Allegro Consultants, Inc. v. Wellington Technologies, Inc. et al
Filing
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ORDER GRANTING 61 DEFENDANT JASKO'S MOTION TO DISMISS WITH LEAVE TO AMEND. Signed by Judge Beth Labson Freeman on 12/17/2014. (blflc1, COURT STAFF) (Filed on 12/17/2014)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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ALLEGRO CONSULTANTS, INC.,
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Case No. 13-cv-02204-BLF
Plaintiff,
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v.
United States District Court
Northern District of California
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WELLINGTON TECHNOLOGIES, INC., et
al.,
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ORDER GRANTING DEFENDANT
JASKO’S MOTION TO DISMISS WITH
LEAVE TO AMEND
[RE: ECF 61]
Defendants.
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Defendant Joseph J. Jasko (“Jasko”) moves to dismiss the first amended complaint
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(“FAC”) under Federal Rule of Civil Procedure 12(b)(6). The Court has considered the parties’
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briefing and the applicable legal authorities.1 For the reasons discussed below, the motion is
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GRANTED WITH LEAVE TO AMEND.
I.
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BACKGROUND2
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The parties are familiar with the facts giving rise to this lawsuit, which need not be
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repeated in full here. In brief, Plaintiff Allegro Consultants, Inc. (“Allegro”) claims that it
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contracted with Defendant Wellington Technologies, Inc. (“Wellington”) to provide software
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support services; that it did provide such services; and that Wellington has failed to pay invoiced
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charges for such services. Allegro alleges that it initially entered into a written Software Support
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The motion was submitted without oral argument pursuant to Civil Local Rule 7-1(b). See
Clerk’s Notice, ECF 73.
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The background facts are drawn from the allegations of the operative first amended complaint,
which are accepted as true for purposes of a Rule 12(b)(6) motion. See Reese v. BP Exploration
(Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011).
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Services Agreement with Wellington in August 2007. FAC ¶ 24, ECF 15. Wellington breached
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that agreement by failing to pay invoiced charges in excess of $700,000. Id. ¶ 27. Allegro
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subsequently entered into a written Vendor Customer Terms Modification Agreement with
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Wellington in December 2010. Id. ¶ 30. That agreement modified the invoices that were due and
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provided a payment schedule requiring Wellington to make monthly payments of approximately
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$12,000 beginning in February 2011. Id. ¶ 31. Wellington breached that agreement by failing to
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make the required monthly payments. Id. Allegro filed suit against Wellington in this district, but
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later dismissed that suit based upon Wellington’s oral agreement to make payments upon an
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agreed-upon schedule. Id. ¶ 36. Wellington made full or partial payments under the agreed-upon
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United States District Court
Northern District of California
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schedule from May 2011 through June 2012. Id.
Allegro filed the present lawsuit in May 2013. The operative FAC names as defendants
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Wellington; three of Wellington’s officers, Jasko, James Bizjak (“Bizjak”), and Ed Griglak
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(“Griglak”); a company that acquired some of Wellington’s assets, Audax Solutions, LLC
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(“Audax”); and Audax’s principal, Todd Kimmes (“Kimmes”). See FAC, ECF 15. As relevant
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here, the FAC alleges that Jasko and Wellington are alter egos. See id. ¶ 9.
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The FAC asserts claims for: (1) breach of contract against Wellington; (2) fraud against
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Jasko and Wellington; (3) common counts for money had and received against all defendants; (4)
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fraud and intentional misrepresentation against all defendants; (5) fraud and negligent
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misrepresentation against all defendants; (6) fraudulent concealment against all defendants; (7)
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false promise against all defendants; (8) declaratory relief against all defendants; (9) fraudulent
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transfer with actual intent to defraud pursuant to California Civil Code § 3439.04(A)(1) against all
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defendants; (10) constructive fraudulent transfer pursuant to California Civil Code §
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3439.04(A)(2) against all defendants; and (11) constructive fraudulent transfer pursuant to
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California Civil Code § 3439.05 against all defendants.
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On September 2, 2014, the Court issued an order that inter alia dismissed all claims
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against Bizjak, Audax, and Kimmes for lack of personal jurisdiction and dismissed Claims 9-11
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for failure to join an indispensable party. Jasko now seeks dismissal under Rule 12(b)(6) of the
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claims asserted against him: fraud (Claim 2), common counts (Claim 3), fraud and intentional
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misrepresentation (Claim 4), fraud and negligent misrepresentation (Claim 5), fraudulent
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concealment (Claim 6), false promise (Claim 7), and declaratory relief (Claim 8).
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II.
