Hale Bros. Investment Company, LLC v. StudentsFirst Institute et al

Filing 23

ORDER signed by District Judge John A. Mendez on 2/13/17 ORDERING that Defendant 50CAN's MOTION to DISMISS 9 is DENIED; Defendants' MOTION to DISMISS the fraudulent transfer claim are DENIED; Defendants StudentsFirstS' MOTION to D ISMISS the fraud claim 10 is GRANTED WITH PREJUDICE; Defendants' MOTIONS to DISMISS the civil conspiracy claim are GRANTED WITH PREJUDICE. Defendants' MOTIONS to DISMISS the common counts claim are GRANTED WITH PREJUDICE; Defendants' MOTIONS to DISMISS the claim for declaratory relief are GRANTED WITH PREJUDICE; and Defendants' MOTIONS to DISMISS the UCL claim are GRANTED WITH PREJUDICE.(Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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HALE BROS. INVESTMENT
COMPANY, LLC,

No.

2:16-cv-02284-JAM-EFB

10
Plaintiff,
11

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTIONS TO DISMISS

v.
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STUDENTSFIRST INSTITUTE;
STUDENTSFIRST; and 50CAN,
INC.,

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Defendants.
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This action is centered around a landlord-tenant dispute

17

that is described in a Complaint which reads like an illicit love

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affair:

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Defendant StudentsFirst foolproof allegedly discovers

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StudentsFirst in bed with another.

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initiated this litigation, and in response StudentsFirst and

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50CAN ask this Court to dismiss the Complaint and end this broken

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association once and for all.

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the Captain’s from Cool Hand Luke:

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failure to communicate.” Id. (Warner Bros. 1967). 1

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1

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Plaintiff Hale Bros. believing its relationship with

Feeling betrayed, Hale Bros.

No other line is more apropos than
“What we’ve got here is

This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for December 13, 2016. In deciding this motion, the
Court takes as true all well-pleaded facts in the complaint.
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1

I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

StudentsFirst and StudentsFirst Institute (“StudentsFirst”)

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leased office space from Hale Bros. Investment Company, LLC

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(“Plaintiff” or “Hale Bros.”).

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8, ¶ 8.

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rent to use the second floor of the Hale Building for sixty-seven

7

months.

8

Exh. A (the “Lease”).

9

spots connected to that building.

First Am. Compl. (“FAC”), ECF No.

In October 2011, StudentsFirst agreed to pay monthly

See id.

See also Office Lease, attached to the FAC as
StudentsFirst also leased twelve parking
See FAC ¶ 9.

See also Parking

10

Agreement, attached to the FAC as Exh. B.

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StudentsFirst moved in and began paying rent seven months later.

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See FAC ¶ 10.

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2017.

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In March 2012,

The Lease was to remain in effect through October

FAC ¶ 28.
In the event StudentsFirst failed to perform its contractual

15

obligations, Plaintiff acquired a security interest.

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secured Plaintiff’s interest in various furniture, fixtures, and

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equipment from the office (the “Collateral”).

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Letter of Credit also secured Plaintiff’s interest for

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$1,000,000.00, which reduced to $500,000.00 in March 2016.

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id.

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The Lease

See id. ¶ 15.

A

See

Three-and-a-half years passed before Plaintiff and

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StudentsFirst’s relationship soured.

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in April 2016 (the “Meeting”).

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Plaintiff that, by September 2016, it would cease business

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operations, transfer all assets to a third party, vacate the

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office, and dissolve.

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told Plaintiff that it would breach the Lease.

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also gave Plaintiff a balance sheet that showed rent payments

See id.

It started with a meeting

See id. ¶ 11.

StudentsFirst told

In other words, StudentsFirst

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StudentsFirst

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stopping in July 2016 and capital contributions—valued at

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$1,200,000.00—to 50CAN, Inc. (“50CAN”) in April and June 2016.

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See id. ¶¶ 12-13.

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as Exh. C.

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intent to transfer their assets to 50CAN and merge their company

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with 50CAN.

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2016 at which time 50CAN assumed all obligations and liabilities

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of StudentsFirst under the Lease.

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months, Plaintiff asked StudentsFirst to clarify its position,

See also Cash Projections, attached to the FAC

StudentsFirst also concealed from Plaintiff their

¶ 16.

This merger took place in or around March

¶ 23.

For the next two

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but to no avail.

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time in June 2016, see id., StudentsFirst vacated and abandoned

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this leased office space removing several assets prior to

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departure.

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See FAC ¶ 14.

After paying rent for the last

See id. ¶ 15.

Plaintiff has sued StudentsFirst and 50CAN (collectively,

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“Defendants”) for breach of contract, fraudulent transfer, fraud,

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civil conspiracy, common counts, and for violating California

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Business & Professions Code § 17200.

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requests declaratory relief.

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dismiss these claims.

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(“SF’s MTD”).

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ECF No. 14 (“Opp’n to 50CAN’s MTD”); ECF No. 15 (“Opp’n to SF’s

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MTD”).

Id.

Id. at 1.

Plaintiff also

Defendants move separately to

ECF No. 9-1 (“50CAN’s MTD”); ECF No. 10-1

Plaintiff opposes both motions to dismiss.

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II.
First Claim:

See

OPINION

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A.

Breach of Contract

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To state a claim for breach of contract under California

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law, a plaintiff must allege (1) the existence of a contract;

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(2) plaintiff’s performance of its obligations under the

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contract or an excuse for nonperformance; (3) defendant’s
3

1

breach; and (4) resulting damage to plaintiff.

2

Co. v. Sierra Equip. Rental, Inc., No. 2:12-cv-00617, 2016 WL

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4000932, at *3 (E.D. Cal. July 25, 2016) (internal citation

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omitted).

