PP-Atlanta Jonesboro, LLC, et al v. City Lights Commercial Lending Group, Inc., et al
Filing
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ORDER DENYING DEFENDANTS MOTION TO DISMISS PLAINTIFFS FIRST CAUSE OF ACTION FOR CONVERSION 16 AND DENYING DEFENDANTS MOTION TO STRIKE PORTIONS OF COMPLAINT 15 by Judge Dean D. Pregerson . (lc). Modified on 7/15/2014 (lc).
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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PP-ATLANTA JONESBORO, LLC, a
Georgia limited liability
corporation; KAWALJIT SINGH,
an individual,
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Plaintiffs,
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v.
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CITY LIGHTS COMMERCIAL
LENDING GROUP, INC., a
California corporation; CITY
LIGHTS MORTGAGE BANK, a
California corporation; CITY
LIGHTS FINANCIAL EXPRESS,
INC., a California
corporation,
Defendants.
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Case No. CV 14-02152 DDP (VBKx)
ORDER DENYING DEFENDANTS’ MOTION
TO DISMISS PLAINTIFFS’ FIRST
CAUSE OF ACTION FOR CONVERSION
AND DENYING DEFENDANTS’ MOTION TO
STRIKE PORTIONS OF COMPLAINT
[Dkt. No. 15, 16]
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Presently before the court is Defendants’ Motion to Dismiss
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Plaintiffs’ First Cause of Action for Conversion. (Dkt. No. 16.)
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Also before the court is Defendants’ Motion to Strike Portions of
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Complaint. (Dkt. No. 15.) Both motions have been fully briefed and
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are suitable for decision without oral argument. For the reasons
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stated in this Order, both motions are denied.
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I.
Background
Plaintiffs Atlanta Jonesboro, LLC and Kawaljit Singh
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(“Plaintiffs”) bring the instant complaint against Citylights
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Commercial Lending Group, Inc., Citylights Mortgage Bank, and
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Citylights Financial Express, Inc.,(collectively, “Defendants”).
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Plaintiff Atlanta Jonesboro, LLC is a commercial developer who is
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in the business of constructing and renovating commercial
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properties; Plaintiff Kawaljit Singh (“Singh”) is Atlanta
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Jonesboro’s president. (Complaint ¶ 24.)
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The following alleged facts are drawn from Plaintiffs’
Complaint:
In the Spring of 2013, Plaintiffs began discussions with
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Defendants to provide a commercial loan for a development project
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at a property located at 6288 Old Dixie Highway in Jonesboro,
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Georgia (the “Project”). The project was envisioned to construct an
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assisted living facility. (Id. ¶ 25.)
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On May 6, 2013, prior to executing a “Letter of Intent” to
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execute the loan, the parties agreed that Plaintiffs would provide
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a refundable deposit of $1 million for the transaction (the
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“Deposit Agreement”). (Id. ¶ 28.) The Agreement, signed by officers
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of Citylights Financial, stated:
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Based on the conversation we had this morning, May 6,
2013, . . . I am sending you a letter, as requested,
stating if for any reason this loan cannot be made the
initial one million dollar deposit will be immediately
wired back to Tony’s (Kawaljit Singh) account of choice.
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(Id.) On or about May 7, 2013, Plaintiffs wired $1 million to
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the Defendants. (Id. ¶ 29).
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Plaintiffs allege that on May 15, 2013, they entered the
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Letter of Intent with Defendant Citylights Mortgage Bank to provide
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a $8,500,000 bridge loan for the Project. (Id. ¶¶ 25-26.) The
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Letter of Intent contained conditions of the Bank’s funding the
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loan and provided that: “Should the Bank not approve the loan
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request[,] the processing fee is refundable after application
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against Bank’s expenses and costs incurred in connection with the
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negotiations and processes of this loan request.” (Id. ¶¶ 26-27.)
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In July 2013, Defendants asserted that Plaintiffs had not
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provided accurate information regarding the value of the property
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and Plaintiff Singh’s assets. (Id. ¶ 30.) However, Defendants
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agreed to go forward with the loan under terms different from those
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in the Letter of Intent, and Plaintiffs agreed. (Id.)
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On August 2, 2013, Defendants sought to modify the terms of
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the deal by requiring that Plaintiffs increase their deposit from
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$1 million to $2 million. (Id. ¶ 32.) Plaintiffs were unwilling to
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accept the new terms and, on August 6, 2013, notified Defendants
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that the deal was closed. (Id. ¶¶ 32-33.)
