The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge
ORDER DENYING DEFENDANTS' MOTION TO DISMISS Doc. No. 26
Plaintiffs filed the instant action alleging certain wrongful conduct by Defendants in relation to the sale of their individual security interests in a limited partnership. Plaintiffs' first amended complaint alleges five causes of action: (1) securities fraud in violation of CAL.
CORP. CODE §§ 25401, 25501 & 25504; (2) securities fraud in violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Securities Exchange Act"); (3) insider trading in violation of CAL. CORP. CODE §§ 25402 & 25502; (4) fraud; and (5) breach of fiduciary duty. (Doc. No. 21, "FAC.") Defendants now bring a motion to dismiss. (Doc. No. 26.)
Pursuant to CivLR 7.1(d)(1), the court has determined this matter is appropriate for resolution without oral argument. For the reasons set forth below, the court DENIES Defendants' motion to dismiss.
Plaintiffs Michael Luciani, Paul Luciani, Kathryn Lee, and Phillip Linssen are four individuals each of whom, prior to the events in question, owned a limited partnership interest in Defendant Sav-On Systems ("Sav-On" or the "Company"), a California company that owns certain improved real estate in San Diego County on which it operates a self-storage facility. (FAC ¶¶ 5-8 & 10.) Defendant Tony Luciani held a majority ownership interest in the Company during that same period of time. (Id. ¶ 9.) Plaintiffs allege that, before they sold their interests, they did not participate in the management of Sav-On's operations, acting merely as passive investors; rather, it was Tony Luciani, Sav-On's general partner, who held exclusive management control over the company. (Id. ¶ 12 & 17.) Before becoming general partner in the beginning of 2008, Tony Luciani had been the sole managing partner of Sav-On since November 2005, and operating manager for more than twenty years prior to that. (Id. ¶ 17.)
On or around March 21, 2008, Tony Luciani directed Sav-On to file a complaint in San Diego County Superior Court seeking dissolution of the limited partnership. (Id. ¶ 20.) According to Plaintiffs, Tony Luciani did so with the knowledge that, of all of Sav-On's owners, he alone had the financial resources to purchase the partnership's assets, such that if the dissolution proceeding ended in a forced sale of the Company, he would be able to submit a "'low ball' bid" for Plaintiffs' interests and set the price at "an artificially low level" for his own benefit. (Id. ¶ 21.)
The FAC alleges that, in the months following the filing of the complaint seeking dissolution, "Tony Luciani made or caused to be made various statements to  Plaintiffs concerning the value of the partnership's assets and the value of the limited partners' interests." (Id. ¶ 22.) In particular, Plaintiffs identify three separate communications in which Tony Luciani allegedly made false representations about the value of Plaintiffs' holdings: The first was a letter dated December 19, 2008, in which Tony Luciani, through his attorneys, gave Plaintiffs a detailed analysis of Sav-On's fair market value, concluding in a low valuation of the limited partners' assets. (Id. ¶ 23.) On or around the same date, Tony Luciani's attorneys also delivered to Plaintiffs a document entitled "Background & Analysis Re Value," a report which stated that, due to the current economic situation, the value of their assets was lower than it had been historically. (Id. ¶ 24.) Both these documents purported to value Sav-On based on its expected future profits from operation of the self-storage business, and neither addressed the possibility of a sale of a portion of the Company's land. (Id. ¶¶ 23-24.) Finally, in a letter dated January 12, 2009, Tony Luciani's attorneys also conveyed to Plaintiffs that Tony Luciani was a "distressed buyer," and that the value they could expect to receive for the sale of the Sav-On assets was severely constrained by Tony Luciani's limited ability to pay. (Id. ¶¶ 25-26.) Plaintiffs allege that the combined effect of these communications was to "cast Sav-On  and its assets in the worst possible light," and, when combined with the threat of a forced court sale of the partnership's assets, to induce Plaintiffs to sell their partnership interests to Tony Luciani at "distressed values." (Id. ¶¶ 27-28.)
However, in reality, according to Plaintiffs, Tony Luciani knew that the Sav-On assets were worth far more than what he had represented to them. Shortly before Tony Luciani filed the lawsuit for dissolution, he had been in contact with the San Diego Metropolitan Transit Service ("MTS"), which had expressed interest in purchasing a 2.43-acre portion of the property owned by Sav-On (the "Irongate Property"). (Id. ¶ 29.) Plaintiffs claim they knew nothing of the discussions between Tony Luciani and MTS prior to agreeing to sell him their shares. (Id.) Instead, after completing his purchase of Plaintiffs' partnership interests, Tony Luciani sold the Property to MTS for a large profit, at a rate that implied a valuation of Plaintiffs' interests that was more than double what Tony Luciani had said they were worth. (Id. ¶ 30.) According to Plaintiffs, they did not discover Tony Luciani's earlier 2008 negotiations with MTS until April 2010. (Id. ¶ 31.)
On November 17, 2010, Plaintiffs brought suit against Defendants in California Superior Court. (Doc. No. 1 p.1.) In addition to Tony Luciani and Sav-On, the Complaint names Luciani Storage Management, LLC ("LSM"), a California limited liability company, as a defendant. Plaintiffs allege that LSM was created by Tony Luciani "for the purpose of becoming the new General Partner of [Sav-On] effective immediately after Tony Luciani fraudulently induced Plaintiffs to sell him all of their limited partnership interests." (FAC
¶ 11.) Defendants removed the action to federal court on December 15, 2010, citing federal question jurisdiction under 28 U.S.C. § 1331 based on Plaintiffs' claim for Securities Exchange Act violations (Doc. No. 1 p.2), and then successfully moved to dismiss that claim on the grounds that it was inadequately pled under the Private Securities Litigation Reform Act of 1995 ("PSLRA") (Doc. No. 19). Plaintiffs subsequently filed the FAC, which Defendants now move to dismiss in its entirety. (Doc. No. 26.) Plaintiffs have filed objections to Defendants' motion. (Doc. No. 29.)
A motion to dismiss under FED. R. CIV. P. 12(b)(6) challenges the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). In evaluating the motion, the court must construe the pleadings in the light most favorable to the non-moving party, accepting as true all material allegations in the complaint and any reasonable inferences drawn therefrom. See, e.g., Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). While Rule 12(b)(6) dismissal is proper only in "extraordinary" cases, United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981), the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court should grant 12(b)(6) ...