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Global Private Funding, Inc. v. Empyrean West, LLC

United States District Court, C.D. California

September 11, 2014

GLOBAL PRIVATE FUNDING, INC., a California corporation, Plaintiff,
EMPYREAN WEST, LLC, an Arizona corporation; JAY L. CARTER, individually and as managing partner of EMPYREAN WEST LLC; DAVID C. KELLER, individually and as CEO of EMPYREAN WEST LLC; U.S. FUEL CORPORATION, a Nevada corporation; HARRY BAGOT, individually and as President/CEO of U.S. FUEL CORPORATION; STANLEY N. DRINKWATER, III, individually and as Chairman of the Board; U.S. FUEL CORPORATION; WILLIAM CHADY, individually and as Chief Operating Officer of U.S. FUEL CORPORATION; ROBERT SCHWARTZ, individually, Defendants.


DEAN D. PREGERSON, District Judge.

Presently before the Court are two motions to dismiss Plaintiff's First Amended Complaint, filed by two different groups of defendants (the "Motions"). (Docket Nos. 53, 61.) For the reasons stated in this order, U.S. Fuel's motion is GRANTED and Empyrean, Carter, and Keller's motion is GRANTED IN PART and DENIED IN PART.

I. Background

Plaintiff's First Amended Complaint ("FAC") is difficult to decipher. As best the Court can understand, Plaintiff's allegations are as follows.

Plaintiff Global Private Equity, Inc. ("Plaintiff" or "Global") is a private, equity-based lender to established companies, as well as startups, offering business, financial, and technical services to its clients. (FAC ¶ 2.) Defendant Empyrean West, LLC ("Empyrean") is engaged in the business of funding United States businesses which support local economic development through foreign investments. (Id.) Defendants Jay Carter ("Carter") and David Keller ("Keller") are, respectively, the managing partner and CEO of Empyrean. (Id. ¶¶ 7, 8.)

On July 30, 2012, Plaintiff executed a confidentiality and non-disclosure agreement with Empyrean which formed the initial basis of the business relationship between the two companies. (Id. ¶ 20.) On August 31, 2012, Plaintiff and Empyrean entered into a Master Service Agreement ("MSA"), to which the confidentiality agreement was attached. (Id.) Under the MSA, Plaintiff agreed to perform various business-related services for Empyrean, including "business incubation, business sales, merges [sic] and acquisitions, company formation, restructing [sic], project funding, financial packaging, real estate sales, financing, marketing, advertising, online development, technology applications, infrastructure and telecom services." (Id.) The MSA also included a Business Incubation Addendum, executed on September 29, 2012. (Id.) Empyrean agreed to furnish foreign investors for Plaintiff's clients under the EB-5 visa program. (Id.) Empyrean also agreed to pay Plaintiff 10% of the gross revenue, plus a deferred percentage of other revenues generated. (Id. ¶ 22.)

On July 19, 2012, U.S. Fuel executed a confidentiality and non-disclosure agreement with Plaintiff defining the business relationship between the two companies. (Id. ¶ 23.) On August 13, 2012, Plaintiff and U.S. Fuel entered into a Master Service Agreement ("MSA"), to which the confidentiality agreement was attached. (Id.)

Plaintiff alleges that it provided Empyrean "confidential information concerning their clients with the intention of obtaining financing for various projects through the resources of particular foreign investors through the foreign investment program management by [Empyrean]." (Id. ¶ 28.) Plaintiff alleges that although it "provided the projects for [Empyrean] to fund, " Empyrean "was unable to produce a single investor from any location, whether in the United States or in any foreign country." (Id. ¶ 27.) Essentially, Plaintiff alleges that it provided Empyrean with multiple investment opportunities, each of which Empyrean found some fault with. (Id. ¶ 37.) Then, after rejecting the project, Empyrean would work directly with the underlying company on the project on the very same terms proposed by Plaintiff, leaving Plaintiff out and thus avoiding payment of any percentages owed to Plaintiff as a result of Plaintiff's services in finding investment opportunities for Empyrean. (Id. ¶ 36.) Empyrean commenced one such project with U.S. Fuel, apparently a client of Plaintiff. (Id. ¶ 35.) Empyrean and U.S. Fuel each told Plaintiff that they intended to terminate their MSAs with Plaintiff because of purported breaches by Plaintiff. (Id. ¶¶ 35, 39.)

The Court previously dismissed Plaintiff's Complaint without prejudice. (Docket No. 47.) Plaintiff then filed the FAC, bringing eighteen causes of action against various defendants. (Docket No. 51.) Defendants have now moved to dismiss the FAC. (Docket Nos. 53, 61.) After the Motions were filed, Plaintiff stipulated to dismiss certain defendants and withdrew some causes of action. (See Docket Nos. 38, 83, 84, 85, 86, 87, 88.)

II. Legal Standard

A complaint will survive a motion to dismiss when it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes , 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations, " it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id . at 679. In other words, a pleading that merely offers "labels and conclusions, " a "formulaic recitation of the elements, " or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id . at 678 (citations and internal quotation marks omitted).

