Opinion
No. 2:16-cv-02284-JAM-EFB
02-13-2017
HALE BROS. INVESTMENT COMPANY, LLC, Plaintiff, v. STUDENTSFIRST INSTITUTE; STUDENTSFIRST; and 50CAN, INC., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS
This action is centered around a landlord-tenant dispute that is described in a Complaint which reads like an illicit love affair: Plaintiff Hale Bros. believing its relationship with Defendant StudentsFirst foolproof allegedly discovers StudentsFirst in bed with another. Feeling betrayed, Hale Bros. initiated this litigation, and in response StudentsFirst and 50CAN ask this Court to dismiss the Complaint and end this broken association once and for all. No other line is more apropos than the Captain's from Cool Hand Luke: "What we've got here is failure to communicate." Id. (Warner Bros. 1967).
This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for December 13, 2016. In deciding this motion, the Court takes as true all well-pleaded facts in the complaint. --------
I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
StudentsFirst and StudentsFirst Institute ("StudentsFirst") leased office space from Hale Bros. Investment Company, LLC ("Plaintiff" or "Hale Bros."). First Am. Compl. ("FAC"), ECF No. 8, ¶ 8. In October 2011, StudentsFirst agreed to pay monthly rent to use the second floor of the Hale Building for sixty-seven months. See id. See also Office Lease, attached to the FAC as Exh. A (the "Lease"). StudentsFirst also leased twelve parking spots connected to that building. See FAC ¶ 9. See also Parking Agreement, attached to the FAC as Exh. B. In March 2012, StudentsFirst moved in and began paying rent seven months later. See FAC ¶ 10. The Lease was to remain in effect through October 2017. FAC ¶ 28.
In the event StudentsFirst failed to perform its contractual obligations, Plaintiff acquired a security interest. The Lease secured Plaintiff's interest in various furniture, fixtures, and equipment from the office (the "Collateral"). See id. ¶ 15. A Letter of Credit also secured Plaintiff's interest for $1,000,000.00, which reduced to $500,000.00 in March 2016. See id.
Three-and-a-half years passed before Plaintiff and StudentsFirst's relationship soured. It started with a meeting in April 2016 (the "Meeting"). See id. ¶ 11. StudentsFirst told Plaintiff that, by September 2016, it would cease business operations, transfer all assets to a third party, vacate the office, and dissolve. See id. In other words, StudentsFirst told Plaintiff that it would breach the Lease. StudentsFirst also gave Plaintiff a balance sheet that showed rent payments stopping in July 2016 and capital contributions—valued at $1,200,000.00—to 50CAN, Inc. ("50CAN") in April and June 2016. See id. ¶¶ 12-13. See also Cash Projections, attached to the FAC as Exh. C. StudentsFirst also concealed from Plaintiff their intent to transfer their assets to 50CAN and merge their company with 50CAN. ¶ 16. This merger took place in or around March 2016 at which time 50CAN assumed all obligations and liabilities of StudentsFirst under the Lease. ¶ 23. For the next two months, Plaintiff asked StudentsFirst to clarify its position, but to no avail. See FAC ¶ 14. After paying rent for the last time in June 2016, see id., StudentsFirst vacated and abandoned this leased office space removing several assets prior to departure. See id. ¶ 15.
Plaintiff has sued StudentsFirst and 50CAN (collectively, "Defendants") for breach of contract, fraudulent transfer, fraud, civil conspiracy, common counts, and for violating California Business & Professions Code § 17200. Id. at 1. Plaintiff also requests declaratory relief. Id. Defendants move separately to dismiss these claims. ECF No. 9-1 ("50CAN's MTD"); ECF No. 10-1 ("SF's MTD"). Plaintiff opposes both motions to dismiss. See ECF No. 14 ("Opp'n to 50CAN's MTD"); ECF No. 15 ("Opp'n to SF's MTD").
II. OPINION
A. First Claim: Breach of Contract
To state a claim for breach of contract under California law, a plaintiff must allege (1) the existence of a contract; (2) plaintiff's performance of its obligations under the contract or an excuse for nonperformance; (3) defendant's breach; and (4) resulting damage to plaintiff. See Arch Ins. Co. v. Sierra Equip. Rental, Inc., No. 2:12-cv-00617, 2016 WL 4000932, at *3 (E.D. Cal. July 25, 2016) (internal citation omitted).
1. StudentsFirst
StudentsFirst concedes that Plaintiff has properly pled a breach of contract claim against it, so Plaintiff's claim survives. See SF's MTD at 2 ("What will remain is a straightforward breach of contract dispute between Plaintiff and StudentsFirst.").
