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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1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA 10 Northern District of California United States District Court 11 12 13 U.S. CAPITAL PARTNERS, LLC, Plaintiff, 14 15 v. Case No.: 12-6520 JSC ORDER RE: DEFENDANT’S MOTION TO DISMISS AND FOR A MORE DEFINITE STATEMENT (Dkt. No. 8) 16 17 18 AHMSA INTERNATIONAL, INC., Defendant. 19 20 Plaintiff U.S. Capital Partners, LLC, (“U.S. Capital”) seeks to recover damages from 21 Defendant AHMSA International, Inc., (“AHMSA”) based on allegations of breach of 22 contract in connection with a potential financing transaction between the parties. Now 23 pending before the Court is AHMSA’s Motion to Dismiss the Complaint in part and for a 24 More Definite Statement (Dkt. No. 12). After carefully considering the pleadings submitted 25 by the parties, and having had the benefit of oral argument on February 14, 2013, the Court 26 DENIES Defendant’s Motion to Dismiss as to the negligent misrepresentation claim and 27 28 1 GRANTS it as to the unfair competition and money due and owing claim, and the Court 2 DENIES Defendant’s Motion for a More Definite Statement. 1 FACTUAL & PROCEDURAL BACKGROUND 3 Plaintiff U.S. Capital brought this action to recover damages pursuant to various state 4 parties which related to a financing transaction. The first contract was a Term Sheet for 7 Proposed Credit Facility executed on December 22, 2011 and the second was a Fee 8 Agreement executed February 17, 2012 (collectively the “Financing Contracts”). 9 (Complaint ¶¶ 7-10.) Pursuant to the contracts, AHMSA retained U.S. Capital’s services to 10 help obtain financing for the company. (Id. ¶¶ 6-13.) U.S. Capital alleges that it attempted 11 Northern District of California law claims following Defendant AHMSA’s alleged breach of two contracts between the 6 United States District Court 5 to do so, but AHMSA’s own actions prevented it from securing financing. (Id. ¶¶ 14-18.) 12 U.S. Capital filed this action in the Superior Court for the State of California (San Francisco 13 division) alleging (1) breach of contract, (2) breach of the implied covenant of good faith and 14 fair dealing, (3) money due and owing, (4) unfair business practices, and (5) negligent 15 misrepresentation. (Dkt. No. 1.) AHMSA removed the action to federal court asserting 16 diversity jurisdiction under 28 U.S.C. § 1446(a) and now moves to dismiss the action in part 17 and for a more definite statement. LEGAL STANDARD 18 A Rule 12(b)(6) motion challenges the sufficiency of a complaint as failing to allege 19 20 “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 21 Twombly, 550 U.S. 544, 570 (2007). A facial plausibility standard is not a “probability 22 requirement” but mandates “more than a sheer possibility that a defendant has acted 23 unlawfully,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotations and citations 24 omitted). For purposes of ruling on a Rule 12(b)(6) motion, the court “accept[s] factual 25 allegations in the complaint as true and construe[s] the pleadings in the light most favorable 26 to the non-moving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 27 28 1 The parties have consented to the jurisdiction of the undersigned magistrate judge pursuant to 28 U.S.C. § 636(c). 2 1 1031 (9th Cir. 2008). “[D]ismissal may be based on either a lack of a cognizable legal theory 2 or the absence of sufficient facts alleged under a cognizable legal theory.” Johnson v. 3 Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008) (internal quotations and 4 citations omitted). 5 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’ 8 or ‘a formulaic recitation of the elements of a cause of action will not do.’” Iqbal, 556 U.S. at 9 678 (quoting Twombly, 550 U.S. at 555.) “[C]onclusory allegations of law and unwarranted 10 inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 11 Northern District of California under which a party is only required to make “a short and plain statement of the claim 7 United States District Court 6 1183 (9th Cir. 2004); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 12 (“[A]llegations in a complaint or counterclaim may not simply recite the elements of a cause 13 of action, but must contain sufficient allegations of underlying facts to give fair notice and to 14 enable the opposing party to defend itself effectively”), cert. denied, 132 S. Ct. 2101 (2012). 