to April 18.

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53.)

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On March 12, 2012, the Oriana

(Compl. ¶¶ 52,

By May 30, the Oriana Defendants still had not made the loan

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to Plaintiffs.

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parties communicated, primarily through counsel, by phone and email

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about the status of the loan and the CMOs.

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continually stated that they would disburse the loan funds soon,

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and they provided a series of excuses for their continual failure

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to do so, including delays caused by Bank of America procedures.

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(Compl. ¶¶ 58-61, 73-75.)

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Plaintiffs learned that the Fidelity account to which they had

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transferred the CMOs was actually owned by a third party.

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name had been added to the account, but the Oriana Defendants

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informed Plaintiffs that, as of July 7, 2012, the account had been

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closed and Oriana was unable to obtain any details about the

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closure because Defendant Chappell was not listed as an account

(Compl. ¶ 57.)

Over the next couple of months, the

The Oriana Defendants

Over the course of this communication,

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Oriana’s

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holder.

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stated that they did not know what had happened to the CMOs or

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where they were located.

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6, 2012, email,4 counsel for the Oriana Defendants admitted that

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they misrepresented their ability to fund the loan through a Bank

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of America credit line or with their own funds, but contended that

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the CMOs were never received in the Fidelity account.

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76.)

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October 2012, the Oriana Defendants still had not paid the loan or

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returned the CMOs, and Plaintiffs did not know where the CMOs were

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located.

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II.

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(Compl. ¶¶ 65, 66.)

At that time, the Oriana Defendants

(Compl. ¶ 67.)

Eventually, in an August

(Compl. ¶

As of the time of the filing of Plaintiff’s complaint in

(Compl. ¶¶ 85, 86.)

LEGAL STANDARDS
A complaint may be dismissed for failure to state a claim upon

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which relief can be granted.

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survive a motion to dismiss, a complaint must contain sufficient

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factual matter, accepted as true, to ‘state a claim to relief that

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is plausible on its face.’

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the plaintiff pleads factual content that allows the court to draw

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the reasonable inference that the defendant is liable for the

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misconduct alleged.”

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(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

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See Fed. R. Civ. P. 12(b)(6).

“To

A claim has facial plausibility when

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

Although the court must accept as true all of the factual

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allegations in a complaint, that principle “is inapplicable to

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legal conclusions.

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of action, supported by mere conclusory statements, do not

Threadbare recitals of the elements of a cause

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This August 6, 2012 email is not included with the other
email correspondence attached as the fifth exhibit to Plaintiffs’
complaint.
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suffice.”

Id.

To determine whether a complaint states a claim sufficient to

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withstand dismissal, a court considers the contents of the

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complaint and its attached exhibits, documents incorporated into

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the complaint by reference, and matters properly subject to

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judicial notice.

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U.S. 308, 322-23 (2007); Lee v. City of Los Angeles, 250 F.3d 668,

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688 (9th Cir. 2001).

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

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Where a motion to dismiss is granted, a district court should

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provide leave to amend unless it is clear that the complaint could

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not be saved by any amendment.

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Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (citation omitted).

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III. DISCUSSION

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Manzarek v. St. Paul Fire & Marine

The essence of Plaintiffs’ claims against BAC is that

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Plaintiffs reasonably relied on the Bank of America Bank Officer’s

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representations about the Oriana Defendants’ financial capacity,

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and based on those representations, entered into the loan agreement

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and transferred the CMOs to Oriana.

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vicariously liable for the actions of its employee, the Bank

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Officer.

Plaintiffs contend that BAC is

(Opp. at 5.)

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BAC’s motion to dismiss raises three primary arguments in

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response: BAC is a holding company that does not engage in banking

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operations; BAC owed no duty of care to Plaintiffs and was not in a

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fiduciary relationship with them; and Plaintiffs fail to plead

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their fraud-related claims with particularity as required under

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Rule 9(b).

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(Mot. at 1-2.)

The Court notes at the outset that it has serious doubts about
the plausibility of the scenario alleged by Plaintiffs.
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It seems

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highly dubious that an individual or a corporation would depart

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with something of great value on the basis of an alleged oral

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representation made over the phone by someone of uncertain identity

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who purports to work for a bank.

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value” of the CMOs may be billions of dollars, they may in fact be

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worthless.

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to all claims for the reasons discussed below, the Court affords

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Plaintiffs an opportunity to amend their complaint with respect to

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certain claims.

Also, while the purported “face

Nevertheless, although the Court GRANTS BAC’s motion as

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A.

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As a threshold matter, BAC contends that all of Plaintiffs’

BAC’s Status as a Holding Company

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claims against it fail because it is not a proper defendant.

