Deutsch Hollandische Tabakgesellschaft Mbh & Co., KG v. Trendsettah USA, Inc.

NOTICE OF MOTION AND MOTION to Dismiss Counterclaims 4 and 5

C.D. Cal.April 5, 2017

8:17-cv-00181-JCG NOTICE OF MOTION AND MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DAVID E. NEMETH, JR. [SBN 185005] dnemeth@rnglawfirm.com ROGERS NEMETH GERMAIN PC 18201 Von Karman Avenue Tenth Floor, Suite 1000 Irvine, California 92612 Telephone: 949.247.7970 JOHN BRIAN CASHMERE [SBN 177750] bcashmere@williamsmullen.com WILLIAMS MULLEN, P.C. 8300 Greensboro Drive, Suite 1100 McLean, VA 22109 Telephone: 703.760.5232 Facsimile: 703.748.0244 PATRICK R. HANES (Pro Hac Vice pending) phanes@williamsmullen.com ERICA B. ZHANG (Pro Hac Vice pending) ezhang@williamsmullen.com WILLIAMS MULLEN, P.C. 200 South 10th Street, 16th Floor Richmond, VA 23219 Telephone: 804.420.6000 Facsimile: 804.420.6507 Counsel for Plaintiff/Counterclaim Defendant, Deutsch-Hollandische Tabakgesellschaft mbH & Co., KG UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 1 of 20 Page ID #:88 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS ii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEUTSCH-HOLLANDISCHE TABAKGESELLSCHAFT MBH & CO., KG, Plaintiff/Counterclaim Defendant, v. TRENDSETTAH USA, INC., Defendant/Counterclaim Plaintiff, v. TREND SETTAH, INC., Third Party Plaintiff. CASE NO: 8:17-cv-00181-DOC-JDE NOTICE OF MOTION AND MOTION TO DISMISS COUNTERCLAIMANTS’ FOURTH AND FIFTH CLAIMS FOR RELIEF Counterclaims filed: March 15, 2017 Judge: David O. Carter Hearing Date: May 22, 2017 Hearing Time: 8:30 am NOTICE OF MOTION AND MOTION TO DISMISS PLEASE TAKE NOTICE that on May 22, 2017 at 8:30 am, or as soon thereafter as this matter may be heard, Plaintiff/Counterclaim Defendant Deutsch- Hollandische Tabakgesellschaft Mbh & Co., Kg. (“DHT”) will move for the fourth and fifth claims for relief of the counterclaims filed by Trendsettah USA, Inc. and Trend Settah, Inc. (collectively, “TSI”) to be dismissed. This motion is made pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that: 1. As to the fourth claim for relief of the counterclaims: a. TSI’s fourth claim for relief fails to plead fraud with the requisite particularity under Rule 9(b) of the Federal Rules of Civil Procedure because TSI does not state with specificity the person who made the alleged fraudulent representation, the date(s) of such representation, or Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 2 of 20 Page ID #:89 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS iii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 its content. b. TSI’s fourth claim for relief fails to state a claim of promissory fraud because TSI has not adequately pleaded the essential elements of knowledge and intent. c. The economic loss rule bars TSI’s promissory fraud claim. 2. As to the fifth claim for relief of the counterclaims: a. TSI’s fifth claim for relief fails to state a claim of negligent misrepresentation because the representation alleged is a promise of future performance. b. The economic loss rule bars TSI’s negligent misrepresentation claim. This motion is made following the conference of counsel pursuant to L.R. 7-3 that took place on March 29, 2017. This motion is supported by the attached memorandum of points and authorities. DHT also serves and lodges along with this motion a proposed order pursuant to L.R. 7-20. DATED April 5, 2017 WILLIAMS MULLEN, P.C. By: s/ John Brian Cashmere JOHN BRIAN CASHMERE bcashmere@williamsmullen.com Attorney for Plaintiff, Deutsche- Hollandische Tabakgesellschaft mbH & Co., KG Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 3 of 20 Page ID #:90 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS iv 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS PAGE I. INTRODUCTION 1 II. STATEMENT OF FACTS 2 III. LEGAL STANDARD 2 IV. ARGUMENT 4 A. TSI’s fourth claim for relief fails to plead 4 promissory fraud with the requisite particularity. B. TSI’s fourth claim for relief fails to state a claim 6 of promissory fraud because TSI has not adequately pleaded the essential elements of knowledge and intent. C. TSI’s fifth claim for relief fails to state a claim 9 of negligent misrepresentation because the representation alleged is a promise of future performance. D. TSI’s fourth and fifth claims for relief are barred 10 by the economic loss rule. V. CONCLUSION 13 Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 4 of 20 Page ID #:91 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS v 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES CASES PAGE Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ............................................................... 