Decision and Order
Hon. MARTIN SHULMAN, J.
Plaintiff Liu Shun Ng ("Plaintiff" of "Ng") moves pursuant to CPLR § 3126 to strike the answer of defendants New York City Transit Authority, Manhattan and Bronx Surface Transit Operating Authority and Harvey Kenneth (collectively, "Defendants," or "TA") for failure to comply with court-ordered discovery or, alternatively, barring non-party witnesses, Deveria Dickens ("Dickens") and Sherry Fisher ("Fisher"), from testifying at trial. Plaintiff further seeks sanctions pursuant to 22 NYCRR § 130-1.1 against TA's outside counsel for engaging in frivolous and dilatory conduct. Defendants oppose the motion.
Relevant Factual and Procedural Background
Ng started this personal injury action for damages as a result of injuries she sustained on April 14, 2004, while allegedly trying to board a TA bus (the "Bus"). Plaintiff specifically alleged the Bus wheel chair lift mechanism struck her left foot causing injury.
During the next five years, the parties engaged in ongoing discovery skirmishes, unusual for this otherwise non-complex matter. Pursuant to a pre-printed provision contained in the November 5, 2007 preliminary conference order (Exhibit G to Motion), Defendants were required to turn over the names and addresses of eyewitnesses, if any, to the Bus accident.
The preliminary conference order states, in relevant part:
"(6)
Other Disclosure:
(a) All parties, on or before 30 days, shall exchange names and addresses of all eye witnesses and notice witnesses, statements of opposing parties, and photographs, or, if none, provide an affirmation to that effect."
In April 2008, TA turned over a copy of a Supervisor's Accident/Crime Investigation Report ("TA Report") which identified/listed three eye witnesses but, as appeared from the annexed copy, redacted all contact information (Jaroslawicz Aff. in Support of Motion at ¶ 5)( see also, Exhibits H and P to Motion). In letters and at various discovery compliance conferences, Plaintiff repeatedly requested addresses and telephone numbers for the eye witnesses, any written statements they may have provided to TA and duplicate color photocopies of the Bus accident photographs ( Id. at ¶¶ 6-7).
For Plaintiff, the sticking point was/is TA's purported persistent tactic to disregard various compliance orders and belatedly disclose Inter alia contact information of the alleged eye witnesses to Ng's accident as well as statements two eye witnesses furnished to Defendants well after the time Defendants were required to do so. In fact, it was not until June 2010, and after a full day of jury selection, that TA's outside counsel turned "over two typewritten statements dated October 15, 2004 for witnesses Deveria Dickens and Sherry Fisher (Exhibit `L' [to Motion]) . . ." (emphasis supplied in the original) ( Id. at ¶ 8).
Plaintiff immediately moved to strike TA's answer and on June 30, 2010, after making a record, Justice Gische issued the following decision and order (Exhibit M to Motion);
It is hereby
ORDERED that the plaintiff's motion to strike the TA's answer for the late production of non-party eye witnesses' statements is granted only to the following extent:
Sherry Fisher is directed to appear for an EBT on July 2, 2010 at 10:00 am at the Supreme Courthouse in NY Co.
Deveria Dickens is directed to appear for an EBT on July 8, 2010 at 10:00 am at the Supreme Courthouse in NY Co. In the event either or both of these witnesses fail to appear, the court reserves the right to preclude their testimony and/or disband the jury, and/or mistry [sic] the case (if trial has started). This constitutes the decision and order of the court.
During the respective depositions which took place on July 9, 2010, Plaintiffs counsel learned from one of the non-party witnesses (i.e., Fisher) for the first time that she had prepared hand-written statements which she turned over to the TA six years ago (Exhibit N to Motion). A few weeks later, TA furnished an unredacted copy of the TA Report (Exhibit P to Motion) which now contained eye witness(es) contact information. In her present motion, Plaintiff claims prejudice as a result of this belated disclosure, inter alia, because her counsel's "eleventh hour" efforts to contact Marisol Otero, a listed eye witness using the telephone number finally provided six years later on July 22, 2010, proved unsuccessful as that number was disconnected ( Id. at ¶ 12).