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6

1.

See Arch Ins.

StudentsFirst

StudentsFirst concedes that Plaintiff has properly pled a

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breach of contract claim against it, so Plaintiff’s claim

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survives.

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straightforward breach of contract dispute between Plaintiff and

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StudentsFirst.”).

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12

See SF’s MTD at 2 (“What will remain is a

2.

50CAN

Plaintiff premises its breach of contract claim on the

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Lease, the Parking Agreement, and the implied covenant of good

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faith and fair dealing.

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argues that StudentsFirst’s failure to pay rent from July 2016

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through the remaining lease term, failure to execute an Estoppel

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Certificate, abandonment, and merger with 50CAN makes 50CAN

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liable for breaching the Lease.

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asserts that StudentsFirst’s failure to pay rent from July 2016

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through the remaining lease term makes 50CAN liable for

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breaching the Parking Agreement.

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Plaintiff claims that 50CAN breached the implied covenant of

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good faith and fair dealing for several reasons, including when

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StudentsFirst ceased business operations, merged with 50CAN,

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concealed its intent to breach the Lease until after the Letter

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of Credit decreased in value, vacated the premises, removed

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Collateral, and stopped paying rent.

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added).

FAC ¶¶ 32-40.

Specifically, Plaintiff

Id. ¶¶ 32-34.

Id. ¶ 35.

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Plaintiff also

And, finally,

See id. ¶ 40 (emphasis

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Whether Plaintiff can bring this claim against 50CAN turns

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on whether Plaintiff and 50CAN formed a contract.

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contends that they did not because, under the Lease, an

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assignment occurs only if Plaintiff approves it.

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MTD at 5; Reply, ECF No. 16, at 1-2 (“50CAN’s Reply”).

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Plaintiff maintains that they formed a contract because 50CAN

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assumed StudentsFirst’s obligations and liabilities under the

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Lease via the merger.

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50CAN

See 50CAN’s
But

See Opp’n to 50CAN’s MTD at 5.

The Court agrees with Plaintiff.

50CAN’s argument

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contradicts the Lease’s plain language.

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an unapproved assignment constitutes a default—it says nothing

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about termination.

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consent of [Plaintiff]...[StudentsFirst] may not...assign...or

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otherwise transfer...this Lease by operation of law or otherwise

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or permit the use of...the Premises...by anyone other than

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[StudentsFirst]”).

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liability rule:

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The Lease states that

Exh. A § 10.1(a) (“Without the prior written

The Lease also includes a successor-

Even if [StudentsFirst] is in Default and/or has
abandoned the Premises, this Lease shall continue in
effect for so long as [Plaintiff] does not terminate
[StudentFirst’s] right to possession...and
[Plaintiff] may enforce all its rights and remedies
under this Lease, including the right to recover Rent
as it becomes due under this Lease. In such event,
[Plaintiff] shall have all of the rights and remedies
of a landlord under California Civil Code Section
1951.4 (lessor may continue Lease in effect after
Tenant’s Default and abandonment and recover Rent as
it becomes due, if Tenant has the right to sublet or
assign, subject only to reasonable limitations) or
any successor statute.

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Id. § 11.2(c).

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terminate the Lease.

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In other words, a breach does not automatically

Since StudentsFirst’s alleged breach does not terminate the
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Lease, 50CAN assumed StudentsFirst’s obligations and liabilities

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via the merger.

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corporation inherits the absorbed corporation’s liabilities.

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See CAL. CORP. CODE § 1107(a)(West 2016).

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Decision Sci. Corp., 137 Cal. App. 4th 1001, 1016 (2006).

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including “California Civil Code Section 1951.4...or any

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successor statute” in the Lease, Plaintiff and StudentsFirst

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agreed that similar successor-liability rules applied.

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§ 11.2(c)(emphasis added).

California law provides that the surviving

See also Maudlin v. Pac.
By

Exh. A,

So, the Court “give[s] effect to the

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mutual intention of the parties.”

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2016).

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CAL. CIV. CODE § 1636 (West

In sum, Plaintiff has stated a claim against 50CAN under an

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assumption theory.

Plaintiff alleges that the merger breached

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the Lease and breached the implied covenant of good faith and

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fair dealing.

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that 50CAN “absorbed [StudentsFirst’s] companies and assumed all

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obligations and liabilities thereof, including, but not limited

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to, [StudentsFirst’s] obligations under the Lease.”

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Because a default does not automatically terminate the Lease and

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because the Lease mandates a successor-liability rule, Plaintiff

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has sufficiently pled a breach of contract claim against 50CAN.

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The Court denies 50CAN’s motion to dismiss this claim.

See FAC ¶¶ 26-34, 36-43.

Second Claim:

And Plaintiff maintains

Id. ¶ 29.

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B.

Fraudulent Transfer

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A fraudulent conveyance involves a debtor transferring

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property to a third party with the intent to prevent a creditor

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from reaching that interest to satisfy the creditor’s claim.

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See Filip v. Bucurenciu, 129 Cal. App. 4th 825, 829 (2005)

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(internal citation and quotation marks omitted).
6

California’s

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Uniform Fraudulent Transfer Act (“UFTA”) allows a defrauded

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creditor to retrieve property the creditor would otherwise be

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able to use to pay the debt.

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2016).

See also Mehrtash v. Mehrtash, 93 Cal. App. 4th 75, 80

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(2001).

Under the UFTA, a fraudulent transfer may be “actual”

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or “constructive.”

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alleges an actual fraudulent transfer claim.

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state a claim under that theory, a plaintiff must plead that the

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defendant made a transfer with “actual intent to hinder, delay,

See CAL. CIV. CODE § 3439.04 (West

See CAL. CIV. CODE § 3439.04(a).

