Opinion
Case No. CV 21-06142-AB (MRWx)
2022-03-04
MEND HEALTH, INC., a California Corporation, Plaintiff, v. CARBON HEALTH TECHNOLOGIES, INC., a Delaware Corporation, Sujal Mandavia, an Individual, and Does 1–20, inclusive, Defendants.
Alex M. Weingarten, Matthew J. Busch, Matthew M. Gurvitz, Steven Dylan Goodrich, Willkie Farr and Gallagher LLP, Los Angeles, CA, for Plaintiff. Charles Tait Graves, Josh Alec Baskin, Stephanie Cheng, Wilson Sonsini Goodrich and Rosati PC, San Francisco, CA, Hannah E. Brown, A. Louis Dorny, Gordon Rees Scully Mansukhani LLP, Los Angeles, CA, Patrick Mulkern, Gordon Rees Scully Mansukhani LLP, San Diego, CA, for Defendants Carbon Health Technologies, Inc., Sujal Mandavia.
Alex M. Weingarten, Matthew J. Busch, Matthew M. Gurvitz, Steven Dylan Goodrich, Willkie Farr and Gallagher LLP, Los Angeles, CA, for Plaintiff.
Charles Tait Graves, Josh Alec Baskin, Stephanie Cheng, Wilson Sonsini Goodrich and Rosati PC, San Francisco, CA, Hannah E. Brown, A. Louis Dorny, Gordon Rees Scully Mansukhani LLP, Los Angeles, CA, Patrick Mulkern, Gordon Rees Scully Mansukhani LLP, San Diego, CA, for Defendants Carbon Health Technologies, Inc., Sujal Mandavia.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
ANDRÉ BIROTTE JR., UNITED STATES DISTRICT COURT JUDGE
Before the Court is Defendant Carbon Health Technologies, Inc. and Dr. Suja Mandavia's (collectively, "Defendants") Motion to Dismiss ("Motion," Dkt. No. 16-1). Plaintiff Mend Health, Inc. ("Plaintiff") filed an opposition ("Opp'n," Dkt. No. 20) and Defendant filed a reply ("Reply," Dkt. No. 21). On February 18, 2022, the Court held a hearing on the matter. For the following reasons, the Court GRANTS Defendants’ Motion to Dismiss. I. BACKGROUND
Plaintiff, Mend Health ("Mend"), operates three urgent care facilities in the San Fernando Valley. (FAC ¶ 15, Dkt. No. 1-4, Ex. 3.) Carbon Health Technologies ("Carbon") is a health care provider that operates 40 urgent care facilities nationwide. (Id. ¶ 3.) Dr. Mandavia is Carbon's Chief Medical Officer. (Id. ¶ 16.)
In August 2020, Defendants’ clinic acquisition team contacted Plaintiff as a potential acquisition target. (Id. ¶ 20.) The next month, the parties discussed Carbon's potential acquisition of Mend and Defendants remarked that "any deal with Mend could close within 45 days with expedited due diligence." (Id. ¶¶ 24–25.) Defendants also noted that whether Carbon would move forward in the process of acquiring Mend would depend on a review of Mend's business information and financials. (Id. ¶ 25.)
During this call, Defendants did not disclose that they had already entered into a lease to open a Carbon facility in Sherman Oaks, which was less than one mile away from an existing Mend location. (Id. ¶ 26.) Despite this, Mandavia maintained that "the only circumstance by which Defendants intended to operate in the Sherman Oaks area was through an acquisition of Mend" and that Carbon had no other plans to open a facility in the Sherman Oaks area. (Id. )
A few weeks later, Plaintiffs signed a non-disclosure agreement ("NDA") and sent Defendants "confidential and proprietary business information." (Id. ¶ 27.) Plaintiff would only release Mend's financials if Defendants were "seriously considering acquiring Mend." (Id. ¶ 29.) So, Plaintiff followed-up with Defendants to seek further assurances that Carbon was indeed serious about acquiring Mend. (Id. ¶ 28.) In early-October 2020, Mandavia assured Plaintiff that Defendants were "serious" about acquiring Mend, that Carbon would only enter the Sherman Oaks market through an acquisition of Mend, and that Carbon would "move on from the Sherman Oaks market" if the transaction with Mend did not close. (Id. ¶ 29.) At no point during this conversation did Defendant mention that Carbon had already leased a facility in Sherman Oaks. (Id. ) In light of Defendants’ extra assurances, Plaintiff released Mend's financial information. (Id. ¶¶ 31, 32.)
