PHYLLIS J. HAMILTON, District Judge.
The motions of defendants Carol Realini ("Realini"), Rodney Robinson ("Robinson"), Christopher Martin ("Martin"), and Ultralight FS, Inc. f/k/a Obopay, Inc. ("Obopay/Ultralight"), and defendants Omney, Inc. ("Omney") and Accelerated Commerce Solutions, Inc. ("ACS") to dismiss the complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), came on for hearing on January 25, 2017. Also before the court was the motion of defendants Realini, Robinson, and Martin for an order pursuant to Civil L.R. 65.1-1 and California Code of Civil Procedure § 1030, requiring plaintiffs to post a bond to secure any award of costs and attorney's fees.
Plaintiffs appeared by their counsel Peter Fredman. Defendants Realini, Robinson, Martin, and Obopay/Ultralight appeared by their counsel Lee Marshall, Alexandra Whitworth, and Mary Buchanan; and defendants Omney and ACS appeared by their counsel Christopher Karagheuzoff, and Patricia Welch. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby DENIES the motions as follows and for the reasons stated at the hearing.
The complaint in this action was filed on March 25, 2015. Plaintiffs are MH Pillars Ltd., d/b/a Payza, a United Kingdom corporation, and MH Pillars Inc., a New York corporation. Cplt ¶ 6. Plaintiffs allegedly operate "Payza," which is "an internet payment business similar to Paypal." Cplt ¶ 18.
Obopay/Ultralight, which was based in Silicon Valley, also operated a business similar to PayPal, which was focused on mobile payments and banking, with a substantial business and presence in India. Cplt ¶ 19. Plaintiffs assert that by 2012, most of Obopay/Ultralight's customers were overseas, and its U.S. business operations "consisted solely of `renting' its purported U.S. state money transmitter license rights to non-licensed payment processing businesses through agency agreements. Cplt ¶ 3. Payza was allegedly one of Obopay/Ultralight's customers. Cplt ¶ 3.
On April 1, 2012, MH Pillars Inc. entered into an "Agent Agreement" with Obopay/ Ultralight, and at that point began operating in the United States. See Cplt ¶¶ 19-20 & Exh. A. Martin — Obopay's "EVP" and "Compliance Officer" — allegedly negotiated and executed the Agent Agreement on behalf of Obopay/Ultralight. Cplt ¶ 22; Exh. A at 11.
Under the Agent Agreement, Obopay/Ultralight agreed to provide money transmission services to plaintiffs in the states where Obopay/Ultralight maintained money transmitter licenses (or "MTLs"). Cplt ¶ 21. MH Pillars Inc. agreed to pay Obopay/Ultralight a $100,000 fee and $6,500/mo. (with increased fees after the first year) for the rights to conduct electronic money transfers as its agent pursuant to Obopay/ Ultralight's MTLs for a three-year term. Cplt ¶ 21.
Plaintiffs allege that shortly after MH Pillars Inc. entered into the Agent Agreement, they learned that Obopay/Ultralight was in financial distress (which Obopay/Ultralight had previously failed to disclose). Cplt ¶ 23. They assert that Obopay/Ultralight was in the process of "selling itself or its assets," that its U.S. operations would be "abandoned" during any resulting restructuring, and that its MTL business was facing serious compliance problems. Cplt ¶ 23. They claim that Obopay/Ultralight personnel including Martin "knew or should have known these to be the true facts at the inception of the Agent Agreement" in April 2012 —
However, plaintiffs assert, it was not until May 2012 that they first became aware that Obopay/Ultralight was for sale, when Martin approached them as potential buyers of the company. Cplt ¶ 24. They contend that they were "an obvious target" as they now relied on the Agent Agreement to operate their U.S. business. Cplt ¶ 24. Shortly thereafter, they assert, Obopay/Ultralight "and/or its shareholders" began a transaction to sell Obopay/Ultralight or its assets to an overseas buyer that intended to abandon the U.S. operations and MTLs. Cplt ¶ 25. The sale was allegedly completed effective November 11, 2012. Cplt ¶ 27.
