Opinion
Case No: 06-CV-0252W (POR).
April 7, 2006
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
On February 2, 2006 Plaintiff Louis D. Paolino, Jr. ("Plaintiff") commenced this action against Defendant James Miceli ("Defendant") alleging unjust enrichment, civil conspiracy, fraud and fraudulent inducement, and 18 U.S.C. § 1962 ("RICO claim") violations. Defendant now moves to dismiss all of Plaintiff's claims pursuant to FED. R. CIV. P. 12(b)(6). All parties are represented by counsel. The Court decides the matter on the papers submitted and without oral argument. See Civil Local Rule 7.1(d.1). For the reasons outlined below, the Court GRANTS Defendant's motion. I. BACKGROUND
Plaintiff is the President, CEO and Chairman of the Board of Mace Security International, makers of the well known "Mace" repellant spray. ( Complaint at ¶ 5.) Until the events giving rise to this litigation, Plaintiff owned 19.7% of the company's issued and outstanding shares of stock. ( Id.)
Defendant is the CEO of Argyll Equities ("Argyll"), a company which offers leveraged financing to certain preferred borrowers. ( Declaration, Ex. 6 at 28; Complaint at ¶ 10.) Defendant is also a 50% stockholder of Argyll. ( Id.) Although Argyll is a Texas corporation, Defendant is a California resident who operates Argyll's California office. ( Declaration, Ex. 1 at 1.)
Defendant appears to have little contact with Texas. His Texas contacts are detailed in the Texas federal court's Order granting Defendant Miceli's Motion to Dismiss for lack of personal jurisdiction. ( Declaration, Ex. 6 at 27-28.) It appears that Defendant's only Texas contacts derive from infrequent business on behalf of Argyll. ( Id.)
In early 2004, Plaintiff needed money and sought to pledge his Mace stock as loan collateral. ( Complaint at ¶ 10.) Jeffrey Spanier ("Spanier"), an AmeriFund Capital Finance, LLC ("Amerifund") representative, introduced Plaintiff to Argyll. ( Id.) Plaintiff negotiated a loan with Argyll, using Spanier as an intermediary for all communications. ( Id.) Amongst other negotiated terms, Plaintiff required that, absent default, his stock would be held in escrow and that Argyll would send Plaintiff advance notice of each scheduled interest payment. ( Id.)
On April 20, 2004 Plaintiff and Argyll closed the loan. ( Complaint at ¶ 11.) Argyll loaned Plaintiff approximately $4.1 million dollars secured by 1.19 million shares of Mace stock. ( Id.) Although Mace stock currently traded at $5.45/share, the loan was effectively based on a price of $3.45/share. ( Complaint at ¶¶ 15, 16.) In other words, on the loan closing date, Plaintiff's $4.1 million cash loan was secured by $6.8 million of Mace stock. ( Id.) Almost immediately after closing, Plaintiff alleges that Argyll violated the Loan Agreement's terms by secretly selling Plaintiff's stock and realizing a $2 million dollar-plus profit. ( Complaint at ¶ 17.)
On July 12, 2004 Argyll provided Plaintiff with notice of his first quarterly interest payment. ( Complaint at ¶ 18.) On July 13, 2004 Plaintiff promptly tendered payment, which Argyll accepted. ( Complaint at ¶ 19.) Although the July notice informed Plaintiff that his next payment was due October 15, 2004, the notice did not state the amount owed in October. ( Complaint, Ex. B.) Plaintiff alleges that Argyll violated the Loan Agreement's terms by providing no further notice regarding the October interest payment's amount and due date. ( Complaint at ¶ 20.) Consequently, as of October 15, 2004 Plaintiff had not tendered any additional payment to Argyll.