2. 50CAN
Plaintiff premises its breach of contract claim on the Lease, the Parking Agreement, and the implied covenant of good faith and fair dealing. FAC ¶¶ 32-40. Specifically, Plaintiff argues that StudentsFirst's failure to pay rent from July 2016 through the remaining lease term, failure to execute an Estoppel Certificate, abandonment, and merger with 50CAN makes 50CAN liable for breaching the Lease. Id. ¶¶ 32-34. Plaintiff also asserts that StudentsFirst's failure to pay rent from July 2016 through the remaining lease term makes 50CAN liable for breaching the Parking Agreement. Id. ¶ 35. And, finally, Plaintiff claims that 50CAN breached the implied covenant of good faith and fair dealing for several reasons, including when StudentsFirst ceased business operations, merged with 50CAN, concealed its intent to breach the Lease until after the Letter of Credit decreased in value, vacated the premises, removed Collateral, and stopped paying rent. See id. ¶ 40 (emphasis added).
Whether Plaintiff can bring this claim against 50CAN turns on whether Plaintiff and 50CAN formed a contract. 50CAN contends that they did not because, under the Lease, an assignment occurs only if Plaintiff approves it. See 50CAN's MTD at 5; Reply, ECF No. 16, at 1-2 ("50CAN's Reply"). But Plaintiff maintains that they formed a contract because 50CAN assumed StudentsFirst's obligations and liabilities under the Lease via the merger. See Opp'n to 50CAN's MTD at 5.
The Court agrees with Plaintiff. 50CAN's argument contradicts the Lease's plain language. The Lease states that an unapproved assignment constitutes a default—it says nothing about termination. Exh. A § 10.1(a) ("Without the prior written consent of [Plaintiff]...[StudentsFirst] may not...assign...or otherwise transfer...this Lease by operation of law or otherwise or permit the use of...the Premises...by anyone other than [StudentsFirst]"). The Lease also includes a successor-liability rule:
Even if [StudentsFirst] is in Default and/or has abandoned the Premises, this Lease shall continue in effect for so long as [Plaintiff] does not terminate [StudentFirst's] right to possession...and [Plaintiff] may enforce all its rights and remedies under this Lease, including the right to recover Rent as it becomes due under this Lease. In such event, [Plaintiff] shall have all of the rights and remedies of a landlord under California Civil Code Section 1951.4 (lessor may continue Lease in effect after Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations) or any successor statute.Id. § 11.2(c). In other words, a breach does not automatically terminate the Lease.
Since StudentsFirst's alleged breach does not terminate the Lease, 50CAN assumed StudentsFirst's obligations and liabilities via the merger. California law provides that the surviving corporation inherits the absorbed corporation's liabilities. See CAL. CORP. CODE § 1107(a) (West 2016). See also Maudlin v. Pac. Decision Sci. Corp., 137 Cal. App. 4th 1001, 1016 (2006). By including "California Civil Code Section 1951.4...or any successor statute" in the Lease, Plaintiff and StudentsFirst agreed that similar successor-liability rules applied. Exh. A, § 11.2(c)(emphasis added). So, the Court "give[s] effect to the mutual intention of the parties." CAL. CIV. CODE § 1636 (West 2016).
In sum, Plaintiff has stated a claim against 50CAN under an assumption theory. Plaintiff alleges that the merger breached the Lease and breached the implied covenant of good faith and fair dealing. See FAC ¶¶ 26-34, 36-43. And Plaintiff maintains that 50CAN "absorbed [StudentsFirst's] companies and assumed all obligations and liabilities thereof, including, but not limited to, [StudentsFirst's] obligations under the Lease." Id. ¶ 29. Because a default does not automatically terminate the Lease and because the Lease mandates a successor-liability rule, Plaintiff has sufficiently pled a breach of contract claim against 50CAN. The Court denies 50CAN's motion to dismiss this claim.
B. Second Claim: Fraudulent Transfer
A fraudulent conveyance involves a debtor transferring property to a third party with the intent to prevent a creditor from reaching that interest to satisfy the creditor's claim. See Filip v. Bucurenciu, 129 Cal. App. 4th 825, 829 (2005) (internal citation and quotation marks omitted). California's Uniform Fraudulent Transfer Act ("UFTA") allows a defrauded creditor to retrieve property the creditor would otherwise be able to use to pay the debt. See CAL. CIV. CODE § 3439.04 (West 2016). See also Mehrtash v. Mehrtash, 93 Cal. App. 4th 75, 80 (2001). Under the UFTA, a fraudulent transfer may be "actual" or "constructive." See CAL. CIV. CODE § 3439.04(a). Hales Bros. alleges an actual fraudulent transfer claim. FAC ¶ 50. To state a claim under that theory, a plaintiff must plead that the defendant made a transfer with "actual intent to hinder, delay, or defraud any creditor of the debtor." CAL. CIV. CODE § 3439.01(i).