To further support a claim of prejudice and basis for her alternative application to preclude either Fisher or Dickens from testifying, Plaintiff argues that TA's purported, wilful non-production of these alleged hand-written statements (now non-existent) forecloses Ng from discerning any inconsistencies between the hand written statements and the prepared typed statements these eye witnesses signed that could ostensibly minimize the damaging effect of these eye-witnesses' trial testimony (Jarosloawicz Reply Aff. at ¶ 10). Finally, Plaintiff's counsel seeks sanctions for TA's trial counsel's alleged impermissible conduct which not only frustrated Plaintiff's discovery rights, but also prevented jury selection and the ensuing trial from going forward.
In opposition, TA's trial counsel summarily dismisses Plaintiff's perceived hyperbole and succinctly counters that: Dickens and Fisher have been deposed pursuant to Justice's Gische's Decision and Order; in their typed statements and at their depositions, these witnesses consistently "state[d] that plaintiff was not struck by the wheel chair lift. In fact, the witnesses raise the distinct possibility that the claimed accident . . . [was] staged and phony . . ."(bracketed matter added) (Barrett Opp. Aff. at ¶ 7); and Plaintiff has always had a complete copy of the TA Report, "with the exception of witness phone numbers." ( Id. at ¶ 11), and this inadvertent omission of contact information occurred when a TA staff attorney obtained a copy of this report from a "FOIL response, which routinely redacts witness contact information . . ." ( Id. at ¶ 12).
In response to Plaintiff's perceived prejudice, Defendants' counsel further advised that "Plaintiff received contact information from defendant for Ms. Dickens when her non-party deposition busted three years ago . . . Plaintiff chose not to make any contact with Ms. Dickens at that time . . . In fact, plaintiff never undertook any effort whatsoever to locate the witnesses, presumably knowing they were adverse." ( Id. at ¶¶ 14-16). Counsel then pointed out that Defendants never had any witnesses' handwritten statements to turn over, but rather the witnesses "gave some handwritten information in an interview to an investigator, which was subsequently incorporated into their signed typed statements . . ." and these statements, otherwise privileged work product, were turned over prior to the scheduled depositions ( Id. at ¶¶ 26 and 29). Lastly, Defendants' trial counsel impliedly stated that at no time did Defendants' trial counsel intentionally act to thwart Plaintiff's discovery rights or prevent jury selection and the ensuing trial from going forward this past summer.
Discussion
CPLR § 3126 states, in pertinent part:
If any party . . . refuses to obey an order for disclosure or wilfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article, the court may make such orders with regard to the failure or refusal as are just, among them:
1. an order that the issues to which the information is relevant shall be deemed resolved for purposes of the action in accordance with the claims of the party obtaining the order; or
2. an order prohibiting the disobedient party from supporting or opposing designated claims or defenses . . .; or
3. an order striking out pleadings or parts thereof, . . . or dismissing the action or any part thereof, or rendering a judgment by default against the disobedient party.
Where a party disobeys a court order and by conduct frustrates the disclosure scheme provided by the CPLR, dismissal of the party's pleadings is within the broad discretion of the trial court. Zletz v Wetanson, 67 NY2d 711 (1986); Berman v Szpilzinger, 180 AD2d 612 (1st Dept 1992) (even though afforded ample opportunity to comply with discovery, plaintiff's repeated failure in this regard warranted dismissal of the complaint).
While the penalty of striking a pleading for failure to comply with disclosure is extreme, the courts nonetheless have held that dismissing the pleading is the appropriate remedy where the failure to comply has been "clearly deliberate or contumacious." Henry Rosenfeld, Inc. v Bower Gardner, 161 AD2d 374 (1st Dept 1990); Kutner v Feiden, Dweck Sladkus, 223 AD2d 488, 489 (1st Dept 1996), Iv to app den, 88 NY2d 802 (1996).
