United States District Court, S.D. California
ORDER GRANTING DEFENDANT FRIED'S MOTION TO
DISMISS, [ECF NO. 24]
Cynthia Bash ant United States District Judge
Carl Melcher and Melcher Family Limited Partnership
(“MFLP”) bring this action against Defendant
Lance Fried. In their First Amended Complaint, Plaintiffs
allege counts for federal and state securities fraud, breach
of fiduciary duty, common law fraud, elder abuse, and
rescission of contract. (First Am. Compl.
(“FAC”), ECF No. 18.) Defendant moves to dismiss
all of Plaintiff Melcher's individual claims pursuant to
Federal Rule of Civil Procedure 12(b)(1) and (6). (Motion to
Dismiss (“Mot.”), ECF No. 24.) Plaintiffs oppose.
(ECF No. 25.)
Court finds this motion suitable for determination on the
papers submitted and without oral argument. See Fed.
R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1). For the following
reasons, the Court GRANTS Defendant's
motion to dismiss.
Carl Melcher is approximately eighty years old. (FAC ¶
12.) He is the founder and one of the limited partners of
Plaintiff MFLP. (Id.) MFLP is a California limited
partnership that Melcher formed in 1989, and it “is
used by [him] for investments in companies.”
(Id. ¶ 11.)
dispute arises from MFLP's investment in Face It Corp.
(See FAC ¶ 1.) At the time, Face It “was
a privately held social engagement and mobile customer care
solution provider.” (Id.) On October 18, 2011,
MFLP purchased 30.875% of Face It's stock for $3 million,
and Melcher became a board member of the company.
(Id. ¶ 15.) Defendant Fried was at all relevant
times the Chief Executive Officer and Chairman of the Board
of Face It. (Id. ¶ 1.) MFLP was the sole
outside investor in the company; all of the remaining
shareholders were founders of Face It. (Id. ¶
2013, Face It began having financial difficulties and was
failing to meet its revenue projections. (FAC ¶ 18.) In
an attempt to rectify Face It's financial status,
Defendant asked Melcher for additional capital investments to
keep the company afloat. (Id.) Melcher refused to do
so until there was evidence that Face It was making greater
sales or income. (Id.)
September 2013, Face It was still struggling financially, and
Defendant reached out to Five9, a corporation interested in
utilizing Face It's technology. (FAC ¶ 19.) The two
companies discussed a potential sale of Face It to Five9 for
an estimated value of $10 million. (Id. ¶ 21.)
Then, without disclosing these negotiations, Defendant
allegedly proposed to Melcher that Face It repurchase all of
the shares in the company held by MFLP. (Id.
¶¶ 19, 22-23.) On September 12, 2013, MFLP did so
for $1.5 million, half of the amount it originally paid for
these shares. (Id. ¶ 24.)
parties effectuated this transaction through a Redemption
Agreement executed between MFLP and Face It. (Redemption
Agreement, Carlson Decl. ¶ 2, Ex. A, ECF No.
24-2.) Melcher signed the Redemption Agreement as
the President of the “Melcher Family Corporation,
” which is identified as the “General Partner of
Melcher Family Limited Partnership.” (Id.) The
day after MFLP and Face It executed the Redemption Agreement,
Five9 allegedly signed a term sheet for the acquisition of
Face It, and on October 18, 2013, the sale was finalized.
(FAC ¶¶ 25-26.)
years later in 2016, Melcher became aware of this acquisition
timeline and brought suit against Defendant. (ECF No. 1.) On
July 10, 2017, Melcher and MFLP filed the First Amended
Complaint alleging the following counts against Defendant:
(1) & (2) violations of Federal securities laws; (3)
violations of California securities laws; (4) fraud; (5)
breach of fiduciary duty; (6) elder abuse; and (7)
rescission. (Id.) Defendant now moves to dismiss
only Melcher's individual causes of action.
motion to dismiss under Rule 12(b)(6) of the Federal Rules of
Civil Procedure “tests the legal sufficiency” of
the claims asserted in the complaint. Navarro v.
Block, 250 F.3d 729, 732 (9th Cir. 2001). The court must
accept all factual allegations pleaded in the complaint as
true and must construe them and draw all reasonable
inferences from them in favor of the nonmoving party.
Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38
(9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a
complaint need not contain detailed factual allegations;
rather, it must plead “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 plaintiff pleads
factual content that 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) (citing Twombly, 550 U.S. at 556).
“Where a complaint pleads facts that are ‘merely
consistent with' a defendant's liability, it
‘stops short of the line between possibility and
plausibility of entitlement to relief.'”
Id. (quoting Twombly, 550 U.S. at 557).
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 (alteration in original)
(quoting Papasan v. Allain, 478 U.S. 265, 286
(1986)). A court need not accept “legal
conclusions” as true. Iqbal, 556 U.S. at 678.
Despite the deference the court must pay to the
plaintiff's allegations, it is not proper for the court
to assume that “the [plaintiff] can prove facts that it
has not alleged or that the defendants have violated the . .
. law in ways that have not been alleged.” Assoc.
Gen. Contractors of Cal., Inc. v. Cal. State Council of
Carpenters, 459 U.S. 519, 526 (1983).
general rule, a court freely grants leave to amend a
complaint that has been dismissed. Fed.R.Civ.P. 15(a);
Schreiber Distrib. Co. v. Serv-Well Furniture Co.,
806 F.2d 1393, 1401 (9th Cir. 1986). However, leave to amend
may be denied when “the court determines that the
allegation of other facts consistent with the challenged
pleading could not possibly cure the
deficiency.” Schreiber Distrib. Co.,
806 F.2d at 1401 (citing Bonanno v. Thomas, 309 F.2d
320, 322 (9th Cir. 1962)).
challenges Melcher's ability to bring individual claims
for violations of federal securities laws, violations of
California securities laws, fraud, breach of fiduciary duty,
financial elder ...