When pleading these elements, the plaintiff must meet the heightened standards mandated by Fed. R. Civ. P. 9(b). Opperman v. Path, Inc., 87 F. Supp. 3d 1018, 1066 (N.D. Cal. 2014). This rule states that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting the fraud or mistake." FED. R. CIV. P. 9(b). In other words, the plaintiff must state the "who, what, where, when, and how" and must explain why the statement or omission was false or misleading. See Cooper v. Pickett, 137 F.3d 616, 625, 627 (9th Cir. 1997)(internal citations omitted). But these heightened pleading requirements apply only to allegations made against the transferor—not the transferee. In re Beverly, 374 B.R. 221, 235 (B.A.P. 9th Cir. 2007) (noting that the focus is on the transferor's intent).
The allegations supporting this claim apply to both Defendants. Plaintiff states that "[StudentsFirst] transferred [its] assets to 50CAN with actual intent to hinder, delay, and/or defraud Plaintiff in its collection of the monies owed...." FAC ¶ 50. Then Plaintiff notes that "50CAN knowingly and willingly received [StudentsFirst's] funds and assets with knowledge that [StudentsFirst] actually intended to hinder, delay and/or defraud Plaintiff by unlawfully preventing Plaintiff from recovering such funds and/or assets," reasoning that 50CAN had to know this, especially given the due diligence preceding the merger. Id. ¶ 51.
1. StudentsFirst
StudentsFirst makes two arguments explaining why Plaintiff has not stated a fraudulent transfer claim against it, but one is not well taken. StudentsFirst contends that Plaintiff's constructive sham theory fails because Plaintiff did not allege that StudentsFirst did not get a reasonably equivalent value. SF's MTD at 9. But Plaintiff has not raised a constructive sham theory. See FAC ¶¶ 50-51. So, the Court focuses only on whether Plaintiff has stated a claim under an "actual intent" theory.
Because StudentsFirst is the transferor, Plaintiff must plead its fraudulent transfer claim under Rule 9(b). See Opperman, 87 F. Supp. 3d at 1066. Plaintiff alleges that StudentsFirst transferred its assets to 50CAN with "actual intent to hinder, delay, and/or defraud Plaintiff in its collection of the monies owed due to [StudentsFirst's] abandonment of the Premises, failure to pay Rents, and various breaches of the Lease." FAC ¶ 50. Plaintiff adds that StudentsFirst "unlawfully endeavored to place available funds and assets outside Plaintiff's reach...." Id. ¶ 52.
Plaintiff explains that "StudentsFirst" (the "who") transferred its "assets"—including the $1,200,000.00 in capital contributions to 50CAN in April and June 2016 (the "what" and "when")—and "purposefully concealed [its] intent to abandon the Premises and cease adhering to [its] obligations under the Lease...until after the Letter of Credit was reduced...in an effort to defraud Plaintiff, its creditor, and prevent Plaintiff from adequately mitigating the damages caused by Defendants" (the "how" and "why"). Id. ¶¶ 50-52.
Plaintiff has specified the requisite "who, what, where, when, and how," stating enough facts for StudentsFirst to prepare an adequate answer. See Cooper, 137 F.3d at 627 (holding that complaint satisfied Rule 9(b)'s particularity requirement because, given that it "points to specific quarters, specific customers and provided dollar figures for each quarter," defendants could prepare an adequate answer). Plaintiff also states that StudentsFirst put its "funds and assets" beyond Plaintiff's reach, a crucial allegation. See Opperman, 87 F. Supp. 3d at 1066 (dismissing UFTA claim because complaint did not mention that the transfer at issue put property beyond plaintiffs' reach).
In sum, Plaintiff has satisfied Rule 9(b)'s particularity requirement. To require more would "make Rule 9(b) carry more weight than it was meant to bear." See Cooper, 137 F.3d at 627 (internal citation omitted). If Plaintiff cannot later offer sufficient evidence, then it "will not prevail [on this claim] at summary judgment or trial," but courts "do not test the evidence at this stage." Id. (internal citation and quotation marks omitted). The Court denies StudentsFirst's request to dismiss Plaintiff's fraudulent transfer claim.
2. 50CAN
50CAN makes the same arguments as StudentsFirst. See 50CAN's MTD at 6; 50CAN's Reply at 2. Because 50CAN is the transferee, Plaintiff need not plead under Rule 9(b). See Beverly, 374 B.R. at 235. Given that procedural distinction, because Plaintiff has already stated a claim against StudentsFirst under Rule 9(b), it necessarily follows that Plaintiff has also stated a claim under the more relaxed Rule 8 plausibility standard. Applying the same reasoning used to conclude that Plaintiff stated a fraudulent transfer claim against StudentsFirst, see supra Part II.B.1, the Court finds that Plaintiff has stated one against 50CAN, and denies 50CAN's request to dismiss it.