Regardless of Plaintiff's counsel's varied demand letters for requested discovery and witness contact information, Plaintiff makes her application to strike Defendants' answer and/or preclude the eye-witnessess' testimony for the first time this past June 2010 during the course of jury selection, five years after Ng started this action and almost two years after she filed her Note of issue. No trial was started then, and because of her CPLR § 3126 motion, Plaintiff did get a conditional dismissal order granting her a full and fair opportunity to confront non-party witnesses, Dickens and Fisher, at scheduled depositions. See Gendusa v Chen, 71 AD3d 1085, 1086 (2nd Dept 2010)("prejudice . . . avoided by granting an adjournment of trial to allow the . . . [Plaintiff] to depose the witness[es]. . ." [bracketed matter added]). After learning about certain hand-written, non-producible information either eye witness may have furnished TA, Plaintiff's counsel on this motion resorts to speculation about what such hand-written information may have contained. However, Ng simply cannot demonstrate "a clear showing that . . . [Plaintiff] seeking that evidence is `prejudicially bereft of appropriate means to confront a . . . [defense) with incisive evidence". . ." (bracketed matter added). Lamb v Maloney, 46 AD3d 857, 858 (2nd Dept 2007).
The Note of Issue was filed on December 2, 2008 and inter alia contained a non-waiver statement. It is true that Plaintiff specifically stated she did not waive any outstanding discovery required to be provided pursuant to Justice Mills' October 23, 2008 Decision and Order (e.g., contact information, witness statements, colored photographs, etc.) (Exhibit K to Motion). Still, on the Note of Issue's certificate of readiness, Plaintiff's counsel checked off that "Discovery proceedings now known to be necessary[][were] completed," and "[t]here has been compliance with any order issued pursuant to the Precalendar Rules ( 22 NYCRR 202.12)."
In a different vein, Plaintiff suggests TA intentionally redacted the contact information to prevent Plaintiff from timely obtaining potentially favorable witness information (i.e., unlike Dickens and Fisher, Marisol Otero might have been a corroborating witness for Ng) and TA's delay in finally furnishing this contact information ultimately proved to be a "dead end." But, during the course of its investigation in 2004, TA's ability to contact this potential eye witness to take a formal statement may have also been futile. We will never know. What we do know is Plaintiff made no attempt to compel TA to produce contact information and/or seek CPLR § 3126 relief at any time prior to jury selection this past summer. This court does recognize Plaintiff's frustration, nonetheless, the Sturm und Drang nature of Plaintiffs motion has not convinced this court that Defendants' trial counsel's conduct prior or subsequent to the scheduled jury selection dates was willful and contumacious (see Brown v United Christian Evangelistic Assn., 270 AD2d 378, 379 [2nd Dept 2000]) (on that record, a party's failure to produce full addresses of witnesses was found not wilful). There is simply no basis to either strike TA's answer or preclude any eye witness testimony at the trial. See Soto v New York City Transit Auth., 25 AD3d 546 [2nd Dept 2006]).
Nor does this court conclude that TA's trial counsel sought to obtain any tactical advantage with this potentially unfavorable testimony. In this context, when jury selection was scheduled for the second time in August 2010, the parties' attorneys and this court learned that Dickens and Fisher, presently employees of New York State's Unified Court System, were not available for trial. And, it is undisputed that TA had no control over these witnesses and reasonably sought to rely on their deposition transcripts. However, Plaintiff's counsel in colloquy in open court made herself perfectly clear that she would not be deprived of her right to cross-examine either of these witnesses at trial. Thus, it was precisely for this reason that this court adjourned the jury trial to October 2010 to ensure the availability of these eye witnesses. Under these facts and circumstances there is no basis to even support an order precluding these witnesses from testifying. But for this second round of CPLR § 3126 motion practice Plaintiff initiated almost two and one-half months after court ordered depositions were taken (see Exhibit N to Motion), Ng could have started and finished her jury trial. Based on the foregoing, Plaintiffs motion for preclusion and/or sanctions is denied, in its entirety.
The parties are directed to appear at the Jury Assembly Room on the 4th floor of this courthouse at 60 Centre Street, New York, New York on December 6, 2010, at 9:30 a.m. for jury selection and proceed immediately thereafter to what is conceded to be a short trial. This is a final marking against the parties for all purposes.