Less than one week later, on October 21, 2020, Defendants notified Plaintiff that they would not be moving forward with the acquisition and informed Plaintiff that Carbon already had an existing lease in the same market as Mend. (Id. ¶ 37.) Defendants acknowledged that it was a mistake not to disclose the Sherman Oaks lease and blamed the oversight on an internal miscommunication. (Id. ) In a follow-up email memorializing Defendants’ withdrawal, Defendants explained that they would not be moving forward with the acquisition because Mend's financial figures were artificially inflated due to COVID-19. (Id. ¶ 38.) Within days of terminating discussions with Plaintiff, Defendants characterized the Mend facility as a "never-touch " due to its proximity to Defendants’ leased Sherman Oaks facility. (Id. ¶ 40.)
Before Defendants ever contacted Plaintiff, an investment firm located in Saudi Arabia had signed a letter of intent to invest $5 million to "fund the expansion of Mend clinics." (Id. ¶ 47.) Plaintiff alleges that it missed out on this opportunity because it had relied on Defendants’ assurances that it was "serious" about acquiring Mend. (Id. ¶¶ 48, 49.) Plaintiff further alleges that it missed out on other business opportunities because it had pursued a potential acquisition by Defendants. (Id. ¶ 49.) Moreover, Plaintiff claims that, but for Defendants’ broken promise, Mend would have been positioned to obtain $100 million in venture capital funds "to expand their services to combat COVID-19." (Id. ¶ 66.)
On January 26, 2021, Plaintiff brought an action against Defendants in state court alleging claims for breach of contract, misappropriation of trade secrets under California Civil Code § 3426, fraud, misrepresentation, breach of implied covenant of good faith and fair dealings, and violation of California Business & Professions Code § 17200. (Compl., Dkt. 1, Ex. 1.) On June 30, 2021, the parties stipulated to Plaintiff's filing of a first amended complaint, which included claims under federal law. (Dkt. 1, Ex. 2.) Defendants removed the action based on federal question jurisdiction and now move to dismiss. (Not. of Removal, Dkt. 1 at 2–3; see generally Mot.)
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8 requires a plaintiff to present a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). When fraud and negligent misrepresentation are alleged, Rule 9(b) heightens the requirements of Rule (8)(a). Fed. R. Civ. P. 9(b) ; see Neilson v. Union Bank of Cal., N.A. , 290 F. Supp. 2d 1101, 1141 (C.D. Cal. 2003) ("It is well-established in the Ninth Circuit that both claims for fraud and negligent misrepresentation must meet Rule 9(b) ’s particularity requirements."); see also Gilmore v. Wells Fargo Bank N.A. , 75 F. Supp. 3d 1255, 1269–70 (N.D. Cal. 2014) (collecting cases and holding that Rule 9(b) applies to claims of negligent misrepresentation). Rule 9(b) requires that a plaintiff "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b).
Under Rule 12(b)(6), a defendant may move to dismiss a pleading for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To defeat a Rule 12(b)(6) motion to dismiss, the complaint must provide enough factual detail to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The complaint must also be "plausible on its face," allowing the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). A plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Labels, conclusions, and "a formulaic recitation of the elements of a cause of action will not do." Id.
When ruling on a Rule 12(b)(6) motion, "a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). But a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted).
Federal Rule of Civil Procedure 15(a) is very liberal and leave to amend "shall be freely given when justice so requires." See Bowles v. Reade , 198 F.3d 752, 757 (9th Cir. 1999) ; Fed. R. Civ. P. 15(a). A district court should provide leave to amend upon granting a motion to dismiss unless it is clear that the complaint could not be saved by amendment. Manzarek v. St. Paul Fire & Marine Ins. Co. , 519 F.3d 1025, 1031 (9th Cir. 2008). However, leave to amend "is properly denied ... if amendment would be futile." Carrico v. City and Cty. of San Francisco , 656 F.3d 1002, 1008 (9th Cir. 2011).
III. DISCUSSION
Plaintiff alleges causes of action for (1) fraud, (2) promissory estoppel, (3) negligent misrepresentation, (4) trademark infringement ( 15 U.S.C. § 1114 ), (5) Federal Unfair Competition and false designation of origin ( 15 U.S.C. § 1125(A) ), (6) violation of California Business and Professions Code § 17200, (7) common law trademark infringement, and (8) common law unfair competition. (See FAC.) Defendants contend that Plaintiff's first, second, and third causes of action should be dismissed with prejudice. (Mot. at 15; Reply at 2 n.1.) The Court will address these claims in turn.