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On August 15, 2013, Defendants sent Plaintiffs an invoice in
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the amount of $66,578.51 for “costs and expenses” and time spent by
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Defendants’ employees at a self-prescribed hourly rate. (Id. at ¶¶
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34-35.) Defendants asserted that the charges should be applied
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against Plaintiffs’ remaining deposit of $474,316.45 and that the
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only circumstance in which Defendants would return any of the
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deposit would be if Plaintiffs “accepted” the $66,578.51 in
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charges. (Id.) (The Complaint does not make clear what happened to
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the remainder of the $1 million deposit.) Plaintiffs did not accept
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the charges. (Id. at ¶ 37.) For the next four months, Defendants
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maintained possession of Plaintiffs’ funds, including the
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$407,737.94 to which Defendants were not making any claims. (Id.)
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In February and March 2014, Plaintiffs again demanded that
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Defendants return their deposit, or, at a minimum, return the
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undisputed amount to which they were entitled. (Id. at ¶ 38.)
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Defendants instead provided a new list of expenses, which increased
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the amount of the demanded offset from $66,578.51 to $133,493.51.
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(Id. at ¶ 39.) Plaintiffs disagreed with these new numbers and
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demanded that Defendants wire the undisputed amount of $340,822.94.
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(Id. at ¶ 41.) Defendants stated that they would wire the money if
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Plaintiff provided wiring instructions, and Plaintiffs complied.
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(Id. at ¶ 42.) Defendants then advised Plaintiffs they had to
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verify the source of the funds because “there may be a problem if
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we released the funds to a party that did not initially provide
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them in the first place.” (Id. at ¶ 43.)
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On February 20, 2013, Plaintiffs agreed to Defendants’
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request, even though the Deposit Agreement gave Plaintiff Singh
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“the unfettered right” to choose a wiring account. (Id. at ¶ 44.)
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Defendants, however, imposed the condition that the parties engage
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in settlement discussions before the money was wired. (Id. at ¶
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45.) Plaintiffs refused, but provided Defendants with proof that
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the original $1 million wire for the deposit came from Plaintiff
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Singh’s account. (Id. at ¶ 45.) Defendants then insisted that
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Plaintiffs enter into an indemnity agreement to prevent a third
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party from claiming entitlement to the undisputed deposit monies.
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(Id. at ¶¶ 46-47.)
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On February 27, 2014, Plaintiffs told Defendants that, in the
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interest of expediting matters, they would agree to the request,
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provided Defendants did not attempt in bad faith to assert that the
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payment of the undisputed funds would be conditioned upon a mutual
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release of all claims. (Id. at ¶ 48.) On March 11, 2014, Defendants
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provided an agreement that was not an indemnity agreement, but a
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proposed full release of all claims. (Id. at ¶ 49.) According to
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Plaintiffs, Defendants “made it abundantly clear that they were not
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going to return the deposit monies unless Plaintiffs acceded to
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their extortion.” (Id. at ¶ 50.)
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Plaintiffs assert one claim for conversion and two claims for
breach of contract. (FAC ¶¶ 51-80.)
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II.
Motion to Dismiss First Cause of Action for Conversion
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A.
Legal Standard
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A complaint will survive a motion to dismiss when it contains
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“sufficient factual matter, accepted as true, to state a claim to
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relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
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662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
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570 (2007). When considering a Rule 12(b)(6) motion, a court must
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“accept as true all allegations of material fact and must construe
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those facts in the light most favorable to the plaintiff.” Resnick
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v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint
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need not include “detailed factual allegations,” it must offer
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“more than an unadorned, the-defendant-unlawfully-harmed-me
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accusation.” Iqbal, 556 U.S. at 678. Conclusory allegations or
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allegations that are no more than a statement of a legal conclusion
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“are not entitled to the assumption of truth.” Id. at 679. In other
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words, a pleading that merely offers “labels and conclusions,” a
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“formulaic recitation of the elements,” or “naked assertions” will
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not be sufficient to state a claim upon which relief can be
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granted. Id. at 678. (Citations and internal quotation marks
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omitted).
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“When there are well-pleaded factual allegations, a court
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should assume their veracity and then determine whether they
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plausibly give rise to an entitlement of relief.” Id. at 679.
