Dall. & Lashmi, Inc. v. 7-Eleven, Inc.

• Decision Date: 10 June 2015
• Docket Number: Case No. CV 15–02044 SJO (ASx).
• Citation: 112 F.Supp.3d 1048
• Parties: DALLAS AND LASHMI, INC. et al. v. 7–ELEVEN, INC.
• Court: U.S. District Court — Central District of California

112 F.Supp.3d 1048

DALLAS AND LASHMI, INC. et al.

v.7–ELEVEN, INC.

Case No. CV 15–02044 SJO (ASx).

United States District Court, C.D. California.

Signed June 10, 2015.

Frank Phillip Agello, Raj D. Roy, Roy Legal Group APC, Northridge, CA, for Dallas and Lashmi, Inc., Mohiuddin Chowdhury and Shamima Chowdhury.

James F. Speyer, Arnold and Porter LLP, Los Angeles, CA, for 7–Eleven, Inc. and Joseph DePinto.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT 7–ELEVEN, INC.'S MOTION TO DISMISS COMPLAINT [Docket No. 12]

S. JAMES OTERO, District Judge.

This matter comes before the Court on Defendant 7–Eleven, Inc.'s ("Defendant" or "7–Eleven") Motion to Dismiss Complaint ("Motion"), filed May 5, 2015.¹ Plaintiffs Dallas and Lashmi, Inc. (the "Corporation"), Mohiuddin Chowdhury ("Mr. Chowdhury"), and Shamima Chowdhury ("Mrs. Chowdhury") (collectively, "Plaintiffs") filed an opposition to the Motion ("Opposition") on May 18, 2015, to which Defendant filed a Reply on May 22, 2015. The Court found this matter suitable for disposition without oral argument and vacated the hearing set for June 8, 2015. See Fed.R.Civ.P. 78(b). For the reasons stated below, the Court GRANTS IN PART AND DENIES IN PART the Motion.

I. FACTUAL AND PROCEDURAL HISTORY

Plaintiffs allege the following. In 2004, Mr. and Mrs. Chowdhury (together, the "Chowdhurys") purchased a commercial parcel of real property of a "strip mall" nature located at 4111 Venice Blvd., Los Angeles, CA 90019 (the "Property"). (Compl. ¶ 14, ECF No. 1.) In 2007, through the Corporation, the Chowdhurys entered into a franchise agreement with Defendant to own and operate a 7–Eleven store ("Store") at the Property. (Compl. ¶¶ 1, 15; Ex. 1 ("Franchise Agreement"), ECF No. 1–1.) As part of operating the Store, Plaintiffs obtained an Alcoholic Beverage License ("ABL" or "License").

(Compl. ¶ 16; Ex. 2, ECF No. 1–2.) Plaintiffs also stocked the Store with as much as $50,000 worth of inventory. (Compl. ¶ 17.)

Over the next several years, Plaintiffs spent more than $200,000 improving the Store, and in 2011, the Store generated more than $1,500,000 in annual gross revenue. (Compl. ¶ 18.) The same year, however, Plaintiffs fell behind on their mortgage payments and the bank foreclosed on the Property. (Compl. ¶¶ 19–20.) A new landlord, Jeff Kern ("Kern"), purchased the Property in fall 2011. (Compl. ¶ 20.)

On information and belief, Plaintiffs allege that they were attempting to stay in their Store and were negotiating new lease terms when Defendant began to negotiate with Kern for a lease for a new franchisee in the same location. (Compl. ¶¶ 21, 24.) On November 27, 2011, Plaintiffs were evicted by Kern and locked out of their store. (Compl. ¶ 23.) In December 2011, Defendant's Director of Real Estate, Michael Austin ("Austin"), instructed Mr. Chowdhury to stop attempting to negotiate a new lease with Kern and informed Mr. Chowdhury that Defendant would obtain a new lease from Kern and then allow Plaintiffs to operate the Store as a 50% partner. (Compl. ¶ 25.) Two weeks later, however, Austin informed the Chowdhurys that: (1) they did not qualify as a corporate store franchisee; (2) Defendant would not approve a 50/50 operation; and (3) another individual, Sean John ("John") had been approved as a franchisee. (Compl. ¶ 26.) Austin and Defendant's Marketing Manager, Joe Anderson ("Anderson"), then informed the Chowdhurys that they could be paid $300,000 for the Store's "goodwill" and ABL. (Compl. ¶ 27.) Austin and Anderson also told Plaintiffs that escrow would not need to be opened to transfer the "goodwill" and ABL to John because Defendant would pay the Chowdhurys directly with a check. (Compl. ¶ 28.) Plaintiffs allege that Austin and Anderson's representations induced Plaintiffs to: (1) stop attempting to negotiate a new lease with Kern; and (2) transfer their goodwill and ABL to John without going through an escrow. (Compl. ¶ 29.)

