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Semi-Materials Co., Ltd., A Republic of Korea Corporation v. Sunpods

September 10, 2012

SEMI-MATERIALS CO., LTD., A REPUBLIC OF KOREA CORPORATION, PLAINTIFF,
v.
SUNPODS, INC., E-SOLAR EXHANGE LTD., SOLARSEAL TECHNOLOGIES, INC., AND SOLARPOWER RESTORATION SYSTEMS, INC., CALIFORNIA CORPORATIONS; MICAHEL GUMM AND DAN JAEGER, INDIVIDUALS; AND DOES 1-20,
DEFENDANTS.



The opinion of the court was delivered by: Lucy H. Koh United States District Judge

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS; ORDER DENYING AS MOOT MOTION TO STRIKE AND MOTION FOR A MORE DEFINITE STATEMENT

Before the Court is Defendants'*fn1 motion to dismiss Plaintiff's Complaint. ECF No. 4.

Also before the Court is Defendants' motion to strike portions of the Complaint, and Defendants' 21 motion for a more definite statement. ECF No. 16. Pursuant to Civil Local Rule 7-1(b), the Court 22 deemed Defendants' motions suitable for decision without oral argument. The hearing set for September 6, 2012, was vacated. For the reasons set forth below, the Court GRANTS Defendants' 24 motion to dismiss with leave to amend and DENIES as moot Defendants' motion to strike and Defendants' motion for a more definite statement. corporation, purchased 564,971 shares of Series B Preferred stock, or about ten percent of the total 4 shares, in Defendant SunPods for $999,998.67. Compl. ¶¶ 14, 15, 68, ECF No. 1. The substance 5 of Plaintiff's complaint concerns mismanagement of Defendant Sunpods. 6

¶¶ 5, 36, 70. Defendant Gumm is also the controlling shareholder of Defendant E-Solar, a 9 Solarpower, a suspended California corporation. Compl. ¶¶ 6-9. Plaintiff alleges that the "corporation defendants"*fn2 are undercapitalized and operate without the requisite corporate formalities, Compl. ¶ 13, and that these defendants are the alter ego of Defendants Gumm and 13

I.BACKGROUND

On or about March 15, 2010, Plaintiff Semi-Materials Co., Ltd., a Republic of Korea Defendant SunPods is a California corporation. Compl. ¶¶ 4. Defendants Gumm and Jaeger are the controlling shareholders, officers, and sole directors of Defendant SunPods. Compl. 8 California corporation; Defendant Solarseal, a suspended California corporation; and Defendant 10 Jaeger. Thus, Plaintiff alleges that Defendants Gumm and Jaeger should be personally responsible 14 for any liability incurred by Defendants SunPods, E-Solar, Solarseal, and Solarpower. Id.

Plaintiff alleges a number of acts of mismanagement. First, Plaintiff alleges that Defendant SunPods never delivered its share certificates, never had the required number of directors, and did 17 not hold shareholders' meetings. Compl. ¶¶ 16, 18, 19. 18 Plaintiff further alleges that Defendants Gumm and Jaeger had a range of conflicts of interest, and that they failed to disclose these conflicts or obtain independent ratification of 20 corporate decisions in which they had a personal interest. Compl. ¶¶ 17, 20. Plaintiff alleges that Defendants Gumm and Jaeger improperly used Plaintiff's investment to repay themselves back 22 salary and loans they had made to the company, Compl. ¶ 26, and that they used company funds to 23 pay for their own attorneys. Compl. ¶ 27. Plaintiff also alleges that Defendants Gumm and Jaeger 24 failed to dedicate their time and energy exclusively to SunPods and instead have engaged in the 25 management or operation of competitive businesses. Compl. ¶ 38.

Solarpower.

ORDER GRANTING MOTION TO DISMISS

See Compl. ¶ 13. The Court will assume that "corporate defendants" refers to all four of the Defendants who are, in fact, corporations: Defendants SunPods, E-Solar, Solarseal, and 28 held a board meeting on December 10, 2011, at which they discussed the possibility of selling most 3 of Defendant SunPods' assets, seeking new bridge funding, and filing for bankruptcy under 4 Chapter 7. Compl. ¶ 21. Also at this meeting, Defendants Gumm and Jaeger allegedly stated that 5 in lieu of back pay and before filing for bankruptcy, "'the SunPods patents and other trade secrets 6

In addition to these general allegations, Plaintiff alleges that Defendants Gumm and Jaeger [would] be reassigned to the corporation founder and investors and majority shareholder for the 7 unpaid compensation allowed by law.'" Compl. ¶ 22. Plaintiff alleges that these activities are 8 intended to direct Defendant SunPods' assets to Defendants Gumm and Jaeger personally, and to 9 avoid shareholders' liquidation preferences. Compl. ¶¶ 25, 55. 10 repudiated written contracts, presumably with Defendant SunPods, deferring their salaries until the company had greater cash flow and setting out terms of confidentiality and assignment of 13 inventions. Compl. ¶¶ 32, 23. 14 on December 30, 2011, alleging causes of action for: (1) breach of contract against Defendants 16 (3) interference with prospective business advantage against all Defendants; (4) interference with 18 contract against all Defendants; (5) fraud against Defendants Gumm and Jaeger; (6) unfair 19 competition against all Defendants; and (7) dissolution of the corporation against Defendants 20 Fed. R. Civ. P. Rule 12(b)(6) ("Mot.") on February 27, 2012. See ECF No. 4. Plaintiff's Response 22 to Defendants' Motion to Dismiss was filed on March 12, 2012. ("Response"), ECF No. 9. After 23 the case was reassigned to the undersigned judge on March 19, 2012, Defendants refiled their 24 motion to dismiss on March 20, 2012, and Plaintiff refiled its opposition on April 3, 2012. ECF 25 Nos. 14, 15, 19. Defendants filed their reply on April 10, 2012. ECF No. 21. 26 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 28 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering Finally, Plaintiff alleges that Defendants Gumm and Jaeger breached or anticipatorily District Court Plaintiff filed suit in the United States District Court for the Northern District of California SunPods, Gumm, and Jaeger; (2) breach of fiduciary duties against Defendants Gumm and Jaeger; 17 SunPods, Gumm, and Jaeger. See Compl. Defendants filed their motion to dismiss pursuant to whether the complaint is sufficient to state a claim, the court must accept as true all of the factual 2 allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, the 3 court need not accept as true "allegations that contradict matters properly subject to judicial notice 4 or by exhibit" or "allegations that are merely conclusory, unwarranted deductions of fact, or 5 unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 6

II. LEGAL STANDARD

While a complaint need not provide detailed factual allegations, it "must contain sufficient factual 7 matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially 9 plausible when it "allows the court to draw the reasonable inference that the defendant is liable for 10 the misconduct alleged." Id.

A complaint alleging fraud must "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). Allegations of fraud must be stated with "specificity including an 13 account of the 'time, place, and specific content of the false representations as well as the identities 14 of the parties to the misrepresentations.'" Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)

(quoting Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)). To survive a motion 16 to dismiss, "allegations of fraud must be specific enough to give defendants notice of the particular 17 misconduct which is alleged to constitute the fraud charged so that they can defend against the 18 charge and not just deny that they have done anything wrong." Id. (quoting Bly-Magee v. 19 California, 236 F.3d 1014, 1019 (9th Cir. 2001)) (internal quotations omitted).

Court take Judicial Notice of two "Business Entity Detail" reports from the California Secretary of Under Federal Rule of Evidence 201, "[t]he court may judicially notice a fact that is not subject to 27 reasonable dispute because it can be accurately and readily determined from sources whose 28 accuracy cannot reasonably be questioned." The "Business Entity Detail" reports are public

III. ANALYSIS

A.Suspended Corporations

Plaintiff notes in its Response to Defendants' Motion to Dismiss, ECF No. 19, that Defendants Solarpower and Solarseal are suspended corporations. Plaintiff has requested that the 24 State, one identifying Solarseal's suspended status, and the other, Solarpower's suspended status. 26 records filed with the Secretary of State. "A trial court may presume that public records are 2 authentic and trustworthy," Gilbrook v. City of Westminster, 177 F.3d 839, 858 (9th Cir. 1999), 3 and, thus, fall within the purview of Federal Rule of Evidence 201. Accordingly, the Court takes participation in Defendants' Motion to Dismiss. California law provides for the suspension of "the 7 corporate powers, rights, and privileges" of a corporation that does not pay its taxes. Cal. Rev. & Judicial Notice of these documents.*fn3

Plaintiff has further asked that the Court strike Defendants Solarpower and Solarseal from Tax Code § 23301. Suspended California corporations may not "prosecute or defend an action, 9 appeal from an adverse judgment, seek a writ of mandate, or renew a judgment obtained prior to 10 suspension." Grell v. Laci Le Beau Corp., 73 Cal. App. 4th 1300, 1306 (citations omitted). Even a Solarpower and Solarseal lack capacity to file a Motion to Dismiss. Plaintiff's request to strike 14 demurrer filed while a corporation is suspended is "an unauthorized act by a suspended corporation

District Court For the Northern District of California in violation of Revenue and Taxation Code section 23301." Id. Accordingly, Defendants 13 Defendants Solarpower and Solarseal from participation in the joint Motion to Dismiss is United States GRANTED. The remainder of this Order applies only to Defendants SunPods, E-Solar, Gumm, 16 and Jaeger. 17 19 establishing the following elements: "(1) existence of the contract; (2) plaintiff's performance or 20 excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the 21 breach." CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239, 70 Cal. Rptr. 3d 667 22 (2008). Under California law, "a contract requires parties capable of consent, the consent of those 23 parties, a lawful object, and sufficient consideration." ASP Props. Grp. v. Fard, Inc., 133 Cal. 24

ORDER GRANTING MOTION TO DISMISS

B.Breach of Contract

To state a claim for breach of contract under California law, Plaintiff must plead facts App. 4th 1257, 1268-69 (2005) (citing Cal. Civ. Code § 1550). In addition, for a contract "'to be 2 enforceable, a promise must be definite enough that a court can determine the scope of the duty[,] 3 and the limits of performance must be sufficiently defined to provide a rational basis for the 4 assessment of damages.'" Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199, 209 (2006) (quoting 5

Plaintiff alleges that Defendants SunPods, Gumm, and Jaeger breached written contracts by 7 failing to disclose conflicts of interest and by failing to disclose that they were operating Defendant 8 Ladas v. Cal. State Auto. Ass'n, 19 Cal. App. 4th 761, 770 (1993)). 6

SunPods with an inadequate number of directors, and that Defendants Gumm and Jaeger breached 9 agreements providing for confidentiality, assignment of inventions, and deferral of salaries. 10 state a claim for breach of contract. The only particular agreement mentioned in Plaintiff's complaint is that "Gumm and Jaeger previously signed written agreements deferring their salaries 13 However, the mere allegation that some conduct violated written contracts, without more, does not 'until the company has grown sales and cash flow to be able to repay.'" Compl. ¶ 23. Plaintiff 14 does not specify with whom this written agreement was made, nor what obligations each party incurred. Even assuming that this allegation sufficiently pleads the existence of a contract 16 concerning deferred salaries, nowhere has Plaintiff pleaded the existence of any contract 17 concerning conflicts of interest or number of directors, confidentiality, or assignment of inventions. 18

Nor has Plaintiff alleged its own performance under any alleged contract(s). Finally, Plaintiff has 19 entirely failed to plead if ...


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