C. Third Claim: Fraud
To state a claim for fraud, a plaintiff must allege the following under Rule 9(b)'s heightened pleading standard: (1) a misrepresentation (i.e., false representation, concealment, or nondisclosure), (2) knowledge of falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage. See Los Angeles Mem'l Coliseum Comm'n v. Insomniac, Inc., 233 Cal. App. 4th 803, 831 (2015)(internal citations and quotation marks omitted). A plaintiff may bring this claim under an affirmative misrepresentation theory or a concealment theory. Because Hale Bros. brings its fraud claim under a concealment theory, see FAC ¶¶ 54-61, the Court focuses only on whether Plaintiff has stated a claim under that theory.
To successfully state a fraud claim under a concealment theory, the plaintiff must show that the defendant had a legal duty to disclose facts. See Hoffman v. 162 N. Wolfe LLC, 228 Cal. App. 4th 1178, 1193 (2014). A plaintiff makes that showing by claiming either: (1) the defendant had a fiduciary relationship with the plaintiff; (2) the defendant exclusively knew material facts not known to the plaintiff; (3) the defendant concealed a material fact from plaintiff; or (4) the defendant made partial representations, while also suppressing some material facts. See Insomniac, 233 Cal. App. 4th at 831 (internal citations and quotation marks omitted). In short, an affirmative duty to disclose concealed facts arises only from a fiduciary or fiduciary-like relationship. Id. at 832.
But, even if the plaintiff establishes an affirmative duty to disclose, plaintiff must still overcome the economic loss rule. In California, a plaintiff cannot recover in tort for breach of duties that merely restate contractual obligations. See BNSF Ry. Co. v. San Joaquin Valley R.R. Co., No. 1:08-cv-01086, 2011 WL 3328398, at *5 (E.D. Cal. Aug. 2, 2011)(internal citations and quotation marks omitted). In other words, when a plaintiff links its fraud claim to a party's alleged failure to comply with a contractual duty, the proper claim is breach of contract—not fraud. See id. (internal citation and quotation marks omitted). This rule prevents contract and tort law from "dissolving" into each other, maintaining the crucial "distinction between commercial transactions in which economic expectations are protected by commercial and contract law, and transactions with individual consumers who are injured in a manner traditionally addressed through tort law." See id. at *6 (internal citation omitted).
But, as with most rules, there is one exception. California courts allow tort damages in contract cases where tort liability is either (1) completely independent of the contract; (2) arises from intentional conduct intended to harm— i.e., a breach of duty causing physical injury; (3) insurance contract suits involving a breach of the covenant of good faith and fair dealing; (4) wrongful discharge in violation of fundamental public policy; or (5) fraudulent inducement. See id. This exception, though, is "narrow in scope." See id. at *9 (internal citation omitted).
1. 50CAN
Plaintiff does not bring a fraud claim against 50CAN. See FAC at 12 ("Fraud against Defendants, StudentsFirst and StudentsFirst Institute.").
2. StudentsFirst
Plaintiff incorporates all preceding allegations into its fraud claim, including breach of contract. See FAC ¶ 54. Plaintiff specifies that "[StudentsFirst] intended to deceive Plaintiff by failing to disclose and/or concealing from Plaintiff [its] intention to merge [its] business with 50CAN, transfer [its] assets to 50CAN, abandon the Premises, cease payment of Rent and remove secured Collateral from the Premises so as to induce Plaintiff not to draw upon the Letter of Credit until after it was reduced...." Id. ¶ 56. Emphasizing that it "had no way of knowing that [StudentsFirst]" had these intentions, id. ¶ 57, Plaintiff maintains that it "reasonably and justifiably relied on [StudentsFirst's] deceptions and/or concealment because, at the time, [StudentsFirst was], and had been, in compliance with the Lease." Id. ¶¶ 57, 59.
StudentsFirst argues that Plaintiff has not stated a fraud claim against it because (1) Plaintiff failed to meet Rule 9(b)'s particularity standard, (2) StudentsFirst had no affirmative duty to disclose facts to Plaintiff, and (3) even if StudentsFirst did have that duty, Plaintiff still has not stated a claim because Plaintiff cannot convert a contract-based grievance into a tort. See SF's MTD at 5-8. Plaintiff disagrees, contending that it has satisfied Rule 9(b) and that StudentsFirst had a duty to disclose those facts because they were material to Plaintiff. Opp'n to SF's MTD at 4. And Plaintiff notes that whether StudentsFirst's omissions "also constitute a breach of the Lease is incidental" to that duty. Id.
