This case came before the court on July 31, 2009, for hearing of defendants' motions to dismiss plaintiffs' claims pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). Attorneys James J. Coster and David A. McCarthy appeared for defendant Moody's Investors Service, Inc. Attorneys Floyd Abrams, Brian T. Markley, and David Taro Biderman appeared for defendant The McGraw-Hill Companies, Inc., sued as Standard & Poor's. Attorneys Roberta A. Kaplan and Jonathan A. Patchen appeared for defendant Fitch, Inc. Plaintiffs Ronald Grassi and Sally Grassi are proceeding pro se in this action, and each appeared on his or her own behalf. The parties' arguments were heard, and the motions were submitted for decision.
Having considered all written materials filed in connection with defendants' motions, the parties' arguments at the hearing, and the entire file, the undersigned now grants defendants' motions to dismiss but also grants plaintiffs' requests for leave to amend.
Plaintiffs filed a pro se complaint in the Placer County Superior Court on January 26, 2009. The pleading was submitted on a form complaint for personal injury, property damage, or wrongful death. The pleading alleges two state law claims -- (1) negligence and (2) fraud and deceit -- against "Moody's Investor's Services, Standard and Poor's, Fitch" and DOES 1 to 10. (Def'ts' Notice of Removal, Ex. B.)
The three named defendants joined in removing the case to federal court by notice filed February 25, 2010. Defendants assert federal jurisdiction based on complete diversity of citizenship between the parties and an amount in controversy that exceeds $75,000.
After plaintiffs' motion for remand was denied by order filed May 15, 2009, each defendant filed a motion to dismiss. Plaintiffs filed written opposition and appeared at the hearing. The court subsequently granted plaintiffs' request for leave to file supplemental opposition, and the defendants were granted leave to respond. The court denied plaintiffs' request for leave to file still more briefing on the pending motion.
Plaintiffs' negligence claim includes the following statement of the reasons for defendants' liability:
Said defendants negligently over-rated the quality and value of the bonds described below being sold by Lehman Bros. knowing that potential investors and investment advisors would rely on the ratings and would not know said ratings were inaccurate and excessively high. Said conduct by defendants was done for the purpose of both assisting Lehman Bros. in the sale of said bonds, and also allowing said defendant rating companies to retain the rating business of investments being sold by Lehman Bros. by supplying inaccurate and excessively high bond ratings. (Notice of Removal, Ex. B at 4.) Plaintiffs' statement is followed by "official descriptions" of "the subject bonds." The descriptions are abbreviated and cryptic. There is no allegation that plaintiffs purchased these bonds and, but if the bonds were purchased by plaintiffs, there are no details alleged concerning the purchase or purchases.
Plaintiffs' fraud and deceit claim is identical to their negligence claim except that defendants are alleged to have acted "intentionally," rather than "negligently." (Id., Ex. B at 5.)
Plaintiffs claim loss of use of property and "Punitive Damages based upon defendants's [sic] reckless disregard in publishing false and misleading information relating to Lehman Brother's bonds." (Id., Ex. B at 3.) Plaintiffs pray for compensatory and punitive damages. (Id.)
LEGAL STANDARDS APPLICABLE TO DEFENDANTS' MOTIONS TO DISMISS
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege "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). Thus, a defendant's Rule 12(b)(6) motion challenges the court's ability to grant any relief on the plaintiff's claims, even if the plaintiff's allegations are true.
In determining whether a complaint states a claim on which relief may be granted, the court generally accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In general, pro se complaints are held to less stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520-21 (1972). However, the court need not assume the truth of legal conclusions cast in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). The court is permitted to consider material which is properly submitted as part of the complaint, documents not physically attached to the complaint if their authenticity is not contested and the plaintiff's complaint necessarily relies on them, and matters of public record. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001) (on a motion to dismiss, the court may consider matters of public record); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (on a motion to dismiss, the court may take judicial notice of matters of public record outside the pleadings). Of course, a court may take judicial notice of its own files and of documents filed in other courts. Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking judicial notice of documents related to a settlement in another case that bore on whether the plaintiff was still able to assert its ...