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Plaintiffs must allege “plausible grounds to infer” that their
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claims rise “above the speculative level.” Twombly, 550 U.S. at
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555. “Determining whether a complaint states a plausible claim for
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relief” is a “context-specific task that requires the reviewing
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court to draw on its judicial experience and common sense.” Iqbal,
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556 U.S. at 679.
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B.
Discussion
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Defendants contend that Plaintiffs’ cause of action for
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conversion should be dismissed because it fails to state a claim.
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Defendants assert that Plaintiffs’ action is a “straightforward
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breach of contract action” that involves not conversion, but “at
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most, the alleged breach by defendants of a commercial contract
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(the Deposit Agreement).” (Motion at 8.) They contend that “[t]he
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only dispositive issues in this action are the nature and amount of
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expenses and costs which Defendants may properly deduct from the
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deposit.” (Reply at 4.) According to Defendants, the conversion
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action is, therefore, “duplicative of the Plaintiffs’ breach of
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contract claims” and “is a disguised tortious breach of contract
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claim for which there can be no recovery.” (Mot. at 2.)
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The court disagrees. Plaintiffs have sufficiently pled a
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distinct claim for the tort of conversion. Conversion is generally
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described as the wrongful exercise of dominion over the personal
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property of another. Gruber v. Pac. States Sav. & Loan Co., 13
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Cal.2d 144, 148 (1939). “The basic elements of the tort are (1) the
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plaintiff's ownership or right to possession of personal property;
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(2) the defendant's disposition of the property in manner
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inconsistent with the plaintiff's property rights; and (3)
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resulting damages.” Fremont Indem. Co. v. Fremont Gen. Corp., 148
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Cal. App. 4th 97, 119 (2007). “It is not necessary that there be a
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manual taking of the property,” only “an assumption of control or
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ownership over the property, or that the alleged converter has
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applied the property to his [or her] own use.” Prakashpalan v.
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Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1135 (2nd Dist.
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2014).
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Here, Plaintiffs have adequately asserted a claim for
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conversion. Under the facts alleged in the Complaint, once it
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became clear that the loan would not go forward, Plaintiffs at
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least arguably had a right under the Letter of Intent and Deposit
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Agreement to the return of their deposit, less any processing fees
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incurred by Defendants. The amount of fees incurred by Defendants
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is in dispute. But even assuming Defendants were entitled to keep
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$133,493.51–-the largest sum for fees alleged by Defendants--
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Plaintiffs would still have been entitled to the remaining
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$340,822.94 that Plaintiffs claim is not in dispute. (See id. ¶¶
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39-41). Plaintiff’s allegation that Defendants nevertheless refused
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to return this undisputed sum states a claim for conversion. The
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fact that Plaintiffs also allege that Defendants breached a
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contract to provide the loan does not preclude a conversion claim
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with respect to the deposit. See In re James E. O'Connell Co.,
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Inc., 799 F.2d 1258, 1261 (9th Cir. 1986) (affirming district court
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holding that the defendants’ refusal to return plaintiff’s deposit
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following defendants’ anticipatory breach of contract to convey
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title to real and personal property constituted conversion);
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Schneider v. Bank of Am. N.A., 2014 WL 2118327, at *13 (E.D. Cal.
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May 21, 2014) (holding that allegation that the defendants refused
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to return to the plaintiffs any portion of funds the plaintiff
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entrusted to the defendant for the purpose of crediting the
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plaintiff’s mortgage account, even after fees the defendant claimed
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to be owed were deducted, constituted a viable claim for
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conversion).
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The facts alleged in Plaintiffs’ complaint, therefore, give
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rise to a plausible claim for conversion. Whether Defendants’
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exercise of dominion over Plaintiffs’ property was indeed wrongful
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is an issue to be determined not at the pleading stage, but at
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trial or on summary judgment.
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III. Motion to Strike
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A.
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Legal Standard
Rule 12(f) of the Federal Rules of Civil Procedure states that
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the “court may strike from a pleading an insufficient defense or
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any redundant, immaterial, impertinent, or scandalous matter.” Fed.
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R. Civ. P. 12(f). Immaterial matter is that which has no essential
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or important relationship to the claim for relief or the defenses
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being pled. Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970,
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974 (9th Cir. 2010)(quotation and citation omitted). Impertinent
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matter consists of statements that do not pertain, and are not
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necessary, to the issues in question. Id. Under Rule 12(f), the
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court has the discretion to strike a pleading or portions thereof.