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or defraud any creditor of the debtor.”

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Hales Bros.

FAC ¶ 50.

To

§ 3439.01(i).

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CAL. CIV. CODE

When pleading these elements, the plaintiff must meet the

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heightened standards mandated by Fed. R. Civ. P. 9(b).

14

v. Path, Inc., 87 F. Supp. 3d 1018, 1066 (N.D. Cal. 2014).

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rule states that “[i]n alleging fraud or mistake, a party must

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state with particularity the circumstances constituting the

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fraud or mistake.”

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plaintiff must state the “who, what, where, when, and how” and

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must explain why the statement or omission was false or

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misleading.

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Cir. 1997)(internal citations omitted).

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pleading requirements apply only to allegations made against the

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transferor—not the transferee.

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(B.A.P. 9th Cir. 2007) (noting that the focus is on the

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transferor’s intent).

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FED. R. CIV. P. 9(b).

Opperman
This

In other words, the

See Cooper v. Pickett, 137 F.3d 616, 625, 627 (9th
But these heightened

In re Beverly, 374 B.R. 221, 235

The allegations supporting this claim apply to both

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Defendants.

Plaintiff states that “[StudentsFirst] transferred

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[its] assets to 50CAN with actual intent to hinder, delay,
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and/or defraud Plaintiff in its collection of the monies

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owed....”

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and willingly received [StudentsFirst’s] funds and assets with

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knowledge that [StudentsFirst] actually intended to hinder,

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delay and/or defraud Plaintiff by unlawfully preventing

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Plaintiff from recovering such funds and/or assets,” reasoning

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that 50CAN had to know this, especially given the due diligence

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preceding the merger.

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FAC ¶ 50.

1.

Then Plaintiff notes that “50CAN knowingly

Id. ¶ 51.

StudentsFirst

StudentsFirst makes two arguments explaining why Plaintiff

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has not stated a fraudulent transfer claim against it, but one

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is not well taken.

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constructive sham theory fails because Plaintiff did not allege

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that StudentsFirst did not get a reasonably equivalent value.

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SF’s MTD at 9.

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theory.

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whether Plaintiff has stated a claim under an “actual intent”

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theory.

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StudentsFirst contends that Plaintiff’s

But Plaintiff has not raised a constructive sham

See FAC ¶¶ 50-51.

So, the Court focuses only on

Because StudentsFirst is the transferor, Plaintiff must

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plead its fraudulent transfer claim under Rule 9(b).

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Opperman, 87 F. Supp. 3d at 1066.

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StudentsFirst transferred its assets to 50CAN with “actual

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intent to hinder, delay, and/or defraud Plaintiff in its

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collection of the monies owed due to [StudentsFirst’s]

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abandonment of the Premises, failure to pay Rents, and various

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breaches of the Lease.”

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StudentsFirst “unlawfully endeavored to place available funds

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and assets outside Plaintiff’s reach....”

FAC ¶ 50.

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See

Plaintiff alleges that

Plaintiff adds that

Id. ¶ 52.

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Plaintiff explains that “StudentsFirst” (the “who”)

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transferred its “assets”—including the $1,200,000.00 in capital

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contributions to 50CAN in April and June 2016 (the “what” and

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“when”)—and “purposefully concealed [its] intent to abandon the

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Premises and cease adhering to [its] obligations under the

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Lease...until after the Letter of Credit was reduced...in an

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effort to defraud Plaintiff, its creditor, and prevent Plaintiff

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from adequately mitigating the damages caused by Defendants”

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(the “how” and “why”).

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Id. ¶¶ 50-52.

Plaintiff has specified the requisite “who, what, where,

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when, and how,” stating enough facts for StudentsFirst to

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prepare an adequate answer.

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(holding that complaint satisfied Rule 9(b)’s particularity

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requirement because, given that it “points to specific quarters,

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specific customers and provided dollar figures for each

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quarter,” defendants could prepare an adequate answer).

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Plaintiff also states that StudentsFirst put its “funds and

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assets” beyond Plaintiff’s reach, a crucial allegation.

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Opperman, 87 F. Supp. 3d at 1066 (dismissing UFTA claim because

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complaint did not mention that the transfer at issue put

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property beyond plaintiffs’ reach).

22

See Cooper, 137 F.3d at 627

See

In sum, Plaintiff has satisfied Rule 9(b)’s particularity

23

requirement.

To require more would “make Rule 9(b) carry more

24

weight than it was meant to bear.”

25

(internal citation omitted).

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sufficient evidence, then it “will not prevail [on this claim]

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at summary judgment or trial,” but courts “do not test the

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evidence at this stage.”

See Cooper, 137 F.3d at 627

If Plaintiff cannot later offer

Id. (internal citation and quotation
9

1

marks omitted).

2

dismiss Plaintiff’s fraudulent transfer claim.

The Court denies StudentsFirst’s request to

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4
5

2.

50CAN

50CAN makes the same arguments as StudentsFirst.

See

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50CAN’s MTD at 6; 50CAN’s Reply at 2.

Because 50CAN is the

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transferee, Plaintiff need not plead under Rule 9(b). See

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Beverly, 374 B.R. at 235.

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because Plaintiff has already stated a claim against

Given that procedural distinction,

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StudentsFirst under Rule 9(b), it necessarily follows that

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Plaintiff has also stated a claim under the more relaxed Rule 8

12

plausibility standard.

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conclude that Plaintiff stated a fraudulent transfer claim

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against StudentsFirst, see supra Part II.B.1, the Court finds

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that Plaintiff has stated one against 50CAN, and denies 50CAN’s

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request to dismiss it.
Third Claim:

Applying the same reasoning used to

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C.