This constitutes this court's Decision and Order. Courtesy copies of same have been provided to counsel for the parties.
rvices Companies' alleged torts. Plaintiffs also argue that the Merchant Services Companies were alter egos of Parisi and Jurczyk. This argument is unavailing, however, because Plaintiffs offer no factual allegations to support their alter ego theory. The Court need not accept as true "a legal conclusion couched as a factual allegation."
Iqbal,
129 S. Ct. at 1950 (citation and internal quotation marks omitted). Accordingly, Plaintiffs' intentional and negligent misrepresentation claims against Parisi, Jurczyk and Madura are dismissed with leave to amend.
Plaintiffs assert that Parisi, Jurczyk or Madura did not move to dismiss their common law fraud claims. See Opp'n at 40 n. 27. This is incorrect. These Defendants' motions to dismiss challenge the sufficiency of Plaintiffs' fraud claims. See MSI Defs.' Mot. at 12-15.
Plaintiffs' intentional misrepresentation claims against the Leasing Defendants, TransFirst and the Bank Defendants fail for the same reasons that their allegations of the RICO predicate acts of wire and mail fraud fail.
In sum, because they were not subject to a motion to dismiss, Plaintiffs' fraud claims against the Merchant Services Companies, Moore and Roy may go forward. Plaintiffs also state cognizable common law fraud claims against Walshe. The Court dismisses with leave to amend Plaintiffs' intentional misrepresentation claims against Parisi, Jurczyk, Madura, the Leasing Defendants, Transfirst and the Bank Defendants. Plaintiffs' negligent misrepresentation claims against Parisi, Jurczyk and Madura are likewise dismissed with leave to amend.
C. Claims for Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing
Plaintiffs bring claims for breach of contract and the implied covenant of good faith and fair dealing against the Merchant Services Defendants, the Leasing Defendants, TransFirst and CB T. Plaintiffs have voluntarily dismissed such claims against Fifth Third and the Moore Shell Companies.
To assert a cause of action for breach of contract, a plaintiff must plead: (1) the existence of a contract; (2) the plaintiff's performance or excuse for non-performance; (3) the defendant's breach; and (4) damages to the plaintiff as a result of the breach. Armstrong Petrol. Corp. v. Tri-Valley Oil Gas Co., 116 Cal. App. 4th 1375, 1391 n. 6 (2004).
Without any citation to authority, the Northern Leasing Defendants argue that, because Plaintiffs allege fraudulent conduct related to the MCPAs and EFLs, their claims for breach of contract and the implied covenant should be subject to Rule 9(b). The Court understands Plaintiffs to allege that they were fraudulently induced to enter into their contracts, in that they were led to believe that the forms they signed contained all material terms of the agreements, and that the contracts were later breached. While the former is subject to Rule 9(b), the latter is not. Thus, Plaintiffs' breach of contract claims are subject to the general pleading standard set forth in Rule 8.
1. Existence of Contracts
Plaintiffs appear to allege that they entered into three contracts: (1) the MCPAs, (2) the EFLs and (3) the "Rate Estimation Comparison Sheet," or "Rate Sheet."
As noted above, Von Glasenapp's, Su's, Baumgartner's and Jordan's MCPAs indicate that they contracted with TransFirst and CB T; Bae's MCPA states that he contracted with Fifth Third. Plaintiffs' MCPAs do not name the Merchant Services Defendants or the Leasing Defendants as parties. Plaintiffs nevertheless argue that, because they plead that these Defendants were parties, their allegations must be taken as true. This is incorrect. Courts "need not accept as true allegations contradicting documents that are referenced in the complaint." Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). Thus, Plaintiffs' claims for breach of contract against the Merchant Services Defendants and the Leasing Defendants, insofar as these claims are based on the MCPAs, are dismissed with leave to amend. If Plaintiffs intend to maintain breach of contract claims based on the MCPAs against these Defendants, they must explain how these Defendants were parties to the MCPAs, notwithstanding these agreements' plain language.
Plaintiffs allege that the EFLs, which are not before the Court, are contracts with the eighteen Leasing Defendants. Am. Compl. ¶ 100. Plaintiffs, who presumably have the EFLs, must plead which of the Leasing Defendants are parties to the agreements. Plaintiffs do not allege that the Merchant Services Defendants or the Processor Defendants are parties to the EFLs. Accordingly, Plaintiffs' claims for breach of contract, insofar as these claims are based on the EFLs, are dismissed with leave to amend. If Plaintiffs intend to maintain breach of contract claims related to the EFLs, they shall identify which Defendants were parties to them.
