LBF Travel Management Corp. et al v. DeRosa et al, No. 3:2020cv02404 - Document 117 (S.D. Cal. 2022)

Court Description: ORDER Affirming Tentative Rulings Re: Third-Party Defendants' Motion to Dismiss and Strike and Counter-Defendants' Request to Dismiss. ORDER granting in part and denying in part 80 Motion to Strike 74 Amended Counterclaim, FRCP 12(f) MOTION to Dismiss for Failure to State a Claim FRCP 12(b)(6) and 9(b), 81 X Motion for Joinder ; Signed by Judge Michael M. Anello on 8/22/2022. (All non-registered users served via U.S. Mail Service)(smy1)

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LBF Travel Management Corp. et al v. DeRosa et al Doc. 117 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, Defendant. 15 16 17 18 19 ORDER AFFIRMING TENTATIVE RULINGS RE: THIRD-PARTY DEFENDANTS’ MOTION TO DISMISS AND STRIKE AND COUNTER-DEFENDANTS’ REQUEST TO DISMISS Plaintiffs, 12 13 Case No.: 20-cv-2404-MMA (AGS) THOMAS DEROSA, [Doc. Nos. 80, 81] 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.; LBF TRAVEL HOLDINGS, LLC; MONDEE HOLDINGS, LLC; MONDEE, INC.; and PRASAD GUNDUMOGULA 26 27 28 Third-Party Defendants. 1 20-cv-2404-MMA (AGS) Dockets.Justia.com 1 On March 9, 2022, Defendant, Counter-Claimant, and Third-Party Plaintiff 2 Thomas DeRosa (“DeRosa”) filed a Second Amended Counterclaim and Third-Party 3 Complaint against Counter-Defendants LBF Travel Management Corp. (“Old LBF”) and 4 Michael Thomas (“Thomas”) (collectively “Counter-Defendants”) and Third-Party 5 Defendants LBF Travel, Inc. (“New LBF”), LBF Travel Holdings, LLC, Mondee 6 Holdings, LLC, Mondee, Inc., and Prasad Gundumogula (“Gundumogula”) (collectively, 7 “Third-Party Defendants”). See Doc. No. 74 (the “Second Amended Pleading”, or 8 “SAP”). On April 22, 2022, Third-Party Defendants filed a motion to strike some of the 9 claims against them pursuant to Federal Rule of Civil Procedure 12(f), along with a 10 motion to dismiss all claims against them pursuant to Federal Rules of Civil Procedure 11 12(b)(6) and 9(b). See Doc. No. 80. On April 25, 2022, Old LBF and Thomas filed a 12 notice of joinder. See Doc. No. 81. DeRosa filed an opposition, to which Third-Party 13 Defendants and Counter-Defendants separately replied. Doc. Nos. 86, 90, 91. 14 On August 15, 2022, the parties appeared before the Court for a hearing on the 15 motions to dismiss and motion to strike, along with the notice of joinder. In anticipation 16 of the hearing, the Court issued tentative rulings on the pending motions. See Doc. No. 17 106. For the reasons set forth below, the Court AFFIRMS its tentative rulings.1 I. BACKGROUND 2 18 19 The present action originates from the fallout of a business relationship between 20 Thomas and DeRosa. Thomas is Old LBF’s co-founder, Chief Executive Officer, and 21 majority shareholder. SAP ¶ 25. He is also the co-founder of New LBF. Id. ¶ 25. 22 DeRosa is a software developer and a co-founder of Old LBF. Id. ¶¶ 1, 23. Starting in 23 1995, DeRosa developed software (“the Technology”) “that has come to undergird parts 24 of the world’s travel e-commerce.” Id. ¶¶ 1, 32. 25 26 1 27 28 The Court DENIES all requests for supplemental briefing made during the hearing. Because this matter is before the Court on a motion to dismiss, the Court must accept as true the allegations set forth in the Amended Third-Party Complaint. See Hosp. Bldg. Co. v. Trs. Of Rex Hosp., 425 U.S. 738, 740 (1976). 2 2 20-cv-2404-MMA (AGS) 1 Thomas and Old LBF first sued DeRosa, alleging that DeRosa breached contracts 2 and misappropriated trade secrets related to the Technology. See Doc. No. 1. In turn, 3 DeRosa filed counter and third-party claims, alleging that Thomas, Thomas’s friend 4 Gundumogula, and a myriad of entities Thomas and Gundumogula own/manage, 5 collaborated to gut Old LBF of its assets in an effort to defraud and avoid paying DeRosa 6 what he was owed. See SAP. 7 A. 8 The Technology and Services Contracts “On or about October 22, 2010, DeRosa sold the Technology to Old LBF” via a 9 2010 Asset Purchase Agreement (the “APA”). Id. ¶ 39. In exchange, DeRosa was 10 supposed to receive $1.25 million in cash and “10% of fully diluted Old LBF stock 11 (which stock fully vested by 2013).” Id. ¶ 40. DeRosa was to receive the cash payment 12 in two forms: $499,200 in 24 monthly installments; and $750,800 in quarterly 13 installments equal to 25% of Old LBF’s Net Income for the prior fiscal quarter. Id. On 14 that same date, “DeRosa also entered into a consulting agreement with Old LBF to act as 15 Old LBF’s Chief Technology Officer (the “Consulting Agreement”)”. Id. ¶ 46. 16 Pursuant to Old LBF’s employee stock option plan, on September 28, 2011, 17 “Thomas and Old LBF granted DeRosa a right to purchase an additional 10% of Old LBF 18 shares at $0.01 per share.” Id. ¶ 47. “The stock option vested on November 22, 2011, 19 and expired on the earlier of September 30, 2021, or three months after termination of 20 DeRosa’s service for any reason other than disability.” Id. 21 “DeRosa’s rights to the Technology in the event Old LBF defaulted under the APA 22 were set forth in a separate security agreement (the “Security Agreement”),” which 23 provided that DeRosa had “a continuing security interest in, lien on, assignment of, and 24 right of set-off over all of Old LBF’s [c]ollateral until he was fully paid all of the 25 installments.” Id. ¶ 42 (internal quotations omitted). “Pursuant to the Security 26 Agreement, DeRosa recorded a lien against the Technology to secure Old LBF’s 27 28 3 20-cv-2404-MMA (AGS) 1 obligations to pay him.” Id. ¶ 43. 3 DeRosa further alleges that the lien on the original 2 Technology extended to the “DerivativeTech.” Id. ¶ 138. DerivativeTech refers to 3 “ongoing modifications to the Technology[, which] have been evolutionary in nature and 4 [ ] rely upon the fundamental design and structure of DeRosa’s novel and revolutionary 5 original Technology.” Id. ¶ 10. 6 “After the term of the Consulting Agreement expired in 2012, Thomas and Old 7 LBF entered into an agreement with DeRosa . . . for his continued provision of CTO 8 services (the “CTO Services Agreement”).” Id. ¶ 48. 9 “In or around May 2013, Thomas terminated the former President and CEO of Old 10 LBF. . . .” Id. ¶ 49. “To ensure that DeRosa continued in his capacity as CTO for Old 11 LBF, Thomas and Old LBF offered—and DeRosa accepted—an amendment to the CTO 12 Services Agreement that included a $10,000 per month increase in DeRosa’s salary . . . 13 and a grant to DeRosa of an additional 10% of Old LBF stock” with an option to 14 purchase another 10% of Old LBF’s equity. Id. ¶¶ 49–50. 15 “In or around the Summer 2014, Thomas and Old LBF offered—and DeRosa 16 accepted—another salary increase. . . .” Id. ¶ 50. 17 B. Thomas’ Alleged Malfeasance 18 “Unbeknownst to DeRosa, Thomas used his position as the CEO and majority 19 shareholder of Old LBF to embezzle an unknown amount (but at least tens of millions) of 20 dollars from Old LBF, drain the company of its funds, and conceal Old LBF’s profits 21 from its minority shareholder DeRosa.” Id. ¶ 52. “Thomas’s malfeasance caused Old 22 LBF to be chronically under-capitalized. . . .” Id. ¶ 54. Although “Thomas and Old LBF 23 paid DeRosa the 24 monthly installments under the APA, Thomas/Old LBF did not pay 24 DeRosa the $750,800 [ ] due in quarterly payments. Thomas and Old LBF also routinely 25 failed to pay DeRosa the full salary owed to him under the CTO Services Agreement.” 26 27 28 3 Although not clearly stated in the SAP, it appears that this lien was recorded via “Uniform Commercial Code-1 financing statement on October 17, 2018.” See SAP ¶ 66. 