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Conde v. Sensa

United States District Court, S.D. California

April 26, 2017

JOSE CONDE, et al., Plaintiffs,
v.
SENSA, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS (ECF NOS. 80, 81)

          HON. JANIS L. SAMMARTINO, UNITED STATES DISTRICT JUDGE

         Presently before the Court are two sets of Motions to Dismiss and corresponding briefing. The first set are Defendants Don Ressler's, Adam Goldenberg's, Kristin Chadwick's, IB Holding, LLC's, and Techstyle, Inc.'s (together, “Primary Defendants”) Motion to Strike and Dismiss the Third Consolidated Amended Class Action Complaint (“Mot. to Dismiss”), (ECF No. 81), Plaintiff's Opposition to the Motion to Dismiss (“Opp'n”), (ECF No. 86), and Primary Defendants' Reply in Support of the Motion to Dismiss (“Reply”), (ECF No. 89). The second set are Defendants John Drew's and TCV VI, L.P.'s (together, “TCV Defendants”) Motion to Strike Certain Allegations in the Third Consolidated Amended Complaint and to Dismiss the Third Consolidated Amended Complaint (“Non-Opp. Mot. to Dismiss”), (ECF No. 80), Plaintiff's Non-Opposition to the Non-Opposed Motion to Dismiss (“Non-Opp'n”), (ECF No. 87), and TCV Defendants' Response to Plaintiff's Statement of Non-Opposition (“Non-Opp'n Reply”), (ECF No. 88). The Court vacated the hearing on these Motions and took the matters under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having considered the Parties' arguments and the law, the Court rules as follows.

         BACKGROUND

         The Court has previously dismissed various aspects of Plaintiff's alter ego allegations. (Order Granting Without Prejudice Mot. to Dismiss (“Prior MTD Order”), ECF No. 75.) The general factual overview of this action is as follows.

         Sensa crystals were marketed as a weight loss product consisting of “tastant crystals” that users were instructed to sprinkle on their food. (Id. at 2.) The crystals supposedly interacted with users' taste and smell receptors, triggering bodily responses that would cause users to feel full and therefore stop eating earlier than usual. (Id.) Plaintiff alleges that the tastant crystals were developed by Dr. Alan Hirsch, M.D., a board-certified neurologist who claimed in Sensa advertisements that the crystals were “clinically shown” to promote weight loss without dieting. (Id.) Sensa has since been assigned to creditors, following an FTC suit that resulted in a $46.5 million stipulated judgment and several other related legal actions. (See id.) Plaintiff alleges that the Defendants relevant to these pending Motions to Dismiss either held various positions of authority within Sensa or were interrelated corporations at all times relevant to the action. (Id.) Specifically, Sensa Products, LLC was 90% owned by Sensa, Inc. (formerly known as Intelligent Beauty, Inc.) (“IBI”) and 10% owned by Dr. Hirsch. (TCAC ¶¶ 15, 18). IBI was in turn at least partially owned by Intelligent Beauty Holding, LLC (“IBH”), which was in turn at least partially owned TechStyle, Inc. (formerly known as JustFab, Inc.) (“JustFab”). (See Id. ¶ 17.)

         This action was originally filed on January 7, 2014 by Plaintiff Jose Conde against Defendant Sensa Products, LLC and Does 1-10 alleging violations of California law. (Id.) After various motion practice, the Court consolidated Mr. Conde's case with two others and appointed interim class counsel. (ECF No. 32.) Plaintiff subsequently filed the SCAC, alleging various tort- and contract-based causes of action. (Prior MTD Order 2.) Count XI-“Alter Ego/Veil Piercing”-was added for the first time in the SCAC and formed the basis of the prior Motion to Dismiss. (Id.) The Court dismissed Count XI as to all then-named Defendants, and granted Plaintiff leave to file “any amended complaint that cures the deficiencies identified” in the Order. (Id. at 11.)

