Allegro Consultants, Inc. v. Wellington Technologies, Inc. et al, No. 5:2013cv02204 - Document 74 (N.D. Cal. 2014)
Court Description: 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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1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 SAN JOSE DIVISION 8 ALLEGRO CONSULTANTS, INC., 9 Case No. 13-cv-02204-BLF Plaintiff, 10 v. United States District Court Northern District of California 11 WELLINGTON TECHNOLOGIES, INC., et al., 12 ORDER GRANTING DEFENDANT JASKO’S MOTION TO DISMISS WITH LEAVE TO AMEND [RE: ECF 61] Defendants. 13 14 Defendant Joseph J. Jasko (“Jasko”) moves to dismiss the first amended complaint 15 16 (“FAC”) under Federal Rule of Civil Procedure 12(b)(6). The Court has considered the parties’ 17 briefing and the applicable legal authorities.1 For the reasons discussed below, the motion is 18 GRANTED WITH LEAVE TO AMEND. I. 19 BACKGROUND2 20 The parties are familiar with the facts giving rise to this lawsuit, which need not be 21 repeated in full here. In brief, Plaintiff Allegro Consultants, Inc. (“Allegro”) claims that it 22 contracted with Defendant Wellington Technologies, Inc. (“Wellington”) to provide software 23 support services; that it did provide such services; and that Wellington has failed to pay invoiced 24 charges for such services. Allegro alleges that it initially entered into a written Software Support 25 1 26 The motion was submitted without oral argument pursuant to Civil Local Rule 7-1(b). See Clerk’s Notice, ECF 73. 27 2 28 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). 1 Services Agreement with Wellington in August 2007. FAC ¶ 24, ECF 15. Wellington breached 2 that agreement by failing to pay invoiced charges in excess of $700,000. Id. ¶ 27. Allegro 3 subsequently entered into a written Vendor Customer Terms Modification Agreement with 4 Wellington in December 2010. Id. ¶ 30. That agreement modified the invoices that were due and 5 provided a payment schedule requiring Wellington to make monthly payments of approximately 6 $12,000 beginning in February 2011. Id. ¶ 31. Wellington breached that agreement by failing to 7 make the required monthly payments. Id. Allegro filed suit against Wellington in this district, but 8 later dismissed that suit based upon Wellington’s oral agreement to make payments upon an 9 agreed-upon schedule. Id. ¶ 36. Wellington made full or partial payments under the agreed-upon 10 United States District Court Northern District of California 11 schedule from May 2011 through June 2012. Id. Allegro filed the present lawsuit in May 2013. The operative FAC names as defendants 12 Wellington; three of Wellington’s officers, Jasko, James Bizjak (“Bizjak”), and Ed Griglak 13 (“Griglak”); a company that acquired some of Wellington’s assets, Audax Solutions, LLC 14 (“Audax”); and Audax’s principal, Todd Kimmes (“Kimmes”). See FAC, ECF 15. As relevant 15 here, the FAC alleges that Jasko and Wellington are alter egos. See id. ¶ 9. 16 The FAC asserts claims for: (1) breach of contract against Wellington; (2) fraud against 17 Jasko and Wellington; (3) common counts for money had and received against all defendants; (4) 18 fraud and intentional misrepresentation against all defendants; (5) fraud and negligent 19 misrepresentation against all defendants; (6) fraudulent concealment against all defendants; (7) 20 false promise against all defendants; (8) declaratory relief against all defendants; (9) fraudulent 21 transfer with actual intent to defraud pursuant to California Civil Code § 3439.04(A)(1) against all 22 defendants; (10) constructive fraudulent transfer pursuant to California Civil Code § 23 3439.04(A)(2) against all defendants; and (11) constructive fraudulent transfer pursuant to 24 California Civil Code § 3439.05 against all defendants. 25 On September 2, 2014, the Court issued an order that inter alia dismissed all claims 26 against Bizjak, Audax, and Kimmes for lack of personal jurisdiction and dismissed Claims 9-11 27 for failure to join an indispensable party. Jasko now seeks dismissal under Rule 12(b)(6) of the 28 claims asserted against him: fraud (Claim 2), common counts (Claim 3), fraud and intentional 2 1 misrepresentation (Claim 4), fraud and negligent misrepresentation (Claim 5), fraudulent 2 concealment (Claim 6), false promise (Claim 7), and declaratory relief (Claim 8). 