Edu-Science (USA) Inc. v. Intubrite, LLC, No. 3:2012cv01078 - Document 86 (S.D. Cal. 2014)
Court Description: ORDER Granting 77 Motion to Dismiss Cross Complaint. Edu-HK's First Amended Cross-Complaint is Dismissed for failure to state a claim. The Court grants leave for Edu-HK to file a Second Amended Cross-Complaint addressing the deficiencies identified above. If Edu-HK chooses to amend, Edu-HK must file the Second Amended Cross-Complaint within 30 days of the entry of this Order. Signed by Judge Barry Ted Moskowitz on 2/27/2014. (rlu)
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Edu-Science (USA) Inc. v. Intubrite, LLC Doc. 86 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 EDU-SCIENCE (USA) INC., 12 Case No. 12cv1078 BTM(WVG) Plaintiff, ORDER GRANTING MOTION TO DISMISS CROSS-COMPLAINT v. 13 14 15 16 INTUBRITE LLC, Defendant. AND RELATED COUNTERCLAIMS AND CROSS-CLAIMS 17 18 19 20 21 Intubrite LLC (“Intubrite”) has filed a motion to dismiss the First Amended Cross-Complaint (“FACC”) filed by Edu-Science (HK) Ltd. (“Edu-HK”). For the reasons discussed below, Intubrite’s motion to dismiss is GRANTED. 22 23 24 25 26 27 28 I. BACKGROUND On February 16, 2013, Edu-Science (USA) Inc. (“Edu-USA”) commenced this action against Intubrite. In its Complaint, Edu-USA alleges that Intubrite breached contracts to purchase stylettes and laryngoscopes with pouches (“blades”), used for tracheal intubation. According to Edu-USA, although Intubrite paid for some of the product, Intubrite did not fulfill its obligations 1 12cv1078 BTM(WVG) Dockets.Justia.com 1 under the contracts (purchase orders issued by Intubrite). 2 In its counterclaim/cross-claim, Intubrite alleges, “On information and 3 belief, EDU-USA and EDU-HK have an agency or joint venture relationship with 4 EDU-USA essentially acting as the United States office of EDU-HK.” 5 (Counterclaim ¶ 5.) 6 product as well as untimely delivery. (Counterclaim ¶¶ 11-14.) According to 7 Intubrite, it has paid for all of the product that it has actually received, and was 8 forced to terminate its business relationship with Edu-USA and Edu-HK after 9 they refused to continue deliverng product and demanded that Intubrite pay in 10 advance for all of its purchase orders. (Counterclaim ¶¶ 15-16.) Intubrite 11 asserts the following claims against Edu-USA and Edu-HK: (1) breach of 12 contract; (2) breach of the implied warranty of merchantability; (3) negligence; 13 (4) intentional interference with prospective economic advantage; (5) negligent 14 interference 15 misrepresentation of fact; and (7) negligent misrepresentation of fact. with Intubrite alleges that there were defects in delivered prospective economic advantage; (6) intentional 16 In the FACC, Edu-HK alleges that Intubrite and Robert Hicks, Intubrite’s 17 principal, induced Edu-HK into manufacturing the goods at issue and incurring 18 substantial costs and expenses by making false representations that Intubrite 19 had the financial resources to enter into a transaction of the size and cost 20 under discussion. (FACC ¶¶ 21, 26, 33, 45.) Edu-HK alleges that Intubrite did 21 not actually have the financial resources to perform under the purchase orders, 22 resulting in Intubrite’s breach of contract. (FACC ¶¶ 61-63.) The FACC 23 asserts the following claims against Intubrite and Hicks: (1) fraud - intentional 24 misrepresentation; (2) fraud - nondisclosure; (3) negligent misrepresentation. 25 26 II. STANDARD 27 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) 28 should be granted only where a plaintiff's complaint lacks a "cognizable legal 2 12cv1078 BTM(WVG) 1 theory" or sufficient facts to support a cognizable legal theory. Balistreri v. 2 Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). When reviewing a 3 motion to dismiss, the allegations of material fact in plaintiff’s complaint are 4 taken as true and construed in the light most favorable to the plaintiff. See 5 Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). 6 Although detailed factual allegations are not required, factual allegations “must 7 be enough to raise a right to relief above the speculative level.” Bell Atlantic v. 8 Twombly, 550 U.S. 544, 555 (2007). 