Amazing Ins., Inc. v. DiManno ( 2021 )

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 AMAZING INSURANCE, INC, a Georgia corporation, 11 No. 2:19-cv-01349-TLN-CKD Plaintiff, 12 13 v. ORDER MICHAEL A. DiMANNO, an individual 14 and ACCUIRE, LLC, a Florida limited liability company, 15 16 Defendants. _________________________________ 17 18 MICHAEL A. DiMANNO, an individual and ACCUIRE, LLC, a Florida limited 19 liability company, 20 Counterclaim Plaintiffs, 21 v. 22 23 VIKASH JAIN, an individual, GERALD 24 DOUGLAN ANDERTON, an individual, KARA CHILDRESS, an individua, and 25 ALEX Campos, an individual, 26 Third-Party Defendants. 27 28 1 Presently, before the Court is Plaintiff and Counter-Defendant Amazing Insurance, Inc.’s 2 (“Plaintiff” or “Amazing Insurance”) motion for preliminary injunction or in the alternative to 3 appoint a receiver. (ECF No. 10.) Defendants and Counter-Claimants Accuire, LLC (“Accuire”) 4 and Michael A. DiManno (“DiManno”) (collectively, “Defendants”) oppose the motion (ECF 5 Nos. 26, 28). Plaintiff has filed a reply. (ECF No. 30.) 6 Also before the Court is Plaintiff and Third-Party Defendants Vikash Jain (“Jain”), Gerald 7 Douglas Anderton (“Anderton”), Alex Campos (“Campos”), and Kara Childress’s (“Childress”) 8 (collectively, “Third-Party Defendants”) motion to dismiss Defendants’ third-party verified 9 complaint. (ECF No. 16.) Defendants oppose the motion. (ECF No. 29.) 10 For the reasons set forth below, Plaintiff’s motion for preliminary injunction (ECF No. 10) 11 is DENIED, and Third-Party Defendants’ motion to dismiss (ECF No. 25) is GRANTED in part 12 and DENIED in part. 13 I. BACKGROUND 14 Plaintiff initiated the instant action on July 18, 2019, (ECF No. 1), and amended its 15 complaint on July 23, 2019 (ECF No. 6) (“FAC”). On July 24, 2019, Plaintiff filed a motion for 16 temporary restraining order (ECF No. 7), which the Court denied (ECF No. 8.) Plaintiff then 17 filed its motion for preliminary injunction. (ECF No. 10.) 18 On September 11, 2019, Defendants filed an amended answer with counterclaims against 19 Plaintiff as well as Third-Party Defendants. (ECF No. 16.) Plaintiff and Third-Party Defendants 20 have filed a motion to dismiss the counterclaims. (ECF No. 25.) 21 At the crux of the parties’ dispute is whether a Binding Letter of Understanding (“LOU”) 22 is enforceable. The LOU sought to establish a contract that would transfer seventy-five percent 23 of the stake in Accuire to Plaintiff. Plaintiff argues that the LOU was binding in nature and that 24 the transfer occurred. Defendants argue that the LOU did not include consideration sufficient for 25 contract formation, and even if the terms of the LOU were sufficient to establish a contract, 26 Campos, Jain, and Anderton failed to perform pursuant to its terms. The Court will summarize 27 each sides’ respective positions as outlined in their complaints. 28 /// 1 A. Plaintiff’s FAC 2 In its FAC, Plaintiff alleges breach of contract, breach of fiduciary duties, conversion, and 3 breach of the implied covenant of good faith and fair dealing. (ECF No. 6 ¶¶43–64.) The FAC 4 also requests declaratory relief pursuant to the Declaratory Judgment Act. (Id. ¶¶ 36–42.) The 5 FAC describes a business dispute over the ownership of Accuire and its wholly owned 6 subsidiaries which are “staffing companies and professional employer organizations.” (Id. ¶ 7.) 7 Accuire is allegedly a Florida company with a principal place of business in Folsom, California. 8 (Id. ¶ 3.) 9 Plaintiff claims it purchased a seventy-five percent ownership stake in Accuire pursuant to 10 the LOU executed in November 2016. (Id. ¶ 8.) DiManno owned the remaining twenty-five 11 percent of Accuire and served as its Chief Executive Officer. (Id. ¶¶ 9–10.) The FAC alleges 12 Accuire operated pursuant to the terms of an “Amended Operating Agreement,” which 13 contemplated that corporate action could be taken without an in-person meeting so long as a 14 sufficient number of Accuire’s members consented in writing. (Id. ¶ 11; ECF No. 6-2 at 8.) The 15 FAC further alleges Plaintiff and its owner, Campos, are “sole guarantors for several of Accuire’s 16 obligations based on DiManno’s lack of creditworthiness to secure the obligations alone.” (ECF 17 No. 6 ¶ 12; see also ECF No. 6-1 at 6–7 (setting forth assumption by Plaintiff of certain 18 obligations of Accuire in connection with Plaintiff’s purchase of controlling membership interest 19 in November 2016).) 20 On March 30, 2019, Plaintiff, Accuire, and DiManno allegedly executed a term sheet that 21 contemplated Accuire buying out Plaintiff’s seventy-five percent interest in Accuire. (ECF No. 6 22 ¶ 13; ECF No. 6-5 at 3–4.) The term sheet acknowledged that as of the date of its execution, 23 Plaintiff was a “75% owner for Accuire” and DiManno was a “25% owner of Accuire before this 24 transaction and shall be the 100% owner” of Accuire on the closing date. (ECF No. 6-5 at 2–3.) 25 Among the numerous other terms, the term sheet set forth that Accuire would pay a $350,000 26 down payment by July 1, 2019, as a condition of closing. (ECF No. 6 ¶ 13; ECF No. 6-5 at 3.) 27 The FAC alleges this down payment was never paid by Accuire or DiManno, which means the 28 transfer of Accuire’s majority membership interest from Plaintiff to Accuire and DiManno never 1 occurred. (ECF No. 6 ¶ 14.) 