Opinion
Case No. CV 15-03897 DDP (ASx)
01-12-2016
GOODBREAK, LLC, a California limited liability company, Plaintiff, v. HOOD BY AIR, LLC, a California limited liability company; HOOD BY AIR LICENSING, LLC,a California limited company; HOOD BY AIR, an unknown entity; SHAYNE OLIVER, an individual; LEILAH WEINRAUB, an individual; BEAU WOLLENS, an individual; MELVIN LOH, an individual, Defendants.
ORDER DENYING PLAINTIFF'S MOTION TO REMAND TO STATE COURT
[Dkt. 11, 18]
Presently before the court is Plaintiff Goodbreak LLC ("Goodbreak")'s Motion to Remand. After considering the parties' submissions, the Court DENIES the motion.
I. Background
Goodbreak arranges for the manufacture of clothing in China for its clients. (Complaint, ¶ 18.) Defendants Hood By Air, LLC and Hood By Air Licensing, LLC (collectively "HBA") sell articles of clothing online and in retail locations. (Complaint, ¶ 19.) Defendant Shayne Oliver owns, directs, or controls HBA and Defendant Leilah Weinraub is HBA's CEO. Defendant Wollens is HBA's Director of Operations. (Id. ¶¶ 6-8.)
At a trade show in China, Defendants Oliver and Weinraub informed Goodbreak of the potential to invest in HBA. (Compl. ¶ 20.) Plaintiff traveled to New York City in November 2013 to meet with Defendants to further discuss this opportunity. (Id.) At the meeting, Defendants requested that Plaintiff first manufacture clothing for Defendants on a "trial run" basis, before Plaintiff could become an equity investor. (Id.) Plaintiff agreed to a lower markup rate (50%) than was customary in order to develop a business relationship with Defendants and preserve the opportunity to invest in HBA. (Id.) This agreement was not memorialized. (Id.)
Pursuant to the agreement with Defendants, Plaintiff initiated production of various items of clothing for the Defendants. (Compl. ¶ 21.) Plaintiff requested payment upon delivery, but Defendants instead agreed to pay Plaintiff within 30 days of receiving invoices. (Id. ¶ 24.) Defendants were late with their payments on several occasions. (Id.)
The Complaint further alleges that Defendants made unreasonable turn-around demands, frequently giving Plaintiff only two weeks, and once as little as three days, to fulfill manufacturing orders. (Compl. ¶ 26.) Due to alleged errors in Defendants' designs, Plaintiff had to re-design several garments to make them capable of being manufactured. (Id. ¶ 27.) On these occasions, Plaintiff had to use its own resources to fix errors and pay "rush" fees to the manufacturer. (Id. at ¶ 27.)
Plaintiff also alleges that Defendants demanded direct access to Plaintiff's manufacturers in China. (Compl. ¶ 28.) To facilitate that access, Plaintiff helped Defendants obtain Chinese visas so that Defendants could observe production of the clothing. (Id.) While Defendant Wollen was in China, however, he induced Plaintiff's manufacturer to break its agreement with Plaintiff and deal directly with HBA instead. (Id. at ¶ 29.) After Plaintiff discovered this new arrangement, Defendants offered to continue paying Plaintiff the previously agreed upon markup rate, but never actually paid Plaintiff. (Id.)
Plaintiff filed suit in California state court alleging eight causes of action, including breach of contract, fraud, intentional interference with contractual relations, and unfair business practices. Defendant removed the action to this Court on the basis of diversity jurisdiction under 28 U.S.C. § 1332. (Notice of Removal ¶ 3.) Plaintiff seeks to remand the action to state court. Defendants, for their part, move to dismiss.
II. Legal Standard
A defendant may remove a case from state court to federal court if the case could have originally been filed in federal court. 28 U.S.C. § 1441(a). The district courts have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000 and is between citizens of different States. 28 U.S.C. § 1332(a)(1). There is a "strong presumption" against removal and the Defendant has the burden of establishing that removal is proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
Federal Rule of Civil Procedure 12(b)(2) provides that a court may dismiss a suit for lack of personal jurisdiction. The plaintiff has the burden of establishing that jurisdiction exists. See Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). 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." Caruth v. International Psychoanalytical Ass'n, 59 F.3d 126, 128 (9th Cir. 1977); Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). "Although the plaintiff cannot simply rest on the bare allegations of its complaint, uncontroverted allegations in the complaint must be taken as true." Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 797 (9th Cir. 2004) (internal quotations and citation omitted). Conflicts between parties over statements contained in affidavits must be resolved in the plaintiff's favor. Id.