Finally, Plaintiffs maintain that the Rate Sheet was a contract that was breached. However, Plaintiffs do not allege that any Defendant was a party to a contract contained in the Rate Sheet. Nor do they allege that the Rate Sheet was incorporated into any contract to which a Defendant was a party. Accordingly, to the extent that Plaintiffs' claims for breach of contract are based on the Rate Sheet, they are dismissed with leave to amend. If Plaintiffs intend to maintain breach of contract claims related to the Rate Sheet, they must plead which Defendant was a party to it or, alternatively, that the Rate Sheet was incorporated into a contract to which a named Defendant was a party.
2. Defendants' Breach
Plaintiffs theorize that the MCPAs and EFLs were breached in three ways: (1) by "charging and collecting sums in excess" of disclosed amounts, (2) by "injecting new contractual provisions" and (3) by "imposing lengthy terms on the lease and contract durations." Am. Compl. ¶ 411. Only the first appears to support a claim for breach of contract. However, Plaintiffs do not identify the challenged fees or the contractual provisions that set out the agreed-upon rates. Without additional information, Plaintiffs do not provide adequate notice as to how the contracts were breached. Accordingly, Plaintiffs' first theory of breach does not support their breach of contract claims.
As for Plaintiffs' second theory, they have not identified an MCPA or EFL provision that would be breached based on the insertion of new provisions. Indeed, they do not even allege facts to suggest that TransFirst and CB T inserted new terms into the MCPAs. Further, this allegation appears to pertain to Plaintiffs' fraud theories, not a breach of contract claim. Without more, Plaintiffs' second theory fails to support their claims for breach of contract.
Finally, it is not apparent how contracts could be breached by the imposition of "lengthy terms." If Plaintiffs intend to allege that these terms were inserted after they entered into the contracts, their theory of breach based on these added terms fails for reasons already stated. If they intend to allege that these terms were imposed in contravention of other contractual terms, they must do so explicitly. However, if these "lengthy terms" existed at the time the contracts were executed, it is not apparent how they could constitute a breach of contract.
Plaintiffs do not plead adequately how any Defendant breached the respective contracts. Accordingly, Plaintiffs' breach of contract claims are dismissed with leave to amend.
3. Breach of the Implied Covenant of Good Faith and Fair Dealing
The existence of a contract is necessary for any claim for breach of the implied covenant of good faith and fair dealing.Spinks v. Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1033 (2009) (citation and internal quotation marks omitted). "The implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract." Pasadena Live, LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 1094 (2004) (emphasis in original). The implied covenant "not only imposes upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose." Id. (citation and internal quotation marks omitted).
Because Plaintiffs have not adequately plead that they had a contract with the Merchant Services Defendants and the Leasing Defendants, their claims for breach of the implied covenant against these Defendants are dismissed with leave to amend.
Plaintiffs plead that TransFirst and CB T interfered with their rights under their MCPAs by "refusing to address complaints by Plaintiff[s] and the class about billing and service." Am. Compl. ¶ 416. However, Plaintiffs do not point to a contractual provision that governed how TransFirst and CB T were to respond to complaints or explain how these Defendants' conduct prevented any party from performing obligations required by the MCPAs.
Plaintiffs also plead that TransFirst and CB T violated the implied covenant by "including additional pages and terms into the contract" and "engaging in a pattern of threats and harassment to enforce the fraudulent terms and conditions of the contracts." Am. Compl. ¶ 416. It is not clear how these acts precluded compliance with the express terms of the contracts. Furthermore, even if they did, Plaintiffs do not allege facts that suggest TransFirst and CB T committed these acts.
Accordingly, Plaintiffs' claims for breach of the implied covenant of good faith and fair dealing against TransFirst and CB T are dismissed with leave to amend.