"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief." Id . at 679. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly , 550 U.S. at 555. "Determining whether a complaint states a plausible claim for relief" is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679.

III. Discussion

A. Dismissed Defendants and Claims

Since Plaintiff's filing of the FAC, Plaintiff has agreed to dismiss certain defendants entirely and has dismissed some causes of action as to the remaining defendants. Plaintiff has dismissed Defendants Harry Bagot, Stanley N. Drinkwater III, William Chady, Robert Schwartz, and Paul Adams. (See Docket Nos. 38, 83, 84, 85, 86.) Therefore, the Court does not analyze the sufficiency of Plaintiff's FAC as to causes of action asserted against these defendants and deems all such causes of action dismissed. The defendants who remain in this action are U.S. Fuel, Empyrean, Carter, and Keller (collectively, "Remaining Defendants").[1]

Plaintiff also concedes dismissal of certain causes of action against the Remaining Defendants in its oppositions to the Motions. (See Docket Nos. 87, 88.) Plaintiff "withdraws" its third, fourth, fifth, sixth, ninth, tenth, twelfth, sixteenth, seventeenth, and eighteenth causes of action in their entirety. Additionally, Plaintiff withdraws his eighth and fourteenth causes of action as to Defendant U.S. Fuel. The remainder of this order, therefore, addresses the sufficiency of the remaining claims only. The Motions are GRANTED as to all withdrawn claims and as to the dismissed defendants.

B. First Cause of Action: Breach of Contract

Plaintiff brings the first cause of action, for breach of contract, against all Remaining Defendants. Defendants argue that this cause of action is insufficiently pled because Plaintiff did not attach the written contract allegedly breached to the FAC, nor pled its contents verbatim. Plaintiff contends that it is sufficient that the contract was included as an attachment to its original complaint. U.S. Fuel further argues that the allegations in the FAC do not establish a breach of contract claim as to U.S. Fuel, since the contract focused on in the FAC is a contract between Plaintiff and Empyrean.

The Court finds that Plaintiff's complaint is deficient because Plaintiff failed to attach a copy of each contract allegedly breached to the FAC. See Gilmore v. Lycoming Fire Ins. Co. , 55 Cal. 123, 124 (1880). The original complaint was dismissed by the Court, and the attachment of the contracts at issue to the original complaint is irrelevant for purposes of determining whether Plaintiff's FAC is sufficient.

Further, as to Defendant U.S. Fuel, though Plaintiff alleges the existence of a contract with U.S. Fuel and includes some detail regarding the terms of the contract, nowhere does Plaintiff allege how U.S. Fuel purportedly breached its contract with Plaintiff. Rule 8 requires more, such that U.S. Fuel is on notice as to the alleged breach to which it will need to prepare a defense. Both this deficiency and the failure to attach the contracts at issue are potentially remediable through amendment. Therefore, the Court GRANTS the Motions as to this cause of action and DISMISSES Plaintiff's contract claim WITHOUT PREJUDICE.[2]

C. Second Cause of Action: Intentional Interference with Prospective Economic Advantage

Plaintiff brings the second cause of action against Defendant Empyrean only. Intentional interference with prospective economic advantage protects against intentional acts designed to harm an economic relationship which is likely to produce economic benefit. See Shamblin v. Berge , 166 Cal.App.3d 118, 123 (1985). However, mere interference is not enough: "The tort of intentional interference with prospective economic advantage is not intended to punish individuals or commercial entities for their choice of commercial relationships or their pursuit of commercial objectives, unless their interference amounts to independently actionable conduct." Korea Supply Co. v. Lockheed Martin Corp. , 29 Cal.4th 1134, 1158-59 (2003). "[A]n act is independently wrongful if it is unlawful, " meaning that the act is prohibited "by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Id . at 1159.

Here, Plaintiff has not alleged sufficient facts to establish that Empyrean's conduct in pursuing its "projects" with U.S. Fuel and other entities and bypassing Empyrean's involvement in the projects is independently unlawful. Although Plaintiff's FAC suggests a purpose behind Empyrean's actions that might be considered improper, Plaintiff does not allege how Empyrean violated another specific law. Therefore, the Court GRANTS the Motions as to this cause of action and DISMISSES Plaintiff's intentional interference with prospective economic advantage claim WITHOUT PREJUDICE.

D. Seventh Cause of Action: Commercial Defamation

Plaintiff brings the seventh cause of action against Defendant Empyrean only. The parties agree that this cause of action appears to be on the grounds of slander. "Slander is a false and unprivileged publication, orally uttered... which: (1) Charges any person with crime, or with having been indicted, convicted, or punished for crime;... (3) Tends directly to injure him in respect to his office, profession, trade or business, either by imputing to him general disqualification in those respects which the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits... (5) Which, by natural consequence, causes actual damage." Cal. Civ. Code § 46.

Plaintiff's allegations in regard to this cause of action are insufficient. Plaintiff merely alleges that "Defendant Empyrean's statements through its officers and employees to the clients of [specified entities] were slanderous per se in that such statements imputed to Plaintiff a crime and a lack of professional competence and integrity." (FAC ¶ 79.) However, Plaintiff includes no allegations as to the content of the allegedly slanderous statements, nor how those statement bore on Plaintiff's commission of a crime or lack of professional competence. Indeed, Plaintiff's only response in opposition to the Motions is to say that "Global did not attempt to state each and every slanderous statement attributed to Empyrean, its officers and employees." (Opp., Docket No. 88, p.4.) Therefore, the Court would GRANT the Motions as to this cause of action and DISMISS Plaintiff's commercial defamation claim WITHOUT PREJUDICE.

E. Eighth, Eleventh, Thirteenth, and Fourteenth Causes of Action: Plaintiff's Fraud and Fraud-Related Claims

Several of Plaintiff's remaining claims sound in fraud. Under California law, "[t]he elements of intentional misrepresentation, or actual fraud, are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage." Anderson v. Deloitte & Touche , 56 Cal.App.4th 1468, 1474 (1997) (internal quotation marks and citations omitted). A claim for negligent misrepresentation contains the same elements as a fraud claim, except that instead of knowledge of falsity, the statement must be made "without reasonable ground for believing it to be true." See, e.g., Hasso v. Hapke , 227 Cal.App.4th 107, 127 (2014). Claims sounding in fraud are subject to the heightened pleading standard of Rule 9(b), requiring a plaintiff to state "the who, what, when, where, and how' of the misconduct charged." Vess v. Ciba-Gelgy Corp. USA , 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett , 137 F.3d 616, 627 (9th Cir. 1997)).

It appears from Plaintiff's FAC that the conduct at the heart of Plaintiff's fraud claims is Empyrean's representation, in the course of doing business with Plaintiff, that Empyrean falsely assured Plaintiff that it could obtain investors under the EB-5 visa program and other investment sources and made false statements as to the nature and quality of those investors. (FAC ¶¶ 102-104.) Plaintiff identifies a particular instance in which Keller "stated that Empyrean had several investors who were willing and able to act with financial efforts and invest in several projects, " a statement made in January or February 2013 to Sam Senev, Plaintiff's CEO. (Id. ¶ 33.) Ultimately, Plaintiff alleges that "Defendants did not produce a single investor or any project for Plaintiff's clients." (Id. ¶ 104.) Plaintiffs essentially alleges that the affirmative assurances of Empyrean that investors were forthcoming and the concealment of the fact that such investors would not be produced support Plaintiff's fraud-based claims.

The Court finds that Plaintiff has alleged sufficient facts to support his fraud-based claims against Defendants Keller and Empyrean. Plaintiff provides sufficient details, including who, what, when, and how Keller, speaking on behalf of Empyrean, made an allegedly fraudulent representation. Further, Plaintiff alleges that "the foregoing misrepresentations were made with the intention that Plaintiff rely thereon" and that "Defendants never intended that the funding to Global's clients would ever go through." (Id. ¶¶ 105, 109.) Therefore, as to the representation made by Keller regarding Empyrean's ability and willingness to supply investors to Plaintiff, the Court finds that the FAC is sufficient and DENIES the Motions as to Defendants Keller and Empyrean.

However, as to Defendants Carter and U.S. Fuel, the allegations are insufficient. Nowhere does the FAC specify any specific misrepresentations that may be attributed to either of these defendants. As a result, the Court GRANTS the Motions as to Carter and U.S. Fuel and DISMISSES this cause of action as to them WITHOUT PREJUDICE. Further, to the extent that any misrepresentations other than the one identified above form the basis for Plaintiff's fraud-based claims, Plaintiff must amend to clarify that it bases these claims on those additional misrepresentations.

F. Fifteenth Cause of Action: Breach of Non-Competition Covenant

Plaintiff brings the fifteenth cause of action against all Remaining Defendants. Plaintiff alleges that "[a]n MSA and Addenda executed by Defendants U.S. Fuel and Empyrean both contain provisions for non-circumvention, non-solicitation, and no disparaging remarks." (FAC ¶ 145.) Plaintiff then alleges that "Empyrean and U.S. Fuel have systematically breached the MSA and Addenda." (Id. ¶ 146.) However, as with Plaintiff's contract claim, without the benefit of the language of the covenant Plaintiff alleges to have been breached, Plaintiff's allegations are insufficient to establish a plausible claim. Further, as Defendants point out, California law disfavors covenants not to compete and only allows them in specific situations. See, e.g., Edwards v. Arthur Andersen LLP , 44 Cal.4th 937, 945-46 (2008). Plaintiff must allege more facts regarding the alleged breach and how the agreement itself is enforceable under California law. The Court therefore GRANTS the Motions as to this claim and DISMISSES it WITHOUT PREJUDICE.

IV. Conclusion

For the foregoing reasons, the Court GRANTS U.S. Fuel's motion to dismiss (Docket No. 61). The Court GRANTS IN PART and DENIES IN PART Empyrean, Keller, and Carter's motion to dismiss (Docket No. 53). All dismissed claims are dismissed WITHOUT PREJUDICE. Any amended complaint correcting the deficiencies identified in this order must be filed on or before September 25, 2014.


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