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states that it is a holding company that “does not make, purchase,

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or service any loans or maintain bank accounts, or directly employ

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any individuals that do so.”

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Oriana Defendants could not have had an account with BAC, and that

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it would not have been in a position to verify that they had the

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financial resources available to fund Plaintiffs’ loan.

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5.)

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BAC

BAC therefore contends that the

(Mot. at

BAC requests that the Court take judicial notice of the fact

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that it is a holding company.

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copy of a record available on the FDIC’s website that classifies

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Bank of America Corporation as a “bank holding company” and that

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displays certain financial data about BAC.

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Additionally, BAC offers a copy of a list of holding companies from

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the Federal Reserve’s National Information Center website that

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ranks BAC as the second largest holding company.

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This information, from two different government websites, “can be

(Dkt. 22.)

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In support, it offers a

(RJN Ex. 1.)

(RJN Ex. 2.)

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accurately and readily determined from sources whose accuracy

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cannot reasonably be questioned” and therefore “is not subject to

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reasonable dispute.”

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takes judicial notice of BAC’s status as a holding company.

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Fed. R. Evid. 201(b).

The Court therefore

However, on its own, the fact that BAC is a holding company is

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insufficient to dismiss it from this action.

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establish that bank holding companies categorically do not engage

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in banking activities of the kind at issue in this case, and BAC

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provides no other legal or factual support to show that either it

BAC’s exhibits do not

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or other holding companies generally do not do so.

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nothing in the complaint or in BAC’s motion and request for

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judicial notice that indisputably establishes that the Bank Officer

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who made alleged misrepresentations to Plaintiffs was not a BAC

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employee.

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Cir. 2011) (noting that on motion to dismiss, the court “may not,

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on the basis of evidence outside of the Complaint, take judicial

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notice of facts favorable to Defendants that could reasonably be

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disputed”).

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Thus, there is

See U.S. v. Corinthian Colleges, 655 F.3d 984, 999 (9th

Plaintiffs do not dispute BAC’s holding company status,

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however, and they concede that BAC was not directly involved in the

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conduct alleged.

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“assume BOA Employee [the Bank Officer] is an employee of Bank of

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America, N.A.”

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of BAC.5

In their opposition, Plaintiffs state that they

(Opp. at 6.)

Bank of America, N.A. is a subsidiary

However,

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Plaintiffs request that the Court take judicial notice of
the fact that Bank of America, N.A. is a subsidiary of BANA Holding
Corporation, which is itself a subsidiary of BAC. (RJN ¶¶ 2-4.)
BAC does not dispute the corporate structure as presented by
Plaintiffs, and it is clear from the Bank of America website—a
(continued...)
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It is the general rule that a parent corporation
and its subsidiary will be treated as separate legal
entities. Current Inc. v. State Board of Equalization,
24 Cal. App. 4th 382, 391, 29 Cal. Rptr. 2d 407 (Ct.
App. 1994); Laird v. Capital Cities/ABC, Inc., 68 Cal.
App. 4th 727, 741, 80 Cal. Rptr. 2d 454 (Ct. App.1998).
The alter ego doctrine is one exception to the rule
where a parent corporation will be found liable for the
actions of its subsidiary when there is (1) such unity
of interest and ownership that the separate
personalities of the corporation and the individual no
longer exist, and (2) that if the acts are treated as
those of the corporation alone, an inequitable result
will follow. Automotriz Del Golfo De California v.
Resnick, 47 Cal. 2d 792, 796, 306 P.2d 1 (1957); United
States v. Healthwin–Midtown Convalescent, 511 F. Supp.
416, 418 (C.D. Cal. 1981) affirmed 685 F.2d 448 (9th
Cir.1982). Another exception to the general rule is
when the subsidiary is the agent of the parent, which
requires a showing that the parent so controls the
subsidiary as to cause the subsidiary to be become
merely the instrumentality of the parent. Laird, 68
Cal. App. 4th at 741, 80 Cal. Rptr. 2d 454. A parent
corporation contributing funds to a subsidiary is not
enough to find alter ego or agency liability. Sonora
Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523,
539, 541, 99 Cal. Rptr. 2d 824 (Ct. App. 2000).

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Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1192
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(N.D. Cal. 2009) (dismissing Bank of America as a defendant because
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the plaintiff’s allegation—that Bank of America purchased
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Countrywide—was limited to “claiming a financial link between the
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parent and subsidiary”).
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Here, Plaintiffs have pleaded no facts to support an alter ego
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claim or to show that BAC “so controls” Bank of America, N.A. such
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that the latter is “merely the instrumentality” of the former.
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Indeed, Plaintiffs’ complaint treats “Bank of America” as a single
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(...continued)
publically-accessible website whose reliability as a source of
corporate information about Bank of America cannot reasonably be
questioned—that Bank of America, N.A. is a wholly owned subsidiary
of BAC. See
http://about.bankofamerica.com/en-us/our-story/our-company.html.
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entity.

