Marble Bridge Funding Group, Inc v. Liquid Capital Exchange, Inc. et al, No. 5:2015cv00177 - Document 37 (N.D. Cal. 2015)
Court Description: ORDER granting 9 Motion to Dismiss. Any amended complaint filed in response to this order must be filed and served on or before 10/12/2015. Signed by Judge Edward J. Davila on 9/25/2015. (ejdlc1S, COURT STAFF) (Filed on 9/25/2015)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SAN JOSE DIVISION 10 United States District Court Northern District of California 11 MARBLE BRIDGE FUNDING GROUP, INC., Plaintiff, 12 v. 13 Case No. 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS Re: Dkt. No. 9 14 15 LIQUID CAPITAL EXCHANGE, INC., et al., Defendants. 16 17 18 I. INTRODUCTION Plaintiff Marble Bridge Funding Group, Inc. (“Marble Bridge”) brings the instant action 19 against four defendants, Liquid Capital Exchange, Inc. (“Exchange”), Liquid Capital of Colorado 20 (which is also known as BDB Capital, Inc. or “BDB Capital”), Sol Roter and Bruce Dawson, for 21 claims related to an allegedly fraudulent business transaction. The specific facts asserted by 22 Marble Bridge are detailed in a companion order filed this same date, and are not repeated here. 23 Presently before the court is a Motion to Dismiss under Federal Rule of Civil Procedure 24 12(b)(6) brought by Exchange. See Docket Item No. 9. Marble Bridge opposes the motion. See 25 Docket Item No. 12. The court finds Exchange’s arguments meritorious for the most part. The 26 motion will therefore be granted for the reasons explained below. 27 28 1 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 1 II. LEGAL STANDARD Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient 2 specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which 3 it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). A 4 complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim 5 upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). “Dismissal under Rule 12(b)(6) is 6 appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support 7 a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 8 9 10 Cir. 2008). Moreover, the factual allegations “must be enough to raise a right to relief above the speculative level” such that the claim “is plausible on its face.” Twombly, 550 U.S. at 556-57. Fraud requires more detail. “In alleging fraud or mistake, a party must state with 11 United States District Court Northern District of California particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. Proc. 9(b). These 12 allegations must be “specific enough to give defendants notice of the particular misconduct which 13 is alleged to constitute the fraud charged so that they can defend against the charge and not just 14 deny that they have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 15 1985). To that end, the allegations must contain “an account of the time, place, and specific 16 content of the false representations as well as the identities of the parties to the 17 misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). In other words, 18 claims of fraudulent conduct must generally contain more specific facts than is necessary to 19 support other causes of action. 20 When deciding whether to grant a motion to dismiss, the court generally “may not consider 21 any material beyond the pleadings.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 22 1542, 1555 n. 19 (9th Cir.1990). However, the court may consider material submitted as part of 23 the complaint or relied upon in the complaint, and may also consider material subject to judicial 24 notice. See Lee v. City of Los Angeles, 250 F.3d 668, 688-69 (9th Cir.2001). 25 In addition, the court must generally accept as true all “well-pleaded factual allegations.” 26 Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). The court must also construe the alleged facts in the 27 28 2 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 1 light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir.1988). 2 However, “courts are not bound to accept as true a legal conclusion couched as a factual 3 allegation.” Id. 4 III. 5 DISCUSSION Exchange moves to dismiss all of Marble Bridge’s claims for lack of specificity under 6 Rule 9(b). It separately moves to dismiss the claims for aiding and abetting a fraud and for 7 fraudulent concealment for failure to state a claim. These arguments are addressed below, keeping 8 in mind that only Exchange is challenging the Complaint under Rule 12(b)(6). 