Plaintiffs claim that Robinson subsequently approached them with an offer to sell them the MTLs and to continue the U.S. operations. Cplt ¶ 28. Robinson allegedly stated that the new foreign owner of Obopay/Ultralight would transfer the MTLs to them, in exchange for an assumption of up to $500K worth of U.S. liabilities, and allegedly represented that "he could deliver the deal to plaintiffs in exchange for a brokerage fee to his new ACS entity." Cplt ¶ 28. After allegedly obtaining plaintiffs' agreement in principle, Robinson arranged for his attorney to put the deal together. Cplt ¶ 29. Plaintiffs claim that Robinson's proposal was that defendant ACS would purchase Obopay/Ultralight — stripped of its technology and intellectual property — and would resell it to plaintiffs, who would thereby acquire the MTLs by merger with what remained of the Obopay/Ultralight entity. Cplt ¶ 31.
A series of events followed, which appear to have been caused by or related to the fact that existing Obopay/Ultralight MTLs were out of compliance with state regulators, or were "in serious jeopardy" — notably events involving negotiations concerning the attempt to bring the MTLs into compliance with the various state regulators. Cplt ¶¶ 32-38.
On January 31, 2013, the parties executed agreements that Realini and her attorney had allegedly prepared — (a) a "Stock Purchase Agreement" ("Stock Agreement") whereby MH Pillars Ltd. purchased 9% of the stock in Obopay/Ultralight for $1.25 million, and pursuant to which Realini and Obopay/Ultralight allegedly warranted that Obopay/Ultralight had good MTLs and the power to transfer them,
Plaintiffs assert that the Stock Agreement was executed by Realini on behalf of Obopay/Ultralight, and that the Option Agreement was executed by Realini on behalf of herself and Obopay/Ultralight. See Cplt ¶ 39(a), (b) & Exhs. B and C. Plaintiffs assert that "other transactional documents" included an employment agreement between Realini and Obopay/Ultralight, executed by Robinson as CFO for Obopay/Ultralight; an indemnity agreement between Obopay/Ultralight and Realini executed by Robinson as CFO for Obopay/Ultralight; and an indemnity agreement between Obopay/Ultralight and Robinson executed by Realini as CEO for Obopay/Ultralight. Cplt ¶ 39(c).
Also on January 31, 2013, as part of this transaction, "plaintiffs" paid $1.65 million to Obopay/Ultralight and $276,088 to ACS (which money allegedly went to Robinson and Realini). Cplt ¶¶ 40-41. In addition, in March 2013, Obopay/Ultralight allegedly requested that "plaintiffs" transfer some $4.1 million to its control for "MTL compliance purposes," which plaintiffs claim they did in April 2013. Cplt ¶¶ 44-45.
Plaintiffs assert that approximately two months later, in June 2013, Obopay/ Ultralight and Realini sent plaintiffs a letter purporting to rescind the Option Agreement and terminate the Agent Agreement. Cplt ¶ 47 & Exh. D. As a result, plaintiffs allege, they could no longer maintain their U.S. operations. Cplt ¶ 48. Plaintiffs allege that defendants never tendered nor offered to tender the $400K consideration paid for the Option Agreement, or the $4.1 million that plaintiffs paid in early 2013. Cplt ¶¶ 49-50. Plaintiffs now claim that defendants owe them $4.5 million directly, and that defendants owe plaintiffs' customers some additional amount.
Plaintiffs allege six causes of action in the complaint — (1) breach of fiduciary duty (against Realini, Robinson, Martin, and ACS); (2) negligence (against all defendants); (3) breach of contract (against Realini, and Obopay/Ultralight; (4) fraud and deceit (against all defendants); (5) rescission and restitution (against all defendants); (6) infair competition under Business & Professions Code § 17200 (against all defendants).
A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The court must "accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party,"
A complaint may be dismissed if it does not allege "enough facts to state a claim to relief that is plausible on its face."
