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Seed Services, Inc., A California Corporation v. Winsor Grain

February 8, 2011

SEED SERVICES, INC., A CALIFORNIA CORPORATION,
PLAINTIFF,
v.
WINSOR GRAIN, INC., A MINNESOTA CORPORATION, WILLIAM L. COOK, AN INDIVIDUAL, AND DOES 1 THROUGH 35, INCLUSIVE,
DEFENDANTS.



ORDER RE: MOTION TO DISMISS

Defendants have made a motion to dismiss for failure to state a claim under Fed. Rule Civ. Proc. 12(b)(6). Plaintiff opposes the motion. Based on the analysis contained herein, the motion to dismiss is denied.

I. History*fn1 Plaintiff Seed Services, Inc. ("Seed Services") produces and supplies seeds for agricultural production. Defendant Winsor Grain, Inc. ("Winsor Grain") sells Seed Services's products in the Middle East. Defendant William Cook ("Cook") is the owner and president of Winsor Grain (collectively "Defendants"). On August 30, 2010, Seed Services and Defendants entered into a contract whereby Seed Services agreed to buy certain assets of Winsor Grain ("Contract"). In key part, Winsor Grain agreed to transfer to Seed Services certain intellectual property, to turn over its customer list, to have Cook act as Seed Services's agent for nine months, and to cease all new sales. In return, Seed Services agreed to pay Winsor Grain a total of $1,000,000; $250,000 of which was to be paid immediately in the form of credit for accounts payable Winsor Grain owed Seed Services. On September 8, 2010, Seed Services sent a shipment of seed to third party Erzam Agricultural Trading Co. ("Erzam") in Saudi Arabia which arrived on October 12, 2010. On that date, Cook instructed Erzam to deposit the $900,000 payment for the shipment to an account owned by Winsor Grain. Seed Services objected to the money going to Winsor Grain.

Seed Services filed suit on November 22, 2010, alleging the following causes of action:

(1) conversion on the part of Defendants, (2) breach of fiduciary duties on the part of Cook, (3) fraud on the part of Defendants, (4) seeking rescission of the Contract against Winsor Grain, (5) breach of contract on the part of Winsor Grain, and (6) unjust enrichment on the part of Defendants. Doc. 1. Defendants have filed a motion to dismiss for failure to state a claim. Seed Services opposes the motion. The matter was taken under submission without oral argument.

II. Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown that the pleader is entitled to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated...laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).

In deciding whether to dismiss a claim under Fed. Rule Civ. Proc. 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed. Rule Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.

If a Fed. Rule Civ. Proc. 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

Defendants do not address each cause of action separately, but instead focuses on two general issues: the contract language and the requirements of fraud.

A. Contract Language

The complaint states, in key part,

13. Because Seed Services was to make all new shipments of seed, and Winsor was to halt all new seed sales as of the date of contract, all payments for new shipments were to go directly to Seed Services. On September 8, 2010, Seed Services sent a shipment of its seed to Erzam Agricultural Trading Co. in Saudi Arabia, which arrived in Saudi Arabia on October 12, 2010. Erzam Agricultural Trading Co. was to wire payment for said shipment to a designated bank account of Seed Services in Fresno, California.

14. On October 12, 2010 without prior notice, warning, consent or authorization of Seed Services, and while acting as an agent of Seed Services, Defendant Cook diverted the $900,000.00 payment intended for Seed Services by instructing Erzam Agricultural Trading Co. to wire the payment for this shipment to a separate bank account owned by Defendant ...


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