9 A. Rule 9(b) Marble Bridge correctly acknowledges that its entire Complaint must satisfy the 11 United States District Court Northern District of California 10 heightened pleading standard imposed by Rule 9(b). The purpose of this more stringent 12 requirement is “to ensure that adequate notice is provided to the parties accused of fraudulent 13 conduct in order to allow for a meaningful defense.” Prime Media Grp. LLC v. Acer Am. Corp., 14 No. 5:12-cv-05020 EJD, 2013 U.S. Dist. LEXIS 22437, at *8, 2013 WL 621529 (N.D. Cal. Feb. 15 19, 2013). “Without such specificity, defendants in these cases would be put to an unfair 16 disadvantage, since at the early stages of the proceedings they could do no more than generally 17 deny any wrongdoing.” Concha v. London, 62 F.3d 1493, 1502 (9th Cir.1995). “Specific 18 allegations that result in a targeted response benefit all parties involved; everyone gets to move 19 forward on an equal footing with little left to speculate.” Prime Media Grp., 2013 U.S. Dist. 20 LEXIS 22437, at *8. 21 In some respects, Rule 9(b)’s heightened pleading requirement also acts to bar the assertion 22 of weak or unfounded - and potentially costly - claims of fraudulent conduct. See Bly-Magee v. 23 California, 236 F.3d 1014, 1018 (9th Cir.2001). Indeed, “[b]y requiring the plaintiff to allege the 24 who, what, where, and when of the alleged fraud, the rule requires the plaintiff to conduct a 25 precomplaint investigation in sufficient depth to assure that the charge of fraud is responsible and 26 supported, rather than defamatory and extortionate.” Ackerman v. Nw. Mut. Life Ins. Co., 172 27 F.3d 467, 469 (7th Cir.1969). 28 3 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS It is therefore unsurprising that, when Rule 9(b) is involved, “everyone did everything” 1 2 allegations are not permitted. See Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2011). “In the 3 context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, ‘identif[y] 4 the role of [each] defendant[ ] in the alleged fraudulent scheme.’” Id. (quoting Moore v. Kayport 5 Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989)). 6 That said, Marble Bridge cannot lump two separate defendants into one designation and 7 get away with it under Rule 9(b). In the Complaint, Marble Bridge refers to both BDB Capital 8 and Exchange as “Liquid Capital,” as if they were the one in the same. But they very clearly are 9 not. Indeed, Marble Bridge states in the Complaint that Exchange is the Canadian franchisor and BDB Capital is the Colorado franchisee. Because it is an entity distinct from BDB Capital, 11 United States District Court Northern District of California 10 Exchange is entitled to more detail about its purported role in the Nature’s Own scheme and the 12 personal corporate conduct that led up to the Marble Bridge buy-out. See Swartz, 476 F.3d at 764. 13 This court has previously criticized this exact tactic under similar circumstances. See Morici v. 14 Hashfast Techs., LLC, No. 5:14-cv-00087-EJD, 2015 WL 906005, at *3-4 (N.D. Cal. Feb. 27, 15 2015). It meets with same unwelcome reception for this Complaint. Marble Bridge will have to 16 put forth more specific allegations, and better define the defendants’ roles, if it wants to maintain 17 any of its three claims against Exchange. 18 B. 19 In California, liability may be imposed “on one who aids and abets the commission of an 20 intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives 21 substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to 22 the other in accomplishing a tortious result and the person’s own conduct, separately considered, 23 constitutes a breach of duty to the third person.” Saunders v. Super. Ct., 27 Cal. App. 4th 832, 846 24 (1994). 25 Aiding and Abetting a Fraud Under what seems to be the first approach to aiding and abetting liability, Marble Bridge 26 alleges that all of the defendants provided substantial assistance to the factoring fraud scheme 27 initiated by Kay Holloway and her Nature’s Own cohorts “by misrepresenting the aged accounts 28 4 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 1 receivable that Liquid Capital was selling to Marble Bridge, and omitting material information 2 from Marble Bridge” regarding the non-existent Nature’s Own buyers. See Compl., Docket Item 3 No. 1, at ¶ 39. The problems with this “fraudulent reporting” allegation and the related supporting 4 5 allegations that precede it are twofold. First, it suffers from the improper grouping of two 6 defendants into one “Liquid Capital” designation, as discussed above. Second, the “substantial 7 assistance” allegation appears to be inconsistent with other information Marble Bridge relies on 8 for claim, namely the Holloway deposition.1 Holloway testified that “Bruce” - likely in reference 9 to Dawson - was who prepared the aged accounts receivable reports, not all of the defendants collectively. In light of Holloway’s statement, it is difficult to understand how Exchange aided 11 United States District Court Northern District of California 10 and abetted the Nature’s Own scheme without more substantial allegations. For these reasons, Marble Bridge has not stated a claim against Exchange for aiding and 12 13 abetting a fraud. 