Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-01050/USCOURTS-caed-1_05-cv-01050-0/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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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

CONTINENTAL AIRLINES, INC., ) 

 )

Plaintiff, )

)

vs. )

)

MUNDO TRAVEL CORPORATION, a )

corporation, and ERIK VALLEJO,)

 )

Defendants. )

)

) 

No. CV-F-05-1050 REC LJO

ORDER GRANTING IN PART AND

DENYING IN PART DEFENDANTS’

MOTION TO DISMISS

PLAINTIFF’S COMPLAINT

PURSUANT TO FED. R. CIV. P.

12(b)(6) AND DIRECTING

PLAINTIFF TO FILE AN

AMENDED COMPLAINT. 

(Doc. 10) 

On December 12, 2005, the Court heard Defendants’ 

Motion to Dismiss Plaintiff’s Complaint Pursuant to Fed. R. Civ.

P. 12(b)(6) (the “Motion”). Upon due consideration of the

written and oral arguments of the parties and the record herein,

the Court GRANTS the Motion in part and DENIES it in part.

I. Factual Background

Plaintiff Continental Airlines (“Continental”) is a member

of a consortium of domestic air carriers called the Airlines

Reporting Corporation (the “ARC”), headquartered in Arlington,

Virginia. ARC formed in 1984 to function as a clearinghouse and

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a collection agent for transactions between airlines and travel

agents who sell their services.

Continental, along with other airlines, has signed an ARC

Carrier Services Agreement that gives ARC power of attorney to

enter into contracts with travel agents on Continental’s behalf. 

Travel agents wishing to issue Continental tickets through the

ARC must execute a “Memorandum of Agreement to the Airlines

Reporting Corporation Agent Reporting Agreement” (the

“Memorandum”) that obligates them to the terms of the Agent

Reporting Agreement (the “ARA”).

A travel agent who executes the Memorandum thereby becomes

the carrier’s “agent for the issuance of ARC traffic documents.” 

Pevzner Decl. Ex. B at 1. ARC traffic documents, defined on page

2 of the ARA, include tickets, tour orders, and other documents

that ARC provides to the agent. Pevzner Decl. Ex. B. 

The ARA provides, in Section I.C. on page 1, that it “does

not constitute the entire agreement between the Agent and a

carrier, but is specifically limited to the terms and conditions

contained herein.” Id. The second sentence of Section I.C

provides, “This agreement does not, for example, address fares

charged by the carrier; that is a matter between a carrier and

the Agent.” Pevzner Decl. Ex. B. 

Though the ARA’s terms obligate the agent who signs the

Memorandum to meet a variety of requirements related to the

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Section VII provides, in relevant part, 1

A. The Agent shall at all times maintain

ethical standards of business in the conduct

of the agency and in its dealing with its

clients, the public and the carrier.

. . .

F. The Agent shall deliver to its clients

the proper forms of ARC traffic documents

and/or supporting documentation as authorized

from time to time by the carrier. The

information shown on any such documents shall

be in accordance with the applicable rules,

regulations and instructions furnished to the

Agent by ARC by specific instruction or in the

Industry Agents’ Handbook, and by the carrier.

. . .

H. The Agent shall comply with all

instructions of the carrier, and shall make no

representation not previously authorized by

the carrier. The Agent shall deliver to the

carrier such specific instructions, requests,

or particulars in connection with a client or

the transportation as may be proper to enable

the carrier to render efficient service to its

passengers.

Pevzner Decl. Ex. B.

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issuance of travel documents. Section VII, on page 7 of the 1

ARA, contains provisions that set forth the “Agent’s Authority,

General Rights and Obligations.” Pevzner Decl. Ex. B. Section

VII.A requires the agent to “at all times maintain ethical

standards of business.” Id. Section VII.F requires that the

agent ensure that information shown on ARC traffic documents

follow the carrier’s rules and be in the proper form. Id. Under

Section VII.H, the agent must “comply with all instructions of

the carrier, and . . . make no representation not previously

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authorized by the carrier.” Id. Defendant Erik Vallejo,

president and CEO of Mundo, signed a Memorandum making Mundo an

agent of Continental pursuant to the ARA that went into effect on

May 5, 2003. Id. at 1. 

