United States District Court, N.D. California
ORDER GRANTING MOTION TO DISMISS FOR LACK OF PERSONAL
JURISDICTION AND FOR FAILURE TO STATE A CLAIM RE: DKT. NO.
William H. Orrick, United States District Judge
Park Miller LLC (“Miller”), a wealth advisory
firm, advised its clients to invest in defendant Durham
Group, Ltd. (“DGL”). Multiple promissory notes
were executed between those clients and DGL. In November
2018, DGL defaulted on the promissory notes, for which the
plaintiff clients (“the contracting plaintiffs”)
bring breach of contract claims. The plaintiffs name DGL,
Craig McGrain, the President and owner of DGL, and other
allegedly related corporations owned by McGrain (Durham
Commercial Capital Corp. (“DCC”), First Austin
Funding Corp. (“First Austin”), and Maasai
Holdings LLC (“Maasai Holdings”)) as defendants
that engaged in fraud by misrepresenting and concealing the
financial status of DGL. Miller contends that these
fraudulent actions also interfered with its business
relationship with its clients.
concede that the breach of contract claims against DGL and
DCC state plausible causes of actions. The remaining
defendants seek dismissal for lack of personal jurisdiction
and, failing that, dismissal of the breach of contract claims
as to them. All defendants move to dismiss the fraud claims.
I agree that plaintiffs have not sufficiently alleged
personal jurisdiction over McGrain, First Austin and Maasai
Holdings and have not met Federal Rule of Civil Procedure
9(b)'s requirement to state fraud claims with
particularity. I GRANT defendants' motion with leave to
19, 2019, plaintiffs filed a complaint bringing multiple
breach of contract claims and several claims based on fraud
and misrepresentation. Complaint (“Compl.”) [Dkt.
No. 1]. On September 25, 2019, defendants moved to dismiss
the Complaint for lack of personal jurisdiction and for
failure to state a claim, to which plaintiffs responded with
both an opposition and a First Amended Complaint
(“FAC”). Plaintiffs argue that the FAC adds more
allegations about personal jurisdiction, particularly
regarding the alter ego theory, and contend that the FAC
moots defendants' arguments on failure to state a claim.
their reply, defendants request that I address their motion
to dismiss despite the filing of the FAC, arguing that the
FAC does not address the arguments made in the motion, and
that the arguments continue to apply to the two additional
plaintiffs added in the FAC. Reply [Dkt. No. 20] 3 n.2. I
heard argument on November 13, 2019.
is incorporated in California and is engaged in comprehensive
planning, investment management and other related services.
Complaint (“Compl.”) [Dkt. No. 1] ¶ 1. The
contracting plaintiffs reside in California or, in Lawson
Land Inc.'s case, is incorporated in California.
Id. ¶¶ 2-9; see also First
Amended Complaint (“FAC”) [Dkt. No. 19] ¶
10-11 (adding two more clients of Park Miller LLC as
plaintiffs). All corporate defendants are incorporated in New
York and McGrain is a New York resident. Id.
a factoring business, which purchases invoices owed to
businesses in return for a percentage of the invoiced
amounts. Declaration of Craig McGrain (“McGrain
Decl.”) [Dkt. No. 13-1] ¶ 2. DGL borrows money
through promissory notes and raises capital to fund DCC's
factoring business. Id. First Austin sells paper
products. Maasai Holdings is a debt buyer. Id.
¶¶ 5-6. Plaintiffs allege that McGrain is the
President of DGL, the Chief Executive Officer of DCC, and is
in control of or owns First Austin and Maasai Holdings.
Id. ¶¶ 12-16.
The Promissory Notes
alleges that defendants induced it to advise its clients, the
contracting plaintiffs, to invest in DGL by intentionally
misrepresenting DGL's financial status and concealing
crucial information. FAC ¶ 104. Each of the contracting
plaintiffs entered into promissory notes with DGL to invest
millions of dollars to fund DCC's factoring business. FAC
¶¶ 30-50; see also Id. FAC, Exs. A-I
(copies of the promissory notes between each contracting
plaintiff and DGL). Each contracting plaintiff brings breach
of contract claims against all defendants for defaulting on
the promissory notes and failing to take action in order to
cure the default. FAC ¶¶ 62-101 (causes of action
(“COAs”) 1-5). As to these breach of contract
claims, defendants move to dismiss the claims against all
defendants except DGL/DCC, arguing that the other defendants
are not parties to the underlying promissory notes. Mot.
Defendants' Fraudulent Acts and
no later than the first quarter of 2018, plaintiffs allege
that defendants knew or should have known that their
financial status had detrimentally changed because one of the
entities to which they provided $1, 797, 000 was in default.
FAC ¶ 51. Defendants identify this entity as 1-800 Solar
in their reply. See Reply in Support of Motion to
Dismiss (“Reply”) [Dkt. No. 20] 7. Plaintiffs
contend that in April 2018, defendants knew or should have
known that 1-800 Solar also filed for bankruptcy. FAC ¶
51. Despite this knowledge, the financial statements of DGL
and DCC emailed to Miller between January 2018 and November
2018 continued to reflect that the receivables of this
bankrupt entity were active assets. Id. ¶ 52.
assert that this false reporting prevented Miller from
realizing the true financial condition of DGL and DCC. FAC
¶ 53. They contend that since the beginning of the
business relationship between Miller, McGrain and DGL/DCC in
2010, “McGrain would customarily notify Park Miller of
any and all changes to the Durham Entities' financial
condition, ” and on “two prior occasions, McGrain
timely notified Park Miller of events that compromised the
Durham Entities' financial security.” Id.
assert that this “customary business practice”
caused Miller and its clients to rely on “full and
accurate disclosure” of DGL/DCC's financial status.
FAC ¶ 55. Yet they claim that McGrain “failed to
disclose” DGL/DCC's true financial status, ”
“despite the knowledge that the [DGL/DCC] financial
status had materially changed.” Id. McGrain
allegedly knew that the financial statements of DGL/DCC did
not accurately depict its true financial status and still
permitted them to be circulated to plaintiffs. Id.
Until plaintiffs discovered the inaccurate representations in
November 2018, they assert that McGrain had provided evasive
and deceptive answers about DGL's and DCC's financial
situation during telephone calls with John Miller.
Id. ¶ 56. They allege that in reliance on these
misrepresentations and nondisclosures, Miller facilitated at
least two additional promissory notes between its clients and
DGL. See Id. ¶ 58 (identifying contracting
plaintiff Lawson Land, Inc. and another client who is not
named as a plaintiff).
claim that the misrepresentations caused contracting
plaintiffs to delay efforts to collect from DGL earlier,
causing them financial harm. Id. ¶ 60. They
also contend that the misrepresentation and nondisclosures
caused Miller to delay looking into the financial status of
the entities beyond the allegedly false financial records
provided to them. Id. ¶ 61. As a result, Miller
allegedly lost clients and fees and suffered severe harm to
its reputation as a wealth advisory firm. Id.
on these allegations, all plaintiffs bring fraud claims
against all defendants. FAC ¶¶ 102-138 (Cause of
Action [“COA”] 6 for fraud/intentional
misrepresentation in under Civ. Code § 1572; COA 7 for
fraudulent deceit under Cal. Civ. Code §§
1709-1710; COA 8-9 for negligence and negligent
misrepresentation). Miller also brings two claims against all
defendants based on the clients and money it lost due to
defendants' fraud. FAC ¶¶ 139-154 (COA 10 for
intentional interference with contractual relations; COA 11
for negligent interference with prospective economic
RULE 12(B)(6): MOTION TO DISMISS FOR FAILURE TO STATE A
Federal Rule of Civil Procedure 12(b)(6), a district court
must dismiss if a claim fails to state a claim upon which
relief can be granted. To survive a Rule 12(b)(6) motion to
dismiss, the claimant must 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 is facially plausible when the plaintiff
pleads facts that “allow 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) (citation omitted). There must be
“more than a sheer possibility that a defendant has
acted unlawfully.” Id. While courts do not
require “heightened fact pleading of specifics, ”
a claim must be supported by facts sufficient to “raise
a right to relief above the speculative level.”