15 The court must be able to “draw the reasonable inference that the defendant is liable for the 16 misconduct alleged.” Iqbal, 556 U.S. at 663. “Determining whether a complaint states a 17 plausible claim for relief ... [is] a context-specific task that requires the reviewing court to 18 draw on its judicial experience and common sense.” Id. at 663-64. 19 If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no 20 request to amend the pleading was made, unless it determines that the pleading could not 21 possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th 22 Cir. 2000) (en banc) (internal quotations and citations omitted). 23 Federal Rule of Civil Procedure 12(e) provides that “a party may move for a more 24 definite statement of a pleading . . . which is so vague or ambiguous that the party cannot 25 reasonably prepare a response.” These motions are “disfavored and rarely granted” unless 26 “the complaint is so indefinite that the Defendant cannot ascertain the nature of the claim 27 being asserted.” U.S. v. Ragan, No. 10-7654, 2011 WL 2940354, at *2 (C.D. Cal July 21, 28 2011). In other words, the pleading is “so vague or ambiguous that the opposing party 3 1 cannot respond, even with a simple denial, in good faith or without prejudice to himself.” 2 Cellars v. Pacific Coast Packaging, Inc., 189 F.R.D. 575, 578 (N.D. Cal. 1999) (internal 3 quotation marks and citation omitted). 4 5 6 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 7 alleges fraud, he or she must allege “with particularity the circumstances constituting fraud.” 8 Fed. R. Civ. P. 9(b) (“In all averments of fraud or mistake, the circumstances constituting 9 fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other Northern District of California condition of mind of a person may be averred generally”). The pleading must be “specific 11 United States District Court 10 enough to give defendants notice of the particular misconduct .... that they can defend against 12 the charge and not just deny they have done anything wrong.” Sanford v. MemberWorks, Inc., 13 625 F.3d 550, 558 (9th Cir. 2010). Defendant alleges that Plaintiff’s claims for negligent 14 misrepresentation and unfair business practices fail to satisfy Rule 9(b)’s particularity 15 requirement and therefore must be dismissed. 16 1. Negligent Misrepresentation 17 The elements of negligent misrepresentation are “(1) the misrepresentation of a past 18 or existing material fact, (2) without reasonable ground for believing it to be true, (3) with 19 intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the 20 misrepresentation, and (5) resulting damage.” Apollo Capital Fund LLC v. Roth Capital 21 Partners, LLC, 158 Cal. App. 4th 226, 243 (2007). “Negligent misrepresentation is narrower 22 than fraud.” Shamsian v. Atl. Richfield Co., 107 Cal. App. 4th 967, 984 (2003). “The 23 elements of a cause of action for fraud and a cause of action for negligent misrepresentation 24 are very similar. . . . [B]oth torts are defined as deceit. However, the state of mind 25 requirements are different.” Intrieri v. Superior Court, 117 Cal. App. 4th 72, 85 (2004). 26 “Negligent misrepresentation lacks the element of intent to deceive. Therefore, where the 27 defendant makes false statements, honestly believing that they are true, but without 28 4 1 reasonable ground for such belief, he may be liable for negligent misrepresentation, a form 2 of deceit.” Id. at 86 (citations, alteration, and internal quotation marks omitted). 3 Defendant nonetheless argues that Rule 9(b)’s heightened pleading requirements for 4 fraud claims should apply equally to negligent misrepresentation claims. There is no binding 5 authority in the Ninth Circuit on this subject. See Petersen v. Allstate Indem. Co., 281 6 F.R.D. 413, 416 (C.D. Cal. 2012) (“the Ninth Circuit has not yet decided the issue of 7 whether negligent misrepresentation claims are subjected to Rule 9(b)”) citing Anschutz 8 Corp. v. Merrill Lynch & Co., 785 F.Supp.2d 799, 823 (N.D. Cal. 2011). Defendant’s 9 arguments to the contrary are unpersuasive. Although many district courts within the Ninth Northern District of California Circuit