14 C. 15 “The required elements for fraudulent concealment are (1) concealment or suppression of a Fraudulent Concealment 16 material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant 17 intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the 18 plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known 19 of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the 20 concealment or suppression of the fact.” Graham v. Bank of America, N.A., 226 Cal. App. 4th 21 594, 606 (2014). For the second element, the parties both identify the four circumstances under which a duty 22 23 to disclose arises: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when 24 25 26 27 28 1 The court considers the Holloway deposition as part of the Complaint since Marble Bridge references it extensively as a basis for its allegations, and because Exchange also bases its argument on it. See United States ex rel. Lee v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011) (holding the court may, for a motion to dismiss, consider “unattached evidence on which the complaint ‘necessarily relies’ if: (1) the complaint refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no party questions the authenticity of the document.”). 5 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 1 the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the 2 defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes 3 partial representations but also suppresses some material facts. LiMandri v. Judkins, 52 Cal. App. 4 4th 326, 336 (1997). Since the facts of this case do describe a fiduciary relationship between Marble Bridge and 5 the defendants, what is at issue is whether Marble Bridge has pled sufficient facts under the three 7 subsequent circumstances. Reading much into the LiMandri court’s insertion of the word 8 “exclusive” into qualifying circumstance number two, Exchange argues it did not have 9 “exclusive” knowledge of the Nature’s Own scheme since there were other members involved in 10 the fraud. No. This argument is nonsensical since it would essentially bestow immunity upon all 11 United States District Court Northern District of California 6 fraudulent conspiracies involving more than one person. The court rejects this argument outright. 12 It also rejects Exchange’s related argument which takes issue with the absence of explicit 13 allegations concerning Marble Bridge’s knowledge of the Nature’s Own scheme, or lack of it. 14 Such fact is reasonably inferred from the Complaint as a whole. However, Marble Bridge’s problem with defendant-grouping is fatal to this claim in any 15 16 event, and in particular its attempt to plead either the active concealment or partial suppression 17 circumstances. Again, Marble Bridge’s allegations do not sufficiently differentiate Exchange 18 from BDB Capital, such that Exchange can understand what knowledge it had and what 19 information it allegedly concealed or partially suppressed. Neither the allegations specified by 20 Marble Bridge nor the e-mail from Roter attached to the opposition do anything to resolve that 21 problem. Thus, the court finds that Marble Bridge has not stated a claim against Exchange for 22 23 fraudulent concealment. 24 IV. ORDER 25 Based on the foregoing, the Motion to Dismiss (Docket Item No. 9) is GRANTED, and all 26 claims against Exchange are DISMISSED WITH LEAVE TO AMEND. Any amended complaint 27 filed in response to this order must be filed and served on or before October 12, 2015. 28 6 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS 1 Because the Complaint is dismissed in its entirety, the court declines to set a case 2 management schedule at this time. However, the court will address scheduling issues as raised by 3 the parties should it become necessary. 4 5 IT IS SO ORDERED. 6 7 8 9 Dated: September 25, 2015 ______________________________________ EDWARD J. DAVILA United States District Judge 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 Case No.: 5:15-cv-00177-EJD ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
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