Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-03393/USCOURTS-caed-2_09-cv-03393-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FREDERICK S. STRAIN,

Plaintiff,

NO. CIV. S-09-3393 LKK/GGH

v.

NEW ERA MINING CORP., a

Nevada corporation; 

FLOYD L. OGLE, an

individual; JAMES F. O R D E R

NOLAND, an individual;

and DOES 1 through 100,

inclusive,

Defendants.

 /

This case arises out of plaintiff Frederick S. Strain’s

(“Strain”) loan to and purchase of stock from defendant New Era

Mining Corporation (“New Era”). Plaintiff contends that he was

fraudulently induced to enter the loan by New Era principals,

defendants Floyd L. Ogle (“Ogle”) and James F. Noland (“Noland”).

Plaintiff also contends that he has been unable to obtain the

principal and interest to which he is entitled under the loan

agreement with New Era. Defendants move to dismiss all claims

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brought against them. For the reasons described below, defendants’

motion to dismiss is granted in part.

I. BACKGROUND

Plaintiff alleges that in early 2008 defendants induced him

to purchase $1,000,000 of New Era stock. Complaint at ¶ 8. On or

about March 18, 2008, company stock was issued to plaintiff. Id.

On August 13, 2008, plaintiff alleges that defendants induced

him to loan New Era $1,000,000. Id. at ¶ 9. Plaintiff further

alleges that the loan was to be repaid by January 2009. Id. The

plaintiff and New Era entered into a promissory note (guaranteed

by Noland and Ogle) which stated the amount of the loan and the

interest rate, but did not mention how the loan should be

repaid. Id. at Exh. 2. The note indicates a "maturity" date of

January 13, 2008 but characterizes borrower's obligation on that

date to only pay interest. Id. Moreover, the note reflects

signature on August 13, 2008. Id.

Plaintiff alleges that defendants made numerous

misrepresentations. Plaintiff, however, has not alleged which

defendant(s) made each misrepresentation, and where and when

each misrepresentation was made. Id. at ¶ 11. Nonetheless,

plaintiff has alleged ten specific misrepresentations made by

defendants. These include the specific assets New Era owned, New

Era’s ability to repay the loan, and information about the

management and goals of New Era. Id. Plaintiff alleges that

defendants knew that these statements were false and made them

with the intent to defraud plaintiff. Id. at ¶¶ 12-13. Plaintiff

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also alleges that he justifiably relied upon these statements. 

On or about January 13, 2009, plaintiff agreed to extend

the maturity date of the promissory note from January 13, 2009

to June 13, 2009. Id. at ¶ 16. Around this time, New Era paid

plaintiff $50,000 in interest. Id. at ¶ 17. New Era has not made

any other payments to plaintiff. Id. On July 13, 2009, plaintiff

demanded in writing that defendants repay him the principal and

interest due under the promissory note. Id. On October 23, 2009,

plaintiff filed a complaint against defendants in state court,

which defendants have subsequently removed to federal court.

Defendants move to dismiss the entire complaint.

II. STANDARD FOR A FED. R. CIV. P. 12(B)(6) MOTION TO DISMISS

A Fed. R. Civ. P. 12(b)(6) motion challenges a complaint's

compliance with the pleading requirements provided by the

Federal Rules. In general, these requirements are established by

Fed. R. Civ. P. 8, although claims that “sound[] in” fraud or

mistake must meet the requirements provided by Fed. R. Civ. P.

9(b). Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir.

2003).

Under Federal Rule of Civil Procedure 8(a)(2), a pleading

must contain a “short and plain statement of the claim showing

that the pleader is entitled to relief.” The complaint must give

defendant “fair notice of what the claim is and the grounds upon

which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

555 (2007) (internal quotation and modification omitted). 

To meet this requirement, the complaint must be supported

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As discussed below, the court may consider certain limited 1

evidence on a motion to dismiss. As an exception to the general

rule that non-conclusory factual allegations must be accepted as

true on a motion to dismiss, the court need not accept allegations

as true when they are contradicted by this evidence. See Mullis v.

United States Bankr. Ct., 828 F.2d 1385, 1388 (9th Cir. 1987),

Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).