On November 2, 2004 Argyll sent Plaintiff a "Notice of Default" based upon Plaintiff's failure to tender a $43,620.94 October 15 interest payment. ( Complaint at ¶ 21.) The Notice stated that, pursuant to the Loan Agreement, Argyll was terminating the loan and could sell Plaintiff's Mace stock for its own account. ( Complaint at ¶ 22.) On November 3, 2004 Plaintiff sent a letter contesting default and reminding Argyll of its obligation to provide notice. ( Complaint at ¶ 23.) Plaintiff also enclosed a check for the full $43,620.94 interest payment, which Argyll accepted. ( Id.) Despite accepting payment, Plaintiff asserts that Argyll refused to rescind default. ( Complaint at ¶ 24.)
On November 5, 2004 Argyll's attorney, John Franczyk ("Franczyk"), informed Plaintiff's attorney that Argyll would "take no actions" with respect to the pledged Mace stock until November 8, 2004. ( Complaint at ¶ 25.) On November 8, 2004 Argyll (through Franczyk) and Plaintiff extended this "standstill agreement" until November 22, 2004. ( Complaint at ¶ 26.) Ostensibly, these agreements would allow both parties time to negotiate a modified loan agreement. ( Id.) On November 19, 2004 the parties agreed to extend negotiations until December 23, 2004. ( Id.) Sometime during the ongoing negotiations, Plaintiff alleges that Defendant Miceli said that no action would be taken with regard to Plaintiff's Mace stock. ( Complaint at ¶ 27.)
On December 16, 2004, pursuant to the Loan Agreement's forum selection clause, Plaintiff filed suit against Argyll in the 216th District Court for Kendall County, Texas. ( Declaration, Ex. 6 at 3.) Originally, Plaintiff sought a temporary restraining order ("TRO") to prohibit Argyll from transferring or selling the Mace stock. ( Complaint at ¶ 28.) Plaintiff alleges that he incurred substantial legal fees while Argyll objected to the TRO despite knowing that they no longer held the stock. That is, unbeknownst to Plaintiff, his Mace stock had already been sold over six months prior. ( Id.) When Plaintiff finally learned that his Mace stock had already been liquidated, he amended his complaint to include Defendant Miceli as well as other individual and entity defendants. ( Id.) On April 8, 2005, after learning of another lawsuit against Argyll in Hong Kong, Plaintiff voluntarily vacated the Texas state court action to file in federal court. ( Declaration, Ex. 2, Ex. 6 at 3; Complaint at ¶ 28.)
The documents comprising the Loan Agreement contained a forum selection clause providing that Plaintiff "consents to the exclusive jurisdiction of the courts sitting in Kendall County, Texas, United States of America . . . for the purpose of any suit, action or other proceeding by any party to this Agreement, arising out of or related in any way to this Agreement." ( Declaration, Ex. 6 at 2.)
The current status of the Texas state court action is unknown. Although the "Agreed Order on Motion to Vacate" vacated the court's scheduling order and dropped the trial date, the court held "[i]t is further ORDERED that discovery shall continue as between the parties that are before the Court and that upon a determination of the parties that will proceed in this litigation a new scheduling order will be entered and a trial date set." ( Declaration, Ex. 2.) Should Plaintiff again approach this Court for relief, the Court would be interested in the Texas action's status, parties and claims before considering awarding Plaintiff additional relief.
On April 25, 2005 Plaintiff filed a complaint against Argyll, Defendant Miceli, and others in United States District Court for the Western District of Texas. ( Declaration, Ex. 3; Complaint at ¶ 28.) In addition to breach of contract and other state law claims, Plaintiff alleged that the Hong Kong lawsuit provided evidence of an "enterprise" on which to plead RICO violations. ( Complaint at ¶¶ 29-31.) On August 30, 2005 the Texas federal court granted Argyll's motion to dismiss based on the Loan Agreement's forum selection clause. ( Declaration, Ex. 6 at 4.) On November 2, 2005 the court granted the remaining defendants', including Defendant Miceli's, motion to dismiss due to lack of personal jurisdiction. ( Declaration, Ex. 6; Complaint at ¶ 32.) On November 10, 2005 Plaintiff appealed both rulings. ( Declaration, Ex. 7.)
