US Capital Partners, LLC v. AHMSA International, Inc.

Filing 19

ORDER by Magistate Judge Jacqueline Scott Corley granting in part and denying in part 8 Motion to Dismiss (ahm, COURT STAFF) (Filed on 2/14/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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Northern District of California

United States District Court

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U.S. CAPITAL PARTNERS, LLC,
Plaintiff,

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v.

Case No.: 12-6520 JSC
ORDER RE: DEFENDANT’S
MOTION TO DISMISS AND FOR A
MORE DEFINITE STATEMENT (Dkt.
No. 8)

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AHMSA INTERNATIONAL, INC.,
Defendant.

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Plaintiff U.S. Capital Partners, LLC, (“U.S. Capital”) seeks to recover damages from

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Defendant AHMSA International, Inc., (“AHMSA”) based on allegations of breach of

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contract in connection with a potential financing transaction between the parties. Now

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pending before the Court is AHMSA’s Motion to Dismiss the Complaint in part and for a

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More Definite Statement (Dkt. No. 12). After carefully considering the pleadings submitted

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by the parties, and having had the benefit of oral argument on February 14, 2013, the Court

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DENIES Defendant’s Motion to Dismiss as to the negligent misrepresentation claim and

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GRANTS it as to the unfair competition and money due and owing claim, and the Court

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DENIES Defendant’s Motion for a More Definite Statement. 1
FACTUAL & PROCEDURAL BACKGROUND

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Plaintiff U.S. Capital brought this action to recover damages pursuant to various state

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parties which related to a financing transaction. The first contract was a Term Sheet for

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Proposed Credit Facility executed on December 22, 2011 and the second was a Fee

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Agreement executed February 17, 2012 (collectively the “Financing Contracts”).

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(Complaint ¶¶ 7-10.) Pursuant to the contracts, AHMSA retained U.S. Capital’s services to

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help obtain financing for the company. (Id. ¶¶ 6-13.) U.S. Capital alleges that it attempted

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law claims following Defendant AHMSA’s alleged breach of two contracts between the

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United States District Court

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to do so, but AHMSA’s own actions prevented it from securing financing. (Id. ¶¶ 14-18.)

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U.S. Capital filed this action in the Superior Court for the State of California (San Francisco

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division) alleging (1) breach of contract, (2) breach of the implied covenant of good faith and

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fair dealing, (3) money due and owing, (4) unfair business practices, and (5) negligent

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misrepresentation. (Dkt. No. 1.) AHMSA removed the action to federal court asserting

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diversity jurisdiction under 28 U.S.C. § 1446(a) and now moves to dismiss the action in part

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and for a more definite statement.
LEGAL STANDARD

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A Rule 12(b)(6) motion challenges the sufficiency of a complaint as failing to allege

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“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 570 (2007). A facial plausibility standard is not a “probability

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requirement” but mandates “more than a sheer possibility that a defendant has acted

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unlawfully,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotations and citations

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omitted). For purposes of ruling on a Rule 12(b)(6) motion, the court “accept[s] factual

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allegations in the complaint as true and construe[s] the pleadings in the light most favorable

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to the non-moving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025,

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The parties have consented to the jurisdiction of the undersigned magistrate judge pursuant
to 28 U.S.C. § 636(c).
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1031 (9th Cir. 2008). “[D]ismissal may be based on either a lack of a cognizable legal theory

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or the absence of sufficient facts alleged under a cognizable legal theory.” Johnson v.

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Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008) (internal quotations and

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citations omitted).

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Even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2),

showing that the pleader is entitled to relief,” a “pleading that offers ‘labels and conclusions’

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or ‘a formulaic recitation of the elements of a cause of action will not do.’” Iqbal, 556 U.S. at

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678 (quoting Twombly, 550 U.S. at 555.) “[C]onclusory allegations of law and unwarranted

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inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179,

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under which a party is only required to make “a short and plain statement of the claim

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1183 (9th Cir. 2004); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

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(“[A]llegations in a complaint or counterclaim may not simply recite the elements of a cause

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of action, but must contain sufficient allegations of underlying facts to give fair notice and to

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enable the opposing party to defend itself effectively”), cert. denied, 132 S. Ct. 2101 (2012).

