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Areas Usa Sjc, LLC v. Mission San Jose Airport

August 1, 2012


The opinion of the court was delivered by: Howard R. Lloyd United States Magistrate Judge

** E-filed August 1, 2012 **



United States District Court For the Northern District of California

Areas USA SJC, LLC ("Areas") sued Mission San Jose Airport, LLC and Mission Yogurt, Inc. (collectively "Mission") alleging breach of a concession contract ("the subcontract") for the 19 build-out and operation of concession space known as TA-21 ("the space" or "TA-21") in the 20 Norman Y. Mineta San Jose International Airport ("Airport"). Dkt. No. 1 ("Complaint"). Mission 21 counterclaimed, alleging fraud in the inducement and breach of contract, contending that Areas 22 made material misrepresentations about the viability of building out TA-21 as a food concession and 23 failed to disclose material facts in contravention of an agreement to do so with the City of San Jose. 24

Areas moved to dismiss Mission's counterclaims and to strike Mission's affirmative 25 defenses. Dkt. No. 22. Mission then filed a First Amended Answer ("FAA") as a matter of course 26 pursuant to Fed. R. Civ. P. 15(a). Dkt. No. 27. Areas moved to dismiss the counterclaims in the 27 FAA and to strike the affirmative defenses, followed by Mission filing a Second Amended Answer 28 ("SAA"). Dkt. Nos. 29, 30, 32. Areas then moved to strike the SAA. Dkt. No. 34. The court granted Areas's motion to strike the SAA, granted the motion to dismiss Mission's counterclaims with leave 2 to amend, and granted in part and denied in part the motion to dismiss Mission's affirmative 3 defenses with leave to amend. Dkt. No. 47. Mission timely filed a new SAA. Dkt. No. 49. Areas 4 now moves again to dismiss Mission's counterclaims. Dkt. No. 50. Mission has opposed the motion. 5 636(c). Based on the moving papers, arguments presented at the hearing held on July 31, 2012, and 7 all applicable authority, the court rules as follows. 8

On motion, a court may dismiss a complaint for failure to state a claim. FED. R. CIV. P. 12(b)(6). The federal rules require that a complaint include a "short and plain statement" showing the plaintiff is entitled to relief. FED. R. CIV. P. 8(a)(2). The statement must "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 55 (2007). However, only 13 plausible claims for relief will survive a motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 129 14 court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 16 Dkt. No. 53. All parties have expressly consented to magistrate jurisdiction pursuant to 28 U.S.C. § 6


S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). A claim is plausible if its factual content "allows the 1949. A plaintiff does not have to provide detailed facts, but the pleading must include "more than 17 an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. at 1950. 18 Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). The factual 20 allegations pled in the complaint must be taken as true and reasonable inferences drawn from them 21 must be construed in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 22 Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987)). However, the court cannot assume that "the 24 California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). "Nor is the 26 court required to accept as true allegations that are merely conclusory, unwarranted deductions of 27 fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 28

In deciding a motion to dismiss, the court is ordinarily limited to the face of the complaint.

337-38 (9th Cir. 1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir. 1995) (citing Usher v. City of 23 [plaintiff] can prove facts which [he or she] has not alleged." Associated General Contractors of 25 2001) (citing Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994)),amended on 2 other grounds by 275 F.3d 1187 (9th Cir. 2001). 3

15(a)(2). "'Four factors are commonly used to determine the propriety of a motion for leave to 5 amend. These are: bad faith, undue delay, prejudice to the opposing party, and futility of 6 amendment.'" Ditto v. McCurdy, 510 F.3d 1070, 1079 (9th Cir. 2007) (internal citations omitted). 7

Calderon, 59 F.3d 815, 845 (9th Cir. 1995). An amendment would be "futile" if there is no set of 9 facts can be proved which would constitute a valid claim or defense. See Miller v. Rykoff-Sexton, 10 has "multiple opportunities to amend and [is] unable to cure the defects that required dismissal of [] previous complaints." Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1060 (9th 13


Areas moves to dismiss Mission's counterclaims for fraud in the inducement and breach of 16 contract, alleging that the counterclaims fail to state claims upon which relief can be granted. Dkt. 17 No. 50. Mission opposes the motion, arguing that it has provided ample factual support for its 18 claims sufficient to survive a motion to dismiss. 19 Fed. R. Civ. P. 9(b) requires that in all claims for fraud, the circumstances constituting fraud 21 must be stated with particularity. Malice, intent, knowledge, and other conditions of a person's mind 22 may be alleged generally. "Averments of fraud must be accompanied by 'the who, what, when, 23 where, and how' of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 24 (9th Cir. 2003). The elements of fraud are (a) a misrepresentation (false representation, 25 concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; 26

Rptr. 2d 377, 909 P.2d 981 (1996). "Fraud in the inducement is a subset of fraud. It 'occurs when 28 the promisor knows what he is signing but his consent is induced by fraud.'" Parino v. Bidrack, Inc.,

"A court should freely give leave [to amend] when justice so requires." FED. R. CIV. P.

"Futility of amendment can, by itself, justify the denial of a motion for leave to amend." Bonin v. 8 Inc., 845 F.2d 209, 214 (9th Cir. 1988). A complaint may be dismissed with prejudice when plaintiff Cir. 2008). 14

A. Fraud in the Inducement

(d) justifiable reliance; and (e) resulting damage. Lazar v. Super. Ct., 12 Cal. 4th 631, 638, 49 Cal. 27 2011 U.S. Dist. LEXIS 109543, *10 (N.D. Cal. Sept. 26, 2011) (quoting Rosenthal v. Great W. Fin. 2 Sec. Corp., 14 Cal. 4th 394, 415, 58 Cal. Rptr. 2d 875, 926 P.2d 1061 (1996). 3 4 superintendent for the contractor managing the SJC Airport Terminal Area Improvement Program 5

Legends Group, Inc. ("Legends"), the design firm Areas used for its concession spaces within the 7 airport, that no plumbing lines could be placed above the special security equipment*fn1 below TA-21, 8 and that "all plan documents [should] make reference" to those limitations. SAA ¶ 14-15. In 9 addition, Mission alleges that Bert Beattie, the City of San Jose's Project Manager for the Airport 10 out TA-21 "need[ed] to be informed of" the special construction issues caused by the security

equipment below TA-21 "in the design proposal." SAA ¶ 18. Mission further alleges that Areas 13 employees, Legends employees, and city employees discussed the construction issues and their 14 associated costs at length, and Areas ultimately agreed to inform any potential subconcessionaire of the relevant construction limitations.*fn2 SAA ¶¶ 18-24. 16

17 consider the viability of building out the TA-21 space, but that every visit required special security 18 access and an Areas employee escort. SAA ¶ 30. Mission alleges that it was never given any access 19 to the area below TA-21, that that area was not publically accessible, and that Areas never gave 20

Mission any indication of what was below the TA-21 space. SAA ¶ 31. Mission alleges that at least 21 once, Tafoya specifically asked Pham, the Areas employee, "whether there were any abnormal or 22 unusual construction issues that he should know about with respect to the TA-21 space" and that 23

Pham told him there were not. SAA ¶ 32. According to the SAA, this statement by Pham was made 24 months after Areas, Legends, and City employees discussed the construction limitations at the TA-

Mission contends that Areas did inform the entity with which it first attempted to negotiate a subconcession contract for the build-out of TA-21, and that that entity pulled out of negotiations 28 shortly after receiving the information about construction limitations and the associated costs. SAA

ΒΆ 25. It also alleges that a second potential subconcessionaire backed out of negotiations, presumably after learning ...

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