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by factual allegations. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950

(2009). “While legal conclusions can provide the framework of a

complaint,” neither legal conclusions nor conclusory statements

are themselves sufficient, and such statements are not entitled

to a presumption of truth. Id. at 1949-50. Iqbal and Twombly

therefore prescribe a two step process for evaluation of motions

to dismiss. The court first identifies the non-conclusory

factual allegations, and the court then determines whether these

allegations, taken as true and construed in the light most

favorable to the plaintiff, “plausibly give rise to an

entitlement to relief.” Id.; Erickson v. Pardus, 551 U.S. 89

(2007).1

“Plausibility,” as it is used in Twombly and Iqbal, does

not refer to the likelihood that a pleader will succeed in

proving the allegations. Instead, it refers to whether the nonconclusory factual allegations, when assumed to be true,

“allow[] the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Iqbal, 129

S.Ct. at 1949. “The plausibility standard is not akin to a

'probability requirement,' but it asks for more than a sheer

possibility that a defendant has acted unlawfully.” Id. (quoting

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Twombly, 550 U.S. at 557). A complaint may fail to show a right

to relief either by lacking a cognizable legal theory or by

lacking sufficient facts alleged under a cognizable legal

theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699

(9th Cir. 1990).

The line between non-conclusory and conclusory allegations

is not always clear. Rule 8 “does not require 'detailed factual

allegations,' but it demands more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Iqbal, 129 S. Ct. at

1949 (quoting Twombly, 550 U.S. at 555). While Twombly was not

the first case that directed the district courts to disregard

“conclusory” allegations, the court turns to Iqbal and Twombly

for indications of the Supreme Court’s current understanding of

the term. In Twombly, the Court found the naked allegation that

“defendants 'ha[d] entered into a contract, combination or

conspiracy to prevent competitive entry . . . and ha[d] agreed

not to compete with one another,'” absent any supporting

allegation of underlying details, to be a conclusory statement

of the elements of an anti-trust claim. Id. at 1950 (quoting

Twombly, 550 U.S. at 551). In contrast, the Twombly plaintiffs’

allegations of “parallel conduct” were not conclusory, because

plaintiffs had alleged specific acts argued to constitute

parallel conduct. Twombly, 550 U.S. at 550-51, 556.

Twombly also illustrated the second, “plausibility” step of

the analysis by providing an example of a complaint that failed

and a complaint that satisfied this step. The complaint at issue

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This judge must confess that it does not appear self-evident 2

that parallel conduct is to be expected in all circumstances and

thus would seem to require evidence. Of course, the Supreme Court

has spoken and thus this court's own uncertainty needs only be

noted, but cannot form the basis of a ruling.

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in Twombly failed. While the Twombly plaintiffs’ allegations

regarding parallel conduct were non-conclusory, they failed to

support a plausible claim. Id. at 566. Because parallel conduct

was said to be ordinarily expected to arise without a prohibited

agreement, an allegation of parallel conduct was insufficient to

support the inference that a prohibited agreement existed. Id.

Absent such an agreement, plaintiffs were not entitled to

relief. Id.2

In contrast, Twombly held that the model pleading for

negligence demonstrated the type of pleading that satisfies Rule

8. Id. at 565 n.10. This form provides “On June 1, 1936, in a

public highway called Boylston Street in Boston, Massachusetts,

defendant negligently drove a motor vehicle against plaintiff

who was then crossing said highway.” Form 9, Complaint for

Negligence, Forms App., Fed. Rules Civ. Proc., 28 U.S.C. App., p

829. These allegations adequately “'state[] . . . circumstances,

occurrences, and events in support of the claim presented.'”

Twombly, 550 U.S. at 556 n.3 (quoting 5 C. Wright & A. Miller,

Federal Practice and Procedure § 1216, at 94, 95 (3d ed. 2004)).

The factual allegations that defendant drove at a certain time

and hit plaintiff render plausible the conclusion that defendant

drove negligently.

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III. ANALYSIS

Defendants raise three arguments in their motion to

dismiss. First, Defendants argue that the entire complaint

sounds in fraud, yet fails to meet the pleading standard of Fed.

R. Civ. P. 9(b). Second, defendants Noland and Ogle argue that

all claims against them should be dismissed because of a

provision in the promissory note that indicates that plaintiff

must exhaust all remedies against New Era before bringing any

claims against Noland and Ogle. Lastly, defendants argue that no

contract was formed because the promissory note lacked

consideration, or alternatively that plaintiff breached the

contract.

A. Whether Fraud is Sufficiently Pled

Plaintiff brings a claim for fraud as to all defendants.