3 Astrium S.A.S. v. TRW, Inc., 197 Fed. Appx. 575, 577 (9th Cir. 2006) ..............12, 13 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) ........................................ 3 Bioriginal Food & Sci. Corp. v. Biotab Nutraceuticals Inc., No. 2:13-CV-05704-CAS-EX, 2014 WL 12597153, at *4 (C.D. Cal. Mar. 19, 2014).......................................................................................... 13 Bly-McGee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) ................................ 4 Cedars Sinai Med. Ctr. v. Mid-W. Nat. Life Ins. Co., 118 F. Supp. 2d 1002, 1010 (C.D. Cal. 2000)........................................................... 10 Flowers v. Wells Fargo Bank, N.A., No. C 11-1315 PJH, 2011 WL 2748650, at *6 (N.D. Cal. July 13, 2011) ...........................................4, 5, 9 Foster Poultry Farms v. Alkar-Rapidpak-MP Equip., Inc., 868 F. Supp. 2d 983, 995 (E.D. Cal. 2012) .........................................................13, 14 Glen Holly Entm't, Inc. v. Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003) ........... 6 Grant v. Aurora Loan Servs., Inc., 736 F. Supp. 2d 1257, 1271 (C.D. Cal. 2010)..... 7 In re GlenFed Sec. Litig., 42 F.3d 1541, 1547-49 (9th Cir.1994).............................. 4 JMP Securities LLP v. Altair Nanotechnologies Inc., 880 F. Supp. 2d 1029, 1042 (N.D. Cal. 2012)...............................................11, 12, 13 Madrigal v. Allstate Indem. Co., No CV 14-4242 SS, 2015 WL 12748272, at *1 (C.D. Cal. Dec. 67, 2015)................................................. 7 Oracle USA, Inc. v. XL Global Services, Inc. No. C. 09-00537 MHP, 2009 WL 2084154, at *3 (N.D. Cal. July 13, 2008) ................................................. 13 Robinson Helicopter Co., Inc. v. Dana Corp., 22 Cal. Rptr. 3d 352, 358 (2004).........................................................................11, 12 Ryan v. Microsoft Corp., 147 F. Supp. 3d 868, 888 (N.D. Cal. 2015)........................ 5 Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 5 of 20 Page ID #:92 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS vi 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Sam Rubin Entm't, Inc. v. AARP, Inc., No. CV 16-6431-RSWL-SSX, 2016 WL 7336554, at *6 (C.D. Cal. Dec. 15, 2016)................................................... 8 Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152 (S.D. Cal. 2001) ................... 8 Stockton Mortg., Inc. v. Tope, 183 Cal. Rptr. 3d 186, 203 (2014)............................ 10 Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. Rptr. 2d 861, 864 (1991) ......... 10 UMG Recordings, Inc. v. Glob. Eagle Entm't, Inc., 117 F. Supp. 3d 1092, 1109 (C.D. Cal. 2015)...............................................7, 8, 9, 13 RULES Federal Rule of Civil Procedure 8………………………………………………….. 1 Federal Rule of Civil Procedure 9………..……………………………… 1, 3, 4, 5, 6 Federal Rule of Civil Procedure 12 ………………………………………………... 2 Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 6 of 20 Page ID #:93 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. Introduction TSI’s asserted tort claims do not satisfy Rules 8(a) and 9(b) of the Federal Rules of Civil Procedure and are subject to the economic loss rule. TSI’s allegations of promissory fraud are insufficient because TSI fails to allege with specificity the person who made the alleged fraudulent representation, the date(s) of such representation, or its content. TSI also fails to state a claim for promissory fraud because there are no factual allegations to establish the essential elements of knowledge and intent. As for its claim of negligent misrepresentation, TSI fails to plead that DHT made a false representation of existing or pre-existing fact. Moreover, the economic loss rule precludes both tort claims because TSI cannot recover in tort for an alleged breach of contract resulting in purely economic loss. TSI has failed to allege sufficient facts to support any tort claims in this ordinary breach of contract action. Throughout its counterclaims, TSI’s factual allegations wholly relate to contract formation and performance. It has failed to allege any additional facts that demonstrate an independent tort duty is also at issue or that it has sustained any damages other than purely economic loss. For these reasons, DHT respectfully requests