Defendants Realini, Robinson, Martin, and Obopay/Ultralight seek an order dismissing all six causes of action alleged in the complaint. Defendants Omney and ACS filed a joinder in the motion, but provided no separate argument.
As an initial matter, as explained at the hearing, the court finds the complaint largely incomprehensible, in part because plaintiffs fail to specify which defendant is alleged to have engaged in which behavior with regard to which plaintiff. It is not the court's job or defendants' job to match up the facts with each cause of action and each plaintiff and each defendant. In addition, the court finds that each of the six causes of action fails to state a claim.
The elements of a cause of action for breach of fiduciary duty are (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.
Plaintiffs allege that Realini, Robinson, Martin, and ACS "owed fiduciary duties with respect to these matters to act with the highest degree of honesty and loyalty toward [plaintiffs] and in their best interests," on the basis that officers and controlling shareholders owe fiduciary duties to other stockholders, that joint venture partners owe fiduciary duties to each other, and that agents generally owe fiduciary duties to their principals.
The motion to dismiss the claim of breach of fiduciary duty is GRANTED. The complaint is impermissibly vague in its generic allegations against all "defendants," and does not plead facts showing that any particular defendant was a fiduciary to either plaintiff or showing a specific basis for such fiduciary relationship. More importantly, the complaint does not identify a fiduciary duty that was owed by any particular defendant to any particular plaintiff, or plead facts showing the breach of any such fiduciary duty.
The dismissal is WITH LEAVE TO AMEND to allege facts sufficient to state a plausible claim as to each of the defendants named in this cause of action — Realini, Robinson, Martin, and ACS. Plaintiffs must also plead particular facts showing which defendant owed a fiduciary duty to which plaintiff, and under which theory, and must also allege facts showing breach by a particular defendant and facts showing resulting damage.
The elements of a cause of action for negligence under California law are (1) duty; (2) breach; (3) causation; and (4) damages.
Plaintiffs allege that "[d]efendants owed duties of care to plaintiffs and the public at large to competently maintain Obopay's MTL rights and not unlawfully rent or sell MTL rights or compliance services that they had no legal authority or practical capability to deliver or provide." Cplt ¶ 59. They allege that this "tort duty" is imposed by law on "all California MTL licensees (or would-be licensees) in order to implement the fundamental public policies embodied in the state regulatory scheme pertaining to MTL licensing, and is independent of the parallel duties imposed on defendants under the contracts alleged herein." Cplt ¶ 59. Additionally, plaintiffs assert, "defendants owed plaintiffs duties of care under conventional
Plaintiffs assert further that "[e]ach corporate defendant is liable for punitive damages for the acts of its agents because each (a) had advance knowledge of their unfitness, (b) authorized their wrongful conduct beforehand, and/or (c) ratified their wrongful conduct afterwards, as shall be proven at trial. Cplt ¶ 62.
The motion to dismiss the cause of action for negligence is GRANTED. Plaintiffs have not identified the existence of a legal duty — an essential element of a cause of action for negligence. Whether this prerequisite has been satisfied in a particular case is a question of law to be resolved by the court.
Here, plaintiffs have alleged no facts showing that any defendant owed a legal duty of care to any plaintiff, or that any defendant breached any legal duty of care owed to any plaintiff. Moreover, the assertion that the duty allegedly owed to "the public at large" is "independent of the parallel duties imposed on defendants" under the contracts is meaningless without any supporting facts.
In addition, the negligence claim appears to be based on the same conduct as the contract claims, and as such, would constitute an impermissible attempt to convert a breach of contract claim into a tort claim.
The dismissal is WITH LEAVE TO AMEND to allege facts supporting each element of the claim, sufficient to state a plausible claim as to each of the defendants named in this cause of action. Plaintiffs must also plead facts showing which defendant owed a duty to which plaintiff, and must also allege facts showing a breach of that duty by a particular defendant and facts showing resulting damage.
The elements of a claim of breach of contract under California law are (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach.
