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Sherman & Zarrabian LLP v. Aderant North America, Inc.

United States District Court, C.D. California

March 31, 2015

SHERMAN & ZARRABIAN LLP dba MYERS ANDRAS SHERMAN & ZARRABIAN LLP, a California limited liability partnership, Plaintiff,
v.
ADERANT NORTH AMERICA, INC., a Florida corporation; ADERANT Case MANAGEMENT LLC, a Delaware limited liability company; ADERANT LEGAL HOLDINGS, INC., a Delaware corporation; eta l., Defendants.

ORDER GRANTING SHAREHOLDERS' MOTION TO DISMISS [DKT. NO. 19]

DEAN D. PREGERSON, District Judge.

Presently before the Court is Defendants Jose Fernandez, Kevin Dunn, Matthew McIsaac, Kevin Wydra, Peter Whang, Warren Merkel, Carl Mack, Michael Province, Alice Vaccarello, and Lori Fullmer (collectively, the "Shareholders")'s Motion to Dismiss for Failure to State a Claim. (Dkt. No. 19.) Having considered the parties' submissions, the Court GRANTS Shareholders' Motion to Dismiss and adopts the following order.

I. BACKGROUND

Plaintiff Sherman & Zarrabian LLP ("Plaintiff") is a law firm. (Third Amended Complaint ("TAC"), Dkt. No. 1-2, ¶ 27.) Plaintiff filed this breach of contract, negligent misrepresentation, and fraud action against Shareholders and other parties, alleging that the defendants are liable for failure to install, configure and maintain on Plaintiff's computer network integrated law office document management storage and financial services software ("DMS software") on Plaintiff's computers. The other defendants in this lawsuit are Aderant North America, Inc., Aderant Case Management LLC, and Aderant Legal Holdings, Inc. (collectively, "Aderant"), as well as LAHC-CPMG, Inc., LAHC-CPFS, Inc., and LAHC-CPPM, Inc. (Collectively, "Client Profiles").

Client Profiles is a company that developed DMS software. The Shareholders are all shareholders of Client Profiles. (TAC ¶¶ 8-18.) In December 2010, Client Profiles sold licenses for its DMS software to Plaintiff. (Id. ¶ 28.) The contract gave Plaintiff licenses for the DMS software and stated that Client Profiles would install and configure the DMS software and maintain it for three years. (Id. ¶ 29.) Plaintiff paid a 50% deposit of $14, 000 at the signing of the contract. (TAC Exh. A.) In April 2011, Plaintiff alleges that Client Profiles attempted to install and configure the DMS software on Plaintiff's computer network, but that it became apparent the DMS software was faulty and did not work as Client Profiles had represented to Plaintiff. (TAC ¶ 31.) In the following months, from April 2011 through October 2011, Plaintiff alleges that Client Profiles tried and failed to fix the issues with the DMS software. (Id. ¶¶ 32-35.) From November 2011 to January 2012, Plaintiff alleges that Client Profiles discontinued work on Plaintiff's computers and stopped communicating with Plaintiff. (Id. ¶ 35.) Plaintiff alleges that, unbeknownst to it, Client Profiles had entered into asset purchase agreements with Aderant on or about August 22, 2011, whereby Aderant acquired Client Profiles. (Id. ¶¶ 36-37.) Pursuant to these agreements, Client Profiles liquidated the assets of Client Profiles while Aderant disclaimed all pre-acquisition liabilities of Client Profiles. (Id. ¶ 36.)

Plaintiff alleges that Client Profiles fraudulently misrepresented that its software would work on Plaintiff's network and that it had certain features and functionalities. (Id. ¶ 28.) Plaintiff claims Defendants Client Profiles and Aderant entered into two asset purchase agreements with the knowledge that the DMS software was faulty and with the intent to hide that fact from creditors and third parties. (Id.) Plaintiff further alleges that Client Profiles and the Shareholders fraudulently transferred all of Client Profiles' assets to Aderant and thereby prevented Plaintiff from collecting on its claims against Client Profiles. (Id. ¶¶ 84-102.)

Plaintiff filed this Third Amended Complaint, alleging the following causes of action: (1) Breach of Written Contract; (2) Breach of Verbal Contract; (3)Fraud; (4) Common Counts; (5) Negligent Representation; (6) Actual Fraudulent Transfer; (7) Constructive Fraudulent Transfer. The only causes of action Plaintiff asserts against the Shareholders are the sixth and seventh causes of action, for actual and constructive fraudulent transfer. The Shareholders now move to dismiss, alleging that Plaintiff has failed to state claims against them.

II. LEGAL STANDARD

A 12(b)(6) motion to dismiss requires the court to determine the sufficiency of the plaintiff's complaint and whether or not it contains a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Under Rule 12(b)(6), a court must (1) construe the complaint in the light most favorable to the plaintiff, and (2) accept all well-pleaded factual allegations as true, as well as all reasonable inferences to be drawn from them. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), amended on denial of reh'g, 275 F.3d 1187 (9th Cir. 2001); Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).

In order to survive a 12(b)(6) motion to dismiss, the complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556U.S. 662, 663 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678. Dismissal is proper if the complaint "lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008); see also Twombly, 550 U.S. at 561-63 (dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief). A complaint does not suffice "if it tenders naked assertion[s]' devoid of further factual enhancement.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id . The Court need not accept as true "legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

III. DISCUSSION

California Civil Code section 3439.04(a) states that "[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor... if the debtor made the transfer or incurred the obligation" (1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and either (a) the debtor either was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction or intended to incur, or (2) believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. Cal. Civ. Code § 3439.04(a). Section 3439.04(a) thus provides causes of action for both actual fraudulent transfer, by proving actual intent, and constructive fraudulent transfer, by transferring assets without receiving reasonably equivalent value and in disproportionate relation to outstanding debts.

California Civil Code section 3439.04(b) provides certain factors for Courts to consider in ...


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