D. False Advertising Claims
Plaintiffs bring a claim under section 17500 of the California Business and Professions Code against the Merchant Services Defendants, the Leasing Defendants and the Processor Defendants. The Merchant Services Companies, Moore and Roy did not move to dismiss these claims.
Section 17500 prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." A false advertising claim under this section may be brought "where the advertising complained of is not actually false, but thought likely to mislead or deceive, or is in fact false." Day v. AT T Corp., 63 Cal. App. 4th 325, 332 (1998). Section 17500 proscribes "not only those advertisements which have deceived or misled because they are untrue, but also those which may be accurate on some level, but will nonetheless tend to mislead or deceive." Id.
Plaintiffs state a section 17500 claim against Walshe. As already explained, Plaintiffs allege that she made misrepresentations in marketing and advertising credit card processing services and equipment.
However, Plaintiffs' section 17500 claims against Parisi, Jurczyk, Madura, the Leasing Defendants and the Processor Defendants fail. Plaintiffs have not plead that any of these Defendants marketed or advertised services or equipment to them. And, as noted above, Plaintiffs fail to provide a factual basis for alter ego liability against Parisi and Jurcyzk.
Accordingly, Plaintiffs' section 17500 claims against the Merchant Services Companies, Moore, Roy and Walshe may go forward. Their section 17500 claims against Parisi, Jurcyzk, Madura, the Leasing Defendants and the Processor Defendants fail.
E. Unfair Competition Claims
Plaintiffs plead claims under California's UCL against the Merchant Services Defendants, the Leasing Defendants and the Processor Defendants. The Merchant Services Companies, Moore and Roy did not move to dismiss these claims.
The UCL prohibits any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. Prof. Code § 17200. The UCL incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). Violation of almost any federal, state or local law may serve as the basis for a UCL claim. Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39 (1994). In addition, a business practice may be "unfair or fraudulent in violation of the UCL even if the practice does not violate any law." Olszewski v. Scripps Health, 30 Cal. 4th 798, 827 (2003).
Because Plaintiffs' section 17500 claims against the Merchant Services Companies, Moore, Roy and Walshe are actionable, they also state section 17200 claims against these Defendants. However, Plaintiffs have not plead an adequate basis for their UCL claims against Parisi, Jurcyzk, Madura, the Leasing Defendants, TransFirst or the Bank Defendants.
Accordingly, Plaintiffs' UCL claims against the Merchant Services Companies, Moore, Roy and Walshe may go forward. Their UCL claims against Parisi, Jurcyzk, Madura, the Leasing Defendants, TransFirst and the Bank Defendants are dismissed with leave to amend.
F. Fraudulent Conveyance Claims
Plaintiffs bring fraudulent conveyance claims against Moore and the Moore Shell Companies.
The Uniform Fraudulent Transfer Act (UTFA) "permits defrauded creditors to reach property in the hands of a transferee." Mejia v. Reed, 31 Cal. 4th 657, 663 (2003). Transfers can be fraudulent "both as to present and future creditors." Id. at 664.
A transfer can be invalid if a debtor transfers with the "actual intent to hinder, delay, or defraud any creditor of the debtor." Cal. Civ. Code § 3439.04(a)(1). "Whether a conveyance was made with fraudulent intent is a question of fact, and proof often consists of inferences from the circumstances surrounding the transfer." Filip v. Bucurenciu, 129 Cal. App. 4th 825, 834 (2005). In determining a debtor's intent, courts may consider whether "the debtor retained possession or control of the property transferred after the transfer;" whether "before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;" and whether "the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred." Cal. Civ. Code § 3439.04(b)(2), (4) and (8).
Plaintiffs do not plead in their complaint that Moore retained control or possession of the transferred properties. Plaintiffs argue that, because the Moore Shell Companies are alter egos of Moore, he retained possession and control of the properties and did not receive reasonably equivalent value for the transfers. However, Plaintiffs do not offer an adequate factual basis to support their legal conclusion that the Moore Shell Companies were alter egos. Nor do they allege a factual basis for their conclusion that he did not receive sufficient consideration for the transfers.