In the complaint, plaintiffs allege that they entered into the Agent Agreement, the Stock Agreement, and the Option Agreement with "defendants" as shown in Exhibits A-C to the complaint. Cplt ¶ 64. They assert that like any contract, these agreements included an implied promise of good faith and fair dealing, not to do anything to unfairly interfere with the right of any other party to receive the benefits of the contract. Cplt ¶ 64. Plaintiffs assert that "[a]s alleged above, defendants breached the implied and express terms, warranties, and representations of these agreements and the implied covenants of fair dealings therein." Cplt ¶ 65.
The motion to dismiss the cause of action for breach of contract and breach of the implied covenant is GRANTED. This case is at heart a breach of contract case. However, the breach of contract claim suffers from the same defect as exists with regard to the complaint as a whole — plaintiffs MH Pillars Ltd. and MH Pillars Inc. have failed to differentiate between themselves (generally referring to themselves collectively as "plaintiffs" or alternatively as "Payza") and have also failed to differentiate among the defendants or to plead facts showing what action any particular defendant took with regard to any particular contract.
According to the Agreements attached as Exhibits A-C to the complaint, MH Pillars Inc. and Obopay/Ultralight were the sole parties to the Agent Agreement; MH Pillars Ltd. and Obopay/Ultralight were the sole parties to the Stock Agreement; and MH Pillars Ltd., Obopay/Ultralight, and Realini were the sole parties to the Option Agreement. Thus, plaintiffs must allege which Agreement forms the basis of their claim, who the parties to said Agreement were, and who the claim of breach of contract is being asserted by and against. They also must allege which provisions of which Agreement were breached, and how.
In addition, neither plaintiffs nor defendants have focused in their arguments on the claim of breach of the implied covenant of good faith and fair dealing, and it is not adequately addressed in the complaint. Every contract possesses an implied covenant of good faith and fair dealing in which "neither party will do anything which will injure the right of the other to receive the benefits of the agreement."
To the extent that plaintiffs intend to pursue this claim, they must allege facts sufficient to show that (1) the parties entered into a contract; (2) the plaintiff fulfilled its obligations under the contract; (3) any conditions precedent to the defendant's performance occurred; (4) the defendant unfairly interfered with the plaintiff's rights to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant's conduct.
The dismissal is WITH LEAVE TO AMEND. Plaintiffs must allege facts sufficient support the elements of breach of contract and breach of the implied covenant of good faith and fair dealing, as set forth above. They must also differentiate between the two plaintiffs and Payza, and must plead facts supporting the elements of the claims as to each defendant and each plaintiff, and must allege which provision(s) of each Agreement was breached.
Under California law, the elements of a claim of fraud are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) intent to defraud,
In addition, in federal court, a party alleging fraud is required to "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). The complaint must include "particularized allegations of the circumstances constituting fraud, including identifying the statements at issue and setting forth what is false or misleading about the statement[s] and why the statements were false or misleading at the time they were made."
In the complaint, plaintiffs allege that "[d]efendants engaged in deceit in warranting and representing that they had the right and authority to deliver the state MTL rights in the Agent Agreement, Stock Agreement, and Option Agreement." Cplt ¶ 72. They also claim that "[d]efendants committed corresponding acts of deceit by their words and conduct ancillary to entering into these agreements because the sole intent and purpose of these transactions — and of Obopay's U.S. operations for that matter — was the provision of its MTL rights to entities like plaintiffs." Cplt ¶ 72. In addition, plaintiffs allege "[o]n information and belief," that
Cplt ¶ 73.
Plaintiffs assert that they "reasonably relied" on the "defendants' deceit" and that they would not have entered into any agreement with Obopay in the first instance, would not have pursued the MTL purchase, would not have entered into the acquisition transaction, and would not have transferred the $4.1 million if the "true facts" had been disclosed to them. Cplt ¶ 74. As with the negligence claim, plaintiffs add that "[e]ach corporate defendant is liable for punitive damages for the acts of its agents because each (a) had advance knowledge of their unfitness, (b) authorized their wrongful conduct beforehand, and/or (c) ratified their wrongful conduct afterwards, as shall be proven at trial." Cplt ¶ 76.