4 20-cv-2404-MMA (AGS) 1 Id. ¶ 56. All the while, “Thomas would regularly reassure DeRosa that once the company 2 was profitable, Thomas would cure the breaches of the APA and CTO contracts by 3 making ‘catch up’ payments to DeRosa.” Id. ¶ 59. However, according to DeRosa, Old 4 LBF was profitable. Id. ¶ 60. 5 Since at least 2018, Thomas began shopping Old LBF to potential buyers. Id. ¶ 63. 6 In multiple prospective deals, Thomas represented that Old LBF possessed a fair market 7 value of $80 to $100 million. Id. “Upon learning of a possible sale, . . . DeRosa recorded 8 a UCC-1 financing statement on October 17, 2018.” Id. ¶ 66. None of these deals 9 ultimately came to fruition until 2019, when Thomas reached out to Gundumogula to 10 negotiate a $5 million dollar loan from Mondee Inc. to Old LBF. Id. ¶¶ 65, 70. 11 However, “Gundumogula instead wanted to acquire Old LBF in order to use the 12 Technology to maximize Mondee Inc’s potential.” Id. ¶ 70. 13 C. 14 Sale of Old LBF “In or around March 2019, Thomas informed DeRosa that . . . Mondee Inc. wanted 15 to purchase Old LBF.” Id. ¶ 75. Mondee Inc’s CEO was Gundumogula, who was 16 Thomas’ long-time personal friend. Id. ¶ 29. 17 On June 29, 2019, Mondee Inc., Thomas, and Old LBF entered into a term sheet 18 “setting forth their mutual understanding that Mondee Inc. would acquire 100% of Old 19 LBF through a stock purchase agreement” (the “June Term Sheet”). Id. ¶ 77. “In 20 exchange, Old LBF’s shareholders would receive $20 million ($5 million in cash and $15 21 million in Mondee Inc. stock)[,]” id., “a price far below Old LBF’s fair market value,” id. 22 ¶ 78. DeRosa alleges that the “drastically under-valued price of $20 million” was “[i]n 23 exchange for” the silence of Mondee Inc. and Gundumogula regarding “Thomas’s 24 corporate theft, other malfeasance, and the true value of Old LBF[,]” which 25 Gundumogula and Mondee Inc. knew from “due diligence review of Old LBF’s company 26 documents, financials, and other information.” Id. ¶¶ 79–81. “Gundumogula and 27 Mondee Inc. also agreed to provide Thomas with side-inducements to further incentivize 28 him to sell Old LBF substantially below its true value.” Id. ¶ 81. This was done to 5 20-cv-2404-MMA (AGS) 1 “leverage DeRosa’s Technology for their own benefit without properly compensating 2 DeRosa by creating a competing company that utilized the DerivativeTech[.]” Id. ¶ 73. 3 “In August 2019, upon learning of the intended sale to Mondee Inc., DeRosa 4 demanded to know the proposed terms of the sale, but Thomas refused to reveal the 5 terms.” “Instead, Thomas asked that DeRosa ‘trust him’ and, in exchange, Thomas 6 would compensate DeRosa with an immediate ‘true up’ payment of $2.2 million for all 7 outstanding debts Old LBF owed DeRosa.” Id. ¶ 84. 8 “In or around August 2019, for the first time, Thomas briefly showed DeRosa the 9 June Term Sheet and described some basic parameters for the proposed sale to Mondee 10 Inc.” Id. ¶ 86. “At that time, Thomas represented that a potential purchase price could be 11 around $37 million, representing $26 million in cash and stock and $11 million in 12 performance bonuses.” Id. ¶ 87. 13 “On or about October 29, 2019, DeRosa, through his counsel, submitted a letter to 14 Mondee Inc., copying Thomas and his counsel, setting forth DeRosa’s claims for breach 15 of the APA, breach of his services Agreements, breach of fiduciary duty, self-dealing, 16 violation of California’s wage and hour laws, and violations of California and Delaware 17 corporate statutes. The letter also attached a copy of DeRosa’s UCC-1 Financing 18 Statement.” Id. ¶ 89. Nonetheless, “Mondee Inc. authorized Gundumogula to continue 19 dealing with Thomas to acquire Old LBF at a huge discount.” Id. 20 “On or about November 22, 2019, DeRosa attended a meeting with Gundumogula 21 and Thomas at Mondee Inc.’s San Mateo office to discuss the proposed sale. DeRosa 22 requested to have his attorney present at the meeting, but Thomas and Gundumogula 23 refused to allow DeRosa’s attorney to attend.” Id. ¶ 87. During the meeting, 24 “Gundumogula informed DeRosa that Thomas and Old LBF could not and would not pay 25 DeRosa what he was owed under the APA and CTO Services Agreement.” Id. ¶ 91. 26 “Gundumogula also threatened DeRosa repeatedly during the meeting, trying to 27 intimidate him into accepting the deal outlined in the June Term Sheet . . . asked how 28 DeRosa’s daughter would be impacted if DeRosa were to lose his health insurance . . . 6 20-cv-2404-MMA (AGS) 1 and warned DeRosa he should think about his daughter and her health before rejecting 2 the sale terms.” Id. ¶ 92. Gundumogula “told DeRosa he should think about all of the 3 other Old LBF employees who would lose their jobs if Thomas had to shut down Old 4 LBF because of DeRosa’s refusal to accept the proposed sale to Mondee Inc.” Id. ¶ 93. 5 “Gundumogula asked DeRosa if he should give [Old LBF] employees DeRosa’s phone 6 number so he could explain to them why they were all going to be out of work for the 7 upcoming holiday season.” Id. “Thomas and Gundumogula physically blocked the exit 8 to the room to prevent DeRosa from leaving” for “approximately 30–45 minutes.” Id. ¶ 9 96. “[N]ear the end of the meeting, Gundumogula and Thomas presented DeRosa with 10 two options: (1) DeRosa agrees to sell his shares of Old LBF under the terms of the June 11 Term Sheet; or (2) Thomas and Gundumogula would punish DeRosa by either firing 12 DeRosa and going forward with the acquisition without DeRosa’s participation or, if that 13 was not possible, Thomas would bankrupt Old LBF.” Id. ¶ 95. DeRosa refused both 14 options. Id. ¶ 98. 15 “On or about November 28, 2019, Gundumogula, Mondee Inc., and Thomas 16 presented DeRosa with a revised proposal seeking to persuade DeRosa to sell his shares 17 and approve the sale of Old LBF to Mondee Inc.” Id. ¶ 99. DeRosa again refused this 18 deal. Id. ¶ 100. 19 “[O]n December 10, 2019, Mondee Inc. authorized Gundumogula and Thomas to 20 send DeRosa a written proposed settlement offer in which DeRosa would release any and 21 all claims he had against Old LBF and Thomas “arising out of or related to the [2010] 22 APA, the UCC Lien, the [Consulting Agreement] and any equity interests in [Old] LBF 23 and its subsidiaries and affiliates, including the claims DeRosa raises in his October 29, 24 2019 letter in exchange for cash and Mondee Inc. stock.” Id. ¶ 104 (alteration in original) 25 (internal quotations omitted). DeRosa refused to sign the settlement offer “until he had 26 an opportunity to review Old LBF’s financials.” Id. ¶ 108. 27 28 “On or about December 13, 2019, . . . in retaliation for DeRosa’s inquiries and threatened exposure of Thomas’s and Old LBF’s fraud upon its shareholders, Thomas 7 20-cv-2404-MMA (AGS) 1 and Old LBF terminated DeRosa.” Id. ¶ 112. Gundumogula and Thomas then changed 2 the structure of the planned acquisition of Old LBF from an equity purchase agreement to 3 a tangled web of agreements including an asset purchase agreement with multiple side 4 contribution agreements (collectively, the “LBF Purchase Agreement”), in order to 5 defraud DeRosa and misappropriate DeRosa’s Technology. See id. ¶¶ 117, 131–40. 6 “Mondee Inc. made no other attempt to acquire the Technology from Old LBF or to 7 secure any license to use the Technology.” Id. ¶ 136. 8 9 According to DeRosa, because he was never “promptly paid in full, as promised under the APA, pursuant to the Security Agreement, and as the holder of a UCC lien 10 against Old LBF’s assets, DeRosa is still the legal and equitable owner of the 11 Technology.” Id. ¶ 137. DeRosa further alleges that the lien on the original Technology 12 extended to the DerivativeTech and that New LBF and Mondee Inc. continue to 13 misappropriate and use the Technology to this day. Id. ¶ 138, 140. 