that this Court dismiss TSI’s fourth and fifth claims for relief without leave to amend. II. Statement of Facts TSI, a California company, manufactures cigarillos, a cigar product that requires a wrapper that is made from tobacco leaf. Countercl. ¶¶ 43, 45. DHT is a Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 7 of 20 Page ID #:94 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 German company that manufactures tobacco leaf wrappers for cigars and cigarillos. Id. ¶ 49. In 2014, TSI traveled twice to Germany and met with DHT representatives. Id. ¶ 50. TSI does not allege the dates of either of these two meetings. During the first meeting, TSI alleges that the parties entered into a contract for the production of wrappers for TSI’s cigarillo line. Id. ¶ 50. At one of the two meetings, TSI alleges that the parties agreed on the “precise characteristics” of the wrapper and that the product would be of “suitable thickness, color, texture, and consistency.” Id. ¶ 54. However, TSI gives no information regarding the individual who allegedly communicated these “precise characteristics” on behalf of TSI nor the content of the alleged communication(s). DHT shipped the first batch of wrappers to TSI’s manufacturer and agent and the manufacturer incorporated the wrapper into TSI’s cigarillos. Id. ¶¶ 48, 53. TSI alleges that the wrapper did not conform to the “sample that DHT had initially provided.” Id. ¶ 54. TSI references this sample allegedly provided by DHT in several of its allegations regarding nonconformity. Id. ¶¶ 54, 57, 69, 75. But there are no allegations setting forth the “precise characteristics” of any sample or of the wrapper TSI alleges DHT agreed to produce, such as the specific thickness, color scale, or texture measurements. III. Standard of Review A Federal Rule of Civil Procedure 12(b)(6) motion to dismiss should be granted unless a complaint contains “sufficient factual matter, accepted as true, to Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 8 of 20 Page ID #:95 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 state a claim that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In Iqbal, the Supreme Court articulated the two-pronged analytical approach to be followed when testing the legal sufficiency of pleadings under Rule 8 in the context of a Rule 12(b)(6) motion. First, a court must identify and reject legal conclusions unsupported by factual allegations because they are not entitled to the presumption of truth. Id. at 680. A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Id. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Second, assuming the veracity of “well-pleaded factual allegations,” a court must conduct a “context-specific” analysis drawing on “its judicial experience and common sense” and determine whether the factual allegations “plausibly suggest” an entitlement to relief. Iqbal, 556 U.S. at 663-64. The plausibility standard requires more than a showing of “a sheer possibility that a defendant has acted unlawfully.” Id. at 678. In other words, “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 663. In actions alleging fraud, “the circumstances constituting fraud or mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b). Under Rule 9(b), the complaint must allege specific facts regarding the fraudulent activity, such as the time, date, place, and content of the alleged fraudulent representation, how or why the representation was false or misleading, and in some cases, the identity of the Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 9 of 20 Page ID #:96 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 person engaged in the fraud. In re GlenFed Sec. Litig., 42 F.3d 1541, 1547-49 (9th Cir.1994). Put another way, fraud allegations must be specific enough to give defendants notice of the particular misconduct that is alleged to constitute the fraud so that they can defend against the claim. Bly-McGee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001). For corporate defendants, a plaintiff must allege “the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” Flowers v. Wells Fargo Bank, N.A., No. C 11-1315 PJH, 2011 WL 2748650, at *6 (N.D. Cal. July 13, 2011). IV. Argument A. TSI’s fourth claim for relief fails to plead promissory fraud with the requisite particularity. TSI’s fourth claim for relief fails to plead promissory fraud with the requisite particularity under Rule 9(b) of the Federal Rules of Civil Procedure. TSI does not state with specificity the person who made the alleged fraudulent representation, the date(s) of such representation, or its content. Because TSI has alleged that corporate defendants made the fraudulent statement, they must name the agent of the corporation who made the alleged fraudulent representation. Flowers, 2011 WL 2748650, at *6. TSI merely states that the “parties agreed on the precise characteristics of the paper that was needed.” Countercl. ¶ 50. TSI fails to identify the DHT representative who made the allegedly fraudulent statement. Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 10 of 20 Page ID #:97 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TSI’s allegations regarding the date of the representation are similarly deficient. TSI alleges that “in 2014” three DHT executives represented to TSI that DHT would produce paper with certain characteristics. Id. ¶¶ 50-51, 69. Such a broad time frame does not satisfy the requirements of Rule 9(b). Ryan v. Microsoft Corp., 147 F. Supp. 3d 868, 888 (N.D. Cal. 2015) (finding “in 2011 and 2012” and “in approximately 2008” to be insufficient because the plaintiffs failed to identify “the specific dates or even the months in which the alleged conversations occurred”). TSI likewise fails to plead with particularity the content of the allegedly fraudulent statement. Generalized, vague, and unspecific assertions do not state an actionable fraud or negligent misrepresentation claim. Glen Holly Entm't, Inc. v. Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003). For example, TSI refers to a product sample as a repeated reference point, alleging DHT represented that it would produce a product “that was similar to the suitable sample ….” Countercl. ¶ 69, 75. TSI fails to plead any specifics regarding what was meant by “similarity” to a “suitable sample” or to what specifications the “suitable sample” was produced. Id. ¶ 69. TSI cannot rely on such generalized and unspecific assertions that DHT fraudulently represented that product would be “similar” to another product or sample. Throughout their counterclaim, TSI alleges that DHT represented that it would produce a wrapper for TSI that would have certain “precise characteristics.” Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 11 of 20 Page ID #:98 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. ¶¶ 50, 52, 69, 71. The counterclaimants allege that DHT fraudulently agreed to produce a wrapper that “was of suitable thickness, color, texture, and consistency.” Id. ¶¶ 52, 54. TSI fails to state, however, any of the actual specifications of the product that it claims DHT agreed to produce, such as the specific thickness, color scale, or texture measurements. Because TSI alleges that the purportedly fraudulent representation consisted of an agreement to manufacture a product with “precise characteristics,” Rule 9(b) requires that TSI put DHT on notice of what it contends that those precise characteristics were. B. TSI’s fourth claim for relief fails to state a claim of promissory fraud because TSI has not adequately pleaded the essential elements of knowledge and intent. TSI fails to state a claim for fraud because it has failed to plead any facts indicating that DHT never intended to manufacture the product to agreed-upon specifications. TSI’s fraud claim is a claim for promissory fraud. Promissory fraud is a subspecies of fraud. Grant v. Aurora Loan Servs., Inc., 736 F. Supp. 2d 1257, 1271 (C.D. Cal. 2010). As a promise to do something necessarily implies an intention to perform, and where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable as promissory fraud. Id. (citations omitted). A claim of promissory fraud “requires proof of precisely the same elements as intentional misrepresentations.” Madrigal v. Allstate Indem. Co., No CV 14-4242 SS, 2015 WL 12748272, at *1 (C.D. Cal. Dec. 67, 2015). To plead a fraud claim, a Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 12 of 20 Page ID #:99 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 party must allege (1) a knowingly false representation or fraudulent omission by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages. UMG Recordings, Inc. v. Glob. Eagle Entm't, Inc., 117 F. Supp. 3d 1092, 1109 (C.D. Cal. 2015). For a claim of promissory fraud, intent cannot be established by simply showing a subsequent failure to perform. Id. Instead, the counterclaimants “must point to facts which show that the defendant harbored an intention not to be bound by the terms of the contract at its formation.” Id. (citations omitted). This means that the counterclaimants “must plead facts explaining why the statement was false when it was made.” Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152 (S.D. Cal. 2001) (citation omitted). Critically, “nonperformance alone will not support a finding of promissory fraud.” UMG Recordings, 117 F. Supp. 3d at 1190 (citations omitted). If this were enough, “every breach of contract claim would support a claim of fraud so long as the [counterclaimant] adds to his complaint a general allegation that the defendant never intended to keep her promise.” Sam Rubin Entm't, Inc. v. AARP, Inc., No. CV 16-6431-RSWL-SSX, 2016 WL 7336554, at *6 (C.D. Cal. Dec. 15, 2016). TSI fails to state a claim for promissory fraud because it does not allege any facts to support its claim that DHT’s alleged promise was false when it was made. TSI alleges that the parties agreed that DHT would manufacture a product with certain characteristics. Countercl. ¶ 69. TSI then alleges that “[a]t the time [DHT] Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 13 of 20 Page ID #:100 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 made those representations, however, they did not intend to actually produce paper with the agreed characteristics.” Id. ¶ 71. TSI provides two allegations in support of this claim: (1) DHT did not intend to produce the wrapper as agreed because it was cheaper not to, and (2) the delivered product did not conform. Id. ¶¶ 71, 72. General allegations of an intent not to perform demonstrated by an alleged failure to perform are not enough to support a claim for promissory fraud. UMG Recordings, 117 F. Supp. 3d at 1190 (citations omitted). The only remaining allegation related to this element is the claim that DHT never intended to perform because it was cheaper not to. But where an allegedly inferior product is at issue in a contract for the sale goods, simply alleging that a seller intended to cut corners, without more, is the same as alleging generally that a seller never intended to perform. See Flowers, 2011 WL 2748650, at *6 (general allegations that the defendants intended not to perform an alleged promise because it was “not in their best financial interest to so” and it was “easier and more profitable” not to perform were too vague to put the defendants on notice of the alleged fraudulent promise so that they could defend against the claim). Allegations of this nature impermissibly conflate a failure to perform with an intent not to perform and cannot suffice to sustain a claim of promissory fraud. Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 14 of 20 Page ID #:101 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 C. TSI’s fifth claim for relief fails to state a claim of negligent misrepresentation because the representation alleged is a promise of future performance. TSI fails to state a claim for negligent misrepresentation because it fails to allege that DHT made a misrepresentation as to a past or existing material fact. The cause of action for negligent misrepresentation has six elements: (1) The defendant must have made a representation as to a past or existing material fact, (2) which was untrue, (3) which, regardless of the defendant's actual belief, was made without any reasonable grounds for believing it was true, and (4) which was made with the intent to induce the plaintiff to rely upon it; (5) the plaintiff justifiably relied on the statement, and (6) plaintiff sustained damages. Cedars Sinai Med. Ctr. v. Mid-W. Nat. Life Ins. Co., 118 F. Supp. 2d 1002, 1010 (C.D. Cal. 2000). A promise of future performance cannot be the basis for a negligent misrepresentation cause of action. Stockton Mortg., Inc. v. Tope, 183 Cal. Rptr. 3d 186, 203 (2014). California does not recognize a cause of action for a “negligent false promise.” Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. Rptr. 2d 861, 864 (1991). This is because a false promise is actionable on the theory that a promise implies an intention to perform, that intention to perform or not to perform is a state of mind, and that misrepresentation of such a state mind is a misrepresentation of fact. Id. The specific intent requirement necessarily precludes pleading a false promise claim as a negligent misrepresentation. Id. Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 15 of 20 Page ID #:102 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In this case, TSI alleges that “DHT and its executives represented to TSI that it would produce paper for Productos del Tobacco” that had the agreed characteristics. Countercl. ¶ 75. TSI goes on to state that DHT “failed to exercise reasonable care of competence” in making this statement. Id. ¶ 76. This is because TSI contends that the product it received did not conform with the promise. Id. These allegations attempt to state a claim of a negligent false promise. Such a cause of action does not exist, and TSI has failed to plead any allegations that could state a claim for negligent misrepresentation. D. TSI’s fourth and fifth claims for relief are barred by the economic loss rule. TSI’s claims for promissory fraud and negligent misrepresentation also are barred by the economic loss rule. This rule provides that “where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses.” Robinson Helicopter Co., Inc. v. Dana Corp., 22 Cal. Rptr. 3d 352, 358 (2004) (citation omitted). In short, the economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations. Id.; see also JMP Securities LLP v. Altair Nanotechnologies Inc., 880 F. Supp. 2d 1029, 1042 (N.D. Cal. 2012) (“[N]o tort cause of action will lie where the breach of duty is nothing more than a violation of a promise which undermines the expectations of the parties to an agreement.”) (citation omitted). Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 16 of 20 Page ID #:103 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The economic loss rule “prevents the law of contract and the law of tort from dissolving one into the other.” Robinson Helicopter, 22 Cal. Rptr. 3d at 358; see also JMP Securities, 880 F. Supp. 2d at 1042 (“The rule serves to prevent every breach of contract from giving rise to tort liability and the threat of punitive damages.”). It follows that where a contract for the sale of goods is at issue, counterclaimants must show that “people or property were placed at risk” or that they “were exposed to ‘personal damages’ beyond economic losses” to recover tort damages. See Astrium S.A.S. v. TRW, Inc., 197 Fed. Appx. 575, 577 (9th Cir. 2006) (citing Robinson Helicopter, 22 Cal. Rptr. 3d at 362). TSI seeks to recover in tort for an alleged breach of contract that resulted in purely economic loss. TSI’s counterclaims of promissory fraud and negligent misrepresentation are based on the same oral agreement that underlies TSI’s breach of contract counterclaim. When compared, TSI’s tort and contract allegations are indistinct except that TSI has added, without factual support, that DHT never intended to perform, and allegedly did not perform, the terms of the agreement. Neither tort claim has any factual allegations to support it as an independent cause of action in this matter. The economic loss rule bars promissory fraud claims where one party allegedly breached a contract and the claimant seeks tort damages solely on the allegation that the breaching party never intended to perform. E.g., UMG Recordings, 117 F. Supp. 3d at 1104; JMP Securities, 880 F. Supp. 2d at 1032; Oracle USA, Inc. v. XL Global Services, Inc. No. C. 09-00537 MHP, 2009 Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 17 of 20 Page ID #:104 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WL 2084154, at *3 (N.D. Cal. July 13, 2008). TSI’s negligent misrepresentation claim is likewise barred by the economic loss rule. Where a related fraud claim is barred by the economic loss rule, any claim for the intermediate tort of negligent misrepresentation is also barred. Foster Poultry Farms v. Alkar-Rapidpak-MP Equip., Inc., 868 F. Supp. 2d 983, 995 (E.D. Cal. 2012) (citing Astrium S.A.S. v. TRW, Inc., 197 Fed. Appx. 575, 577 (9th Cir. 2006)). TSI’s promissory fraud claims does not fall within the fraudulent inducement exception to the economic loss rule. To qualify for this exception, TSI must allege something more than nonperformance. See Bioriginal Food & Sci. Corp. v. Biotab Nutraceuticals Inc., No. 2:13-CV-05704-CAS-EX, 2014 WL 12597153, at *4 (C.D. Cal. Mar. 19, 2014) (“[T]he ‘fraudulent inducement’ exception applies only to misrepresentations about facts independent from defendants’ (non-)performance of the contract.”). The terms of a contract cannot form the basis of a fraudulent inducement claim for purposes of the economic loss rule. Foster Poultry Farms v. Alkar-Rapidpak-MP Equipment, Inc., 868 F. Supp. 2d 983, 993 (E.D. Cal. 2012). The fraudulent inducement exception does not apply because (1) TSI has failed to state a claim for promissory fraud, and (2) its factual allegations only relate to contract formation and