9 ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 10 conclusions, and a formulaic recitation of the elements of a cause of action will 11 not do.” Id. “[W]here the well-pleaded facts do not permit the court to infer 12 more than the mere possibility of misconduct, the complaint has alleged - but 13 it has not show[n] that the pleader is entitled to relief.” Ashcroft v. Iqbal, 565 14 U.S. 662, 679 (2009) (internal quotation marks omitted). Only a complaint that 15 states a plausible claim for relief will survive a motion to dismiss. Id. “A plaintiff’s obligation to prove the 16 III. DISCUSSION 17 18 19 Intubrite moves to dismiss the FACC for failure to state a claim. As discussed below, the Court agrees that dismissal is warranted. 20 A court may dismiss a claim of fraud when its allegations fail to satisfy 21 Rule 9(b)'s heightened pleading requirements. Vess v. Ciba-Geigy Corp. 22 U.S.A., 317 F.3d 1097, 1107 (9th Cir. 2003).1 Averments of fraud must be 23 accompanied by the “who, what, when, where, and how” of the misconduct 24 charged. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). 25 The first problem with Edu-HK’s fraud claims is that Edu-HK fails to set 26 forth facts regarding why the statements at issue were false at the time they 27 1 28 Claims of negligent misrepresentation “sound in fraud” and are therefore subject to Rule 9(b)’s heightened pleading standard. Errico v. Pacific Capital Bank, N.A., 753 F. Supp. 2d 1034, 1049 (N.D. Cal. 2010). 3 12cv1078 BTM(WVG) 1 were made. Under Rule 9(b), a plaintiff must “set forth what is false or 2 misleading about a statement, and why it is false.” Yourish v. California 3 Amplifier, 191 F.3d 983, 993 (9th Cir. 1999). Accordingly, the plaintiff must “set 4 forth, as part of the circumstances constituting fraud, an explanation as to why 5 the disputed statement was untrue or misleading when made.” Id. (quoting In 6 re GlefFed Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)). 7 Here, the FACC alleges that on several occasions, Hicks and William 8 Goodrich, an agent for Intubrite,2 made false representations to Edu-USA and 9 Edu-HK that Intubrite was “well-funded” and had the financial resources to 10 allow Intubrite to make the financial commitment to go forward with the 11 transaction being discussed. (FACC ¶¶ 21, 26, 33, 45.) The FACC further 12 alleges that “[d]iscovery obtained in the present case confirmed that Intubrite’s 13 representations about its financial condition and resources were false.” (FACC 14 ¶ 63.) However, Edu-HK does not specify what the discovery was and what it 15 revealed about Intubrite’s financial condition and resources at the time Hicks 16 and Goodrich made the statements at issue. Additionally, the allegations in 17 paragraphs 50 and 51 are Edu-HK’s conclusions and not facts. Edu-HK must 18 allege actual evidentiary facts demonstrating that it has a plausible claim. Edu- 19 HK’s vague allegations regarding falsity are insufficient to satisfy Rule 9(b)’s or 20 Iqbal’s requirements. 21 The second problem with Edu-HK’s fraud claims is that it is unclear 22 whether Edu-HK was even in a position to rely on Intubrite’s representations. 23 Edu-HK alleges that Hicks and Goodrich made the misrepresentations 24 regarding Intubrite’s financial condition to induce Edu-HK to agree to 25 26 27 28 2 Intubrite argues that Edu-HK has failed to allege sufficient facts showing that Goodrich was in fact an agent for Intubrite. However, any shortcoming in this regard is of little significance because Goodrich is not named as a defendant, and Edu-HK alleges that Hicks made the same representations. At any rate, it can be inferred from the circumstances that Goodrich, who was sent to meetings by Intubrite, was acting in a representative capacity. 4 12cv1078 BTM(WVG) 1 manufacture the goods ordered by Intubrite and to commit its own resources 2 and incur expenses and costs to commence manufacturing goods for Intubrite. 3 (FACC ¶ 53.) However, the purchase orders were placed with Edu-USA, not 4 Edu-HK. (FACC ¶ 1.) 5 Edu-HK was not a contracting party, but, rather, a manufacturer of the 6 products. It is unclear whether Edu-HK could refuse to manufacture goods that 7 Edu-USA contracted to provide or had any input into what contracts Edu-USA 8 entered into. Accordingly, Edu-HK has not pled sufficient facts establishing 9 actual reliance on the representations at issue.3 10 Edu-HK has also failed to allege sufficient facts regarding the damages 11 it suffered as a result of the alleged fraud. Although Rule 9(b) may not require 12 more particular pleading for the element of damages, see In re GlenFed, Inc., 13 42 F.3d at 1548, even under ordinary pleading standards, sufficient facts must 14 be alleged to support a claim for damages. See, e.g., Zierolf v. Wachovia 15 Mortgage, 2012 WL 616352 (N.D. Cal. Dec. 11, 2012) (dismissing promissory 16 estoppel claim for failure to allege sufficient facts linking the defendants’ 17 alleged wrongdoing to any damages suffered by plaintiff). Edu-HK alleges that 18 it was damaged because it incurred expenses and costs to commence 19 manufacturing goods for Intubrite, including tooling, machinery and equipment, 20 engineering and personnel resources, warehouse space, production line 21 resources, and other overhead and administrative expenses. (FACC ¶ 44.) 22 3 23 24 25 26 27 28 Edu-HK’s claim for fraudulent nondisclosure fails for the same reason. Under California law, the circumstances in which nondisclosure of concealment may constitute actionable fraud include (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (1997). The last three circumstances presuppose the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise. Id. “As a matter of common sense, such a relationship can only come into being as a result of some sort of transaction between the parties.” Id. at 337. As currently pled, the FACC does not allege facts establishing any kind of transactional relationship between the parties that would give rise to a situation where Edu-HK might rely on representations by Intubrite. 5 12cv1078 BTM(WVG) 1 But there are insufficient facts to conclude that Edu-HK, as opposed to 2 Edu-USA, will bear the brunt of any loss. As already discussed, Intubrite 3 contracted with Edu-USA. Edu-USA had some sort of arrangement with Edu- 4 HK whereby Edu-HK would manufacture the products (FACC ¶ 2), but the 5 terms of that arrangement are unknown. It is possible that Edu-USA was liable 6 for any expenses incurred by Edu-HK, regardless of whether Intubrite paid Edu- 7 USA. Indeed, the Court notes that in its Complaint, Edu-USA alleges that it 8 purchased capital equipment in the amount of $200,000 that can only be used 9 for producing the blades ordered by Intubrite. (Compl. ¶ 14.) Edu-USA also 10 seeks damages for, among other things, costs and expenses for unused 11 factory capacity reserved for products ordered by Defendant, demurrage and 12 storage charges, materials acquired and held for products, and disruption 13 caused to Edu-USA’s ongoing production and distribution schedules. (Compl., 14 Prayer for Relief.) Exactly how or if Edu-HK was damaged remains unclear. 15 Intubrite also moves for dismissal on the ground that Edu-HK’s claims are 16 time-barred. In California, fraud claims have a three-year statute of limitations. 17 Cal. Code Civ. Proc. § 338(d). However, a claim for fraud is “not deemed to 18 have accrued until the discovery, by the aggrieved party, of the facts 19 constituting the fraud of mistake.” Id. Edu-HK claims that it did not discover 20 that Intubrite had made false representations until 2011, after Intubrite tried to 21 cancel the contract between itself and Edu-USA. As discussed above, Edu-HK 22 has not sufficiently alleged what facts it discovered to make it realize that the 23 representations about Intubrite’s financial condition were false when made. 24 However, if Edu-HK can successfully amend its complaint to remedy this defect 25 as well as the other defects identified above, Edu-HK’s claim will not 26 27 28 6 12cv1078 BTM(WVG) 1 necessarily be barred by the statute of limitations.4 2 IV. CONCLUSION 3 4 For the reasons discussed above, Intubrite’s Motion to Dismiss Amended 5 Cross-Complaint is GRANTED. Edu-HK’s First Amended Cross-Complaint is 6 DISMISSED for failure to state a claim. The Court grants leave for Edu-HK to 7 file a Second Amended Cross-Complaint addressing the deficiencies identified 8 above. If Edu-HK chooses to amend, Edu-HK must file the Second Amended 9 Cross-Complaint within 30 days of the entry of this Order. 10 11 IT IS SO ORDERED. 12 DATED: February 27, 2014 13 BARRY TED MOSKOWITZ, Chief Judge United States District Court 14 15 16 17 18 19 20 21 22 23 24 25 26 4 27 28 Intubrite argues that Edu-HK was not reasonably diligent in discovering the alleged fraud because it could have asked for financial documentation previously and seemed to be suspicious about Intubrite’s financial resources from the beginning. However, the Court would not hold, based on pleadings alone, that Edu-HK had a duty to investigate Intubrite’s finances despite Intubrite’s repeated assurances that it had sufficient financial resources. 7 12cv1078 BTM(WVG)
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