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Tain v. Hennessey

December 1, 2009


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court


This is a breach of contract case, with the underlying facts going back ten years. Currently before the Court is Defendant Hennessey's Motion to Dismiss, filed on August 7, 2009. [Doc. No. 45]. Having considered the parties arguments, and for the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Hennessey's Motion to Dismiss.


A. Factual Background

This case arises from a contract dispute between Plaintiff, co-trustee of the Tain Family Trust ("Trust"), and Hennessey. On June 24, 1999, Plaintiff and Hennessey entered into a written contract, which was negotiated and entered into in the County of San Diego ("Agreement"). (Compl. ¶ 6; see also id., Ex. A [hereinafter Agreement].) Plaintiff agreed, on behalf of the Trust, to purchase a fifty-percent interest in the Chesterfield Capital Group, LLC ("Chesterfield company") for a total purchase price of $350,000. (Compl. ¶ 6; Agreement art. 2.3.) The Agreement also provided that, no later than ninety days from the date of closing, Plaintiff was required to make an additional capital contribution of $250,000 to the Chesterfield company. (Agreement art. 2.4.)

At the time the parties entered into the contract, Hennessey was the Chesterfield company's licensed securities broker. (Compl. ¶ 7.) According to Plaintiff, Hennessey promised Plaintiff that he would use his securities license to generate substantial sums of money for the Chesterfield company. (Id.) Hennessey also allegedly offered Plaintiff the opportunity to make the additional $250,000 capital contribution to the Chesterfield company, advising Plaintiff that the Chesterfield company would provide the Trust with a high rate of return on its investments. (Id.) Neither of these promises, however, appears in the Agreement.*fn1 Moreover, the Agreement contains an integration clause, which provides in pertinent part as follows:

This Agreement and any agreement, instrument or document to be executed in connection herewith (as referenced herein) contain the parties' entire understanding and agreement with respect to the subject matter hereof. Any discussions, agreements, promises, representations, warranties or statements between the parties or their representatives (whether or not conflicting or inconsistent) that are not expressly contained or incorporated herein shall be null and void and are merged into this Agreement. (Agreement art. 8.3.)

Plaintiff alleges that, in reliance on Hennessey's representations, it paid the $350,000 purchase price on behalf of the Trust, as well as $10,000 toward capital contribution. (Compl. ¶ 8.) However, around August 1999, before Plaintiff was required to pay the remaining $240,000 capital contribution as provided by the Agreement, Hennessey apparently demanded that Plaintiff contribute an additional $750,000 on behalf of the Trust. ( Id. ¶ 9.) When Plaintiff refused, Hennessey allegedly declined to use his securities license to benefit the company and eventually abandoned the company. (Id.) Accordingly, Plaintiff never paid the remaining $240,000 still owed under the Agreement. (Id. ¶ 22.)

II. Procedural Background

On July 24, 2003, Plaintiff commenced this action against Hennessey and the Chesterfield company, alleging causes of action for: (1) rescission of contract based on fraud, (2) rescission of contract based on failure of consideration, (3) fraud, (4) breach of contract, and (5) common count for money had and received. (Compl. ¶¶ 5-27.) On May 5, 2005, after Defendants failed to answer, the Court granted in part and denied in part Plaintiff's application for default judgment. [Doc. No. 17].

However, on April 30, 2009, after finding that Plaintiff's chosen method of publication did not satisfy California's service by publication rules, the Court granted Defendant Hennessey's motion to set aside judgment. [Doc. No. 33]. Subsequently, on August 7, 2009, Hennessey filed the present motion to dismiss Plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).


A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings. A complaint survives a motion to dismiss if it contains "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S.544, 570 (2007). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citing Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008)).

Despite the deference, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949-50 (2009). It is also improper for the court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 129 S.Ct. at 1950.

Where the defendant alleges that dismissal is proper because the plaintiff's claims are barred by the applicable statute of limitations, the Court must determine "whether 'the running of the statute [of limitations] is apparent on the face of the complaint.'" Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006) (citations omitted). "[A] complaint cannot be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that would establish the timeliness of the claim." Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206 (9th Cir. 1995).


I. Parol Evidence Rule

A. Parties' Arguments

Hennessey first relies on Code of Civil Procedure § 1856 ("Section 1856"),*fn2 which is California's statutory expression of the parol evidence rule ("PER"), in arguing that the Agreement supercedes and bars enforcement of any alleged promises or misrepresentations made prior to the Agreement. See CAL. CIV. PROC. CODE § 1856(a). According to Hennessey, the Agreement contains no covenant or promise that Hennessey would do anything beyond conveying to Plaintiff the 50% membership interest in the Chesterfield company in exchange for $350,000. Thus, because the Agreement is fully integrated, Hennessey argues Section 1856 bars evidence of any prior inconsistent or consistent terms. Moreover, Hennessey argues the Agreement's broad integration clause, which makes any alleged obligations "not contained or incorporated" in the written agreement "null and void." similarly bars all of Plaintiff's claims. (See Agreement art. 8.3.)

Plaintiff responds that the extrinsic evidence in this case is admissible because it is being offered to prove a meaning to which the language of the Agreement is reasonably susceptible--i.e., to show what the parties meant by their respective promises. Thus, according to Plaintiff, extrinsic evidence should be admitted to show the value of the right to income that was implied in Hennessey's promise to convey his 50% membership interest. Moreover, Plaintiff argues Section 1856 does not bar it from introducing evidence showing it was fraudulently induced to enter the Agreement.

B. Legal standard

Section 1856 is California's codification of the PER, and it "'generally prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument.'" Case Herrera, Inc. v. Beydoun, 32 Cal. 4th 336, 343 (2004) (citations omitted). It is a "substantive rule of law" pursuant to which "'the act of executing a written contract... supercedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.'" Id. at 343-44 (quoting BMW of North Am., Inc. v. New Motor Vehicle Bd., 162 Cal. App. 3d 980, 990 (1984)). "In other words, the evidentiary consequences of ...

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