         Plaintiff has now filed a Third Consolidated Amended Class Action Complaint totaling, with attached exhibits, 967 pages. (ECF No. 76.) A large portion of the attached exhibits are other complaints, each initially filed in state court (“state-court complaints”), from three pending actions: (1) Sensa v. Hirsch (“the Hirsch Action”), Case No. BC581772 (L.A. Sup. Ct. May 13, 2015); (2) Windmill Health Products, LLC, et al. v. TCV VI, LP, et al. (“the Windmill Action”), Case No. NC561252 (L.A. Sup. Ct. Oct. 3, 2016); and (3) Bank of America, N.A. v. Sensa, Inc. et al., Case No. NC 564394 (L.A. Sup. Ct. Apr. 20, 2016). The Hirsch and Windmill complaints were previously attached to Plaintiff's Second Amended Class Action Complaint. (Second Consolidated Am. Class Action Compl. Exs. J, K, ECF No. 60.) Relevant to the pending Motions to Dismiss, Plaintiff has reasserted alter ego claims against five previously named Defendants: John Drew; TCV VI, L.P.; Don Ressler; Adam Goldenberg; and Kristin Chadwick. (TCAC ¶¶ 19-24, 131-43.) Plaintiff has also for the first time added Defendants IBH and JustFab. (TCAC ¶¶ 16, 17, 131-43.) Each of these Defendants have moved to dismiss the alter ego allegations against them.

         LEGAL STANDARDS

         I. Motion to Dismiss

         Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint “fail[s] to state a claim upon which relief can be granted, ” generally referred to as a motion to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” Although Rule 8 “does not require ‘detailed factual allegations, ' . . . it [does] demand more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a plaintiff's obligation to provide 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.” Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A complaint will not suffice “if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.' ” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 557).

         In order to survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Id. (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible when the facts pled “allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be “more than a sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent with' a defendant's liability” fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true “legal conclusions” contained in the complaint. Id. This review requires context-specific analysis involving the Court's “judicial experience and common sense.” Id. at 678 (citation omitted). “[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.' ” Id.

         II. Alter Ego Liability

         “Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations.” Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 538 (2000) (citation omitted). “A corporate identity may be disregarded-the ‘corporate veil' pierced-where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.” Id. (citing Roman Catholic Archbishop v. Superior Court, 15 Cal.App.3d 405, 411 (1971)). California courts have stated that “[t]he purpose behind the alter ego doctrine is to prevent defendants who are the alter egos of a sham corporation from escaping personal liability for its debts.” Hennessey's Tavern, Inc. v. Am. Air Filter Co., 204 Cal.App.3d 1351, 1358 (1988) (citing Hiehle v. Torrance Millworks, Inc., 272 P.2d 780, 783-84 (1954)). There are two separate requirements to justify imposing alter ego liability:

First, that the corporation is not only influenced and governed by [the defendant], but that there is such a unity of interest and ownership that the individuality, or separateness, of the said [defendant] and corporation has ceased; second, that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice.

Firstmark Capital Corp. v. Hempel Fin. Corp., 859 F.2d 92, 94 (9th Cir. 1988) (emphasis removed) (quoting Wood v. Elling Corp., 572 P.2d 755, 761-62 n.9 (1977)); see also Sonora Diamond Corp., 83 Cal.App.4th at 538.

         Nonexclusive “[f]actors that can be used to support the first element, unity of interest, include commingling of funds, failure to maintain minutes or adequate corporate records, identification of the equitable owners with the domination and control of the two entities, the use of the same office or business locations, the identical equitable ownership of the two entities, the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual, and the failure to adequately capitalize a corporation.” Pac. Mar. Freight, Inc. v. Foster, No. 10-CV-0578-BTM-BLM, 2010 WL 3339432, at *6 (S.D. Cal. Aug. 24, 2010) (citing Assoc. Vendors, Inc. v. Oakland Meat Co., 210 Cal.App. 2d 825, 838-40 (1962)). “The second element requires that an inequitable result occur by the recognition of the corporate form.” Sonora Diamond Corp., 83 Cal.App.4th at 539. “Alter ego is an extreme remedy, sparingly used.” Id. Courts look to “all the circumstances to determine whether the doctrine should be applied.” Id.

         ANALYSIS

         The Court first addresses the Non-Opposed Motion to Dismiss and then moves to the ...


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