have found that negligent misrepresentation claims are subject to Rule 9(b)’s 11 United States District Court 10 heightened pleading standard, those cases rely on non-binding decisions of other district 12 courts. See, e.g., Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101, 1141 13 (C.D. Cal. 2003) (“It is well-established in the Ninth Circuit that both claims for fraud and 14 negligent misrepresentation must meet Rule 9(b)’s particularity requirements”) citing Glen 15 Holly Entertainment, Inc. v. Tektronix, Inc., 100 F.Supp.2d 1086, 1093 (C.D.Cal. 1999) and 16 U.S. Concord, Inc. v. Harris Graphics Corp., 757 F.Supp. 1053, 1058 (N.D.Cal. 1991)); 17 Survine v. Cottle, No. 12-1453, 2013 WL 103576, at *13 (E.D. Cal. Jan. 8, 2013) (“In the 18 Ninth Circuit, claims for fraud and negligent misrepresentation must meet Rule 9(b)'s 19 particularity requirements”) quoting Neilson v. Union Bank of California, N.A., 290 20 F.Supp.2d 1101, 1141 (C.D. Cal. 2003). 21 Many of those cases, including those upon which Defendant relies, were considering 22 claims for negligent misrepresentation in conjunction with fraud claims. As such, those 23 cases stand for the premise that a court can dismiss a negligence claim grounded in fraud if it 24 fails to satisfy Rule 9(b)’s heightened pleading requirements. See Rankine v. Roller Bearing 25 Co. of Am., Inc., No. 12-CV-2065, 2013 WL 55802, at *4 (S.D. Cal. Jan. 2, 2013) 26 (collectively considering claims for intentional misrepresentation, negligent 27 misrepresentation, and common law fraud and holding that they are subject to the 28 heightened pleading standards of Rule 9(b)); Das v. WMC Mortg. Corp., 831 F. Supp. 2d 5 1 1147, 1166 (N.D. Cal. 2011) (collectively considering claims for intentional 2 misrepresentation, fraudulent concealment, and negligent misrepresentation); Black & 3 Veatch Corp. v. Modesto Irrigation Dist., 827 F.Supp.2d 1130, 1146 (considering claims for 4 both fraud and negligent misrepresentation); Neilson v. Union Bank of California, N.A., 290 5 F.Supp.2d 1101, 1141 (C.D. Cal. 2003) (considering claims for fraud and negligent 6 misrepresentation). Here, in contrast, Plaintiff’s Complaint does not include a fraud claim; 7 instead, Plaintiff alleges “[t]hrough AHMSA’s representation that it would pay the Banking 8 Fee and Break-up Fee to USCP, which was false, AHMSA supplied false information for the 9 guidance to others, namely USCP;” and “AHMSA did not exercise reasonable care or Northern District of California competence in obtaining or communicating this information.” (Complaint ¶¶ 44-45.) These 11 United States District Court 10 allegations are grounded in negligence, not fraud. 12 The Ninth Circuit’s decision in Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1107 13 (9th Cir. 2003), highlights the problem with conflating the pleading requirement for fraud 14 claims with the pleading requirement for non-fraud cases. In Vess, the court held that it was 15 error to apply 9(b)’s heightened pleading standard to a claim of negligence that was “not 16 based in fraud.” Id. at 1106. “[I]n a case where fraud is not an essential element of a claim, 17 only allegations (“averments”) of fraudulent conduct must satisfy the heightened pleading 18 requirements of Rule 9(b). Allegations of non-fraudulent conduct need satisfy only the 19 ordinary notice pleading standards of Rule 8(a).” Id. at 1105. The court reached this 20 conclusion because the purpose of applying a heightened pleading standard to fraud claims 21 was to “safeguard a defendant’s reputation and goodwill from improvident charges of 22 wrongdoing” and this purpose does not exist with non-fraud (and thus non-reputation based) 23 allegations. Id. at 1104 (internal citations and quotations omitted). 24 Accordingly, the Court declines to apply Rule 9(b)’s heightened pleading 25 requirements to the case here as Plaintiff has not separately alleged fraud and the negligent 26 misrepresentation claim is not “grounded in” fraud. The Court instead is persuaded by the 27 reasoning set forth in Petersen v. Allstate Indem. Co., 281 F.R.D. 413, 416 (C.D. Cal. 2012). 28 While Rule 9(b) can apply to a claim for negligent misrepresentation, it does not apply to all 6 1 such claims and it does not apply to Plaintiff’s claim as pled here. Defendant’s motion to 2 dismiss Plaintiff’s negligent misrepresentation claim is denied. 3 2. Unfair Business Practices 4 Defendant also moves to dismiss Plaintiff’s unfair business practices claim for failure 5 to meet Rule 9(b)’s heightened pleading requirements. California’s Unfair Competition Law 6 (“UCL”) defines unfair competition as “any unlawful, unfair or fraudulent business act or 7 practice.” CAL. BUS. & PROF. CODE § 17200. “[E]ach prong of the UCL is a separate and 8 distinct theory of liability” and offers “an independent basis for relief.” Kearns v. Ford 9 Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). Northern District of California Here, Plaintiff alleges that Defendant breached its contractual duties by bypassing U.S. 11 United States District Court 10 Capital and contacting the funding sources directly, frustrating U.S. Capital’s efforts to obtain 12 financing, and independently securing financing in violation of the parties’ contract. 13 (Complaint ¶¶ 34-37.) Plaintiff does not specify whether this conduct violated the unfair, 14 unlawful or fraudulent prong of Section 17200 and instead asserts that Defendant’s conduct 15 “constitutes unlawful, unfair and/or fraudulent business practices in violation of Section 16 17200.” (Id. at ¶ 38.) In opposing Defendant’s motion to dismiss, Plaintiff alleges that it 17 does not need to prove fraudulent intent on the part of AHMSA to prevail on its 17200 claim 18 because the conduct “indisputably rise[s] to the level of ‘unfairness.’” (Dkt. No. 12, 5:21- 19 6:3.) Defendant contends that even if the claim is limited to “unfairness” it is still subject to 20 Rule 9(b). 21 The Court finds that Plaintiff’s 17200 claim is not adequately pled. Although 22 Plaintiff’s opposition brief suggest that the claim is limited to the unfairness prong, that is not 23 how the claim is pled. Accordingly, Defendant’s motion to dismiss the unfair competition 24 claim is granted with leave to amend. On amendment, Plaintiff shall specify which prong it 25 seeks relief under and include specific factual allegations as to each. 26 B. Motion to Dismiss Plaintiff’s Money Due and Owing Claim under 12(b)(6) 27 28 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 7 1 to recover in such action she must show that a definite sum, to which she is justly entitled, has 2 been received by defendant.” Walter v. Hughes Communications, Inc., 682 F.Supp.2d 1031, 3 1047 (N.D. Cal. 2010) (internal citations and quotations omitted). “[A] plaintiff may not 4 maintain quasi-contract claims such as unjust enrichment, money had and received, and 5 money paid ‘if the parties have an enforceable agreement regarding a particular subject 6 matter.’” Allen v. Hylands, Inc., No. 12-01150, 2012 WL 1656750, at *5 (C.D. Cal. May 2, 7 2012) quoting Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342, 1388, 137 Cal.Rptr.3d 8 293 (2012). contends that it is a quasi-contractual claim which is irreconcilable with Plaintiff’s breach of 11 Northern District of California Defendant moves to dismiss Plaintiff’s money due and owing claim because it 10 United States District Court 9 contract claim. In response, Plaintiff contends that at this stage it is permissible to allege 12 inconsistent claims for relief pursuant to Federal Rule of Civil Procedure 8(d)(3) which 13 allows a party to “state as many separate claims or defenses as it has, regardless of 14 consistency.” Plaintiff also argues that this case is distinguishable from cases which hold that 15 a plaintiff cannot maintain quasi-contractual claims if the parties have an enforceable 16 agreement regarding the specific subject matter. See, e.g., Paracor Finance, Inc. v. General 17 Electric Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996) (“Under both California and New 18 York law ... an action in quasi-contract ... does not lie when an enforceable, binding 19 agreement exists defining the rights of the parties”); Allen, 2012 WL 1656750, at *5 (“a 20 plaintiff may not maintain quasi-contract claims such as unjust enrichment, money had and 21 received, and money paid if the parties have an enforceable agreement regarding a particular 22 subject matter”) (internal citations and quotations omitted); Langley Partners, L.P. v. Tripath 23 Tech., Inc., No. 05-4194, 2006 WL 563053, at *7 (N.D. Cal. Mar. 7, 2006) (finding that it 24 was not “legally feasible” for plaintiff to bring a claim for unjust enrichment or money had 25 and received in light of the valid and enforceable contract between the parties). To this end, 26 Plaintiff argues that there is a dispute as to whether the parties have an enforceable agreement 27 stating that “AHMSA obviously contests the enforceability of those agreements.” On reply, 28 8 1 however, AHMSA states that is “has never questioned the enforceability” of the contracts as 2 issue. (Dkt. No. 14, 13:15-16.) 