The elements of a claim for intentional misrepresentation under

California law are (1) misrepresentation (a false

representation, concealment or nondisclosure), (2) knowledge of

falsity, (3) intent to defraud (to induce reliance), (4)

justifiable reliance, and (5) resulting damage. Agosta v. Astor,

120 Cal. App. 4th 596, 603 (2004). Claims for fraud are subject

to a heightened pleading requirement under Fed. R. Civ. P. 9(b).

This rule provides that “In 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.” These

circumstances include the “time, place, and specific content of

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the false representations as well as the identities of the

parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d

756, 764 (9th Cir. 2007) (quoting Edwards v. Marin Park, Inc.,

356 F.3d 1058, 1066 (9th Cir. 2004)). “In the context of a fraud

suit involving multiple defendants, a plaintiff must, at a

minimum, ‘identif[y] the role of [each] defendant[] in the

alleged fraudulent scheme.’” Id. at 765 (quoting Moore v.

Kayport Package Express, 885 F.2d 531, 541 (9th Cir. 1989)). 

As an initial matter, the court must decide which of

plaintiff’s claims sound in fraud. Plaintiff admits that his

claims for fraud and breach of fiduciary duty sound in fraud.

Opposition at 3:15-19. Defendants contend that all causes of

action sound in fraud. For the reasons stated below, only

certain of plaintiff’s claims sound in fraud. 

Specifically, the facts supporting plaintiff’s unjust

enrichment claim are “DEFENDANTS’ misrepresentations, fraud and

other wrongful conduct . . . .” Complaint at ¶ 28. To the extent

that this claim relies on defendants’ allegedly fraudulent

conduct, the claim sounds in fraud. Similarly, plaintiff’s claim

for a declaration of constructive trust is based upon “fraud,

breach of fiduciary duty, and other wrongful conduct . . . .”

Complaint at ¶ 77. Likewise, to the extent that this claim

relies on defendants’ allegedly fraudulent conduct, it sounds in

fraud. Additionally, plaintiff’s claim for entitlement to 

account relies upon “fraud, breach of fiduciary duty, and other

wrongful conduct . . . .” Complaint at ¶ 81. This claim also

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 Plaintiff also brings a claim for an injunction. In federal 3

court, injunctions are properly brought through motion to the

court, and not as counts in a complaint. See Fed. R. Civ. P. 65.

For this reason, the claim for an injunction is also dismissed.

 The court notes that many of these claims do not necessarily 4

sound in fraud, but rather sound in fraud as pled by plaintiff in

his complaint.

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sounds in fraud to the extent that it is based upon defendants’

allegedly fraudulent conduct. The remainder of plaintiff’s

claims do not depend upon allegations of fraud or

misrepresentations made by defendants. Accordingly, the only 3

claims that must meet the heightened pleading standard of Fed.

R. Civ. P. 9(b) are (i) plaintiff’s first claim for fraud, (ii)

plaintiff’s second claim for unjust enrichment to the extent

that such a claim is based on fraudulent conduct, (iii)

plaintiff’s ninth claim for breach of fiduciary duty and

constructive fraud to the extent that such a claim is based on

fraudulent conduct, (iv) plaintiff’s eleventh claim for

constructive trust to the extent that such a claim is based on

fraudulent conduct, and (v) plaintiff’s twelfth claim for

entitlement to account to the extent that such a claim is based

on fraudulent conduct.4

Each of these five claims relies upon ten specific

misrepresentations listed in paragraph eleven of plaintiff’s

complaint. These allegations fail to meet the pleading standard

required under Fed. R. Civ. P. 9(b) in that they do not identify

the role of each defendant in the allegedly fraudulent conduct.

While plaintiff does allege the specific content of the false

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 It may be that plaintiff's dealing with defendants were all 5

verbal, and he cannot in good faith further plead. If that is the

case, he should so state and the court will have to determine the

effect of such a pleading.

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representations, he does not plead the time or place of each

identified representations nor does he identify the parties to

the misrepresentations. Rather, plaintiff merely alleges that

“DEFENDANTS specifically misrepresented” numerous specific bases

of New Era’s profitability. Complaint at ¶ 11. Thus, plaintiff’s

claims for fraud, unjust enrichment, breach of fiduciary duty

and constructive fraud, constructive trust, and entitlement to

account are dismissed. Plaintiff is granted leave to amend his

complaint as to these causes of action such that they conform

with the heightened pleading standard of Fed. R. Civ. P. 9(b)