In December 2011, Nick Bohala ("Bohala"), a Vice President of the Franchise Owners Association, arranged a face to face meeting between John and the Chowdhurys. (Compl. ¶ 30.) As part of the transfer of the goodwill and ABL, and at the request of Austin, Mr. Chowdhury executed a power of attorney form that gave Defendant the power to transfer the franchise and ABL to Defendant. (Compl. ¶ 32; Ex. 3, ECF No. 1–3.) One of Defendant's field representatives assisted the Chowdhurys with executing numerous real estate documents transferring the goodwill and License, but did not give Plaintiffs copies of said documents. (Compl. ¶ 32.) The transfer of Plaintiffs' former franchise, goodwill, and license was completed in January 2012. (Compl. ¶ 33.) On information and belief, John paid Defendant $400,000 as a franchise fee, of which $300,000 was to be paid to Plaintiffs. (Compl. ¶¶ 31, 33.)

In January 2012, Defendant sent Plaintiffs a financial spreadsheet in an attempt to justify refusing to pay Plaintiffs any money for the transfer of their store. (Compl. ¶ 35; Ex. 4 ("Spreadsheet"), ECF No. 1–4.) According to Plaintiffs, Defendant also erroneously asserted that Plaintiffs owed it $218,000 for the costs of Store operation, including maintenance of premises, security, etc. (See generally Spreadsheet.)

On January 19, 2013, Plaintiffs signed a promissory note agreeing that Plaintiffs would repay Defendant approximately $17,000 with interest for unpaid back rents that Defendant had paid to Kern. (Compl. ¶ 36; Ex. 5 ("Note") ¶ 1, ECF No. 1–5.) On September 20, 2013, despite making substantial payments on the Note, Plaintiffs were served with an Abstract of Judgment from Kern's attorney for unpaid back rents in the amount of $17,640. (Compl. ¶ 37; Ex. 6, ECF No. 1–6.) On information and belief, Plaintiffs assert that Defendant never paid back rents to Kern, but still attempted to collect the amount from Plaintiffs. (Compl. ¶ 37.) Over the next several months, Plaintiffs wrote numerous letters and emails to Defendant, and to its CEO, Depinto, but did not receive an answer. (Compl. ¶ 38.) Defendant never sent Plaintiffs a check for $300,000. (See Compl. ¶¶ 35, 38.)

Plaintiffs filed the instant lawsuit on March 19, 2015. (See generally Compl.) In the Complaint, Plaintiffs purport to bring two causes of action for: (1) several violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code § 17200 et seq. (Compl. ¶¶ 44–68); and (2) racial discrimination in violation of 42 U.S.C. § 1981 and Cal. Civ.Code § 51 et seq. However, Plaintiffs' purported UCL claim is actually comprised of five sub-claims for: (1) fraud (Compl. ¶¶ 45–50); (2) conversion (Compl. ¶¶ 55–59); (3) breach of oral contract (Compl. ¶¶ 51–54); (4) negligent interference with prospective economic advantage (Compl. ¶¶ 60–65); and (5) breach of the covenant of good faith and fair dealing (Compl. ¶¶ 66–68), which allegedly give rise to UCL liability.²

In the instant Motion, Defendant seeks to dismiss each of the causes of action included in Plaintiffs' Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) (" Rule 12") and Federal Rules of Civil Procedure 9(b) (" Rule 9"). (See generally Mot., ECF No. 12.)

II. DISCUSSION

A. Legal Standards for Defendant's Motion to Dismiss

1. Rule 9

One of the sub-claims alleged as part of Plaintiffs' UCL claim is fraud. (Compl. ¶¶ 45–50.) In California, the elements of fraud are (1) false representation, (2) knowledge of the falsity, (3) intent to defraud, (4) justifiable reliance, and (5) damages. Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1105 (9th Cir.2003) (citing Moore v. Brewster, 96 F.3d 1240, 1245 (9th Cir.1996) ). "Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily constitute fraud," even when the word "fraud" does not appear in the complaint. Vess, 317 F.3d at 1105.

Rule 9(b) states that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). Thus, Rule 9(b) imposes a "heightened pleading standard" for fraud claims, so that "[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged." Vess, 317 F.3d at 1104, 1106 (citing Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997) ). "In the context of a fraud suit involving multiple defendants,³ a plaintiff must, at a minimum, identify the role of each defendant in the alleged fraudulent scheme."

Altman v. PNC Mortg., 850 F.Supp.2d 1057, 1070 (E.D.Cal.2012) (citing Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir.1989) ) (quotations and original formatting omitted). By contrast, "[a]llegations of non-fraudulent conduct need satisfy only the ordinary notice pleading standards of Rule 8(a)." Vess, 317 F.3d at 1105. The purpose of Rule 9(b)'s heightened standard is to: (1) give notice to defendants; (2) protect defendants from unwarranted damage to their reputations; and (3) guard against the danger of "strike suits" designed to increase settlement value by manipulating the discovery process. Fitzer v. Sec. Dynamics Techs., Inc., 119 F.Supp.2d 12, 17 (D.Mass.2000).

2. Rule 12(b)(6)

Rule 12, which provides for dismissal of a plaintiff's cause of action for "failure to state a claim on which relief can be granted," see Fed.R.Civ.P. 12(b)(6), must be read in conjunction with Federal Rule Civil Procedure 8(a) (" Rule 8"). See Ileto v. Glock Inc., 349 F.3d 1191, 1199–1200 (9th Cir.2003). Rule 8 requires that "[a] pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2). Although the pleader is not required to plead "detailed factual allegations" under Rule 8, this standard demands "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation...