Interstate Restoration LLC v. Thomas A Seaman et al

Filing 35

MINUTES (IN CHAMBERS): ORDER by Judge David O. Carter: granting in part and denying in part 24 Motion to Dismiss Second Amended Complaint. A Second Amended Complaint is to be filed, if at all, on or before February 21, 2014. (twdb)

O
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. SA CV 13-706 DOC (RNBx)

Date: February 11, 2014

Title: INTERSTATE RESTORATION, LLC. V. THOMAS A. SEAMAN

PRESENT:
THE HONORABLE DAVID O. CARTER, JUDGE
Julie Barrera
Courtroom Clerk

Not Present
Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
NONE PRESENT

PROCEEDING (IN CHAMBERS):

NONE PRESENT

ORDER GRANTING IN PART AND DENYING IN PART
MOTION TO DISMISS SECOND AMENDED
COMPLAINT [24]

Before the Court is Defendant Thomas A. Seaman’s Motion to Dismiss and Motion to Strike
(Dkt. 24). The Court finds this matter appropriate for resolution without oral argument. Fed R. Civ P.
78; L.R. 7-15. Plaintiff Interstate Restoration, LLC (“Interstate”) alleges claims against Defendant
Thomas A. Seaman (the “Receiver”) in his official capacity as the receiver for Medical Provider
Financial Corporation III (“MPFC”). The Court dismissed Interstate’s Complaint without prejudice on
October 9, 2013. See Minute Order, October 9, 2013 (Dkt. 22). The Receiver now moves to dismiss
Interstate’s Second Amended Complaint for: (1) breach of contract; (2) promissory estoppel; (3)
intentional misrepresentation; (4) false promise; (5) negligent misrepresentation; (6) restitution; and (7)
constructive trust. First Amended Complaint (“FAC”) (Dkt. 23) at 1. After reviewing the moving and
opposing papers, the Court GRANTS IN PART and DENIES IN PART.
I.

Background
The following facts are drawn from Plaintiff’s FAC.