Fraud

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To state a claim for fraud, a plaintiff must allege the

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following under Rule 9(b)’s heightened pleading standard:

(1) a

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misrepresentation (i.e., false representation, concealment, or

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nondisclosure), (2) knowledge of falsity, (3) intent to defraud,

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(4) justifiable reliance, and (5) resulting damage.

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Angeles Mem’l Coliseum Comm’n v. Insomniac, Inc., 233 Cal. App.

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4th 803, 831 (2015)(internal citations and quotation marks

25

omitted).

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misrepresentation theory or a concealment theory.

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Bros. brings its fraud claim under a concealment theory, see FAC

28

¶¶ 54-61, the Court focuses only on whether Plaintiff has stated

See Los

A plaintiff may bring this claim under an affirmative

10

Because Hale

1

a claim under that theory.

2

To successfully state a fraud claim under a concealment

3

theory, the plaintiff must show that the defendant had a legal

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duty to disclose facts.

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Cal. App. 4th 1178, 1193 (2014).

6

by claiming either:

7

relationship with the plaintiff; (2) the defendant exclusively

8

knew material facts not known to the plaintiff; (3) the

9

defendant concealed a material fact from plaintiff; or (4) the

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defendant made partial representations, while also suppressing

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some material facts.

12

(internal citations and quotation marks omitted).

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affirmative duty to disclose concealed facts arises only from a

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fiduciary or fiduciary-like relationship.

15

See Hoffman v. 162 N. Wolfe LLC, 228
A plaintiff makes that showing

(1) the defendant had a fiduciary

See Insomniac, 233 Cal. App. 4th at 831
In short, an

Id. at 832.

But, even if the plaintiff establishes an affirmative duty

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to disclose, plaintiff must still overcome the economic loss

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rule.

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breach of duties that merely restate contractual obligations.

19

See BNSF Ry. Co. v. San Joaquin Valley R.R. Co., No. 1:08-cv-

20

01086, 2011 WL 3328398, at *5 (E.D. Cal. Aug. 2, 2011)(internal

21

citations and quotation marks omitted).

22

plaintiff links its fraud claim to a party’s alleged failure to

23

comply with a contractual duty, the proper claim is breach of

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contract—not fraud.

25

marks omitted).

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“dissolving” into each other, maintaining the crucial

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“distinction between commercial transactions in which economic

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expectations are protected by commercial and contract law, and

In California, a plaintiff cannot recover in tort for

In other words, when a

See id. (internal citation and quotation

This rule prevents contract and tort law from

11

1

transactions with individual consumers who are injured in a

2

manner traditionally addressed through tort law.”

3

(internal citation omitted).

4

See id. at *6

But, as with most rules, there is one exception.

5

California courts allow tort damages in contract cases where

6

tort liability is either (1) completely independent of the

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contract; (2) arises from intentional conduct intended to harm—

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i.e., a breach of duty causing physical injury; (3) insurance

9

contract suits involving a breach of the covenant of good faith

10

and fair dealing; (4) wrongful discharge in violation of

11

fundamental public policy; or (5) fraudulent inducement.

12

id.

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*9 (internal citation omitted).

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15

This exception, though, is “narrow in scope.”

1.

See

See id. at

50CAN

Plaintiff does not bring a fraud claim against 50CAN.

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FAC at 12 (“Fraud against Defendants, StudentsFirst and

17

See

StudentsFirst Institute.”).

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19

2.

StudentsFirst

Plaintiff incorporates all preceding allegations into its

20

fraud claim, including breach of contract.

21

Plaintiff specifies that “[StudentsFirst] intended to deceive

22

Plaintiff by failing to disclose and/or concealing from

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Plaintiff [its] intention to merge [its] business with 50CAN,

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transfer [its] assets to 50CAN, abandon the Premises, cease

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payment of Rent and remove secured Collateral from the Premises

26

so as to induce Plaintiff not to draw upon the Letter of Credit

27

until after it was reduced....”

28

“had no way of knowing that [StudentsFirst]” had these

Id. ¶ 56.

12

See FAC ¶ 54.

Emphasizing that it

1

intentions, id. ¶ 57, Plaintiff maintains that it “reasonably

2

and justifiably relied on [StudentsFirst’s] deceptions and/or

3

concealment because, at the time, [StudentsFirst was], and had

4

been, in compliance with the Lease.”

5

Id. ¶¶ 57, 59.

StudentsFirst argues that Plaintiff has not stated a fraud

6

claim against it because (1) Plaintiff failed to meet Rule

7

9(b)’s particularity standard, (2) StudentsFirst had no

8

affirmative duty to disclose facts to Plaintiff, and (3) even if

9

StudentsFirst did have that duty, Plaintiff still has not stated

10

a claim because Plaintiff cannot convert a contract-based

11

grievance into a tort.

12

disagrees, contending that it has satisfied Rule 9(b) and that

13

StudentsFirst had a duty to disclose those facts because they

14

were material to Plaintiff.

15

Plaintiff notes that whether StudentsFirst’s omissions “also

16

constitute a breach of the Lease is incidental” to that duty.

17

Id.

18

See SF’s MTD at 5-8.

Plaintiff

Opp’n to SF’s MTD at 4.

And

The Court agrees with StudentsFirst, but only as to its

19

last contention.

20

argument, because Plaintiff incorporated all preceding

21

allegations into this claim (including fraudulent transfer), the

22

Court concludes that Plaintiff has met Rule 9(b)’s particularity

23

requirement, applying the same reasoning used to conclude that

24

Plaintiff satisfied Rule 9(b) for its fraudulent transfer claim.

25

See supra Part II.B.1.

26

Beginning with StudentsFirst’s pleading

As for whether StudentsFirst had an affirmative duty to

27

disclose facts, the Court concludes that it did.