2 Plaintiff alleges the failure of Accuire and DiManno to produce the anticipated $350,000 3 down payment — along with the fact that Plaintiff knew Accuire currently had unpaid debts and 4 other financial obligations totaling over a million dollars, some of which could subject Plaintiff 5 and Campos to direct liability if not paid or settled — caused Plaintiff to set a special meeting of 6 Accuire’s members for July 15, 2019, to address Accuire’s management and financial condition. 7 (ECF No. 6 ¶¶ 15–18; ECF No. 7-1 at 2–3.) However, DiManno allegedly did not attend the July 8 15 meeting and allegedly called the police on Plaintiff’s representative —Jain — who had arrived 9 at Accuire’s office for the meeting. (ECF No. 6 ¶¶ 19–24.) 10 After the meeting adjourned without any action being taken, Plaintiff allegedly exercised 11 its rights under the amended operating agreement to take corporate action by executing a “Written 12 Consent of Members Holding Majority Units.” (ECF No. 6 ¶ 27.) Plaintiff, through Campos as 13 its President, executed the written consent on July 15. (ECF No. 6-11 at 5.) This written consent 14 purported to terminate DiManno’s employment as Accuire’s Chief Executive Officer (“CEO”) 15 and to appoint a new Board of Directors consisting of Campos, Jain, and DiManno. (ECF No. 6 ¶ 16 27.) The written consent also purported to give Jain authority to: (1) negotiate with some of 17 Accuire’s creditors regarding outstanding notes owed to them by Accuire; (2) engage a consultant 18 to “reduce unnecessary expenses”; (3) notify Accuire’s vendors, its bank, its labor union, its 19 landlord, and an insurance company of Accuire’s new management structure; (4) require two 20 signatures on any company check and for all outgoing wires and financial transfers; and (5) take 21 over Accuire’s e-mail system. (ECF No. 6-11 at 3.) The written consent also contemplated that 22 Accuire’s new management would either hire an audit firm to undertake a forensic accounting, 23 seek additional capital, or seek to sell Accuire. (Id.) 24 B. Defendants DiManno and Accuire’s Third-Party Verified Complaint 25 Defendants, in a third-party complaint filed against Plaintiff and Third-Party Defendants, 26 allege DiManno is a 49% owner of Accuire, and the remaining owners of Accuire are three 27 companies: KaiserKane; CAPM; and Gardner (collectively referred to in the complaint as the 28 “Bean Team”). (ECF No. 16 at 9, ¶ 13.) Defendants allege the Bean Team operated Accuire 1 from January 2015 onward with DiManno as the only CEO for it and all its subsidiaries. (ECF 2 No. 16 at 9–10, ¶ 13.) 3 Defendants allege in 2016, DiManno and the Bean Team discussed the need for Accuire 4 and its subsidiaries to obtain a large deductible workers’ compensation policy which would 5 require millions of dollars in collateral. (Id.) Because the Bean Team did not have the necessary 6 capital, DiManno began looking for a buyer to secure funding for Accuire to provide the capital 7 needed to obtain the policy. (Id. at 10, ¶ 15.) 8 In May 2016, Jain approached DiManno and suggested he had funds and wanted to begin 9 buying companies. (Id.) Jain represented that he, Anderton, and Campos could fund Accuire in 10 exchange for ownership shares. (Id. at 10, ¶ 16.) In June 2016, DiManno presented to Jain, 11 Anderton, and Campos regarding Accuire’s business in Campos’s offices in Duluth, Georgia. (Id. 12 at 11, ¶ 17.) During the initial conversations, DiManno alleges he repeatedly told Campos, Jain, 13 and Anderton he was not interested in selling his personal 49% share in Accuire, but only wanted 14 to sell the Bean Team’s 51% share. (Id. at 11–12, ¶ 20.) Jain, Campos, and Anderton told 15 DiManno that to invest they would need to obtain 75% of Accuire. (Id.) According to DiManno, 16 the original deal was that Jain, Campos, and Anderton would purchase half of DiManno’s 49% 17 and all of the Bean Team’s 51%. (Id. at 12, ¶ 21.) Following the presentation, Campos allegedly 18 shook DiManno’s hand and told him they had a deal stating, “We are going to be partners,” and 19 “It is going to be amazing.” (Id. at 11, ¶ 17) 20 DiManno alleges the terms of the initial deal continued to change. First, in October 2016, 21 Campos allegedly informed DiManno that Campos’s shell company, Amazing Insurance, would 22 be used as the vehicle for the deal with Jain, Campos, and Anderton as ones contributing funds. 23 (Id. at 11, ¶ 18.) Next, Jain, Campos, and Anderton allegedly asked to purchase half of Accuire’s 24 membership interests and to execute a promissory note with the Bean Team to pay for their 25 interests over time — requiring Jain, Anderton, and Campos to provide less money up front. (Id. 26 at 12, ¶ 21.) DiManno alleges that by the time the deal was set to close, the LOU stated that 27 Accuire would buy out the Bean Team and Amazing Insurance would put down $300,000 cash 28 out of a total purchase price of $2.7 million. (Id. at 12, ¶ 22.) Amazing Insurance would pay the 1 rest, over time, to Accuire, which would cover Accuire’s note payments to the Bean Team. (Id.) 2 DiManno allegedly communicated his frustrations to Campos, Jain, and Anderton via 3 email stating that “You three are my partners not Amazing.” (Id. at 12–13, ¶ 23.) According to 4 Defendants, the LOU stated on the day of closing: (1) Amazing Insurance would pay $200,000 to 5 the Bean Team and $100,000 to DiManno; (2) the Bean Team would transfer their ownership 6 shares to Amazing Insurance; (3) Accuire would pay each of the Bean Team entities a down 7 payment for their ownership interests; (4) Accuire would become obligated to pay each of the 8 Bean Team entities a certain sum of money, which they would pay over 36 months to complete 9 payment for the Bean Team’s ownership interest; (5) Accuire would buy DiManno’s ownership 10 interest by paying a down payment and then committing to making payments over 36 months; 11 and (6) all payments made under the subject notes held by the Bean Team and DiManno were to 12 be reimbursed to Accuire by Amazing Insurance. (Id. at 14, ¶ 27.) 