LEGAL STANDARD
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a
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claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation
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Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d
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729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts
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as true all well-pled factual allegations and construes them in the light most favorable to the
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plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the
Court need not “accept as true allegations that contradict matters properly subject to judicial
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United States District Court
Northern District of California
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notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or
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unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)
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(internal quotation marks and citations omitted). While a complaint need not contain detailed
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factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to
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relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the
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court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
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III.
DISCUSSION
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It is clear from the FAC that this action arises out of a failure to pay monies owed under
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agreements between Allegro and Wellington. The FAC alleges liability against Jasko under the
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theory that Wellington and Jasko are alter egos. Allegro’s opposition to the motion also asserts
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that the FAC alleges facts sufficient to render Jasko personally liable even absent an alter ego
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theory. Jasko argues that the alter ego allegations are entirely conclusory and thus insufficient to
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meet the pleading standards of Iqbal and Twombly, and that the FAC does not allege facts giving
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rise to liability against him personally.
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A.
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Before turning to the adequacy of Allegro’s allegations, the Court must address Jasko’s
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Procedural Issues
submission of evidence in support of his motion. Jasko has submitted his own declaration stating
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that his actions were subject to the authority of the Board and he relies upon that evidence in
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arguing that he and Wellington were not alter egos. Jasko also relies extensively upon
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declarations submitted in connection with a prior motion to dismiss for lack of subject matter
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jurisdiction. Allegro correctly points out that the Court may not consider such evidence when
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deciding a Rule 12(b)(6) motion. “In assessing whether a plaintiff has carried its Rule 12(b)(6)
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burden, the Court is generally limited to the face of the complaint and its attached exhibits,
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materials incorporated therein by reference, and matters suitable for judicial notice.” Mull v.
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Motion Pictures Industry Health Plan, 937 F. Supp. 2d 1161, 1170 (C.D. Cal. 2012) (citations
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omitted). In his reply, Jasko tacitly concedes the point and requests that the Court convert his
Rule 12(b)(6) motion into one for summary judgment under Federal Rule of Civil Procedure 56.
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United States District Court
Northern District of California
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See Fed. R. Civ. P. 12(d) (permitting court to convert a Rule 12(b)(6) motion to one for summary
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judgment under Rule 56). The Court declines to do so in light of the early stage of the
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proceedings. Accordingly, the Court has not considered Jasko’s current declaration, prior
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declarations, or any other extrinsic evidence in addressing the pending motion under Rule
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12(b)(6).
For its part, Allegro’s opposition brief states that its prior request for judicial notice,
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submitted in May 2014 in connection with a different motion, “contains the initial evidence to
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suggest that Jasko exercises more control over – and benefits more personally from his control of
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– Wellington and Audax – than his self-serving declaration would suggest.” Pl.’s Opp. at 8, ECF
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68. The Court declines to go back through the record to determine whether documents submitted
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more than six months ago in connection with a different motion are appropriate for consideration
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here.
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The Court notes that Allegro refers to the present motion as “Jasko’s second FRCP
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12(b)(6) motion against the First Amended Complaint,” and implies that the motion is improper
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because “Jasko elected not to bring all of his purported grounds for dismissal in the original
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motion.” Pl’s Opp. at 3, ECF 68. Allegro is mistaken as to the nature of Jasko’s prior motion,
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which was not brought under Rule 12(b)(6) but rather under Rules 12(b)(2) (lack of personal
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jurisdiction), 12(b)(3) (improper venue), and 12(b)(7) (failure to join a party). To the extent that
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the present Rule 12(b)(6) motion should have been brought in conjunction with the earlier ones,
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the Court exercises its discretion to consider the present motion on the merits. See Buzayan v. City
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of Davis, No. 2:06-cv-1576-MCE-DAD, 2009 WL 514201, at *3 (E.D. Cal. Feb. 26, 2009)
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(district court has discretion to hear a second motion under Rule 12(b)(6) if it is not brought for
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the purpose of delay and if hearing the motion will expedite final disposition of the case).
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B.
Alter Ego
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The Court must determine whether the FAC contains facts which, if accepted as true and
construed in the light most favorable to Allegro, give rise to a reasonable inference that Jasko and
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Wellington are alter egos. “California recognizes alter ego liability where two conditions are met:
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First, where there is such a unity of interest and ownership that the individuality, or separateness,
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United States District Court
Northern District of California
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of the said person and corporation has ceased; and, second, where adherence to the fiction of the
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separate existence of the corporation would . . . sanction a fraud or promote injustice.”