Continental alleges that between March and May of 2005,

Defendants Mr. Vallejo and Mundo Travel Corporation (collectively

“Mundo”) engaged in a practice called “point-beyond ticketing.” 

Also known as “throwaway ticketing,” this practice comes into

play when a passenger wishes to fly nonstop to a particular city

that serves as a transfer point for a flight to another location. 

A nonstop fare usually costs more than a flight that involves a

stop-over. Consequently, a passenger who buys a ticket for a

flight to a “point beyond” his desired destination can receive a

lower fare for a nonstop flight by simply terminating his trip at

the stop-over location. It is undisputed, for the purpose of

this Motion, that fare rules published in Continental’s Booking

and Ticketing Policy (the “Policy”) forbid point-beyond

ticketing.

Continental alleges that Mundo booked 288 itineraries that

violated the Policy. By booking the tickets, Continental

asserts, Mundo represented that the itineraries complied with the

Policy, that the passengers intended to travel to the final

stated destination, and that the passengers paid a fare that

complied with the Policy. Continental claims that Mundo knew

that the itineraries violated the Policy, or at least asserted

that the itineraries complied without a reasonable ground to

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believe so.

II. Procedural History

On August 15, 2005, Continental filed a complaint (the

“Complaint”) in this court. On October 7, 2005, Mundo filed this

Motion, along with the a declaration of Alex F. Pevzner (Pevzner

Decl.) and exhibits in support of the Motion. On October 17,

2005, Continental filed its opposition. Continental submitted an

amended opposition on December 2, 2005, to correct a clerical

error. On December 2, 2005, Mundo filed its reply.

III. Discussion

A. Legal Standard

Dismissal of a complaint pursuant to Rule 12(b)(6) is proper

if “it appears beyond doubt that the plaintiff can prove no set

of facts in support of his claim which would entitle him to

relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2

L. Ed. 2d 80 (1957). In testing the sufficiency of a complaint

against a Rule 12(b)(6) challenge, a court must “accept all

material allegations in the complaint as true and construe them

in the light most favorable to the plaintiff.” N. Star Int’l v.

Arizona Corp. Comm’n, 720 F.2d 578, 580 (9th Cir. 1983). The

Court need not, however, “accept legal conclusions cast in the

form of factual allegations if those conclusions cannot

reasonably be drawn from the facts alleged.” Clegg v. Cult

Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). 

A complaint may be dismissed as a matter of law if there is

a lack of a cognizable legal theory or if there are insufficient

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facts alleged under a cognizable legal theory. Balistreri v.

Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). The

Court must determine whether or not it appears to a certainty

under existing law that no relief can be granted under any set of

facts that might be proved in support of a plaintiff’s claims. 

De La Crux v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978), cert.

denied, 441 U.S. 965, 99 S. Ct. 2416, 60 L. Ed. 2d 1072 (1979). 

The Court may consider the complaint itself along with any

material properly considered as part of the complaint. 

Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542,

1555 n. 19 (9th Cir. 1989). Where the complaint fails to state a

claim on which relief can be granted, leave to amend “shall be

freely given when justice so requires.” Fed. R. Civ. P. 15(a);

Allen v. Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990). 

B. Applicable Law

1. Validity of Choice-of-Law Clause

As a threshold matter, the parties dispute what law governs

Continental’s claims. Mundo claims that Virginia law applies to

each of the claims. Continental asserts that Virginia law

applies, if at all, only to its first claim for breach of

contract.

Federal courts apply the choice-of-law rules of the state in

which they sit. Shannon-Vail Five, Inc. v. Bunch, 270 F.3d 1207,

1210 (9th Cir. 2001). California courts’ approach to determining

whether to enforce an arm’s-length contractual choice-of-law

provision reflects a strong policy in favor of enforcement of

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As stated infra, the Virginia choice-of-law clause defines 2

the law to be used to interpret the entire contract, including the

choice-of-law clause itself. See Nedlloyd Lines B.V. v. Super.

