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MH Pillars Ltd. v. Realini

United States District Court, N.D. California

March 8, 2017

MH PILLARS LTD, et al., Plaintiffs,
v.
CAROL REALINI, et al., Defendants.

          AMENDED ORDER GRANTING MOTIONS TO DISMISS; ORDER DENYING MOTION FOR BOND [1]

          PHYLLIS J. HAMILTON United States District Judge.

         The motions of defendants Carol Realini (“Realini”), Rodney Robinson (“Robinson”), Christopher Martin (“Martin”), and Ultralight FS, Inc. f/k/a Obopay, Inc. (“Obopay/Ultralight”), and defendants Omney, Inc. (“Omney”) and Accelerated Commerce Solutions, Inc. (“ACS”) to dismiss the complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), came on for hearing on January 25, 2017. Also before the court was the motion of defendants Realini, Robinson, and Martin for an order pursuant to Civil L.R. 65.1-1 and California Code of Civil Procedure § 1030, requiring plaintiffs to post a bond to secure any award of costs and attorney's fees.

         Plaintiffs appeared by their counsel Peter Fredman. Defendants Realini, Robinson, Martin, and Obopay/Ultralight appeared by their counsel Lee Marshall, Alexandra Whitworth, and Mary Buchanan; and defendants Omney and ACS appeared by their counsel Christopher Karagheuzoff, and Patricia Welch. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby GRANTS the motions to dismiss and DENIES the motion for bond, as follows and for the reasons stated at the hearing.

         BACKGROUND

         The complaint in this action was filed on March 25, 2015. Plaintiffs are MH Pillars Ltd., d/b/a Payza, a United Kingdom corporation, and MH Pillars Inc., a New York corporation. Cplt ¶ 6. Plaintiffs allegedly operate "Payza, " which is "an internet payment business similar to Paypal." Cplt ¶ 18.[2] Defendants are three individuals - Realini, Robinson, and Martin, all of whom allegedly reside in California; two Delaware corporations - Obopay/Ultralight and Omney; and one California corporation - ACS. Cplt ¶¶ 7-12.

         Obopay/Ultralight, which was based in Silicon Valley, also operated a business similar to PayPal, which was focused on mobile payments and banking, with a substantial business and presence in India. Cplt ¶ 19. Plaintiffs assert that by 2012, most of Obopay/Ultralight's customers were overseas, and its U.S. business operations "consisted solely of 'renting' its purported U.S. state money transmitter license rights to non-licensed payment processing businesses through agency agreements. Cplt ¶ 3. Payza was allegedly one of Obopay/Ultralight's customers. Cplt ¶ 3.

         On April 1, 2012, MH Pillars Inc. entered into an "Agent Agreement" with Obopay/ Ultralight, and at that point began operating in the United States. See Cplt ¶¶ 19-20 & Exh. A. Martin - Obopay's "EVP" and “Compliance Officer” - allegedly negotiated and executed the Agent Agreement on behalf of Obopay/Ultralight. Cplt ¶ 22; Exh. A at 11.

         Under the Agent Agreement, Obopay/Ultralight agreed to provide money transmission services to plaintiffs in the states where Obopay/Ultralight maintained money transmitter licenses (or "MTLs"). Cplt ¶ 21. MH Pillars Inc. agreed to pay Obopay/Ultralight a $100, 000 fee and $6, 500/mo. (with increased fees after the first year) for the rights to conduct electronic money transfers as its agent pursuant to Obopay/ Ultralight's MTLs for a three-year term. Cplt ¶ 21.

         Plaintiffs allege that shortly after MH Pillars Inc. entered into the Agent Agreement, they learned that Obopay/Ultralight was in financial distress (which Obopay/Ultralight had previously failed to disclose). Cplt ¶ 23. They assert that Obopay/Ultralight was in the process of "selling itself or its assets, " that its U.S. operations would be "abandoned" during any resulting restructuring, and that its MTL business was facing serious compliance problems. Cplt ¶ 23. They claim that Obopay/Ultralight personnel including Martin "knew or should have known these to be the true facts at the inception of the Agent Agreement" in April 2012 - i.e., that Obopay/Ultralight was having financial problems and "was seeking to sell itself." Cplt ¶ 23.

         However, plaintiffs assert, it was not until May 2012 that they first became aware that Obopay/Ultralight was for sale, when Martin approached them as potential buyers of the company. Cplt ¶ 24. They contend that they were "an obvious target" as they now relied on the Agent Agreement to operate their U.S. business. Cplt ¶ 24. Shortly thereafter, they assert, Obopay/Ultralight "and/or its shareholders" began a transaction to sell Obopay/Ultralight or its assets to an overseas buyer that intended to abandon the U.S. operations and MTLs. Cplt ¶ 25. The sale was allegedly completed effective November 11, 2012. Cplt ¶ 27.

