The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION RE BAC DEFENDANTS' MOTION TO DISMISS THE FIFTEENTH CLAIM FOR FRAUD AND TO DISMISS AND/OR STRIKE CONSPIRACY TO COMMIT FRAUD ALLEGATIONS OF PLAINTIFFS' SIXTEENTH CLAIM (DOC. 588)
Defendants Merck & Co., Inc., Amsted Industries, Inc., Baltimore Aircoil Company, Inc., and Track Four, Inc., (the "BAC" Defendants"), move to dismiss the fifteenth claim for "Fraud and Deceit" in Plaintiffs' Seventh Amended Complaint ("7thAC") on the ground that Plaintiffs have failed to allege fraud with particularity as required by Federal Rule of Civil Procedure 9(b).
Doc. 588. BAC Defendants also move to dismiss and/or strike Plaintiff's sixteenth claim for conspiracy to the extent that claim is based on Plaintiffs' fraud allegations. Id. Plaintiffs oppose dismissal. Doc. 616. The BAC Defendants replied. Doc. 625. Oral argument was heard on March 15, 2010.
Rule 9(b) requires that, in all averments of fraud, the circumstances constituting fraud be stated with particularity. Rule 9(b) "demands that the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong." Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal citations and quotations omitted). "Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged." Id. "A party alleging fraud must set forth more than the neutral facts necessary to identify the transaction." Id.
Rule 9(b) serves three purposes: (1) to provide defendants with adequate notice to allow them to defend the charge and deter plaintiffs from the filing of complaints "as a pretext for the discovery of unknown wrongs;" (2) to protect those whose reputation would be harmed as a result of being subject to fraud charges; and (3) to "prohibit  plaintiff[s] from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis."
A.Motion to Dismiss Fifteenth Cause of Action.
This is the third time the BAC Defendants have moved to dismiss Plaintiffs' fraud allegations for failure to comply with Rule 9(b). See Docs. 419 & 562. Although the district court did not adopt every argument raised by the BAC Defendants, both previous motions were granted with leave to amend.
In an October 16, 2009 Memorandum Decision, the district court addressed the fraud allegations in Plaintiffs' Sixth Amended Complaint ("6thAC"), which focused on alleged "half-truths" contained in statements made by the BAC Defendants. Rejecting the BAC Defendants' argument that "half-truths" cannot trigger fraud liability in the absence of a "special relationship" (e.g. parties to a real estate transaction), it was recognized that, under Randi W. v. Muroc Joint Unified Sch. Dist., 14 Cal. 4th 1066 (1997), no such special relationship is required. Doc. 562 at 6-10. In addition, the district court found that Plaintiffs "sufficiently alleged that the BAC Defendants had a duty not to tell half-truths because the BAC Defendants allegedly spoke out about contamination and spoke misleadingly. Proof is not required at the pleading stage." Id. at 12. However, the fraud claim nevertheless failed to satisfy the requirements of Rule 9(b) because it failed to "identify by name specific Plaintiffs who received the allegedly misleading information and relied upon it to their detriment." Id.
At oral argument, the information needed to satisfy Rule 9(b) was discussed, and it was determined that Plaintiffs must provide a list of "specific plaintiffs that  received the information, relied upon the information and acted accordingly":
THE COURT: *** Let us turn to the motion which is to dismiss the 18th claim for fraud and to dismiss and strike the conspiracy to commit fraud allegations.
Based primarily on Rule 9(b) considerations, we have in effect been here before. And without going through, there are a number of cases that are discussed on both sides. We discussed this on earlier occasions.
And what concerns the Court is that where deceit type of fraud, as prescribed by the California Civil Code, even where there are omissions to disclose or where there are half truths, we have previously ruled that there is not a special relationship that would give rise to a special duty of disclosure. It is recognized that when anybody speaks, and they speak about a matter that has the potential to injure somebody, that they ought to speak accurately.
But the Court's concern is that I still believe that there has to be an allegation that one or more of the plaintiffs relied on anything that a defendant said. And we still don't have that in this complaint.
And so to get to the bottom of this quickly, I'm going to give one last opportunity to amend....there has to be actual reliance, actual reliance means that you heard or saw or were a recipient of the communication and that you then acted to your detriment in some way. In other words, that you relied. That is what the law calls for.
MR. MARDEROSIAN: This is Mick Marderosian on behalf of plaintiffs. Just a ...