Wescott v. Matusow et al, No. 3:2022cv00070 - Document 8 (N.D. Cal. 2022)
Court Description: Order granting 3 application to proceed in forma pauperis; and ORDER TO SHOW CAUSE why case should not be dismissed. Response due May 11, 2022. Case management conference previously set for April 15, 2022 continued to June 3, 2022 at 2:00 PM. Si gned by Chief Magistrate Judge Joseph C. Spero on April 13, 2022. (jcslc2, COURT STAFF) (Filed on 4/13/2022)Any non-CM/ECF Participants have been served by First Class Mail to the addresses of record listed on the Notice of Electronic Filing (NEF)Copy placed in O:Drive for mailing on 4/13/2022 Modified on 4/13/2022 (klh, COURT STAFF).
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Wescott v. Matusow et al Doc. 8 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 CARL WESCOTT, 7 Plaintiff, 8 v. 9 KEN MATUSOW, et al., 10 Defendants. United States District Court Northern District of California 11 Case No. 22-cv-00070-JCS ORDER GRANTING APPLICATION TO PROCEED IN FORMA PAUPERIS ORDER TO SHOW CAUSE WHY COMPLAINT SHOULD NOT BE DISMISSED Re: Dkt. No. 1, 3 12 13 I. Plaintiff Carl Wescott, pro se, applies to proceed in forma pauperis. See dkt. 3. Sufficient 14 15 INTRODUCTION cause having been shown, that application is GRANTED. 16 The Court now reviews the sufficiency of Wescott’s complaint under 28 U.S.C. 17 § 1915(e)(2)(B). Wescott brings claims under California law for breach of contract and 18 promissory fraud against Defendants Ken Matusow and Synergicity, Inc. For the reasons 19 discussed below, Wescott is ORDERED TO SHOW CAUSE why this case should not be 20 dismissed for lack of subject matter jurisdiction. Wescott shall file either an amended complaint 21 or a response to this order no later than May 11, 2022. If he does not do so, or fails to cure the 22 deficiency identified herein, the case will be reassigned to a United States district judge with a 23 recommendation for dismissal. The case management conference previously set for April 15, 2022 is CONTINUED to 24 25 June 3, 2022 at 2:00 PM, to occur via Zoom webinar. 26 II. ALLEGATIONS OF THE COMPLAINT 27 Because a plaintiff’s factual allegations are generally taken as true in evaluating the 28 sufficiency of a complaint, this order summarizes Wescott’s allegations as if true. Nothing in this Dockets.Justia.com 1 order should be construed as resolving any issue of fact that might be disputed. This summary is 2 intended as context for the convenience of the reader is and is not a complete recitation of 3 Wescott’s allegations. 4 5 consultants and investors. See Compl. (dkt. 1) ¶ 12. Defendant Synergicity is a California 6 corporation engaged in technology consulting and owned by Matusow. Id. ¶¶ 3, 16, 46. Wescott 7 and Matusow met through business and traveled together to South Korea. Id. ¶¶ 24, 27. Matusow 8 became connected with a Korean company, LICO-Art (“LICO”), that intended to develop an 9 amusement park. Id. ¶ 27. Wescott got involved with logistics for the early stages of that project. 10 United States District Court Northern District of California Wescott and Defendant Matusow both have experience as information technology Id. ¶ 30. 11 LICO needed to raise $70 million to purchase land—the first step towards developing its 12 park. Id. ¶ 31. The parties agreed that LICO would pay a $7 million fee for raising those funds, 13 and if Wescott “brought the lender/investor to the table for a successful closing,” he would receive 14 $6.3 million of that fee, with the remaining $700,000 going to Synergicity. Id. ¶¶ 34–35. 15 “The parties agreed that LICO would pay Synergicity US $20,000” for business documents 16 LICO needed in English, and that Synergicity would pay Wescott, “who would do all the work.” 17 Id. ¶ 33. Wescott prepared the documents and flew to Seoul to meet with LICO, and after getting 18 a “generally positive reception,” made changes as requested, finishing the project in May of 2018. 19 Id. ¶ 36–42. Matusow told Wescott that since the work had been done to LICO’s satisfaction, 20 Matusow would pay Wescott an additional $12,000, in addition to $5,000 that Wescott had 21 already received. Id. ¶ 43. Wescott understood that to mean that Matusow would transfer funds 22 from Synergicity to Wescott. Id. ¶ 44. To date, Matusow has not done so, and the parties have not 23 moved forward with fundraising. Id. ¶ 45. 24 Wescott asserts the following claims against Matusow and Synergicity: (1) breach of 25 contract, id. ¶¶ 57–62; (2) promissory fraud, id. ¶¶ 63–72; and (3) negligent misrepresentation, id. 26 ¶¶ 73–78. 