28

made partial representations to Plaintiff at the April Meeting,
13

StudentsFirst

1

but also made critical omissions.

2

intent to cease business operations, to transfer all assets to a

3

third party, to vacate the Premises, and to dissolve.

4

¶ 11.

5

remove secured Collateral and to accomplish these things after

6

the Letter of Credit reduced in half.

7

(emphasis added).

8

did not have a fiduciary relationship, a duty to disclose still

9

arose because StudentsFirst revealed some facts at the April

10

Meeting, but omitted others, which produced misleading half-

11

truths.

12

to disclose.

13

Cal. 3d 285, at 294-94 (1970)(holding that affirmative duty

14

arose because “defendant [made] representations but [did] not

15

disclose facts which materially qualify the facts disclosed”).

16

StudentsFirst admitted its

See FAC

But StudentsFirst said nothing about its intent to also

See id. ¶¶ 11, 56-57

So, even though StudentsFirst and Plaintiff

That partial disclosure triggered an affirmative duty
See Warner Constr. Corp. v. City of Los Angeles, 2

The problem for Plaintiff, though, involves the economic

17

loss rule.

18

not allege physical injury, wrongful discharge, or fraudulent

19

inducement.

20

alleges a duty arising under tort law independent of a breach of

21

contract.

22

This is not an insurance suit, and Plaintiff does

So, Plaintiff’s fraud claim proceeds only if it

See BNSF, 2011 WL 3328398 at *6.

Two California cases are particularly relevant here.

In

23

Robinson Helicopter Co., Inc. v. Dana Corp., the court held that

24

the economic loss rule did not bar plaintiff’s fraud claims

25

because a duty arose under tort law independent of the contract

26

breach.

27

defendant breached the contract by providing nonconforming

28

clutches, but committed an independent tort by issuing false

34 Cal. 4th 979, 991 (2004).

14

Specifically, the

1

certificates of conformance.

2

certificates of conformance, [the defendant] unquestionably made

3

affirmative representations that Robinson justifiably relied on

4

to its detriment.

5

would not have...used the nonconforming

6

clutches....[a]ccordingly, [the defendant’s] tortious conduct

7

was separate from the breach itself, which involved [the

8

defendant’s] provision of the nonconforming clutches.”).

9

Conversely, in BNSF, the court held that the economic loss rule

Id. at 990-91 (“By issuing false

But for [these] misrepresentations...Robinson

10

barred Plaintiff’s fraud claim because the fraudulent

11

misrepresentations were an “inseparable component” of the breach

12

of contract to pay.

13

Id. at *9.

Plaintiff contends that “StudentsFirst had a duty to

14

disclose [the] information because it was material to Plaintiff;

15

whether such information may also constitute a breach of the

16

Lease is incidental to said duty.”

17

This argument lacks teeth.

Opp’n to SF’s MTD at 4.

Forgetting that the exception

18

to the economic loss rule is “narrow in scope,” Plaintiff cites

19

no case law to support its argument that a breach of contract

20

that is “incidental to said duty” falls within this narrow

21

exception.

22

For instance, Plaintiff cites StudentsFirst’s omissions to

23

support this claim and its breach of contract claim.

24

¶¶ 40, 55-58 (emphasis added).

25

these claims even clearer, Plaintiff incorporates into its fraud

26

claim the allegations constituting contract breach.

27

And, finally, all additional facts implicate the Lease.

28

¶¶ 55, 59 (StudentsFirst “had no intention of continuing to

And Plaintiff’s FAC pokes holes in its own argument.

See id.

To make the overlap between

15

Id. ¶ 54.
See id.

1

perform its obligations under the Lease”; Plaintiff “justifiably

2

relied on” StudentsFirst’s concealment because “at the time,

3

[StudentsFirst was], and had been, in compliance of the Lease”)

4

(emphasis added).

5

anything but “incidental” to StudentsFirst’s duty to disclose

6

information.

7

omissions were separate from the breach itself, making this case

8

more comparable to BNSF than Robinson Helicopter.

9

cannot recast its breach of contract claim as a tort claim.

Simply put, StudentsFirst’s omissions are

Plaintiff has not shown that StudentsFirst’s

Plaintiff

10

Dismissal under Fed. R. Civ. P. 12(b)(6) with prejudice is

11

appropriate “only if it appears beyond doubt that the plaintiff

12

can prove no set of facts in support of his claim which would

13

entitle him to relief.”

14

(9th Cir. 2001) (citations and internal quotation marks

15

omitted).

16

falling within the narrow exception required to state a fraud

17

claim under a concealment theory.

18

Plaintiff’s fraud claim with prejudice.

Navarro v. Block, 250 F.3d 729, 732

As discussed above, Plaintiff cannot plead facts

Fourth Claim:

The Court therefore dismisses

19

D.

Civil Conspiracy

20

A civil conspiracy arises when two or more people agree to

21

a common plan or design to commit a tortious act.

See Kidron v.

22

Movie Acquisition Corp., 40 Cal. App. 4th 1571, 1582 (1995).

23

state a claim, the plaintiff must allege “(1) the formation and

24

operation of a conspiracy, (2) wrongful conduct in furtherance

25

of the conspiracy, and (3) damages arising from the wrongful

26

conduct.”

Id. at 1581.

To

27

Although “California recognizes a cause of action against

28

noncontracting parties who interfere with the performance of a
16

1

contract,” a party cannot be held liable in tort for conspiracy

2

to interfere with its own contract.

3

v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 507-08, 513 (1994)

4

(original emphasis).

5

tort duty to another not to interfere with the performance of

6

the contract; its duty is simply to perform the contract

7

according to its terms.”

8
9

See Applied Equip. corps.