A. Fraud & Negligent Misrepresentation
Defendants argue that Plaintiff's first and third causes of action for fraud and negligent misrepresentation must fail because Plaintiff's allegations are deficient as to the intent and reliance requirements. (Mot. at 7–8.)
To state a fraud claim under California law, a plaintiff must allege "(1) a knowingly false representation or fraudulent omission by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages." UMG Recordings, Inc. v. Glob. Eagle Ent., Inc. , 117 F. Supp. 3d 1092, 1109 (C.D. Cal. 2015) (citing Small v. Fritz Cos., Inc. , 30 Cal. 4th 167, 173, 132 Cal.Rptr.2d 490, 65 P.3d 1255 (2003) ). Promissory fraud is "a subspecies of the action for fraud and deceit." Lazar v. Superior Ct. , 12 Cal. 4th 631, 638, 49 Cal.Rptr.2d 377, 909 P.2d 981 (1996). "A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud." Id.
In California, every element of a cause of action for fraud must be alleged both factually and specifically, and the absence of one element will preclude recovery. Gonsalves v. Hodgson , 38 Cal. 2d 91, 100–01, 237 P.2d 656 (1951). The elements for negligent misrepresentation are the same as fraud, except a plaintiff need not plead intent to defraud, but instead, must allege that the defendant lacked any reasonable ground for believing the statement to be true. Charnay v. Cobert , 145 Cal. App. 4th 170, 184, 51 Cal.Rptr.3d 471 (2006).
Here, Plaintiff claims that Defendants misrepresented that they were "serious" about acquiring Mend. (FAC ¶¶ 52, 69.) Plaintiff further alleges that Defendants’ representation that they "would only enter the Sherman Oaks market through an acquisition of Mend" was knowingly false because, at the time the statement was made, Defendants knew that they had already executed a lease on a Sherman Oaks facility. (Id. ¶¶ 55–57, 69.) Yet, the fact of Defendants’ preexisting lease does not necessarily give rise to an inference that Defendants never seriously considered acquiring Mend. Although Defendants later characterized the Mend facility as a "never-touch" location, this was not until after Defendants had already terminated acquisition discussions. (Id. ¶¶ 28, 37–40.) Thus, because Plaintiff has failed to show that Defendants lacked intent to perform at the time the promise was made, Plaintiff cannot state a claim for fraud. See Serv. by Medallion, Inc. v. Clorox Co. , 44 Cal. App. 4th 1807, 1816, 52 Cal.Rptr.2d 650 (1996) ("explaining that an action for fraud requires "proof that the defendant made a misrepresentation of fact or a promise without any intention of performing it."). Likewise, Plaintiff has not shown that Defendants lacked any reasonable basis for believing Carbon was serious about acquiring Mend. See Charnay , 145 Cal. App. 4th at 184, 51 Cal.Rptr.3d 471. That Defendants requested Mend's financials also weighs against finding that Defendants lacked any reasonable basis for stating that it was serious about acquiring Mend. (See FAC ¶¶ 29–32.) Thus, Plaintiff's negligent misrepresentation claims also fail.
Accordingly, the Court GRANTS Defendants’ Motion with respect to Plaintiff's fraud and negligent misrepresentation claims with leave to amend.
B. Promissory Estoppel
Defendants argue that Plaintiff's claim for promissory estoppel fails because there was no offer or promise, and there was no reasonable reliance. (Mot. at 10.)
In California, the elements of promissory estoppel are (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance." Sateriale v. R.J. Reynolds Tobacco Co. , 697 F.3d 777, 792 (9th Cir. 2012) (citing US Ecology, Inc. v. State of California , 129 Cal. App. 4th 887, 28 Cal.Rptr.3d 894 (2005) ).
1. Clear and Unambiguous Promise
To be enforceable, "a promise must be definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages." Ladas v. California State Auto. Ass'n , 19 Cal. App. 4th 761, 770, 23 Cal.Rptr.2d 810 (1993). In addition, the promise must be "clear and unambiguous in its terms." Daniels v. Select Portfolio Servicing, Inc. , 246 Cal. App. 4th 1150, 1178, 201 Cal.Rptr.3d 390 (2016). "[A] promise that is ‘vague, general or of indeterminate application’ is not enforceable." Glen Holly Ent., Inc. v. Tektronix Inc. , 343 F.3d 1000, 1017 (9th Cir. 2003) (quoting Aguilar v. Int'l Longshoremen's Union Loc. No. 10 , 966 F.2d 443, 446 (9th Cir. 1992) ). Further, "[e]stoppel cannot be established from ... preliminary discussions and negotiations." Granadino v. Wells Fargo Bank, N.A. , 236 Cal. App. 4th 411, 417, 186 Cal.Rptr.3d 408 (2015) (quoting Garcia v. World Sav., FSB , 183 Cal. App. 4th 1031, 1044, 107 Cal.Rptr.3d 683 (2010) ).
