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Pacific Maritime Freight, Inc. v. Foster

August 24, 2010

PACIFIC MARITIME FREIGHT, INC., PLAINTIFFS,
v.
SONIA L. FOSTER; THE FOSTER GROUP, INC.; AND DOES 1 THROUGH 10, INCLUSIVE DEFENDANTS.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

Defendants Sonia L. Foster and The Foster Group, Inc. have moved to dismiss the complaint [Doc. 4]. For the following reasons, the Motion to Dismiss is GRANTED in part and DENIED in part.

I. BACKGROUND

The Court only recites the allegations in the Complaint that are necessary for the resolution of the pending Motion to Dismiss. The Court's recitation of the alleged facts are taken from the Complaint and are not factual findings.

Beginning in 2004, Plaintiff Pacific Maritime Freight, Inc. (d/b/a Pacific Tugboat Service, hereinafter "PTS") employed the services of Defendants Sonia L. Foster and The Foster Group, Inc. to negotiate contracts with the Navy under the General Services Administration Schedules Program ("GSA"). (Compl. ¶ 10.) PTS had no experience with the GSA and was not familiar with its complicated procedures. (Compl. ¶ 53.) Ms. Foster is the sole owner of The Foster Group and she became PTS's sole point of contact with the GSA program, never allowing PTS to communicate with the GSA directly. (Compl. ¶¶11,13, 30.) Beginning in 2004, PTS paid Ms. Foster $2000 per month, and based on a February 2005 contract, Foster was paid $2500 per month plus a 2% commission on sales procured through her. (Compl. ¶ 11.) Foster's compensation was renegotiated several times, reaching $15,000 per month in August 2008. (Id.) Foster agreed to exclusively represent PTS. (Compl. ¶ 16.) All "significant discussions, representations, and agreements for Foster Group... involved Ms. Foster personally" and Ms. Foster ascribed her success to the good will and trust that she had personally generated with the Navy. (Compl. ¶¶ 11, 15.) PTS described this as a "marketing" program. (Compl. ¶ 13.)

As part of this marketing program, Foster secured for PTS a GSA Price List contract, which made PTS eligible to bid on contracts with the Navy. (Compl. ¶ 26.) Foster also secured for PTS contracts for the procurement of tug boats and dive boats. (Compl. ¶¶ 25-28.) In July 2009, however, Foster failed to make efforts to renew PTS's GSA Price List contract. (Compl. ¶ 32.) On September 17, 2009 Foster called the GSA contract specialist and told him that "because of non compliance, she no longer represented" PTS. (Id.) Foster formally terminated the contract with PTS on January 13, 2010. (Compl. ¶ 48.) Between September 2009 and January 2010, Foster continued to assure PTS that she was marketing them to the Navy and she continued to collect monthly fees for her services, totaling about $200,000. (Compl. ¶¶ 34, 104.) After Foster and PTS severed ties, PTS did not know who to contact in the Navy about renewing contracts, but the deadline for bids was extended so that PTS could submit their bids. (Compl. ¶¶ 53, 55.) Since the termination of the contract, PTS has not lost any contracts for Navy work, but some awards have been delayed. (Compl. ¶ 46.) Foster claims entitlement to a termination bonus fee in the amount of $90,000. (Compl. ¶ 54.)

After Foster terminated the contract, she contacted the Navy and reported that PTS was uncooperative, unreliable, and insolvent. (Compl. ¶ 49.) Foster also suggested to the Navy that the Naval Criminal Investigative Service was investigating PTS, even though a JAG inquiry revealed this to be untrue. (Id.) She also pressured one of PTS's subcontractors, Metal Shark, to submit a high bid so that PTS would not be competitive against her new client. (Compl. ¶ 57.) PTS fears that Metal Shark will fail to perform and that the Navy will no longer award them contracts. (Compl. ¶ 57.) Though PTS has not yet lost any Navy contracts and subcontractors like Metal Shark have not yet repudiated, PTS has incurred expenses repairing its relationships with the Navy and their subcontractors. (Compl. ¶ 113.)

After Foster terminated the contract, PTS also discovered what it described as "phantom GSA listings." (Compl. ¶ 35.) Foster had placed items on PTS's GSA Price List that were not sold by PTS and had nothing to do with PTS's business, like a sonic repelling device. (Id.) Foster would also occasionally pressure PTS to submit one-time bids for contracts outside of their product line, causing PTS to incur costs attendant to preparing the bids. (Compl. ¶¶ 40, 43.) PTS suspects that the phony bids were submitted to create the illusion of competition, because Department of Defense guidelines require three bids on a product before a contract is awarded. (Compl. ¶ 44.)