3 II. LEGAL STANDARD “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 4 5 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 6 Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 7 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 8 as true all well-pled factual allegations and construes them in the light most favorable to the 9 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 11 United States District Court Northern District of California 10 notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 12 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 13 (internal quotation marks and citations omitted). While a complaint need not contain detailed 14 factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 15 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 16 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 17 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 18 III. DISCUSSION 19 It is clear from the FAC that this action arises out of a failure to pay monies owed under 20 agreements between Allegro and Wellington. The FAC alleges liability against Jasko under the 21 theory that Wellington and Jasko are alter egos. Allegro’s opposition to the motion also asserts 22 that the FAC alleges facts sufficient to render Jasko personally liable even absent an alter ego 23 theory. Jasko argues that the alter ego allegations are entirely conclusory and thus insufficient to 24 meet the pleading standards of Iqbal and Twombly, and that the FAC does not allege facts giving 25 rise to liability against him personally. 26 A. 27 Before turning to the adequacy of Allegro’s allegations, the Court must address Jasko’s 28 Procedural Issues submission of evidence in support of his motion. Jasko has submitted his own declaration stating 3 1 that his actions were subject to the authority of the Board and he relies upon that evidence in 2 arguing that he and Wellington were not alter egos. Jasko also relies extensively upon 3 declarations submitted in connection with a prior motion to dismiss for lack of subject matter 4 jurisdiction. Allegro correctly points out that the Court may not consider such evidence when 5 deciding a Rule 12(b)(6) motion. “In assessing whether a plaintiff has carried its Rule 12(b)(6) 6 burden, the Court is generally limited to the face of the complaint and its attached exhibits, 7 materials incorporated therein by reference, and matters suitable for judicial notice.” Mull v. 8 Motion Pictures Industry Health Plan, 937 F. Supp. 2d 1161, 1170 (C.D. Cal. 2012) (citations 9 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. 11 United States District Court Northern District of California 10 See Fed. R. Civ. P. 12(d) (permitting court to convert a Rule 12(b)(6) motion to one for summary 12 judgment under Rule 56). The Court declines to do so in light of the early stage of the 13 proceedings. Accordingly, the Court has not considered Jasko’s current declaration, prior 14 declarations, or any other extrinsic evidence in addressing the pending motion under Rule 15 12(b)(6). For its part, Allegro’s opposition brief states that its prior request for judicial notice, 16 17 submitted in May 2014 in connection with a different motion, “contains the initial evidence to 18 suggest that Jasko exercises more control over – and benefits more personally from his control of 19 – Wellington and Audax – than his self-serving declaration would suggest.” Pl.’s Opp. at 8, ECF 20 68. The Court declines to go back through the record to determine whether documents submitted 21 more than six months ago in connection with a different motion are appropriate for consideration 22 here. 23 The Court notes that Allegro refers to the present motion as “Jasko’s second FRCP 24 12(b)(6) motion against the First Amended Complaint,” and implies that the motion is improper 25 because “Jasko elected not to bring all of his purported grounds for dismissal in the original 26 motion.” Pl’s Opp. at 3, ECF 68. Allegro is mistaken as to the nature of Jasko’s prior motion, 27 which was not brought under Rule 12(b)(6) but rather under Rules 12(b)(2) (lack of personal 28 jurisdiction), 12(b)(3) (improper venue), and 12(b)(7) (failure to join a party). To the extent that 4 1 the present Rule 12(b)(6) motion should have been brought in conjunction with the earlier ones, 2 the Court exercises its discretion to consider the present motion on the merits. See Buzayan v. City 3 of Davis, No. 2:06-cv-1576-MCE-DAD, 2009 WL 514201, at *3 (E.D. Cal. Feb. 26, 2009) 4 (district court has discretion to hear a second motion under Rule 12(b)(6) if it is not brought for 5 the purpose of delay and if hearing the motion will expedite final disposition of the case). 6 B. Alter Ego 7 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 9 Wellington are alter egos. “California recognizes alter ego liability where two conditions are met: 10 First, where there is such a unity of interest and ownership that the individuality, or separateness, 11 United States District Court Northern District of California 8 of the said person and corporation has ceased; and, second, where adherence to the fiction of the 12 separate existence of the corporation would . . . sanction a fraud or promote injustice.” 