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James R. Alberts and Brian Cameron v. Razor Audio

February 16, 2012

JAMES R. ALBERTS AND BRIAN CAMERON, PLAINTIFFS,
v.
RAZOR AUDIO, INC., A DELAWARE CORPORATION; ET AL., DEFENDANTS.
THOMAS ALBERTS, AN INDIVIDUAL, CROSS-CLAIMANT,
v.
JACK CRAWFORD, JR., AN INDIVIDUAL; ET AL., CROSS-DEFENDANTS.



ORDER

This matter comes before the court upon cross-defendants Henry Montgomery's ("Montgomery") and DLA Piper LLP, Gilles Attia, and David Richardson's ("Attorneys") motions to dismiss the cross-complaint. (ECF 33 and 39.) The court has reviewed the parties' submissions and decided these motions without hearings. For the following reasons, the court hereby GRANTS Montgomery's and Attorneys' motions.

I. PROCEDURAL HISTORY

Plaintiffs filed their complaint on May 18, 2010 (ECF 2) and their first amended complaint on July 22, 2010. (ECF 11.) Cross-complainant Thomas Alberts ("Alberts") filed his cross-complaint on February 3, 2011. (ECF 22.) Alberts alleges nine causes of action: 1) fraud, against all cross-defendants except Attorneys;*fn1 2) intentional breach of fiduciary duty, against all cross-defendants except Attorneys; 3) negligent breach of fiduciary duty, against all cross-defendants except Attorneys; 4) violation of Section 10(b) of the 1934 Securities Act and Rule 10b-5, against all cross-defendants except Attorneys; 5) violation of Section 20(a) of the 1934 Securities Act, against all cross-defendants except Attorneys; 6) violation of California Corporation Code §§ 25401 and 25501, against all cross-defendants except Attorneys; 7) violation of California Corporations Code § 25504, against all cross-defendants except Attorneys; 8) breach of contract, against all cross-defendants except Attorneys; and 9) legal malpractice against Attorneys.

Montgomery filed the present motion to dismiss in lieu of an answer on March 21, 2011. (ECF 33.) Alberts filed an opposition on April 12, 2011. (ECF 36.) Montgomery filed a reply on April 20, 2011. (ECF 37.)

Attorneys filed the present motion to dismiss in lieu of an answer on May 5, 2011. (ECF 39.) Alberts filed an opposition on May 24, 2011. (ECF 43.) Attorneys filed a reply on June 1, 2011. (ECF 47.)

II. ANALYSIS

A. Standard

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of 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).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," FED. R. CIV. P. 8(a)(2), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action.'" Id. at 1949 (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); compare Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion).

B. Application

1. Montgomery's Motion to Dismiss*fn2 (ECF 33)

i. Fraud

Common law fraud "normally requires the plaintiff to prove (a) [a] misrepresentation . . .; (b) knowledge of falsity . . .; (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." Hypertouch, Inc. v. ValueClick, Inc., 192 Cal. App. 4th 805, 820 (2011) (internal quotations omitted). "A plaintiff may recover for fraud when he shows that by reason of a defendant's misrepresentations he has sustained some pecuniary damage or injury by reason of having been put in a position worse than he would have occupied had there been no fraud." R. D. Reeder Lathing Co. v. Cypress Ins. Co., 3 Cal. App. 3d 995, 999 (1970). "Detrimental reliance is an essential element of fraud." Hunter v. Up-Right, Inc., 6 Cal. 4th 1174, 1197 (1993).

Montgomery contends that Alberts's fraud claim fails to satisfy the requirements of Federal Rule of Civil Procedure 9(b) because it is not pled with particularity. (Montgomery's Mot. at 2.) Alberts argues that fraud is properly pled because there was a conspiracy between Montgomery and other cross-defendants. (Alberts's Opp'n to Montgomery at 7.)

Federal Rule of Civil Procedure 9(b) provides: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Rule 9(b) "requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations. While mere conclusory allegations of fraud will not suffice, statements of time, place and nature of the alleged fraudulent activities will." Bosse v. Cromwell Collier & MacMillan, 565 F.2d 602, 611 (9th Cir. 1977) (internal citations omitted). "A party alleging fraud must set forth more than the neutral facts necessary to identify the transaction." Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation omitted).

Alberts has failed to set forth sufficient factual allegations to survive a motion to dismiss his fraud claim against Montgomery. Alberts's reliance on a conspiracy theory in his opposition to the motion does not save the complaint, as he does not plead conspiracy with any particularity, nor are there any factual allegations in the complaint that serve to "'nudge'" his claim "'across the line from conceivable to plausible.'" Iqbal, 129 S. Ct. at 1951 (quoting Twombly, 550 U.S. at 570). In the cross-complaint, the only fact Alberts alleges with any particularity is that Montgomery was the CFO of VVC, Velocity VC Management II, and Razor. (Cross-complaint ¶¶ 18, 23, 24.) Alberts also attempts to allege that Montgomery, along with other cross-defendants, "used [his] control over RAZOR to siphon off investment monies . . ." and "disregarded the corporate formalities associated with the corporate governance of RAZOR . . . ." (Id. ¶ 24.) However, these are the precise sort of "bald allegations" that are insufficient to survive a motion to dismiss. See Iqbal, 129 S. Ct. at 1951. Moreover, Alberts has failed to satisfy Federal Rule of Civil Procedure 9(b). In sum, Alberts has failed to provide "sufficient factual matter" showing that Montgomery made any misrepresentations to him, much less that Alberts relied on such misrepresentations. The first cause of action is dismissed without prejudice.

ii. Intentional breach of fiduciary duty and negligent breach of fiduciary duty

"'To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty and damages.'" Shopoff & Cavallo LLP v. Hyon, 167 Cal. App. 4th 1489, 1509 (2008) (quoting Charnay v. Cobert, 145 Cal. App. 4th 170, 182 (2006)). "[T]here must be an adequate showing of each of these elements." City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 483 (1998). "Whether a fiduciary duty exists is generally a question of law." Amtower v. Photon Dynamics, Inc., 158 Cal. App. 4th 1582, 1599 (2008). "A fiduciary or confidential relationship can arise when confidence is reposed by persons in the integrity of others, and if the latter voluntarily accepts or assumes to accept the confidence, he or she may not act so as to take advantage of the other's interest without the ...


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