Elizabeth M. Byrnes, Inc. v. Fountainhead Commercial Capital, LLC et al, No. 2:2020cv04149 - Document 49 (C.D. Cal. 2021)
Court Description: ORDER GRANTING DEFENDANTS MOTION TO DISMISS SECOND AMENDED COMPLAINT, 40 by Judge Dean D. Pregerson: Fountainheads Motion to Dismiss is GRANTED. Plaintiffs Second Amended Complaint is DISMISSED, with prejudice. IT IS SO ORDERED. (MD JS-6. Case Terminated) (shb)
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Elizabeth M. Byrnes, Inc. v. Fountainhead Commercial Capital, LLC et al Doc. 49 1 2 3 JS-6 4 O 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 ELIZABETH M. BYRNES, INC., 12 Plaintiff, 13 14 v. FOUNTAINHEAD COMMERCIAL CAPITAL, LLC, 15 Defendants. ) ) ) ) ) ) ) ) ) ) Case No. CV 20-04149 DDP (RAOx) ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS SECOND AMENDED COMPLAINT [Dkt. 40] 16 17 Presently before the court is Defendants Fountainhead 18 Commercial Capital, LLC and Fountainhead SBF LLC (collectively, 19 “Fountainhead”)’s Motion to Dismiss Plaintiff’s Second Amended 20 Complaint. Having considered the submissions of the parties and 21 heard oral argument, the court grants the motion and adopts the 22 following Order. 23 I. Background 24 Beginning in March 2020, public health measures necessitated 25 by the outbreak of the coronavirus pandemic had “devastating” 26 effects on small businesses. Second Amended Complaint (“SAC”) ¶ 27 12. In response, the federal government enacted the Coronavirus 28 Aid, Relief, And Economic Security (“CARES”) Act, Pub.L. 116–136, Dockets.Justia.com 1 H.R. 748. SAC ¶ 13. The CARES Act, among other things, 2 established the Paycheck Protection Program (“PPP”), a $349 billion 3 loan program through which small businesses could obtain forgivable 4 loans backed by the Small Business Administration, but administered 5 by private lenders. SAC ¶ 14. 6 On March 27, the day the CARES Act was signed into law, 7 Fountainhead advertised that it would “soon be tackling the loan 8 inquiries lined up in our queue, providing business owners with 9 capital they need within days.” SAC ¶ 17. The next day, Plaintiff 10 submitted a PPP loan application to Fountainhead for a loan of less 11 than $25,000. 12 with an e-mail stating that Plaintiff was “in the queue,” and that 13 “[h]elp is on the way,” and asking her to gather certain 14 documentation. 15 expect “an invitation to a secure portal for document upload within 16 the next 48 business hours.” 17 indicated that Plaintiff should prepare to upload documents such as 18 bank statements, payroll reports, rent statements, utility bills, 19 and a “Completed Application.” 20 in Support of Motion; Ex. 2.) 21 document upload invitation. SAC ¶ 28. Id. That same day, Fountainhead responded The next day, Fountainhead told Plaintiff to SAC ¶ 28. Fountainhead’s message (Declaration of Michael R. Farrell Plaintiff did not receive any SAC ¶ 28. 22 Fountainhead continued to promote PPP loans, encouraging 23 applications and stating that it “hope[d] to make these loans 24 within days.” 25 touting its advantage over other, bank-based lenders, such as 26 Fountainhead’s ability to approve loans “within a few hours.” 27 ¶ 19. 28 prior relationship, no special (money-making) criteria, and [was] SAC ¶ 20. Fountainhead executives made statements SAC Fountainhead further represented that it “require[d] no[] 2 1 processing first come, first serve . . . no prioritization.” 2 24. 3 SAC ¶ Approximately two weeks after submitting her application and 4 being instructed to gather her documentation, Plaintiff followed up 5 with Fountainhead to confirm the status of her loan. 6 Fountainhead confirmed that her loan was in the queue and again 7 indicated that Plaintiff would receive access to a document upload 8 portal within 24 to 48 hours. 