Fari Holdings, Ltd v. Info-Drive Software, Inc.

Filing 32

ORDER by Judge Howard R. Lloyd granting 18 Motion to Dismiss Plaintiff's Second Claim for Relief; striking Plaintiff's demand for punitive and exemplary damages (hrllc1, COURT STAFF) (Filed on 10/28/2013)

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*E-Filed: October 28, 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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For the Northern District of California

NOT FOR CITATION

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United States District Court

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SAN JOSE DIVISION

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FARI HOLDINGS, LTD., a Foreign
Corporation,

No. C13-02053 HRL

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ORDER (1) GRANTING
DEFENDANT’S MOTION TO
DISMISS PLAINTIFF’S SECOND
CLAIM FOR RELIEF AND (2)
STRIKING PLAINTIFF’S DEMAND
FOR PUNITIVE AND EXEMPLARY
DAMAGES

Plaintiff,
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v.
INFO-DRIVE SOFTWARE, INC., a
California Corporation,

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Defendant.
____________________________________/

[Re: Docket No. 18]

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Plaintiff Fari Holdings, Ltd. (“FHL”) sues defendant Info-Drive Software, Inc. (“Info18
Drive”) for breach of contract and negligent misrepresentation for its alleged failure to repay a loan.
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Defendant moves to dismiss the claim for negligent representation pursuant to Fed. R. Civ. P.
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12(b)(6) and Rule 9(b), as well as plaintiff’s demand for punitive and exemplary damages. All
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parties have expressly consented that all proceedings in this matter may be heard and finally
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adjudicated by the undersigned. 28 U.S.C. § 636(c); Fed. R. Civ. P. 73. Upon consideration of the
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moving and responding papers and the arguments of counsel at the hearing, the Court grants the
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motion to dismiss.
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BACKGROUND
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FHL’s principal, Arif Rahman, is a 5% shareholder of and frequent consultant for Info27
Drive’s parent company, IDS-India. Rahman has a long-standing personal and professional
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relationship with several executives and board members of Info-Drive and IDS-India who asked him

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for a $1.6 million loan to finance the expansion of Info-Drive’s business in California. It was

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characterized as a bridge loan to be repaid as soon as possible after Info-Drive secured other

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financing. Pursuant to this oral agreement, FHL transferred $1.6 million to Info-Drive in 2008.

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Sporadic payments were made on the loan, and in April 2012 the agreement was put into a writing

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which provided that the balance would be paid by May 30, 2012. During discussions leading up to

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the writing, agents of Info-Drive and IDS-India represented that Info-Drive was able and willing to

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repay the loan and that it was using the funds for the expansion of its business in California. FHL

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asserts that Info-Drive had no such intentions and that it has not repaid the loan.
LEGAL STANDARD

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For the Northern District of California

United States District Court

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A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) tests the

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legal sufficiency of the claims in the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

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2001). Dismissal is appropriate where there is no cognizable legal theory or an absence of sufficient

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facts alleged to support a cognizable legal theory. Id. (citing Balistreri v. Pacifica Police Dep’t, 901

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F.2d 696, 699 (9th Cir. 1990)). In such a motion, all material allegations in the complaint must be

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taken as true and construed in the light most favorable to the claimant. Id. However, “[t]hreadbare

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recitals of the elements of a cause of action, supported by mere conclusory statements, do not

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suffice.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Moreover, “the court is not required to

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accept legal conclusions cast in the form of factual allegations if those conclusions cannot

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reasonably be drawn from the facts alleged.” Clegg v. Cult Awareness Network, 18 F.3d 752, 754-

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55 (9th Cir. 1994).

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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief.” This means that the “[f]actual allegations must

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be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550

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U.S. 544, 555 (2007). However, only plausible claims for relief will survive a motion to dismiss.

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Iqbal, 129 S. Ct. at 1950. A claim is plausible if its factual content permits the court to draw a

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reasonable inference that the defendant is liable for the alleged misconduct. Id.

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“In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). However, “[m]alice, intent, knowledge, and

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other conditions of a person’s mind may be alleged generally.” Id. “A pleading is sufficient under

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rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an

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adequate answer from the allegations. While statements of the time, place and nature of the alleged

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fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient.” Moore v.

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Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989).
While leave to amend generally is granted liberally, the court has discretion to dismiss a

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claim without leave to amend if amendment would be futile. Rivera v. BAC Home Loans Servicing,

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L.P., 756 F. Supp. 2d 1193, 1997 (N.D. Cal. 2010) (citing Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir.