Ct., 3 Cal. 4th 459, 469 n. 7 (1992). Because the parties do not

discuss Virginia’s choice-of-law rules nor argue that they differ

from California’s, the Court applies California law. See id.;

Discover Bank v. Super. Ct., 36 Cal. 4th 148, 174 (2005).

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such provisions. Nedlloyd Lines B.V. v. Super. Ct., 3 Cal. 4th 2

459, 464-65 (1992). First, a court must determine either: “(1)

whether the chosen state has a substantial relationship to the

parties or their transaction, or (2) whether there is any other

reasonable basis for the parties’ choice of law.” Id. at 466. 

If neither test is met, the Court need not enforce the parties’

choice of law. Id. If either test is met, the chosen state’s

law applies unless it is “contrary to a fundamental policy of

California.” Id. (emphasis in original).

Section XXXI, on page 26 of the ARA, provides, “This

Agreement shall be construed in accordance with, and governed by,

the laws of the Commonwealth of Virginia.” Pevzner Decl. Ex. B. 

Continental argues that the Court should not enforce the choiceof-law provision because Virginia lacks a sufficient relationship

to the parties or transaction here. Continental argues that,

even though ARC’s principal place of business is in Virginia, ARC

“simply is a national clearinghouse” that facilitates

transactions between airlines and travel agents. Opp’n at 7:2. 

Continental points out that caselaw has established that ARC is

not a “real and substantial party” for purposes of diversity

jurisdiction. Airlines Reporting Corp. v. S & N Travel, 58 F.3d

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857, 861-62 (2d Cir. 1995). This implies, Continental argues,

that Virginia lacks a substantial relationship to the parties and

the transaction.

The ARC’s absence from the present action does not on its

own preclude a substantial relationship between Virginia and the

parties or transaction. The “substantial relationship” analysis

focuses on the parties to the contract, not the parties to the

action. Hambrecht & Quist Venture Partners v. Am. Med. Int’l, 38

Cal. App. 4th 1532, 1546 (1995) (“If one of the contracting

parties is incorporated in the chosen state, then all of the

contracting parties have a substantial relationship to that state

for choice-of-law purposes.” (citing Nedlloyd, 3 Cal. 4th at

467)). If one party resides in the chosen state, that state has

a substantial relationship to all of the parties. Hughes Elecs.

Corp. v. Citibank Del., 120 Cal. App. 4th 251, 258 (2004). It is

undisputed that ARC’s principal place of business is in Virginia. 

Opp’n at 7:1-2. 

Continental does not contend that ARC is not a party to the

contract. In fact, the front of the Memorandum states, “The

parties to this ‘Memorandum of Agreement to the Airlines

Reporting Corporation Agent Reporting Agreement’ are the Agent

identified on the obverse of this form, Airlines Reporting

Corporation (ARC), and each carrier . . . .” Pevzner Decl. Ex.

B. ARC is not merely a “straw man” for an agreement between

Continental and Mundo; ARC itself has undertaken obligations

under the ARA. Section VIII.A.5, on page 8 of the ARA, sets

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forth duties of the ARC: “Upon receipt of the weekly sales

report, ARC shall generate a confirmation number for the report,

and transmit this confirmation number to the agency location from

which the report was submitted.” Pevzner Decl. Ex. B. Because a

party to the ARA resides in Virginia, the “chosen state has a

substantial relationship to the parties.” Pevzner Decl. Ex. B. 

Continental does not contend that the choice-of-law clause

is contrary to any of California’s policy interests. 

Accordingly, the Court will enforce the ARA’s choice-of-law

clause. 

2. Scope of Choice-of-Law Clause

A choice-of-law clause like the one in the ARA applies to

“all causes of action arising from or related to” the contract. 

Nedlloyd, 3 Cal. 4th at 468. In Nedlloyd, the Supreme Court of

California considered a choice-of-law clause nearly identical to

that at issue here. The clause in that case read, “This

agreement shall be governed by and construed in accordance with

Hong Kong law . . . .” Id. at 463. The court decided that a

rational businessperson establishing a contractual relationship

would intend to resolve all disputes arising out of the contract

or relationship under the law of one chosen jurisdiction. Id. at

469. No rational business entity would intend to subject itself

to a dispute involving the laws of multiple jurisdictions or to

face “a protracted litigation battle” concerning which law to

apply to each issue. Id. at 469-70. Consequently, the court

read the phrase “governed by” broadly to “reflect the parties

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At oral argument, Continental’s counsel urged that the breach 3

of the Policy itself gave rise to a breach of contract claim,

regardless of the scope of the ARA. Continental has alleged only

that Mundo “violated Continental’s [Policy] on at least 288

occasions.” Compl. at ¶ 25. Continental has not alleged any facts

that imply that the Policy was itself an enforceable contract.

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clear contemplation that ‘the agreement’ is to be completely and

absolutely controlled” by the law of the chosen jurisdiction. 

Id. at 469. The court held that

a valid choice-of-law clause, which provides

that a specified body of law ‘governs’ the

‘agreement’ between the parties, encompasses

all causes of action arising from or related

to that agreement, regardless of how they are

characterized, including tortious breaches of

duties emanating from the agreement or the

legal relationships it creates.

Id. at 470. The court concluded that a fiduciary duty cause of

action that arose from a relationship that the agreement created

was subject to the law that the agreement specified. Id. at 469. 

The Court holds that Virginia law governs all of Continental’s

causes of action “arising from or related to” the ARA.

C. First Cause of Action: Breach of Written Contract 

Continental claims that Mundo is liable for violating the

Policy by issuing travel documents with point-beyond itineraries. 

The parties do not dispute, for the purposes of the Motion,

whether Mundo’s alleged conduct contravenes the terms of the

Policy. The issue is whether Mundo promised to abide by the

Policy when it signed the ARA.3

Because the breach of contract claims arise from the ARA,

the Court applies Virginia law. See Nedlloyd, 3 Cal. 4th at 470. 

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When the terms of a contract are clear and unambiguous, courts

should interpret them according to their plain meaning. Golding

v. Floyd, 261 Va. 190, 192 (2001). “‘The guiding light . . . is

the intention of the parties as expressed by them in the words

they have used, and courts are bound to say that the parties

intended what the written instrument plainly declares.’” Id.

(quoting Magann Corp. v. Elec. Works, 203 Va. 259, 264 (1962)). 

Where a court considers contractual documents beyond the

face of the complaint in the context of a motion to dismiss for

failure to state a claim, it should “strive to resolve any

contractual ambiguities in [the nonmoving party’s] favor.” Int’l

Audiotext Network, Inc. v. AT&T, 62 F.3d 69, 72 (2d Cir. 1995). 

“[T]he construction of ambiguous contract provisions is a factual

determination that precludes dismissal on a motion for failure to

state a claim.” Martin Marietta Corp. v. Int’l Telecomms.

Satelite Org., 991 F.2d 94, 97 (4th Cir. 1992). 

Under Virginia law, a court can determine the meaning of a

contract as a matter of law “when a written contract is clear and

unambiguous.” Nehi Bottling Co. v. All-American Bottling Corp.,

8 F.3d 157, 161 (4th Cir. 1993). The question whether a contract

is ambiguous is a legal question for the Court. Id. The Supreme

Court of Virginia has defined ambiguity as “‘the condition of

admitting of two or more meanings, of being understood in more

than one way, or of referring to two or more things at the same

time.’” Id. (quoting Mgmt. Enters., Inc. v. Thorncroft Co., 243

Va. 469, 472 (1992)).

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Mundo also cites in support of its position Section I.B., on 4

page 1 of the ARA:

This agreement establishes a principal-agent

relationship between the Agent and appointing

carriers, and governs the terms and conditions

under which the Agent is authorized to issue

ARC traffic documents at or through its

authorized agency locations in the United

States, and does not extend to the terms and

conditions under which the Agent is authorized

to issue tickets and other forms that the

carrier may provide to the agent.

Pevzner Decl. Ex. B. This provision does not support Mundo’s

interpretation because it merely distinguishes between documents

that ARC issues and documents that Continental provides. The ARA

only governs the terms and conditions regarding the former category

of documents.

