This matter is again before the court on Skylux, STPL, and Puzhakkaraillath's (together, "defendants") motion to dismiss plaintiffs' claims against them in the Sixth Amended Complaint ("Sixth AC") pursuant to Federal Rule of Civil Procedure 12(b)(6).
In the court's October 26, 2012 Order ("Order"), the court dismissed all of plaintiffs' claims except Shannon Callnet's fourth claim for breach of implied warranty. (Oct. 26, 2012 Order ("Order") (Docket No. 148).) After the Order, plaintiffs filed their Sixth AC*fn1 alleging: 1) breach of contract; 2) breach of duty of good faith and fair dealing; 3) breach of express warranty; 4) breach of implied warranty; and 5) unfair business practices under California Business and Professions Code section 17200 et seq. (Id.) Defendants now move to dismiss plaintiffs' first, second, third, and fifth claims for failure to state a claim under Rule 12(b)(6).
To survive a motion to dismiss, a plaintiff must plead
"only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and "[w]here a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557). In deciding whether a plaintiff has stated a claim, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).
A. Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, and Breach of Express Warranty
In its Fourth Amended Complaint, Shannon Callnet previously attempted to the bring claims for breach of contract, breach of implied covenant of good faith and fair dealing, and breach of express warranty against defendants. The court dismissed the claims for lack of standing because plaintiffs conceded that "plaintiff Randhawa is indeed the correct party to bring contractual causes of action against STPL, since it was Randhawa who executed the MOU." (Order at 2 (quoting Pl.'s Opp. to Mot. to Dismiss Fourth AC at 4 (Docket No. 145)).) The court noted that, because Randhawa signed the MOU, "only Randhawa has standing to bring the claim unless Shannon Callnet alleges facts sufficient to support another theory that would allow it to sue under the MOU." (Order at 2 (citing Berclain v. Am. Latina v. Baan Co., 74 Cal. App. 4th 401, 405 (1st Dist. 1999) (breach of contract claims "generally require the party to be a signatory to the contract, or to be an intended third party beneficiary")).)
In the Sixth AC, Randhawa brings the contractual claims against defendants. Defendants now argue that Randhawa lacks prudential standing in federal court because the harms alleged in the Sixth AC are harms suffered principally by Shannon Callnet. See Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331, 336 (1990) (noting that shareholders are generally prohibited from "initiating actions to enforce the rights of the corporation unless the corporation's management has refused to pursue the same action for reasons other than good-faith business judgment").
In response, plaintiffs assert, for the first time, that Randhawa's contract claims are not based on the MOU, but on some subsequent agreement between the parties. They argue that defendants' reliance on the terms of the MOU in arguing that Shannon Callnet, and not Randhawa, suffered injury "is both in one sense inappropriate and in any event incomplete," because "the text of the MOU was not presented to plaintiff Randhawa until later, and hence there is no assurance that all of its express terms actually memorialized the agreement." (Pls.' Opp'n at 9 (Docket No. 158).) Plaintiffs now assert that, because the MOU is "merely" a memorandum of understanding, it "is not the agreement but a precursor to the agreement" that was actually entered into by the parties, and that "the MOU is deficient in conveying a full or accurate memorialization of what plaintiff Randhawa and STPL agreed to." (Id. at 10.) According to plaintiffs, "it will apparently have to be up to the parties at the time of trial hereon to convince the trier of fact as to what were and what were not the actual terms of the agreement on which the parties reached a meeting of the minds." (Id.) At oral argument, plaintiffs again reiterated that the MOU was just a "precursor" to the actual agreement entered into by the parties.
Nowhere in the Sixth AC do plaintiffs allege facts indicating that any "agreement" outside the MOU was entered into at all, let alone the terms of such an agreement. See Kaui Scuba
Ctr., Inc. v. PADI Ams., Inc., Civ. No. 10-1579 DOC MANx, 2011 WL 2711177, at *5 (C.D. Cal. July 13, 2011) (rejecting contract alleged to be "partly oral and partly written" when the complaint failed to allege the substance of the contract's relevant terms);
N. Cnty. Comms. Corp. v. Verizon Global Networks, Inc., 685 F. Supp. 2d 1112, 1122 (S.D. Cal. 2010) (noting that a plaintiff alleging a breach of contract "must plead . . . the contract either 'by its terms, set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference, or by its legal effect,'" and that "in order to plead a contract by its legal effect, [a plaintiff] must allege the substance of its relevant terms" (quoting McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2d Dist. 2006))). At oral argument, when asked to point to an allegation in the complaint that provided the relevant terms of the contract, plaintiffs could not do so.
Thus, even if Randhawa has prudential standing to assert contract claims under the MOU, because plaintiffs fail to allege the substance of the agreement that forms the basis for their first, second, ...