27 28 2 1 ANALYSIS 2 A. 3 Where a plaintiff is found to be indigent under 28 U.S.C. § 1915(a)(1) and is granted leave Legal Standard for Review Under § 1915 4 to proceed in forma pauperis, courts must engage in screening and dismiss any claims which: 5 (1) are frivolous or malicious; (2) fail to state a claim on which relief may be granted; or (3) seek 6 monetary relief from a defendant who is immune from such relief. 28 U.S.C. § 1915(e)(2)(B); see 7 Marks v. Solcum, 98 F.3d 494, 495 (9th Cir. 1996). Rule 8(a)(2) of the Federal Rules of Civil 8 Procedure provides that a pleading must contain a “short and plain statement of the claim showing 9 that the pleader is entitled to relief.” A complaint that lacks such statement fails to state a claim 10 11 United States District Court Northern District of California III. and must be dismissed. In determining whether a plaintiff fails to state a claim, the court assumes that all factual 12 allegations in the complaint are true. Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th 13 Cir. 1995). However, “the tenet that a court must accept a complaint’s allegations as true is 14 inapplicable to legal conclusions” and to “mere conclusory statements.” Ashcroft v. Iqbal, 556 15 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “A pleading 16 that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action 17 will not do.’” Id. (quoting Twombly, 550 U.S. at 555). The pertinent question is whether the 18 factual allegations, assumed to be true, “state a claim to relief that is plausible on its face.” 19 Twombly, 550 U.S. at 570. 20 Where the complaint has been filed by a pro se plaintiff, as is the case here, courts must 21 “construe the pleadings liberally . . . to afford the petitioner the benefit of any doubt.” Hebbe v. 22 Pliler, 627 F.3d 338, 342 (9th Cir. 2010) (citations omitted). “A district court should not dismiss a 23 pro se complaint without leave to amend unless ‘it is absolutely clear that the deficiencies of the 24 complaint could not be cured by amendment.’” Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir. 25 2012) (quoting Schucker v. Rockwood, 846 F.2d 1202, 1203−04 (9th Cir. 1988) (per curiam)). 26 B. 27 Federal courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. of 28 Diversity Jurisdiction and Amount in Controversy Am., 511 U.S. 375, 377 (1994). Accordingly, “federal courts have a continuing independent 3 1 obligation to determine whether subject-matter jurisdiction exists” over a given claim. Leeson v. 2 Transamerica Disability Income Plan, 671 F.3d 969, 975 (9th Cir. 2012) (internal quotation marks 3 and citations omitted). The basis only basis for jurisdiction that Wescott asserts here—“diversity 4 jurisdiction” under 28 U.S.C. § 1332(a)—allows federal courts to hear claims arising under state 5 law if no plaintiff is a citizen of the same state as any defendant1 and the amount in controversy 6 exceeds $75,000. A plaintiff seeking to invoke a federal court's diversity jurisdiction must 7 affirmatively allege facts showing that the amount in controversy threshold is satisfied. Rainero v. 8 Archon Corp., 844 F.3d 832, 840 (9th Cir. 2016). In the Ninth Circuit, “the amount in controversy 9 reflects the maximum recovery the plaintiff could reasonably recover.” Arias v. Residence Inn by 10 Marriott, 936 F.3d 920, 927 (9th Cir. 2019) (emphasis omitted). Wescott’s complaint implicates two categories of damages: the $12,000 that he alleges United States District Court Northern District of California 11 12 Matusow promised to pay him for preparing documents, and the share of the $7 million 13 fundraising fee that he would have recovered if the parties had proceeded to raise $70 million for 14 the first round of LICO’s project. The latter category is necessary for him to meet the $75,000 15 threshold for diversity jurisdiction, and the Court therefore focuses on those damages in evaluating 16 whether he has properly invoked this Court’s diversity jurisdiction. Wescott’s claim to damages for the expected value of the successful project is likely only 17 18 recoverable, if at all, through his contract claim. “Under California law, a defrauded party is 19 ordinarily limited to recovering out-of-pocket damages. The out-of-pocket measure of damages is 20 directed to restoring the plaintiff to the financial position enjoyed by him prior to the fraudulent 21 transaction, and thus awards the difference in actual value at the time of the transaction between 22 what the plaintiff gave and what he received.” Fladeboe v. Am. Isuzu Motors Inc., 150 Cal. App. 23 4th 42, 66 (2007) (cleaned up); see also EduMoz, LLC v. Republic of Mozambique, No. CV 24 25 26 27 28 1 Wescott alleges that he is a resident of Arizona, Matusow is a resident of California, and Synergicity is a “California Corporation.” Compl. ¶¶ 1–3. For purposes of diversity jurisdiction, a corporation is a citizen of both its state of incorporation and the state where its principal place of business is located. The Court understands Wescott’s allegation as indicating that Synergicity is incorporated in California. While he has not specifically addressed its principal place of business, in the absence of allegations or evidence to the contrary, it is reasonable to infer from the complaint as a whole (including the allegation that Synergicity’s owner Matusow lives and works in California, id. ¶ 9) that the company’s principal place of business is also in California. 