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Mundo alleges that the ARA “specifically states that it does

not govern tariffs” such as Continental’s Policy regarding pointbeyond ticketing. Reply at 3:17-19. Mundo argues that

Continental’s claim is barred by Section I.C of the ARA, which

appears on page 1: “This agreement does not constitute the entire

agreement between the Agent and a carrier, but is specifically

limited to the terms and conditions contained herein. This

agreement does not, for example, address fares charged by the

carrier; that is a matter between a carrier and the Agent.” 

Pevzner Decl. Ex. B. Mundo argues that this passage precludes

the finding of a contract regarding fares or fare-related

tariffs, such as the Policy, arising out of the ARA.4

Mundo interprets Continental’s Policy regarding point-beyond

ticketing to fall under the excluded category of “fares charged

by the carrier.” Continental does not appear to dispute that the

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Policy is a rule about fares: “Ticketing a ‘point beyond’

itinerary is prohibited by Continental’s Booking and Ticketing

Policy as it circumvents the fare rules in place by the airline,

all of which are published and known by the travel agency.” 

Opp’n at 4:10-13. 

The language in Section I.C potentially excludes fare

agreements from the scope of the ARA by expressly stating that it

“does not . . . address fares charged by the carrier . . . .” 

Pevzner Decl. Ex. B. A reasonable reading of I.C would preclude

the ARA from governing any fare-related issues, such as whether

agents are permitted to engage in point-beyond ticketing.

In response, Continental points to Section VII.H, on page 7

of the ARA, which requires that Mundo “comply with all

instructions of the carrier, and shall make no representation not

previously authorized by the carrier.” Pevzner Decl. Ex. B. The

language of Section VII.H, implies a broad duty on the part of

the agent to follow Continental’s instructions. Continental

alleges that the Policy instructs agents not to engage in pointbeyond ticketing. The plain meaning of “all instructions of the

carrier” includes within its scope rules about point-beyond

ticketing listed in the Policy. Such a reading of Section VII.H

entails that the ARA requires Mundo to comply with the Policy. 

The ARA is ambiguous because it “admit[s] of two or more

meanings” with respect to whether it requires Mundo to comply

with the Policy. See Nehi Bottling, 8 F.3d at 161. At this

stage, it is inappropriate for the Court to construe these

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conflicting provisions, which would entail a factual

determination. Martin Marietta, 991 F.2d at 97. Continental has

alleged facts sufficient to support a breach of contract claim: 

Mundo violated Section VII.H of the ARA, which required it to

comply with the instructions regarding point-beyond ticketing

that were embodied in the Policy. Accordingly, Mundo’s motion to

dismiss this cause of action is DENIED. 

D. Second Cause of Action: Breach of Fiduciary Duty

Mundo contends that Continental cannot state a claim for

breach of fiduciary duty because Mundo lacked a duty to refrain

from the alleged conduct. Mundo does not dispute that the ARA

establishes at least a limited fiduciary relationship with

Continental. See Airlines Reporting Corp. v. Bishop (In re

Bishop), 276 B.R. 737, 743 (Bankr. W.D. Va. 2001).

“A fiduciary relationship exists in all cases when special

confidence has been reposed in one who in equity and good

conscience is bound to act in good faith and with due regard for

the interests of the one reposing the confidence.” H-B Ltd.

P’ship v. Wimmer, 220 Va. 176, 179 (1979). “An agent is a

fiduciary with respect to the matters within the scope of his

agency.” Van Deusen v. Snead, 247 Va. 324, 331 (1994). Here,

the scope of Mundo’s agency is contractually defined by the ARA. 

See Restatement (Second) of Agency § 26 (1958) (agency

relationship “can be created by written or spoken words or other

conduct”). 

Mundo claims that the ARA only creates a fiduciary duty with

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respect to ARC traffic documents and the proceeds of sales of ARC

traffic documents, citing Airlines Reporting Corp. v. Vinogradova

(In re Vinogradova) 270 B.R. 159, 172-73 (Bankr. S.D.N.Y. 2001). 

In that case, the court addressed the extent to which ARC could

recover from a travel agent alleged to have breached fiduciary

duties toward ARC. Id. The court limited its inquiry to ARC

traffic documents and proceeds from sales because these were the

only respects in which ARC claimed that the agent owed it a

fiduciary duty. Id. The court did not conduct its own reading

of the ARA and determine that ARC’s fiduciary relationship with

an agent is limited to those duties. Id. Nor did that court

have before it the issue the Court faces here of a travel agent’s

duties to the carrier, rather than the ARC. Id.

The Vinogradova court held that fiduciary duties under the

ARA are tied to specific provisions of the agreement. Id.; see

also Bishop, 276 B.R. at 742-43. This is in accord with the

agency relationship that the ARA creates between the agent and

the carrier. Pevzner Ex. B at 1. Continental has alleged that a

provision of the ARA requires Mondo to follow all of

Continental’s instructions. Continental has also alleged that

Mundo has violated Continental’s instructions contained in its

Policy by issuing point-beyond tickets. Continental has alleged

an agency relationship, along with a duty that falls within the

scope of that relationship. Continental alleges that Mundo’s

conduct deprived it of revenue from fares for flights that Mundo

booked. Compl. at ¶ 26. Construing Continental’s allegations in

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Virginia law recognizes separate causes of action for actual 5

fraud and for constructive fraud, the essence of which is negligent

misrepresentation. Richmond Metro. Auth. v. McDevitt St. Bovis,

Inc., 256 Va. 553, 557-59 (1998). The Court recognizes

Continental’s third cause of action for fraud as a claim for actual

fraud and its fourth cause of action for negligent

misrepresentation as a claim for constructive fraud.

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a light most favorable to it, they establish that Mundo’s duty to

abide by Continental’s instructions obligates Mundo to protect

Continental’s interests in enforcing its fare rules, including

the Policy. Accordingly, Mundo’s motion to dismiss this cause of

action is DENIED.

E. Third Cause of Action: Fraud 

Continental’s claims for fraud arise from the ARA because

the ARA created the relationship with Mundo that gives rise to

this cause of action. See Nedlloyd, 3 Cal. 4th at 469. The

Court therefore applies Virginia law to this cause of action. 

The elements of a cause of action for actual fraud are “(1) a

false representation, (2) of a material fact, (3) made

intentionally and knowingly, (4) with intent to mislead, (5)

reliance by the party misled, and (6) resulting damage to the

party misled.” Prospect Dev. Co. v. Bershader, 258 Va. 75, 85 5

(1999).

1. Rule 9(b)

Mundo argues that the Court should dismiss this cause of

action because Continental has failed to state it “with

particularity” as Federal Rule of Civil Procedure 9(b) requires. 

To satisfy Rule 9(b) a complaint for fraud must “‘state the time,

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place, and specific content of the false representations as well

as the identities of the parties to the misrepresentation.’” 

Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004). 

This requirement is read in conjunction with Federal Rule of

Civil Procedure 8, which requires a “short and plain statement of

the claim,” and calls for “simple, concise, and direct”

allegations. See Michaels Bldg. Co. v. Ameritrust Co., N.A., 848

F.2d 674, 679 (6th Cir. 1988). 

Mundo argues that Continental’s claims are merely “bold

assertions” and that Continental fails to state the “‘who, what,

where, and how’ that serves as a basis for such assertions.” 

Mot. at 11:7-10. Mundo points out that Continental states no

basis for its belief that Mundo knew that the “‘passengers

mentioned above had no intention of traveling to the final

destination indicated on the travel documents . . . .’” Mot. at

11:19-23 (quoting Compl. at ¶ 36). Rule 9(b) provides that

“[m]alice, intent, knowledge, and other condition of mind of a

person may be averred generally” and are not subject to the

heightened pleading standard. See Michaels Bldg., 848 F.2d at

680 n. 9 (Rule 9(b) requires “only that the ‘circumstances’ of

the fraud be pled with particularity, not the evidence of the

case.”). Thus, Continental need not plead a basis for its

averment regarding the passengers’ states of mind or Mundo’s

knowledge thereof.