13 According to Defendants, the reimbursements from Amazing Insurance to Accuire never 14 happened. (Id.) Defendants further allege the LOU did not contemplate Amazing Insurance’s or 15 Campos’s obligation to make payments beyond the initial $300,000 in exchange for receiving all 16 of the membership units at closing. (Id. at 14, ¶ 28.) Defendants allege the LOU did not describe 17 the way in which Amazing Insurance would actually pay the $2,400,000 balance, but simply 18 stated that Amazing Insurance would make payments “On a monthly basis as stated in Sections 2, 19 3, 4, and 5 of the LO[U].” (Id. at 15, ¶ 33 (internal citations omitted).) Defendants state that 20 Sections 2, 3, 4, and 5 only discuss payments made by Accuire to the Bean Team. (Id.) 21 According to Defendants, as stated in the LOU, Jain, Campos, and Anderton were “hoping to 22 purchase Accuire mostly with Accuire’s own money and only with $300,000 of Amazing 23 Insurance’s money,” and this shows a “complete lack of consideration.” (Id.) Moreover, 24 Defendants contend Amazing Insurance failed to reimburse Accuire for payments Accuire made 25 as required by the LOU. (Id.) 26 Defendants allege that as result of the omissions from the LOU, the parties entered into a 27 “First Addendum” aimed to correct said omissions. (Id. at 17–18, ¶¶ 44, 45.) The First 28 Addendum provided that Campos, at closing, along with Amazing Insurance, would execute a 1 promissory note to the Bean Team and DiManno for the remaining $2,400,000 purchase price. 2 (Id. at 18, ¶ 46.) Further, Anderton, Campos, and Jain executed an indemnification and guaranty 3 (the “Guaranty”), granting full and absolute indemnification to DiManno and the Bean Team for 4 any amounts owed as a result of the purchase of the membership units of Accuire. (Id. at 18, ¶ 5 49.) Defendants allege the guarantors failed to make payments covering the notes in breach of 6 the Guaranty. (Id. at 18–19, ¶ 50.) 7 Defendants allege that shortly after the LOU transaction closed, Accuire ran out of funds 8 because Jain, Campos, Anderton, and Amazing Insurance failed to make the requisite payments. 9 (Id. at 19, ¶ 53.) Defendants allege that between February 3, 2017, and July 26, 2017, Jain, 10 Anderton, and Campos sent Accuire $500,000, which was used to pay bills and did not satisfy 11 their obligation to Accuire. (Id. at 19, ¶ 54.) 12 Defendants allege Campos installed Jain, Anderton, and Childress in positions of power at 13 Accuire, which led to these individuals siphoning money from Accuire’s bank accounts to 14 Campos, Amazing Insurance, and Campos-owned entities. (Id. at 20, ¶ 58.) Defendants allege 15 that because of the siphoning and Amazing Insurance’s failure to provide funding as agreed, 16 Defendants were forced to take loans from at least two Campos-owned entities, Vensure and 17 CenCal Holdings. (Id. at 21–22, ¶¶ 63–66.) 18 Defendants allege that in January 2018, Campos told DiManno he planned to sell his 19 portion of Accuire to Vensure so Vensure could fund Accuire and turn it profitable. (Id. at 22, ¶¶ 20 69, 70.) In October 2018, DiManno told Vensure that Accuire needed to be funded. (Id. at 23, ¶ 21 71.) DiManno alleges that on March 30, 2019, Accuire, Amazing Insurance, DiManno, Campos, 22 a non-party, and Accuire’s subsidiaries executed a term sheet for the acquisition of all ownership 23 interests in Accuire. (Id. at 23, ¶ 73.) Pursuant to the term sheet, Accuire would buy back its 24 shares from Amazing Insurance as a means for DiManno to “save himself and his companies” 25 from Campos, Jain, and Anderton’s “fraud and various breaches.” (Id. at 23–24, ¶¶ 73, 74.) The 26 term sheet was not executed. (Id. at 24, ¶ 79.) 27 On July 15, 2019, Campos attempted to convene a meeting for Accuire members, at which 28 DiManno’s legal representative informed Campos that neither Amazing Insurance nor Campos 1 were owners of 75% of Accuire because of a failure of consideration. (Id. at 24–25, ¶¶ 80, 81.) 2 Campos then sent his attorney and Jain to “take over” Accuire’s office by creating a new board of 3 directors for Accuire consisting of Campos, Jain, and DiManno and directing Accuire to: (1) 4 terminate DiManno as CEO of Accuire; (2) negotiate with the Bean Team regarding the 5 outstanding notes owed; (3) conduct a forensic accounting of Accuire; (4) notify vendors and 6 labor unions of the “change of management”; (5) entertain offers for the sale of Accuire; (6) 7 impose “dual control” on wires and ACH transactions of Accuire’s money; and (7) obtain control 8 of Accuire’s electronic mail system. (Id. at 25, ¶ 82.) Defendants allege that because the transfer 9 of membership units was never consummated, Campos had no authority to perform any of these 10 acts. (Id. at 25, ¶ 83.) 