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MPFC extended a loan and line of credit to Trace Life Sciences, Inc. (“Trace”) on or about
November 10, 2006. FAC ¶ 6. To secure the loan, Trace executed a Deed of Trust and Security
Agreement (“Deed of Trust”) in favor of MPFC for real and personal property that Trace owned in
Texas (the “Texas Property”). FAC ¶ 7. After Trace defaulted, MPFC assumed control of the Texas
Property. FAC ¶ 8.
In August, 2009, this Court entered a Preliminary Injunction and Order Appointing a Permanent
Receiver (“PI Order”) (Dkt. 44) as to MPFC and other entities. The Order appointed the Receiver as
the permanent receiver of Medical Capital Holdings, Inc., Medical Capital Corporation, Medical
Provider Funding Corporation IV, and their subsidiaries and affiliates, including MPFC. FAC ¶ 9.
Pursuant to the PI Order, the Receiver assumed control of the Texas Property and hired Paul Crowe
(“Crowe”), of NuView Life Sciences, Inc. (“NuView”), to manage Trace’s operations during the
receivership. FAC ¶ 10-11.
In early February 2011, the Texas Property suffered serious damage. FAC ¶ 11. The Receiver
contacted Interstate to perform emergency repairs on the property, the “Emergency Work.” FAC ¶¶
11-12. When negotiating the terms of the work, Interstate communicated directly with the Receiver
and his staff, Crowe, and insurance carriers. FAC ¶ 13. Around February 18, 2011, Interstate began
Phase I Demolition work on the Texas Property pursuant to an oral agreement. FAC ¶ 16. Interstate
asked the Receiver and Crowe about the status of the written agreement around February 22, 2011.
FAC ¶ 17. On February 23, 2011, Interstate received an Advance Work Order that was executed by the
Receiver and Crowe for emergency demolition and repairs (the “Emergency Work”) on the Texas
Property. FAC ¶ 18. In a February 25, 2011 email, the Receiver’s office wrote to Interstate that, “the
insurance [company] would pay the receiver as lender as the loss payee [sic] and then we [the receiver]
will pay Interstate.” FAC ¶ 14. The final Work Order for the Phase I work was executed between
Interstate and Trace, while the Receiver only “acknowledged the agreement as lender and loss payee
for the insurance company.” FAC ¶ 19. When Interstate completed the Phase I work, the Receiver
fully compensated Interstate in accordance with the February 25, 2011 email. FAC ¶ 21.
In mid-to-late February 2011, the Receiver, Interstate, and Crowe negotiated a change order for
Phase II Demolition work. FAC ¶ 22. The Receiver gave Interstate a signed change order for the
Phase II work on March 2, 2011. FAC ¶ 23. A “final, executed order” for the Phase II work was not
completed, however, until after the Phase II work was completed. FAC ¶ 23. Interstate was fully
compensated for the Phase II work as discussed in the February 25, 2011 email. FAC ¶ 24.
While the Emergency work was underway, Interstate negotiated with the Receiver about the
work needed to restore the Texas Property (the “Restoration Work”). FAC ¶ 25. The Receiver was
responsible for approving the proposed scope and terms of the Restoration Work, and for dealing with
insurance carriers and adjusters for the Texas Property’s policies. FAC ¶ 25. Around February 22,
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2011, Interstate provided the Receiver, at the Receiver’s request, a draft agreement governing the
Restoration Work. FAC ¶ 26.
In late March 2011, Interstate issued an AIA Document A107 Standard Form of Agreement
Between Owner and Contractor (“Restoration Contract”) to Trace and the Receiver for the Restoration
Work. FAC ¶ 28. On or about April 6, 2011, a NuView representative told Interstate that the Receiver
“would not execute the contract and would only handle the funds for the project.” FAC ¶ 29. The
Receiver’s employee clarified by email that: “It’s not that the Receiver will not sign the contract, we
just don’t sign it as the owner. The contract is between the owner (Trace) and Interstate, thus the
receiver is not a party to the contract. The receiver will sign the contract just as we did for the
demolition contract, meaning we [will] ‘acknowledge’ the contract on behalf of the lender.” FAC ¶ 31.
In late April 2011, Interstate asked the Receiver about the status of the Restoration Contract and
of the insurance funds for the Restoration Work. FAC ¶ 32. The Receiver stated that he was in
possession of approximately $900,000 in insurance funds that would be used to pay for the Restoration
Work. The Receiver also told Interstate that it was planning to sell the Trace assets, including its
interest in the Texas Property, to NuView, and that it would transfer the insurance funds to NuView in
conjunction with that sale. FAC ¶ 32. The Receiver told Interstate that NuView would make the actual
payment, and that NuView, not the Receiver, would acknowledge the formal written agreement as loss
payee, since NuView would ultimately provide the transferred insurance proceeds to Interstate for the
Restoration Work. FAC ¶ 32.
Based on the Receiver’s representations that the Receiver had insurance proceeds in its
possession, that the Receiver would transfer those proceeds to NuView, and that NuView would use
those proceeds to pay Interstate for the Restoration Work, Interstate commenced the Restoration Work
on the Texas Property. FAC ¶ 33. Interstate “repeatedly informed” the Receiver that it would move,
and was moving, forward with the Restoration Work before the sale to NuView “based upon the
Receiver’s representations and Interstate’s understanding that, as with the Emergency Work, the parties
had reached an agreement as to the scope and terms of work that was merely awaiting a final executed
contract.” FAC ¶ 33.
Around May 4, 2011, Interstate sent the Receiver a billing statement for a down payment on the
Restoration Work. FAC ¶ 34. The Receiver responded by email stating that it had funds from the
insurance carrier, and was waiting for the final signed contract between Interstate and Crowe to pay
Interstate. FAC ¶ 34. Crowe also responded by email, writing that, “As we are nearing the close of the
Trace acquisition, I’m requesting a time-out until the transfer of ownership is completed and hope you
understand that we cannot issue any new contracts at this time. A check is being drawn and issued by
the Receiver’s office as we speak – previously approved and you should have that very soon.” FAC ¶
35. Interstate “clarified” that Crowe meant that Interstate should continue moving forward with the
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preliminary aspects of the Restoration Work while the formalities of the Trace sale were completed,
and that the final executed contract would be completed after the Trace sale. FAC ¶ 37.
Through late May 2011, Interstate asked the Receiver multiple times about the status of the
insurance proceeds for the Restoration Work. FAC ¶ 37. On May 27, 2011, the Receiver wrote to
Interstate that the Receiver had transferred its interests in Trace to NuView and had no remaining
interests in Trace or the Texas Property. FAC ¶ 37. The Receiver also wrote that “all insurance funds
have been transferred to NuView,” and that Interstate should contact Crowe regarding the insurance
claim. FAC ¶ 37. Relying on the Receiver’s representations, Interstate entered into a written
agreement with Trace and NuView on May 27, 2011, to complete the Restoration Work. FAC ¶ 38.
NuView acknowledged the contract, not the Receiver. FAC ¶ 38. After the contract was finalized,
Interstate completed the bulk of the Restoration Work. FAC ¶ 38. “If the Receiver had not represented
to Interstate that it was in possession of $900,000 in insurance proceeds to pay Interstate for the
Restoration Work, that it would transfer those funds to NuView as part of the sale of the Trace assets,
and that it had, in fact, transferred the funds as promised, Interstate would not have entered into a
contract with NuView as loss payee.” FAC ¶ 38.
Interstate completed the Restoration Work on September 27, 2011, at a total cost of
$2,715,331.84. FAC ¶ 41. In November 2011, counsel for Crowe sent Interstate a copy of a Final
Settlement Statement (“Statement”) dated May 3, 2011, showing the sale of the Texas Property
interests from the Receiver to NuView. FAC ¶ 39. The Statement showed that the insurance proceeds
were used as a credit to the purchaser in the sale to NuView. FAC ¶ 39. This was the first time
Interstate learned that the Receiver had not transferred the insurance proceeds to NuView and had
instead allowed NuView to use the proceeds as a credit against the purchase price from the
receivership. FAC ¶ 39.
As of the date Interstate filed its Complaint, it had not been compensated for at least $900,000 of
the Restoration Work. FAC ¶ 41.
II.

Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a
plaintiff’s allegations fail to state a claim upon which relief can be granted. In order for a complaint to
survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. Iqbal,
556 U.S. 662, 679 (2009). A claim for relief is facially plausible when the plaintiff pleads enough
facts, taken as true, to allow a court to draw a reasonable inference that the defendant is liable for the
alleged conduct. Id. at 678. If the facts only allow a court to draw a reasonable inference that the
defendant is possibly liable, then the complaint must be dismissed. Id. at 679. On a motion to dismiss,
this court accepts as true a plaintiff’s well-pled factual allegations and construes all factual inferences
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in the light most favorable to the plaintiff. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d
1025, 1031 (9th Cir. 2008). The court is not required to accept as true legal conclusions couched as
factual allegations. Iqbal, 556 U.S. at 678.
Additionally, Federal Rule of Evidence 201 allows the court to take judicial notice of certain
items without converting the motion to dismiss into one for summary judgment. Barron v. Reich, 13
F.3d 1370, 1377 (9th Cir. 1994). The court may take judicial notice of facts “not subject to reasonable
dispute” because they are either: “(1) generally known within the territorial jurisdiction of the trial
court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot
reasonably be questioned.” Fed. R. Evid. 201; see also Lee v. City of Los Angeles, 250 F.3d 668, 689
(9th Cir. 2001) (noting that the court may take judicial notice of undisputed “matters of public record”),
overruled on other grounds by 307 F.3d 1119, 1125-26 (9th Cir. 2002). The court may disregard
allegations in a complaint that are contradicted by matters properly subject to judicial notice. DanielsHall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010).
Dismissal without leave to amend is appropriate only when the court is satisfied that the
deficiencies in the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d
750, 758 (9th Cir. 2003); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). Rule 15(a)(2) of the
Federal Rules of Civil Procedure states that leave to amend should be freely given “when justice so
requires.” This policy is applied with “extreme liberality.” Morongo Band of Mission Indians v. Rose,
893 F.2d 1074, 1079 (9th Cir. 1990).
III.