performance. The heart of TSI’s counterclaim is that it contracted for one product and allegedly received another. It has failed to allege any facts outside of this basic contention that could support an application of the Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 18 of 20 Page ID #:105 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 fraudulent inducement exception. Both tort claims therefore are subject to the economic loss rule without exception. V. Conclusion For these reasons, DHT respectfully requests that this Court dismiss TSI’s Fourth and Fifth Claims for Relief and any other relief that this Court deems just and proper. Dated: April 5, 2017 WILLIAMS MULLEN, P.C. By: s/ John Brian Cashmere JOHN BRIAN CASHMERE bcashmere@williamsmullen.com PATRICK R. HANES (Pro Hac Vice pending) phanes@williamsmullen.com ERICA B. ZHANG (Pro Hac Vice pending) ezhang@williamsmullen.com ROGERS NEMETH GERMAIN PC DAVID E. NEMETH, JR. [SBN 185005] dnemeth@rnglawfirm.com Counsel for Plaintiff, Deutsch- Hollandische Tabakgesellschaft mbH & Co., KG Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 19 of 20 Page ID #:106 8:17-cv-00181-DOC-JDG NOTICE OF MOTION AND MOTION TO DISMISS 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Certificate of Service I hereby certify that a copy of the foregoing was served via the ECF system for the United States District Court for the Central District of California, on April 5, 2017, which will send an electronic notice to: Mark Poe, Esq. mpoe@gawpoe.com Randolph Gaw, Esq. rgaw@gawpoe.com Samuel Song, Esq. ssong@gawpoe.com Victor Meng, Esq. vmeng@gawpoe.com GAW POE, LLP 4 Embarcadero Center, Suite 1400 San Francisco, CA 94111 Attorneys for Defendant/Counterclaimant Trendsettah USA, Inc. and Third Party Plaintiff Trend Settah, Inc. DATED April 5, 2017 WILLIAMS MULLEN, P.C. By: s/ John Brian Cashmere JOHN BRIAN CASHMERE bcashmere@williamsmullen.com Attorney for Plaintiff, Deutsche- Hollandische Tabakgesellschaft mbH & Co., KG Case 8:17-cv-00181-DOC-JDE Document 20 Filed 04/05/17 Page 20 of 20 Page ID #:107 8:17-cv-00181-DOC-JDG [PROPOSED] ORDER MOTION TO DISMISS 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DAVID E. NEMETH, JR. [SBN 185005] dnemeth@rnglawfirm.com ROGERS NEMETH GERMAIN PC 18201 Von Karman Avenue Tenth Floor, Suite 1000 Irvine, California 92612 Telephone: 949.247.7970 JOHN BRIAN CASHMERE [SBN 177750] bcashmere@williamsmullen.com WILLIAMS MULLEN, P.C. 8300 Greensboro Drive, Suite 1100 McLean, VA 22109 Telephone: 703.760.5232 Facsimile: 703.748.0244 PATRICK R. HANES (Pro Hac Vice pending) phanes@williamsmullen.com ERICA B. ZHANG (Pro Hac Vice pending) ezhang@williamsmullen.com WILLIAMS MULLEN, P.C. 200 South 10th Street, 16th Floor Richmond, VA 23219 Telephone: 804.420.6000 Facsimile: 804.420.6507 Counsel for Plaintiff, Deutsch-Hollandische Tabakgesellschaft mbH & Co., KG Case 8:17-cv-00181-DOC-JDE Document 20-1 Filed 04/05/17 Page 1 of 2 Page ID #:108 8:17-cv-00181-DOC-JDG [PROPOSED] ORDER MOTION TO DISMISS 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION DEUTSCH-HOLLANDISCHE TABAKGESELLSCHAFT MBH & CO., KG, Plaintiff/Counterclaim Defendant, v. TRENDSETTAH USA, INC., Defendant/Counterclaim Plaintiff, v. TREND SETTAH, INC., Third Party Plaintiff. Case No.: 8:17-cv-00181-JCG [PROPOSED] ORDER GRANTING MOTION TO DISMISS FOURTH AND FIFTH COUNTERCLAIMS (Pursuant to Fed. R. Civ. P. 12(b)(6)) [NOTICE OF MOTION AND MOTION TO DISMISS WITH MEMORNADUM OF POINTS AND AUTHORTIES FILED CONCURRENTLY HEREWITH] Counterclaims filed: March 15, 2017 ORDER Plaintiff/Counterclaim Defendant Deutsch-Hollandische Tabakgesellschaft Mbh & Co., Kg’s (“DHT”) Motion to Dismiss the fourth and fifth counterclaims filed by Defendant/Counterclaim Plaintiff Trendsettah USA, Inc. and Third Party Plaintiff Trend Settah, Inc. (collectively, “TSI”) came before the Court for hearing on May 22, 2017. Having considered the moving and opposition papers, arguments, and all other matters presented to the Court, the Court finds that TSI has failed to allege sufficient facts to state a claim upon which relief may be granted in its fourth and fifth counterclaims. IT IS HEREBY ORDERED that that Counterclaim Defendant DHT’s Motion to Dismiss is GRANTED. The fourth and fifth counterclaims for relief are ordered dismissed [with] [without] prejudice. Dated: __________________ _____________________________________ Hon. David O. Carter Judge, United States District Court Case 8:17-cv-00181-DOC-JDE Document 20-1 Filed 04/05/17 Page 2 of 2 Page ID #:109