Opinion
No. 03-5914 MMC, (Docket Nos. 18, 21).
July 8, 2004
ORDER GRANTING PENTALPHA MACAU COMMERCIAL OFFSHORE LIMITED'S MOTION TO DISMISS FIRST AMENDED CROSS-COMPLAINT, WITH LEAVE TO AMEND; VACATING HEARING
Before the Court is Pentalpha Macau Commercial Offshore Limited's ("Pentalpha") motion to dismiss, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Damoder Reddy's ("Reddy") pleading titled "First Amended Cross Complaint" ("FACC") or, alternatively, for a more definite statement pursuant to Rule 12(e). Reddy has filed opposition, to which Pentalpha has replied. Having considered the papers filed in support of and in opposition to the motion, the Court deems the matter appropriate for decision on the papers, VACATES the hearing scheduled for July 9, 2004, and rules as follows.
Pentalpha correctly observes that because Pentalpha has filed a complaint naming Reddy as a defendant, Reddy's claims against Pentalpha are "counterclaims," not "cross-claims." See Fed.R.Civ.P. 13(a), 13(b). Reddy, in his opposition, concedes that the pleading should be denominated a counterclaim.
None of the other parties named in the FACC has filed a response to the pleading. To date, Reddy has not filed proof of service of the FACC on any party other than Pentalpha.
In his FACC, Reddy alleges five causes of action arising from Reddy's employment with "Opsys" and "cross-defendants" transfers of Opsys' property after Reddy was no longer employed by Opsys. (See FACC ¶¶ 9, 15, 23.) Reddy's causes of action are titled First Cause of Action (Conversion), Second Cause of Action (Slander), Third Cause of Action (Fraud), Fifth Cause of Action (Breach of Fiduciary Duty), and Sixth Cause of Action (Intentional Infliction of Emotional Distress).
The "cross-defendant" identified as "Opsys Ltd. (U.K.), a British LTD Corporation" does not appear to be Reddy's former employer. In a recent filing, Reddy referred to his former employer as "Opsys USA." (See Def.'s Case Management Statement, filed June 21, 2004, at 1:10-20.) Pentalpha asserts in its motion that Opsys Ltd. (U.K.) was the parent corporation of Reddy's former employer.
The FACC does not contain a Fourth Cause of Action.
Pentalpha argues that the FACC, which in large part fails to distinguish between the eight "cross-defendants" and instead lumps them together, is subject to dismissal for failure to provide Pentalpha with fair notice of the basis of Reddy's claims. Reddy, in his opposition, does not argue that the FACC provides fair notice to Pentalpha. Rather, Reddy, in effect, concedes dismissal is proper for failure to provide fair notice, and requests that the Court allow him to file a pleading to be denominated a "Second Amended Counterclaim for Monetary Damages" ("SACC"), which pleading, Reddy asserts, will provide the requisite fair notice to Pentalpha. In its reply, Pentalpha argues the Court should dismiss the FACC without leave to amend on the ground the proposed SACC would be subject to dismissal. In other words, Pentalpha contends that Reddy cannot amend his FACC to state any viable claims against Pentalpha.
Reddy's proposed SACC is Exhibit A to his opposition to Pentalpha's motion to dismiss.
Given Reddy's effective concession that the FACC does not provide the requisite fair notice to Pentalpha, the Court will dismiss the FACC. The Court will next determine whether, as Pentalpha asserts, granting leave to amend would be futile.
Pentalpha first argues that all of Reddy's claims are futile because the claims challenge Pentalpha's purchase of Opsys USA's assets, which purchase, according to Pentalpha, has been approved by a Bankruptcy Court. The Court disagrees. First, Pentalpha offers no evidence, judicially-noticeable or otherwise, to support its assertion that any purchase was approved by a court. Second, several claims are not based on a challenge to a transfer of assets from Opsys to Pentalpha, specifically, Reddy's claims for conversion of his personal assets, for slander, and for fraud to the extent it is based on a transfer of assets from Reddy to Opsys. Third, to the extent Reddy is challenging transfers of sales from Opsys to Pentalpha, such transfers appear to be conveyances made before the filing of the bankruptcy petition. (See, e.g., proposed SACC ¶ 23.)