9 Fountainhead sent an e-mail stating, “We ask for your patience with Id. SAC ¶ 29. A few days later, however, 10 us . . . as we process your requests as quickly and responsibly as 11 we can. Should you feel the need to remove yourself from our loan 12 queue and join another lender’s list, kindly let us know . . . so 13 we may continue to prioritize our list.” 14 SAC ¶ 30. Plaintiff gathered the requested documents, waited for the 15 opportunity to upload them, refrained from submitting a loan 16 application to other lenders, and made other, related decisions 17 regarding her small business. 18 received PPP funding from Fountainhead. 19 SAC ¶ 31. Plaintiff never, however, SAC ¶ 3. Plaintiff alleges, on behalf of a putative class of California 20 businesses that applied for PPP loans, that Fountainhead’s 21 representations to California businesses were false and misleading. 22 SAC ¶ 16. 23 not even licensed to engage in lending activities in California 24 until April 21 and had not secured any funding prior to that time, 25 and therefore could not possibly have extended loans “within days.” 26 SAC ¶¶ 16, 22. 27 representations, Fountainhead did prioritize favored customers and 28 higher-value loans that would yield higher fees to Fountainhead Plaintiff alleges, for example, that Fountainhead was Plaintiff also alleges that, contrary to its 3 1 than would relatively small loans, such as that sought by 2 Plaintiff. 3 fraudulent concealment, fraudulent deceit, unfair business 4 practices, and false advertising. 5 dismiss all claims. 6 II. 7 SAC ¶ 32. Plaintiff’s SAC alleges state law claims for Fountainhead now moves to Legal Standard A complaint will survive a motion to dismiss when it 8 “contain[s] sufficient factual matter, accepted as true, to state a 9 claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 10 556 U.S. 662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 11 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a 12 court must “accept as true all allegations of material fact and 13 must construe those facts in the light most favorable to the 14 plaintiff.” 15 Although a complaint need not include “detailed factual 16 allegations,” it must offer “more than an unadorned, 17 the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 18 678. 19 statement of a legal conclusion “are not entitled to the assumption 20 of truth.” Id. at 679. In other words, a pleading that merely 21 offers “labels and conclusions,” a “formulaic recitation of the 22 elements,” or “naked assertions” will not be sufficient to state a 23 claim upon which relief can be granted. Id. at 678 (citations and 24 internal quotation marks omitted). 25 Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Conclusory allegations or allegations that are no more than a “When there are well-pleaded factual allegations, a court 26 should assume their veracity and then determine whether they 27 plausibly give rise to an entitlement of relief.” Iqbal, 556 U.S. 28 at 679. Plaintiffs must allege “plausible grounds to infer” that 4 1 their claims rise “above the speculative level.” Twombly, 550 U.S. 2 at 555-56. 3 claim for relief” is “a context-specific task that requires the 4 reviewing court to draw on its judicial experience and common 5 sense.” Iqbal, 556 U.S. at 679. 6 III. Discussion “Determining whether a complaint states a plausible 7 A. 8 “The elements of fraudulent concealment are: (1) the defendant 9 Fraudulent concealment concealed or suppressed a material fact; (2) the defendant was 10 under a duty to disclose the fact to the plaintiff; (3) the 11 defendant intentionally concealed or suppressed the fact with the 12 intent to defraud the plaintiff; (4) the plaintiff was unaware of 13 the fact and would not have acted as he did if he had known of the 14 concealed or suppressed fact; and (5) as a result of the 15 concealment or suppression of the fact, the plaintiff sustained 16 damage.” 17 (2019). 18 Complaint, Fountainhead argues that Plaintiff has failed to 19 adequately plead that Fountainhead owed her any duty to disclose. 20 Burch v. CertainTeed Corp., 34 Cal. App. 5th 341, 348 As it did in moving to dismiss Plaintiff’s First Amended As discussed in this Court’s earlier Order, a duty to disclose 21 may arise in four circumstances: “(1) when the defendant is in a 22 fiduciary relationship with the plaintiff; (2) when the defendant 23 had exclusive knowledge of material facts not known to the 24 plaintiff; (3) when the defendant actively conceals a material fact 25 from the plaintiff; and (4) when the defendant makes partial 26 representations but also suppresses some material facts.” 27 Angeles Mem’l Coliseum Com. v. Insomniac, Inc., 233 Cal. App. 4th 28 803, 831 (2015). Los The latter three of these circumstances, however, 5 1 “presuppose the existence of some other relationship between the 2 plaintiff and defendant in which a duty to disclose can arise.” 3 Burch, 34 Cal.App.5th at 349. “This relationship has been described 4 as a ‘transaction,’ such as that between seller and buyer, employer 5 and prospective employee, doctor and patient, or parties entering 6 into any kind of contractual arrangement.” 7 LiMandri v. Judkins, 52 Cal. App. 4th 326, 337 (1997) (“[W]here 8 material facts are known to one party and not to the other, failure 9 to disclose them is not actionable fraud unless there is some 10 Id. at 349-50; see also relationship between the parties . . . .”) 11 Plaintiff’s SAC, unlike the FAC, alleges that “Plaintiff and 12 Defendant were parties transacting business in order to enter into 13 a contractual, borrower-lender relationship.” 14 initial matter, however, Plaintiff has not pleaded any facts that 15 support this allegation. 16 PPP loan application” and received a confirmation e-mail stating, 17 “We’ve received your loan app . . . .” 18 Plaintiff received, however, does not say that. 19 “We’ve received your loan request.” 20 (emphasis added)). 21 Plaintiff received does not refer to any previously-submitted 22 application. 23 allow the upload of documents Fountainhead would need to process a 24 loan. 25 “Completed Application SEE ATTACHED.” 26 indicated that a PDF of the application would need to be downloaded 27 “before completing.” 28 the truth of Plaintiff’s allegation that she submitted a loan (SAC ¶ 52.) As an Plaintiff alleges that she “submitted a (SAC ¶ 28.) The e-mail Rather, it states, (Farrell Decl., Ex. 1 Furthermore, the document portal “invitation” Rather, the e-mail indicated that the portal would (Farrell Decl., Ex. 2.) (Id.) Those documents included a (Id.) The e-mail further This Court cannot, therefore, assume 6 1 application, let alone her conclusory allegation that the parties 2 entered into a borrower-lender relationship or engaged in any other 3 transaction. 4 Even assuming Plaintiff had adequately alleged the existence 5 of a borrower-lender relationship, her fraudulent concealment claim 6 fails. 7 of care to a borrower when the institution’s involvement in the 8 loan transaction does not exceed the scope of its conventional role 9 as a mere lender of money.” “[A]s a general rule, a financial institution owes no duty Nymark v. Heart Fed. Sav. & Loan 10 Assn., 231 Cal. App. 3d 1089, 1096 (1991). 11 may arise, however, under certain circumstances. 12 BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 945-946 13 (2014). 14 the non-exhaustive factors set forth in Biakanja v. Irving, 49 Cal. 15 2d 647, 650 (1958). 16 Ass’n, 189 F. Supp. 3d 965, 973 (C.D. Cal. 2016); Newson v. 17 Countrywide Home Loans, Inc., No. C 09-5288 SBA, 2010 WL 4939795, 18 at *5 (N.D. Cal. Nov. 30, 2010); Kemp v. Wells Fargo Bank, N.A., 19 No. 17-CV-01259-MEJ, 2017 WL 4805567, at *6 (N.D. Cal. Oct. 25, 20 2017); Pimentel v. Wells Fargo Bank, N.A., No. 14-CV-05004-EDL, 21 2016 WL 8902601, at *7 (N.D. Cal. Dec. 6, 2016); Jacobik v. Wells 22 Fargo Bank, N.A., No. 17-CV-05121-LB, 2017 WL 5665666, at *9 (N.D. 23 Cal. Nov. 26, 2017). 24 which the transaction was intended to affect the plaintiff, [2] the 25 foreseeability of harm to him, [3] the degree of certainty that the 26 plaintiff suffered injury, [4] the closeness of the connection 27 between the defendant’s conduct and the injury suffered, [5] the 28 moral blame attached to the defendant’s conduct, and [6] the policy A duty to a borrower See Alvarez v. To determine whether such a duty exists, courts balance See, e.g., Welte v. Wells Fargo Bank Nat’l Those factors include “[1] the extent to 7 1 of preventing future harm.” 2 69 Cal. 2d 850, 865 (1968) (quoting Biakanja, 49 Cal. 2d at 650). 3 Connor v. Great W. Sav. & Loan Ass’n, Here, a balancing of the Biakanja factors reveals that 4 Fountainhead owed no duty to Plaintiff. 5 particularly pertinent here, where a direct borrower-lender 6 relationship exists. 7 More importantly, the remaining factors tilt strongly against the 8 existence of a duty. 9 “the loss of use of money” and harm Plaintiff suffered “by The first factor is not Compare Welte, 189 F. Supp. 3d at 974-975. First, the only specific harms alleged are 10 refraining from applying elsewhere thereby losing priorty and 11 further delaying receipt of any monies needed to fund her 12 business.” 13 to have her loan application approved, or otherwise entitled to any 14 “use of money.” 15 communications between the parties, it was not foreseeable that 16 Plaintiff would put all of her eggs in the Fountainhead basket on 17 the basis of her loan “request,” made in response to a tweet 18 stating that Fountainhead would be “soon be tackling the loan 19 inquiries lined up in our queue.”1 20 Plaintiff suffered any injury, as she does not allege that she was 21 unable to obtain a loan from another source or how much of a delay 22 she suffered as a result of Fountainhead’s conduct. 23 Fountainhead’s alleged conduct seem overly blameworthy. 24 Fountainhead did allegedly misrepresent that it would allow (SAC ¶ 54.) Plaintiff, of course, was not guaranteed Furthermore, given the preliminary nature of the It is far from certain that Nor does Although 25 26 27 28 1 For similar reasons, even if Fountainhead did owe a duty to Plaintiff, she has not adequately allege that she justifiably relied upon Fountainhead’s relatively innocuous non-disclosures. See 625 3rd St. Assocs., L.P. v. Alliant Credit Union, 633 F. Supp. 2d 1040, 1050 (N.D. Cal. 2009). 8 1 Plaintiff to upload documents, including a loan application, it 2 also acknowledged that it was “somewhat overwhelmed” and was 3 experiencing delays in implementing a novel loan program, and 4 specifically raised the possibility that Plaintiff might want to 5 pursue a loan with another lender. 6 in light of the expiration of the PPP program, there is no danger 7 of future harm. 8 lender relationship between Plaintiff and Fountainhead, the latter 9 owed Plaintiff no duty of disclosure. 10 (Farrell Decl., Ex. 3.) And, Thus, even assuming the existence of a borrower- Accordingly, Plaintiff’s fraudulent concealment claim is dismissed, with prejudice. 11 B. 12 The SAC, unlike the FAC, includes a cause of action for Fraudulent Deceit 13 fraudulent deceit. 