11 II. MOTION FOR PRELIMINARY INJUNCTION 12 A. Standard of Law 13 Injunctive relief is “an extraordinary remedy that may only be awarded upon a clear 14 showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 15 U.S. 7, 22 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam)). “The 16 purpose of a preliminary injunction is merely to preserve the relative positions of the parties until 17 a trial on the merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981); see also 18 Costa Mesa City Emps. Ass’n v. City of Costa Mesa, 209 Cal. App. 4th 298, 305 (2012) (“The 19 purpose of such an order is to preserve the status quo until a final determination following a 20 trial.”); GoTo.com, Inc. v. Walt Disney, Co., 202 F.3d 1199, 1210 (9th Cir. 2000) (“The status quo 21 ante litem refers not simply to any situation before the filing of a lawsuit, but instead to the last 22 uncontested status which preceded the pending controversy.”). 23 “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed 24 on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, 25 [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” 26 Winter, 555 U.S. at 20. A plaintiff must “make a showing on all four prongs” of the Winter test 27 to obtain a preliminary injunction. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 28 (9th Cir. 2011). In evaluating a plaintiff’s motion for preliminary injunction, a district court may 1 weigh the plaintiff’s showings on the Winter elements using a sliding-scale approach. Id. A 2 stronger showing on the balance of the hardships may support issuing a preliminary injunction 3 even where the plaintiff shows that there are “serious questions on the merits . . . so long as the 4 plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the 5 public interest.” Id. Simply put, plaintiffs must demonstrate, “that [if] serious questions going to 6 the merits were raised [then] the balance of hardships [must] tip[ ] sharply” in [p]laintiffs’ favor 7 in order to succeed in a request for preliminary injunction. Id. at 1134–35. 8 B. Analysis 9 Plaintiff seeks to enjoin DiManno and Accuire from exercising control over Accuire 10 without Plaintiff’s written consent and also seeks to require compliance with the Written Consent 11 executed by Plaintiff on July 15, 2019. (ECF No. 10 at 1–2.) Alternatively, Plaintiff requests the 12 Court appoint a “receiver” until this case is concluded. (Id.) Plaintiff’s primary argument is that 13 allowing DiManno to continue exercising control over Accuire will result in significant damage 14 to its business reputation, credit profile, and goodwill. (See ECF No. 10-1.) 15 i. Irreparable Harm 16 Plaintiff’s instant motion for preliminary injunction has nearly identical allegations of 17 irreparable harm as its request for temporary restraining order, which this Court denied. (See 18 ECF Nos. 10, 7, 8.) Plaintiff only adds that “within the last week, Defendants have restricted 19 Plaintiff’s ability to view the banking activity for Accuire . . . which serves no legitimate business 20 purpose . . . .” (ECF No. 10-1 at 9.) The Court will not reiterate its previous finding Plaintiff 21 failed to show irreparable harm and finds it equally applicable here to the identical allegations. 22 (See ECF No. 8.) As to Plaintiff’s additional claim, Plaintiff fails to allege — in any capacity — 23 how this amounts to Plaintiff being irreparably harmed. (ECF No. 10-1 at 9.) Accordingly, the 24 Court finds Plaintiff has failed to show a likelihood of irreparable injury. Therefore, the Court 25 need not and does not address Plaintiff’s arguments as to the other prongs of the Winter test. See 26 Alliance, 632 F.3d at 1132, 1135 (“[A] preliminary injunction requires a showing of likely 27 irreparable injury.”). 28 /// 1 ii. Receiver 2 Plaintiff alternatively requests the Court appoint a neutral third-party receiver to govern 3 and control Accuire’s affairs. (ECF No. 10-1 at 9.) “Under federal law, appointing a receiver is 4 an extraordinary equitable remedy, which should be applied with caution.” Canada Life Assur. 5 Co. v. LaPeter, 563 F.3d 837, 844 (9th Cir. 2009) (internal quotations omitted). In considering 6 whether to appoint a receiver, courts look to: (1) whether the party seeking the appointment has a 7 valid claim; (2) whether there is fraudulent conduct or the probability of fraudulent conduct by 8 the defendant; (3) whether the property is in imminent danger of being lost, concealed, injured, 9 diminished in value, or squandered; (4) whether legal remedies are inadequate; (5) whether the 10 harm to plaintiff by denial of the appointment would outweigh injury to the party opposing 11 appointment; (6) the plaintiff’s probable success in the action and the possibility of irreparable 12 injury to plaintiff’s interest in the property; and, (7) whether the plaintiff’s interests sought to be 13 protected will in fact be well-served by receivership. Id. 14 Plaintiff states the law and then argues in entirety that: 15 In this case, [P]laintiff as the majority owner of Accuire, LLC, has a valid claim, and the property of Accuire is in imminent danger of 16 being lost, concealed, diminished in value, or squandered. Further, as noted abovec [sic], within the last week, Defendants have 17 restricted Plaintiff’s ability to view the banking activity for Accuire with its bank accounts at Bank of America, conduct which serves no 18 legitimate business purpose and is indicative of fraudulent or improper behavior on Defendants’ part. 19 20 (ECF No. 10-1 at 10.) 