Twombly, 550 U.S. at 555, 570.
Federal Rule of Civil Procedure 9(b), a party must
“state with particularity the circumstances
constituting fraud or mistake, ” including “the
who, what, when, where, and how of the misconduct
charged.” Vess v. Ciba-Geigy Corp. USA, 317
F.3d 1097, 1106 (9th Cir. 2003) (internal quotation marks
omitted). However, “Rule 9(b) requires only that the
circumstances of fraud be stated with particularity; other
facts may be pleaded generally, or in accordance with Rule
8.” United States ex rel. Lee v. Corinthian
Colls., 655 F.3d 984, 992 (9th Cir. 2011). In deciding a
motion to dismiss for failure to state a claim, the court
accepts all of the factual allegations as true and draws all
reasonable inferences in favor of the plaintiff. Usher v.
City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987).
But the court is not required to accept as true
“allegations that are merely conclusory, unwarranted
deductions of fact, or unreasonable inferences.” In
re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th
RULE 12(B)(2): MOTION TO DISMISS FOR LACK OF PERSONAL
Rule 12(b)(2) of the Federal Rules of Civil Procedure, a
defendant may move to dismiss for lack of personal
jurisdiction. The plaintiff then bears the burden of
demonstrating that jurisdiction exists. Schwarzenegger v.
Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.
2004). The plaintiff “need only demonstrate facts that
if true would support jurisdiction over the defendant.”
Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir.
1995); Fields v. Sedgwick Assoc. Risks, Ltd., 796
F.2d 299, 301 (9th Cir. 1986). “Although the plaintiff
cannot simply rest on the bare allegations of its complaint,
uncontroverted allegations in the complaint must be taken as
true.” Schwarzenegger, 374 F.3d at 800
(citations omitted). Conflicts in the evidence must be
resolved in the plaintiff's favor. Id.
“Where, as here, the motion is based on written
materials rather than an evidentiary hearing, the plaintiff
need only make a prima facie showing of jurisdictional facts.
In such cases, we only inquire into whether [the
plaintiff's] pleadings and affidavits make a prima facie
showing of personal jurisdiction.” Caruth v.
International Psychoanalytical Ass'n, 59 F.3d 126,
128 (9th Cir. 1995) (internal punctuation and citation
as here, there is no applicable federal statute governing
personal jurisdiction, the law of the state in which the
district court sits applies.” Core-Vent Corp. v.
Novel Indus. AB, 11 F.3d 1482, 1484 (9th Cir. 1993)
(citation omitted). “California's long-arm statute
allows courts to exercise personal jurisdiction over
defendants to the extent permitted by the Due Process Clause
of the United States Constitution.” Id.; Cal.
Civ. Proc. Code. § 410.10. “Because
California's long-arm jurisdictional statute is
coextensive with federal due process requirements, the
jurisdictional analyses under state law and federal due
process are the same.” Schwarzenegger, 374
F.3d at 800-01.
are two types of personal jurisdiction: general and
specific.” Fields v. Sedgwick Associated Risks,
Ltd., 796 F.2d 299, 301 (9th Cir. 1986).
“[G]eneral jurisdiction permits a defendant to be haled
into court in the forum state to answer for any of its
activities anywhere in the word.”
Schwarzenegger, 374 F.3d at 801. It exists where a
nonresident defendant's activities within a state are
“substantial” or “continuous and
systematic.” Data Disc., Inc. v. Sys. Tech.
Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977). Such