14 “On January 10, 2020, not knowing that Thomas and Mondee Inc. had purportedly 15 entered into the LBF Purchase Agreement, DeRosa exercised his option rights under the 16 APA, purchasing an additional 200,000 shares of Old LBF stock, which made DeRosa a 17 30% shareholder of Old LBF.” Id. ¶ 128. DeRosa still owns those shares. Id. 18 D. 19 The Second Amended Pleading DeRosa brings fifteen claims in his Second Amended Pleading: (1) breach of the 20 APA against Thomas and Old LBF; (2) tortious interference with the APA against 21 Thomas; (3) breach of the CTO Services Agreement against Thomas and Old LBF; 22 (4) tortious interference with the Consulting Agreement against Thomas; (5) breach of 23 fiduciary duties and violation of California Corporations Code §§ 309, et seq. against 24 Thomas; (6) aiding and abetting breach of fiduciary duties and violation of California 25 Corporations Code §§ 309, et seq. against Gundumogula, Mondee LLC, and Mondee Inc; 26 (7) fraudulent conveyance against Thomas, Old LBF, New LBF, Mondee LLC, and 27 Mondee Inc; (8) intentional misrepresentation in violation of California Civil Code 28 §§ 1710 and 3294 against Thomas; (9) intentional misrepresentation in violation of 8 20-cv-2404-MMA (AGS) 1 California Civil Code §§ 1710 and 3294 against Gundumogula; (10) violation of 2 California Corporations Code §§ 1300, et seq. for failure to allow inspection of records 3 against Thomas and Old LBF; (11) unfair business practices against Thomas, Mondee 4 Inc., Mondee LLC, and New LBF; (12) intentional infliction of emotional distress against 5 Thomas, Old LBF, Gundumogula, and Mondee Inc.; (13) civil conspiracy against 6 Mondee LLC, Mondee Inc., and Gundumogula; (14) unjust enrichment against all 7 Counter-Defendants and Third-Party Defendants; and (15) various violations of 8 California employment law against Thomas and Old LBF. SAP ¶¶ 144–295. 9 10 II. LEGAL STANDARD A. Federal Rule of Civil Procedure 12(f) 11 A Rule 12(f) motion to strike allows a court to “strike from a pleading an 12 insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” 13 Fed. R. Civ. P. 12(f). For the purposes of this rule, “‘[i]mmaterial’ matter is that which 14 has no essential or important relationship to the claim for relief or the defenses being 15 pleaded.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (quoting 5 16 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382, at 706–07 17 (1990)), rev’d on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994); see 18 also Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 974 (9th Cir. 2010). 19 “‘Impertinent’ matter consists of statements that do not pertain, and are not necessary, to 20 the issues in question.” Fantasy, Inc., 984 F.2d at 1527 (quoting 5 Charles A. Wright & 21 Arthur R. Miller, at 711); see also Whittlestone, Inc., 618 F.3d at 974. 22 The purpose of a Rule 12(f) motion is “to avoid the expenditure of time and money 23 that must arise from litigating spurious issues by dispensing with those issues prior to 24 trial.” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). “Motions 25 to strike are generally disfavored, unless ‘it is clear that the matter to be stricken could 26 have no possible bearing on the subject matter of the litigation.’” Haghayeghi v. Guess?, 27 Inc., No. 14-cv-00020 JAH-NLS, 2015 WL 1345302, at *5 (S.D. Cal. Mar. 24, 2015) 28 (quoting LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992)); 9 20-cv-2404-MMA (AGS) 1 see also Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1037 (C.D. Cal. 1998)). In 2 ruling on a motion to strike, the court may only consider the face of the pleading or 3 matters subject to judicial notice. See Fantasy, Inc., 984 F.2d at 1528. “With a motion to 4 strike, just as with a motion to dismiss, the court should view the pleading in the light 5 most favorable to the nonmoving party.” Snap! Mobile, Inc. v. Croghan, No. 18-cv- 6 04686-LHK, 2019 WL 884177, at *3 (N.D. Cal. Feb. 22, 2019) (quoting Platte Anchor 7 Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004)). Ultimately, the 8 decision about whether to strike allegations is a matter within the district court’s 9 discretion. California Dep’t of Toxic Substances Control v. Alco Pac., Inc., 217 F. Supp. 10 2d 1028, 1033 (C.D. Cal. 2002) (citing Fantasy, Inc., 984 F.2d at 1528); see also 11 Whittlestone, Inc., 618 F.3d at 974 (quoting Nurse v. United States, 226 F.3d 996, 1000 12 (9th Cir. 2000)). 13 B. 14 Federal Rules of Civil Procedure 12(b)(6) and 9(b) A Rule 12(b)(6) motion tests the legal sufficiency of the claims made in the 15 complaint. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must 16 contain “a short and plain statement of the claim showing that the pleader is entitled to 17 relief,” Fed. R. Civ. P. 8(a)(2), such that the defendant is provided “fair notice of what the 18 . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 19 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). However, plaintiffs 20 must also plead “enough facts to state a claim to relief that is plausible on its face.” Fed. 21 R. Civ. P. 12(b)(6); Twombly, 550 U.S. at 570. The plausibility standard demands more 22 than “a formulaic recitation of the elements of a cause of action,” or “naked assertions 23 devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 24 (internal quotation marks omitted). Instead, the complaint “must contain allegations of 25 underlying facts sufficient to give fair notice and to enable the opposing party to defend 26 itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 27 28 In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth of all factual allegations and must construe them in the light most favorable to the 10 20-cv-2404-MMA (AGS) 1 nonmoving party. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 2 1996). A court need not take legal conclusions as true merely because they are cast in the 3 form of factual allegations. See Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 4 1987). Similarly, “conclusory allegations of law and unwarranted inferences are not 5 sufficient to defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 6 1998). 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) (then 17 quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994), superseded by 18 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. See Knappenberger v. City 21 of Phoenix, 566 F.3d 936, 942 (9th Cir. 2009) (quoting Lopez v. Smith, 203 F.3d 1122, 22 1127 (9th Cir. 2000)). 23 24 III. ANALYSIS A. Motion to Strike under FRCP 12(f) 25 1. 26 Third-Party Defendants move to strike Claims 7, 9, 12–14 as procedurally improper 27 because “the time to amend as a matter of course [under Federal Rule of Civil Procedure 28 15]” has expired and “DeRosa failed to obtain the opposing party’s consent or leave of New Claims Attacked as “Procedurally Improper” 11 20-cv-2404-MMA (AGS) 1 court to add new claims.” See Doc. No. 80-1 at 12. As support for this argument, Third- 2 Party Defendants point to various scheduling orders issued by Magistrate Judge Schopler 3 and the Court’s November 2021 Order on Third-Party Defendant’s second motion to 4 dismiss. 5 The Court granted leave to amend the third-party complaint without limiting the 6 scope of amendment to existing claims. See Doc. No. 52. DeRosa also timely sought— 7 and was granted—extensions to file his second amended pleading. See Doc. Nos. 55, 58, 8 64–67. Accordingly, DeRosa had leave to add the new claims. 