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Schwarzkopf, 626 F.3d 1032, 1038 (9th Cir. 2010) (internal quotation marks and citation
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omitted).3 “Factors suggesting an alter ego relationship include ‘[c]ommingling of funds and
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other assets [and] failure to segregate funds of the separate entities . . . ; the treatment by an
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individual of the assets of the corporation as his own . . . ; the disregard of legal formalities and the
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failure to maintain arm’s length relationships among related entities . . . ; [and] the diversion [of
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assets from a corporation by or to a] stockholder or other person or entity, to the detriment of
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creditors, or the manipulation of assets . . . between entities so as to concentrate the assets in one
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and the liabilities in another.’” Id. (quoting Assoc. Vendors, Inc. v. Oakland Meat Co., Inc., 210
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Cal. App. 2d 825, 837-40 (1962)) (alterations in original).
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The FAC alleges the following facts with respect to Jasko. He is “an owner of
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Wellington,” along with Griglak and Bizjak, FAC ¶¶ 5-7; he was Wellington’s President at the
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time in question, id. ¶ 42; in his role as Wellington’s President, Jasko represented to Allegro that
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Wellington would make the payments required under the Vendor Customer Terms Modification
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California law applies to Allegro’s alter ego claims. See Schwarzkopf, 626 F.3d at 1037 (“In
determining whether alter ego liability applies, we apply the law of the forum state”).
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Agreement, id.; acting “on behalf of Wellington and Audax,” Jasko promised to pay Allegro for
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its services, id. ¶¶ 50, 58; and Allegro relied upon Jasko’s representation, id. ¶¶ 54, 62.4 The FAC
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also contains a number of conclusory allegations that parrot the alter ego requirements, for
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example, that there was “a unity of interest and ownership between” Wellington and Jasko such
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that “any individuality and separateness between” them has ceased. Id. ¶ 9.
Those allegations are insufficient to state a claim against Jasko. Putting aside Allegro’s
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wholly conclusory allegations regarding unity of interest and lack of separateness, which the Court
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need not accept as true, see Gilead, 536 F.3d at 1055, the only facts alleged are that (1) Jasko is a
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part owner of Wellington; (2) Jasko is an officer of Wellington; and (3) in his capacity as a
corporate officer, Jasko told Allegro that Wellington intended to pay monies due. There are no
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United States District Court
Northern District of California
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allegations suggesting that Jasko has commingled corporate funds, treated corporate assets as his
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own, or disregarded corporate formalities. Accordingly, Allegro has failed to state a claim against
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Jasko for the alleged contractual breaches and/or torts of Wellington under an alter ego theory.
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C.
Personal Liability
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Allegro asserts that “[a]lthough the language of the First Amended Complaint is currently
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couched in ‘alter ego’ terms, there is no doubt that as stated, Allegro has set forth the essential
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elements of a claim to hold Jasko personally responsible for fraud in the inducement of Allegro’s
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settlement agreement with the corporation.” Pl.’s Opp. at 8, ECF 68. Not so. Directors and
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officers of a corporation do not incur personal liability on contracts signed on behalf of the
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corporation unless they purport to bind themselves individually, and they do not incur personal
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liability for the torts of the corporation unless they participate in, authorize, or direct the wrong.
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United States Liability Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal. 3d 586, 595 (1970). Allegro has
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not alleged facts sufficient to show that Jasko participated in, authorized, or directed any fraud
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upon Allegro. “In alleging fraud or mistake, a party must state with particularity the
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circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b) (emphasis added). The FAC
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alleges that Wellington, through Jasko, represented that it would make payments to Allegro but
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Other allegations regarding Jasko are set forth in Claims 9-11, but because those claims have
been dismissed they may not be considered here.
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that Wellington never intended to perform. FAC ¶ 42. The FAC does not allege that Jasko knew
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that Wellington would default on the agreement to pay or that Jasko intended to induce Allegro to
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take any particular action. Accordingly, Allegro has failed to state a claim against Jasko
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individually.
Allegro represents that if given leave to amend it could add factual allegations to flesh out
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its claims against Jasko under both an alter ego theory and a personal liability theory. Leave to
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amend is granted to cure those deficiencies.
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IV.
ORDER
For the reasons discussed herein,
(1)
WITH LEAVE TO AMEND;
United States District Court
Northern District of California
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(2)
Leave to amend is limited to curing the defects noted herein – Plaintiff may not add
additional claims or parties without leave of the Court; and
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Defendant Jasko’s motion to dismiss for failure to state a claim is GRANTED
(6)
Any amended complaint shall be filed on or before January 9, 2015.
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Dated: December 17, 2014
______________________________________
BETH LABSON FREEMAN
United States District Judge
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