“One contracting party owes no general

Id. at 514.

The allegations supporting this claim apply to both
Defendants.

Plaintiff states that Defendants “knowingly and

10

willfully conspired and agreed amongst themselves to

11

intentionally” (1) allow the Letter of Credit to reduce in half

12

before telling Plaintiff about their intent to merge; (2)

13

conceal this intent; (3) cause Plaintiff to believe its secured

14

Collateral was intact; (4) remove that secured Collateral to

15

deprive Plaintiff of its secured interest; and (5) hinder,

16

delay, and/or defraud Plaintiff in collecting its claim against

17

Defendants for breaching the Lease.

18
19

1.

See FAC ¶ 64.

StudentsFirst

StudentsFirst argues that Plaintiff cannot bring this claim

20

because a tort claim for interference with a contract does not

21

lie against a party to that contract.

22

Plaintiff maintains that it has stated a claim because it

23

alleged a conspiracy to commit a tortious act—not a conspiracy

24

to breach a contract.

25

argument is contradicted by the FAC and is without merit.

See SF’s MTD at 9.

See Opp’n to SF’s MTD at 9.

Yet

Plaintiff’s

26

Plaintiff incorporates all previous allegations of its FAC

27

into this civil conspiracy claim, including breach of contract.

28

See FAC ¶ 62.

But, even if Plaintiff had not incorporated that
17

1

claim, Plaintiff’s additional allegations derive from the same

2

facts that support contract breach.

3

that Defendants conspired with each other to conceal a breach of

4

contract, to conceal their intent to breach the contract, and to

5

conceal their intent to draw from the Letter of Credit, also in

6

breach of contract.

7

merger, transfer of assets, abandonment, removal of Collateral,

8

and refusal to pay rent).

9

supporting Plaintiff’s civil conspiracy claim are an inseparable

Indeed, Plaintiff states

See id. ¶¶ 63-66 (citing Letter of Credit,

Simply put, because the facts

10

component of its breach of contract claim, Plaintiff’s argument

11

fails.

12

cannot state a civil conspiracy claim against StudentsFirst and

13

grants StudentsFirst’s request to dismiss this claim with

14

prejudice.

15
16

See supra Part II.C.2.

2.

The Court finds that Plaintiff

50CAN

Plaintiff does not dispute that conspiracy to breach a

17

contract is not a legally cognizable claim and it has conceded

18

that it has not alleged such a conspiracy.

19

contends it has adequately alleged the existence of conspiracy

20

to commit a civil tort by 50CAN.

21

Rather, Plaintiff

Opp’n to 50CAN MTD at 7-8.

No matter how much Plaintiff wants this Court to believe

22

that it has alleged a conspiracy claim to commit a tort,

23

stripped to its core, the conspiracy claim derives from

24

Plaintiff’s breach of contract claim.

25

None of the allegations supporting this claim give rise to a

26

claim of civil conspiracy.

27

Plaintiff’s fraud claim against StudentsFirst there is no basis

28

for this claim against 50CAN.

See supra Part II.C.2.

Given that the Court has dismissed

The Court grants 50CAN’s request
18

1

to dismiss this claim with prejudice.

2

E.

Fifth Claim:

Common Counts

3

The common count is a general pleading seeking recovery of

4

money without specifying the nature of the claim.

See Title

5

Ins. Co. of Minnesota v. State Bd. of Equalization, 4 Cal. 4th

6

715, 731 (1992)(internal citations and quotation marks omitted).

7

It is not a specific cause of action, but rather “a simplified

8

form of pleading normally used to aver the existence of various

9

forms of monetary indebtedness.”

McBride v. Boughton, 123 Cal.

10

App. 4th 379, 394 (2004)(internal citations omitted).

11

a claim, a plaintiff must allege “(1) a statement of

12

indebtedness in certain sum, (2) consideration, i.e., goods

13

sold, work done, etc., and (3) nonpayment.

14

v. Zerin, 53 Cal. App. 4th 445, 460 (1997)(internal citation

15

omitted).

16

To state

Farmers Ins. Exch.

The allegations supporting this claim apply to both

17

Defendants.

Once again, Plaintiff incorporates all previous

18

allegations into its common counts claim, including breach of

19

contract.

20

year, [StudentsFirst], and by way of merger and assumption of

21

all liabilities and obligations, 50CAN, became indebted to

22

Plaintiff in an amount subject to identification, but in an

23

amount no less than $877,090.88, as a result of [its] lease of

24

the Premises and the services provided by Plaintiff in

25

accordance therewith.”

26

damages, interest, costs of suit, and any other relief the Court

27

deems proper.

28

///

See FAC ¶ 69.

Plaintiff adds that “[w]ithin the last

Id. ¶ 70.

See id. ¶ 72.

19

Plaintiff seeks compensatory

1
2

1.

StudentsFirst

StudentsFirst argues that Plaintiff has not stated a common

3

counts claim because Plaintiff improperly restyles it as a

4

breach of contract claim.

5

that Plaintiff has neither alleged a debt of a sum certain nor

6

identified what consideration Plaintiff gave to StudentsFirst

7

besides the Lease.

8

arguments, maintaining that it has alleged indebtedness in a

9

certain sum.

SF’s MTD at 9.

Id. at 10.

StudentsFirst adds

But Plaintiff challenges these

Opp’n to SF’s MTD at 12 (“no less than

10

$877,090.88”).

11

required under the Lease, satisfy the indebtedness element.

12

at 12-13.

13

never sought to dismiss the breach of contract claim, so the

14

common count claim “must survive.”

15

Plaintiff also states that its services, as
Id.

And, finally, Plaintiff notes that StudentsFirst

Id. at 13.