Plaintiffs also argue that, when he initiated the transfers in April, 2009, Moore had been sued or had notice of impending lawsuits. However, Plaintiffs identify only one lawsuit, Navratil v. Merchant Services, Inc., No. 2:09-cv-05945-DDP-SS (C.D. Cal.), which was apparently filed in July, 2009. Plaintiffs do not allege that Moore received notice of this suit before it was filed. The filing of Navratil, on its own, does not support their fraudulent conveyance claims.
Finally, Plaintiffs argue that Moore "was profiting from a massive scheme of defrauding small business and that Moore used the profits from this scheme to purchase the properties in question." Opp'n at 44. This, without more, is not sufficient to show Moore's fraudulent intent. Plaintiffs allege that the purported fraudulent scheme had existed since at least 2005. This dissipates any reasonable inference that, in April, 2009, Moore fraudulently transferred properties because of his involvement in the scheme.
Accordingly, Plaintiffs' fraudulent conveyance claims against Moore and the Moore Shell Companies are dismissed with leave to amend. Plaintiffs must plead a factual basis to support their assertions that Moore had fraudulent intent.
IV. Preliminary Discovery
Pursuant to Federal Rule of Civil Procedure 26(d)(1) and in accordance with Defendants' proposal in the parties' joint status report, the Court grants the parties leave to conduct discovery on the following matters: (1) the alleged forgeries of Plaintiffs' initials or signatures, (2) alter ego theories of liability and (3) personal jurisdiction. Discovery requests shall be propounded by December 10, 2010. Responses are due January 20, 2011. The parties shall not take discovery on matters outside of the scope of those listed above.
The Court notes that several of Plaintiffs' discovery requests, contained in Exhibit A of the parties' status report, appear overbroad, particularly in light of the issues raised by the Court at the September 16 hearing. To be clear, the Court grants limited preliminary discovery only to resolve issues of personal jurisdiction and proper venue. Plaintiffs shall not take discovery that relates solely to the merits of their case. All discovery-related motions shall be referred to a magistrate judge.
CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES in part the MSI Defendants' Motion to Dismiss (Docket No. 112); GRANTS the Northern Leasing Defendants' Motion to Dismiss (Docket No. 114); GRANTS Defendant Fitzgerald's Motion to Dismiss (Docket No. 115); GRANTS MBF Merchant Capital LLC and Healy's Motion to Dismiss (Docket No. 108); GRANTS Sussman's Motion to Dismiss (Docket No. 122); GRANTS in part and DEFERS its decision in part on the TransFirst Defendants' Motion to Dismiss (Docket No. 121); and GRANTS Fifth Third Bank's Motion to Dismiss (Docket No. 109).
The Court's rulings are summarized as follows:
1. Plaintiffs have not established that the Court has personal jurisdiction over the individual Leasing Defendants. Plaintiffs may conduct discovery to establish jurisdictional facts. Plaintiffs are granted leave to amend their complaint to add facts that support personal jurisdiction. The individual Leasing Defendants may renew their motions to dismiss for lack of personal jurisdiction after Plaintiffs file their second amended complaint.
2. There is a dispute concerning the enforceability of the arbitration and forum selection clauses in Von Glasenapp's, Su's, Baumgartner's and Jordan's MCPAs. TransFirst, CB T and Plaintiffs may conduct discovery on whether Von Glasenapp's, Su's, Baumgartner's and Jordan's initials and signatures were forged. To resolve this matter, TransFirst, CB T and Plaintiffs shall then file cross-motions for partial summary judgment on the alleged forgeries. Plaintiffs shall file their motion on February 17, 2011. TransFirst and CB T's cross-motion and opposition to Plaintiff's motion shall be due March 3, 2011. Plaintiffs' opposition to TransFirst and CB T's cross-motion and reply to TransFirst and CB T's opposition shall be due March 10, 2011. TransFirst and CB T's reply to Plaintiffs' opposition to their cross-motion shall be due March 17, 2011. A hearing on the cross-motions will be held on March 31, 2011 at 2:00 p.m. if the matter is not submitted on the papers. An
evidentiary hearing will be scheduled if necessary.