4 1 13-02309 MMM (CWx), 2015 WL 13697385, at *14 (C.D. Cal. Apr. 20, 2015). Wescott has not 2 alleged facts sufficient to show that any exception to that general rule would allow him to recover 3 “expectation” or “benefit-of-the-bargain” damages here under his fraud or negligent 4 misrepresentation theories, nor has he offered any allegation that his out-of-pocket losses could 5 meet the $75,000 threshold. United States District Court Northern District of California 6 In contrast to the out-of-pocket damages usually awarded for fraud and other tort theories, 7 “[d]amages awarded to an injured party for breach of contract seek to approximate the agreed- 8 upon performance” and “put the plaintiff in as good a position as he or she would have occupied if 9 the defendant had not breached the contract.” Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified 10 Sch. Dist., 34 Cal. 4th 960, 967 (2004). The question, then, is whether Wescott has alleged breach 11 of a contract to pay him a share of the fundraising fee—or, perhaps, that he would have received 12 that fee but for Matusow’s failure to pay him the $12,000. 13 Under California law, the “cause of action for damages for breach of contract is comprised 14 of the following elements: (1) the contract, (2) plaintiff’s performance or excuse for 15 nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” Armstrong 16 Petroleum Corp. v. Tri-Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1391 n.6 (2004). Wescott 17 alleges that “LICO agreed to pay a US $7 million fixed-fee upon successful raise of the US $70 18 million debt capital,” and that “the parties agreed that [Wescott] would get paid $6.3 million of the 19 $7 million if [he] brought the lender/investor to the table for a successful closing for phase I.” 20 Compl. ¶¶ 34–35. He has not alleged, however, that any funds were actually raised such that he 21 would be entitled to payment based on those agreements, or that Defendants failed to do anything 22 they were contractually obligated to do in order to allow fundraising to move forward. 23 The only breach that Wescott specifically identifies is Matusow’s failure to pay him the 24 $12,000. Id. ¶ 60. He has not explained why, if Matusow had paid the $12,000 as he allegedly 25 agreed, the $70 million fundraising plan would have moved forward and Wescott would have also 26 obtained his share of the $7 million fee. In other words, Wescott has not shown that payment of 27 anything beyond $12,000 is necessary to “put [him] in as good a position as he . . . would have 28 occupied if the defendant had not breached the contract” to pay him $12,000 for preparing 5 1 documents. See Lewis Jorge Constr., 34 Cal. 4th at 967. Wescott’s allegations do not show that he could reasonably recover at least $75,000 if he 2 3 prevailed on his claims. Wescott is therefore ORDERED TO SHOW CAUSE why this case 4 should not be dismissed for lack of subject matter jurisdiction. 5 IV. 6 For the reasons discussed above, Wescott is ORDERED TO SHOW CAUSE why this 7 action should not be dismissed for lack of subject matter jurisdiction (without prejudice to refiling 8 in state court), by filing no later than May 11, 2022 either: (1) an amended complaint remedying 9 the defects identified above; or (2) a response to this order arguing why his present complaint is 10 11 United States District Court Northern District of California CONCLUSION sufficient to proceed. Any amended complaint must include the caption and civil case number used in this order 12 22-cv-00070) and the words FIRST AMENDED COMPLAINT on the first page. Because an 13 amended complaint completely replaces the previous complaint, any amendment may not 14 incorporate claims or allegations of Wescott’s original complaint by reference, but instead must 15 include all of the facts and claims Wescott wishes to present and all of the defendants he wishes to 16 sue. See Ferdik v. Bonzelet, 963 F.2d 1258, 1262 (9th Cir. 1992). 17 18 19 20 IT IS SO ORDERED. Dated: April 13, 2022 ______________________________________ JOSEPH C. SPERO Chief Magistrate Judge 21 22 23 24 25 26 27 28 6
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