Discussion
a. Breach of Oral Contract

Interstate claims that the Receiver breached an oral contract by failing to transfer the $900,000
in insurance proceeds to NuView, or otherwise transfer them to Interstate. FAC ¶ 47. The Court
previously dismissed Interstate’s breach of contract claim for a failure to allege facts showing mutual
assent or consideration. See Order at 7-8.
In the FAC, Interstate alleges a breach of the following oral contract:
In late April 2011, the Receiver and Interstate entered into an oral contract for
Restoration Work on the Texas Property. Pursuant to that agreement, the Receiver agreed
to pay approximately $900,000 in insurance proceeds to Interstate in exchange for the
Restoration Work by transferring those proceeds to Nu View to pay Interstate. In return,
Interstate commenced the Restoration Work before the sale of Trace assets closed,
thereby conferring a benefit upon the Receiver by making necessary repairs to a property
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under the receivership's control, increasing the value of the Trace assets that the
receivership was trying to sell, and, on information and belief, enabling the Receiver to
close the sale of the Trace assets in May of 2011.
FAC ¶ 43.
“A cause of action for damages for breach of contract is comprised of the following elements:
(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and
(4) the resulting damages to plaintiff.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d
1371, 1388 (1990). Mutual assent “is determined by objective rather than subjective criteria, the test
being what the outward manifestations of consent would lead a reasonable person to believe.” Money
Store Inv. Corp. v. S. California Bank, 98 Cal. App. 4th 722, 728 (2002). “The parties’ outward
manifestations must show that the parties all agreed upon the same thing in the same sense. If there is
no evidence establishing a manifestation of assent to the ‘same thing’ by both parties, then there is no
mutual consent to contract.” Weddington Prods., Inc. v. Flick, 60 Cal. App. 4th 793, 811 (1998)
(internal citation and quotation marks omitted). “The parties must mutually assent to a sufficiently
definite offer so that upon acceptance, the parties’ obligations are reasonably certain.” Id.
i. Mutual Assent
The FAC alleges no facts that support any explicit agreement. Although Interstate claims that it
alleged this by claiming that the Receiver agreed to transfer the funds “in exchange for” the
commencement of the Restoration Work, this is merely a bald allegation in the cause of action section
of the FAC, and no actual facts support that inference. See Opp’n at 7; FAC ¶ 43. Interstate therefore
cannot state a cause of action for breach based on an explicit agreement.
Interstate primarily relies on its argument that the parties’ course of conduct shows mutual
assent. Interstate claims that the parties’ conduct in negotiating the Emergency Work show a course of
conduct demonstrating mutual assent because it shows a course of conduct in which: (1) Interstate
would commence work based on negotiations with the Receiver and Crowe (FAC ¶¶ 16, 22); (2)
Interstate and the Receiver did not formally execute their own written contract; (3) Interstate and Trace
would execute a final work order after the work had commenced (FAC ¶¶ 18, 23); (4) Interstate would
complete the work (FAC ¶¶ 20, 23); and (5) upon completion of the work and execution of the final
work order between Interstate and Trace, the Receiver would disburse insurance funds in its possession
to pay Interstate (FAC ¶¶ 21, 24).
There is a significant problem with Interstate’s narrative, however. In the first part of
Interstate’s negotiations with the Receiver and NuView, the Receiver said explicitly that it would pay
Interstate with insurance funds, and the Receiver in fact did so. FAC ¶¶ 14, 21, 24. When Interstate
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sent the Receiver and Crowe a Standard form of Agreement for the Restoration Work, the Receiver’s
office stated that it would again “acknowledge” the contract as loss payee as it had in the past. FAC ¶
30. Negotiations between the parties continued. FAC ¶ 31. In “late April,” however, when Interstate
asked the Receiver about the status of the Restoration Work, the Receiver told Interstate the following:
1) that the Receiver had $900,000 from the insurance company to pay Interstate for the Restoration
Work; 2) that the Receiver was selling the Trace assets, including the Texas Property, to NuView; 3)
that the Receiver would transfer the insurance funds to NuView to pay Interstate; 4) that NuView
would actually pay Interstate and acknowledge the written contract as loss payee. FAC ¶ 32. The FAC
states that Interstate began the Restoration Work in reliance on these representations.
This is a fundamental shift from the earlier dealings between the parties, during which the
Receiver made clear that the Receiver would pay Interstate, and would acknowledge the contracts as
loss payee. But before any actual agreement regarding the Restoration Work occurred, the Receiver
explicitly told Interstate that it would not do things as it had before, and that instead NuView would
receive the insurance funds, transmit them to Interstate, and sign the contract as loss payee. Thus,
although Interstate’s newly alleged facts suggest that a fully executed final agreement was not always
complete before work began, the facts also show a clear repudiation by the Receiver of the prior course
of conduct regarding payment. And because the Receiver expressly stated that it would not pay
Interstate, no contract can possibly have been formed by which the Receiver agreed to “pay” Interstate
$900,000. This is made even more clear by the fact that, in response to Interstate’s billing statement
for a down payment, the Receiver noted that it was waiting for a signed agreement between NuView
and Interstate.
Interstate also alleges a promise to transfer funds to NuView, in exchange for the Restoration
Work. The facts are clear, however, that the Receiver stated it would not contract with Interstate for
the Restoration Work. Interstate also claims that it agreed to begin the Restoration Work in exchange
for the transfer of the funds. Interstate alleges that it repeatedly told the Receiver it was beginning the
work after the “late April” discussion of the Restoration Work based on its understanding that a final
agreement had been reached. FAC ¶ 33. There is no indication in the FAC of whether the Receiver
affirmatively agreed to these statements. But, on May 4, 2011, when Interstate asked for a down
payment for the Restoration Work, the Receiver responded that it was waiting for a signed agreement
between Interstate and NuView. FAC ¶ 34. Crowe then sent an email on behalf of NuView stating
that it could not issue a new contract yet. FAC ¶ 35. The FAC states that “Interstate clarified that
Crowe meant that Interstate should continue moving forward with the preliminary aspects of the
Restoration Work.” FAC ¶ 36. The FAC is silent on what the term “clarified” means, or whether there
was any response. Notably, it is clear on these facts that NuView, not the Receiver, was the party
controlling the disbursement of the insurance funds and the contract for the Restoration Work. This

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therefore does not raise any plausible inference of mutual assent to exchange anything for the
commencement of the Restoration Work.
The Court therefore finds that the FAC, although it adds facts explaining a course of conduct
that did not require final executed documents, does not show that the Receiver ever agreed to transfer
the funds in exchange for the Restoration Work itself or for Interstate beginning the Restoration Work.
Interstate has simply failed to allege facts that show any actual agreement by the Receiver to transfer
the insurance funds in exchange for any action by Interstate. The fact that Interstate took independent
action that the Receiver did not stop might generate a quantum meruit or other unjust enrichment claim
with respect to the value of the Trace assets, but it does not generate a contract.
ii. Consideration
Interstate alleges that it conferred a benefit on the Receivership estate by commencing the
Restoration Work, which increased the value of the Trace assets before sale. It is difficult for the Court
to understand how Interstate’s prep work and early Restoration Work could serve as consideration for
the Receiver transferring funds to NuView. This is not a question of adequacy of consideration, but
simply of whether the alleged facts actually create an inference that there was an agreement to
exchange anything. It is true that the FAC alleges a course of conduct suggesting that work would start
upon agreement with payment later, but during those negotiations the Receiver was acting as loss
payee. During the alleged promise to transfer the funds to a third party in exchange for commencing
the Restoration Work, the Receiver had specifically stated that the Receiver would not be a part to the
contract and would not acknowledge it.
This would constitute pleading adequate consideration if there were sufficient facts to show that
this consideration was offered and accepted in exchange for something in return. But, as discussed
above, there is no such arrangement. Conferring a benefit without a contract might yield an unjust
enrichment claim, but cannot support an action in contract.
iii. Causation
Furthermore, the Court agrees with the Receiver that the FAC does not plead facts showing that
the Receiver’s actions caused Interstate’s harm. Interstate claims that the Receiver’s failure to transfer
the funds to NuView caused Interstate’s harm because: 1) had Interstate known the Receiver had not
transferred the funds, it would not have contracted with NuView; 2) NuView could not have paid
Interstate without the insurance funds; and 3) NuView could have paid Interstate the $900,000 if the
Receiver had transferred it.

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First, the Receiver’s knowledge of whether NuView could or could not pay is not relevant to
whether his actions caused harm. Therefore, the third basis for causation makes no sense. Second, the
argument that the Receiver caused harm because Interstate would not otherwise have contracted with
NuView is inapposite in this context. That fact does not depend on whether the Receiver breached the
alleged contract, but rather on “false representations.” The Court will address this further with respect
to Interstate’s misrepresentation claim.
The only plausible theory, then, is that the Receiver caused harm by not transferring the funds to
NuView in the way that Interstate claims was promised because NuView otherwise would have paid
Interstate (or at least been more likely to pay Interstate). But this theory ignores NuView’s own
agency. The Receiver did not steal the funds from NuView, or force NuView to spend the funds
elsewhere. The Receiver put the funds at NuView’s disposal, and NuView chose to pay the Receiver,
not Interstate. It is baffling to the Court what the Receiver should have done differently – refuse the
credit on the purchase? Ask NuView to take the money out of the receivership estate and then write
the Receiver a check? It is clear on the alleged facts that the Receiver did not promise to pay Interstate
for the Restoration Work. Although Interstate tries to characterize a promise in this manner, the facts
simply cannot support that inference, even when viewed in the light most favorable to Interstate. The
facts also show that the Receiver’s actions did not cause Interstate harm by making it less likely
NuView would pay them – this is not a hypothetical situation in which we do not know how NuView
might otherwise have acted. NuView paid the Receiver for the Trace assets; there is no plausible
inference that, had the Receiver somehow finagled a slightly different financial transaction, NuView
would have done anything differently.
Thus, even though any reliance on the Receiver’s statements need not be the sole cause of
Interstate’s actions, the Court finds that Interstate has not alleged facts that plausibly establish
causation. The Receiver had no control over whether NuView would pay the Interstate, and no way to
control NuView’s financial decisions. Interstate’s real dispute is with NuView. Interstate has not
alleged facts in its Complaint that enable it to hold the Receiver liable for that damage on a contract
theory.
The Court thus DISMISSES Plaintiff’s claim for breach of contract.
b. Promissory Estoppel
Interstate alleges that the Receiver made promises to Interstate that support a claim for
promissory estoppel. Interstate claims that the Receiver “promised Interstate that it had approximately
$900,000 in insurance proceeds in its possession for restoration of the Texas Property, and the Receiver
would transfer those monies to NuView . . . to compensate Interstate for the Restoration Work.” FAC
¶ 51. Interstate characterizes these allegations as the Receiver’s “promises to reserve the insurance
9

proceeds for the Restoration Work and to facilitate their transfer to Interstate . . .” FAC ¶ 55. Interstate
alleges that it reasonably relied on these promises by commencing the Restoration Work, contracting
with NuView to complete the Restoration Work, and ultimately finishing the Restoration Work. FAC ¶
55. Interstate again includes in its promissory estoppel claim the Receiver’s May 27, 2011 statement
that it transferred all insurance funds. This is a statement, however, not a promise for future action, and
so is only relevant to Interstate’s misrepresentation claims.
The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its
terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both
reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.”
Aceves v. U.S. Bank, N.A., 192 Cal. App. 4th 218, 225 (2011), as modified (Feb. 9, 2011). Promissory
estoppel provides a substitute for actual consideration when a promisor should reasonably anticipate
that another party will rely on a promise, even if there is no formal exchange. See Id. at 230-31
(“Under this doctrine a promisor is bound when he should reasonably expect a substantial change of
position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its
enforcement . . .”).
In its last order, the Court dismissed this claim for a lack of facts raising a plausible inference of
reasonable reliance, foreseeability, and causation. The additions in the FAC cure the weaknesses in
reliance and foreseeability, at least for the purposes of a motion to dismiss. Interstate pleads additional
details regarding the course of dealing between the parties, repeated reassurances by the Receiver and
NuView, its repeated questions to the Receiver about the insurance funds, and its informing the
Receiver that it was commencing work on the project. However, the Court finds that the same
causation issues that preclude Interstate’s breach of contract claim also apply to its promissory estoppel
claim. The FAC is therefore insufficient on this basis.
The Court thus DISMISSES Interstate’s promissory estoppel claim.
c. False Promise
Interstate also alleges false promise and intentional misrepresentation claims with respect to
both the April 2011 statements and the May 27, 2011 statement. Because the factual circumstances
and legal implications of each statement differ, the Court addresses them separately. The Court first
considers a false promise claim based on Interstate’s arguments with respect to the April 2011
statements. The May 27, 2011 statement does not appear from the facts of the FAC to be a promise,
and so is addressed as an intentional misrepresentation claim below.
False promise is a species of intentional misrepresentation wherein the defendant makes a
promise without any intention to perform, the defendant makes the promise with the intent to induce
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reliance by the plaintiff, the plaintiff reasonably relies on the false promise, and that reliance causes the
plaintiff harm. See Engalla, 15 Cal. 4th at 973-74; Hills Transp. Co. v. Sw. Forest Indus., Inc., 266
Cal. App. 2d 702, 708 (1968).
Interstate alleges that the April 2011 statements that the Receiver would transfer the $900,000 in
insurance proceeds to NuView constitute a false promise on which Interstate justifiably relied. The
Court finds that the same problems affecting Interstate’s causation allegations with respect to its
contract and promissory estoppel claims also defeat its false promise claim. The FAC does not allege
facts supporting a plausible inference that its reliance on the allegedly false promise caused the harm
Interstate suffered.
Thus, the Court DISMISSES Plaintiff’s false promise claim.
d. Intentional Misrepresentation
Interstate alleges that the Receiver made multiple intentional misrepresentations: 1) in late April
2011, the Receiver intentionally misrepresented that “the receivership had approximately $900,000 in
insurance proceeds in its possession for restoration of the Texas property, and the Receiver would
transfer those proceeds to NuView in connection with the impending sale of the Trace assets . . .”; 2)
on May 4, 2011, the Receiver reiterated that it had the insurance proceeds and that the proceeds “would
be paid to Interstate upon final execution of a written contract” with NuView; 3) that Crowe confirmed
this the same day with the Receiver’s knowledge; and 4) on May 27, 2011, the Receiver wrote in an
email that “all insurance funds have been transferred to NuView.” FAC ¶¶ 62-65. Interstate alleges
that these representations were false in light of the timeline of the Receiver’s agreement with NuView,
that “the Receiver intended that Interstate would rely on the representations regarding payment to
commence and complete the Restoration Work,” that Interstate relied on the representations by
commencing the Restoration Work, contracting with NuView, and eventually completing the work.
FAC ¶¶ 69-73.
First, only present statements of fact can serve as the basis for an intentional misrepresentation
claim, as distinct from a false promise claim. See 5 Witkin, Summary of California Law (10th Ed.
2005) Torts, § 781, p. 1131. The Court addressed Interstate’s claims of false promise in a separate
section. Here, the Court only addresses allegedly false statements of then-existing fact, rather than
future events. These statements appear to only be the Receiver’s statements that he had the $900,000,
and the May 27, 2011 statement that “all insurance proceeds have been transferred to NuView.”
To prove an intentional misrepresentation claim, a plaintiff must show that “(1) the defendant
made a misrepresentation, including a false representation, concealment, or nondisclosure; (2) the
defendant had knowledge that the statement was false; (3) the defendant acted with intent to defraud or
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induce reliance; (4) the plaintiff justifiably relied on the defendant's statement; and (5) the plaintiff was
damaged by that reliance.” Firoozye v. Earthlink Network, 153 F. Supp. 2d 1115, 1128 (N.D. Cal.
2001). Under Federal Rule of Civil Procedure 9, a plaintiff must plead fraud with particularity. Vess v.
Ciba–Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir.2003). “Averments of fraud must be
accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Id. at 1106
(quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). “While statements of the time, place
and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud” are
not. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.1989).
Previously, the Court dismissed this claim for a failure to allege facts showing a plausible
inference of reasonable reliance and causation. The Court finds that the FAC pleads sufficient facts to
raise an inference of reasonable reliance, including additional facts regarding the timeline of the
agreement and the parties’ prior relationship. The causation question in the misrepresentation context
is also different from the causation question in the contract and promissory estoppel context. For the
contract and promissory estoppel claims, the harm had to be caused by the Receiver’s failure to make
good on the alleged promise – to actually transfer the funds. There is simply no reasonable inference
that the Receiver’s failure to do so caused the harm. However, in the misrepresentation context,
Interstate alleges that the Receiver’s allegedly false statements induced Interstate to contract with
NuView because the Receiver’s statements suggested financial resources that NuView did not actually
have. It is plausible, viewing all facts in the light most favorable to Interstate, that this could constitute
a “substantial factor” in at least some of the harm Interstate alleges.
Thus the Court DENIES the motion to dismiss Plaintiff’s intentional misrepresentation claim.
e. Negligent Misrepresentation
“The elements of a cause of action for negligent misrepresentation are the same as those of a
claim for fraud, with the exception that . . . it is sufficient to allege that the defendant lacked reasonable
grounds to believe the representation was true.” Neilson v. Union Bank of California, N.A., 290 F.
Supp. 2d 1101, 1141 (C.D. Cal. 2003). The Receiver is correct that Interstate cannot base a negligent
misrepresentation claim on a false promise. See Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.
App. 4th 153, 158 (1991). Interstate thus can only allege misrepresentation with respect to statements
of then-existing fact, such as the April statements that the Receiver had $900,000 and the May 27, 2011
statement that “all insurance funds” had been transferred.
Previously, the Court held that there were insufficient facts to show that the Receiver had a duty
that would satisfy the elements of a negligent misrepresentation claim. The Receiver argues again that
because it had no pecuniary interest in the commercial transaction at that point, it had no duty of care
and so cannot be liable in negligence. Under California law, a party engaged in a commercial or
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business interaction generally owes a duty of care to other parties engaged in the same commercial
endeavor or course of business dealings. Friedman v. Merck & Co., 107 Cal. App. 4th 454, 482
(2003). However, that duty only exists where a party has “a pecuniary interest in the transaction in
which the information is given.” Id. (quoting Rest. 2d Torts § 522). “If he has no pecuniary interest
and the information is given purely gratuitously, he is under no duty to exercise reasonable care and
competence in giving it.” Id. The rule is designed to prevent casual statements or curbstone opinions
from providing a basis for liability. Id.; Lawyers Title Ins. Corp. v. Baik, 55 P.3d 619, 626 (Wash.
2002).
In light of the allegations in the FAC, the Court finds sufficient facts to raise an inference that a
duty existed in this case. The Court therefore finds that Interstate has alleged sufficient facts to go
forward on its negligent misrepresentation claim. The Court thus DENIES the motion with respect to
negligent misrepresentation.
f. Restitution and Constructive Trust
There is no clear statement of California law addressing whether restitution and constructive
trust constitute independent causes of action, or simply remedies or effects. See In re DirecTV Early
Cancellation Litig., 738 F. Supp. 2d 1062, 1091 (C.D. Cal. 2010) (“There is some disagreement among
California courts about whether unjust enrichment is an independent claim.”). Some California courts
have held that unjust enrichment is not a cause of action, “but rather . . . a general principle, underlying
various legal doctrines and remedies. . . . It is synonymous with restitution.” McBride v. Boughton,
123 Cal. App. 4th 379, 387 (2004) (internal quotation marks and citations omitted); see also Lauriedale
Associates, Ltd. v. Wilson, 7 Cal.App.4th 1439, 1448 (1992) (“The phrase ‘Unjust Enrichment’ does
not describe a theory of recovery, but an effect . . .”). Federal courts in this district have largely found
that restitution cannot form the basis of an independent cause of action. See LaCourt v. Specific Media,
Inc., 2011 WL 1661532, at *8 (C.D. Cal. Apr. 28, 2011); Robinson v. HSBC Bank USA, 732 F. Supp.
2d 976, 987 (N.D. Cal. 2010).
The case law Plaintiff cites does not show that unjust enrichment can be an independent cause of
action. Durell v. Sharp Healthcare states that there is no such cause of action, and goes on to explain
that restitution may be awarded based on a separate claim. 183 Cal. App. 4th 1350, 1370 (2010).
Similarly, Cramer v. Biddison places a constructive trust in the same category as restitution: “an
equitable remedy.” 257 Cal. App. 2d 720, 725 (1968). A constructive trust may be awarded when
“one has an equitable right to property legal title to which stands in another,” id., as a cure for a
separate breach or unfairness. Previously, the Court held that Interstate had not sufficiently alleged an
independent cause of action to support restitution or a constructive trust.

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In its Opposition, Interstate argues that these arguments are supported by the intentional
misrepresentation claim. Opp’n at 23. Interstate argues that the Receiver was “unjustly enriched” with
the $900,000 to which claims ownership by dint of the Receiver’s misrepresentations. But there are no
facts that suggest that the Receiver was enriched by Interstate’s work, or that Interstate itself otherwise
conferred a benefit on the Receiver that went uncompensated. Interstate argues repeatedly that it
should have received the insurance funds instead of the Receiver, but as discussed previously, it has not
alleged any plausible claim that the Receiver was responsible for paying Interstate directly, or that the
Receiver took the funds from Interstate by fraud. The fact that the Receiver ultimately received these
funds was not a result of Interstate’s uncompensated work. Rather, it was a result of NuView’s
decision to pay the Receiver instead of Interstate. To the extent that the intentional misrepresentation
claim alleges that the Receiver harmed Interstate, it is not alleged that this misrepresentation caused
NuView to pay the Receiver instead of Interstate. Rather, an unjust enrichment claim for Interstate’s
unpaid work should be levelled at NuView, who received the benefit of the Restoration Work but did
not compensate Interstate.
The only exception is Interstate’s allegation that it began the Restoration Work, told the
Receiver that it was beginning that work, and that its work increased the purchase price of the Trace
assets. The facts in the FAC raise a plausible inference that this limited work, up until the Trace assets
were sold, conferred some benefit on the Receiver and so could theoretically support an unjust
enrichment claim.
Beyond this narrow ground, the constructive trust and unjust enrichment claim are DISMISSED.
g. Punitive Damages
The Receiver also moves the Court to strike Plaintiff’s request for punitive damages. A plaintiff
may request punitive damages for “oppression, fraud, or malice.” Cal. Civ. Code § 3294(a). Fraud
includes intentional misrepresentation. Id. at § 3294(c)(3). Because the intentional misrepresentation
claims will go forward, the Motion to Strike is DENIED.
h. Request for Judicial Notice
The Receiver also submits a Request for Judicial Notice attached to the Motion to Dismiss (Dkt.
24-1), and a Supplemental Request for Judicial Notice (Dkt. 26-1). As the Court previously ruled, the
Receiver’s request to consider the referenced documents is GRANTED, but only as to their existence
and legal effect. See Neilson, 290 F. Supp. 2d at 1113.
IV.

Disposition
In light of the foregoing, the Court orders the following:
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The Motion to Dismiss is GRANTED with respect to Plaintiff’s claims for breach of contract,
promissory estoppel, and false promise, with leave to amend. The Motion is DENIED with respect to
the intentional and negligent misrepresentation causes of action. The Motion is GRANTED in part and
DENIED in part with respect to the unjust enrichment claim. The Court GRANTS the Request for
Judicial Notice, and DENIES the Motion to Strike.
A Second Amended Complaint is to be filed, if at all, on or before February 21, 2014.

Clerk’s Initials: jcb

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