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liable for the Bank Officer’s conduct because BAC’s Code of Ethics

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applies to BAC’s subsidiary companies.6

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its subsidiaries’ employees to act according to the same ethical

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standards as BAC employees does not create a sufficient link to

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impose vicarious liability at this stage.

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separation between parent companies and subsidiaries, and

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Plaintiffs’ concession that the Bank Officer with whom Plaintiff

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Corneille allegedly spoke on the phone was a Bank of America, N.A.

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Plaintiffs argue that BAC should be held vicariously

Simply because BAC expects

Given the legal

employee, the Court dismisses BAC as an improper defendant.
However, Plaintiffs’ argue that they should be granted leave

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to amend their complaint to plead alter ego liability against BAC,

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and to add BAC’s subsidiaries, BANA Holding Corporation and Bank of

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America, N.A., as doe defendants.

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should be granted depends on whether Plaintiffs could state a claim

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against those entities, or if such an amendment would be futile.

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See Corinthian Colleges, 655 F.3d at 995 (stating that the

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“standard for granting leave to amend is generous” and that where

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“there is no evidence of delay, prejudice, bad faith, or previous

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amendments . . . leave to amend turns on whether amendment would be

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futile” (internal quotation marks and citations omitted)).

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Court therefore next addresses the merits of Plaintiffs’ claims

Whether such leave to amend

The

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Plaintiffs request that the Court take judicial notice of
the BAC Code of Ethics and its application to all of BAC’s
subsidiaries. (RJN ¶ 1.) Although the Court could take judicial
notice of the Code’s existence, this does not mean that the Court
may take judicial notice of the inference Plaintiffs wish to
establish—that BAC substantially controls Bank of America, N.A.
such that it should be liable for the latter’s employee’s conduct.
Thus, the Code of Ethics is irrelevant.
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against BAC, assuming, for the purpose of this analysis, that it

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remains a proper defendant.

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B.

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“Under California law, [t]he threshold element of a cause of

Negligence Claim (Claim 2)

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action for negligence is the existence of a duty to use due care

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toward an interest of another that enjoys legal protection against

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unintentional invasion.”

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1192 (9th Cir. 2001) (internal quotation marks omitted).

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Plaintiffs allege that the Bank of America Bank Officer, acting as

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an agent for BAC, created a duty of care to Plaintiffs by assuring

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them of the Oriana Defendants’ financial capacity to make the non-

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recourse loan.

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matter of law to state a negligence claim against either the Bank

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Officer or BAC, with whom Plaintiffs had no contractual

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relationship.

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Glenn K. Jackson, Inc. v. Roe, 273 F.3d

(Compl. ¶¶ 94-95.)

This is insufficient as a

California courts have recognized that in some cases

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“suppliers and evaluators of information”—such as auditors and real

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estate appraisers—may have a duty to third parties who are not

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their clients but who are known and intended beneficiaries of the

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information they supply.

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1200 (citing Bily v. Arthur Young & Co., 3 Cal. 4th 370 (Cal.

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1992)).

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that auditors have a duty to the “narrow class of persons who . . .

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may reasonably come to receive and rely on an audit report . . . .

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Such persons are specifically intended beneficiaries of the audit

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report who are known to the auditor and for whose benefit it

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renders the audit report.”

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concluded that the auditors of a computer company’s financial

See Glenn K. Jackson, 273 F.3d at 1199-

For example, in Bily, the California Supreme Court held

3 Cal. 4th at 406-07.

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The Court

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statements therefore had a duty to the plaintiffs-investors who had

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relied on the audit reports in deciding to invest in the company,

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which quickly went bankrupt.

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on auditors, the Court noted that “[a]ccountants are not unique in

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their position as suppliers of information and evaluations for the

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use and benefit of others.

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attorneys, architects, engineers, title insurers and abstractors,

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and others also perform that function.”

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plausible that in some circumstances, a bank officer also fits into

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Id. at 377-78.

Although Bily focused

Other professionals, including

Id. at 410.

It is

this category of information suppliers.
However, the Bily Court expressly restricted the auditors’

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duty and liability to claims based on negligent misrepresentation,

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holding that the intended beneficiaries of an audit report “may not

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recover on a pure negligence theory.”

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client, “i.e., the person who contracts for or engages the audit

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services,” may recover on a theory of general negligence.

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only possible exception the Court noted is if the contract

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expressly identified a particular third party as a third party

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beneficiary.