The Court agrees with StudentsFirst, but only as to its last contention. Beginning with StudentsFirst's pleading argument, because Plaintiff incorporated all preceding allegations into this claim (including fraudulent transfer), the Court concludes that Plaintiff has met Rule 9(b)'s particularity requirement, applying the same reasoning used to conclude that Plaintiff satisfied Rule 9(b) for its fraudulent transfer claim. See supra Part II.B.1.
As for whether StudentsFirst had an affirmative duty to disclose facts, the Court concludes that it did. StudentsFirst made partial representations to Plaintiff at the April Meeting, but also made critical omissions. StudentsFirst admitted its intent to cease business operations, to transfer all assets to a third party, to vacate the Premises, and to dissolve. See FAC ¶ 11. But StudentsFirst said nothing about its intent to also remove secured Collateral and to accomplish these things after the Letter of Credit reduced in half. See id. ¶¶ 11, 56-57 (emphasis added). So, even though StudentsFirst and Plaintiff did not have a fiduciary relationship, a duty to disclose still arose because StudentsFirst revealed some facts at the April Meeting, but omitted others, which produced misleading half-truths. That partial disclosure triggered an affirmative duty to disclose. See Warner Constr. Corp. v. City of Los Angeles, 2 Cal. 3d 285, at 294-94 (1970)(holding that affirmative duty arose because "defendant [made] representations but [did] not disclose facts which materially qualify the facts disclosed").
The problem for Plaintiff, though, involves the economic loss rule. This is not an insurance suit, and Plaintiff does not allege physical injury, wrongful discharge, or fraudulent inducement. So, Plaintiff's fraud claim proceeds only if it alleges a duty arising under tort law independent of a breach of contract. See BNSF, 2011 WL 3328398 at *6.
Two California cases are particularly relevant here. In Robinson Helicopter Co., Inc. v. Dana Corp., the court held that the economic loss rule did not bar plaintiff's fraud claims because a duty arose under tort law independent of the contract breach. 34 Cal. 4th 979, 991 (2004). Specifically, the defendant breached the contract by providing nonconforming clutches, but committed an independent tort by issuing false certificates of conformance. Id. at 990-91 ("By issuing false certificates of conformance, [the defendant] unquestionably made affirmative representations that Robinson justifiably relied on to its detriment. But for [these] misrepresentations...Robinson would not have...used the nonconforming clutches....[a]ccordingly, [the defendant's] tortious conduct was separate from the breach itself, which involved [the defendant's] provision of the nonconforming clutches."). Conversely, in BNSF, the court held that the economic loss rule barred Plaintiff's fraud claim because the fraudulent misrepresentations were an "inseparable component" of the breach of contract to pay. Id. at *9.
Plaintiff contends that "StudentsFirst had a duty to disclose [the] information because it was material to Plaintiff; whether such information may also constitute a breach of the Lease is incidental to said duty." Opp'n to SF's MTD at 4.
This argument lacks teeth. Forgetting that the exception to the economic loss rule is "narrow in scope," Plaintiff cites no case law to support its argument that a breach of contract that is "incidental to said duty" falls within this narrow exception. And Plaintiff's FAC pokes holes in its own argument. For instance, Plaintiff cites StudentsFirst's omissions to support this claim and its breach of contract claim. See id. ¶¶ 40, 55-58 (emphasis added). To make the overlap between these claims even clearer, Plaintiff incorporates into its fraud claim the allegations constituting contract breach. Id. ¶ 54. And, finally, all additional facts implicate the Lease. See id. ¶¶ 55, 59 (StudentsFirst "had no intention of continuing to perform its obligations under the Lease"; Plaintiff "justifiably relied on" StudentsFirst's concealment because "at the time, [StudentsFirst was], and had been, in compliance of the Lease") (emphasis added). Simply put, StudentsFirst's omissions are anything but "incidental" to StudentsFirst's duty to disclose information. Plaintiff has not shown that StudentsFirst's omissions were separate from the breach itself, making this case more comparable to BNSF than Robinson Helicopter. Plaintiff cannot recast its breach of contract claim as a tort claim.
Dismissal under Fed. R. Civ. P. 12(b)(6) with prejudice is appropriate "only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001) (citations and internal quotation marks omitted). As discussed above, Plaintiff cannot plead facts falling within the narrow exception required to state a fraud claim under a concealment theory. The Court therefore dismisses Plaintiff's fraud claim with prejudice.
D. Fourth Claim: Civil Conspiracy
A civil conspiracy arises when two or more people agree to a common plan or design to commit a tortious act. See Kidron v. Movie Acquisition Corp., 40 Cal. App. 4th 1571, 1582 (1995). To state a claim, the plaintiff must allege "(1) the formation and operation of a conspiracy, (2) wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful conduct." Id. at 1581.
Although "California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract," a party cannot be held liable in tort for conspiracy to interfere with its own contract. See Applied Equip. corps. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 507-08, 513 (1994) (original emphasis). "One contracting party owes no general tort duty to another not to interfere with the performance of the contract; its duty is simply to perform the contract according to its terms." Id. at 514.