It appears that Plaintiff wanted to use Argyll in conjunction with RICO's nationwide service of process in order to secure jurisdiction over the remaining defendants. Under Fifth Circuit precedent, RICO's nationwide service of process provision is satisfied if at least one defendant is subject to jurisdiction in the forum because that defendant resides, is found, has an agent, or transacts his affairs there and no other forum exists that would have jurisdiction over all the defendants. Dale v. Ala Acquisitions, Inc., 203 F. Supp. 2d 694, 699 (S.D. Miss. 2002). Once the Texas court dismissed Texas-based Argyll pursuant to the forum selection clause, Plaintiff lost their "anchor" defendant with which to secure RICO jurisdiction over the other, non-resident defendants.
On April 26, 2005 Argyll filed for declaratory relief against Plaintiff in the Kendall County, Texas state court. ( Declaration, Ex. 4.) Specifically, Argyll requested a declaration that it acted within its rights when it sold Plaintiff's Mace stock. ( Id. at ¶ 5.) On October 3, 2005 Plaintiff counterclaimed against Argyll. Most of the counterclaims were nearly identical to the claims against Defendant Miceli in this case. ( Declaration, Ex. 6.)
Plaintiff's Texas state court counterclaims are the third time he has pled similar claims prior to this action, and none of the prior actions appear to be entirely resolved. As noted previously, the Court is concerned about the discovery language in Plaintiff's first "vacated" Texas state court action. Similarly, Plaintiff has a federal appeal pending which contests the Texas federal court's dismissal order. Finally, the status of Plaintiff's counterclaims in Argyll's declaratory relief action are unknown. Should Plaintiff decide to plead his case again, the Court expects persuasive reasons why it should not abstain in favor of one of the many pending state and federal actions. Because of the close relationship between Defendant Miceli and Argyll (not before the Court), the Court is concerned about the possibility of awarding what could amount to double liability.
On February 2, 2006 Plaintiff filed this action against Defendant Miceli only. The complaint alleges that Argyll fraudulently induced Plaintiff to enter into the Loan Agreement, that Defendant conspired to commit this fraud, that Defendant was unjustly enriched, and that Defendant conspired to and did in fact commit RICO violations. ( Complaint at ¶¶ 33-62.) On February 23, 2006 Defendant moved to dismiss the complaint under FED. R. CIV. P. 12(b)(6) for failure to state claims upon which relief can be granted. On March 13, 2006 Plaintiff timely opposed, and on March 20, 2006 Defendant submitted a reply brief.
II. LEGAL STANDARD
A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. See North Star Int'l. v. Arizona Corp. Comm'n., 720 F.2d 578, 581 (9th Cir. 1983). Dismissal of a claim according to this rule is appropriate only where it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party.Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002). The complaint and all reasonable inferences therefrom are construed in the plaintiff's favor. Walleri v. Fed. Home Loan Bank of Seattle, 83 F.3d 1575, 1580 (9th Cir. 1996). Nevertheless, conclusory legal allegations and unwarranted inferences are insufficient to defeat a motion to dismiss. Ove v. Gwinn, 264 F.3d 817, 821 (9th Cir. 2001). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)
III. DISCUSSION A. ARGYLL AND DEFENDANT MICELI'S RELATIONSHIP
As a threshold matter, the Court recognizes that Plaintiff brings suit against Defendant individually. According to the complaint, however, most of the alleged bad acts were committed by Defendant's company, Argyll Equities, and other parties not before this Court. Defendant Miceli's individual acts are only referenced after the loan closing and subsequent default. Specifically, during the loan modification negotiations, Plaintiff alleged that Defendant stated "no action would be taken with regard to his Mace stock." ( Complaint at ¶ 27.) In each count, Plaintiff largely seeks to hold Defendant liable for the acts of Argyll and other individuals, or for conspiring in the acts of Argyll and other individuals. ( Complaint at ¶¶ 33-62.)
