Logtale, Ltd. v. Canton
| Decision Date | 03 August 2020 |
| Docket Number | Case No. 20-cv-01207-DMR |
| Parties | LOGTALE, LTD., Plaintiff, v. JAMES CANTON, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
On February 18, 2020, Plaintiff Logtale, Ltd. ("Logtale") filed this action against James Canton, Gayle Canton, and the Institute for Global Futures ("IGF"). [Docket No. 1 ("Compl.").] On March 13, 2020, G. Canton filed this motion to dismiss under Federal Rule of Civil Procedure Rule 12(b)(6). [Docket Nos. 12 ("Mot."), 23 ("Reply").] Logtale timely opposed. [Docket No. 21 ("Opp.").] The court finds the motion suitable for determination without oral argument pursuant to Civil Local Rule 7-1(b).
For the reasons stated below, the motion to dismiss is denied.
The following facts are alleged in the complaint. Logtale is a British Virgin Islands investment holding company with its principal place of business in Hong Kong. Compl. ¶ 6. IGF is a Nevada corporation with a principal place of business in San Francisco, California. Id. ¶ 9. The individual defendants are residents of California. Id. ¶¶ 7-8. J. Canton is the CEO, Secretary, Director, President, and Treasurer of IGF and its sole member. Id. ¶ 10. G. Canton is an employee of IGF. Id. ¶ 8. The Cantons were formerly married.
In 2006, Logtale invested $5 million investment in IKOR, Inc. ("IKOR"), of which J. Canton was a founder. Compl. ¶ 16. J. Canton and the other founders represented to Logtale that IKOR had developed a "new and widely marketable pharmaceutical product." Id. IKOR and its founders allegedly mishandled the investment, including by using the funds for a competing business owned by the founders. Id. On November 9, 2011, Logtale filed a complaint against J. Canton and the other founders in the Northern District of California ("Underlying Action"). See Logtale, Ltd. v. IKOR, Inc. et al., Case No. 11-cv-5452-EDL (N.D. Cal.). The complaint alleged breach of contract, breach of fiduciary duties, and breach of the implied covenant of good faith and fair dealing. The case went to trial, and the jury awarded $4 million in compensatory damages against the various defendants, and punitive damages against J. Canton in the amount of $750,000. [Compl., Ex. A.] On motions by the defendants, the court struck the punitive damages award, reduced the compensatory damages award, and entered a judgment against each of the defendants. [Compl., Ex. D.] Logtale and J. Canton both appealed the award. cite. On August 31, 2018, the Ninth Circuit reinstated the punitive and compensatory damages awarded by the jury, for a total judgment against J. Canton in the amount of $2,083,334. [Compl., Ex.]
On April 11, 2016, approximately three weeks after the district court entered the initial judgment, the Cantons separated. Compl. ¶ 18. G. Canton filed for divorce on May 27, 2016. Id. On the same date, they filed a Marital Settlement Agreement ("MSA") dividing their assets and debts. [Compl., Ex. B ("MSA").] The MSA awarded to G. Canton a residential property in Mill Valley, CA, two Bank of America accounts, an IRA, a money purchase account, a pension plan account, a profit sharing plan, some stocks, half of an attorney trust account, and a time share in Cabo. Id. ¶ 5. J. Canton retained IGF and all related business accounts and debts, two Bank of America accounts, certain investments, 1 million shares of 1-800-Commerce, and half of the attorney trust account. Id. ¶ 4. The MSA further provided that Id. ¶ 1.
Logtale alleges that the MSA transferred "virtually all of James Canton's assets" to G. Canton, which "render[ed] James Canton insolvent and unable to pay the judgment award to Logtale in the Underlying Action." Compl. ¶¶ 20-21. According to Logtale, the MSA was purposefully structured to award J. Canton "only minimal assets relative to the value of the assets that [he]actually owned . . . with the intent and purpose to shield the vast bulk of the Cantons' assets from payment of the judgment owed to Logtale in the Underlying Action." Id. ¶ 23. Logtale attempted to collect on the judgment and obtained writs of execution against J. Canton in Marin, San Francisco, and Los Angeles counties. Id. ¶ 24. On June 24, 2019,1 Bank of America returned a Memorandum of Garnishee in response to the Los Angeles County writ of execution, reporting that the total value of property in its control belonging to J. Canton amounted to $94.17. Id. ¶ 25. On June 5, 2019, Logtale obtained an Earnings Withholding Order directed to IGF. Id. ¶ 26. J. Canton filed a Claim of Exemption, arguing that Logtale was not entitled to garnish any of his wages due to the existing spousal support order in the amount of $6,600 per month. Id. ¶ 27; Compl., Ex. F. On September 3, 2019, the state court issued a wage garnishment order, directing IGF to pay Logtale $250 per month from J. Canton's wages. Compl. ¶ 28; Compl., Ex. G.
Logtale alleges that the MSA constituted a fraudulent transfer with the intent to deprive Logtale of the money J. Canton owes on the Judgment. It brings claims for relief for intentional and constructive fraudulent transfer under California's Uniform Voidable Transactions Act ("UVTA"),2 Cal. Civil Code § 3439 et seq., common law fraudulent conveyance, and conspiracy.
Jurisdiction is based on diversity.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When reviewing a motion to dismiss for failure to state a claim, the court must "accept as true all of the factual allegations contained in the complaint," Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam) (citation omitted), and may dismiss a claim "only where there is no cognizable legal theory" or there is an absence of "sufficient factual matter to state a facially plausible claim to relief." Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001))(quotation marks omitted). A claim has facial plausibility when a plaintiff "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citation omitted). In other words, the facts alleged must demonstrate "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)); see Lee v. City of L.A., 250 F.3d 668, 679 (9th Cir. 2001), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).
As a general rule, a court may not consider "any material beyond the pleadings" when ruling on a Rule 12(b)(6) motion. Lee, 250 F.3d at 688 (citation and quotation marks omitted). However, "a court may take judicial notice of 'matters of public record,'" id. at 689 (citing Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)), and may also consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading," without converting a motion to dismiss under Rule 12(b)(6) into a motion for summary judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith, 307 F.3d at 1125-26. The court need not accept as true allegations that contradict facts which may be judicially noticed. See Mullis v. U.S. Bankr. Court, 828 F.2d 1385, 1388 (9th Cir. 1987).
G. Canton moves to dismiss the complaint on several grounds. She argues that (1) Logtale's claims are entirely barred by California's litigation privilege; (2) Logtale's common law fraudulent conveyance claim is barred by the statute of limitations; (3) the civil conspiracy claim is not supported by the law; and (4) Logtale improperly pleaded its claim for damages under the UVTA.
The litigation privilege "applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action." Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990), as modified (Mar. 12, 1990); see also Cal. Civil Code § 47(b). The primary purpose of the privilege is to afford litigants and witnesses the utmost freedom of access tothe courts without fear of being harassed subsequently by derivative tort actions." Silberg, 50 Cal. 3d at 213 (internal citation omitted). The litigation privilege is "absolute" and "attaches to any publication that has any reasonable relation to the action and is made to achieve the objects of the litigation even though published outside the courtroom and no function of the court or its officers is involved." Pettitt v. Levy, 28 Cal. App. 3d 484, 489 (1972). "[T]he threshold issue in determining whether the litigation privilege applies is whether the defendant's alleged conduct is communicative or noncommunicative." Chen v. Berenjian, 33 Cal. App. 5th 811, 819-20 (2019). The distinction between communicative and noncommunicative acts hinges on the "gravamen of the action." Rusheen v. Cohen, 37 Cal. 4th 1048, 1058 (2006). In other words, the privilege attaches only when "the injury allegedly resulted from an act that was communicative in its essential nature." Id.
In this case, G. Canton argues...
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