The Court agrees with StudentsFirst that this claim cannot

16

survive but for slightly different reasons.

“[W]hen the common

17

count is based on an express contract, the element of

18

indebtedness is not satisfied where the plaintiff seeks damages

19

for breach....”

20

2005 WL 2179310, at *4-5 (E.D. Cal. Sept. 8, 2005).

21

Plaintiff centers its common counts claim on express contracts—

22

the Lease and the Parking Agreement—and Plaintiff seeks

23

compensatory damages.

24

breach of contract allegations and the common count allegations

25

together, the common count allegations in fact seek damages for

26

breach.

27

again, Plaintiff incorporates into its common counts claim the

28

allegations supporting contract breach.

Mike Nelson Co. v. Hathaway, No. F 05-0208,

See FAC ¶¶ 69-72.

Also, reading the

See Hathaway, 2005 WL 2179310 at *5.

20

Here,

Indeed, once

See FAC ¶ 69.

1

And, finally, that StudentsFirst did not move to dismiss

2

the breach of contract does not help Plaintiff’s argument.

3

Because Plaintiff’s common counts claim is duplicative of its

4

surviving breach of contract claim, the common counts claim

5

fails as a matter of law.

6

5.

7

Plaintiff’s common counts claim with prejudice.

The Court grants StudentsFirst’s request to dismiss

8
9

See Hathaway, 2005 WL 2179310 at *4-

2.

50CAN

Having previously held that Plaintiff has stated a breach

10

of contract claim against 50CAN, see supra Part II.A.2, the

11

Court concludes that the same reasons barring Plaintiff’s common

12

counts claim against StudentsFirst apply here.

13

II.E.1.

14

50CAN, so the Court dismisses it with prejudice.

See supra Part

Plaintiff cannot state a common counts claim against

15

F.

Sixth Claim:

Declaratory Relief

16

The Declaratory Judgment Act allows a district court to

17

“declare the rights and other legal relations of any party

18

seeking such declaration, whether or not further relief is or

19

could be sought,” but only “[i]n a case of actual controversy.”

20

28 U.S.C. § 2201(a).

21

independent claim.

22

713 F. Supp. 2d 1092, 1104 (E.D. Cal. 2010).

23

resolve uncertainties or disputes that could result in future

24

litigation, declaratory relief operates prospectively and should

25

not redress past wrongs.

26

F.2d 1353, 1356-57 (9th Cir. 1985) (en banc).

27
28

This remedy is a form of relief—not an
See Lane v. Vitek Real Estate Indus. Grp.,
Designed to

See United States v. Washington, 759

Specifically, declaratory relief is appropriate when the
judgment will (1) “serve a useful purpose in clarifying and
21

1

settling the legal relations in issue”; and (2) “when it will

2

terminate and afford relief from the uncertainty, insecurity,

3

and controversy giving rise to the proceeding.”

4

Co. v. Preformed Line Prods. Co., 362 F.2d 339, 342 (9th Cir.

5

1966).

6

their conduct to avoid a breach.

7

Ibis LLC, No. CV 05-04239, 2006 WL 5720345, at *3 (C.D. Cal. May

8

2, 2006).

9

rights rather than to execute them.

10
11

McGraw-Edison

Stated differently, this remedy enables parties to shape
StreamCast Networks Inc. v.

Courts should grant declaratory relief to declare
See id. (internal citations

and quotation marks omitted).
The allegations supporting this claim apply to both

12

Defendants.

13

into its request for declaratory relief.

14

Plaintiff explains that “[a] dispute has arisen and now exists

15

between the parties to this action as to their rights,

16

responsibilities, and obligations under the Lease.”

17

Plaintiff states that “it has performed all obligations required

18

of it under the Lease,” but that Defendants argue that “they are

19

excused from any further performance of the Lease.”

20

Plaintiff “seeks a judicial determination” as to the parties’

21

rights and obligations.

22

1.

23

Plaintiff incorporates all previous allegations
See FAC ¶ 73.

Id. ¶ 74.

Id.

So,

Id.

StudentsFirst

StudentsFirst contends that declaratory relief is

24

inappropriate because Plaintiff centers its FAC on

25

StudentsFirst’s alleged breach of contract—a past act.

26

MTD at 11 (emphasis added).

27

is ripe for judicial determination because Plaintiff “reasonably

28

expects” that StudentsFirst will raise an affirmative defense

See SF’s

Yet Plaintiff argues that the case

22

1

that it is excused from performing under the Lease.

2

SF’s MTD at 14.

3

StudentsFirst has the stronger argument.

Opp’n to

An adequate

4

remedy already exists under Plaintiff’s breach of contract

5

claim, making declaratory relief duplicative and unnecessary

6

here.

7

3200614, at *3 (N.D. Cal. June 24, 2013) (concluding declaratory

8

relief claim duplicative of breach of contract claim because

9

deciding legality of Policy’s language already at issue in

See Ellena v. Standard Ins. Co., No. 12-5401 SC, 2013 WL

10

breach of contract claim); Valle v. JP Morgan Chase Bank, N.A.,

11

No. 11-cv-2453, 2012 WL 1205635, at *10 (S.D. Cal. Apr. 11,

12

2012)(holding that claim for declaratory relief fails because

13

based on same allegations supporting another cause of action).

14

The Court grants StudentsFirst’s request to dismiss with

15

prejudice Plaintiff’s claim for declaratory relief.

16
17

2.

50CAN

Having previously held that Plaintiff has stated a breach

18

of contract claim against 50CAN, see supra Part II.A.2, the

19

Court also grants 50CAN’s request to dismiss with prejudice

20

Plaintiff’s claim for declaratory relief for the same reasons

21

the claim fails against StudentsFirst.

22

G.

