Elizabeth M. Byrnes, Inc. v. Fountainhead Commercial Capital, LLC
| Decision Date | 24 November 2021 |
| Docket Number | CV 20-04149 DDP (RAOx) |
| Court | U.S. District Court — Central District of California |
| Parties | ELIZABETH M. BYRNES, INC., Plaintiff, v. FOUNTAINHEAD COMMERCIAL CAPITAL, LLC, Defendants. |
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT
[Dkt. 40]
Presently before the court is Defendants Fountainhead Commercial Capital, LLC and Fountainhead SBF LLC (collectively “Fountainhead”)'s Motion to Dismiss Plaintiff's Second Amended Complaint. Having considered the submissions of the parties and heard oral argument, the court grants the motion and adopts the following Order.
Beginning in March 2020, public health measures necessitated by the outbreak of the coronavirus pandemic had “devastating” effects on small businesses. Second Amended Complaint (“SAC”) ¶ 12. In response, the federal government enacted the Coronavirus Aid, Relief, And Economic Security (“CARES”) Act, Pub.L. 116-136, H.R. 748. SAC ¶ 13.
The CARES Act, among other things, established the Paycheck Protection Program (“PPP”), a $349 billion loan program through which small businesses could obtain forgivable loans backed by the Small Business Administration, but administered by private lenders. SAC ¶ 14.
On March 27, the day the CARES Act was signed into law, Fountainhead advertised that it would “soon be tackling the loan inquiries lined up in our queue, providing business owners with capital they need within days.” SAC ¶ 17. The next day, Plaintiff submitted a PPP loan application to Fountainhead for a loan of less than $25, 000. SAC ¶ 28. That same day, Fountainhead responded with an e-mail stating that Plaintiff was “in the queue, ” and that “[h]elp is on the way, ” and asking her to gather certain documentation. Id. The next day, Fountainhead told Plaintiff to expect “an invitation to a secure portal for document upload within the next 48 business hours.” SAC ¶ 28. Fountainhead's message indicated that Plaintiff should prepare to upload documents such as bank statements, payroll reports, rent statements, utility bills, and a “Completed Application.” (Declaration of Michael R. Farrell in Support of Motion; Ex. 2.) Plaintiff did not receive any document upload invitation. SAC ¶ 28.
Fountainhead continued to promote PPP loans, encouraging applications and stating that it “hope[d] to make these loans within days.” SAC ¶ 20. Fountainhead executives made statements touting its advantage over other, bank-based lenders, such as Fountainhead's ability to approve loans “within a few hours.” SAC ¶ 19. Fountainhead further represented that it “require[d] no[] prior relationship, no special (money-making) criteria, and [was] processing first come, first serve . . . no prioritization.” SAC ¶ 24.
Approximately two weeks after submitting her application and being instructed to gather her documentation, Plaintiff followed up with Fountainhead to confirm the status of her loan. SAC ¶ 29. Fountainhead confirmed that her loan was in the queue and again indicated that Plaintiff would receive access to a document upload portal within 24 to 48 hours. Id. A few days later, however, Fountainhead sent an e-mail stating, SAC ¶ 30.
Plaintiff gathered the requested documents, waited for the opportunity to upload them, refrained from submitting a loan application to other lenders, and made other, related decisions regarding her small business. SAC ¶ 31. Plaintiff never, however, received PPP funding from Fountainhead. SAC ¶ 3.
Plaintiff alleges, on behalf of a putative class of California businesses that applied for PPP loans, that Fountainhead's representations to California businesses were false and misleading. SAC ¶ 16. Plaintiff alleges, for example, that Fountainhead was not even licensed to engage in lending activities in California until April 21 and had not secured any funding prior to that time, and therefore could not possibly have extended loans “within days.” SAC ¶¶ 16, 22. Plaintiff also alleges that, contrary to its representations, Fountainhead did prioritize favored customers and higher-value loans that would yield higher fees to Fountainhead than would relatively small loans, such as that sought by Plaintiff. SAC ¶ 32. Plaintiff's SAC alleges state law claims for fraudulent concealment, fraudulent deceit, unfair business practices, and false advertising. Fountainhead now moves to dismiss all claims.
A complaint will survive a motion to dismiss when it “contain[s] 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.” Iqbal, 556 U.S. at 679. Plaintiffs must allege “plausible grounds to infer” that their claims rise “above the speculative level.” Twombly, 550 U.S. at 555-56. “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.
“The elements of fraudulent concealment are: (1) the defendant concealed or suppressed a material fact; (2) the defendant was under a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, the plaintiff sustained damage.” Burch v. CertainTeed Corp., 34 Cal.App. 5th 341, 348 (2019). As it did in moving to dismiss Plaintiff's First Amended Complaint, Fountainhead argues that Plaintiff has failed to adequately plead that Fountainhead owed her any duty to disclose.
As discussed in this Court's earlier Order, a duty to disclose may arise in four circumstances: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the Plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” Los Angeles Mem'l Coliseum Com. v. Insomniac, Inc., 233 Cal.App.4th 803, 831 (2015). The latter three of these circumstances, however, “presuppose the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise.” Burch, 34 Cal.App.5th at 349. “This relationship has been described as a ‘transaction,' such as that between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual arrangement.” Id. at 349-50; see also LiMandri v. Judkins, 52 Cal.App.4th 326, 337 (1997) (“[W]here material facts are known to one party and not to the other, failure to disclose them is not actionable fraud unless there is some relationship between the parties . . . .”)
Plaintiff's SAC, unlike the FAC, alleges that “Plaintiff and Defendant were parties transacting business in order to enter into a contractual, borrower-lender relationship.” (SAC ¶ 52.) As an initial matter, however, Plaintiff has not pleaded any facts that support this allegation. Plaintiff alleges that she “submitted a PPP loan application” and received a confirmation e-mail stating, “We've received your loan app . . . .” (SAC ¶ 28.) The e-mail Plaintiff received, however, does not say that. Rather, it states, “We've received your loan request.” (Farrell Decl., Ex. 1 (emphasis added)). Furthermore, the document portal “invitation” Plaintiff received does not refer to any previously-submitted application. Rather, the e-mail indicated that the portal would allow the upload of documents Fountainhead would need to process a loan. (Farrell Decl., Ex. 2.) Those documents included a “Completed Application SEE ATTACHED.” (Id.) The e-mail further indicated that a PDF of the application would need to be downloaded “before completing.” (Id.) This Court cannot, therefore, assume the truth of Plaintiff's allegation that she submitted a loan application, let alone her conclusory allegation that the parties entered into a borrower-lender relationship or engaged in any other transaction.
Even assuming Plaintiff had adequately alleged the existence of a borrower-lender relationship, her fraudulent concealment...
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