The allegations supporting this claim apply to both Defendants. Plaintiff states that Defendants "knowingly and willfully conspired and agreed amongst themselves to intentionally" (1) allow the Letter of Credit to reduce in half before telling Plaintiff about their intent to merge; (2) conceal this intent; (3) cause Plaintiff to believe its secured Collateral was intact; (4) remove that secured Collateral to deprive Plaintiff of its secured interest; and (5) hinder, delay, and/or defraud Plaintiff in collecting its claim against Defendants for breaching the Lease. See FAC ¶ 64.
1. StudentsFirst
StudentsFirst argues that Plaintiff cannot bring this claim because a tort claim for interference with a contract does not lie against a party to that contract. See SF's MTD at 9. Yet Plaintiff maintains that it has stated a claim because it alleged a conspiracy to commit a tortious act—not a conspiracy to breach a contract. See Opp'n to SF's MTD at 9. Plaintiff's argument is contradicted by the FAC and is without merit.
Plaintiff incorporates all previous allegations of its FAC into this civil conspiracy claim, including breach of contract. See FAC ¶ 62. But, even if Plaintiff had not incorporated that claim, Plaintiff's additional allegations derive from the same facts that support contract breach. Indeed, Plaintiff states that Defendants conspired with each other to conceal a breach of contract, to conceal their intent to breach the contract, and to conceal their intent to draw from the Letter of Credit, also in breach of contract. See id. ¶¶ 63-66 (citing Letter of Credit, merger, transfer of assets, abandonment, removal of Collateral, and refusal to pay rent). Simply put, because the facts supporting Plaintiff's civil conspiracy claim are an inseparable component of its breach of contract claim, Plaintiff's argument fails. See supra Part II.C.2. The Court finds that Plaintiff cannot state a civil conspiracy claim against StudentsFirst and grants StudentsFirst's request to dismiss this claim with prejudice.
2. 50CAN
Plaintiff does not dispute that conspiracy to breach a contract is not a legally cognizable claim and it has conceded that it has not alleged such a conspiracy. Rather, Plaintiff contends it has adequately alleged the existence of conspiracy to commit a civil tort by 50CAN. Opp'n to 50CAN MTD at 7-8.
No matter how much Plaintiff wants this Court to believe that it has alleged a conspiracy claim to commit a tort, stripped to its core, the conspiracy claim derives from Plaintiff's breach of contract claim. See supra Part II.C.2. None of the allegations supporting this claim give rise to a claim of civil conspiracy. Given that the Court has dismissed Plaintiff's fraud claim against StudentsFirst there is no basis for this claim against 50CAN. The Court grants 50CAN's request to dismiss this claim with prejudice.
E. Fifth Claim: Common Counts
The common count is a general pleading seeking recovery of money without specifying the nature of the claim. See Title Ins. Co. of Minnesota v. State Bd. of Equalization, 4 Cal. 4th 715, 731 (1992)(internal citations and quotation marks omitted). It is not a specific cause of action, but rather "a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness." McBride v. Boughton, 123 Cal. App. 4th 379, 394 (2004)(internal citations omitted). To state a claim, a plaintiff must allege "(1) a statement of indebtedness in certain sum, (2) consideration, i.e., goods sold, work done, etc., and (3) nonpayment. Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445, 460 (1997)(internal citation omitted).
The allegations supporting this claim apply to both Defendants. Once again, Plaintiff incorporates all previous allegations into its common counts claim, including breach of contract. See FAC ¶ 69. Plaintiff adds that "[w]ithin the last year, [StudentsFirst], and by way of merger and assumption of all liabilities and obligations, 50CAN, became indebted to Plaintiff in an amount subject to identification, but in an amount no less than $877,090.88, as a result of [its] lease of the Premises and the services provided by Plaintiff in accordance therewith." Id. ¶ 70. Plaintiff seeks compensatory damages, interest, costs of suit, and any other relief the Court deems proper. See id. ¶ 72. ///
1. StudentsFirst
StudentsFirst argues that Plaintiff has not stated a common counts claim because Plaintiff improperly restyles it as a breach of contract claim. SF's MTD at 9. StudentsFirst adds that Plaintiff has neither alleged a debt of a sum certain nor identified what consideration Plaintiff gave to StudentsFirst besides the Lease. Id. at 10. But Plaintiff challenges these arguments, maintaining that it has alleged indebtedness in a certain sum. Opp'n to SF's MTD at 12 ("no less than $877,090.88"). Plaintiff also states that its services, as required under the Lease, satisfy the indebtedness element. Id. at 12-13. And, finally, Plaintiff notes that StudentsFirst never sought to dismiss the breach of contract claim, so the common count claim "must survive." Id. at 13.
The Court agrees with StudentsFirst that this claim cannot survive but for slightly different reasons. "[W]hen the common count is based on an express contract, the element of indebtedness is not satisfied where the plaintiff seeks damages for breach...." Mike Nelson Co. v. Hathaway, No. F 05-0208, 2005 WL 2179310, at *4-5 (E.D. Cal. Sept. 8, 2005). Here, Plaintiff centers its common counts claim on express contracts— the Lease and the Parking Agreement—and Plaintiff seeks compensatory damages. See FAC ¶¶ 69-72. Also, reading the breach of contract allegations and the common count allegations together, the common count allegations in fact seek damages for breach. See Hathaway, 2005 WL 2179310 at *5. Indeed, once again, Plaintiff incorporates into its common counts claim the allegations supporting contract breach. See FAC ¶ 69.
And, finally, that StudentsFirst did not move to dismiss the breach of contract does not help Plaintiff's argument. Because Plaintiff's common counts claim is duplicative of its surviving breach of contract claim, the common counts claim fails as a matter of law. See Hathaway, 2005 WL 2179310 at *4-5. The Court grants StudentsFirst's request to dismiss Plaintiff's common counts claim with prejudice.
2. 50CAN
Having previously held that Plaintiff has stated a breach of contract claim against 50CAN, see supra Part II.A.2, the Court concludes that the same reasons barring Plaintiff's common counts claim against StudentsFirst apply here. See supra Part II.E.1. Plaintiff cannot state a common counts claim against 50CAN, so the Court dismisses it with prejudice.
F. Sixth Claim: Declaratory Relief
The Declaratory Judgment Act allows a district court to "declare the rights and other legal relations of any party seeking such declaration, whether or not further relief is or could be sought," but only "[i]n a case of actual controversy." 28 U.S.C. § 2201(a). This remedy is a form of relief—not an independent claim. See Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1104 (E.D. Cal. 2010). Designed to resolve uncertainties or disputes that could result in future litigation, declaratory relief operates prospectively and should not redress past wrongs. See United States v. Washington, 759 F.2d 1353, 1356-57 (9th Cir. 1985) (en banc).
Specifically, declaratory relief is appropriate when the judgment will (1) "serve a useful purpose in clarifying and settling the legal relations in issue"; and (2) "when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." McGraw-Edison Co. v. Preformed Line Prods. Co., 362 F.2d 339, 342 (9th Cir. 1966). Stated differently, this remedy enables parties to shape their conduct to avoid a breach. StreamCast Networks Inc. v. Ibis LLC, No. CV 05-04239, 2006 WL 5720345, at *3 (C.D. Cal. May 2, 2006). Courts should grant declaratory relief to declare rights rather than to execute them. See id. (internal citations and quotation marks omitted).
The allegations supporting this claim apply to both Defendants. Plaintiff incorporates all previous allegations into its request for declaratory relief. See FAC ¶ 73. Plaintiff explains that "[a] dispute has arisen and now exists between the parties to this action as to their rights, responsibilities, and obligations under the Lease." Id. ¶ 74. Plaintiff states that "it has performed all obligations required of it under the Lease," but that Defendants argue that "they are excused from any further performance of the Lease." Id. So, Plaintiff "seeks a judicial determination" as to the parties' rights and obligations. Id.
1. StudentsFirst
StudentsFirst contends that declaratory relief is inappropriate because Plaintiff centers its FAC on StudentsFirst's alleged breach of contract—a past act. See SF's MTD at 11 (emphasis added). Yet Plaintiff argues that the case is ripe for judicial determination because Plaintiff "reasonably expects" that StudentsFirst will raise an affirmative defense that it is excused from performing under the Lease. Opp'n to SF's MTD at 14.
StudentsFirst has the stronger argument. An adequate remedy already exists under Plaintiff's breach of contract claim, making declaratory relief duplicative and unnecessary here. See Ellena v. Standard Ins. Co., No. 12-5401 SC, 2013 WL 3200614, at *3 (N.D. Cal. June 24, 2013) (concluding declaratory relief claim duplicative of breach of contract claim because deciding legality of Policy's language already at issue in breach of contract claim); Valle v. JP Morgan Chase Bank, N.A., No. 11-cv-2453, 2012 WL 1205635, at *10 (S.D. Cal. Apr. 11, 2012)(holding that claim for declaratory relief fails because based on same allegations supporting another cause of action). The Court grants StudentsFirst's request to dismiss with prejudice Plaintiff's claim for declaratory relief.
2. 50CAN
Having previously held that Plaintiff has stated a breach of contract claim against 50CAN, see supra Part II.A.2, the Court also grants 50CAN's request to dismiss with prejudice Plaintiff's claim for declaratory relief for the same reasons the claim fails against StudentsFirst. See supra Part II.F.1.
