LBF Travel Management Corp. et al v. DeRosa et al, No. 3:2020cv02404 - Document 34 (S.D. Cal. 2021)
Court Description: ORDER Granting 25 Third Party Defendants' Motion to Dismiss. Although DeRosa has failed to adequately plead his claims against Mondee Defendants, it is not clear that he would be unable to do so if given leave to amend. Accordingly, dismissal is without prejudice and with leave to amend. Third-party Plaintiff DeRosa must file an amended third-party complaint curing the deficiencies noted herein on or before 7/12/2021. Signed by Judge Michael M. Anello on 6/25/2021. (tcf)
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LBF Travel Management Corp. et al v. DeRosa et al Doc. 34 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 11 LBF TRAVEL MANAGEMENT CORP. and MICHAEL THOMAS, 14 v. THOMAS DEROSA, 17 18 19 [Doc. No. 25] Defendant. 15 16 ORDER GRANTING THIRD PARTY DEFENDANTS’ MOTION TO DISMISS Plaintiffs, 12 13 Case No.: 20-cv-2404-MMA (AGS) THOMAS DEROSA, Counter Claimant, v. LBF TRAVEL MANAGEMENT CORP. and MICHAEL THOMAS, 20 Counter Defendants. 21 22 THOMAS DEROSA, Third-party Plaintiff, 23 24 v. 25 LBF TRAVEL, INC.; MONDEE HOLDINGS, LLC; MONDEE, INC.; and PRASAD GUNDUMOGULA 26 27 Third-party Defendants. 28 1 20-cv-2404-MMA (AGS) Dockets.Justia.com 1 Defendant, Counter Claimant, and Third-party Plaintiff Thomas DeRosa 2 (“DeRosa”) brings this contract dispute—arising from an employment relationship— 3 against Plaintiffs and Counter Defendants LBF Travel Management Corp. (“LBF 4 Management”) and Michael Thomas (“Thomas”) (collectively “Counter Defendants”) 5 and Third-party Defendants LBF Travel, Inc. (“LBF Inc.”), Mondee Holdings, LLC 6 (“Mondee Holdings”), Mondee, Inc., and Prasad Gundumogula (“Gundumogula”) 7 (collectively, “Third-party Defendants”). See Doc. No. 13 ¶ 1 (“TP Compl.”). Third- 8 party Defendants Mondee Holdings, LLC, Mondee, Inc., and Gundumogula (collectively, 9 the “Mondee Defendants”) move to dismiss the sixth and seventh causes of actions 10 alleged against them in Third-party Plaintiff DeRosa’s Third-party Complaint. See Doc. 11 No. 25 at 2. 1 DeRosa filed an opposition to Mondee Defendants’ motion, and Mondee 12 Defendants replied. See Doc. Nos. 26, 28. The Court found the matter suitable for 13 determination on the papers and without oral argument pursuant to Federal Rule of Civil 14 Procedure 78(b) and Civil Local Rule 7.1.d.1. See Doc. No. 29. For the reasons set forth 15 below, the Court GRANTS Mondee Defendants’ motion to dismiss. I. BACKGROUND2 16 Mondee Defendants’ motion originates from an employment relationship between 17 18 DeRosa, Thomas, and LBF Inc. See TP Compl. ¶¶ 1, 2. Mondee Defendants inserted 19 themselves into the relationship by purchasing LBF Inc. See id. ¶¶ 4, 17. 20 Thomas is LBF Inc.’s Chief Executive Officer and majority shareholder. Id. ¶¶ 8, 21 17. DeRosa is a computer programmer. Id. ¶ 6. DeRosa “developed the code that is the 22 backbone for travel amalgamation websites, like Travelocity and Expedia.” Id. In 2010, 23 DeRosa sold the code to LBF Inc. Id. In exchange, DeRosa was supposed to receive 24 25 26 1 27 2 28 All citations to electronically filed documents refer to the pagination assigned by the CM/ECF system. Because this matter is before the Court on a motion to dismiss, the Court must accept as true the allegations set forth in the Third-party Complaint. See Hosp. Bldg. Co. v. Trs. Of Rex Hosp., 425 U.S. 738, 740 (1976). 2 20-cv-2404-MMA (AGS) 1 guaranteed monthly payments, contingent quarterly payments, and a 10% ownership 2 interest in LBF Inc. Id. ¶ 7. An asset purchase agreement (“APA”) commemorated the 3 exchange. See id. ¶¶ 6, 7. DeRosa alleges Thomas “missed monthly payments.” Id. ¶ 8. 4 Even though Thomas “made myriad promises to Mr. DeRosa to rectify the unpaid money 5 . . . it became apparent that Mr. Thomas would not [follow through].” Id. ¶ 9. 6 Contemporaneous to the APA, DeRosa and LBF Inc. executed a consulting 7 agreement (“Consulting Agreement”). Id. ¶ 10. Under the Consulting Agreement, 8 DeRosa became LBF Inc.’s Chief Technology Officer. Id. In exchange, DeRosa was 9 supposed to receive payments “in addition to any money owed . . . under the APA.” Id. 10 DeRosa alleges, “[l]ike the payments owed under the APA, Mr. Thomas would routinely 11 promise to make up for missed payments.” Id. ¶ 12. Yet, “Thomas [has] never made 12 good on any payments under the Consulting Agreement.” Id. 13 Several years later, Thomas began shopping LBF Inc. to potential buyers. See id. 14 ¶¶ 17, 18. DeRosa alleges, “[i]n 2018 . . . Thomas had represented or caused to be 15 represented to others in writing that LBF [Inc.] possessed a fair market value of $80 to 16 $100 million.” Id. ¶ 17. DeRosa further alleges that at the end of 2018 or in early 2019, 17 Thomas negotiated a potential merger that valued LBF Inc. over $250 million. Id. ¶ 18. 18 In the summer 2019, DeRosa learned that Thomas intended to sell LBF Inc. to 19 Mondee Defendants. Id. ¶ 17. In late 2019, Thomas, Mondee Defendants, and DeRosa 20 began to meet with each other. Id. ¶ 23. The meetings focused on “paying Mr. DeRosa 21 for the value of his LBF [Inc.] shares.” Id. DeRosa alleges that, in at least one of the 22 meetings, “[a]ll Defendants falsely represented to Mr. DeRosa the sale price of LBF 23 [Inc.’s] assets to Mondee [Defendants],” and, “[a]ll Defendants engaged in a cover up of 24 [the true sale price].” Id. ¶¶ 86, 87. DeRosa also alleges, “Thomas received more payout 25 for the sale of LBF[ Inc.’s] assets than reported,” yet admits he “does not know the terms 26 of the de facto merger of LBF [Inc.] into Mondee [Defendants], or any statement of 27 price.” Id. ¶¶ 74, 182. 28 3 20-cv-2404-MMA (AGS) 1 DeRosa alleges that the misrepresentation was intended “to deceive” and “to force 2 [him] to sign a settlement agreement that would give him far less than he was owed.” Id. 3 ¶¶ 24, 91. Nonetheless, DeRosa declined to sign any agreement. Id. ¶ 24. 4 On December 13, 2019, Thomas terminated DeRosa from LBF Inc. Id. ¶ 25. 5 DeRosa alleges his termination was “[i]n response to [his] inquiries, whistleblowing, and 6 uncovering of Mr. Thomas’s and LBF[ Inc.’s] defrauding of its shareholders.” Id. 7 Despite the alleged fraud, “[o]n January 10, 2020, Mr. DeRosa . . . purchas[ed] an 8 additional 200,000 shares of LBF [Inc.] stock,” which increased DeRosa’s interest in 9 LBF Inc. from 10% to 30%. Id. ¶ 20. 10 On December 9, 2020, Thomas and LBF Management brought eleven causes of 11 action against DeRosa. See Doc. No. 1. In response, DeRosa filed a Counterclaim and 12 Third-party Complaint against Thomas, LBF Management, LBF Inc., and Mondee 13 Defendants. See TP Compl. 14 DeRosa brings twenty causes of action in his Counterclaim and Third-party 15 Complaint: (1) breach of contract against Thomas and LBF Inc.; (2) breach of contract 16 against Thomas and LBF Inc.; (3) breach of oral contract against Thomas and LBF Inc.; 17 (4) breach of fiduciary duties against “all defendants”; (5) conversion against “all 18 defendants”; (6) negligent misrepresentation against “all defendants”; (7) intentional 19 misrepresentation against “all defendants”; (8) failure to pay wages against Thomas and 20 LBF Inc.; (9) failure to pay all wages due at termination against Thomas and LBF Inc.; 21 (10) failure to pay overtime against Thomas and LBF Inc.; (11) failure to provide breaks 22 against Thomas and LBF Inc.; (12) failure to provide wage statements against Thomas 23 and LBF Inc.; (13) failure to allow inspection of records against Thomas and LBF Inc.; 24 (14) unfair business practices against “all defendants”; (15) retaliation in violation of 25 public policy against LBF Inc.; (16) harassment against Thomas and LBF Inc.; (17) 26 retaliation against LBF Inc.; (18) discrimination against Thomas and LBF Inc.; (19) 27 accounting against Thomas and LBF Inc.; and (20) “violation of Cal. Corp. Code 28 §§ 1300, et seq.” against “defendants.” See TP Compl. ¶¶ 45–187. Third-party Mondee 4 20-cv-2404-MMA (AGS) 1 Defendants move to dismiss the sixth and seventh causes of action under Rule 12(b)(6) 2 and Rule 9(b). See Doc. No. 25 at 2; Doc. No. 25-1 at 7, 17. 3 4 II. LEGAL STANDARD A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro 5 v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must contain “a short and plain 6 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 7 8(a)(2). However, plaintiffs must also plead “enough facts to state a claim to relief that is 8 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also 9 Fed. R. Civ. P. 12(b)(6). The plausibility standard demands more than a “formulaic 10 recitation of the elements of a cause of action,” or “‘naked assertions’ devoid of ‘further 11 factual enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 12 550 U.S. at 555, 557). Instead, the complaint “must contain sufficient allegations of 13 underlying facts to give fair notice and to enable the opposing party to defend itself 14 effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 15 In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth 16 of all factual allegations and must construe them in the light most favorable to the 17 nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996) 18 (citing Nat’l Wildlife Fed’n v. Espy, 45 F.3d 1337, 1340 (9th Cir. 1995)). The court need 19 not take legal conclusions as true merely because they are cast in the form of factual 20 allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting W. Min. 21 Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Similarly, “conclusory allegations 22 of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” 23 Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). 24 In determining the propriety of a Rule 12(b)(6) dismissal, courts generally may not 25 look beyond the complaint for additional facts. See United States v. Ritchie, 342 F.3d 26 903, 907–08 (9th Cir. 2003). “A court may, however, consider certain materials— 27 documents attached to the complaint, documents incorporated by reference in the 28 complaint, or matters of judicial notice—without converting the motion to dismiss into a 5 20-cv-2404-MMA (AGS) 1 motion for summary judgment.” Id. at 908; see also Lee v. City of Los Angeles, 250 F.3d 2 668, 688 (9th Cir. 2001), overruled on other grounds by Galbraith v. County of Santa 3 Clara, 307 F.3d 1119, 1125–26 (9th Cir. 2002). “However, [courts] are not required to 4 accept as true conclusory allegations which are contradicted by documents referred to in 5 the complaint.” Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295–96 (9th Cir. 1998) 6 (citing In re Stac Electronics Securities Litigation, 89 F.3d 1399, 1403 (9th Cir. 1996)). 7 Additionally, allegations of fraud or mistake require the pleading party to “state 8 with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 9 The context surrounding the fraud must “be ‘specific enough to give defendants notice of 10 the particular misconduct . . . so that they can defend against the charge and not just deny 11 that they have done anything wrong.’” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 12 (9th Cir. 2009) (quoting Bly–Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). 13 “‘Averments of fraud must be accompanied by “the who, what, when, where, and how” 14 of the misconduct charged.’ A party alleging fraud must ‘set forth more than the neutral 15 facts necessary to identify the transaction.’” Kearns, 567 F.3d at 1124 (citation omitted) 16 (first quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); and 17 then quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994), 18 superseded by statute on other grounds). 19 Where dismissal is appropriate, a court should grant leave to amend unless the 20 plaintiff could not possibly cure the defects in the pleading. Knappenberger v. City of 21 Phoenix, 566 F.3d 936, 942 (9th Cir. 2009) (quoting Lopez v. Smith, 203 F.3d 1122, 1127 22 (9th Cir. 2000)). 23 24 III. DISCUSSION Mondee Defendants challenge DeRosa’s sixth and seventh causes of action. See 25 Doc. No. 25 at 2. The Court assesses whether DeRosa satisfies Rule 9(b)’s particularity 26 requirement and whether DeRosa states viable claims for relief. 27 A. The Rule 9(b) Heightened Pleading Standard 28 6 20-cv-2404-MMA (AGS) 1 Mondee Defendants argue that DeRosa fails to plead with particularity as required 2 by Rule 9(b). See Doc. No. 25-1 at 15–17; see also Doc. No. 28 at 12. Specifically, 3 Mondee Defendants contend that DeRosa’s pleadings are “conclusory” and 4 “impermissibly lump[] all of the Defendants together.” See Doc. No. 25-1 at 15, 16; see 5 also Doc. No. 28 at 12. DeRosa does not specifically address Mondee Defendants’ 6 argument. 7 The Ninth Circuit has not clarified whether Rule 9(b) applies to negligent 8 misrepresentation claims. Compare Kelley v. Rambus, Inc., 384 F. App’x 570, 573 (9th 9 Cir. 2010) (affirming a dismissal of a negligent misrepresentation claim because it failed 10 to meet Rule 9(b) requirements), with Miller v. Int’l Bus. Mach. Corp., 138 F. App’x 12, 11 17 (9th Cir. 2005) (reversing a district court’s dismissal of a negligent misrepresentation 12 claim because it satisfied Rule 8(a) and was “not a fraud claim.”). However, this Court 13 has consistently applied Rule 9(b) to negligent misrepresentation claims. See City of 14 Escondido v. Gen. Reinsurance Corp., No. 19-cv-868-MMA (BGS), 2019 WL 6917983, 15 at *10 (S.D. Cal. Dec. 18, 2019); Bell v. Fed. Home Loan Mortg. Corp., No. 11-cv-2514- 16 MMA (RBB), 2012 WL 1581075, at *4 n.5 (S.D. Cal. May 4, 2012). More importantly, 17 however, the Court finds Rule 9(b) applies because DeRosa alleges that Mondee 18 Defendants engaged in a “a unified course of fraudulent conduct.” Vess, 317 F.3d at 19 1103; see also Stewart v. Kodiak Cakes, LLC, No. 19-cv-2454-MMA (MSB), 2021 WL 20 1698695, at *13 (S.D. Cal. Apr. 29, 2021) (stating that where fraud is not a necessary 21 element of a claim, a plaintiff may still opt to allege fraudulent conduct). Regardless of 22 whether a negligent misrepresentation claim must meet Rule 9(b)’s requirement, DeRosa 23 weaves fraud allegations throughout his Third-party Complaint, including his negligent 24 misrepresentation claim. See ¶¶ 88, 93; see also ¶¶ 72, 78, 81, 95, 101. Therefore, the 25 Court applies Rule 9(b) to the negligent misrepresentation claim as well as the intentional 26 misrepresentation claim. 27 28 DeRosa alleges that the “who” was “[a]ll Defendants,” which includes Mondee Defendants. See id. ¶¶ 86, 87, 95, 96. Mondee Defendants argue, “DeRosa has 7 20-cv-2404-MMA (AGS) 1 impermissibly lumped all of the Defendants together without identifying the role of each 2 defendant . . . in the alleged fraudulent scheme.” Doc. No. 25-1 at 16. However, “[a]ll 3 Defendants falsely represented . . . the sale price” means that Mondee Defendants, 4 Thomas, LBF Inc., and LBF Management each misrepresented the sale price; thus, 5 DeRosa identifies Mondee Defendants’ role in the alleged fraud. TP Compl. ¶ 86. 6 Further, “[w]here fraud has allegedly been perpetrated by a corporation . . . plaintiffs 7 must allege the names of the employees or agents who purportedly made the fraudulent 8 representations.” UMG Recordings, Inc. v. Global Eagle Ent., Inc., 117 F. Supp. 3d 9 1092, 1108 (C.D. Cal. June 22, 2015). DeRosa alleges Gundumogula was present and 10 participating when the alleged misrepresentation took place. See TP Compl. ¶¶ 23, 86, 11 95. Moreover, DeRosa alleges Gundumogula was either an employee or agent of both 12 Mondee, Inc. and Mondee Holdings. See id. ¶¶ 40, 41, 43. Such allegations sufficiently 13 identify Gundumogula was acting on each corporations’ behalf. DeRosa fails to allege the “what.” In Swartz, the plaintiff’s complaint was 14 15 sufficient because it “included several allegations detailing the . . . content of 16 representations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (emphasis 17 added). Kearns demonstrates the opposite. See 567 F.3d at 1126. In Kearns, the 18 plaintiff alleged that a defendant’s television ads and other sales material misrepresented 19 the value of their Certified Pre-Owned vehicles. Id. at 1125–26. The plaintiff’s 20 complaint was insufficient because it did not “specify what the television advertisements 21 or other sales material specifically stated.” Id. at 1126. Here, DeRosa alleges, 22 “Defendants falsely represented . . . the sale price,” but DeRosa does not specify the 23 represented sale price. TP Compl. ¶ 86. DeRosa’s complaint is analogous to Kearns and 24 lacks the representation’s specific content. See 567 F.3d at 1126. Consequently, DeRosa 25 does not allege the “what.” 3 26 27 28 3 DeRosa appears to argue that he pleads an omission by alleging that Thomas and Mondee Defendants failed to disclose the actual sale price. See Doc. No. 26 at 8. Some cases suggest, “[w]here a fraudulent 8 20-cv-2404-MMA (AGS) 1 DeRosa alleges that the “when” is December 2019. See TP Compl. ¶ 86. DeRosa 2 further avers the “where” is “the December 2019 meeting” with Mondee Defendants and 3 Thomas. See id. ¶¶ 23, 86. The Third-party Complaint explains “how” the 4 representation was false: the represented sale price was lower than the actual sale price. 5 See id. ¶¶ 24, 74, 86, 87, 95, 96. 6 In sum, the Court finds that DeRosa has failed to meet the particularity 7 requirement of Rule 9(b). Accordingly, the Court GRANTS Mondee Defendants’ 8 motion and dismisses both claims. The Court now turns to whether DeRosa states viable 9 claims for relief regardless of the Third-party Complaint’s defects under Rule 9(b). 10 B. Negligent & Intentional Misrepresentation – Sixth & Seventh Causes of Action Mondee Defendants argue that DeRosa’s negligent and intentional 11 12 misrepresentation claims are not plausible and DeRosa fails to plead the requisite 13 elements. See Doc. No. 25-1 at 10–11; see also Doc. No. 28 at 7, 8. Specifically, 14 Mondee Defendants attack three elements common to both claims: false representation or 15 omission, actual reliance, and damages. See Doc. No. 25-1 at 12–15; see also Doc. No. 16 28 at 7–12. DeRosa generally argues that the Third-party Complaint contains plausible 17 grounds for relief. See Doc. No. 26 at 4–9.4 DeRosa attaches a proposed amended 18 19 20 21 22 23 24 25 26 27 28 omission is at issue, the requirements of Rule 9(b) are relaxed, but not eliminated.” UMG Recordings, Inc., 117 F. Supp. 3d at 1107 (citing Waldrup v. Countrywide Fin. Corp., No. 2:13-cv-08833-CAS (CWx), 2014 WL 3715131, at *5 (C.D. Cal. July 23, 2014)). Rule 9(b) is relaxed for omissions because a plaintiff pleading a fraudulent omission cannot meet Rule 9(b)’s “specific content” requirement. See In re Apple & AT & TM Antitrust Litig., 596 F. Supp. 2d 1288, 1310 (N.D. Cal. 2008) (quoting Falk v. Gen. Motors Corp., 496 F. Supp. 2d 1088, 1099 (N.D. Cal. 2007)). Here, DeRosa can meet Rule 9(b)’s “specific content” requirement because he alleges the sale price was misrepresented directly to him in the December 2019 meeting. See TP Compl. ¶¶ 86, 95. Thus, the Court does not relax Rule 9(b)’s requirements. The Court declines to apply the outdated and abrogated Conley “no set of facts” pleading standard relied upon by DeRosa. Compare Doc. No. 26 at 3, with Twombly, 550 U.S. at 562–53, Henry v. Adventist Health Castle Med. Ctr., 970 F.3d 1126, 1132 (9th Cir. 2020), and Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 n.6 (9th Cir. 2011). 4 9 20-cv-2404-MMA (AGS) 1 counterclaim and third-party complaint to his opposition brief. See Doc. No. 26-2 at 2– 2 42. 5 3 Under California law, the elements required to prove negligent misrepresentation 4 are “(1) the misrepresentation of a past or existing material fact, (2) without reasonable 5 ground for believing it to be true, (3) with intent to induce another’s reliance on the fact 6 misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting 7 damage.” Apollo Cap. Fund, LLC v. Roth Cap. Partners, LLC, 70 Cal. Rptr. 3d 199, 213 8 (Cal. Ct. App. 2007) (citing Shamsian v. Atl. Richfield Co., 132 Cal. Rptr. 2d 635, 647 9 (Cal. Ct. App. 2003)). The elements required to prove intentional misrepresentation are 10 “(1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual 11 and justifiable reliance, and (5) resulting damage.” Chapman v. Skype Inc., 162 Cal. 12 Rptr. 3d 864, 875 (Cal. Ct. App. 2013) (first citing Lazar v. Superior Ct., 909 P.2d 981, 13 984 (Cal. 1996); and then citing Mirkin v. Wasserman, 858 P.2d 568, 570 & 570 n.2 (Cal. 14 1993)). 15 The elements required for each claim significantly overlap. In challenging the 16 misrepresentation, reliance, and damage elements, Mondee Defendants apparently 17 concede that the second and third elements of each claim are adequately pleaded. See 18 Doc. No. 25-1 at 13–15. The Court agrees that these elements have been adequately 19 pleaded. Therefore, the Court is left to analyze whether DeRosa has adequately pleaded a 20 misrepresentation, justified reliance, and damages. DeRosa alleges, in conclusory fashion, “[a]ll Defendants falsely misrepresented to 21 22 Mr. DeRosa the sale price of LBF[ Inc.’s] assets.” TP Compl. ¶ 86. However, DeRosa 23 pleads additional factual content. First, DeRosa alleges Thomas and Mondee Defendants 24 25 26 27 28 5 DeRosa has attached the proposed pleading to address any deficiencies in his operative Third-party Complaint. See Resendes Decl., Doc. No. 26-1 ¶ 2. The Court does not and cannot consider this proposed pleading on ruling on the instant motion to dismiss because the Court is limited to the allegations of the operative pleading. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) (citing Lee, 250 F.3d at 688). 10 20-cv-2404-MMA (AGS) 1 were trying to buy DeRosa’s ownership interest in LBF Inc. See id. ¶ 23. Second, 2 Thomas and Mondee Defendants “tried to force Mr. DeRosa to sign a settlement 3 agreement that would give him far less than he was owed.” Id. ¶ 24. Third, “Thomas 4 received more payout for the sale of LBF[ Inc.’s] assets than reported.” Id. ¶ 74. 5 DeRosa’s statements describe a scenario where LBF Inc.’s sale price would certainly be 6 discussed. DeRosa continues by illustrating Thomas’s and Mondee Defendants’ coercive 7 and deceptive business practices. Thomas and Mondee Defendants wanted to buy 8 DeRosa’s interest in LBF Inc. at the lowest possible price. To do so, DeRosa alleges that 9 Thomas and Mondee Defendants represented LBF Inc.’s sale price as lower than the 10 actual price. See id. ¶¶ 17, 24, 95. Assuming the truth of all factual allegations in the 11 light most favorable to the nonmoving party, Cahill, 80 F.3d at 337–38 (citing Nat’l 12 Wildlife Fed’n, 45 F.3d at 1340), the Court finds DeRosa pleads a plausible 13 misrepresentation. 14 Attacking the plausibility of the alleged misrepresentation, Mondee Defendants 15 point to an undercutting allegation: “DeRosa does not know the terms of the de facto 16 merger . . . or any statement of price.” Doc. No. 25-1 at 11, 13 (quoting TP Compl. 17 ¶ 182). Mondee Defendants argue that if DeRosa does not know the actual sale price, it 18 is implausible that there was a misrepresentation. See Doc. No. 25-1 at 11–12, 13; see 19 also Doc. No. 28 at 7. Mondee Defendants’ argument is unavailing. Mondee 20 Defendants’ argument would prevail if DeRosa were completely clueless as to the actual 21 sale price; however, DeRosa alleges that Thomas valued LBF Inc. at no less than $80 22 million. See TP Compl. ¶¶ 17, 18, 185. Taking his allegations in the light most favorable 23 to him, the Court infers that DeRosa knew LBF Inc.’s minimum sale price. DeRosa had 24 a baseline to compare the represented sale price: he does not blindly allege 25 misrepresentation. See id. ¶ 17 (stating that DeRosa was “working off of” the minimum 26 sale price). DeRosa does not know the exact truth, but he has enough information to 27 assess whether he was being misled. DeRosa’s knowledge nudges his allegation from 28 11 20-cv-2404-MMA (AGS) 1 possible to plausible—even if he did not know the actual terms of the merger. Therefore, 2 DeRosa sufficiently pleads misrepresentation.6 Nonetheless, DeRosa fails to allege justified reliance and damages. “Reliance 3 4 exists when the misrepresentation . . . was an immediate cause of the plaintiff’s 5 conduct . . . and when without such misrepresentation . . . he or she would not, in all 6 reasonable probability, have entered into the contract or other transaction.” Alliance 7 Mortg. Co. v. Rothwell, 900 P.2d 601, 608–09 (Cal. 1995) (citing Spinks v. Clark, 82 P. 8 45, 47 (Cal. 1905)). In conclusory fashion, DeRosa alleges, he “justifiably relied on 9 those false statements.” TP Compl. ¶¶ 91, 99. DeRosa fails to show how the 10 misrepresentation influenced his conduct. DeRosa alleges the misrepresentation was 11 intended to induce him to sell his interest in LBF Inc. See id. ¶ 86. However, “DeRosa 12 refused to sign.” Id. ¶ 24. Thus, DeRosa alleges that he did not rely upon the alleged 13 misrepresentation. DeRosa argues that the alleged misrepresentation caused him to hire 14 counsel. See Doc. No. 26 at 6. Hiring counsel cannot demonstrate reliance. Robinson v. 15 Wells Fargo Home Mortg., No. 16-CV-01619-YGR, 2016 WL 6524403, at *7 (N.D. Cal. 16 17 18 6 19 20 21 22 23 24 25 26 DeRosa appears to argue that he pleads an omission by alleging that Thomas and Mondee Defendants failed to disclose the actual sale price. See Doc. No. 26 at 8. This argument is unavailing. An actionable omission is “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact.” Cal. Civ. Code § 1710(3) (emphasis added). Mondee Defendants were not bound to disclose the actual sale price because DeRosa did not sign the agreement. See TP Compl. ¶ 24. Additionally, Mondee Defendants allegedly told an outright misrepresentation; they did not provide “information of other facts.” Cal. Civ. Code § 1710(3). Thus, DeRosa failed to allege an actionable omission. Even if DeRosa did allege an actionable omission, he fails to state the correct claim against Mondee Defendants. The misrepresentation element in negligent and intentional misrepresentation is not satisfied by an omission. See Apollo Cap. Fund, LLC, 70 Cal. Rptr. 3d at 213 (first citing Residential Capital v. Cal–Western Reconveyance Corp., 134 Cal. Rptr. 2d 162, 178 (Cal. Ct. App 2003); and then citing Shamsian, 132 Cal. Rptr. 2d at 648). An omission is better suited for a concealment claim. See 5 Witkin Torts § 883 (11th ed. 2021). 27 28 12 20-cv-2404-MMA (AGS) 1 Nov. 3, 2016) (“If the hiring of an attorney and the filing of a lawsuit were sufficient to 2 demonstrate reliance in an action for fraud, then any plaintiff could readily meet such 3 requirement simply by initiating litigation.”). Lastly, “[o]n January 10, 2020, Mr. 4 DeRosa exercised his option rights . . . purchasing an additional 200,000 shares of LBF 5 [Inc.] stock.” TP Compl. ¶ 20. DeRosa fails to explain how the misrepresentation 6 influenced his decision to purchase additional stock. Accordingly, DeRosa fails to show 7 justified reliance. 8 9 As to the damages element, damages are present only if reliance causes the damage. Hill v. Wrather, 323 P.2d 567, 570 (Cal. Ct. App. 1958) (“A pleading setting up 10 fraud must show . . . damage to the [plaintiff] resulting from such reliance.”); 5 Witkin 11 Torts § 938 (11th ed. 2021) (“The final element in actionable fraud is damage resulting 12 from reliance on the misrepresentation.”). DeRosa argues he was damaged in several 13 ways: paying his attorney, losing his job, and failing to receive payment from Mondee 14 Defendants. See Doc. No. 26 at 7. The Court has already explained that DeRosa failed 15 to show reliance. Therefore, DeRosa cannot show damages either. DeRosa’s attorneys’ 16 fees argument remains unavailing. See Hynix Semiconductor Inc. v. Rambus, Inc., 527 F. 17 Supp. 2d 1084, 1099 (N.D. Cal. 2007) (finding that attorneys’ fees are not recoverable as 18 compensatory damages in a fraud claim). Consequently, DeRosa has failed to show 19 damages stemming from the price misrepresentation. 20 In sum, the Court finds that DeRosa fails to state his negligent misrepresentation 21 and intentional misrepresentation claims. Accordingly, the Court GRANTS Mondee 22 Defendants’ motion and dismisses both claims. 23 24 IV. CONCLUSION For the foregoing reasons, the Court GRANTS Mondee Defendants’ motion to 25 dismiss. Although DeRosa has failed to adequately plead his claims against Mondee 26 Defendants, it is not clear that he would be unable to do so if given leave to amend. 27 Accordingly, dismissal is without prejudice and with leave to amend. See 28 13 20-cv-2404-MMA (AGS) 1 Knappenberger, 566 F.3d at 942. Third-party Plaintiff DeRosa must file an amended 2 third-party complaint curing the deficiencies noted herein on or before July 12, 2021. 3 IT IS SO ORDERED. 4 5 Dated: June 25, 2021 6 _____________________________ 7 Hon. Michael M. Anello 8 United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 20-cv-2404-MMA (AGS)
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