After Foster terminated the contract, PTS contacted Foster about retrieving trade-secret information that she had gathered throughout their contractual relationship. (Compl. ¶ 61.) In a letter dated February 11, 2010, Foster refused to return the trade-secret information, declaring that The Foster Group would not divulge trade secrets to competitors. (Compl. ¶ 62.) PTS notes that such a promise would only prevent Foster from sharing trade secrets with competitors, but Foster is free to use PTS's trade secrets while preparing bids for the competitors. (Compl. ¶ 64.)

The Complaint alleges nine claims against Sonia Foster, The Foster Group, and ten Doe defendants: (1) breach of fiduciary duty (generally), (2) breach of fiduciary duty (phantom GSA listings), (3) breach of the implied covenant of good faith and fair dealing, (4) breach of contract, (5) fraud, (6) intentional interference with prospective economic advantage, (7) trade-secret misappropriation and unfair competition, (8) rescission, and (9) a declaration that no future compensation is due to defendants. Plaintiffs also seek a variety of equitable remedies including an injunction. Defendants have moved to dismiss all claims for lack of subject-matter jurisdiction, to dismiss all nine claims against Ms. Foster in her individual capacity, and to dismiss claim five for fraud and claim six for intentional interference with prospective economic advantage against The Foster Group, Inc.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff is required only to set forth a "short and plain statement of the claim showing that the pleader is entitled to relief," and "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). When reviewing a motion to dismiss, the allegations of material fact in plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). But only factual allegations must be accepted as true-not legal conclusions. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. Although detailed factual allegations are not required, the factual allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Furthermore, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Iqbal, 129 S.Ct. at 1949.

For claims of fraud, Federal Rules of Civil Procedure 9(b) requires that the plaintiff "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). Normally, this particularity requires the "times, dates, places, benefits received, and other details of the alleged fraudulent activity." Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). However, the standard of particularity "may be relaxed with respect to matters within the opposing party's knowledge." Id. In such cases, the plaintiff "should include the misrepresentations themselves with particularity and, where possible, the roles of the individual defendants in the misrepresentations." Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989).

III. DISCUSSION

A. Issue of Doe Defendants Is Moot

Defendants assert that the inclusion of Doe defendants presumptively destroys diversity.*fn1 But after Defendants filed their motion, Plaintiff voluntarily dismissed all Doe defendants [Doc. 5]. The inclusion of the Doe defendants was the sole basis for the Defendants' 12(b)(1) motion to dismiss, and their dismissal perfects diversity. See Galt G/S v. JSS Scandinavia, 142 F.3d 1150, 1154 (9th Cir. 1998) ("Rule 21 specifically allows for the dismissal of parties at any stage of the action. There is no requirement that diversity exist at the time of the filing of the complaint.... [I]t is well settled that Rule 21 invests district courts with authority to allow a dispensable non-diverse party to be dropped at any time, even after judgment has been rendered.") (internal quotation marks and citations omitted). Accordingly, the motion is DENIED as moot.

B. Fraud Claim

Defendants assert that the Plaintiff's fraud claim is not distinct from their breach of contract claim, and that even if it is, it is not pleaded with sufficient particularity under Federal Rules of Civil Procedure 9(b).

1. The Fraud Claim Is Pleaded With Particularity

"The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." Lazar v. Superior Court, 12 Cal.4th 631, 909 P.2d 981 (1996). Each element of fraud must be pled with particularity under Rule 9(b).

Foster was the "sole point of contact" with the GSA Program. (Compl. ¶ 13.) PTS was not privy to the details of negotiations between Foster and the Navy. (Compl. ¶ 30.) Foster so completely controlled negotiations that after Foster and PTS severed ties, PTS did not know who to contact in the Navy about renewing contracts. (Compl. ¶ 53.) The allegedly phony bids and phantom competition were not discovered until after Foster and PTS severed ties. (Compl. ¶ 35.) All of the alleged misrepresentations were made during Foster's contacts with GSA program personnel, and because Foster was the sole point of contact and PTS had nothing to do with the process, the details of the alleged misrepresentations are exclusively within Foster's knowledge. PTS is thus subject to the relaxed 9(b) standard.

Under the relaxed Rule 9(b) standard, PTS has pled the misrepresentations themselves with sufficient particularity. The misrepresentations at issue involve Foster assuring PTS that she was marketing them to the GSA program when she was not doing so. Defendants dispute the generality of the description of the complaint, which identifies the time of the misrepresentation as being "on or about July 2009." (Compl. ¶ 102.) Earlier in the complaint PTS is more specific, describing that in July 2009 the GSA contract specialist contacted Foster about renewing the GSA Price List contract. (Compl. ¶ 32.) Foster did not respond until September 17, 2009, when she told the GSA contract specialist that she no longer represented PTS. (Id.) Foster concealed the contact (or lack thereof) from PTS, and PTS reasonably relied on Foster's misrepresentation that business was going as usual by continuing to pay Ms. Foster her fees until the contract was formally ...


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