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1199-1200 (discussing negligent misrepresentation claims and third

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party beneficiaries to a contract as the two exceptions to the Bily

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rule that ordinarily information suppliers owe no duty to third

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parties).

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Id. at 406.

Only the

Id.

The

Id. at n.16; see also Glenn K. Jackson, 273 F.3d at

Plaintiffs do not allege that they were a Bank of America

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client or a third party beneficiary to a contract between Bank of

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America and the Oriana Defendants.

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with an interest in the information that the Bank Officer had to

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convey, which may or may not give rise to a duty under a theory of
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They were simply a third party

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negligent misrepresentation, but Bily forecloses Plaintiffs’ pure

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negligence claim.

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BAC.

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negligence claim against any BAC subsidiary for the same reasons,

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the Court denies Plaintiffs leave to amend its negligence claim.

The Court therefore dismisses this claim as to

Because it would be futile for Plaintiffs to assert a

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C.

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“To state a cause of action for breach of fiduciary duty, a

Breach of Fiduciary Duty (Claim 3)

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plaintiff must show the existence of a fiduciary relationship, its

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breach, and damage proximately caused by that breach.”

Roberts v.

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Lomanto, 112 Cal. App. 4th 1553, 1562 (Cal. Ct. App. 2003)

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(internal quotation marks omitted).

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support the existence of a fiduciary relationship between them and

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the Bank Officer or BAC.

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Plaintiffs’ allegations do not

A fiduciary relationship is a relationship of confidence or

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trust where one party is bound to act in good faith for the benefit

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of the other party.

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25, 29-30 (Cal. Ct. App. 2003).

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relationships in the commercial context include

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trustee/beneficiary, directors and majority shareholders of a

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corporation, business partners, joint adventurers, and

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agent/principal.”

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generally does not owe a fiduciary duty to a borrower.

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Sumitomo Bank, 17 Cal. App. 4th 974, 979 (Cal. Ct. App. 1993).

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exception to this general rule is when a lender “excessively

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controls or dominates the borrower.”

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Operating Engineers v. Fed. Ins. Co., 307 F.3d 944, 955 (9th Cir.

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2002) (citing Credit Managers Ass’n v. Superior Court, 51 Cal. App.

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3d 352, 359-61 (Cal. Ct. App. 1975)).

Wolf v. Superior Court, 106 Cal. App. 4th

Id. at 30.

“Traditional examples of fiduciary

Under California law, a lender

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See Kim v.
An

Pension Trust Fund for

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Plaintiffs allege that through his assurances that the Oriana

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Defendants were capable of funding the non-recourse loan, the Bank

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of America Bank Officer “occupied a position of authority and trust

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with Plaintiffs,” and “[d]ue to the relationship of trust fostered

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by Defendants [BAC] and [the Bank Officer], a fiduciary

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relationship existed between Plaintiffs and these Defendants.”

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(Compl. ¶¶ 107, 108.)

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not illustrate any kind of relationship between Plaintiffs and the

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Bank Officer that is akin to the examples listed above.

These are conclusory allegations and they do

Moreover,

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the Oriana Defendants were acting as the lenders in the transaction

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at issue, and while it may be arguable that they owed a fiduciary

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duty based on other factors, in their role as lenders they did not

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owe Plaintiffs such a duty.

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inform Plaintiffs that the Oriana Defendants had the financial

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capacity to act as a lender.

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Oriana Defendants or the Bank Officer would have exercised control

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over Plaintiffs’ loan had it been made, so the exception to the

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general rule for lenders does not apply.

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The Bank Officer’s role was merely to

There is no allegation that the

The case cited by Plaintiffs, Bear Stearns & Co. v. Buehler,

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432 F. Supp. 2d 1024 (C.D. Cal. 2000), is inapposite.

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involved the liability of a brokerage house to non-customers who

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were clients of an independent investment advisor who stole his

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clients’ money.

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investment advisor may be considered a fiduciary.”

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The court concluded that because the brokerage house lent its

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credibility to the investment advisor and actively encouraged the

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clients to invest with him, but subsequently failed to monitor his

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investment activities, the brokerage house could be liable for

That case

The court stated that, “like a trustee, an

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Id. at 1027.

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breaching a fiduciary duty to the clients.

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Plaintiffs do not allege that the Bank Officer actively encouraged

3

them to enter into a loan agreement with the Oriana Defendants.

4

Nor are the Oriana Defendants, as lenders, in a fiduciary role as

5

was the investment advisor in Buehler.

6

that they expected the Bank Officer to act for their benefit, or

7

that the Bank Officer agreed to do so.

8

Plaintiffs fail to allege that a fiduciary relationship existed

9

between them and the Bank Officer such that BAC or its subsidiaries

Id. at 1027-29.