14 dismissed because it is premised upon allegations made upon 15 information and belief, and therefore cannot satisfy the heightened 16 pleading requirements of Rule 9(b).2 17 particularity, the complaint must allege the time, place, and 18 content of the fraudulent representation; conclusory allegations do 19 not suffice.” 20 F.3d 1035, 1042 (9th Cir. 2010). 21 belief are not usually sufficiently particular, unless they 22 accompany a statement of facts on which the belief is founded.” 23 Id.; see also McFarland v. Memorex Corp., 493 F. Supp. 631, 639 24 (N.D. Cal. 1980) (“Even though this standard permits 25 information-and-belief pleading, it requires that a plaintiff Fountainhead contends that this claim must be “In order to plead fraud with Shroyer v. New Cingular Wireless Servs., Inc., 622 “Claims made on information and 26 27 28 2 “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 9 1 allege sufficient detail to demonstrate that his complaint is 2 grounded in some facts.”). 3 Here, there is no factual foundation for Plaintiff’s 4 allegations, made upon information and belief, that Fountainhead 5 (1) prioritized large loans that would yield high fees, and (2) did 6 not have adequate funding. 7 Plaintiff’s fraudulent deceit allegations, however, is accompanied 8 by factual details. 9 and belief, that Fountainhead was initially not licensed to make (SAC ¶ 59.) At least one of Plaintiff’s allegation, made on information 10 loans is supported by a factual allegation that Fountainhead’s 11 license had been revoked in 2019, and was not reinstated until 12 April 21, 2020. 13 is alleged with sufficient particularity. 14 (SAC ¶ 16.) The lack of license claim, therefore, Fountain also argues, however, that Plaintiff fails to allege 15 several elements of a fraudulent deceit claim. The court agrees. 16 “The elements of fraud, which give rise to the tort action for 17 deceit, are (a) misrepresentation (false representation, 18 concealment, or nondisclosure); (b) knowledge of falsity (or 19 ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) 20 justifiable reliance; and (e) resulting damage.” 21 Ct., 12 Cal. 4th 631, 638, 909 P.2d 981, 984–85 (1996) (quoting 5 22 Witkin, Summary of Cal.Law (9th ed. 1988) Torts, § 676, p. 778). 23 Even assuming the first two elements are met, Plaintiff does not 24 adequately allege that Fountainhead intended to defraud Plaintiff. 25 “[A] plaintiff must point to facts which show that defendant 26 harbored an intention not to be bound by terms of the contract at 27 formation.” 28 2002) (discussing promissory fraud claim) (emphasis original). Lazar v. Superior Hsu v. OZ Optics Ltd., 211 F.R.D. 615, 620 (N.D. Cal. 10 “A 1 suit for fraud and deceit will only lie when one makes a promise of 2 future conduct with no intention, at the time of the promise, of 3 actually performing that promise.” 4 Mid-W. Nat. Life Ins. Co., 118 F. Supp. 2d 1002, 1013 (C.D. Cal. 5 2000). 6 finding of promissory fraud.” 7 Ent., Inc., No. CV143466MMMJPRX, 2015 WL 12746208, at *14 (C.D. 8 Cal. Oct. 30, 2015). 9 that the intent element is satisfied here, asserting only that Cedars Sinai Med. Ctr. v. “The non-performance of a promise alone will not support a UMG Recordings, Inc. v. Glob. Eagle Plaintiff makes almost no attempt to argue 10 intent can be inferred because Fountainhead represented “that it 11 would take certain actions and then actually act[ed] in the 12 complete opposite.” 13 Plaintiff has not adequately alleged that Fountainhead, which 14 acknowledged that it was overwhelmed, prioritized large loans. 15 fact that Fountainhead did not process Plaintiff’s request does not 16 suggest an intent not to do so, as opposed to an inability to do 17 so. 18 (Opp. at 13:18-19.) As discussed above, The Furthermore, as discussed above, Plaintiff has not adequately 19 alleged that her reliance upon Fountainhead’s alleged 20 misrepresentations was justifiable.3 21 representations, such as that Fountainhead would “soon be tackling 22 the loan inquiries lined up in our queue,” were innocuous or, at 23 most, promises of future performance. 