Here, Plaintiff claims that Defendants promised that they "were serious about acquiring Mend and had no intention of opening their own clinic in the same Sherman Oaks market as Mend." (FAC ¶ 64.) However, Defendants’ alleged promise to "seriously consider" acquiring Mend is not a clear and unambiguous. Because Plaintiff has not alleged facts to define the scope of Defendants’ alleged duty to seriously consider acquiring Mend, Defendants’ alleged promise is too vague to support a claim for promissory estoppel. See Glen Holly Ent., Inc. , 343 F.3d at 1017.
Plaintiff relies on Aceves v. U.S. Bank, N.A. , 192 Cal. App. 4th 218, 120 Cal.Rptr.3d 507 (2011), to argue that Defendants’ promise to seriously consider acquiring Mend is sufficiently clear and unambiguous for the purpose of promissory estoppel. (Opp'n at 23.) In Aceves , the bank promised to "work with" the plaintiff to reinstate and modify the plaintiff's loan, but only made this promise in order to convince the plaintiff to forego further bankruptcy proceedings, so that the bank could lift the automatic stay and foreclose on the plaintiff's property. 192 Cal. App. 4th at 225, 120 Cal.Rptr.3d 507. The court held that the bank had made a sufficiently clear and unambiguous promise to negotiate with the Plaintiff to reach a mutually beneficial loan modification. Id. at 226–27, 120 Cal.Rptr.3d 507.
Yet, the terms of Defendants’ promise are far less definite than that in Aceves . In Aceves , the scope of performance on the promise was sufficiently definite because "[t]he bank either did or did not negotiate." Id. at 226, 120 Cal.Rptr.3d 507. Here, Plaintiff does not define the scope of performance and what would have constituted "serious" consideration by Defendants. Moreover, Defendants’ alleged promise lacks any defined limits on performance "to provide a rational basis for the assessment of damages." See Ladas , 19 Cal. App. 4th at 770, 23 Cal.Rptr.2d 810.
Although Plaintiffs argue that, by characterizing Mend as a "never-touch," Defendants broke their promise to seriously consider an acquisition—Defendants did not use this term until after ending discussions with Plaintiff. (FAC ¶¶ 37–40.) Further, Defendants requested and reviewed Plaintiff's financials, which suggests that Defendants did, in fact, seriously consider acquiring Mend. (Id. ¶¶ 31, 32, 38.) Thus, Plaintiff has not alleged a clear and unambiguous offer.
2. Reasonable Reliance
"Promissory estoppel applies whenever a ‘promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance’ would result in an ‘injustice’ if the promise were not enforced." Granadino , 236 Cal. App. 4th at 418, 186 Cal.Rptr.3d 408 (internal citations omitted) (quoting Aceves , 192 Cal. App. 4th at 227, 120 Cal.Rptr.3d 507 ). "[A] party plaintiff's misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance." Id. A "mere ‘hopeful expectation[ ] cannot be equated with the necessary justifiable reliance.’ " Id. (alteration in original).
Here, Plaintiff alleges that it reasonably and justifiably relied on Defendants’ promise and that Plaintiffs would have been positioned to secure $100 million in venture capital to expand their business had Defendants not broken their promise. (FAC ¶¶ 65–66.) However, Plaintiff's allegations that it forwent alternative options to expand its business are insufficient. See Anderson v. PHH Mortg. , No. SACV 12-01192-CJC, 2012 WL 4496341, at *3 (C.D. Cal. Sept. 28, 2012) ("conclusory statements regarding refinancing or selling the Subject Property are insufficient" to allege detrimental reliance "because they have not alleged that they would have been successful in pursuing either of these options"). Thus, Plaintiff has not alleged reasonable reliance.
Accordingly, the Court GRANTS Defendants’ Motion with respect to Plaintiff's promissory estoppel claim with leave to amend.
IV. CONCLUSION
For the reasons stated above, the Court GRANTS Defendants’ motion to dismiss Plaintiff's first, second, and third causes of action. Any amended complaint must be filed within fourteen (14) days of the date of issuance of this order. IT IS SO ORDERED.