Here,

Plaintiffs do not allege

For these reasons,

10

could be held liable for a breach of that relationship.

11

could plausibly be alleged to state such a claim.

12

therefore dismisses this claim without leave to amend.

13

D.

No facts

The Court

Claims for Fraud in the Inducement, Fraud, Intentional
and Negligent Misrepresentation (Claims 5, 6, 7, 8)

14
Intentional misrepresentation is the same as “actual fraud.”
15
See Rodriguez v. JP Morgan Chase & Co., 809 F. Supp. 2d 1291, 1296
16
(S.D. Cal. 2011) (citing Anderson v. Deloitte & Touche, 56 Cal.
17
App. 4th 1468, 1474 (Cal. Ct. App. 1997)).

“A cause of action for

18
fraud requires the plaintiff to prove (a) a knowingly false
19
misrepresentation by the defendant, (b) made with the intent to
20
deceive or to induce reliance by the plaintiff, (c) justifiable
21
reliance by the plaintiff, and (d) resulting damages.”

Glenn K.

22
Jackson, 273 F.3d at 1201 (quoting Wilkins v. Nat’l Broad. Co., 71
23
Cal. App. 4th 1066 (Cal. Ct. App. 1999)) (internal quotation marks
24
omitted).

The elements of a claim for fraud in the inducement of a

25
contract are the same as for actual fraud.

Rodriguez, 809 F. Supp.

26
2d at 1296 (citing Cal. Civ. Code § 1572; Zinn v. Ex–Cell–O Corp.,
27
148 Cal. App. 2d 56, 68 (Cal. Ct. App. 1957)).
28
15

1

Under California law, “negligent misrepresentation is . . . a

2

species of the tort of deceit.

3

statements, honestly believing that they are true, but without

4

reasonable ground for such belief, he may be liable for negligent

5

misrepresentation, a form of deceit.”

6

Justifiable reliance on the misrepresentation by the plaintiff is a

7

key element of a cause of action for negligent misrepresentation.

8

Id. at 413.

Where the defendant makes false

Bily, 3 Cal. 4th at 407.

9

“In alleging fraud or mistake, a party must state with

10

particularity the circumstances constituting fraud or mistake.”

11

Fed. R. Civ. P. 9(b).

12

that both claims for fraud and negligent misrepresentation must

13

meet Rule 9(b)’s particularity requirements.”

14

Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1141 (C.D. Cal. 2003);

15

but see Petersen v. Allstate Indem. Co., 281 F.R.D. 413, 418 (C.D.

16

Cal. 2012) (rejecting Neilson and the district court cases on which

17

it relied, and holding that Rule 9(b) does not apply to negligent

18

misrepresentation claims).

19

place, and specific content of the false representations as well as

20

the identities of the parties to the misrepresentation.”

21

Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (internal

22

quotation marks omitted).

23

the “plaintiff must set forth what is false or misleading about a

24

statement, and why it is false.”

25

42 F.3d 1541, 1548 (9th Cir. 1994).

26

part of the circumstances constituting fraud, an explanation as to

27

why the disputed statement was untrue or misleading when made.”

28

Id. at 1549.

“It is well-established in the Ninth Circuit

Neilson v. Union

“[T]he pleader must state the time,

Odom v.

The Ninth Circuit has emphasized that

In re GlenFed, Inc. Sec. Litig.,
This means setting forth, “as

“The fact that an allegedly fraudulent statement and
16

1

a later statement are different does not necessarily amount to an

2

explanation as to why the earlier statement was false.”

Id.

3

All of Plaintiffs’ fraud-based claims hinge on the core

4

allegation that the Bank Officer told Plaintiffs that the Oriana

5

Defendants had the ability to access a credit line and had the

6

independent financial capacity to fund the non-recourse loan,

7

knowing that the statements were false or with no reasonable

8

grounds for believing that the statements were true, with the

9

intention of inducing Plaintiffs to enter into the loan agreement

10

and transfer their CMOs to the Oriana Defendants.

11

24, 131-32, 136, 141, 143.)

12

justifiably relied on the Bank Officer’s representations in

13

deciding to enter the loan agreement and transfer the CMOS.

14

(Compl. ¶¶ 132, 137, 143.)

15

(Compl. ¶¶ 123-

Plaintiffs allege that they

Plaintiffs allegations meet the “who, what, when, and where”

16

requirements of Rule 9(b).

17

statements, and that they were made by a person named Tom Hazlet or

18

Tom Hazlit during a conference call that took place on February 9

19

around 7:56 a.m., and that the call originated from a number

20

associated with Bank of America.

21

BAC argues that Plaintiffs’ “cannot identify the speaker who

22

allegedly made the misrepresentations during the phone call” (Mot.