The motion to dismiss the cause of action for fraud and deceit is GRANTED. First, the complaint fails to allege specific facts showing the circumstances constituting fraud — the "who, what, when, where, and how" of the alleged fraud.
With regard to the allegation that "defendants" committed "corresponding acts of deceit by their words and conduct ancillary to entering into those agreements because the sole intent and purpose of these transactions . . . was the provision of its MTL rights to entities like plaintiffs[,]" Cplt ¶ 72, plaintiffs do not specify which defendants committed these acts, and do not plead facts showing "corresponding acts of deceit," or "conduct ancillary to entering into those agreements" — and do not explain what they mean by those phrases or what they mean by "the provision of MTL rights to entities like plaintiffs."
With regard to the allegation "on information and belief" that "defendants" also "engaged in numerous acts of deceit," including "failing to disclose" prior to the inception of the Agent Agreement that Obopay's U.S. operations were in financial difficulty, that Obopay was contemplating a sale that would terminate its U.S. MTL operations, that Obopay's MTLs were out of compliance, and that Obopay lacked the requisite liquidity, Cplt ¶ 73, plaintiffs do not plead facts showing who was deceived — the parties to the Agent Agreement were MH Pillars Inc. and Obopay — and do not specify who committed the fraud and whether that person or entity had a duty to disclose the allegedly omitted information.
Second, the entire claim is asserted against "all defendants," but there are no facts pled showing the role of each defendant in the alleged fraud. There is no absolute requirement that where several defendants are sued in connection with an alleged fraudulent scheme, the complaint must identify the false or misleading statements made by each and every defendant. Nevertheless, Rule 9(b) does not allow a complaint to merely lump multiple defendants together but "require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud."
Here, to the extent that any of the factual allegations might support a claim of fraud, they are not identified as such, and the cause of action itself does not plead specific facts. It should not be left to the defendants to wonder which facts plaintiffs believe support their fraud claim, and it should not be left for the court to attempt to match up the facts (many vaguely or imprecisely pled) from a lengthy section of the complaint to the various causes of action.
Finally, as for the "conspiracy" allegations, the complaint does not plead the elements of civil conspiracy, and the boilerplate "alter-ego" allegations in ¶¶ 14-15 are insufficient to transform this deficiently-pled claim into a claim of conspiracy to commit fraud.
Plaintiffs allege a claim of rescission and restitution, pursuant to California Civil Code § 1689(b). This claim is asserted against all defendants. Under § 1689, a contract may be rescinded if all the parties consent. Cal. Civ. Code § 1689(a). Apart from that, there are several legal theories under which a contract may be rescinded. See Cal. Civ. Code § 1689(b).
The complaint refers to three of these theories.
The motion to dismiss the cause of action for rescission/restitution is GRANTED. Plaintiffs have alleged no facts in this cause of action, apart from a vague reference to "the facts alleged above." Moreover, the complaint does not identify the legal theory under which plaintiffs seek rescission — although plaintiffs suggest in the opposition that it is § 1689(b)(1) — "mistake." It also appears that this cause of action may be premised on the fraud claim — though it is impossible to tell.
Apart from this, however, this cause of action must be dismissed because in California, rescission is a remedy, not a cause of action.
Both rescission and restitution may arguably be available remedies here, depending on whether plaintiffs prevail and on which causes of action, but neither is a stand-alone cause of action, and joining them together does not solve the problem. Thus, the dismissal of this cause of action is WITH PREJUDICE.
Business & Professions Code § 17200 ("UCL") prohibits any "business act or practice" that is "unlawful, unfair, or fraudulent." Cal. Bus. & Prof. Code § 17200. The UCL's purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.
Plaintiffs assert the UCL claim against "all defendants." They allege that "[d]efendants engaged in unlawful, unfair, and fraudulent business acts and practices." Cplt ¶ 83. They assert that "[t]he acts and practices were fraudulent for the reasons stated in the claim for common law deceit[;]" that "[t]he acts and practices were unlawful because defendants were essentially engaged in the business of unlawfully `renting' and `selling' MTL rights[;]" and that "[t]he acts and practices were unfair because they retained the money without providing the rights or services promised." Cplt ¶ 83.
The motion to dismiss the UCL claim is GRANTED. There are two main problems with this cause of action. First, it is not clear whether plaintiffs can state a claim, as there are no facts alleging that any defendant is a competitor of plaintiff MH Pillars Ltd. or plaintiff MH Pillars Inc. This case involves a dispute between commercial parties over their economic relationship, which does not give rise to a claim under the UCL.
The UCL was not enacted to protect commercial parties who have a dispute that revolves around a contractual business relationship.
As pled, plaintiffs' § 17200 claim "lacks any connection to the protection of fair competition or the general public,"
The second problem is that plaintiffs have not adequately pled facts showing what the alleged "unlawful," "unfair" and "fraudulent" business acts and practices were. With respect to the "unlawful" variety of unfair competition, "the UCL permits violations of other laws to be treated as unfair competition that is independently actionable."
With respect to the "unfair" variety of unfair competition, a plaintiff may plead that defendants' conduct is "unfair" within the meaning of the several standards developed by the courts.
Here, plaintiffs allege that the "acts and practices" were unfair because defendants "retained the money without providing the rights or services promised." Cplt ¶ 83. That is nothing more than a claim of breach of contract. Plaintiffs have alleged no injury to consumers, and no harm to competition, and thus, the complaint fails to state a claim for "unfair" business acts and practices.
Finally, a plaintiff may challenge "fraudulent" conduct by showing that "members of the public are likely to be deceived" by the challenged business acts or practices.
In addition, as a whole, the complaint does not specify the conduct is the predicate for the UCL claim, and it does not distinguish between each of the defendants or describe what role each defendant is alleged to have played in the alleged UCL violation.
Although the court is not confident that plaintiffs can satisfactorily allege a claim under § 17200, the court dismisses this claim WITH LEAVE TO AMEND, to give plaintiffs an opportunity to attempt to plead facts sufficient to state a plausible claim, in view of the standards set forth above.
Omney and ACS argue that the complaint does not allege facts sufficient to state a claim against them. The second (negligence), fourth (fraud and deceit), and sixth (unfair competition) causes of action are asserted against both ACS and Omney, and the first (breach of fiduciary duty) cause of action is asserted only against ACS.
Plaintiffs contend that the complaint sufficiently alleges liability against these two defendants. They argue ACS's liability derives from its alter-ego relationship with Robinson, such that it is impossible to distinguish their respective roles in these matters, and is also fair to hold them liable for each other's conduct. They assert that whether a party is liable under an alter ego theory is normally a question of fact (although, as explained below, they do not allege facts sufficient to support this theory).
As for Omney, plaintiffs assert in their opposition to defendants' motions that the company was incorporated "by Robinson" in October 2013. Plaintiff states that Omney was named as a defendant because "it appeared (and is alleged) to be the alter-ego and/or successor of Obopay and/or ACS." Plaintiffs add, "[f]or example," that all three entities were located at the same location (the 1804 N. Shoreline Drive address), and Robinson was the agent for service of process for each of them. Further, plaintiffs contend, the Obopay entity (Ultralight FS Inc.) briefly changed its name to "Omney Inc." in September 2013, just before Robinson incorporated a new Omney Inc. entity (citing id.). Plaintiffs conclude that on this basis, "it is reasonable to infer that the assets of Obopay — including the $1 million bank accounted [sic] — may by now be housed within Omney."
Finally, plaintiffs contend that on June 11, 2015, Omney and ACS filed a statement that disclosed that ACS was then a wholly-owned subsidiary of Omney, which was then a wholly-owned subsidiary of MasterCard International Inc. Plaintiffs are referring to the "Statement of Interested Entities" filed in this court by Omney and ACS on June 11, 2015. Plaintiffs appear to be saying that they did not know any of this prior to filing the complaint on March 25, 2015.
The motion to dismiss is GRANTED. The complaint does not allege facts sufficient to state a claim against ACS or Omney. In particular, the complaint does not allege facts sufficient to show liability under the alter ego doctrine. "The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests."
To survive a motion to dismiss, a plaintiff asserting application of the alter ego doctrine must "allege specifically both of the elements of alter ego liability, as well as facts supporting each."
The first of these two elements is that "there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist."
Here, plaintiffs have alleged no facts sufficient to show a unity of interest. They allege that Obopay, Omney, and ACS had the same business address and the same agent for service of process (defendant Robinson). They also appear to be suggesting that there was an identity of ownership. However, each of these defendants was or is a separate corporate entity, and plaintiffs have alleged no facts relating to corporate formalities or to stock ownership, no facts relating to whether the corporations were adequately capitalized, and no facts relating to whether the assets were commingled.
Despite the many ways available to plead unity of interest, plaintiffs provide nothing more than naked assertions, on "information and belief," that
Cplt ¶ 14.
In addition, plaintiffs allege further on "information and belief" that
Cplt ¶ 15.
This sort of boilerplate pleading is insufficient to allege alter ego liability, and conclusory legal assertions are insufficient to meet the test of plausibility set out in
Plaintiffs contend that ACS's liability is shown by the allegations in ¶¶ 10-12, 14-15, 28, 31, 41, 43 of the complaint. The court does not agree. Paragraphs 10-11 do not mention ACS, and allege only that Robinson was the registered agent for service of process of Obopay/Ultralight and Omney — at their principal place of business at 1804 N. Shorline Blvd., Suite 230, in Mountain View. Cplt ¶¶ 10-11. Paragraph 12 alleges that Robinson was also ACS's agent for service of process, at the same address. Cplt ¶ 12. Paragraphs 14 and 15 contain the boilerplate recitations set forth above, asserting that "each defendant" was the agent of each other defendant. Cplt ¶ 12.
Paragraph 28 alleges that Robinson was a Silicon Valley Obopay VP, and that he "approached plaintiffs" with an offer to sell them the MTLs, and that he also represented that he could "deliver the deal to plaintiffs in exchange for a brokerage fee to his new ACS entity." Cplt ¶ 28. Paragraph 31 alleges that Robinson "proposed structures where ACS would purchase Obopay and resell it to plaintiffs, who would thereby acquire Obopay's MTLs by merger with the residual Obopay entity," and that he and ACS would perform Obopay U.S. operations (MTL compliance support) pursuant to a commercial services agreement. ACS "would receive a payment processing Agent Agreement . . . with the new merged entity for the purpose of engaging in a corporate disbursement business of its own." Realini would serve as the CEO of Obopay and receive a percentage ownership of ACS. Cplt ¶ 31.
Paragraph 41 alleges that on January 31, 2013, Obopay "wired $276,088 to ACS" and that, "[o]n information and belief," the ACS money "went to" Robinson and Realini. Cplt ¶ 41. Paragraph 43 alleges that "[d]uring this period, plaintiffs directly paid Obopay's net operating expenses in anticipation of exercising their Option Agreement[;]" and that "monthly invoices were sent to plaintiffs from the Obopay/ACS office" at 1804 N. Shoreline Blvd., Suite 230, in Mountain View. Among the invoices was (allegedly) one for $5000/mo. for "bookkeeping/admin," which, plaintiffs allege "on information and belief, went to Robinson/ACS, who had issued the invoices." Cplt ¶ 43.
The second element of alter ego liability is that "there must be an inequitable result if the acts in question are treated as those of the corporation alone."
In addition, the plaintiff must plead an inequitable result for each claim asserted in the complaint.
