Sherman & Zarrabian LLP v. LAHC-CPPM, Inc. et al

Filing 37

ORDER GRANTING SHAREHOLDERS Jose Fernandez, Kevin Dunn, Matthew McIsaac, Kevin Wydra, Peter Whang, Warren Merkel, Carl Mack, Michael Province, Alice Vaccarello, and Lori Fullmer's MOTION TO DISMISS 19 by Judge Dean D. Pregerson. (lc). Modified on 3/31/2015 (lc).

1
2

O

3
4
5

NO JS-6

6
7
8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10
11
12
13

SHERMAN & ZARRABIAN LLP dba
MYERS ANDRAS SHERMAN &
ZARRABIAN LLP, a California
limited liability
partnership,

14
15
16
17
18
19
20

Plaintiff,
v.
ADERANT NORTH AMERICA, INC.,
a Florida corporation;
ADERANT CASE MANAGEMENT LLC,
a Delaware limited liability
company; ADERANT LEGAL
HOLDINGS, INC., a Delaware
corporation; eta l.,
Defendants.
___________________________

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Case No. CV 14-09676 DDP (RZx)
ORDER GRANTING SHAREHOLDERS'
MOTION TO DISMISS
[Dkt. No. 19]

21
22

Presently before the Court is Defendants Jose Fernandez, Kevin

23

Dunn, Matthew McIsaac, Kevin Wydra, Peter Whang, Warren Merkel,

24

Carl Mack, Michael Province, Alice Vaccarello, and Lori Fullmer

25

(collectively, the “Shareholders”)’s Motion to Dismiss for Failure

26

to State a Claim.

27

submissions, the Court GRANTS Shareholders’ Motion to Dismiss and

28

adopts the following order.

(Dkt. No. 19.)

Having considered the parties’

1

I.

BACKGROUND

2

Plaintiff Sherman & Zarrabian LLP (“Plaintiff”) is a law firm.

3

(Third Amended Complaint (“TAC”), Dkt. No. 1-2, ¶ 27.)

Plaintiff

4

filed this breach of contract, negligent misrepresentation, and

5

fraud action against Shareholders and other parties, alleging that

6

the defendants are liable for failure to install, configure and

7

maintain on Plaintiff’s computer network integrated law office

8

document management storage and financial services software (“DMS

9

software”) on Plaintiff’s computers.

The other defendants in this

10

lawsuit are Aderant North America, Inc., Aderant Case Management

11

LLC, and Aderant Legal Holdings, Inc. (collectively, “Aderant”), as

12

well as LAHC-CPMG, Inc., LAHC-CPFS, Inc., and LAHC-CPPM, Inc.

13

(Collectively, “Client Profiles”).

14

Client Profiles is a company that developed DMS software.

The

15

Shareholders are all shareholders of Client Profiles.

(TAC ¶¶ 8-

16

18.)

17

software to Plaintiff.

18

licenses for the DMS software and stated that Client Profiles would

19

install and configure the DMS software and maintain it for three

20

years.

21

signing of the contract.

22

alleges that Client Profiles attempted to install and configure the

23

DMS software on Plaintiff’s computer network, but that it became

24

apparent the DMS software was faulty and did not work as Client

25

Profiles had represented to Plaintiff.

26

following months, from April 2011 through October 2011, Plaintiff

27

alleges that Client Profiles tried and failed to fix the issues

28

with the DMS software.

In December 2010, Client Profiles sold licenses for its DMS

(Id. ¶ 29.)

(Id. ¶ 28.)

The contract gave Plaintiff

Plaintiff paid a 50% deposit of $14,000 at the
(TAC Exh. A.)

(Id. ¶¶ 32-35.)
2

In April 2011, Plaintiff

(TAC ¶ 31.)

In the

From November 2011 to

1

January 2012, Plaintiff alleges that Client Profiles discontinued

2

work on Plaintiff’s computers and stopped communicating with

3

Plaintiff.

4

Client Profiles had entered into asset purchase agreements with

5

Aderant on or about August 22, 2011, whereby Aderant acquired

6

Client Profiles.

7

Client Profiles liquidated the assets of Client Profiles while

8

Aderant disclaimed all pre-acquisition liabilities of Client

9

Profiles.

10

(Id. ¶ 35.)

Plaintiff alleges that, unbeknownst to it,

(Id. ¶¶ 36-37.)

Pursuant to these agreements,

(Id. ¶ 36.)

Plaintiff alleges that Client Profiles fraudulently

11

misrepresented that its software would work on Plaintiff’s network

12

and that it had certain features and functionalities.

13

Plaintiff claims Defendants Client Profiles and Aderant entered

14

into two asset purchase agreements with the knowledge that the DMS

15

software was faulty and with the intent to hide that fact from

16

creditors and third parties.

17

Client Profiles and the Shareholders fraudulently transferred all

18

of Client Profiles’ assets to Aderant and thereby prevented

19

Plaintiff from collecting on its claims against Client Profiles.

20

(Id. ¶¶ 84-102.)

(Id.)

(Id. ¶ 28.)

Plaintiff further alleges that

21

Plaintiff filed this Third Amended Complaint, alleging the

22

following causes of action: (1) Breach of Written Contract; (2)

23

Breach of Verbal Contract; (3)Fraud; (4) Common Counts; (5)

24

Negligent Representation; (6) Actual Fraudulent Transfer; (7)

25

Constructive Fraudulent Transfer.

26

Plaintiff asserts against the Shareholders are the sixth and

27

seventh causes of action, for actual and constructive fraudulent

The only causes of action

28
3

1

transfer.

2

Plaintiff has failed to state claims against them.

3

II.

4

The Shareholders now move to dismiss, alleging that

LEGAL STANDARD
A 12(b)(6) motion to dismiss requires the court to determine

5

the sufficiency of the plaintiff's complaint and whether or not it

6

contains a “short and plain statement of the claim showing that the

7

pleader is entitled to relief.”

8

Rule 12(b)(6), a court must (1) construe the complaint in the light

9

most favorable to the plaintiff, and (2) accept all well-pleaded

Fed. R. Civ. P. 8(a)(2).

Under

10

factual allegations as true, as well as all reasonable inferences

11

to be drawn from them.

12

F.3d 979, 988 (9th Cir. 2001), amended on denial of reh’g, 275 F.3d

13

1187 (9th Cir. 2001); Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th

14

Cir. 1998).

15

See Sprewell v. Golden State Warriors, 266

In order to survive a 12(b)(6) motion to dismiss, the

16

complaint must “contain sufficient factual matter, accepted as

17

true, to ‘state a claim to relief that is plausible on its face.’”

18

Ashcroft v. Iqbal, 556U.S. 662, 663 (2009) (quoting Bell Atl. Corp.

19

v. Twombly, 550 U.S. 544, 570 (2007)).

20

recitals of the elements of a cause of action, supported by mere

21

conclusory statements, do not suffice.”

22

Dismissal is proper if the complaint “lacks a cognizable legal

23

theory or sufficient facts to support a cognizable legal theory.”

24

Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th

25

Cir. 2008); see also Twombly, 550 U.S. at 561-63 (dismissal for

26

failure to state a claim does not require the appearance, beyond a

27

doubt, that the plaintiff can prove “no set of facts” in support of

28

its claim that would entitle it to relief).
4

However, “[t]hreadbare

Iqbal, 556 U.S. at 678.

A complaint does not

1

suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further

2

factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550

3

U.S. at 556).

4

pleads factual content that allows the court to draw the reasonable

5

inference that the defendant is liable for the misconduct alleged.”

6

Id.

7

because they are cast in the form of factual allegations.”

8

v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

9

III.

10

“A claim has facial plausibility when the plaintiff

The Court need not accept as true “legal conclusions merely
Warren

DISCUSSION
California Civil Code section 3439.04(a) states that “[a]

11

transfer made or obligation incurred by a debtor is fraudulent as

12

to a creditor . . . if the debtor made the transfer or incurred the

13

obligation” (1) with actual intent to hinder, delay, or defraud any

14

creditor of the debtor; or (2) without receiving a reasonably

15

equivalent value in exchange for the transfer or obligation, and

16

either (a) the debtor either was engaged or was about to engage in

17

a business or a transaction for which the remaining assets of the

18

debtor were unreasonably small in relation to the business or

19

transaction or intended to incur, or (2) believed or reasonably

20

should have believed that he or she would incur, debts beyond his

21

or her ability to pay as they became due.

22

3439.04(a).

23

both actual fraudulent transfer, by proving actual intent, and

24

constructive fraudulent transfer, by transferring assets without

25

receiving reasonably equivalent value and in disproportionate

26

relation to outstanding debts.

27
28

Cal. Civ. Code §

Section 3439.04(a) thus provides causes of action for

California Civil Code section 3439.04(b) provides certain
factors for Courts to consider in determining fraudulent intent:
5

1

(1) Whether the transfer or obligation was to an insider.

2

(2) Whether the debtor retained possession or control of the

3

property transferred after the transfer.

4

(3) Whether the transfer or obligation was disclosed or

5

concealed.

6

(4) Whether before the transfer was made or obligation was

7

incurred, the debtor had been sued or threatened with suit.

8

(5) Whether the transfer was of substantially all the debtor's

9

assets.

10

(6) Whether the debtor absconded.

11

(7) Whether the debtor removed or concealed assets.

12

(8) Whether the value of the consideration received by the

13

debtor was reasonably equivalent to the value of the asset

14

transferred or the amount of the obligation incurred.

15

(9) Whether the debtor was insolvent or became insolvent

16

shortly after the transfer was made or the obligation was

17

incurred.

18

(10) Whether the transfer occurred shortly before or shortly

19

after a substantial debt was incurred.

20

(11) Whether the debtor transferred the essential assets of

21

the business to a lienholder who transferred the assets to an

22

insider of the debtor.

23
24

Cal. Civ. Code § 3439.04(b).
As an initial matter, the Shareholders argue that Plaintiff

25

cannot state a claim for fraudulent transfer because Plaintiff is

26

not a “creditor” of Client Profiles within the meaning of the

27

statute.

28

the relationship, it would be Plaintiff, as Plaintiff never paid

The Shareholders argue that if anyone is a creditor in

6

1

the yearly maintenance fees or remaining 50% due on the contract

2

with Client Profiles.

3

Shareholders argue, Plaintiff cannot state a claim for either

4

actual or constructive fraudulent transfer because Plaintiff’s

5

claims are neither plausible nor pled with the requisite

6

specificity for fraud claims.

7

Even if Plaintiff is a “creditor,” the

The Court finds that regardless of whether or not Plaintiff is

8

a true “creditor” of Client Profiles, it has failed to state a

9

claim against the Shareholders in its causes of action for actual

10

and constructive fraudulent transfer.

11

with Client Profiles, and the purchase agreements regarding the

12

sale of Client Profiles’ assets was between Aderant and Client

13

Profiles.

14

Plaintiff’s contract or the purchase agreements.

15

the Court how Plaintiff intends to hold the Shareholders directly

16

liable for fraudulent transfer, as they were not actual parties to

17

the sale and there are no allegations against the Shareholders

18

separate from the allegations against Client Profiles.

19

clue arises from Plaintiff’s allegations that “Defendants are

20

jointly and severally liable as the alter egos, conspirators,

21

aiders and abettors, and/or agents of each other.”

22

100.)

23

this allegation would be that Plaintiff argues the Shareholders are

24

liable as the alter egos of Client Profiles.

25

Plaintiff’s contract was

The Shareholders were not an actual party to either
It is unclear to

The only

(TAC ¶¶ 90,

The only potentially plausible argument contained within

Plaintiff has not stated claim against Shareholders because

26

the alter ego doctrine does not apply to the facts of this case as

27

pled.

28

alter ego liability is as follows:

The Ninth Circuit has held that the general standard for

7

1

Before the acts and obligations of a

2

corporation can be legally recognized as those

3

of a particular person, and vice versa, the

4

following combination of circumstances must be

5

made to appear: First, that the corporation is

6

not only influenced and governed by that

7

person, but that there is such a unity of

8

interest and ownership that the individuality,

9

or separateness, of the said person and

10

corporation has ceased; second, that the facts

11

are such that an adherence to the fiction of

12

the separate existence of the corporation

13

would, under the particular circumstances,

14

sanction a fraud or promote injustice.

15

Firstmark Capital Corp. v. Hempel Fin. Corp., 859 F.2d 92, 94 (9th

16

Cir. 1988) (quoting Wood v. Elling Corp., 20 Cal.3d 353, 365 n. 9

17

(1977).

18

the alter ego doctrine include Among the factors to be considered

19

in applying the doctrine are “commingling of funds and other assets

20

of the two entities, the holding out by one entity that it is

21

liable for the debts of the other, identical equitable ownership in

22

the two entities, use of the same offices and employees, and use of

23

one as a mere shell or conduit for the affairs of the other.”

24

Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825,

25

837 (1962).

26

The facts do not support a finding of unity of interest and

27

ownership or a finding that to hold otherwise would sanctioning a

28

fraud or promote injustice.

Factors to be considered in determining the application of

These factors are not present when looking at the TAC.

Client Profiles has multiple
8

1

shareholders and it does not appear from the pleadings that even

2

one of them exercises any kind of influence over Client Profiles’

3

actions.

4

or “Client Profiles and Shareholders” collectively, without any

5

indication that the Shareholders directed, controlled, or

6

influenced the Aderant transactions in any way.

7

IV.

8
9

The fraudulent transfer allegations refer to “defendants”

CONCLUSION
For the foregoing reasons, the Shareholders’ Motion to Dismiss

is GRANTED with prejudice.

10
11
12

IT IS SO ORDERED.

13
14
15

Dated: March 31, 2015
DEAN D. PREGERSON
United States District Judge

16
17
18
19
20
21
22
23
24
25
26
27
28
9