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The court must be able to “draw the reasonable inference that the defendant is liable for the

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misconduct alleged.” Iqbal, 556 U.S. at 663. “Determining whether a complaint states a

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plausible claim for relief ... [is] a context-specific task that requires the reviewing court to

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draw on its judicial experience and common sense.” Id. at 663-64.

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If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no

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request to amend the pleading was made, unless it determines that the pleading could not

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possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th

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Cir. 2000) (en banc) (internal quotations and citations omitted).

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Federal Rule of Civil Procedure 12(e) provides that “a party may move for a more

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definite statement of a pleading . . . which is so vague or ambiguous that the party cannot

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reasonably prepare a response.” These motions are “disfavored and rarely granted” unless

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“the complaint is so indefinite that the Defendant cannot ascertain the nature of the claim

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being asserted.” U.S. v. Ragan, No. 10-7654, 2011 WL 2940354, at *2 (C.D. Cal July 21,

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2011). In other words, the pleading is “so vague or ambiguous that the opposing party

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cannot respond, even with a simple denial, in good faith or without prejudice to himself.”

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Cellars v. Pacific Coast Packaging, Inc., 189 F.R.D. 575, 578 (N.D. Cal. 1999) (internal

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quotation marks and citation omitted).

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DISCUSSION
A. Motion to Dismiss pursuant to Rule 9(b)
In addition to the general pleading requirements set forth in Rule 8, when a plaintiff

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alleges fraud, he or she must allege “with particularity the circumstances constituting fraud.”

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Fed. R. Civ. P. 9(b) (“In all averments of fraud or mistake, the circumstances constituting

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fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other

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condition of mind of a person may be averred generally”). The pleading must be “specific

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enough to give defendants notice of the particular misconduct .... that they can defend against

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the charge and not just deny they have done anything wrong.” Sanford v. MemberWorks, Inc.,

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625 F.3d 550, 558 (9th Cir. 2010). Defendant alleges that Plaintiff’s claims for negligent

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misrepresentation and unfair business practices fail to satisfy Rule 9(b)’s particularity

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requirement and therefore must be dismissed.

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1. Negligent Misrepresentation

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The elements of negligent misrepresentation are “(1) the misrepresentation of a past

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or existing material fact, (2) without reasonable ground for believing it to be true, (3) with

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intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the

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misrepresentation, and (5) resulting damage.” Apollo Capital Fund LLC v. Roth Capital

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Partners, LLC, 158 Cal. App. 4th 226, 243 (2007). “Negligent misrepresentation is narrower

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than fraud.” Shamsian v. Atl. Richfield Co., 107 Cal. App. 4th 967, 984 (2003). “The

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elements of a cause of action for fraud and a cause of action for negligent misrepresentation

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are very similar. . . . [B]oth torts are defined as deceit. However, the state of mind

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requirements are different.” Intrieri v. Superior Court, 117 Cal. App. 4th 72, 85 (2004).

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“Negligent misrepresentation lacks the element of intent to deceive. Therefore, where the

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defendant makes false statements, honestly believing that they are true, but without

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reasonable ground for such belief, he may be liable for negligent misrepresentation, a form

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of deceit.” Id. at 86 (citations, alteration, and internal quotation marks omitted).

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Defendant nonetheless argues that Rule 9(b)’s heightened pleading requirements for

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fraud claims should apply equally to negligent misrepresentation claims. There is no binding

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authority in the Ninth Circuit on this subject. See Petersen v. Allstate Indem. Co., 281

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F.R.D. 413, 416 (C.D. Cal. 2012) (“the Ninth Circuit has not yet decided the issue of

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whether negligent misrepresentation claims are subjected to Rule 9(b)”) citing Anschutz

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Corp. v. Merrill Lynch & Co., 785 F.Supp.2d 799, 823 (N.D. Cal. 2011). Defendant’s

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arguments to the contrary are unpersuasive. Although many district courts within the Ninth

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Circuit have found that negligent misrepresentation claims are subject to Rule 9(b)’s