The complaint does not plead facts showing either a potential inequitable result or bad faith. While it is true that Federal Rule of Civil Procedure 8 does not require "detailed factual allegations," the Supreme Court has unambiguously held that "[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."
Neither the complaint as a whole nor ¶¶ 14-15 in particular contain any "factual enhancements," and the allegations appear to be nothing more than a recitation of various factors that courts have used in applying the alter ego doctrine. In short, the complaint is deficient because it contains primarily conclusory allegations that merely recite the factors considered by courts when evaluating alter ego claims; it does not specify which corporate defendant is the alter ego of which other corporate entity and/or which individual defendant is the alter ego of which corporate defendant; and it does not allege facts showing what each individual defendant did that would justify piercing the corporate veil.
The motion is GRANTED, for the reasons stated above with regard to the motion brought by Realini, Robinson, Martin, and Obopay/Ultralight. In addition, the court finds that the complaint alleges no basis for liability against Omney and ACS. Although the court finds it unlikely that plaintiffs will be able to state a claim against Omney and ACS, the court dismisses the claims against these defendants WITH LEAVE TO AMEND. However, as stated at the hearing, if plaintiffs do amend the claims against Omney and ACS, and if defendants again move to dismiss and the court grants the motion, the court will shift costs to defendants.
While there is no specific provision in the Federal Rules of Civil Procedure relating to security for costs, federal district courts have inherent power to require plaintiffs to post security for costs.
Under California Code of Civil Procedure § 1030, "[w]hen the plaintiff in an action. . . resides out of the state, or is a foreign corporation, the defendant may at any time apply to the court by noticed motion for an order requiring the plaintiff to file an undertaking to secure an award of costs and attorney's fees which may be awarded in the action . . . ." Cal. Code Civ. Pro. § 1030(a). The statute requires the defendant to show that there is a "reasonable possibility that the moving defendant will obtain judgment in the action or special proceeding." Id. § 1030(b). "The purpose of the statute is to enable a California resident sued by an out-of-state resident `to secure costs in light of the difficulty of enforcing a judgment for costs against a person who is not within the court's jurisdiction.'"
The "reasonable possibility" standard in § 1030(b) is relatively low.
Federal courts in California have held that in applying § 1030, a court must consider "`(i) the degree of probability/improbability of success on the merits, and the background and purpose of the suit; (ii) the reasonable extent of the security to be posted, if any, viewed from the defendant's perspective; and (iii) the reasonable extent of the security to be posted, if any, viewed from the nondomiciliary plaintiff's perspective."
Defendants argue that the plaintiffs "must" be required to post a bond because they are foreign corporations, and defendants are "likely" to obtain judgment in their favor. Defendants make three main arguments — that plaintiffs are not incorporated in California, that there is a "reasonable possibility" that defendants will obtain judgment in this action, and that defendants have incurred (and will continue to incur) significant costs and fees that plaintiffs may not be able to pay.
The motion is DENIED. Defendants have not met their burden of showing that they are likely to obtain judgment in the six causes of action, or that the extent of the security they request to be posted is reasonable, from any perspective. Moreover, they have shown no basis for at least two of the three individual defendants to seek to recover fees and costs.
The only true statutory claim alleged is the sixth cause of action under § 17200. The UCL does not provide for attorney's fees, and relief is generally limited to injunctive relief and restitution.
While fees might be authorized pursuant to a contract, the breach of contract claim is asserted only against Realini and Ultralight/Obopay, in connection with the Option Agreement. Thus, at a minimum, Robinson and Martin would have no basis upon which to seek attorney's fees.
In accordance with the foregoing, the motions to dismiss are GRANTED, and the motion for a bond is DENIED.
Any amended complaint shall be filed no later than March 30, 2017. No new causes of action or parties may be added to the amended complaint unless plaintiffs first obtain leave of court.
The complaint appears to assert all causes of action on behalf of both plaintiffs, and describes Payza as "[p]laintiffs' business," but also alleges that MH Pillars Ltd. (but
