United States District Court, S.D. California
ORDER GRANTING MOTION TO DISMISS CROSS-COMPLAINT
BARRY TED MOSKOWITZ, Chief District Judge.
Intubrite LLC ("Intubrite") has filed a motion to dismiss the First Amended Cross-Complaint ("FACC") filed by Edu-Science (HK) Ltd. ("Edu-HK"). For the reasons discussed below, Intubrite's motion to dismiss is GRANTED.
On February 16, 2013, Edu-Science (USA) Inc. ("Edu-USA") commenced this action against Intubrite. In its Complaint, Edu-USA alleges that Intubrite breached contracts to purchase stylettes and laryngoscopes with pouches ("blades"), used for tracheal intubation. According to Edu-USA, although Intubrite paid for some of the product, Intubrite did not fulfill its obligations under the contracts (purchase orders issued by Intubrite).
In its counterclaim/cross-claim, Intubrite alleges, "On information and belief, EDU-USA and EDU-HK have an agency or joint venture relationship with EDU-USA essentially acting as the United States office of EDU-HK." (Counterclaim ¶ 5.) Intubrite alleges that there were defects in delivered product as well as untimely delivery. (Counterclaim ¶¶ 11-14.) According to Intubrite, it has paid for all of the product that it has actually received, and was forced to terminate its business relationship with Edu-USA and Edu-HK after they refused to continue deliverng product and demanded that Intubrite pay in advance for all of its purchase orders. (Counterclaim ¶¶ 15-16.) Intubrite asserts the following claims against Edu-USA and Edu-HK: (1) breach of contract; (2) breach of the implied warranty of merchantability; (3) negligence; (4) intentional interference with prospective economic advantage; (5) negligent interference with prospective economic advantage; (6) intentional misrepresentation of fact; and (7) negligent misrepresentation of fact.
In the FACC, Edu-HK alleges that Intubrite and Robert Hicks, Intubrite's principal, induced Edu-HK into manufacturing the goods at issue and incurring substantial costs and expenses by making false representations that Intubrite had the financial resources to enter into a transaction of the size and cost under discussion. (FACC ¶¶ 21, 26, 33, 45.) Edu-HK alleges that Intubrite did not actually have the financial resources to perform under the purchase orders, resulting in Intubrite's breach of contract. (FACC ¶¶ 61-63.) The FACC asserts the following claims against Intubrite and Hicks: (1) fraud - intentional misrepresentation; (2) fraud - nondisclosure; (3) negligent misrepresentation.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted 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. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington , 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed factual allegations are not required, factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atlantic v. Twombly , 550 U.S. 544, 555 (2007). "A plaintiff's obligation to prove the grounds' of his entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id . "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not show[n] that the pleader is entitled to relief." Ashcroft v. Iqbal , 565 U.S. 662, 679 (2009) (internal quotation marks omitted). Only a complaint that states a plausible claim for relief will survive a motion to dismiss. Id.
Intubrite moves to dismiss the FACC for failure to state a claim. As discussed below, the Court agrees that dismissal is warranted.
A court may dismiss a claim of fraud when its allegations fail to satisfy Rule 9(b)'s heightened pleading requirements. Vess v. Ciba-Geigy Corp. U.S.A. , 317 F.3d 1097, 1107 (9th Cir. 2003). Averments of fraud must be accompanied by the "who, what, when, where, and how" of the misconduct charged. Cooper v. Pickett , 137 F.3d 616, 627 (9th Cir. 1997).
The first problem with Edu-HK's fraud claims is that Edu-HK fails to set forth facts regarding why the statements at issue were false at the time they were made. Under Rule 9(b), a plaintiff must "set forth what is false or misleading about a statement, and why it is false." Yourish v. California Amplifier , 191 F.3d 983, 993 (9th Cir. 1999). Accordingly, the plaintiff must "set forth, as part of the circumstances constituting fraud, an explanation as to why the disputed statement was untrue or misleading when made." Id . (quoting In re GlefFed Sec. Litig. , 42 F.3d 1541, 1548 (9th Cir. 1994)).
Here, the FACC alleges that on several occasions, Hicks and William Goodrich, an agent for Intubrite,  made false representations to Edu-USA and Edu-HK that Intubrite was "well-funded" and had the financial resources to allow Intubrite to make the financial commitment to go forward with the transaction being discussed. (FACC ¶¶ 21, 26, 33, 45.) The FACC further alleges that "[d]iscovery obtained in the present case confirmed that Intubrite's representations about its financial condition and resources were false." (FACC ¶ 63.) However, Edu-HK does not specify what the discovery was and what it revealed about Intubrite's financial condition and resources at the time Hicks and Goodrich made the statements at issue. Additionally, the allegations in paragraphs 50 and 51 are Edu-HK's conclusions and not facts. Edu-HK must allege actual evidentiary facts demonstrating that it has a plausible claim. Edu-HK's vague allegations regarding falsity are insufficient to satisfy Rule 9(b)'s or Iqbal's requirements.
The second problem with Edu-HK's fraud claims is that it is unclear whether Edu-HK was even in a position to rely on Intubrite's representations. Edu-HK alleges that Hicks and Goodrich made the misrepresentations regarding Intubrite's financial condition to induce Edu-HK to agree to manufacture the goods ordered by Intubrite and to commit its own resources and incur expenses and costs to commence manufacturing ...