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heightened pleading standard, those cases rely on non-binding decisions of other district

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courts. See, e.g., Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101, 1141

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(C.D. Cal. 2003) (“It is well-established in the Ninth Circuit that both claims for fraud and

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negligent misrepresentation must meet Rule 9(b)’s particularity requirements”) citing Glen

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Holly Entertainment, Inc. v. Tektronix, Inc., 100 F.Supp.2d 1086, 1093 (C.D.Cal. 1999) and

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U.S. Concord, Inc. v. Harris Graphics Corp., 757 F.Supp. 1053, 1058 (N.D.Cal. 1991));

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Survine v. Cottle, No. 12-1453, 2013 WL 103576, at *13 (E.D. Cal. Jan. 8, 2013) (“In the

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Ninth Circuit, claims for fraud and negligent misrepresentation must meet Rule 9(b)'s

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particularity requirements”) quoting Neilson v. Union Bank of California, N.A., 290

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F.Supp.2d 1101, 1141 (C.D. Cal. 2003).

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Many of those cases, including those upon which Defendant relies, were considering

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claims for negligent misrepresentation in conjunction with fraud claims. As such, those

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cases stand for the premise that a court can dismiss a negligence claim grounded in fraud if it

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fails to satisfy Rule 9(b)’s heightened pleading requirements. See Rankine v. Roller Bearing

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Co. of Am., Inc., No. 12-CV-2065, 2013 WL 55802, at *4 (S.D. Cal. Jan. 2, 2013)

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(collectively considering claims for intentional misrepresentation, negligent

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misrepresentation, and common law fraud and holding that they are subject to the

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heightened pleading standards of Rule 9(b)); Das v. WMC Mortg. Corp., 831 F. Supp. 2d

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1147, 1166 (N.D. Cal. 2011) (collectively considering claims for intentional

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misrepresentation, fraudulent concealment, and negligent misrepresentation); Black &

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Veatch Corp. v. Modesto Irrigation Dist., 827 F.Supp.2d 1130, 1146 (considering claims for

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both fraud and negligent misrepresentation); Neilson v. Union Bank of California, N.A., 290

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F.Supp.2d 1101, 1141 (C.D. Cal. 2003) (considering claims for fraud and negligent

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misrepresentation). Here, in contrast, Plaintiff’s Complaint does not include a fraud claim;

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instead, Plaintiff alleges “[t]hrough AHMSA’s representation that it would pay the Banking

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Fee and Break-up Fee to USCP, which was false, AHMSA supplied false information for the

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guidance to others, namely USCP;” and “AHMSA did not exercise reasonable care or

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competence in obtaining or communicating this information.” (Complaint ¶¶ 44-45.) These

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allegations are grounded in negligence, not fraud.

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The Ninth Circuit’s decision in Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1107

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(9th Cir. 2003), highlights the problem with conflating the pleading requirement for fraud

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claims with the pleading requirement for non-fraud cases. In Vess, the court held that it was

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error to apply 9(b)’s heightened pleading standard to a claim of negligence that was “not

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based in fraud.” Id. at 1106. “[I]n a case where fraud is not an essential element of a claim,

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only allegations (“averments”) of fraudulent conduct must satisfy the heightened pleading

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requirements of Rule 9(b). Allegations of non-fraudulent conduct need satisfy only the

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ordinary notice pleading standards of Rule 8(a).” Id. at 1105. The court reached this

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conclusion because the purpose of applying a heightened pleading standard to fraud claims

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was to “safeguard a defendant’s reputation and goodwill from improvident charges of

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wrongdoing” and this purpose does not exist with non-fraud (and thus non-reputation based)

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allegations. Id. at 1104 (internal citations and quotations omitted).

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Accordingly, the Court declines to apply Rule 9(b)’s heightened pleading

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requirements to the case here as Plaintiff has not separately alleged fraud and the negligent

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misrepresentation claim is not “grounded in” fraud. The Court instead is persuaded by the

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reasoning set forth in Petersen v. Allstate Indem. Co., 281 F.R.D. 413, 416 (C.D. Cal. 2012).

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While Rule 9(b) can apply to a claim for negligent misrepresentation, it does not apply to all

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such claims and it does not apply to Plaintiff’s claim as pled here. Defendant’s motion to

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dismiss Plaintiff’s negligent misrepresentation claim is denied.

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2. Unfair Business Practices

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Defendant also moves to dismiss Plaintiff’s unfair business practices claim for failure

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to meet Rule 9(b)’s heightened pleading requirements. California’s Unfair Competition Law

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(“UCL”) defines unfair competition as “any unlawful, unfair or fraudulent business act or

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practice.” CAL. BUS. & PROF. CODE § 17200. “[E]ach prong of the UCL is a separate and

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distinct theory of liability” and offers “an independent basis for relief.” Kearns v. Ford

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Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009).

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Here, Plaintiff alleges that Defendant breached its contractual duties by bypassing U.S.

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Capital and contacting the funding sources directly, frustrating U.S. Capital’s efforts to obtain

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financing, and independently securing financing in violation of the parties’ contract.

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(Complaint ¶¶ 34-37.) Plaintiff does not specify whether this conduct violated the unfair,

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unlawful or fraudulent prong of Section 17200 and instead asserts that Defendant’s conduct

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“constitutes unlawful, unfair and/or fraudulent business practices in violation of Section

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17200.” (Id. at ¶ 38.) In opposing Defendant’s motion to dismiss, Plaintiff alleges that it

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does not need to prove fraudulent intent on the part of AHMSA to prevail on its 17200 claim

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because the conduct “indisputably rise[s] to the level of ‘unfairness.’” (Dkt. No. 12, 5:21-

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6:3.) Defendant contends that even if the claim is limited to “unfairness” it is still subject to

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Rule 9(b).

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The Court finds that Plaintiff’s 17200 claim is not adequately pled. Although

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Plaintiff’s opposition brief suggest that the claim is limited to the unfairness prong, that is not

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how the claim is pled. Accordingly, Defendant’s motion to dismiss the unfair competition

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claim is granted with leave to amend. On amendment, Plaintiff shall specify which prong it

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seeks relief under and include specific factual allegations as to each.

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B. Motion to Dismiss Plaintiff’s Money Due and Owing Claim under 12(b)(6)

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To prevail on a claim for money due and owing (also referred to as money had and
received) Plaintiff must show “unjust enrichment of the wrongdoer, and in order for plaintiff

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to recover in such action she must show that a definite sum, to which she is justly entitled, has

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been received by defendant.” Walter v. Hughes Communications, Inc., 682 F.Supp.2d 1031,

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1047 (N.D. Cal. 2010) (internal citations and quotations omitted). “[A] plaintiff may not

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maintain quasi-contract claims such as unjust enrichment, money had and received, and

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money paid ‘if the parties have an enforceable agreement regarding a particular subject

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matter.’” Allen v. Hylands, Inc., No. 12-01150, 2012 WL 1656750, at *5 (C.D. Cal. May 2,

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2012) quoting Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342, 1388, 137 Cal.Rptr.3d

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293 (2012).

contends that it is a quasi-contractual claim which is irreconcilable with Plaintiff’s breach of

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Defendant moves to dismiss Plaintiff’s money due and owing claim because it

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contract claim. In response, Plaintiff contends that at this stage it is permissible to allege

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inconsistent claims for relief pursuant to Federal Rule of Civil Procedure 8(d)(3) which

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allows a party to “state as many separate claims or defenses as it has, regardless of

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consistency.” Plaintiff also argues that this case is distinguishable from cases which hold that

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a plaintiff cannot maintain quasi-contractual claims if the parties have an enforceable

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agreement regarding the specific subject matter. See, e.g., Paracor Finance, Inc. v. General

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Electric Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996) (“Under both California and New

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York law ... an action in quasi-contract ... does not lie when an enforceable, binding

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agreement exists defining the rights of the parties”); Allen, 2012 WL 1656750, at *5 (“a

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plaintiff may not maintain quasi-contract claims such as unjust enrichment, money had and

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received, and money paid if the parties have an enforceable agreement regarding a particular

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subject matter”) (internal citations and quotations omitted); Langley Partners, L.P. v. Tripath

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Tech., Inc., No. 05-4194, 2006 WL 563053, at *7 (N.D. Cal. Mar. 7, 2006) (finding that it

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was not “legally feasible” for plaintiff to bring a claim for unjust enrichment or money had

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and received in light of the valid and enforceable contract between the parties). To this end,

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Plaintiff argues that there is a dispute as to whether the parties have an enforceable agreement

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stating that “AHMSA obviously contests the enforceability of those agreements.” On reply,

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however, AHMSA states that is “has never questioned the enforceability” of the contracts as

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issue. (Dkt. No. 14, 13:15-16.)

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Because Defendant does not challenge the enforceability of the contracts, and the

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Complaint alleges that these are valid and enforceable contracts, Plaintiff’s money due and

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owing claim cannot stand. That the parties do not dispute either the existence or the

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enforceability of the Fee Agreement and Term Sheet forecloses Plaintiff’s ability to bring a

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quasi-contractual claim such as the claim for money due and owing. Accordingly, the Court

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grants Defendant’s motion to dismiss Plaintiff’s claim for money due and owing without

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prejudice.

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C. Motion for a More Definite Statement
Defendant moves for a more definite statement with respect to both Plaintiff’s breach

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of contract claim and breach of the implied covenant of good faith and fair dealing claim.

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“The proper test in evaluating a motion under Rule 12(e) is whether the complaint provides

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the defendant with a sufficient basis to frame his responsive pleadings.” Federal Sav. & Loan

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Ins. Corp. v. Musacchio, 695 F.Supp. 1053, 1060 (N.D. Cal.1988). The Court finds

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Defendant’s arguments regarding the vagueness of Plaintiff’s allegations unpersuasive.

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In order to state a claim for breach of contract, Plaintiff must allege “the existence of

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the contract, performance by the plaintiff or excuse for nonperformance, breach by the

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defendant[s], and damages.” Lucia v. Wells Fargo Bank, N.A., 798 F. Supp. 2d 1059, 1066-67

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(N.D. Cal. 2011) (internal citations omitted). Here, Plaintiff has alleged the existence of the

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financing contracts discussed above, its efforts to perform under the contract, and Defendant’s

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breach through independently contacting funding sources, delaying in providing information

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and records to Plaintiff and soliciting, encouraging or entertaining proposals from other

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financing entities. (Complaint ¶¶ 14-15, 32-34.) Plaintiff’s allegations regarding its claim for

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breach of the implied covenant of good faith and fair dealing similarly put Defendant on

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notice of the allegations against it. The questions posed by Defendant in it its motion are the

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proper subjects for discovery and are not necessary to answer the Complaint. Accordingly,

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Defendant’s motion for a more definite statement is denied.

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CONCLUSION

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Based on the foregoing, the Court DENIES Defendant’s Motion to Dismiss Plaintiff’s

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negligent misrepresentation; GRANTS Defendant’s Motion to Dismiss Plaintiff’s unfair

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competition and money due and owing claim without prejudice; and DENIES Defendant’s

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Motion for a More Definite Statement as to Plaintiff’s claim for breach of contract and breach

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of the implied covenant of good faith and fair dealing. Any amended complaint shall be filed

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within 20 days of the date of this Order.

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At oral argument, Defendant raised a few questions as to Plaintiff’s allegations that

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would assist Defendant in evaluating the case, targeting its discovery, and perhaps facilitate

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an early settlement. The parties agreed that Defendant would serve a targeted interrogatory

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or two seeking information regarding Plaintiff’s specific allegations of misconduct and that

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Plaintiff would promptly respond to Defendant’s questions. Further, in light of the amount in

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controversy and the lack of any attorney’s fees provision, the Court encouraged the parties to

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informally share information to the extent possible.

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This Order disposes of Docket No. 8.

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IT IS SO ORDERED.

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Dated: February 14, 2013
_________________________________
JACQUELINE SCOTT CORLEY
UNITED STATES MAGISTRATE JUDGE

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