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1996)).
DISCUSSION

For the Northern District of California

United States District Court

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A. Negligent Misrepresentation

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Info-Drive asserts that the claim for negligent misrepresentation is barred by the economic

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loss rule. “The economic loss rule generally bars tort claims for contract breaches, thereby limiting

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contracting parties to contract damages.” United Guar. Mortg. Indem. Co. v. Countrywide Financial

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Corp., 660 F. Supp. 2d 1163, 1180 (C.D. Cal. 2009) (citing Aas v. Superior Court, 24 Cal. 4th 627,

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643 (2000) (“A person may not ordinarily recover in tort for the breach of duties that merely restate

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contractual obligations.”)).

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On the other hand, FHL contends that its claim falls within the “special relationship”

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exception to the economic loss rule. “California’s economic loss rule has a . . . category of

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exceptions for breach of a noncontractual duty.” Id. at 1181. “California courts have found

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exceptions to the economic loss rule in the noncontractual duty category where the conduct also . . .

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breaches a duty imposed by some types of ‘special’ or ‘confidential’ relationships . . . .” Id.

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However, FHL provides no support for its contention that Rahman’s longstanding personal and

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professional relationship with directors and executives of Info-Drive and IDS-India constitutes a

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special relationship giving rise to a noncontractual duty, and the Court is unaware of any. The only

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authority FHL cites is United Guar. Mortg. Indem., where the court specifically found that an

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approximately 40-year business relationship between the parties could not create a special

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relationship as a matter of law. Id. at 1187. Likewise, no special relationship exists here.

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The California Supreme Court has left the door open for new exceptions to the economic

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loss rule for public policy reasons. See Robinson Helicopter Co. v. Dana Co., 34 Cal. 4th 979, 991-

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992 (2004). FHL argues that this is such a situation “when the conduct in question is so clear in its

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deviation from socially useful business practices that the effect of enforcing such tort duties will

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be…to aid rather than discourage commerce.” See Erlich v. Menezes, 21 Cal. 4th 543, 554 (1999).

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However, the court has also emphasized the rarity of exceptions to the general rule that “a business

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entity has no duty to prevent financial loss to others with whom it deals directly.” Quelimane Co. v.

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Steward Title Guar. Co., 19 Cal. 4th 26, 59 (1998). Furthermore, in formulating a new exception to

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the economic loss rule supported by public policy, the court focused on the intentional misconduct

For the Northern District of California

United States District Court

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of the defendant and the plaintiff’s exposure to personal liability independent of the contract, neither

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of which are alleged here. See Robinson Helicopter, 34 Cal. 4th at 990. Accordingly, the Court

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does not find that the negligent misrepresentation alleged by FHL was so egregious as to warrant an

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exception to the economic loss rule based on public policy considerations.

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FHL’s claim for negligent misrepresentation does not fall within an exception to the

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economic loss rule and is therefore barred. Accordingly, plaintiff’s claim is dismissed without leave

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to amend.

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B. Punitive and Exemplary Damages

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California Civil Code § 3294 provides for punitive or exemplary damages “[i]n an action for

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the breach of an obligation not arising from contract.” Cal. Civ. Code § 3294(a) (emphasis added).

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“Punitive damages aren’t available in California for simple breaches of contract, no matter how

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willful.” Slottow v. American Cas. Co., 10 F.3d 1355.” Plaintiff’s sole remaining claim is for

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breach of contract, and thus, plaintiff’s demand for punitive and exemplary damages is struck. See,

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e.g., Hofmayer v. Dean Witter & Co., 459 F. Supp. 733 (N.D. Cal. 1978) (striking demand for

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punitive damages where claim based solely on breach of contract).

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IT IS SO ORDERED.
Dated: October 28, 2013
HOWARD R. LLOYD
UNITED STATES MAGISTRATE JUDGE

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C13-02053 HRL Notice will be electronically mailed to:

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David Edward Fink

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Jared Matthew Goldstein

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Philip D. Robben

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Counsel are responsible for distributing copies of this document to co-counsel who have not
registered for e-filing under the court’s CM/ECF program.

[e-mail], [e-mail]
[e-mail], [e-mail], [e-mail]

[e-mail], [e-mail]

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For the Northern District of California

United States District Court

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