13 Schwarzkopf, 626 F.3d 1032, 1038 (9th Cir. 2010) (internal quotation marks and citation 14 omitted).3 “Factors suggesting an alter ego relationship include ‘[c]ommingling of funds and 15 other assets [and] failure to segregate funds of the separate entities . . . ; the treatment by an 16 individual of the assets of the corporation as his own . . . ; the disregard of legal formalities and the 17 failure to maintain arm’s length relationships among related entities . . . ; [and] the diversion [of 18 assets from a corporation by or to a] stockholder or other person or entity, to the detriment of 19 creditors, or the manipulation of assets . . . between entities so as to concentrate the assets in one 20 and the liabilities in another.’” Id. (quoting Assoc. Vendors, Inc. v. Oakland Meat Co., Inc., 210 21 Cal. App. 2d 825, 837-40 (1962)) (alterations in original). 22 The FAC alleges the following facts with respect to Jasko. He is “an owner of 23 Wellington,” along with Griglak and Bizjak, FAC ¶¶ 5-7; he was Wellington’s President at the 24 time in question, id. ¶ 42; in his role as Wellington’s President, Jasko represented to Allegro that 25 Wellington would make the payments required under the Vendor Customer Terms Modification 26 27 28 3 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”). 5 1 Agreement, id.; acting “on behalf of Wellington and Audax,” Jasko promised to pay Allegro for 2 its services, id. ¶¶ 50, 58; and Allegro relied upon Jasko’s representation, id. ¶¶ 54, 62.4 The FAC 3 also contains a number of conclusory allegations that parrot the alter ego requirements, for 4 example, that there was “a unity of interest and ownership between” Wellington and Jasko such 5 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 6 7 wholly conclusory allegations regarding unity of interest and lack of separateness, which the Court 8 need not accept as true, see Gilead, 536 F.3d at 1055, the only facts alleged are that (1) Jasko is a 9 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 11 United States District Court Northern District of California 10 allegations suggesting that Jasko has commingled corporate funds, treated corporate assets as his 12 own, or disregarded corporate formalities. Accordingly, Allegro has failed to state a claim against 13 Jasko for the alleged contractual breaches and/or torts of Wellington under an alter ego theory. 14 C. Personal Liability 15 Allegro asserts that “[a]lthough the language of the First Amended Complaint is currently 16 couched in ‘alter ego’ terms, there is no doubt that as stated, Allegro has set forth the essential 17 elements of a claim to hold Jasko personally responsible for fraud in the inducement of Allegro’s 18 settlement agreement with the corporation.” Pl.’s Opp. at 8, ECF 68. Not so. Directors and 19 officers of a corporation do not incur personal liability on contracts signed on behalf of the 20 corporation unless they purport to bind themselves individually, and they do not incur personal 21 liability for the torts of the corporation unless they participate in, authorize, or direct the wrong. 22 United States Liability Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal. 3d 586, 595 (1970). Allegro has 23 not alleged facts sufficient to show that Jasko participated in, authorized, or directed any fraud 24 upon Allegro. “In alleging fraud or mistake, a party must state with particularity the 25 circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b) (emphasis added). The FAC 26 alleges that Wellington, through Jasko, represented that it would make payments to Allegro but 27 4 28 Other allegations regarding Jasko are set forth in Claims 9-11, but because those claims have been dismissed they may not be considered here. 6 1 that Wellington never intended to perform. FAC ¶ 42. The FAC does not allege that Jasko knew 2 that Wellington would default on the agreement to pay or that Jasko intended to induce Allegro to 3 take any particular action. Accordingly, Allegro has failed to state a claim against Jasko 4 individually. Allegro represents that if given leave to amend it could add factual allegations to flesh out 5 6 its claims against Jasko under both an alter ego theory and a personal liability theory. Leave to 7 amend is granted to cure those deficiencies. 8 9 10 IV. ORDER For the reasons discussed herein, (1) WITH LEAVE TO AMEND; United States District Court Northern District of California 11 12 (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 13 14 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. 15 16 17 18 Dated: December 17, 2014 ______________________________________ BETH LABSON FREEMAN United States District Judge 19 20 21 22 23 24 25 26 27 28 7
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