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MGA Entm’t, Inc. v. Mattel, Inc., 2005 WL 5894689, at *4 (C.D. Cal.
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2005).
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“A motion to strike under Rule 12(f) should be denied unless
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it can be shown that no evidence in support of the allegation would
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be admissible, or those issues could have no possible bearing on
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the issues in the litigation.” Gay-Straight Alliance Network v.
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Visalia Unified Sch. Dist., 262 F. Supp.2d 1088, 1099 (E.D. Cal.
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2001). Courts must view the pleading under attack in the light most
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favorable to the pleader, treating as admitted all material facts
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alleged, and all reasonable presumptions that can be drawn
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therefrom. California v. United States, 512 F. Supp. 36, 39 (N.D.
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Cal. 1981). Background information need not be stricken because it
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provides the court “with a fuller understanding of the dispute.”
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Kaiser Found. Hosp. v. California Nurses Ass’n, No. 11-5588 SC,
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2012 WL 440634, at *4 (N.D. Cal. 2012).
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B.
Discussion
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Defendants ask the court to strike two aspects of the
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complaint. First, Defendants ask that portions of the Complaint
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referring to “theft” and “extortion” be stricken on the ground that
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they are “immaterial, impertinent, and scandalous.”) (Opp. at 2, 4
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(citing Compl. ¶¶ 5, 7, 9, 10, 50, 65, 66).) Defendants’ request is
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based on the premise that “[n]one of the issues in this case
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involve extortion or theft. The parties merely dispute the
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allowable costs which may be deducted by Defendants from the
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deposit.” (Opp. at 4.) This argument essentially parrots
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Defendants’ arguments in support of their motion to dismiss
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Plaintiffs’ claim for conversion. As explained above, this argument
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is unsuccessful; Plaintiffs have stated a plausible claim that
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Defendants have converted the portion of their deposit that is not
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in dispute. (See, e.g., Compl. ¶ 41.) Plaintiffs have further
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alleged that, in so doing, Defendants have placed unlawful
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conditions on the return of such undisputed funds, including
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Plaintiffs’ signing of a complete release of claims against them.
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(Id. ¶¶ 42-50.) Plaintiffs’ use of the phrases “theft,”
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“extortion,” and the like are colorful, but, contrary to
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Defendants’ contentions, they are not unrelated to the allegations
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at the core of Plaintiff’s Complaint. Accordingly, the court will
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not strike them.
Second, Defendants request that Plaintiffs’ punitive damages
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claim, sought in connection with its cause of action for
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conversion, be stricken from the Complaint. (See Mot. at 6.)
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Pursuant to California Civil Code 3294(a), a plaintiff may recover
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punitive damages in actions "for the breach of an obligation not
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arising from contract, where it is proven by clear and convincing
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evidence that the defendant has been guilty of oppression, fraud,
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or malice." Cal. Civ. Code 3294(a). Defendants’ request that the
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reference to punitive damages be stricken appears to depend on the
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premise that Plaintiffs have stated only a cause of action for
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breach of contract. (See Reply at 4.) However, as discussed above,
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Plaintiff cause of action for conversion will survive this motion
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to dismiss. Unlike a breach of contract claim, punitive damages may
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be “properly awardable in an action for conversion, given the
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required showing of malice, fraud or oppression.” Haigler v.
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Donnelly, 18 Cal. 2d 674, 681, 117 P.2d 331 (1941); see also Haines
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v. Parra, 193 Cal. App. 3d 1553, 1560 (Ct. App. 1987); Prof'l
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Seminar Consultants, Inc. v. Sino Am. Tech. Exch. Council, Inc.,
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727 F.2d 1470, 1473 (9th Cir. 1984). Plaintiffs’ Complaint is not
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so lacking in allegations suggesting malice, fraud or oppression as
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to make such a showing implausible. Accordingly, the court will not
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strike the prayer for punitive damages from the Complaint.
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IV. Conclusion
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For the reasons set forth herein, Defendants’ Motion to
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Dismiss Plaintiffs’ First Cause of Action for Conversion (Dkt. No.
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16) is DENIED. Defendants Motion to Strike Portions of Complaint
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(Dkt. No. 15.) is also DENIED.
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IT IS SO ORDERED.
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Dated: July 15, 2014
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DEAN D. PREGERSON
United States District Judge
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