21 The Court will not reiterate the reasoning in its determination that Plaintiff has failed to 22 demonstrate the possibility of irreparable injury. As to the remaining factors, Plaintiff’s single 23 paragraph without any further explanation is insufficient to warrant such an extraordinary remedy 24 that should only be applied with caution. Accordingly, the Court declines to appoint a receiver. 25 III. MOTION TO DISMISS 26 A. Standard of Law 27 A motion to dismiss for failure to state a claim upon which relief can be granted under 28 1 Federal Rule of Civil Procedure (“Rule”) 12(b)(6) tests the legal sufficiency of a complaint. 2 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Rule 8(a) requires that a pleading contain 3 “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. 4 Civ. P. 8(a); see also Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009). Under notice pleading in 5 federal court, the complaint must “give the defendant fair notice of what the . . . claim is and the 6 grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal 7 citation and quotations omitted). “This simplified notice pleading standard relies on liberal 8 discovery rules and summary judgment motions to define disputed facts and issues and to dispose 9 of unmeritorious claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). 10 On a motion to dismiss, the factual allegations of the complaint must be accepted as true. 11 Cruz v. Beto, 405 U.S. 319, 322 (1972). A court must give the plaintiff the benefit of every 12 reasonable inference to be drawn from the “well-pleaded” allegations of the complaint. Retail 13 Clerks Int’l Ass’n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege 14 “‘specific facts’ beyond those necessary to state his claim and the grounds showing entitlement to 15 relief.” Twombly, 550 U.S. at 570 (internal citation omitted). 16 Nevertheless, a court “need not assume the truth of legal conclusions cast in the form of 17 factual allegations.” U.S. ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). 18 While Rule 8(a) does not require detailed factual allegations, “it demands more than an 19 unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A 20 pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the 21 elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 22 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory 23 statements, do not suffice.”). Thus, ‘[c]onclusory allegations of law and unwarranted inferences 24 are insufficient to defeat a motion to dismiss for failure to state a claim.” Adams v. Johnson, 355, 25 F.3d 1179, 1183 (9th Cir. 2004) (citations omitted). Moreover, it is inappropriate to assume the 26 plaintiff “can prove facts that it has not alleged or that the defendants have violated the . . . laws 27 in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State 28 Council of Carpenters, 459 U.S. 519, 526 (1983). 1 Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough 2 facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A claim 3 has facial plausibility when the plaintiff pleads factual content that allows the court to draw the 4 reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 5 680. While the plausibility requirement is not akin to a probability requirement, it demands more 6 than “a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility 7 inquiry is “a context-specific task that requires the reviewing court to draw on its judicial 8 experience and common sense.” Id. at 679. Thus, only where a plaintiff fails to “nudge [his or 9 her] claims . . . across the line from conceivable to plausible[,]” is the complaint properly 10 dismissed. Id. at 680 (internal quotations omitted). 11 In ruling on a motion to dismiss, a court may consider only the complaint, any exhibits 12 thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. 13 See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. 14 Consumers Union of U.S., Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998); see also Daniels- 15 Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) (the court need not accept as true 16 allegations that contradict matters properly subject to judicial notice). 17 If a complaint fails to state a plausible claim, “‘[a] district court should grant leave to 18 amend even if no request to amend the pleading was made, unless it determines that the pleading 19 could not possibly be cured by the allegation of other facts.’” Lopez v. Smith, 203 F.3d 1122, 20 1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)); 21 see also Gardner v. Martino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in 22 denying leave to amend when amendment would be futile). Although a district court should 23 freely give leave to amend when justice so requires under Rule 15(a)(2), “the court’s discretion to 24 deny such leave is ‘particularly broad’ where the plaintiff has previously amended its 25 complaint[.]” Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 520 (9th Cir. 26 2013) (quoting Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)). 27 B. Analysis 28 Third-Party Defendants and Plaintiff have filed a motion to dismiss the Third-Party 1 Complaint by Defendants.1 (ECF No. 25-1.) Defendants allege the following claims: (1) fraud 2 against Amazing Insurance, and separately, Campos, Jain, and Anderton; (2) conversion against 3 all Third-Party Defendants; (3) civil conspiracy against all Third-Party Defendants; (4) breach of 4 contract for the Guaranty against Anderton, Jain and Campos; (5) veil piercing against Amazing 5 Insurance and Campos; and (6) declaratory relief against Amazing Insurance and Campos. (ECF 6 No. 16 at 26–31.) The Court will address the parties’ arguments regarding each claim in turn. 7 i. Fraud 8 Third-Party Defendants argue Defendants have failed to state a claim for fraud. (ECF No. 9 25-1 at 10.) A viable fraud claim must aver: (1) the defendant made a false representation as to a 10 past or existing material fact; (2) the defendant knew the representation was false at the time it 11 was made; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) 12 the plaintiff justifiably and reasonably relied on the representation; and (5) the plaintiff suffered 13 resulting damages. Ragland v. U.S. Bank National Association, 209 Cal. App. 4th 182, 199–200 14 (2012). Federal courts apply state law to determine whether the elements of fraud have been 15 pleaded adequately to state a cause of action, but Rule 9(b) requires that the circumstances 16 establishing fraud must be stated with sufficient particularity. Vess v. Ciba-Geigy Corp. USA, 17 317 F.3d 1097, 1103 (9th Cir. 2003). Specifically, Rule 9(b) requires “[i]n alleging fraud or 18 mistake, a party must state with particularity the circumstances constituting fraud or mistake. 19 Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” 20 Fed. R. Civ. P. 9(b). The allegations underlying a fraud claim must be “specific enough to give 21 defendants notice of the particular misconduct . . . so that they can defend against the charge.” 22 Vess, 317 F.3d at 1106 (internal quotation marks omitted). “Averments of fraud must be 23 accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Id. (citing 24 Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). “[A] plaintiff must set forth more than the 25 neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or 26 misleading about a statement, and why it is false.” Id. (citing Decker v. GlenFed, Inc., 42 F.3d 27 1 For ease, the Court refers to Third-Party Defendants and Plaintiff together as “Third-Party 28 Defendants” for the purposes of the motion to dismiss. 1 1541, 1548 (9th Cir. 1994)). 2 Defendants bring a claim for fraud against Campos, Jain, and Anderton, in which they 3 argue Campos, Jain, and Anderton made numerous misrepresentations and omissions including 4 that they: (1) intended to complete the purchase of the membership units in Accuire; (2) had the 5 ability, or failed to disclose their inability, to fund the purchase of such membership units, either 6 directly as individuals or indirectly through Amazing Insurance; and (3) were co-owners of 7 Amazing Insurance. (ECF No. 16 at 27, ¶ 93.) Defendants further allege Campos, Jain, and 8 Anderton misrepresented the corporate structure of Amazing Insurance, as well as their status as 9 owners, specifically that the Third-Party Defendants misrepresented that Amazing Insurance was 10 a limited liability company when it was in fact a corporation. (Id. ¶ 94; ECF No. 25-1 at 1.) 11 Defendants state that Campos, Jain, and Anderton had knowledge of the falsity of their 12 misrepresentations and intended to defraud and induce reliance by DiManno and Accuire. (ECF 13 No. 16 at 27, ¶¶ 95–96.) Defendants bring a separate claim for fraud against Amazing Insurance 14 with the same set of allegations. (See Id. ¶ 100.) 15 Third-Party Defendants argue the fraud claims must be dismissed because they “do not 16 support the conclusion that the representations were false.” (ECF No 25-1 at 11.) Third-Party 17 Defendants appear to assert that their alleged representations cannot be false because DiManno 18 “reluctantly agreed to the terms of the LOU” and the “deal was completed.” (ECF No. 25-1 at 19 11.) However, Defendants challenge whether the deal was agreed to at all. (See ECF No. 16 at 20 15, ¶ 33 (discussing how the LOU was “void” and incomplete because of the “lack of 21 consideration”).) Much of what Third-Party Defendants seek is for the Court to determine 22 whether in fact, the statements in the Third-Party Complaint are false. (See generally ECF No. 23 25-1 at 10–11.) This is inappropriate at the pleading stage, where the allegations of the complaint 24 must be taken as true. 25 Third-Party Defendants fail to point to any legal authority — other than the recitation of 26 the elements of fraud — to support its argument that Defendants’ allegations are insufficient. Id. 27 As such, Third-Party Defendants have failed to provide any convincing argument that 28 Defendants’ fraud claim should be dismissed, and their motion on this basis is DENIED. 1 ii. Conversion 2 “Conversion is the wrongful exercise of dominion over the personal property of another.” 3 Taylor v. Forte Hotels Int’l, 235 Cal. App. 3d 1119, 1124 (1991). “The elements of a conversion 4 claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s 5 conversion by a wrongful act or disposition of property rights; and (3) damages.” Lee v. Hanley, 6 61 Cal. 4th 1225, 1240 (2015). To allege a conversion claim, a plaintiff must first allege 7 ownership or a right to possession of the property. Lee, 61 Cal. 4th at 1240. 8 Defendants allege Accuire possessed and had a right to possess its own funds and 9 membership units and Third-Party Defendants intentionally interfered with Accuire’s property by 10 taking possession of at least $1,011,820 and membership units. (ECF No. 16 at 29.) Third-Party 11 Defendants argue the conversion claim must be dismissed because the allegations do not state 12 there was a “wrongful exercise of dominion by any of the Third-Party Defendants or Amazing.” 13 (ECF No. 25-1 at 11.) They also argue that only DiManno can bring a claim for conversion 14 regarding the shares of Accuire, and that because DiManno agreed to the terms of the LOU he 15 cannot now state that Amazing Insurance had no rights to Accuire’s shares. (Id. at 12.) Finally, 16 Third-Party Defendants argue Defendants failed to describe Third-Party Defendants’ actions as 17 wrongful. (Id.) 18 As to Third-Party Defendants’ argument that only DiManno can bring a claim regarding 19 membership units, Third-Party Defendants do not explain why Accuire cannot make a claim 20 regarding its own membership units nor do they provide any case law supporting this argument. 21 (See ECF No. 25-1 at 11–12.) As to Third-Party Defendants’ argument that because DiManno 22 agreed to the terms of the LOU he cannot now state that Amazing Insurance had no rights to 23 Accuire’s shares, Third-Party Defendants fail to contemplate Defendants’ allegations that the deal 24 was in fact void due to a lack of compliance with the terms and consideration. Defendants point 25 out that without the LOU, neither Amazing Insurance nor Third-Party Defendants had any right to 26 exercise dominion over Accuire. (See ECF No. 29 at 15.) Finally, as to Third-Party Defendants’ 27 argument that Defendants failed to describe their actions as wrongful, the Court disagrees. In one 28 instance Defendants describe Campos’s actions as “sweeping” and state he was “emptying” 1 Accuire’s accounts. (ECF No. 16 at 19, ¶ 53.) In another, Defendants accused Jain, Anderton, 2 Campos, and Childress as “abusing” Accuire. (Id. at ¶ 54.) Third-Party Defendants cite to no 3 case law stating that Defendants must use the words “wrongful” or “bad.” Nor do they explain 4 how the alleged language fails to satisfy the “wrongful” element. Here, Defendants have 5 adequately pleaded the elements necessary for conversion, and Third-Party Defendants’ motion to 6 dismiss on these grounds is DENIED. 7 iii. Breach of Contract 8 To sustain a claim for breach of contract, a plaintiff must allege: (1) the existence of a 9 contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendants’ 10 breach; and (4) actual resulting damage to the plaintiff. Oasis W. Realty, LLC v. Goldman, 51 11 Cal. 4th 811, 821 (2011). 12 Third-Party Defendants argue the Court should dismiss Defendants’ claim because 13 Defendants have failed to allege any acts that could constitute a breach of the LOU and 14 Defendants have not been damaged. (ECF No. 25-1 at 13–14.) In their third-party complaint, 15 Defendants allege a breach of contract claim against Anderton, Jain, and Campos stating they 16 along with Amazing Insurance entered into the Guaranty, which was a “binding contract, with 17 Accuire and DiManno.” (ECF No. 16 at 30.) Defendants state that Anderton, Jain, Amazing 18 Insurance, and Campos breached the contract by failing to indemnify and guarantee the notes, 19 which caused Accuire and DiManno damages. (Id.) 20 As to whether the third-party complaint sufficiently alleged acts that could constitute a 21 breach of the LOU, the complaint describes Third-Party Defendants’ obligation under the LOU to 22 deliver $2.7 million to Accuire and DiManno which included the $300,000 payment for closing 23 and alleges that “[n]either Campos nor Amazing Insurance ever made the $300,000 payment.” 24 (ECF No. 16 at ¶¶ 26, 39.) The third-party complaint further states that the LOU required 25 Amazing Insurance to repay Accuire, which Amazing Insurance failed to do. (Id. at ¶ 27.) The 26 third-party complaint describes in detail how Amazing Insurance “continued to fail in its 27 obligation to fund the LOU deal.” (Id. at ¶ 54.) Third-Party Defendants did not reply to 28 Defendants’ opposition, nor have they provided any case law or support for their position. Third- 1 Party Defendants failed to address the allegations or explain why they are insufficient to 2 withstand a motion to dismiss. 3 Third-Party Defendants also argue that Accuire has not been damaged by any alleged 4 breach of the Guaranty. (ECF No. 25-1 at 14.) The Court finds that Defendants have sufficiently 5 pleaded damages resulting from Third-Party Defendants’ actions. Accordingly, Third-Party 6 Defendants have failed, in their motion, to persuade the Court that Defendants’ breach of contract 7 claim should be dismissed. As such, the motion on this basis is DENIED. 8 iv. Civil Conspiracy 9 Third-Party Defendants argue Defendants’ claim for civil conspiracy must be dismissed 10 because it is not a “separate cause of action that can be asserted, but instead a theory under which 11 causes of action against one individual can be asserted against his co-conspirators.” (ECF No 25- 12 1 at 14.) Defendants argue that Third-Party Defendants cite outdated case law, and that in 2006, 13 the California Supreme Court laid out the elements of civil conspiracy in Rusheen v. Cohen, 37 14 Cal. 4th 1048, 1062 (2006). Third-Party Defendants have not replied. 15 In Rusheen, the California Supreme Court articulated that the elements of civil conspiracy 16 are (1) formation and operation of the conspiracy and (2) damage resulting to plaintiff (3) from a 17 wrongful act done in furtherance of the common design. Id. Defendants further cite to case law 18 from federal courts within this circuit that have articulated these elements. (ECF No. 29 at 20 19 (citing to Philips Medical v. Medical Insights Diagnostics, 471 F. Supp. 2d 1035, 1045 (N.D. Cal. 20 2007) (“If there was no claim for civil conspiracy, there would be no need to provide any 21 elements of such a claim.”); Gilbane Fed. V. United Infrastructure Projects Fzco, 275 F. Supp. 22 3d. 1180, 1196 (N.D. Cal. 2017) (reiterating the elements of a civil conspiracy under California 23 law)).) 24 Third-Party Defendants’ argument that civil conspiracy is not a claim under California 25 law is unavailing. Without any further reasoning to support dismissal, the Court DENIES Third- 26 Party Defendants’ motion on this basis. 27 v. Veil Piercing 28 Third-Party Defendants argue Defendants’ cause of action for “Veil Piercing” must be 1 dismissed because there is no such cause of action under California law. (ECF No. 25-1 at 14– 2 15.) In opposition, Defendants state — for the first time — that the veil piercing claim is brought 3 under Georgia law where there is an independent cause of action. 4 “[D]ue to variances among state laws, failure to allege which state law governs a common 5 law claim is grounds for dismissal.” Romero v. Flowers Bakeries, LLC, No. 14-CV-05189-BLF, 6 2016 WL 469370, at *12 (N.D. Cal. Feb. 8, 2016) (citing In re TFT-LCD (Flat Panel) Antitrust 7 Litig., 781 F. Supp. 2d 955, 966 (N.D. Cal. 2011)). In order to allege whether a claim has been 8 pleaded, Defendants must allege the applicable law. Accordingly, the Court GRANTS Third- 9 Party Defendants’ motion to dismiss the veil piercing claim with leave to amend. 10 vi. Declaratory Relief 11 Pursuant to the Declaratory Judgment Act, “[i]n a case of actual controversy,” the Court 12 “may declare the rights and other legal relations of any interested party seeking such declaration, 13 whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). “This statute does not 14 create new substantive rights, but merely expands the remedies available in federal courts.” Shell 15 Gulf of Mexico, Inc. v. Center for Biological Diversity, Inc., 771 F.3d 632, 635 (9th Cir. 2014). 16 “To determine whether a declaratory judgment action presents a justiciable case or controversy, 17 courts consider ‘whether the facts alleged, under all the circumstances, show that there is a 18 substantial controversy, between parties having adverse legal interests, of sufficient immediacy 19 and reality to warrant the issuance of a declaratory judgment.’” Id. (quoting Md. Cas. Co. v. Pac. 20 Coal & Oil Co., 312 U.S. 270, 273 (1941)). 21 A claim for declaratory relief may be “unnecessary where an adequate remedy exists 22 under some other cause of action.” Reyes v. Nationstar Mortg. LLC, No. 15-CV-01109-LHK, 23 2015 WL 4554377, at *7 (N.D. Cal. July 28, 2015) (quoting Mangindin v. Wash. Mut. Bank, 637 24 F. Supp. 2d 700, 707 (N.D. Cal. 2009)). However, “[t]he existence of another adequate remedy 25 does not preclude a declaratory judgment that is otherwise appropriate.” Fed. R. Civ. P. 57. 26 Ultimately, a critical question is whether the declaratory relief “will serve a useful purpose in 27 clarifying and settling the legal relations in issue.” McGraw-Edison Co. v. Preformed Line 28 Prods. Co., 362 F.2d 339, 342 (9th Cir. 1966). 1 Here, Defendants seek declaratory relief from the Court stating: (1) the LOU is null and 2 void due to a lack of consideration; (2) the written consent is null and void for lack of authority; 3 and (3) Amazing Insurance never became the owner of any shares in Accuire. (ECF No. 16 at 4 26–27.) Third-Party Defendants argue Defendants’ declaratory judgment claims should be 5 dismissed because: (1) the declarations sought by Defendants are contradictory to the allegations 6 of the third-party complaint; (2) there is no immediacy sufficient to warrant declaratory judgment; 7 and (3) the conversion claim provides Defendants with an adequate remedy. (ECF No. 25-1 at 7– 8 10.) 9 The Court finds Third-Party Defendants’ arguments unavailing. The Court DENIES 10 Third-Party Defendants’ motion to dismiss the declaratory judgment claim. See K. v. Adobe Sys. 11 Inc., No. 17-CV-04595-LHK, 2018 WL 1812200, at *13 (N.D. Cal. Apr. 17, 2018) (declining to 12 dismiss declaratory judgment claim when other claims survived a motion to dismiss); Fitbit, Inc. 13 v. Laguna 2, LLC, No. 17-CV-00079-EMC, 2018 WL 306724, at *10 (N.D. Cal. Jan. 5, 2018) 14 (stating the court has discretion to keep the declaratory judgment claim in the action). 15 IV. CONCLUSION 16 For the aforementioned reasons, the Court hereby DENIES Plaintiff’s Motion for 17 Preliminary Injunction (ECF No. 10). 18 The Court further GRANTS in part and DENIES in part Plaintiff and Third-Party 19 Defendants’ Motion to Dismiss (ECF No. 25) as follows: 20 1. Plaintiff and Third-Party Defendants’ Motion to Dismiss for claims of Fraud, 21 Conversion, Breach of Contract, Civil Conspiracy, and Declaratory Judgment is 22 DENIED; and 23 2. Plaintiff and Third-Party Defendants’ Motion to Dismiss for Veil Piercing is 24 GRANTED with leave to amend. 25 Defendants may file an Amended Third-Party Verified Complaint not later than thirty (30) 26 days after the electronic filing date of this Order or choose to proceed on the non-dismissed 27 claims. Plaintiff and Third-Party Defendants shall file a responsive pleading not later than 28 twenty-one (21) days after the electronic filing date of Defendants’ Amended Third-Party 1 | Verified Complaint, should one be filed. 2 IT IS SO ORDERED. 3 | Date: November 9, 2021 { /) 4 “ : bu Troy L. Nuhlep ] 6 United States District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20