23

at 10), Plaintiffs do allege the name of the speaker.

24

information about how exactly his name is spelled and his specific

25

position and department are facts that can be established through

26

discovery.

27
28

Plaintiffs allege the contents of the

(Compl. ¶¶ 33-35, 37.)

Although

Further

BAC also argues that Plaintiffs’ allegation that the call
originated from the number 800-432-1000 does not support the
17

1

allegation that the call came from Bank of America.

2

request that the Court take judicial notice of the fact that this

3

number belongs to Bank of America, and in support, they reference a

4

printout from the website 411.com.

5

website does not support taking judicial notice of Bank of

6

America’s ownership of the number, Bank of America’s own website

7

lists that phone number on its contact page.

8

https://www.bankofamerica.com/contactus/contactus.go?topicId=checki

9

ng_savings.

(RJN ¶ 5.)

Plaintiffs

Although this

See

Although Plaintiffs’ inexplicably did not proffer that

10

website as support, the Court may take judicial notice of this fact

11

on its own, since the complaint “expressly refers to and

12

necessarily relies on” the phone number as belonging to Bank of

13

America.

14

courts may consider evidence not attached to the complaint but “on

15

which the complaint necessarily relies if: (1) the complaint refers

16

to the document; (2) the document is central to the plaintiff’s

17

claim; and (3) no party questions the authenticity of the

18

document”).

19

America’s website can reasonably be questioned.

20

allegations in the complaint as true, as the Court must on a motion

21

to dismiss, Plaintiffs’ have sufficiently alleged that the speaker

22

on the phone was a representative of Bank of America.

23

See Corinthian Colleges, 655 F.3d at 999 (stating that

BAC can hardly claim that the accuracy of Bank of
Thus, taking the

However, there are two reasons why Plaintiffs’ fraud-based

24

claims fail.

25

Plaintiffs’ complaint flatly contradicts the allegation that

26

Plaintiffs relied on and were induced by the Bank Officer’s

27

statements when entering into the loan agreement with the Oriana

28

Defendants.

First, the evidence submitted as exhibits to

The loan agreement, which is signed by both Plaintiff
18

1

Corneille and Defendant Chappell, is dated as being effective on

2

February 1, 2012.

3

Officer did not occur until February 9, 2012.

4

Ex. 1.)

5

negligent misrepresentation claim, and it is a necessary element of

6

all of Plaintiffs’ fraud-based claims.

7

(stating that “the gravamen of the cause of action for negligent

8

misrepresentation” against information suppliers by non-client

9

third parties “is actual, justifiable reliance on the

However, the alleged phone call with the Bank
(Compl. ¶¶ 33, 41 &

The Bily Court emphasized reliance as a key element of a

See Bily, 3 Cal. 4th at 413

10

representations” made by the defendant).

11

contract between Plaintiffs and the Oriana Defendants was already

12

effective prior to the time the Bank Officer made his alleged

13

misrepresentations, it is implausible that Plaintiffs relied on

14

those statements when they chose to enter into the loan agreement,

15

and the fraud claims are dismissible on this basis.

16

v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (“We

17

have held that a plaintiff can . . . plead himself out of a claim

18

by including unnecessary details contrary to his claims.”).

19

Given that the loan

See Sprewell

Moreover, Plaintiffs allege no facts to show that any reliance

20

was justifiable.

21

Officer relied on in making his statements, nor do they allege that

22

they requested any supporting documentation from the Bank Officer

23

or any additional information about his ability to comment on the

24

Oriana Defendants’ financial resources.

25

sophisticated parties who owned complex securities and were

26

represented by counsel in their transaction with Oriana.

27

because they failed to do adequate due diligence does not make the

28

Bank Officer’s statements fraudulent, and it makes their alleged

They do not allege what kind of evidence the Bank

19

Plaintiffs are purportedly

Simply

1

reliance on those statements less justifiable.

2

4th at 413 (emphasizing the “indispensability of justifiable

3

reliance” on the misrepresentations); see also In re GlenFed, 42

4

F.3d at 1198 (noting that one of the policy concerns discussed by

5

the Bily Court as relevant to the existence of a duty is that

6

“parties should be encouraged to rely on their own ability to

7

protect themselves through their own prudence, diligence and

8

contracting power”).

See Bily, 3 Cal.

9

The second reason Plaintiffs’ fraud-based claims must be

10

dismissed is because they fail to plead those claims with the level

11

of particularity required by Rule 9(b).

12

do not allege why the Bank Officer’s statements were false at the

13

time they were made.

14

Plaintiffs’ only allegation that the Bank Officer’s statements were

15

false is that the Oriana Defendants later “could not obtain a

16

credit line to fund the [non-recourse loan], and could not

17

independently fund the [non-recourse loan] themselves.”

18

124.)

19

August 6, 2012 email that they had misrepresented their ability to

20

fund the loan.

21

Specifically, Plaintiffs

See In re GlenFed, 42 F.3d at 1548-49.

(Compl. ¶

Plaintiffs allege that the Oriana Defendants admitted in an

(Compl. ¶ 76.)

Merely because at a later time the Oriana Defendants did not

22

disburse the loan funds and stated that they did not have the

23

capacity to do so does not mean that the Bank Officer’s statements

24

about the Oriana Defendants’ financial resources were untrue at

25

that earlier time.

26

inconsistent statements that show that an earlier statement has

27

always been false and later inconsistent statements that do not do

28

so because of the possibility of intervening events.

The GlenFed court distinguished between later

20

In re

1

GlenFed, 42 F.3d at 1548-49.

2

may be particularly relevant in securities fraud cases, where “an

3

event internal to the company, such as the reevaluation of assets”

4

may be the actual cause of the apparent discrepancy between an

5

allegedly false statement and a later inconsistent statement.

6

The latter scenario, the court noted,

Id.

In such cases, the court noted, the “plaintiff would generally

7

be required to elaborate circumstances contemporary to the alleged

8

false statement to explain how and why the statement was misleading

9

when made.”

Id. at 1549.

Plaintiffs have not done so here.

They

10

allege no facts to show that the Bank Officer had access to other

11

information at the time of the phone call that would have

12

contradicted his assessment of the Oriana Defendants’ financial

13

resources.

14

“statement by the defendant along the lines of ‘I knew it all

15

along’ might suffice” to plead falsity with the requisite

16

particularity, and although the Oriana Defendants’ alleged

17

admission that they had misrepresented their financial status might

18

constitute such a statement, that admission cannot be imputed to

19

the Bank Officer, nor does it show that the Bank Officer “knew it

20

all along.”

21

Although the GlenFed court acknowledged that a

Id. at 1549 n.9.

In sum, the Court dismisses Plaintiffs’ four fraud-based

22

claims for the foregoing reasons.

23

not previously amended their complaint, the Court will grant them

24

an opportunity to do so to plead these claims with greater

25

particularity.

26

that could resuscitate these claims given the timing of the phone

27

call relative to the effective date of the loan agreement.

28

Plaintiffs should therefore bear in mind that failure to plead any

However, because Plaintiffs have

The Court is doubtful whether there are any facts

21

1

additional facts to show that they plausibly relied on the Bank

2

Officer’s February 9th statements—despite their pre-existing

3

obligation to transfer the CMOs according to the February 1st

4

agreement—may ultimately foreclose even their amended claims.

5

Additionally, any amended complaint must provide specific details

6

identifying the CMOs and setting forth the fair market value of the

7

CMOs at the time of the filing of the complaint, along with the

8

basis of the valuation.

9

and incorporate any telephone records allegedly evidencing the

Further, any amended pleading must attach

10

telephone call in question.

11

information may bear on the amount in controversy and the

12

plausibility of the allegations.

13

E.

These orders are made because the

Conspiracy (Claim 9)

14

“Under California law, it is well settled that there is no

15

separate tort of civil conspiracy, and there is no civil action for

16

conspiracy to commit a recognized tort unless the wrongful act

17

itself is committed and damage results therefrom.”

18

Century Ins. Co., 934 F.2d 203, 208 (9th Cir. 1991) (internal

19

quotation marks omitted) (citing Kerr v. Rose, 216 Cal. App. 3d

20

1551, 1564 (Cal. Ct. App. 1990)).

21

conspiracy lies in the fact that it renders each participant in the

22

wrongful act responsible as a joint tortfeasor for all damages

23

ensuing from the wrong, irrespective of whether or not he was a

24

direct actor and regardless of the degree of his activity.”

25

Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th

26

503, 511 (Cal. 1994) (internal quotation marks omitted).

27

nature, tort liability arising from conspiracy presupposes that the

28

coconspirator is legally capable of committing the tort, i.e. that
22

Harrell v. 20th

“[T]he major significance of the

“By its

1

he or she owes a duty to plaintiff recognized by law and is

2

potentially subject to liability for breach of that duty.”

3

plaintiff must “clearly allege specific action on the part of each

4

defendant that corresponds to the elements of a conspiracy . . . .

5

[The] plaintiff cannot indiscriminately allege that conspiracies

6

existed between and among all defendants.”

7

Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 948 (N.D. Cal.

8

2003).

Id.