G. Seventh Claim: California Business & Professions Code Section 17200
California law prohibits "unfair competition," which includes "any unlawful, unfair or fraudulent business act or practice." CAL. BUS. & PROF. CODE § 17200 (West 2016) ("UCL"). The statute's scope is broad, and it governs anti-competitive business practices as well as injuries to consumers. See Cel- Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999)(internal citations and quotation marks omitted). A court may deem a practice unfair even if it is not illegal. See id.
Enacted to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services, the UCL is a meaningful consumer protection tool. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1152 (2003). It "provides an equitable means through which both public prosecutors and private individuals can bring suit to unfair business practices and restore money or property to victims of these practices." Id. at 1150. To state a claim, a plaintiff "need only show that members of the public are likely to be deceived." Linear Tech. Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115, 133 (2007)(internal citations and quotation marks omitted).
But corporate plaintiffs face an uphill battle. When a UCL claim is based on a contract that does not involve the public or individual consumers, a corporate plaintiff cannot use the statute for the relief it seeks. See id. at 135.
The allegations supporting this claim apply to both Defendants. After incorporating all previous allegations in this claim (including those constituting contract breach), Plaintiff states that "Defendants have engaged in 'unlawful,' 'unfair,' and/or 'fraudulent' business acts or practices in an effort to defraud their creditors, including, without limitation, Plaintiff." FAC ¶ 78. Plaintiff specifies that Defendants have "deceived Plaintiff, removed property and transferred substantial assets in an effort to avoid and evade payments to Plaintiff, and/or hinder or delay Plaintiff's ability to collect those sums due and owing to it." Id.
1. StudentsFirst
Characterizing the Lease as a breach of a commercial contract with no adverse effects on consumer welfare, StudentsFirst argues the UCL does not apply here. See SF's MTD at 9. Plaintiff disagrees, contending that its UCL claim is based on its fraud, fraudulent transfer, and civil conspiracy claims—not its breach of contract claim. Opp'n to SF's MTD at 12. In response, StudentsFirst reiterates that, even if Plaintiff's tort claims survive, Plaintiff still has not alleged that this private dispute among corporate actors raises issues that fall within the UCL's reach. Reply, ECF No. 17, at 4 ("SF's Reply").
The Court agrees with StudentsFirst. Notwithstanding Plaintiff's argument that its UCL claim is not based on the Lease, at its core, this case involves a dispute about the economic relationship between commercial parties. Plaintiff's incorporating here allegations supporting its breach of contract claim augments this conclusion. See FAC ¶ 77. See also Dollar Tree Stores Inc. v. Toyama Partners LLC, 875 F. Supp. 2d 1058, 1083 (N.D. Cal. 2012) (holding that plaintiff failed to state a UCL claim because plaintiff alleged that that claim was based on its breach of contract claim). Additionally, the Lease defined only Plaintiff and StudentsFirst's relationship—it did not implicate potential other creditors or the general public. See generally Exh. A. This too shows that Plaintiff cannot state a UCL claim. See In re ConocoPhillips, No. 09-cv-02040, 2011 WL 1399783, at *3 (N.D. Cal. Apr. 13, 2011)(holding plaintiff cannot assert UCL claim because parties' relationship defined by their contractual arrangement and did not involve the general public or individual consumers who were also parties to the contract).
In sum, the Court finds that Plaintiff cannot state a UCL claim against StudentsFirst because § 17200 does not protect commercial disputes between contracting parties that do not involve the general public or individual consumers. The Court grants StudentsFirst's request to dismiss this claim with prejudice.
2. 50CAN
The Court also finds that Plaintiff fails to state a UCL claim against 50CAN for the same reasons Plaintiff fails to state this claim against StudentsFirst. See supra Part II.G.1. The Court grants 50CAN's request to dismiss the UCL claim with prejudice.
III. ORDER
For the reasons set forth above, the Court GRANTS in part and DENIES in part Defendants' Motions to Dismiss as follows:
1. Defendant 50CAN's motion to dismiss the breach of contract claim is DENIED;
2. Defendants' motions to dismiss the fraudulent transfer claim are DENIED;
3. Defendants StudentsFirsts' motion to dismiss the fraud claim is GRANTED WITH PREJUDICE;
4. Defendants' motions to dismiss the civil conspiracy claim are GRANTED WITH PREJUDICE;
5. Defendants' motions to dismiss the common counts claim are GRANTED WITH PREJUDICE;
6. Defendants' motions to dismiss the claim for declaratory relief are GRANTED WITH PREJUDICE; and
7. Defendants' motions to dismiss the UCL claim are GRANTED WITH PREJUDICE.
IT IS SO ORDERED. Dated: February 13, 2017
/s/ _________
JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE