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La Jolla Cove Investors, Inc v. Sultan Corporation Limited

October 17, 2011

LA JOLLA COVE INVESTORS, INC.,
PLAINTIFF,
v.
SULTAN CORPORATION LIMITED,
DEFENDANT.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER GRANTING MOTION TO DISMISS

Defendant Sultan Corporation Limited ("Sultan") moves to dismiss two of the three claims alleged in the First Amended Complaint ("FAC"). Plaintiff La Jolla Cove Investors, Inc. ("La Jolla Cove") opposes the motion. Pursuant to Local Rule 7.1(d)(1), the court finds this matter appropriate for decision without oral argument. For the reasons set forth below, the court grants the motion to dismiss the specific performance and conversion causes of action. Sultan is instructed to file an answer to the remaining breach of contract claim within the time period provided by Fed.R.Civ.P. 12.

BACKGROUND

On July 22, 2011, Sultan, a citizen of Australia, removed this action from state court pursuant to 28 U.S.C. §1332(a)(2) because La Jolla Cove is a citizen of California and Sultan a citizen of a foreign country. (Notice of Removal ¶7). La Jolla Cove's claims arise from a July 19, 2010 Funding Agreement ("Agreement") entered into between the parties. (Compl. ¶7).

Pursuant to the Agreement, La Jolla Cove provided funding in the amount of $750,000 in exchange for a secured debenture, the 4.75% Convertible Note ("Note"). The Agreement and Note provided that "La Jolla Cove was entitled, at its option, to convert the Note up to the full principal amount into common shares of Sultan." (Coml. ¶9). During the period between July 19, 2010 and December 1, 2010, Sultan honored the conversions under the Note and Agreement equal to an aggregate principal amount of $312,079. (Compl. ¶13).

On February 28, 2011 La Jolla Cove exercised its rights to convert the principal amount of $437,921. (Compl. ¶13). Sultan allegedly refused to issue the shares as required by the Note and Agreement. At the time of the most recent conversion, the purchase price for the publicly traded shares was AU$0.009 per share. As of April 21, 2011, one day before commencing this action, the shares of Sultan traded at AU$.031 per share. (Compl. ¶17).

Based upon this generally described conduct, La Jolla Cove alleges three causes of action for breach of contract, specific performance, and conversion. Sultan now moves to dismiss the specific performance and conversion causes of action.

DISCUSSION

Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in "extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981). Courts should grant 12(b)(6) relief only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should dismiss a complaint for failure to state a claim when the factual allegations are insufficient "to raise a right to relief above the speculative level." Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007) (the complaint's allegations must "plausibly suggest[]" that the pleader is entitled to relief); Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) (under Rule 8(a), well-pleaded facts must do more than permit the court to infer the mere possibility of misconduct). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. at 1949. Thus, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. The defect must appear on the face of the complaint itself. Thus, courts may not consider extraneous material in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991). The courts may, however, consider material properly submitted as part of the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989).

Finally, courts must construe the complaint in the light most favorable to the plaintiff. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116 S. Ct. 1710 (1996). Accordingly, courts must accept as true all material allegations in the complaint, as well as reasonable inferences to be drawn from them. Holden v. Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However, conclusory allegations of law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6) motion. In Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).

The Claim for Specific Performance

The general rule for invoking specific performance in the context of a breach of agreement is that an "agreement to transfer personal property will not justify specific performance, except in case of unique chattels such as heirlooms, or shares of stock not obtainable in the open market." 11 Witkin, Summary of California Law §27 (9th Ed. 1994); Treasurer v. Commercial Coal Mining Co., 23 Cal. 390, 392 (1863) (specific performance is not an available remedy to public stocks that are commonly bought and sold in the market). Here, the alleged failure to convert monies under the Note and Agreement does not involve the transfer of any unique property. Stock in a publicly traded company like Sultan appears fungible and La Jolla Cove fails to identify any circumstance under which monetary damages will not adequately compensate for the alleged breach. While La Jolla Cove appears to allege that the conversion price as of February 28, 2011 was about AU$0.009 per share on the date of the breach (and increased in value to AU$0.031 as of the April 22, 2001 complaint filing date, Compl. ¶17), the well-established rule under California law is that damages are determined at the time of the breach. See Caminetti v. Manierre, 23 Cal.2d 94, 103 (1943); Cal. Civil Code §3300. Moreover, it appears that an award of prejudgment interest would adequately compensate La Jolla Cove for the time-value of money.*fn1

In sum, the court grants the motion to dismiss the claim for specific performance because the remedy at law appears adequate to compensate La Jolla Cove for any compensatory damages ...


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