According to Reddy, Opsys USA was the subject of an involuntary bankruptcy proceeding instituted by Reddy and others. (See proposed SACC ¶ 23.) Reddy alleges that Pentalpha, along with "Opsys Ltd" and "Lite Array," succeeded to the liabilities of Opsys USA. (See proposed SACC ¶ 2.) Although Pentalpha, in its reply, has denied that allegation by relying on an agreement between Pentalpha and a bankruptcy trustee that states Pentalpha has not assumed the liabilities of Opsys USA, the existence of that agreement does not necessarily indicate approval by the Bankruptcy Court. The Court must assume the truth of Reddy's allegation, there being no judicially-noticeable document to indicate that Opsys USA's liabilities were discharged in bankruptcy or, if not discharged, were assumed by a party other than Pentalpha.
Pentalpha also argues that the conversion claim alleged in the proposed SACC does not comply with Rule 8(a) because Reddy has not identified what property Pentalpha, as opposed to other parties, converted. The Court disagrees. Reddy has, by generally identifying the property converted by three specified entities and four specified individuals, provided Pentalpha with fair notice of the basis for the claim. (See proposed SACC ¶ 9.) Pentalpha may use the discovery process to obtain the precise details.See, e.g., Fed.R.Civ.P. 33(a) (providing "any party may serve upon any other party written interrogatories"). Accordingly, Pentalpha has not shown that amendment of the conversion claim would be futile on account of a failure to comply with Rule 8(a).
A conversion claim is a strict liability tort. See Burlesci v. Petersen, 68 Cal. App. 4th 1062, 1066 (1998) ("Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant.") Consequently, Reddy's conversion claim is not subject to the particularity requirement of Rule 9(b) of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 9(b) (providing "circumstances constituting fraud or mistake shall be stated with particularity").
Next, Pentalpha argues that the slander claim alleged in the proposed SACC is futile. The proposed SACC alleges that Pentalpha, along with two other corporations, stated to third parties that Reddy had "lied and acted dishonestly on numerous occasions," had "committed acts evincing a mean-spirited animus and character," had "defrauded them out of money and equipment and other things," had "stolen said money, equipment and other things," and had "committed crimes of fraud and theft." (See proposed SACC ¶ 15.) The only third party identified is "Frank Chui, representative of the landlord of the building in Fremont, CA where Reddy had his offices." (See id.) Pentalpha argues such allegations are defective because Reddy has not pleaded the "precise" statements, the identity of the individuals who made the statements, and to whom the statements were made. The Court disagrees. Reddy, although apparently paraphrasing the statements, has provided Pentalpha with sufficient notice of the basis for the claim of slander, and has identified a third party who heard the statements. Because a claim for slander is not a claim for "fraud or mistake," it is not subject to Rule 9(b)'s requirement that "the circumstances . . . be stated with particularity," see Fed.R.Civ.P. 9(b), such as identifying the particular individual who engaged in the culpable conduct on behalf of the corporate defendant. Although a statement that a person has a "mean-spirited animus and character" appears to constitute an inactionable statement of opinion, a statement that a person has stolen property is slanderous per se. See Contento v. Mitchell, 28 Cal. App. 3d 356 (1972) (holding false statement that plaintiff was "thief" was slanderous per se). Accordingly, Pentalpha has not shown that the slander claim in the proposed SACC is futile.
Pentalpha argues that the fraud claim alleged in the proposed SACC is futile, as against Pentalpha, because Reddy has only identified statements made by Opsys USA. Although this interpretation of the proposed SACC appears correct, Reddy has alleged Pentalpha succeeded to the liabilities of Opsys USA. (See proposed SACC ¶ 2.) Accordingly, Pentalpha has not shown that the fraud claim in the proposed SACC is futile. (See, supra, n. 6.)
The proposed SACC, even if interpreted as alleging false statements made to Reddy by persons or entities other than Opsys USA, does not allege any false statements made to Reddy by Pentalpha.
Additionally, Pentalpha argues that the breach of fiduciary duty claim alleged in the proposed SACC is futile, as against Pentalpha, because Reddy has not pleaded sufficient facts to give rise to a finding that Pentalpha and Reddy had a fiduciary relationship. Pentalpha does not address the claim to the extent it is based on the actions of Opsys USA; as noted, Reddy has alleged that Pentalpha succeeded to the liabilities of Opsys USA. (See proposed SACC ¶ 2.) With respect to such claim against Pentalpha directly, however, Pentalpha's argument has merit. In that respect, Reddy alleges he "shared" his "personal propriety information" with Pentalpha. (See proposed SACC ¶ 29.) Under California law, a fiduciary duty is created where "confidence is imposed by one person in the integrity of another," where the other "voluntarily accepts or assumes the confidence." See GAB Business Services, Inc. v. Lindsey Newsom Claim Services, Inc., 83 Cal. App. 4th 409, 417 (2000) (internal quotation and citation omitted). Reddy does not allege that when he "shared" his "personal propriety information" with Pentalpha, Pentalpha voluntarily accepted or assumed the confidence. Rather, Reddy alleges he "took the risk of giving [Pentalpha] access to his personal propriety information." (See proposed SACC ¶ 29.) Under the circumstances, Reddy has not sufficiently pleaded a direct claim for breach of fiduciary duty against Pentalpha. Nevertheless, the facts, as alleged in the proposed SACC, do not preclude Reddy from establishing the existence of a fiduciary duty on the part of Pentalpha. In other words, although Pentalpha has shown that the breach of fiduciary duty claim set forth in the proposed SACC is insufficient to the extent it is brought directly against Pentalpha, Pentalpha has not shown that the claim could not be cured by further amendment. Accordingly, the Court will allow Reddy, if he wishes to proceed with a breach of fiduciary duty claim directly against Pentalpha, to file a different Second Amended Counterclaim that includes sufficient facts to support a finding that Pentalpha owed Reddy a fiduciary duty.
Reddy's claims arise under state law.
If Reddy chooses to file the proposed SACC attached to his opposition to Pentalpha's motion to dismiss, the Court will construe such pleading as not including a direct claim for breach of fiduciary duty against Pentalpha.
Finally, Pentalpha argues that the claim for intentional infliction of emotional distress alleged in the proposed SACC is futile because Reddy has not alleged the type of outrageous conduct necessary to support such a claim. Reddy, however, alleges that Opsys USA's agents threatened to inflict bodily injury on Reddy if he returned to the office, after they had stolen over $2,000,000 of assets from Reddy. The Court cannot find, at the pleading stage, that such allegations could not support a claim for intentional infliction of emotional distress. See, e.g., Kiseskey v. Carpenters' Trust, 144 Cal. App. 3d 222, 229-30 (1983) (holding plaintiff sufficiently alleged outrageous conduct necessary to support claim for intentional infliction of emotional distress where defendant's agents threatened plaintiff with bodily injury in attempt to compel plaintiff to sign agreement). Accordingly, Pentalpha has not shown that the claim for intentional infliction of emotional distress in the proposed SACC would be futile.
As noted, Reddy alleges Pentalpha has succeeded to the liabilities of Opsys USA.
CONCLUSION
For the reasons stated above, Pentalpha's motion to dismiss the First Amended Cross-Complaint is hereby GRANTED, and the First Amended Cross-Complaint is hereby DISMISSED, with leave to amend.
Reddy may file a Second Amended Counterclaim no later than July 23, 2004. This order terminates Docket Numbers 18 and 21.