3 Because Defendant does not challenge the enforceability of the contracts, and the 4 Complaint alleges that these are valid and enforceable contracts, Plaintiff’s money due and 5 owing claim cannot stand. That the parties do not dispute either the existence or the 6 enforceability of the Fee Agreement and Term Sheet forecloses Plaintiff’s ability to bring a 7 quasi-contractual claim such as the claim for money due and owing. Accordingly, the Court 8 grants Defendant’s motion to dismiss Plaintiff’s claim for money due and owing without 9 prejudice. 10 Northern District of California United States District Court 11 C. Motion for a More Definite Statement Defendant moves for a more definite statement with respect to both Plaintiff’s breach 12 of contract claim and breach of the implied covenant of good faith and fair dealing claim. 13 “The proper test in evaluating a motion under Rule 12(e) is whether the complaint provides 14 the defendant with a sufficient basis to frame his responsive pleadings.” Federal Sav. & Loan 15 Ins. Corp. v. Musacchio, 695 F.Supp. 1053, 1060 (N.D. Cal.1988). The Court finds 16 Defendant’s arguments regarding the vagueness of Plaintiff’s allegations unpersuasive. 17 In order to state a claim for breach of contract, Plaintiff must allege “the existence of 18 the contract, performance by the plaintiff or excuse for nonperformance, breach by the 19 defendant[s], and damages.” Lucia v. Wells Fargo Bank, N.A., 798 F. Supp. 2d 1059, 1066-67 20 (N.D. Cal. 2011) (internal citations omitted). Here, Plaintiff has alleged the existence of the 21 financing contracts discussed above, its efforts to perform under the contract, and Defendant’s 22 breach through independently contacting funding sources, delaying in providing information 23 and records to Plaintiff and soliciting, encouraging or entertaining proposals from other 24 financing entities. (Complaint ¶¶ 14-15, 32-34.) Plaintiff’s allegations regarding its claim for 25 breach of the implied covenant of good faith and fair dealing similarly put Defendant on 26 notice of the allegations against it. The questions posed by Defendant in it its motion are the 27 proper subjects for discovery and are not necessary to answer the Complaint. Accordingly, 28 Defendant’s motion for a more definite statement is denied. 9 1 CONCLUSION 2 3 Based on the foregoing, the Court DENIES Defendant’s Motion to Dismiss Plaintiff’s 4 negligent misrepresentation; GRANTS Defendant’s Motion to Dismiss Plaintiff’s unfair 5 competition and money due and owing claim without prejudice; and DENIES Defendant’s 6 Motion for a More Definite Statement as to Plaintiff’s claim for breach of contract and breach 7 of the implied covenant of good faith and fair dealing. Any amended complaint shall be filed 8 within 20 days of the date of this Order. 9 At oral argument, Defendant raised a few questions as to Plaintiff’s allegations that Northern District of California would assist Defendant in evaluating the case, targeting its discovery, and perhaps facilitate 11 United States District Court 10 an early settlement. The parties agreed that Defendant would serve a targeted interrogatory 12 or two seeking information regarding Plaintiff’s specific allegations of misconduct and that 13 Plaintiff would promptly respond to Defendant’s questions. Further, in light of the amount in 14 controversy and the lack of any attorney’s fees provision, the Court encouraged the parties to 15 informally share information to the extent possible. 16 This Order disposes of Docket No. 8. 17 IT IS SO ORDERED. 18 19 20 21 Dated: February 14, 2013 _________________________________ JACQUELINE SCOTT CORLEY UNITED STATES MAGISTRATE JUDGE 22 23 24 25 26 27 28 10

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