         Plaintiffs claim that Robinson subsequently approached them with an offer to sell them the MTLs and to continue the U.S. operations. Cplt ¶ 28. Robinson allegedly stated that the new foreign owner of Obopay/Ultralight would transfer the MTLs to them, in exchange for an assumption of up to $500K worth of U.S. liabilities, and allegedly represented that "he could deliver the deal to plaintiffs in exchange for a brokerage fee to his new ACS entity." Cplt ¶ 28. After allegedly obtaining plaintiffs' agreement in principle, Robinson arranged for his attorney to put the deal together. Cplt ¶ 29. Plaintiffs claim that Robinson's proposal was that defendant ACS would purchase Obopay/Ultralight - stripped of its technology and intellectual property - and would resell it to plaintiffs, who would thereby acquire the MTLs by merger with what remained of the Obopay/Ultralight entity. Cplt ¶ 31.

         A series of events followed, which appear to have been caused by or related to the fact that existing Obopay/Ultralight MTLs were out of compliance with state regulators, or were "in serious jeopardy" - notably events involving negotiations concerning the attempt to bring the MTLs into compliance with the various state regulators. Cplt ¶¶ 32-38.

         On January 31, 2013, the parties executed agreements that Realini and her attorney had allegedly prepared - (a) a "Stock Purchase Agreement" ("Stock Agreement") whereby MH Pillars Ltd. purchased 9% of the stock in Obopay/Ultralight for $1.25 million, and pursuant to which Realini and Obopay/Ultralight allegedly warranted that Obopay/Ultralight had good MTLs and the power to transfer them, see Cplt Exh. B; and (b) an "Option Agreement, " between MH Pillars Ltd., Obopay, and Realini, whereby MH Pillars Ltd. paid $400, 000 for the option to purchase the remaining 91% of Obopay/ Ultralight for a nominal sum; and pursuant to which Realini and Obopay/Ultralight allegedly warranted that Obopay/Ultralight had good MTLs and the power to transfer them, see Cplt Exh. C.

         Plaintiffs assert that the Stock Agreement was executed by Realini on behalf of Obopay/Ultralight, and that the Option Agreement was executed by Realini on behalf of herself and Obopay/Ultralight. See Cplt ¶ 39(a), (b) & Exhs. B and C. Plaintiffs assert that "other transactional documents" included an employment agreement between Realini and Obopay/Ultralight, executed by Robinson as CFO for Obopay/Ultralight; an indemnity agreement between Obopay/Ultralight and Realini executed by Robinson as CFO for Obopay/Ultralight; and an indemnity agreement between Obopay/Ultralight and Robinson executed by Realini as CEO for Obopay/Ultralight. Cplt ¶ 39(c).

         Also on January 31, 2013, as part of this transaction, “plaintiffs” paid $1.65 million to Obopay/Ultralight and $276, 088 to ACS (which money allegedly went to Robinson and Realini). Cplt ¶¶ 40-41. In addition, in March 2013, Obopay/Ultralight allegedly requested that "plaintiffs" transfer some $4.1 million to its control for "MTL compliance purposes, " which plaintiffs claim they did in April 2013. Cplt ¶¶ 44-45.

         Plaintiffs assert that approximately two months later, in June 2013, Obopay/ Ultralight and Realini sent plaintiffs a letter purporting to rescind the Option Agreement and terminate the Agent Agreement. Cplt ¶ 47 & Exh. D. As a result, plaintiffs allege, they could no longer maintain their U.S. operations. Cplt ¶ 48. Plaintiffs allege that defendants never tendered nor offered to tender the $400K consideration paid for the Option Agreement, or the $4.1 million that plaintiffs paid in early 2013. Cplt ¶¶ 49-50. Plaintiffs now claim that defendants owe them $4.5 million directly, and that defendants owe plaintiffs' customers some additional amount. See, e.g., Cplt ¶¶ 50-51.

         Plaintiffs allege six causes of action in the complaint - (1) breach of fiduciary duty (against Realini, Robinson, Martin, and ACS); (2) negligence (against all defendants); (3) breach of contract (against Realini, and Obopay/Ultralight; (4) fraud and deceit (against all defendants); (5) rescission and restitution (against all defendants); (6) infair competition under Business & Professions Code § 17200 (against all defendants).

         DISCUSSION

         A. Motions to Dismiss

         1. Legal standard

         A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The court must “accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party, ” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008), drawing all “reasonable inferences” from those facts in the nonmoving party's favor, Knievel v. ESPN, 393 F.3d 1068, 1080 (9th Cir. 2005).

         A complaint may be dismissed if it does not allege “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). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, “a complaint [does not] suffice if it tenders naked assertions devoid of further factual enhancement.” Id. (quotation marks and brackets omitted). The court need not “assume the truth of legal conclusions merely because they are cast in the form of factual allegations.” W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

         2. Motion by defendants Realini, Robinson, Martin, and Obopay/Ultralight

         Defendants Realini, Robinson, Martin, and Obopay/Ultralight seek an order dismissing all six causes of action alleged in the complaint. Defendants Omney and ACS filed a joinder in the motion, but provided no separate argument.