Plaintiff's papers express frustration with the pace of the 5th Circuit litigation, where Plaintiff is appealing Defendant's dismissal due to lack of personal jurisdiction. ( Opposition at 1-2.) Plaintiff argues that he should not be penalized for "[pursuing Defendant] in his home jurisdiction, where [Defendant] claimed he was amenable to suit." ( Id.) Plaintiff overlooks the fact that Defendant moves to dismiss this case for failure to state a claim, and not on jurisdictional grounds. Even if Defendant, in Texas, argued successfully for California jurisdiction, this does not mean Defendant consents to liability for acts not properly pled against him.
The "other parties" not before this Court include the parties alleged to be involved around the time of the Loan Agreement and subsequent default. Namely, Plaintiff's Complaint references several acts by Spanier, AmeriFund, and Franczyk.
Corporate director or officer status neither immunizes a person from personal liability for tortious conduct nor subjects him to vicarious liability for such acts. PMC, Inc. v. Kadisha, 93 Cal. Rptr. 2d 663, 670 (Cal.Ct.App. 2000). It is well settled that corporate directors cannot be held vicariously liable for the corporation's torts in which they do not participate.Frances T. v. Village Green Owners Assn., 723 P.2d 573, 580 (Cal. 1986) (italics in original). Rather, any liability stems from their own tortious conduct, not from their status as directors or officers. Id.
A corporate officer is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf. Wolf Designs v. DHR Co., 322 F. Supp. 2d 1065, 1072 (C.D. Cal. 2004). This is true regardless of whether the corporation is also liable. Frances T., 723 P.2d at 580. As recognized by the Ninth Circuit, cases which have found personal liability on the part of corporate officers have typically involved instances where the defendant was the "guiding spirit" or "central figure" in the wrongful conduct. Davis v. Metro Prods., Inc., 885 F.2d 515, 524 (9th Cir. 1989). However, mere knowledge of a corporation's tortious conduct is not enough to hold an officer liable for all the torts of the corporation absent other "unreasonable participation" in the unlawful conduct by the individual. Wolf Designs, 322 F. Supp. 2d at 1072, citing Kadisha, 93 Cal. Rptr. 2d 663.
Thus, in accordance with the above, this Court must view Plaintiff's allegations against Argyll through the lens of Defendant's position as an Argyll officer. Absent facts indicating that Defendant was a "central figure" or otherwise personally involved in the tortious acts, this Court cannot impute Argyll's bad acts to Defendant individually. B. CLAIMS 1. UNJUST ENRICHMENT
Alternatively, the corporate entity can be ignored where the corporation is the agent or alter ego of the individual defendant. Wolf Designs v. DHR Co., 322 F. Supp. 2d 1065, 1072 (C.D. Cal. 2004). Plaintiff alleges no "alter ego" in his complaint and, in the limited information before the Court, such an argument against Defendant Miceli does not appear tenable.
Defendant contends that Plaintiff has not sufficiently pled adequate facts to support an unjust enrichment claim. ( Memorandum at 6.) Specifically, Defendant argues that Plaintiff's Complaint fails to allege that Defendant Miceli received or retained any personal benefits from the alleged fraudulent transaction. ( Id.) Rather, Defendant argues that the Complaint only indicates that Argyll, if anyone, was unjustly enriched. ( Id.)
Plaintiff argues that his Complaint states that Defendant Miceli was unjustly enriched by his participation in a conspiracy to defraud Plaintiff. ( Opposition at 9.) By participating in the conspiracy, Defendant unlawfully profited from the sale of the Mace stock. ( Id.) Plaintiff contends that Defendant received and retained profits because Defendant participated in the stock sale conspiracy and had a "direct financial interest" in Argyll. ( Id.)
The elements for a claim of unjust enrichment are: (1) receipt of a benefit; and (2) unjust retention of the benefit at the expense of another. Lectrodryer v. Seoul Bank, 91 Cal. Rptr. 2d 881, 883 (Cal.Ct.App. 2000). To state a claim upon which relief can be granted, a plaintiff must allege that the defendant actually received a benefit at plaintiff's expense. Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 958 (N.D. Cal. 2003). Allegations that a defendant received benefits merely because he served as a corporate officer do not satisfy pleading requirements. Id. Likewise, allegations that a defendant benefitted by nature of a corporate ownership interest are insufficient to overcome a motion to dismiss. Id.
Plaintiff's complaint fails to allege sufficient facts which satisfy an unjust enrichment claim. Even assuming the truth of the Complaint's factual allegations and construing them in the most favorable light, Plaintiff does not show that Defendant himself received a benefit and unjustly retained it. Rather, Plaintiff pleads that Argyll Equities benefitted from the Mace stock sale. ( Complaint at ¶ 35.) Although Defendant may be the CEO and 50% shareholder of Argyll, the Court cannot assume that a benefit to Argyll accrues as a direct benefit to Defendant Miceli. See, e.g., Accuimage, 260 F. Supp. 2d at 958 (dismissing similar claim because plaintiff did not allege that defendant-officer sold his stock holdings or personally received a benefit at plaintiff's expense).
Plaintiff also alleges that Defendant was unjustly enriched because he participated in a "conspiracy" for which he received "consideration." ( Complaint at ¶¶ 34-36.) However, the conspiracy argument amounts to little more than a legal conclusion unsupported by facts showing how, where, when and why Defendant Miceli conspired with others to receive benefits. Plaintiff's contentions that Defendant received "consideration" are similarly conclusory. For example, Plaintiff alleges nothing which suggests that Defendant actually received a benefit or what that benefit was. Because Plaintiff alleges nothing aside from officer/shareholder status which suggests that Defendant personally benefitted from Argyll's or other's misconduct, the Court GRANTS WITHOUT PREJUDICE Defendant's motion to dismiss.
2. CIVIL CONSPIRACY
Defendant contends that Plaintiff fails to allege sufficient facts supporting a claim of civil conspiracy. As a threshold matter, Defendant argues that Plaintiff does not allege an underlying tort for which a civil conspiracy claim could attach. ( Memorandum at 7.) Additionally, Defendant argues that the Complaint suggests nothing indicating that Defendant formed, agreed to participate in, discussed, or had knowledge of any joint act or scheme. ( Id.) Plaintiff argues that a civil conspiracy claim only turns on the damage suffered. ( Opposition at 10.) Regardless, Plaintiff contends that a civil conspiracy can be inferred from the Complaint's allegations. ( Id. at 10-11.)
Civil conspiracy is not a separate and distinct cause of action under California law. Entm't Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228 (9th Cir. 1997). That is, a civil conspiracy however atrocious, does not per se give rise to a cause of action unless a tort has been committed resulting in damage. Doctors' Company v. Superior Court, 775 P.2d 508, 510 (Cal. 1989). Alleging a conspiracy fastens liability on those who agree to the plan to commit the wrong as well as those who properly carry it out. Saunders v. Superior Court, 27 Cal. Rptr. 2d 438, 446 (Cal.Ct.App. 1994).
To properly plead a conspiracy cause of action, the plaintiff must allege "the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design." Mox, Inc. v. Woods, 262 P. 302, 303 (Cal. 1927). Plaintiffs must clearly allege specific action on the part of each defendant that corresponds to the elements of a conspiracy cause of action. Accuimage, 260 F. Supp. 2d at 948.
Federal Rule of Civil Procedure 9(b)'s heightened pleading standard applies to civil conspiracy claims. "In civil conspiracy actions, courts insist upon a higher level of specificity than is usually demanded of other pleadings. This insistence on a higher level of specificity may result from the frequent presence of fraud [in many plaintiffs' claims], which brings the complaint under Rule 9(b)[.]" Alfus v. Pyramid Tech. Corp., 764 F.Supp 598, 606 (N.D.Cal. 1991). See also Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) ("[I]n actions alleging conspiracy to defraud or conceal, the particularity requirements of Rule 9(b) must be met."). A plaintiff who makes allegations on "information and belief" must state the factual basis for the belief. Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993).
As this Court understands Plaintiff's Complaint, there are two alleged torts to which a civil conspiracy claim could attach: (1) fraudulent inducement into the Loan Agreement, resulting in the sale of Plaintiff's stock; and (2) fraudulent misrepresentation during the loan modification, resulting in Plaintiff expending resources pursuing a TRO. ( Complaint at ¶¶ 10-14; 26-27.) Regardless of whether or not Plaintiff's fraud claims are well-pled, Plaintiff does not allege specific facts suggesting a civil conspiracy between Defendant and Argyll, Spanier, Franczyk, and/or Amerifund. Although Plaintiff states "[u]pon information and belief" that Defendant conspired against Plaintiff, the allegations which follow only describe actions by Argyll, Spanier, AmeriFund and Franczyk. ( Complaint at ¶¶ 38-39.) In fact, Plaintiff mentions Defendant's actions only once, after the fraudulent inducement allegedly occurred. ( Complaint at ¶ 27.) Simply put, no facts suggest that Defendant formed, agreed to participate in, discussed, or had knowledge of any common design to fraudulently induce Plaintiff into the Loan Agreement. Although Plaintiff alleges that Defendant perpetrated the second fraud "in concert with Franczyk," no additional facts support this allegation or otherwise suggest that Defendant agreed to further any fraud. Considering the heightened pleading requirements and absence of specific facts, Plaintiff's civil conspiracy claim must fail. Accordingly, the Court DISMISSED WITHOUT PREJUDICE Plaintiff's second claim. 3. FRAUD AND FRAUDULENT INDUCEMENT
Defendant argues that the Complaint fails to allege specific facts showing that Defendant fraudulently induced Plaintiff to pledge his Mace stock. ( Memorandum at 8.) Defendant also argues that the Complaint fails to allege specific facts sufficient to find that Defendant committed fraud after the alleged breach. ( Id.) Specifically, Defendant argues that his single statement to Plaintiff took place well after the Loan Agreement was formed and that the statement was technically true. ( Id.) Plaintiff contends that he has properly alleged fraud against Defendant because his complaint states that Defendant intentionally misrepresented the status of Plaintiff's stock and Plaintiff relied on the misrepresentation to his detriment. ( Opposition at 12.)
The elements of a cause of action for fraud in California are: (1) concealment or misrepresentation of material fact; (2) knowledge of falsity when made; (3) intent to defraud the plaintiff; (4) plaintiff's justifiable reliance; and (5) resultant damage to the plaintiff. South Tahoe Gas Co. v. Hoffman Land Improvement Co., 102 Cal. Rptr. 286, 296 (Cal.Ct.App. 1972).
Complaints alleging fraud must meet the pleading requirements of Federal Rule of Civil Procedure 9(b), which provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). Rule 9(b) thus imposes two separate requirements on complaints alleging fraud. First, a plaintiff must specifically identify the allegedly fraudulent statements or acts of fraud. Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994). This requires the plaintiff to plead evidentiary facts including the dates, times, places and person associated with each misrepresentation or act of fraud. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548-49 n. 7 (9th Cir. 1994) (en banc); Neubronner, 6 F.3d at 672.
Second, where the act of fraud is based on a misrepresentation, the plaintiff must demonstrate that the statement was false or misleading at the time it was made. GlenFed, 42 F.3d at 1549. For this reason, "a plaintiff must set forth, as part of the circumstances constituting fraud, an explanation as to why the disputed statement was untrue or misleading when made, [which] can be done most directly by pointing to inconsistent contemporaneous statements or information . . . which were made by or available to the defendants." Id. at 1549.
As an additional requirement, Rule 9(b) prohibits fraud allegations directed at groups of people and requires the plaintiff to specify the role of each defendant involved in the fraudulent activity. Bruns v. Ledbetter, 583 F.Supp. 1050, 1052 (S.D. Cal. 1984) (Turretine, J.); see also In re Worlds of Wonder Sec. Litig., 694 F.Supp. 1427, 1433 (N.D. Cal. 1988) ("Each defendant is entitled to know what misrepresentations are attributable to them and what fraudulent conduct they are charged with."). Because every element of fraud must be specifically alleged in the proper manner, the policy of liberally construing pleadings will sustain a defective pleading. See Comm. on Children's Television, Inc. v. General Foods Corp., 673 P.2d 660, 672 (Cal. 1983).
Federal law applies when analyzing tort claims and forum selection clauses like the one in Plaintiff's Loan Agreement.See Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 512 (9th Cir. 1988). In the Ninth Circuit, whether a forum selection clause applies to tort claims depends on whether resolution of the claims relates to interpretation of the contract. Id. at 514. Both signatories and non-signatories may be subject to a forum selection clause for torts where the tort claims relate to "the central conflict over the [contract] interpretation." Id.
Because the broad fraud and conspiracy charges against Defendant relate to Argyll's rights and duties under the contract, the Court is not convinced that this action is not subject to the forum selection clause and thus not properly venued in Kendall County, Texas. Plaintiff's allegations against Defendant individually are largely derivative; that is, they largely center on his nominal role as Argyll CEO or alleged conspirator with non-parties who fraudulently breached the Loan Agreement. Ignoring, for the moment, Defendant's alleged vicarious or conspirational liability, Plaintiff only contends that Defendant personally did one thing that arguably falls outside of the contract: namely, Defendant stated that "no action would be taken" with Plaintiff's Mace stock even though the stock had already been sold. ( Complaint at ¶ 27.) Allegedly, this statement prompted Plaintiff to expend resources pursing a fruitless TRO. (Complaint at ¶ 27.) Regardless, the Court does not form an opinion on any of these issues today, as Plaintiff's claim is properly dismissed under Rule 12(b)(6).
As mentioned above, Plaintiff's fraud claim seeks recovery for two distinct events: (1) fraudulent inducement into the Loan Agreement, resulting in the sale of Plaintiff's stock; and (2) fraudulent misrepresentation during the loan modification, resulting in Plaintiff expending resources pursuing a TRO. For the first event, Plaintiff alleges nothing against Defendant individually. In other words, nothing in the Complaint suggests that Defendant was the "central figure" that induced Plaintiff to pledge his Mace stock as collateral. Rather, Plaintiff alleges that Argyll, Spanier, and Amerifund were the key players in executing this fraud. ( Complaint at ¶¶ 42-44.) Because Plaintiff alleges no facts which suggest that Defendant personally directed, authorized, or otherwise participated in the fraudulent inducement, the Court cannot award relief against Defendant for Argyll's torts. See Wolf Designs, 322 F. Supp. 2d at 1072; Frances T., 723 P.2d at 580.
Plaintiff also alleges that Defendant personally committed fraud during the loan modification period, and Plaintiff was damaged by pursuing a TRO. Defendant claims that, since he stated "no action would be taken," his statement was technically true and thus could not be considered a misrepresentation under any circumstances. The Court disagrees. Given the loan's structure and that Plaintiff assumed Argyll still possessed his stock, it seems reasonable that Defendant's statement would give Plaintiff the impression that Argyll would hold off exercising its rights until further notice. Nevertheless, Plaintiff's Complaint does not allege sufficient facts to satisfy fraud's "knowledge" and "intent" prongs under California law. That is, Plaintiff only alleges that Defendant "materially misrepresented" the fact that Argyll already sold the Mace stock. ( Complaint at ¶¶ 27, 45.) Plaintiff does not allege any facts suggesting that Defendant actually knew the Mace stock had been sold, or that Defendant actually intended to deceive Plaintiff when the statement was made. Rather, Plaintiff again relies on the alleged bad acts of Argyll, Spanier, Franczyk, and AmeriFund to impute this knowledge to Defendant, an alleged conspirator. ( Complaint at ¶ 42-44.) The Court has found the conspiracy claims unsupported, and Plaintiff alleges nothing else suggesting that Defendant had the knowledge and intent to commit fraud in his individual capacity. Accordingly, Plaintiff's third claim is DISMISSED WITHOUT PREJUDICE. 4. RICO CLAIMS
Defendant argues that Plaintiff's Complaint fails to allege sufficient facts showing RICO violations. ( Memorandum at 9.) Specifically, Defendant contends that Plaintiff does not allege that Defendant received any proceeds within the meaning of the RICO statute, fails to show a causal connection between the investment of funds and Plaintiff's injury, and fails to state facts sufficient to establish an "enterprise" and "pattern" under 18 U.S.C. § 1961. Because a RICO conspiracy claim hinges on pleading an actual RICO violation, Defendant argues that the RICO conspiracy claim should be similarly dismissed. ( Memorandum at 14-15.)