A complaint will survive a motion to dismiss when it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations," it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id. at 679. In other words, a pleading that merely offers "labels and conclusions," a "formulaic recitation of the elements," or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id. at 678 (citations and internal quotation marks omitted).
"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief." Id. at 679. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly, 550 U.S. at 555. "Determining whether a complaint states a plausible claim for relief" is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
III. Discussion
A. Remand
Plaintiff argues that this case should be remanded because the Complaint does not state facts sufficient to establish the parties' citizenship and because Defendants have failed to definitively state their own U.S. citizenship status. Generally, "federal courts . . . do not limit their inquiry to the face of the Plaintiff's complaint, but rather consider the facts disclosed in the record of the case as a whole, in determining the propriety of removal." 14C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3734 (4th ed. 2015). This is because diversity is a concern of federal courts, not state courts, so many state court complaints omit the facts necessary to determine diversity. Harris v. Bankers Life and Cas. Co., 425 F.3d 689, 693 (9th Cir. 2005).
The Ninth Circuit has held that a defendant is permitted to remove an action to federal court "on the basis of its own information." Roth v. CHA Hollywood Medical Center, L.P., 720 F.3d 1121, 1125 (9th Cir. 2013). Specifically, even if a Plaintiff does not allege the citizenship of each Defendant in its complaint, this "should not defeat removal if Defendant independently knows or learns that information." Id. at 1125. The Ninth Circuit also held in Harris that if the complaint does not set forth grounds for removal, and the Defendant chooses not to do its own research to determine if the action is removable, then the action is not removable at that point. Harris, 425 F.3d at 694. Harris does not, however, prevent Defendants from voluntarily investigating to determine whether removal is proper. Id. at 694. Thus, in situations where the complaint does not allege facts sufficient to support removal, a Defendant is permitted to do research and remove the case to federal court, but is under no obligation to do so. Roth, 720 F.3d at 1125.
Here, although Plaintiff's complaint does not contain citizenship allegations, Defendants discovered the case was removable from their own knowledge and investigation. Plaintiff Goodbreak does not dispute that it is a citizen of California. Defendants state in signed declarations that of the seven named defendants, five are citizens of New York, one is a citizen of Singapore, and one is an entity that does not exist. (Notice of Removal p. 3; Weinraub Decl. ¶ 7, Dkt. No. 20-1.) This court assumes that Defendants' declarations are truthful, and Plaintiff has provided no evidence to the contrary. Based upon these statements, diversity jurisdiction exists among the parties and this case is properly in federal court.
Plaintiff further alleges that Defendants Oliver, Weinraub and Wollens' declarations are insufficient because they do not allege U.S. citizenship, a condition required for state citizenship. Again, this court assumes that Defendants' statements of citizenship are complete and truthful representations.
Plaintiff is requesting at least $428,372.16, which is well above the $75,000 required for diversity jurisdiction under 28 U.S.C. § 1332(a)(1).
B. Personal Jurisdiction
Defendants Oliver, Weinraub, and Wollens (collectively, the "individual Defendants") argue that this court does not have personal jurisdiction over them. District courts have the power to exercise personal jurisdiction to the extent authorized by the law of the state in which they sit. Fed. R. Civ. P. 4(k)(1)(A); Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). Because California's long-arm statute authorizes personal jurisdiction coextensive with the Due Process Clause of the United States Constitution, see Cal. Civ. Code § 410.10, this court may exercise personal jurisdiction over a nonresident defendant when that defendant has "at least 'minimum contacts' with the relevant forum such that the exercise of jurisdiction 'does not offend traditional notions of fair play and substantial justice.'" Schwarzenegger, 374 F.3d at 800-01 (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The contacts must be of such a quality and nature that the defendants could reasonably expect to be "haled into court there." World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980).
1. General Jurisdiction
Personal jurisdiction may be either general or specific. Gator.Com, 341 F.3d at 1076. "General jurisdiction exists when there are substantial or continuous and systematic contacts with the forum state, even if the cause of action is unrelated to those contacts." Id. "The standard for establishing general jurisdiction is fairly high" Id. (citations omitted). "The contacts with the forum state must be of a sort that approximate physical presence." Id. "Factors to be taken into consideration are whether the defendant makes sales, solicits or engages in business in the state, serves the state's markets, designates an agent for service of process, holds a license, or is incorporated there." Id. at 1076-77 (citations omitted). The court focuses on "the economic reality of the defendants' activities rather than a mechanical checklist." Id. "Even if substantial, or continuous and systematic, contacts exist, the assertion of general jurisdiction must be reasonable." Id.
Here, the only contacts Plaintiff cites are the individual Defendants' relationships to HBA and the fact that Plaintiff paid money to Defendants' California-based accountant. These facts are nowhere near systematic enough to approximate physical presence. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846, 2853 (2011) ("For an individual, the paradigm forum for the exercise of general jurisdiction is the individual's domicile . . . ."). ///
2. Specific Jurisdiction
Courts in the Ninth Circuit apply a three prong test to establish specific jurisdiction:
(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004. The "plaintiff bears the burden of satisfying the first two prongs of the test." Id. "If the plaintiff succeeds in satisfying both of the first two prongs, the burden then shifts to the defendant to 'present a compelling case' that the exercise of jurisdiction would not be reasonable." Id.
(2) the claim must be one which arises out of or relates to the defendant's forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.
Plaintiff briefly argues that the first two prongs are satisfied because the individual Defendants "entered into contracts with plaintiff; registered two (2) limited liability companies in California; and paid plaintiff . . . using the services of an accountant located in Los Angeles." (Opposition at 5.) However, "a contract alone does not automatically establish the requisite minimum contacts necessary for the exercise of personal jurisdiction." Gray & Co. v. Firstenberg Machinery Co., Inc., 913 F.2d 758, 760 (9th Cir. 1990) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76 (1985). In a contractual dispute, the court must weigh additional factors such as course of dealings, choice of law provisions in the contract, and other factors not addressed by Plaintiff. See Baca Gardening and Landscaping, Inc. v. Prizm Vinyl Corp., No. EDCV 08-1328-VAP, 2008 WL 4889030 at *4 (C.D. Cal. Nov. 12, 2008). Nor is the receipt of payment in a forum state alone sufficient to confer personal jurisdiction over the sender. See Fed. Deposit Ins. Corp. v. British-Am. Ins. Co., Ltd., 828 F.2d 1439, 1443 (9th Cir. 1987).
"The mere fact that a corporation is subject to local jurisdiction does not necessarily mean its nonresident officers, directors, agents, and employees are suable locally as well." Allstar Marketing Group, LLC v. Your Store Online, LLC, 666 F.Supp.2d 1109, 1119 (C.D. Cal. 2009) (internal alteration, quotation, and citation omitted). Plaintiff contends, therefore, that HBA is an alter ego of the individual Defendants. See Mulato v. Wells Fargo Bank, N.A., 76 F.Supp.3d 929, 945 (2014) (explaining exceptions to fiduciary shield doctrine). To invoke the alter ego exception, Plaintiff must make a prima facie case "(1) that there is such unity of interest and ownership that the separate personalities of the two entities no longer exist and (2) that failure to disregard their separate identities would result in fraud or injustice." Stewart v. Screen Gems-EMI Music, Inc., 81 F.Supp.3d 938, 954 (N.D. Cal. 2015) (internal quotations, alterations, and citation omitted).
When examining unity of interest, courts looks to factors such as the commingling of funds, use of the same offices or personnel, and lack of separate records. Id. The second prong's injustice requirement generally requires some evidence of bad-faith. See Pacific Maritime Freight, Inc. v. Foster, No. 10-cv-0578-BTM-BLM, 2010 WL 3339432 at *7 (S.D. Cal. Aug. 24, 2010). Here, the Complaint does no more than allege the individual Defendants' relationship to HBA and conclusorily assert that the alter ego factors are satisfied, with no supporting factual allegations. (Compl. ¶ 13.) Absent a prima facie case for alter ego liability, the exception does not apply. HBA's acts and contacts cannot be attributed to the individual Defendants.
Because there is no other basis for specific jurisdiction over the individual Defendants, their motion to dismiss for lack of personal jurisdiction is granted.
C. HBA's 12(b)(6) Motion
HBA moves to dismiss several of Plaintiff's substantive claims.
1. Fraud and Negligent Misrepresentation
HBA argues that Plaintiff's fraud and negligent misrepresentation claims are duplicative of breach of contract claim. "The economic loss rule generally bars tort claims for contract breaches, thereby limiting contracting parties to contract damages." United Guar. Mortg. Indem. Co. v. Countrywide Fin. Corp., 660 F.Supp.2d 1163, 1180 (C.D. Cal. 2009). "[C]onduct amounting to a breach of conduct becomes tortious when it also violates a duty independent of the contract arising from principles of tort law." Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 998 (2004) (internal quotation and citation omitted). Here, Plaintiff does not identify any duty HBA owed to Goodbreak, other than the alleged contractual duty. Plaintiff's fraud and negligent misrepresentation claims are, therefore, dismissed. /// ///
2. Intentional Interference
A claim for intentional interference with contractual relations requires "(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption . . ., and (5) resulting damage." Quelimane Co., Inc. v. Stewart Title Guaranty Co., 19 Cal.4th 26, 55 (1998).
HBA argues that the Complaint does not plead sufficient facts to sustain an intentional interference claim. The court agrees. Although the Complaint makes reference to "agreements with third parties" and alleges that Defendants "hijacked plaintiff's manufacturers," there is neither any indication of the identities of those third party manufacturers nor any allegation regarding the contractual right or rights with which Defendants allegedly interfered. Although Plaintiff's opposition includes the name of one manufacturer, that manufacturer is not named in the Complaint, which refers to several, rather than one, Chinese manufacturer. Defendants cannot be expected to defend against such vague allegations. See, e.g. UMG Recordings, Inc. v. Global Eagle Entm't, Inc., - F.Supp.3d -, 2015 WL 4606077 at *15 (C.D. Cal. 2015).
3. Remaining Claims
Having dismissed Plaintiff's intentional interference claim, the court also dismisses Plaintiff's claims for the breach of the UCL and of the implied covenant of good faith and fair dealing. Plaintiff argues that its implied covenant claim is not duplicative of its breach of contract claim because it is based upon Plaintiff's "reasonable expectation to not have HBA disrupt Goodbreak's contract with the manufacturer." (Opp. at 10.) In other words, Plaintiff's implied covenant claim is based upon its now-dismissed intentional interference claim.
Although Plaintiff's opposition devotes two sentences to the argument that the breach of implied covenant claim is based upon Defendants' complaints about the items provided by Plaintiff, it is unclear to the court how such complaints implicate the terms of the alleged contract.
As for the UCL claim, Plaintiff's Opposition makes reference to both the unlawful and unfairness prongs of California's Unfair Competition Law. Cal. Business & Professions Code § 17200. As an initial matter, however, the Complaint identifies only unfair, not any allegedly unlawful, business practice. (Compl. ¶¶ 74-76.) Second, the unlawful practice to which Plaintiff refers is the alleged intentional interference claim, which is deficient for the reasons discussed above. Lastly, an "unfair" practice is one "that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws . . ., or otherwise significantly threatens or harms competition." Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 187 (1999). Plaintiff makes no attempt to demonstrate how the conduct alleged meets this definition.
IV. CONCLUSION
For the reasons stated above, Plaintiff's motion to remand is DENIED. The individual Defendants' Motion to Dismiss for Lack of Personal Jurisdiction is GRANTED. HBA's Motion to Dismiss Plaintiff's fraud and negligent misrepresentation, intentional interference, implied covenant, and UCL claims is GRANTED. Those claims, and all claims against the individual Defendants, are DISMISSED, with leave to amend. Any amended complaint shall be filed within fourteen days of the date of this Order. IT IS SO ORDERED. Dated: January 12, 2016
/s/
DEAN D. PREGERSON
United States District Judge