         As an initial matter, as explained at the hearing, the court finds the complaint largely incomprehensible, in part because plaintiffs fail to specify which defendant is alleged to have engaged in which behavior with regard to which plaintiff. It is not the court's job or defendants' job to match up the facts with each cause of action and each plaintiff and each defendant. In addition, the court finds that each of the six causes of action fails to state a claim.

         a. Breach of fiduciary duty

         The elements of a cause of action for breach of fiduciary duty are (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach. Stanley v. Richmond, 35 Cal.App.4th 1070, 1086 (1995). There must be an adequate showing of each of these elements in order to plead a cause of action for breach of fiduciary duty. See Yamauchi v. Cotterman, 84 F.Supp.3d 993, 1016 (N.D. Cal. 2015); City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445 (1998)). Plaintiffs bring this claim against Realini, Robinson, Martin, and ACS.

         Plaintiffs allege that Realini, Robinson, Martin, and ACS "owed fiduciary duties with respect to these matters to act with the highest degree of honesty and loyalty toward [plaintiffs] and in their best interests, ” on the basis that officers and controlling shareholders owe fiduciary duties to other stockholders, that joint venture partners owe fiduciary duties to each other, and that agents generally owe fiduciary duties to their principals. See Cplt ¶ 54. Plaintiffs allege that "[d]efendants breached these fiduciary duties" and that plaintiffs were injured and suffered damages as a result. Cplt ¶¶ 55, 56.

         The motion to dismiss the claim of breach of fiduciary duty is GRANTED. The complaint is impermissibly vague in its generic allegations against all “defendants, ” and does not plead facts showing that any particular defendant was a fiduciary to either plaintiff or showing a specific basis for such fiduciary relationship. More importantly, the complaint does not identify a fiduciary duty that was owed by any particular defendant to any particular plaintiff, or plead facts showing the breach of any such fiduciary duty.

         The dismissal is WITH LEAVE TO AMEND to allege facts sufficient to state a plausible claim as to each of the defendants named in this cause of action - Realini, Robinson, Martin, and ACS. Plaintiffs must also plead particular facts showing which defendant owed a fiduciary duty to which plaintiff, and under which theory, and must also allege facts showing breach by a particular defendant and facts showing resulting damage.

         b. Negligence

         The elements of a cause of action for negligence under California law are (1) duty; (2) breach; (3) causation; and (4) damages. Wells Fargo Bank, N.A. v. Renz, 795 F.Supp.2d 898, 924-25 (N.D. Cal. 2011). Plaintiffs bring this claim against "all defendants."

         Plaintiffs allege that "[d]efendants owed duties of care to plaintiffs and the public at large to competently maintain Obopay's MTL rights and not unlawfully rent or sell MTL rights or compliance services that they had no legal authority or practical capability to deliver or provide." Cplt ¶ 59. They allege that this "tort duty" is imposed by law on "all California MTL licensees (or would-be licensees) in order to implement the fundamental public policies embodied in the state regulatory scheme pertaining to MTL licensing, and is independent of the parallel duties imposed on defendants under the contracts alleged herein." Cplt ¶ 59. Additionally, plaintiffs assert, "defendants owed plaintiffs duties of care under conventional Biankanja analysis. Cplt ¶ 59 (citing Biankanja v. Irving, 49 Cal. 2d 647, 650 (1958)). Plaintiffs allege further that "[d]efendants breached these duties of care" and that "[p]laintiffs were harmed as a result of the breach . . . ." Cplt ¶¶ 60-61.

         Plaintiffs assert further that "[e]ach corporate defendant is liable for punitive damages for the acts of its agents because each (a) had advance knowledge of their unfitness, (b) authorized their wrongful conduct beforehand, and/or (c) ratified their wrongful conduct afterwards, as shall be proven at trial. Cplt ¶ 62.

         The motion to dismiss the cause of action for negligence is GRANTED. Plaintiffs have not identified the existence of a legal duty - an essential element of a cause of action for negligence. Whether this prerequisite has been satisfied in a particular case is a question of law to be resolved by the court. Avila v. Citrus Cmty. Coll. Dist., 38 Cal.4th 148, 161 (2006). As a general rule, persons have a duty to use due care to avoid injury to others, and may be held liable if their careless conduct injures another person. See Rowland v. Christian¸69 Cal. 2d 108, 113 (1968); Cal. Civ. Code § 1714. A duty of care may arise through statute, contract, the general character of the activity, or the relationship between the parties. The Ratcliff Architects v. Vanir Constr. Mgmt., Inc., 88 Cal.App.4th 595, 604-05 (2001) (citing J'Aire Corp. v. Gregory, 24 Cal.3d 799, 803 (1979)).

         Here, plaintiffs have alleged no facts showing that any defendant owed a legal duty of care to any plaintiff, or that any defendant breached any legal duty of care owed to any plaintiff. Moreover, the assertion that the duty allegedly owed to "the public at large" is "independent of the parallel duties imposed on ...


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