Cynthia Marie Vespa v. Singler-Ernster Inc. et al

Filing 70

ORDER by Judge Richard Seeborg denying 52 Motion to Dismiss; denying 53 Motion to Dismiss. (cl, COURT STAFF) (Filed on 4/5/2017)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 CYNTHIA MARIE VESPA, 10 Case No. 16-cv-03723-RS Plaintiff, 11 United States District Court Northern District of California v. ORDER DENYING MOTIONS TO DISMISS 12 SINGLER-ERNSTER INC., et al., 13 Defendants. 14 15 Pursuant to Civil Local Rule 7-1(b), defendants’ motions to dismiss the First Amended 16 17 Complaint are suitable for disposition without oral argument, and the hearing set for April 7, 2017 18 is hereby vacated. The motions will be denied. 19 In this putative class action, plaintiff Cynthia Maria Vespa brings claims under ERISA on 20 behalf of participants in an Employee Stock Ownership Plan (“ESOP”), formerly administered by 21 defendant Singler-Ernster, Inc. (“The Company”).1 The Company was founded by Peter Singler, 22 Sr. and a partner. The Company originally owned and operated a number of Round Table Pizza 23 franchises in the San Francisco Bay area, on the Peninsula and in the North Bay. Vespa alleges, in 24 essence, that upon the retirement and subsequent death of Peter Singler, Sr., his son, defendant 25 Peter Singler, Jr., assumed control of the business and, through a series of imprudent management 26 27 28 1 The original complaint also advanced claims under state law. Those claims have been omitted from the First Amended Complaint. 1 decisions, involving attempts to operate restaurants other than Round Table Pizza franchises, 2 destroyed the value of the Company—thereby rendering the putative class’s interest in the ESOP 3 worthless. Vespa particularly challenges defendants’ decision to have the ESOP expend 4 $250,000—cash acquired in a bequest from Peter Singler, Sr.—to purchase additional Company 5 stock at a time when they allegedly knew the value of the Company and its stock was collapsing. 6 A prior motion to dismiss brought by Peter Singler, Jr. was granted, with leave to amend. 7 A primary basis for that dismissal was the fact the majority of the substantive allegations in the 8 complaint were qualified as being made “on information and belief.” As explained in the prior 9 order, despite how commonplace that phrase may be in practice, it is not a recognized pleading device under the Federal Rules. Rather, Rule 11(b) of the Federal Rules of Civil Procedure 11 United States District Court Northern District of California 10 provides that by submitting a pleading to the court, the signatory is always certifying that, “to the 12 best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under 13 the circumstances . . . the factual contentions have evidentiary support or, if specifically so 14 identified, will likely have evidentiary support after a reasonable opportunity for further 15 investigation or discovery.” While use of the phrase therefore can often be dismissed as mere 16 surplusage, in some circumstances it gives rise to an inference that the pleader lacks knowledge of 17 underlying facts to support the allegations made, and is instead engaging in speculation to an 18 undue degree. 19 The prior order directed that in any amended complaint, plaintiff would be required to 20 “make her averments without caveat and/or with additional detail explaining the basis of her 21 beliefs.” The order further noted, however, that plaintiff would remain “free to invoke the 22 provision of Rule 11 that permits a party specifically to identify averments as ones which it in 23 good faith believes, ‘will likely have evidentiary support after a reasonable opportunity for further 24 investigation or discovery.’” 25 Plaintiff’s amended complaint liberally invokes that provision of Rule 11. The vast 26 majority of the critical factual allegations are presented with a claim that plaintiff in good faith 27 believes further investigation and discovery will lead to supporting evidence. Defendants’ present ORDER DENYING MOTIONS TO DISMISS CASE NO. 16-cv-03723-RS 28 2 1 motions to dismiss2 argue that plaintiff has thereby effectively admitted she lacks facts sufficient 2 to state a plausible claim, and that the complaint should now be dismissed with prejudice. Defendants’ argument would render the provision of Rule 11 on which plaintiff relies a 3 4 nullity. To be sure, a plaintiff should not be permitted to evade the pleading requirements of 5 Twombly and Iqbal3 by making wholly conclusory allegations and then invoking a mantra that he 6 or she hopes evidence supporting those allegations will subsequently emerge. Here, however, 7 plaintiff has adequately stated—as assertions of fact—the elements of her claims. Indeed, 8 defendants’ motions virtually concede the facts are alleged; they instead argue those allegations 9 should be disregarded in light of plaintiffs’ admission that she does not presently possess 10 supporting evidence. Plaintiff’s counsel, of course, has taken responsibility under Rule 11 for having a good United States District Court Northern District of California 11 12 faith basis to believe evidentiary support for those claims likely will be discovered. Because the 13 allegations are now backed by that representation, they cannot simply be disregarded, as 14 defendants urge. The prior order also dismissed the second claim for relief—now embodied in the third and 15 16 fourth claims of the First Amended Complaint—on grounds that the allegations of the complaint 17 only supported a conclusion that the ESOP had no ownership interest in the allegedly mismanaged 18 Company assets. Although the question remains close, plaintiff has adequately shown it to be a 19 factual issue, not suitable for disposition at the pleading stage, whether those claims are tenable. 20 Again, the fact that plaintiff has invoked Rule 11 does not warrant disregard of her factual 21 averments. Finally, Carol Singler’s separate argument that no basis for her liability has been 22 23 24 25 26 27 2 Peter Singler, Jr., again is a moving party. By separate motion, defendants Singler-Ernster, Inc., Carol S. Singler, and the Singler-Ernster, Inc. Employee Stock Ownership Plan and Trust both join in Peter Singler, Jr.’s arguments and contend that Carol Singler would not be liable in any event. 3 See Bell Atlantic Corp. v. Twombly, 550 US 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009). ORDER DENYING MOTIONS TO DISMISS CASE NO. 16-cv-03723-RS 28 3 1 adequately pleaded fails. While the allegation that Carol Singler had knowledge of Peter Singler’s 2 conduct is indeed somewhat conclusory, under all the factual circumstances presented it is 3 sufficiently plausible as to not require further evidentiary detail at the pleading stage. 4 Accordingly, the motions to dismiss are denied. 5 6 IT IS SO ORDERED. 7 8 9 10 Dated: April 5, 2017 ______________________________________ RICHARD SEEBORG United States District Judge United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ORDER DENYING MOTIONS TO DISMISS CASE NO. 16-cv-03723-RS 28 4

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