and/or are not based upon fraudulent conduct.5

B. Whether Plaintiff May Bring Claims Against Defendants

Noland and Ogle

The promissory note attached to plaintiff’s complaint

states that “the Lender[, Frederick S. Strain,] is hereby

obligated to fully exhaust all remedies against the Borrower[,

New Era Mining Corp.,] in the event of any default of the

Borrower’s obligations under this Promissory Note prior to

instituting any action for recovery against Messrs. Noland or

Ogle.” Defendants argue that this language bars plaintiff from

bringing any claims against Noland or Ogle until after it has

exhausted all remedies against New Era. Defendant’s

interpretation will not lie. Specifically, the exhaustion

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 The court notes that none of the remaining claims concern 6

the purchase of stock from New Era. The exhaustion requirement does

not apply to any contract or quasi-contract claims arising out of

the stock purchase, but rather is limited to those arising out of

the promissory note. 

 The court does not decide whether the check may be 7

considered in a motion to dismiss because it denies defendants’

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requirement only applies to claims arising out of the default of

New Era’s obligations under the promissory note. Accordingly, to

the extent that plaintiff’s claims are based upon fraudulent

inducement to enter the loan, they are not subject to

exhaustion. As described in the previous section, these claims

are fraud, unjust enrichment, breach of fiduciary duty,

constructive trust, and entitlement to accounting. While these

claims are dismissed as to all defendants, plaintiff may

nonetheless amend his complaint to bring such claims against

Ogle and Noland.

Plaintiff’s remaining claims, however, concern enforcement

of the terms of the promissory note. These claims are clearly 6

subject to the exhaustion requirement contained within the note.

Accordingly, all claims that do not sound in fraud are dismissed

as to Ogle and Noland. 

C. Whether the Promissory Note is a Valid Contract

Defendants also argue that the promissory note is not a

valid contract because it lacks consideration. In support of

this argument, defendant provides a copy of a check indicating

that Strain Orchards, LP sent a check to New Era in the amount

of $1,000,000. As such, defendants argue, plaintiff Frederick 7

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S. Strain lacked consideration to form the contract because he

did not send New Era funds on a check from an account bearing

his name. Alternatively, defendants argue that plaintiff

breached the contract by not sending the money to defendants on

a check bearing his name. Defendants, however, fail to provide

any support for their argument that a lender in a promissory

note may only satisfy its obligations by providing funds for the

loan in the form of a check bearing the lender’s name. Thus,

defendants have not shown that plaintiff has failed to state a

claim on this ground.

IV. CONCLUSION

For the reasons stated above, the court GRANTS IN PART

Defendants’ motion to dismiss the Complaint, Doc. No. 7. 

The court DISMISSES WITHOUT PREJUDICE the following claims:

1. Plaintiff’s First Claim for Fraud as to all

defendants.

2. Plaintiff’s Second Claim for Unjust Enrichment as to

all defendants.

3. Plaintiff’s Third Claim for Breach of Contract as to

defendants Ogle and Noland.

4. Plaintiff’s Fourth Claim for Common Count for Money

Lent as to defendants Ogle and Noland.

5. Plaintiff’s Fifth Claim for Common Count for Money Had

and Received as to defendants Ogle and Noland.

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6. Plaintiff’s Sixth Claim for Breach of Guaranty as to

defendant Ogle.

7. Plaintiff’s Seventh Claim for Breach of Guaranty as to

defendant Noland.

8. Plaintiff’s Ninth Claim for Breach of Fiduciary Duty

and Constructive Fraud as to all defendants.

9. Plaintiff’s Tenth Claim for Conversion as to

defendants Ogle and Noland.

10. Plaintiff’s Eleventh Claim for Constructive Trust as

to all defendants.

11. Plaintiff’s Twelfth Claim for Entitlement to Account

as to all defendants.

12. Plaintiff’s Thirteenth Claim for Injunction as to all

defendants.

The court DENIES defendants’ motions to dismiss, Doc. No. 7

as to the following claims:

1. Plaintiff’s Third Claim for Breach of Contract as to

defendant New Era.

2. Plaintiff’s Fourth Claim for Common Count for Money

Lent as to defendant New Era.

3. Plaintiff’s Fifth Claim for Common Count for Money Had

and Received as to defendant New Era.

4. Plaintiff’s Eighth Claim for Guaranty as to defendant

New Era.

5. Plaintiff’s Tenth Claim for Conversion as to defendant

New Era. 

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Plaintiff is granted twenty one (21) days from the issuance

of this order to file an amended complaint.

IT IS SO ORDERED.

DATED: January 27, 2010.

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