24 represented that it had received or was processing a loan 25 application, but rather only that it had received Plaintiff’s “loan 26 request.” 3 Fountainhead never Any decision to forego other loan options was simply not 27 28 Fountainhead’s tweets and See note 1, above. 11 1 reasonable under the circumstances. Although reasonableness is 2 often a question of fact, “whether a party’s reliance was justified 3 may be decided as a matter of law if reasonable minds can come to 4 only one conclusion based on the facts.” 5 App. 4th 837, 843 (1991). Guido v. Koopman, 1 Cal. Such is the case here. 6 C. 7 Plaintiff’s Third and Fourth Causes of action allege claims Remaining Claims 8 under California’s Unfair Competition Law (“UCL”), Cal. Bus. & 9 Prof. Code § 17200 et seq., and False Advertising Law (“FAL”), Cal. 10 Bus. & Prof. Code § 17500 et seq., respectively. Claims under both 11 the UCL and FAL are equitable in nature. Nationwide Biweekly 12 Admin., Inc. v. Superior Court of Alameda Cty., 9 Cal. 5th 279, 13 326, 462 P.3d 461, 488 (2020); see also Munning v. Gap, Inc., 238 14 F. Supp. 3d 1195, 1203 (N.D. Cal. 2017). Fountainhead contends 15 that, under the Ninth Circuit’s decision in Sonner v. 16 Premier Nutrition Corp., 971 F.3d 834, 837 (9th Cir. 2020), 17 Plaintiff cannot bring these equitable claims because she has not 18 sufficiently alleged that she lacks an adequate remedy at law. 19 In Sonner, the Ninth Circuit held that, regardless of state 20 law, a federal court sitting in diversity is bound by traditional 21 federal equitable principles. Id. at 842, 845. The court further 22 held that among those principles, consistent with California 23 doctrine, is the requirement that a plaintiff establish that she 24 lacks an adequate remedy at law before pursuing equitable 25 restitution. Id. at 844. 26 Plaintiff’s SAC, unlike the FAC, alleges, in the alternative, 27 that she lacks an adequate remedy at law. 28 that, however, Plaintiff makes no effort to allege, or explain in 12 (SAC ¶¶ 72, 79.) Beyond 1 her Opposition, why her legal remedies are or may be inadequate. 2 Several courts have dismissed equitable claims pursuant to Sonner 3 under similar circumstances. 4 is not whether a pleading may seek distinct forms of relief in the 5 alternative, but rather whether a prayer for equitable relief 6 states a claim if the pleading does not demonstrate the inadequacy 7 of a legal remedy. 8 Sharma v. Volkswagen AG, 524 F. Supp. 3d 891, 907 (N.D. Cal. 2021); 9 see also Anderson v. Apple Inc., 500 F. Supp. 3d 993, 1009 (N.D. As one court explained, “[t]he issue On that point, Sonner holds that it does not.” 10 Cal. 2020); In re California Gasoline Spot Mkt. Antitrust Litig., 11 No. 20-CV-03131-JSC, 2021 WL 1176645, at *8 (N.D. Cal. Mar. 29, 12 2021); Shay v. Apple Inc., No. 20CV1629-GPC(BLM), 2021 WL 1733385, 13 at *5 (S.D. Cal. May 3, 2021); Watkins v. MGA Ent., Inc., No. 14 21-CV-00617-JCS, 2021 WL 3141218, at *17 (N.D. Cal. July 26, 2021). 15 Here, absent any indication in the SAC or Plaintiff’s arguments how 16 Plaintiff’s legal arguments are or may be inadequate, Plaintiff’s 17 equitable claims must be dismissed. 18 IV. Conclusion 19 For the reasons stated above, Fountainhead’s Motion to Dismiss 20 is GRANTED. 21 with prejudice. Plaintiff’s Second Amended Complaint is DISMISSED, 22 23 24 IT IS SO ORDERED. 25 26 27 Dated: November 24, 2021 DEAN D. PREGERSON United States District Judge 28 13
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