3. Because they were not subject to a motion to dismiss, Plaintiffs' RICO claims under
18 U.S.C. § 1962(c) against the Merchant Services Companies, Moore and Roy are cognizable. However, their § 1962(c) claims against the other Defendants are dismissed with leave to amend to plead, among other things, that these Defendants conducted the RICO enterprise and engaged in a pattern of racketeering activity.
4. Plaintiffs' claim under
18 U.S.C. § 1962(d) for conspiracy to commit a RICO violation is dismissed with leave to amend to plead a conspiratorial agreement and each Defendants' awareness of the RICO conspiracy.
5. Bae's RICO claims are dismissed as time-barred. He is granted leave to amend to plead facts indicating that his RICO claims accrued during the limitations period.
6. Because they were not subject to a motion to dismiss, Plaintiffs' common law fraud claims against the Merchant Services Companies, Moore and Roy are cognizable. Plaintiffs have stated actionable common law fraud claims against Walshe. However, their common law fraud claims against the other Defendants are dismissed with leave to amend to plead with specificity, among other things, the actionable misrepresentations these Defendants made. In the alternative, Plaintiffs may allege an alter ego theory of liability, so long as evidence obtained through discovery supports their claim. Plaintiffs are also granted leave to amend to plead negligent
misrepresentation claims against Defendants other than the Merchant Services Defendants, so long as they have a factual basis to do so.
7. Plaintiffs' breach of contract claims against the Merchant Services Defendants and Leasing Defendants are dismissed with leave to amend to plead facts indicating that these Defendants were parties to Plaintiffs' contracts. Plaintiffs' breach of contract claims against TransFirst and CB T are dismissed with leave to amend to plead the provisions breached by these Defendants.
8. Plaintiffs' claims for breach of the implied covenant of good faith and fair dealing against the Merchant Services Defendants and Leasing Defendants are dismissed with leave to amend to plead facts that these Defendants were parties to Plaintiffs' contracts. Their claims against TransFirst and CB T are dismissed to plead conduct that violated the implied covenant.
9. Because they were not subject to a motion to dismiss, Plaintiffs' section 17500 claims against the Merchant Services Companies, Moore and Roy are cognizable. Plaintiffs have stated cognizable section 17500 claims against Walshe. Plaintiffs' section 17500 claims against the other Defendants are dismissed with leave to amend to plead that they made actionable statements. In the alternative, Plaintiffs may allege an alter ego theory of liability, so long as evidence obtained through discovery supports their claim.
10. Because they were not subject to a motion to dismiss,
Plaintiffs' UCL claims against the Merchant Services Companies, Moore and Roy are cognizable. Plaintiffs have stated cognizable UCL claims against Walshe. Plaintiffs' UCL claims against the other Defendants are dismissed with leave to amend to plead actionable conduct. In the alternative, Plaintiffs may allege an alter ego theory of liability, so long as evidence obtained through discovery supports their claim.
11. Plaintiffs' fraudulent conveyance claims against Moore and the Moore Shell Companies are dismissed with leave to amend to plead facts that suggest Moore had fraudulent intent.
Plaintiffs' second amended complaint shall be filed fourteen days after the Court issues an order on the cross-motions for partial summary judgment on the alleged forgeries. Defendants shall answer or move to dismiss the second amended complaint fourteen days after it is filed. If Defendants intend to move to dismiss Plaintiffs' second amended complaint, those represented by the same counsel shall support their motion in a consolidated opening brief. Plaintiffs' opposition to the motions to dismiss shall be contained in a consolidated brief not to exceed forty-five pages filed fourteen days thereafter. Defendants may file their replies seven days after that. The motions will be decided on the papers, unless the Court sets a hearing.
As noted above, claims against the Merchant Services Companies, Moore, Roy and Walshe are cognizable. The Court extends the time these Defendants have to answer Plaintiffs' complaint. If this action is not dismissed for improper venue or transferred, these Defendants' answers shall be due fourteen days after the Court enters an order on any motion to dismiss the second amended complaint. These Defendants may not move to dismiss claims in Plaintiffs' second amended complaint that are identical to those alleged in Plaintiffs' current pleading.
The case management conference, previously scheduled for March 15, 2011, is reset for March 31, 2011.
IT IS SO ORDERED.
Dated: 11/29/2010