4 Moreover, none of the 9 challenged claims constitute “an insufficient defense or any redundant, immaterial, 10 impertinent, or scandalous matter.” See Fed. R. Civ. P. 12(f). 11 Accordingly, the Court DENIES the motion to strike Claims 7, 9, and 12–14 as 12 procedurally improper. See Forest Ambulatory Surgical Assocs., L.P. v. Ingenix, Inc., 13 No. CV 12-2916 PSG FFMX, 2013 U.S. Dist. LEXIS 190701, at *8–13 (C.D. Cal. Dec. 14 13, 2013) ([B]ecause the Court granted Plaintiff leave to amend without limitation, it 15 implicitly authorized Plaintiff to raise these new [ ]claims.”); Topadzhikyan v. Glendale 16 Police Dept., No. CV 10-387 CAS (SSx), 2010 U.S. Dist. LEXIS 78717, at *6 n.1 (C.D. 17 Cal. July 8, 2010) (declining to strike new claims where court granted leave to amend 18 without limitation). 19 20 21 22 23 24 25 26 27 28 4 Additionally, the Court notes that even assuming such an analysis is necessary, DeRosa satisfies both Federal Rules of Civil Procedure 15 and 16. Pursuant to Rule 16, a pretrial scheduling order “may be modified only for good cause and with the judge’s consent.” “Rule 16(b)’s ‘good cause’ standard primarily considers the diligence of the party seeking the amendment.” Johnson v. Mammoth Recs., Inc., 975 F.2d 604, 609 (9th Cir. 1992). Simply put, the amended pleadings deadline set forth in the Rule 16 Scheduling Order was superseded by the Court’s numerous extensions to file an amended pleading and thus DeRosa does not need, in this instance, to satisfy Rule 16 with regard to this particular deadline. But in any event, DeRosa has demonstrated diligence—he complied with the amended counterclaim deadlines set forth in the Court’s orders on the motion to dismiss or timely requested extensions that were granted. And pursuant to Federal Rule of Civil Procedure 15, when the time to amend as a matter of course has expired, “a party may amend its pleading only with the opposing party’s written consent or the court’s leave. The court should freely give leave when justice so requires.” Fed. R. Civ. Proc. 15(a)(2). The Court gave leave to amend in its November 15, 2021 Order on the motion to dismiss, see Doc. No. 52, and in orders granting subsequent extension requests. 12 20-cv-2404-MMA (AGS) 1 2. 2 Third-Party Defendants move to strike claim 9 on the additional ground that Waiver of Claim 9 3 DeRosa waived claim 9 because a previously withdrawn claim cannot be reasserted 4 against a defendant later in the case. Doc. No. 80-1 at 13–14. DeRosa originally pleaded 5 a claim for intentional misrepresentation against Gundumogula as part of his original 6 Third-Party Complaint, see Doc. No. 12, and did not re-plead that claim as part of his 7 First Amended Pleading. See Doc. No. 35. DeRosa now reasserts an intentional 8 misrepresentation claim against Gundumogula in the SAP as Claim 9. See Doc. No. 74. 9 As support for this argument, Third-Party Defendants primarily rely on Lacey 10 v. Maricopa County, 693 F.3d 896, 928 (9th Cir. 2012). See Doc. No. 80-1 at 13–14. In 11 turn, DeRosa urges that Lacey has been misinterpreted in “a small number of district 12 court cases.” See Doc. No. 86 at 18. Specifically, DeRosa argues that Lacey is 13 inapposite because it deals with unpled claims on appellate review, and not unpled claims 14 under review by the district court. See id. at 18–19. 15 The Court is not persuaded by DeRosa’s argument. “Although Lacey addressed 16 the waiver of rights on appeal, district courts have extended the reasoning of the decision 17 to apply to waiver of causes of action in the district court when claims could have been 18 pled in a subsequent complaint but were voluntarily withdrawn.” See Heath v. Google 19 LLC, No. 15-cv-01824-BLF, 2018 WL 398463, at *3 (N.D. Cal. Jan. 12, 2018) (citing 20 Philips v. Ford Motor Co., No. 14-CV-02989-LHK, 2015 WL 4111448, at *6 (N.D. Cal. 21 July 7, 2015)); Gazzano v. Stanford Univ., No. C 12-05742 PSG, 2013 WL 2403646, at 22 *4 n.31 (N.D. Cal. May 31, 2013); Westley v. Oclaro, Inc., No. C-11-2448 EMC, 2013 23 WL 2384244, at *11 (N.D. Cal. May 30, 2013)). This Court has done the same. See, 24 e.g., Lara v. Experian Info. Sols., Inc., No. 20-cv-2449, 2021 U.S. Dist. LEXIS 118150, 25 at *18 (S.D. Cal. June 24, 2021); Demand v. Midvale Indem. Co., No. 21-cv-2051, 2022 26 U.S. Dist. LEXIS 19283, at *7 (S.D. Cal. Feb. 2, 2022). 27 28 13 20-cv-2404-MMA (AGS) Accordingly, the Court GRANTS the motion to strike Claim 9 as waived. 5 1 2 B. 3 Motion to Dismiss Pursuant to FRCP 12(b)(6) and 9(b) Third-Party Defendants move to dismiss all claims against them: Claims 6, 7, 9, 4 and 11–14. See Doc. No. 80. Counter-Defendants join in this motion, and additionally 5 ask that the Court dismiss Claims 2 and 4. See Doc. No. 81. Tortious Interference with Contract (Claims 2 and 4) 6 6 1. 7 In his second claim, DeRosa alleges tortious interference with the APA against 8 Thomas. SAP ¶¶ 153–58. DeRosa alleges that “Thomas intended to induce Old LBF to 9 breach the APA by failing to make required payments thereunder.” Id. ¶ 156. Similarly, 10 in his fourth claim, DeRosa alleges tortious interference with the Consulting Agreement 11 against Counter-Defendant Thomas. Id. ¶¶ 165–70. DeRosa alleges that “Thomas 12 intended to induce Old LBF to breach the CTO Services agreement by failing to make 13 require payments thereunder.” Id. ¶ 168. 14 As an initial matter, in the Notice of Joinder, Counter-Defendants newly attack 15 Claims 2 and 4, which were not challenged in Third-Party Defendants’ motion to dismiss. 16 Although Counter-Defendants state in their Notice of Joinder that they “move the Court 17 for an order dismissing certain claims of Counter-Claimant against Counter- 18 Defendants[,]” see Doc. No. 81 at 2, the Court notes that Claims 2 and 4 are not 19 properly before the Court on a noticed motion. Martia v. Specialized Loan Servicing, 20 LLC, 2019 U.S. Dist. LEXIS 167609, at *14 (C.D. Cal. June 10, 2019) (“[T]he Court 21 notes that in its Notice of Joinder, [defendant] appears to raise new arguments why the 22 Motion [to dismiss] should be granted as to [defendant] specifically. . . . If [defendant] 23 wanted to make additional arguments to those presented in the Motion, it should have 24 made such arguments in a properly noticed motion.”). Nonetheless, because DeRosa 25 26 5 27 28 The Court DENIES DeRosa’s request, made for the first time at the hearing, for leave to amend to replead Claim 9. See Lacey, 693 F.3d at 928. 6 The Court addresses Claims 2 and 4 together because both are tortious interference claims against the same party (Thomas) and the parties make identical arguments as to both claims. 14 20-cv-2404-MMA (AGS) 1 responded to these new arguments in his opposition to the motion to dismiss, see Doc. 2 No. 86 at 27, the Court addresses them on the merits. 3 First, Thomas urges that the claims “fail as a matter of law because Thomas as the 4 CEO and agent of [Old LBF] was not a stranger to the contracts at issue and was 5 privileged to induce the breach of the contracts.” Doc. No. 81 at 3. Specifically, Thomas 6 points to DeRosa’s allegation that Thomas was the “CEO and majority shareholder of 7 Old LBF” and urges that “[a]s the CEO of Old LBF, Thomas was an agent of Old LBF 8 and cannot be liable for interfering with what is essentially its own contract.” Id. at 4 9 (citing SAP ¶ 25). 10 In opposition, DeRosa urges that “[o]wners and officers of companies can indeed 11 tortiously interfere with those companies’ contracts so long as they are not themselves 12 parties to the contract (that is, not in an individual capacity).” Doc. No. 86 at 28. 13 14 15 16 17 Under California law, the elements of the tort of intentional interference with contractual relations are: “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” 18 19 Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014) 20 (quoting Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990)). 21 “[A] stranger to a contract may be liable in tort for intentionally interfering with the 22 performance of the contract.” Pac. Gas & Elec. Co., 50 Cal. 3d at 1126 (citations 23 omitted). 24 From the face of the pleading, Thomas is neither a party nor a complete stranger to 25 these agreements. See SAP. And there is no definitive answer on the issue of who 26 constitutes a “stranger” in the context of a tortious interference claim under California 27 law. In 2001, the Ninth Circuit stated in Marin Tug that “California law has long 28 recognized that the core of intentional interference business torts is interference with an 15 20-cv-2404-MMA (AGS) 1 economic relationship by a third party stranger to that relationship, so that an entity with 2 a direct interest or involvement in that relationship is not usually liable for harm caused 3 by pursuit of its interests.” Marin Tug & Barge, Inc. v. Westport Petroleum, Inc., 271 4 F.3d 825, 832 (9th Cir. 2001) (emphasis in original). However, in 2014, the Ninth 5 Circuit partially retreated from its prior position in Marin Tug, stating in Fresno Motors 6 that 7 8 9 10 The “not - a – stranger” principle relied on by the district court is an elusive concept that has spawned much controversy in both the California courts and this court. . . . As is readily apparent, the viability of the “not - a – stranger” principle relied on by the district court is in a state of flux, and there is no indication that the California Supreme Court will clarify it any time soon. 11 12 Fresno Motors, LLC, 771 F.3d at 1127. The Ninth Circuit noted but did not clarify the 13 scope of the “not – a – stranger” principle in California. Id. Neither of the parties point 14 to, and the Court is unaware of, any authority that resolves this issue. 15 Given that California law still appears to be in flux, and because the parties 16 devoted minimal briefing on this issue, the Court DENIES the request to dismiss Claims 17 2 and 4 on this basis. See Bruner v. LUX EAP, LLC, No. ED CV 17-1359-DMG (SPx), 18 2018 U.S. Dist. LEXIS 227212, at *11–13 (C.D. Cal. July 27, 2018) (quoting Fresno 19 Motors, LLC, 771 F.3d at 1127) (explaining that “[T]he Ninth Circuit eschewed the 20 District Court’s reasoning in Fresno Motors, explaining that ‘the “not-a-stranger” 21 principle . . . is in a state of flux’ and that ‘only parties to a contract are immune from 22 claims of intentional interference with existing contractual relations.’”). 23 Second, Thomas urges that the tortious interference claims fail because “Thomas 24 has the affirmative defense of manager’s privilege as to DeRosa’s tortious interference 25 claims.” Doc. No. 81 at 4. However, “[t]he scope of the manager’s privilege under 26 California law is ‘neither clear nor consistent.’” Centerline Hous. P’ship v. Palm Cmtys., 27 No. SACV 21-00107JVS(JDEx), 2021 U.S. Dist. LEXIS 116189, at *11–12 (C.D. Cal. 28 Apr. 26, 2021) (quoting Huynh v. Vu, 111 Cal. App. 4th 1183, 1195 (2003)). Generally, 16 20-cv-2404-MMA (AGS) 1 the rule stands for the proposition that a manager or agent “may, with impersonal or 2 disinterested motive, properly endeavor to protect the interests of his principal by 3 counseling the breach of a contract with a third party which he reasonably believes to be 4 harmful to his employer’s best interests.” Huynh, 111 Cal. App. 4th at 1194 (citing 5 Olivet v. Frischling, 104 Cal. App. 3d 831, 840–41 (1980), disapproved on other grounds 6 in Applied Equipment, 7 Cal. 4th 503). “There are three formulations of the manager’s 7 privilege: absolute, mixed motive, and predominant motive. . . .” Centerline Hous. 8 P’ship, 2021 U.S. Dist. LEXIS 116189, at *11–12 (citing Huynh, 111 Cal. App. 4th at 9 1195). 10 Given the emphasis on a defendant’s conduct, the applicability of the manager’s 11 privilege is therefore an argument better suited to summary judgment. See id. (declining 12 to rule on the applicability of the manager’s privilege to a tortious interference claim at the 13 motion to dismiss stage because “[T]he manager’s privilege is bound up in the conduct of 14 the defendant and is thoroughly fact intensive . . . While it is possible that the manager’s 15 privilege may apply, the Court cannot conclude at the current stage of the pleadings that it 16 does. Moreover, the Court will not convert the instant motion to dismiss into a motion for 17 summary judgment to do so.”) (internal citation and quotation omitted). 18 19 In sum, the Court DENIES the request to dismiss Claims 2 and 4 without prejudice to the parties raising these issues at a later stage of the litigation. 20 2. 21 In his sixth claim, DeRosa alleges aiding and abetting breach of fiduciary duties Aiding and Abetting Breach of Fiduciary Duties (Claim 6) 22 and violation of California Corporations Code §§ 309, et seq. against Gundumogula, 23 Mondee LLC, and Mondee Inc. SAP ¶¶ 176–83. Specifically, DeRosa identifies four 24 instances in which Third-Party Defendants aided and abetted Thomas in violating his 25 fiduciary duties of care and loyalty: (1) “usurping a corporate opportunity that belonged 26 to Old LBF by facilitating the creation a company that would utiliz[e] the 2018 payment 27 processing workflow to compete with Old LBF”; (2) restructuring the equity purchase to 28 an asset purchase in order to strip DeRosa of his security interested; (3) underpaying for 17 20-cv-2404-MMA (AGS) 1 Old LBF and giving Thomas additional/undisclosed consideration as part of the purchase 2 of Old LBF; and (4) refusing to provide DeRosa with information regarding the fact of 3 and the terms of the proposed transaction. Id. 4 “Under California law, ‘[l]iability may . . . be imposed on one who aids and abets 5 the commission of an intentional tort if the person (a) knows the other’s conduct 6 constitutes a breach of duty and gives substantial assistance or encouragement to the 7 other to so act or (b) gives substantial assistance to the other in accomplishing a tortious 8 result and the person’s own conduct, separately considered, constitutes a breach of duty 9 to the third person.’” Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101, 10 1118 (C.D. Cal. 2003) (quoting Fiol v. Doellstedt, 50 Cal. App. 4th 1318, 1325–26 11 (1996)); see also In re First All. Mortg. Co., 471 F.3d 977, 993 (9th Cir. 2006). 12 “Knowledge is the crucial element” of aiding and abetting liability. See In re First All. 13 Mortg. Co., 471 F.3d at 995 (quoting Casey v. U.S. Bank Nat. Assn., 127 Cal. App. 4th 14 1138, 1145 (2005)). If there is actual knowledge, even “ordinary business transactions” 15 can qualify as substantial assistance. See id. 16 First, Third-Party Defendants argue that DeRosa’s theory that Thomas breached 17 his fiduciary duties by “usurping corporate opportunities” should be dismissed. Doc. 18 No. 80-1 at 14–15. Third-Party Defendants urge that any “usurped corporate 19 opportunity” belongs to Old LBF and not DeRosa as a shareholder. The Court agrees. In 20 Claim 6, DeRosa speaks only of harm to himself and seeks punitive damage for himself; 21 by his own allegations, DeRosa only brings this claim individually and not derivatively 22 on behalf of Old LBF. See, e.g., SAP ¶ 182 (“[T]he conduct of Defendants 23 Gundumogula, Mondee LLC, and Mondee Inc. was a substantial factor in causing harm 24 to DeRosa by permitting Thomas to dissipate the assets of Old LBF in a manner that 25 benefited Thomas to the detriment of DeRosa.”) (emphasis added). By definition, a 26 director or officer who usurps a “corporate opportunity” breaches a fiduciary duty owed 27 to, and commits an intentional tort against, the corporation and not individuals like 28 DeRosa. In re Digex Inc. S’holders Litig., 789 A.2d 1176, 1189 (Del. Ch. 2000) (“A 18 20-cv-2404-MMA (AGS) 1 claim that a director or officer improperly usurped a corporate opportunity belonging to 2 the corporation is a derivative claim. . . . [T]he claim that the defendants usurped a 3 corporate opportunity must necessarily constitute an “injury” to the corporation . . . .”) 4 (applying Delaware law); see also Robinson, Leatham & Nelson, Inc. v. Nelson, 109 F.3d 5 1392 (9th Cir. 1997) (“The corporate opportunity doctrine prohibits a fiduciary from 6 acquiring, ‘in opposition to the corporation, property in which the corporation has an 7 interest or tangible expectancy.’”) (applying California law). Accordingly, this is not 8 DeRosa’s claim to bring as an individual.7 9 Second, Third-Party Defendants argue that the entire claim should be dismissed 10 because they did not owe DeRosa any duties. However, defendants can be “liable for 11 aiding and abetting a breach of fiduciary duty even though they did not owe a fiduciary 12 duty to [a plaintiff].” Am. Master Lease LLC v. Idanta Partners, Ltd., 171 Cal. Rptr. 3d 13 548, 565–69 (2014) (“In [Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 14 1101 (C.D. Cal. 2003)], the court thoroughly reviewed California case law and concluded 15 that under California law a defendant can be liable for aiding and abetting a breach of 16 fiduciary duty in the absence of an independent duty owed to the plaintiff.”); see also 17 Lennard v. Yeung, No. CV 10-09322 MMM (AGRx), 2012 U.S. Dist. LEXIS 200611, at 18 *64 (C.D. Cal. Feb. 23, 2012) (discussing a claim for aiding and abetting a breach of 19 fiduciary duty and concluding that “[n]o California case . . . holds that a party must owe 20 the plaintiff a duty before it can be held liable as an aider and abettor.”). Thus, despite 21 Third-Party Defendants’ arguments to the contrary, DeRosa need not allege that Third- 22 23 24 25 26 27 28 7 At the hearing, DeRosa urged the Court that Jara v. Suprema Meats, Inc., 121 Cal. App. 4th 1238 (2004), allows DeRosa to maintain his “usurping a corporate opportunity” theory as an individual and not a derivative claim. But “[t]he court in [Jara] simply held that an individual shareholder has standing to assert a direct cause of action for breach of fiduciary duty against the majority shareholders and is not limited to a derivative action.” Cheng v. Coastal L.B. Associates, LLC, 69 Cal. App. 5th 112, 125 (2021). The Court is not convinced that Jara stands for the proposition that a shareholder may individually bring a claim for breach of fiduciary duty based on the theory that an officer usurped a corporate opportunity. 19 20-cv-2404-MMA (AGS) 1 Party Defendants owed DeRosa a fiduciary duty; his allegations that (1) Thomas owed 2 him, as a minority shareholder, the fiduciary duties of care and loyalty; (2) Third-Party 3 Defendants knew Thomas owed duties to DeRosa; (3) Thomas breached those duties; and 4 (4) Third-Party Defendants provided substantial assistance or encouraged Thomas to 5 breach those duties, are sufficient to survive a motion to dismiss. See Am. Master Lease 6 LLC, 171 Cal. Rptr. 3d at 569. 7 Third, Third-Party Defendants urge that “DeRosa claims that Gundumogula, 8 Mondee LLC, and Mondee Inc. ‘concealed’ Thomas’ looting of Old LBF’s assets” but 9 “under California law, concealment is only actionable when the defendant has a duty to 10 disclose a certain fact.” Doc. No. 80-1 at 14–15. Third-Party Defendants point to no 11 authority requiring DeRosa to allege an underlying cause of action for concealment in 12 order to state a claim for aiding and abetting a breach of fiduciary duty, even if that claim 13 (specifically, the tortious conduct element) is premised in part upon concealment. The 14 primary case Third-Party Defendants cite deals with an actual claim for concealment and 15 so is not instructive here. See id. at 15 (citing GemCap Lending, LLC v. Quarles & 16 Brady, LLP, 269 F. Supp. 3d 1007, 1040 (C.D. Cal. 2017)). 17 Accordingly, the Court GRANTS the motion to dismiss as to DeRosa’s “usurping 18 a corporate opportunity” theory and DENIES the remainder of the motion to dismiss 19 Claim 6. 20 3. 21 In his seventh claim, DeRosa alleges fraudulent conveyance against Thomas, Old Fraudulent Conveyance (Claim 7) 22 LBF, New LBF, Mondee LLC, and Mondee Inc. Doc. No. 74 ¶¶ 184–95. At the hearing, 23 DeRosa argued that he sufficiently alleges the claim under common law or as a claim for 24 fraudulent transfer pursuant to the California’s Uniform Voidable Transactions Act, 25 California Civil Code § 3439.04. The elements for a fraudulent transfer claim under 26 common law are the same as under § 3439. See Lehman Bros. Holdings, Inc. v. Cafcalas, 27 No. LA CV16-03167 JAK (PJWx), 2018 U.S. Dist. LEXIS 229076, at *15–16 (C.D. Cal. 28 Feb. 27, 2018) (“[T]he necessary elements and available remedies for a fraudulent 20 20-cv-2404-MMA (AGS) 1 transfer under common law are the same as under the UVTA[.]”); see also Hyosung 2 (Am.), Inc., No. C 10–02160 SBA, 2011 U.S. Dist. LEXIS 21935, at *7 (N.D. Cal. Mar. 3 4, 2011) (citation omitted) (noting that in the UFTA 8,“[T]he elements for a fraudulent 4 transfer claim under common law or the UFTA, Cal. Civ. Code § 3439.04(a)(1), are the 5 same.” Under California state law, “[a] fraudulent conveyance is ‘a transfer by the debtor 6 of the property to a third person undertaken with the intent to prevent a creditor from 7 reaching the interest to satisfy its claim.’” LaChapelle v. Kim, No. 15-CV-02195-JSC, 8 2015 U.S. Dist. LEXIS 161801, at *12 (N.D. Cal. Dec. 2, 2015) (quoting Yaesu Elecs. 9 Corp. v. Tamara, 28 Cal. App. 4th 8, 13 (1994)). The California statute against 10 fraudulent conveyances allows recovery from the entities who transferred the assets and 11 those who received them. Cal. Civ. Code § 3439.08. Rule 9(b)’s heightened pleading 12 standard applies to actual fraudulent transfer claims. See LaChapelle, 2015 U.S. Dist. 13 LEXIS 123859, at *14. 14 First, Third-Party Defendants and Counter-Defendants argue that the claim should 15 be dismissed because, as an alleged minority shareholder of Old LBF, DeRosa does not 16 have a property interest in Old LBF’s former assets. See Doc No. 80-1 at 16; 81 at 2. 17 However, DeRosa alleges he is more than a mere shareholder of Old LBF; he alleges that 18 he “publicly registered his security interest in Old LBF’s assets by properly recording a 19 UCC lien on those assets.” SAP ¶ 8.9 DeRosa also asserts that “Old LBF clearly owed 20 DeRosa debts under the APA and CTO Services Agreement, promises to fund his 21 employer contribution programs, and for the benefits of the Technology subject to his 22 UCC lien.” See Doc. No. 86 at 21 (citing SAP ¶¶ 21, 42, 56, 62, 84). Accepting the 23 24 25 26 27 28 8 California’s Uniform Fraudulent Transfer Act (UFTA) was superseded by California’s Uniform Voidable Transactions Act (UVTA). 9 Additionally, Third-Party Defendant urges that “DeRosa has already admitted in prior pleadings that his UCC lien has been removed” and cites “ECF No. 35 at ¶ 82; ECF No. 50 at 7:10-16.” See Doc. No. 90 at 12. This argument is more appropriately addressed on summary judgment as there appears to be a factual dispute regarding removal of the lien. 21 20-cv-2404-MMA (AGS) 1 SAP’s material allegations as true, DeRosa plausibly pleads a property interest that can 2 form the basis of a fraudulent transfer claim. 3 Second, Third-Party Defendants and Counter-Defendants argue that “DeRosa’s 4 fraudulent conveyance claim fails Rule 9(b)’s particularity requirement.” Doc. No. 80-1 5 at 16; 81 at 2. Specifically, they argue that “DeRosa does not explain what was wrongful 6 about the alleged transfer of assets between Mondee-owned companies.” See id. at 17. 7 However, DeRosa alleges that: 8 9 • “Thomas and Old LBF concealed the true value of Old LBF’s assets from 10 DeRosa, and concealed the transfer of those assets to a wholly-owned subsidiary 11 of Mondee Inc.” 12 • “Thomas and Old LBF transferred substantially all of Old LBF’s assets to a 13 wholly-owned subsidiary of Mondee Inc. in order to hinder and delay DeRosa in 14 satisfying his claims against Thomas and Old LBF.” 15 • “Thomas and Old LBF’s attempt to hinder and delay DeRosa in satisfying his 16 claims against Thomas and Old LBF were successful, as Thomas and Old LBF 17 no longer have assets sufficient to satisfy DeRosa’s claims.” 18 • “In an effort to further protect Old LBF’s assets from DeRosa, Mondee Inc. 19 caused LBF Acquisition Corp to transfer Old LBF’s assets to New LBF, again 20 without receiving a reasonably equivalent value in exchange for those assets.” 21 22 23 24 25 26 SAP ¶ 189–92. DeRosa also points to specific paragraphs in the SAP wherein he identifies the particulars of the purportedly wrongful transfer: • The SAP alleges that Old LBF under Thomas’ control (the who); 27 28 22 20-cv-2404-MMA (AGS) 1 • Transferred most of Old LBF’s assets to LBF Acquisition (a wholly owned 2 Mondee subsidiary) minus its debts and the Technology subject to DeRosa’s lien 3 (the what); 4 • At Mondee’s office in San Mateo (the where); 5 • On December 20, 2019 (the when); 6 • Through an asset purchase agreement (the how). 7 • Additionally, LBF Acquisition at Gundumogula’s direction (the who); 8 • Transferred these same assets to New LBF (another wholly owned Mondee 9 subsidiary) (the what); 10 • At the same place (the where); 11 • At the same time (the when); 12 • Through the same asset purchase agreement (the how). 13 • Thomas and Gundumogula directed the transfer of these assets through these 14 15 16 entities to avoid paying DeRosa debts he is owed, compensation for use of the Technology and Derivative Technology, and fair market value for his equity share. 17 18 19 See Doc. No. 86 at 22 (citing SAP ¶ 21, 28, 42, 56, 84, 118, 188, 190–95). Together with the rest of the allegations in the SAP—which details specific 20 misrepresentations and tortious conduct—this is sufficient to allege what was wrongful as 21 to each of the identified parties’ actions. Rule 9(b) “does not require nor make 22 legitimate the pleading of detailed evidentiary matter.” Walling v. Beverly Enterprises, 23 476 F.2d 393, 397 (9th Cir. 1973). “It only requires identification of the circumstances 24 constituting fraud so that the defendant can prepare an adequate answer from the 25 allegations.” Id. (noting that alleging in conclusory fashion that defendant’s conduct was 26 fraudulent was not sufficient under Rule 9(b)). 27 28 23 20-cv-2404-MMA (AGS) 1 In sum, DeRosa presents sufficient factual allegations to state a plausible claim for 2 relief for fraudulent transfer against each of the alleged parties. See Iqbal, 129 S. Ct. at 3 1949. Therefore, the Court DENIES the motion to dismiss as to Claim 7. 4 4. 5 In his ninth claim, DeRosa alleges intentional misrepresentation in violation of Intentional Misrepresentation (Claim 9) 6 California Civil Code §§ 1710 and 3294 against Gundumogula. SAP ¶¶ 203–07. In light 7 of the Court’s reasoning supra Section III.A.2, the Court DENIES AS MOOT the 8 motion to dismiss Claim 9. 9 10 11 12 5. Unfair Business Practices (Claim 11) In his eleventh claim, DeRosa alleges unfair business practices against Thomas, Mondee Inc., Mondee LLC, and New LBF. SAP ¶¶ 211–31. California’s Unfair Competition Law (“UCL”) “establishes three varieties of unfair 13 competition—acts or practices which are unlawful, or unfair, or fraudulent.” Cel-Tech 14 Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (Cal. 1999) (internal 15 quotations omitted). “Because the statute is written in the disjunctive, it is violated where 16 a defendant’s act or practice violates any of the foregoing prongs.” Davis, 691 F.3d at 17 1168. DeRosa alleges that Thomas, Mondee Inc., Mondee LLC, and New LBF have 18 violated all three prongs. SAP ¶¶ 211–31. 19 Third-Party Defendants and Thomas argue that DeRosa’s eleventh cause of action 20 fails because it “is derivative of his prior failed claims.” See Doc. No. 80-1 at 18; 81 at 2. 21 However, claims survive as to Thomas (Claims 1–5, 7, 8, and 10), Mondee Inc. (Claims 6 22 and 7), Mondee LLC (Claims 6 and 7), and New LBF (Claim 7). Third-Party Defendants 23 and Thomas point to no authority suggesting that the facts supporting these claims are 24 insufficient to plausibly state a claim for unfair competition. Accordingly, the Court 25 DENIES the motion to dismiss Claim 11. 26 27 28 24 20-cv-2404-MMA (AGS) 1 6. 2 In his twelfth claim, DeRosa alleges intentional infliction of emotional distress 3 against Thomas, Old LBF, Gundumogula, and Mondee Inc. SAP ¶¶ 232–36. Under 4 California law, Intentional Infliction of Emotional Distress (Claim 12) 5 6 [a] cause of action for intentional infliction of emotional distress exists when there is (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff[s] suffer[ed] severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct. 7 8 9 10 11 12 Evans v. City of San Diego, 913 F. Supp. 2d 986, 1000 (S.D. Cal. 2012) (quoting Hughes 13 v. Pair, 209 P.3d 963, 976 (Cal. 2009)); see also Christensen v. Superior Court, 820 P.2d 14 181, 202 (Cal. 1991). “A defendant’s conduct is ‘outrageous’ when it is so ‘extreme as to 15 exceed all bounds of that usually tolerated in a civilized community.’” Hughes, 209 P.3d 16 at 976 (quoting Potter v. Firestone Tire & Rubber Co., 863 P.2d 795, 819 (Cal. 1993)). 17 A court may dismiss such claims as a matter of law if the conduct alleged is insufficiently 18 outrageous, particularly where the conduct alleged amounts to “mere insults, indignities, 19 threats, annoyances, petty oppressions, or other trivialities.” Id. (quotations and citations 20 omitted). Third-Party Defendants and Counter-Defendants attack the outrageousness 21 22 element, arguing that “[t]aking these claims at face value, they do not rise to a level of 23 objective outrageousness.” See Doc. Nos. 80-1 at 20; 81 at 2. The Court agrees. Based 24 upon California case law, DeRosa’s intentional infliction of emotional distress claim fails 25 because the alleged conduct is not outrageous as a matter of law. See id. 10 26 27 28 10 During oral argument, DeRosa argued that the claim should survive dismissal because, under Cramer v. Consol. Freightways, Inc., 255 F.3d 689, 697 (9th Cir. 2001), any conduct that is criminal is 25 20-cv-2404-MMA (AGS) 1 2 Accordingly, the Court GRANTS the motion to dismiss Plaintiff’s IIED claim as to Third-Party Defendants and Counter-Defendants. 3 7. 4 In his thirteenth claim, DeRosa alleges civil conspiracy against Mondee LLC, Civil Conspiracy (Claim 13) 5 Mondee Inc., and Gundumogula. SAP ¶¶ 237–39. Third-Party Defendants argue that 6 this claim is duplicative of DeRosa’s sixth cause of action for aiding and abetting breach 7 of fiduciary duties and that the claim for civil conspiracy therefore fails for the same 8 reasons as the sixth claim—namely, that Third-Party Defendants did not owe DeRosa a 9 duty to disclose information. See Doc. No. 80-1 at 14–16. 10 Although “California courts recognize that conspiracy and aiding and abetting are 11 closely allied forms of liability[,]” they are not identical claims. See Lennard, 2012 U.S. 12 Dist. LEXIS 200611, at *63–64 (citing Janken v. GM Hughes Electronics, 46 Cal. App. 13 4th 55, 63–64 (1996)). To state a claim for conspiracy under California law, a plaintiff 14 must allege the following elements: “(1) the formation and operation of the conspiracy, 15 (2) the wrongful act or acts done pursuant thereto, and (3) the damage resulting from such 16 act or acts.” Wasco Products, Inc. v. Southwall Technologies, Inc., 435 F.3d 989, 992 17 (9th Cir. 2006) (citing Cellular Plus, Inc. v. Superior Court, 18 Cal. Rptr. 2d 308, 314 18 (1993)). Conspiracy is not a distinct cause of action but “a legal doctrine that imposes 19 liability on persons who, although not actually committing a tort themselves, share with 20 the immediate tortfeasors a common plan or design in its perpetration.” Applied Equip. 21 Corp., 7 Cal. 4th at 510–11. 22 23 24 25 26 27 28 inherently outrageous. Cramer held that the “criminal use of hidden cameras and two-way mirrors in restrooms to conduct clandestine surveillance,” in violation of Cal. Penal Code § 653, was per se outrageous. It cannot be that Cramer stands for the proposition that every purported violation of the California Penal Code constitutes outrageous behavior sufficient to support an intentional infliction of emotional distress claim. See Yardley v. ADP TotalSource, Inc., 2014 U.S. Dist. LEXIS 56114, at *34– 35 (C.D. Cal. 2014) (rejecting a plaintiff’s argument that any criminal violation is per se outrageous). Accordingly, the Court is not persuaded by DeRosa’s argument that Cramer’s reasoning salvages his IIED claim. 26 20-cv-2404-MMA (AGS) 1 “[A] conspiracy claim may not be asserted against one who did not owe the 2 injured party a duty.” Neilson, 290 F. Supp. 2d at 1127 (first citing Applied Equipment, 7 3 Cal. 4th at 51) (then citing Doctors’ Co.v. Superior Court, 49 Cal. 3d 39, 44 (1989)). 4 During oral argument, DeRosa’s counsel urged that DeRosa need not allege Third-Party 5 Defendants owed him a fiduciary duty in order to plausibly state a claim for civil 6 conspiracy. This may be true; however, DeRosa does not plausibly plead any duty owed 7 by Third-Party Defendants to him. Accordingly, his claim fails. The Court therefore 8 GRANTS the motion to dismiss as to Claim 13 as to Third-Party Defendants. 9 8. 10 Unjust Enrichment (Claim 14) In his fourteenth claim, DeRosa alleges unjust enrichment against all Counter- 11 Defendants and Third-Party Defendants. SAP ¶¶ 240–43. Third-Party Defendants and 12 Counter-Defendants contend that the claim should be dismissed because “California law 13 does not recognize a standalone claim for unjust enrichment.” See Doc. Nos. 80 at 20– 14 21; 81 at 2. Additionally, they argue that “the basis of DeRosa’s unjust enrichment claim 15 is the same as his claim for intentional misrepresentation, i.e., that DeRosa was dissuaded 16 from investigating Thomas’ fraud and bringing suit earlier than he already did (SAP ¶ 17 242), which fails for the reasons previously discussed.” See Doc. Nos. 80-1 at 20–21; 81 18 at 2.11 DeRosa urges that California recognizes unjust enrichment as a standalone cause 19 of action and that, alternatively, “the Court need not resolve this issue [ ] because . . . 20 when a plaintiff alleges unjust enrichment, a court may construe the cause of action as a 21 quasi-contract claim seeking restitution.” Doc. No. 86 at 27 (citations and quotation 22 marks omitted). 23 24 There is a mix of authority on this issue. On one hand, many “courts have consistently dismissed stand-alone claims for unjust enrichment.” Brodsky v. Apple Inc., 25 26 11 27 28 At the hearing, Third-Party Defendants’ counsel raised a new, additional argument as to this claim: the claim must be dismissed as to Gundomogula as there is no allegation that Gundumogula retains any unjust benefits. The Court declines to consider arguments newly raised at the hearing. Stanley v. Novartis Pharms. Corp., 11 F. Supp. 3d 987, 1000 fn.3 (C.D. Cal. 2014). 27 20-cv-2404-MMA (AGS) 1 445 F. Supp. 3d 110, 132–33 (N.D. Cal. 2020) (citations omitted); see also Astiana v. 2 Hain Celestial Grp., Inc, 783 F.3d 753, 762 (9th Cir. 2015) (“In California, there is not a 3 standalone cause of action for ‘unjust enrichment,’ which is synonymous with 4 ‘restitution.’”) (citations omitted). On the other hand, more recently in 2016 in ESG 5 Capital Partners, LP v. Stratos, the Ninth Circuit, in a three-judge panel, “considered this 6 issue and reasoned that an unjust enrichment claim can proceed as either ‘a claim for 7 relief as an independent cause of action or as a quasi-contract claim for restitution.’” 8 Snopes Media Grp., Inc. v. Mikkelson, No. 21-cv-1730-BAS-DEB, 2022 U.S. Dist. 9 LEXIS 80447, at *15 (S.D. Cal. May 2, 2022) (quoting ESG Cap. Partners, LP 10 v. Stratos, 828 F.3d 1023, 1038 (9th Cir. 2016)). 11 Accordingly, given that the case law is unsettled, the Court DENIES the motion to 12 dismiss as to DeRosa’s unjust enrichment claim without prejudice to the parties raising 13 this issue at a later stage of the litigation. See Snopes Media Grp., Inc., 2022 U.S. Dist. 14 LEXIS 80447, at *15–17 (finding a standalone unjust enrichment claim plausibly stated 15 where a plaintiff alleged that defendant “unlawfully withheld” funds “she knew were 16 obtained through embezzlement . . . or obtained . . . by her own extortion”).12 17 IV. CONCLUSION 18 For the foregoing reasons, the Court AFFIRMS its tentative rulings. Accordingly, 19 the Court (1) GRANTS IN PART and DENIES IN PART the motion to strike; (2) 20 GRANTS IN PART and DENIES IN PART the motion to dismiss; and (3) DENIES 21 Counter-Defendants’ request to dismiss Claims 2 and 4. In particular, the Court: 22 • DENIES the motion to strike Claims 7, 9, and 12–14 as “procedurally improper”; • GRANTS the motion to strike Claim 9 as waived; 23 24 25 26 27 28 12 Because the Court defers reaching a conclusion on the issue of whether unjust enrichment is a standalone claim at this time, the Court declines to reach the remaining intentional misrepresentation and quasi-contract arguments. 28 20-cv-2404-MMA (AGS) 1 2 3 4 5 6 • GRANTS the motion to dismiss Claim 6 only as to the “usurping a corporate opportunity theory” and DENIES the motion to dismiss Claim 6 as to the remaining theories; • GRANTS the motion to dismiss Claims 12 and 13; • DENIES the motion to dismiss Claims 7, 11, and 14; • DENIES AS MOOT the motion to dismiss Claim 9 in light of the ruling on the motion to strike; and • DENIES the request to dismiss Claims 2 and 4. 7 8 Because DeRosa has had three opportunities to allege viable claims, dismissal is 9 with prejudice and therefore without leave to amend as to the following claims: Claim 10 6 to the extent it is premised on the “usurping a corporate opportunity” theory, Claim 12 11 in its entirety, and Claim 13 in its entirety. 12 Third-Party Defendants and Counter-Defendants must respond to the Second 13 Amended Counterclaim and Third-Party Complaint within the time prescribed by Federal 14 Rule of Civil Procedure 15. 15 16 IT IS SO ORDERED. Dated: August 22, 2022 17 _____________________________ 18 HON. MICHAEL M. ANELLO 19 United States District Judge 20 21 22 23 24 25 26 27 28 29 20-cv-2404-MMA (AGS)

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