Defendant also argues that Plaintiff's RICO claims are preempted by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). ( Memorandum at 10-11.) Because Plaintiff clearly fails to state facts sufficient to allege RICO violations, the Court does not reach the question of whether the PSLRA bars the type of claim Plaintiff contemplates.
Plaintiff argues that his Complaint alleges sufficient facts to find both an 18 U.S.C. § 1962(a) RICO violation and an 18 U.S.C. § 1962(d) RICO conspiracy. ( Opposition at 14.) Specifically, Plaintiff contends that he has adequately pled investment injury, that Defendant's involvement with Argyll and others constitutes an "enterprise," and that Defendant's actions constitute a "pattern" of criminal activity under RICO. ( Opposition at 16-18.) Likewise, Plaintiff argues that his RICO conspiracy claim is adequately pled. ( Opposition at 20.)
Section 1962(a) provides that it shall be unlawful for any person who received any income derived from a pattern of racketeering activity to use or invest any part of such income in the establishment or operation of any enterprise. 18 U.S.C. § 1962(a) (2000). In order to have standing under § 1962(a), plaintiffs seeking civil damages for RICO violations must allege facts tending to show that they were injured by the use or investment of racketeering income. Wagh v. Metris Direct, Inc., 348 F.3d 1102, 1109, 1111 (9th Cir. 2003). Failure to plead an investment injury subjects a RICO claim to a motion to dismiss.Id.; Simon v. Value Behavioral Health, Inc., 208 F.3d 1073, 1083 (9th Cir. 2000).
Plaintiff has not alleged that he was injured by the use or investment of racketeering income. To the contrary, Plaintiff seeks to recover on a predicate act of fraud, rather than an injury sustained because the fraud's proceeds were invested in something harmful. See Kaczmarek v. IBM, 30 F. Supp. 2d 626, 628-29 (S.D.N.Y. 1998) (denying § 1962(a) claim because the real cause of the injury was the racketeering acts, not the investment of proceeds from the enterprise). Although Plaintiff generally alleges that Defendant used the fraud proceeds to fund "other similar fraudulent schemes," nowhere does Plaintiff allege what those other schemes were and how Plaintiff was injured by Defendant's investment in them. Simply put, Plaintiff's claims against Defendant are not the types of injuries RICO is meant to redress.
Because Plaintiff fails to allege an injury recognized under 18 U.S.C. § 1962(a), the Court declines to address Defendant's remaining arguments. For the aforementioned reasons, Plaintiff's fourth and fifth claims are DISMISSED WITHOUT PREJUDICE. IV. CONCLUSION
Although the Court understands Plaintiff's frustration with the Texas litigation's pace, it is unclear what Plaintiff hopes to accomplish by bringing action against Defendant in his individual capacity in California. Given the allegations currently before the Court, the scope of any recovery, properly pled, against Defendant would appear to be very limited.
For the reasons stated above, the Court GRANTS Defendant's motion to dismiss WITHOUT PREJUDICE.
IT IS SO ORDERED.