A

AccuImage Diagnostics

9

Here, Plaintiffs’ conspiracy claim is pled as a separate cause

10

of action, and it states only that “all of the Defendants, and each

11

of them knowingly and willfully conspired and agreed among

12

themselves to defraud Plaintiffs and obtain custody and control

13

over [Plaintiffs’] CMOs.”

14

the acts in furtherance of the conspiracy include “inducing

15

Plaintiffs to enter into the [loan agreement] by [the Oriana

16

Defendants] representing they could obtain a credit line for the

17

[loan] or fund the [loan] themselves” and “inducing Plaintiffs to

18

transfer [their] CMOs into the control and custody of [the Oriana

19

Defendants] for the alleged purpose of obtaining the [loan],

20

pursuant to the [loan agreement].”

21

Although the Bank of America Bank Officer is listed as a defendant

22

under the heading for the conspiracy claim, the allegations do not

23

specifically mention the Bank Officer’s actions, and BAC is

24

entirely absent from this claim.

25

allege any specific action on the part of any Bank of America

26

defendants with respect to the alleged conspiracy.

27
28

(Compl. ¶ 146.)

Plaintiffs allege that

(Compl. ¶ 147(a), (b).)

Plaintiffs therefore fail to

Additionally, BAC argues that Plaintiffs’ conspiracy claim
fails because BAC does not owe Plaintiffs any underlying duty.
23

1

Although this is true with respect to negligence and fiduciary

2

duty, the Bank Officer, and therefore potentially BAC or its

3

subsidiary, Bank of America, N.A., may owe Plaintiffs a duty in the

4

context of Plaintiffs’ fraud-based claims.

5

406-07 (holding that auditors may be held liable to the

6

specifically intended beneficiaries of an audit report under a

7

theory of negligent misrepresentation).

8

fraud-based claims, the Court dismisses Plaintiffs’ conspiracy

9

claim against BAC, but grants Plaintiffs leave to amend the claim

10

See Bily, 3 Cal. 4th at

Thus, as with Plaintiffs’

in the context of those fraud claims.

11

F.

12

As BAC contends, an accounting is generally an equitable

Accounting (Claim 11)

13

remedy, rather than a distinct cause of action.

14

F. Supp. 2d at 1191.

15

action when a defendant has a fiduciary duty to a plaintiff which

16

requires an accounting, and that some balance is due to the

17

plaintiff that can only be ascertained by an accounting.

18

accounting is not required when the amount in dispute is certain or

19

ascertained by a simple calculation.”

20

citations omitted); see also Civic Western Corp. v. Zila

21

Industries, Inc., 66 Cal. App. 3d 1, 14 (Cal. Ct. App. 1977) (“A

22

suit for an accounting will not lie where it appears from the

23

complaint that none is necessary or that there is an adequate

24

remedy at law.

25

a sum that plaintiff seeks to recover and alleges in his complaint

26

to be a sum certain.”).

27
28

See Pantoja, 640

However, “an accounting can be a cause of

An

Id. at 1191-92 (internal

An accounting will not be accorded with respect to

Neither BAC nor the Bank Officer owed Plaintiffs a fiduciary
duty.

Nor do Plaintiffs allege that BAC or the Bank Officer
24

1

received the CMOs or any amount of money related to the CMOs.

2

Plaintiffs allege only that the Oriana Defendants received and

3

failed to return the CMOs.

4

sum certain—the face value of the CMOs, or $2,503,562,222.

5

Compl. ¶¶ 125, 133, 138, 150.)

6

dismisses Plaintiffs’ request for an accounting against BAC,

7

without leave to amend.

8

IV.

9

Further, Plaintiffs seek to recover a
(See

For these reasons, the Court

CONCLUSION
For the foregoing reasons, the Court GRANTS the motion to

10

dismiss as to all claims against BAC.

However, the Court grants

11

Plaintiffs leave to amend their complaint to add an allegation of

12

alter ego liability against BAC and to add Bank of America, N.A.

13

and BANA Holding Corporation as defendants.

14

Court grants leave to amend the four fraud-based claims (Claims 5,

15

6, 7, 8) to plead, if possible, additional facts to meet Rule

16

9(b)’s particularity requirements, and to amend the conspiracy

17

claim (Claim 9).

18

for negligence (Claim 2), breach of fiduciary duty (Claim 3), and

19

accounting (Claim 11), the Court dismisses those claims without

20

leave to amend.

21

without leave to amend, per Plaintiffs’ agreement that it does not

22

apply to BAC.

23

IT IS SO ORDERED.

Additionally, the

Because it would be futile to amend the claims

The conversion claim (Claim 10) is also dismissed

24
25

Dated: February 19, 2013
DEAN D. PREGERSON
United States District Judge

26
27
28
25