23
24

Seventh Claim:

See supra Part II.F.1.

California Business & Professions Code

Section 17200
California law prohibits “unfair competition,” which

25

includes “any unlawful, unfair or fraudulent business act or

26

practice.”

27

statute’s scope is broad, and it governs anti-competitive

28

business practices as well as injuries to consumers.

CAL. BUS. & PROF. CODE § 17200 (West 2016) (“UCL”).

23

See Cel-

The

1

Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th

2

163, 180 (1999)(internal citations and quotation marks omitted).

3

A court may deem a practice unfair even if it is not illegal.

4

See id.

5

Enacted to protect both consumers and competitors by

6

promoting fair competition in commercial markets for goods and

7

services, the UCL is a meaningful consumer protection tool.

8

Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1152

9

(2003).

See

It “provides an equitable means through which both

10

public prosecutors and private individuals can bring suit to

11

unfair business practices and restore money or property to

12

victims of these practices.”

13

plaintiff “need only show that members of the public are likely

14

to be deceived.”

15

152 Cal. App. 4th 115, 133 (2007)(internal citations and

16

quotation marks omitted).

17

Id. at 1150.

To state a claim, a

Linear Tech. Corp. v. Applied Materials, Inc.,

But corporate plaintiffs face an uphill battle.

When a UCL

18

claim is based on a contract that does not involve the public or

19

individual consumers, a corporate plaintiff cannot use the

20

statute for the relief it seeks.

21

See id. at 135.

The allegations supporting this claim apply to both

22

Defendants.

After incorporating all previous allegations in this

23

claim (including those constituting contract breach), Plaintiff

24

states that “Defendants have engaged in ‘unlawful,’ ‘unfair,’

25

and/or ‘fraudulent’ business acts or practices in an effort to

26

defraud their creditors, including, without limitation,

27

Plaintiff.”

28

“deceived Plaintiff, removed property and transferred substantial

FAC ¶ 78.

Plaintiff specifies that Defendants have

24

1

assets in an effort to avoid and evade payments to Plaintiff,

2

and/or hinder or delay Plaintiff’s ability to collect those sums

3

due and owing to it.”

4

1.

5

Id.

StudentsFirst

Characterizing the Lease as a breach of a commercial

6

contract with no adverse effects on consumer welfare,

7

StudentsFirst argues the UCL does not apply here.

8

at 9.

9

based on its fraud, fraudulent transfer, and civil conspiracy

See SF’s MTD

Plaintiff disagrees, contending that its UCL claim is

10

claims—not its breach of contract claim.

11

12.

12

Plaintiff’s tort claims survive, Plaintiff still has not alleged

13

that this private dispute among corporate actors raises issues

14

that fall within the UCL’s reach.

15

Reply”).

16

Opp’n to SF’s MTD at

In response, StudentsFirst reiterates that, even if

Reply, ECF No. 17, at 4 (“SF’s

The Court agrees with StudentsFirst.

Notwithstanding

17

Plaintiff’s argument that its UCL claim is not based on the

18

Lease, at its core, this case involves a dispute about the

19

economic relationship between commercial parties.

20

incorporating here allegations supporting its breach of contract

21

claim augments this conclusion.

22

Tree Stores Inc. v. Toyama Partners LLC, 875 F. Supp. 2d 1058,

23

1083 (N.D. Cal. 2012) (holding that plaintiff failed to state a

24

UCL claim because plaintiff alleged that that claim was based on

25

its breach of contract claim).

26

only Plaintiff and StudentsFirst’s relationship—it did not

27

implicate potential other creditors or the general public.

28

generally Exh. A.

See FAC ¶ 77.

Plaintiff’s

See also Dollar

Additionally, the Lease defined

See

This too shows that Plaintiff cannot state a
25

1

UCL claim.

2

1399783, at *3 (N.D. Cal. Apr. 13, 2011)(holding plaintiff cannot

3

assert UCL claim because parties’ relationship defined by their

4

contractual arrangement and did not involve the general public or

5

individual consumers who were also parties to the contract).

6

See In re ConocoPhillips, No. 09-cv-02040, 2011 WL

In sum, the Court finds that Plaintiff cannot state a UCL

7

claim against StudentsFirst because § 17200 does not protect

8

commercial disputes between contracting parties that do not

9

involve the general public or individual consumers.

The Court

10

grants StudentsFirst’s request to dismiss this claim with

11

prejudice.

12

2.

50CAN

13

The Court also finds that Plaintiff fails to state a UCL

14

claim against 50CAN for the same reasons Plaintiff fails to state

15

this claim against StudentsFirst.

16

Court grants 50CAN’s request to dismiss the UCL claim with

17

prejudice.

See supra Part II.G.1.

The

18
19
20
21
22
23
24
25
26
27
28

III.

ORDER

For the reasons set forth above, the Court GRANTS in part
and DENIES in part Defendants’ Motions to Dismiss as follows:
1.

Defendant 50CAN’s motion to dismiss the breach of

contract claim is DENIED;
2.

Defendants’ motions to dismiss the fraudulent transfer

claim are DENIED;
3.

Defendants StudentsFirsts’ motion to dismiss the fraud

claim is GRANTED WITH PREJUDICE;
4.

Defendants’ motions to dismiss the civil conspiracy
26

1
2
3
4
5
6
7
8
9

claim are GRANTED WITH PREJUDICE;
5.

Defendants’ motions to dismiss the common counts claim

are GRANTED WITH PREJUDICE;
6.

Defendants’ motions to dismiss the claim for

declaratory relief are GRANTED WITH PREJUDICE; and
7.

Defendants’ motions to dismiss the UCL claim are

GRANTED WITH PREJUDICE.
IT IS SO ORDERED.
Dated: February 13, 2017

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