Mundo also argues that the Complaint refers to dates, “but

fails to state the specific contents of representations made on

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those dates and to specify what was false or misleading about

such representations.” Mot. at 11:17-19. In its Complaint,

Continental avers that between March and May of 2005, Mundo,

through Mr. Vallejo, made 288 representations in the form of

bookings on Continental Airlines. Compl. at ¶ 34. The

representation was that “the itineraries were legitimate” and

that passengers “intended to travel to the final destination

listed on the itinerary.” Id. Mundo also represented to

Continental “that the price paid by the passengers was in

compliance with” the Policy. Id. at ¶ 35. Continental alleged

the representations were false because Mundo knew that the

passengers did not intend to travel to the stated destination and

that the documents were issued to circumvent higher nonstop

fares. Id. at 36. 

Continental’s allegations sufficiently specify the contents

of Mundo’s representations: each booking represented that the

passenger intended to fly to a stated final destination. The

representation was false because Mundo knew the passenger

intended to terminate the trip at an intermediate destination. 

Pleading more details, such as the information about the

individual passengers or their itineraries would not serve the

purposes of Rule 9(b) and would instead contravene the policy

furthered by Rule 8’s requirement of “simple, concise, and

direct” allegations. Continental has pled its claim for fraud in

compliance with Rule 9(b).

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2. Economic Loss Rule

Mundo argues that Continental’s claim for fraud is barred by

the economic loss rule. The economic loss rule bars recovery in

tort for the breach of a duty that is founded solely on the basis

of a contract. Richmond Metro. Auth. v. McDevitt St. Bovis,

Inc., 256 Va. 553, 558 (1998). Under this rule, a claim for

actual fraud does not arise from a representation relating to a

duty or obligation specifically required by contract. Id. at 559

(contractor’s misrepresentations that it had properly performed

under the contract did not subject it to a cause of action for

actual fraud and were only actionable under the contract).

The possibility of an eventual finding of a contract between

Mundo and Continental regarding the Policy does not merit

granting Mundo’s motion to dismiss the fraud claim. This is

because dismissal is only appropriate where “plaintiff can prove

no set of facts” to support the claim. Conley, 355 U.S. 45-46. 

Federal Rule of Civil Procedure 8(e)(2) specifically permits the

pleading of multiple claims “regardless of consistency.” See

Isra Fruit, Ltd. v. Agrexco Agric. Exp. Co., 631 F. Supp. 984,

987 (S.D.N.Y. 1986) (holding that plaintiff’s claims that a

contract was illegal under antitrust principles and, in the

alternative, that it was entitled to recover under the contract

survived a Rule 12(b)(6) motion). Continental’s contention that

the ARA requires Mundo to comply with the Policy is not grounds

to dismiss the fraud claim. Under a provable set of facts, the

Court ultimately could conclude that the ARA does obligate Mundo

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to follow the Policy. See Pevzner Decl. Ex. B. In such a case,

the economic loss rule would not bar the fraud claim.

Because Continental has sufficiently pled a claim for actual

fraud, Mundo’s motion to dismiss this cause of action is DENIED.

F. Fourth Cause of Action: Negligent Misrepresentation

Under Virginia law, negligent misrepresentation is

actionable under the doctrine of constructive fraud. Richmond

Metro., 256 Va. at 559. “Constructive fraud requires proof, also

by clear and convincing evidence, ‘that a false representation of

a material fact was made innocently or negligently, and the

injured party was damaged as a result of . . . reliance upon the

misrepresentation.’” Id. at 558.

Mundo contends that the economic loss rule bars

Continental’s constructive fraud claim. Mundo points out that

“[a] tort action cannot be based solely on a negligent breach of

contract.” Id. at 559. The economic loss rule bars a

constructive fraud claim where the allegations “are nothing more

than allegations of negligent performance of contractual duties.” 

Id.

The purported existence of a contract that governs the

Policy does not preclude this claim. For the reasons mentioned

above, Continental can prove a set of facts whereby the ARA does

not require Mundo to comply with the Policy. Under such facts,

the economic loss rule would not bar the negligent

misrepresentation claim. Accordingly, Mundo’s motion to dismiss

this cause of action is DENIED.

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G. Fifth Cause of Action: Statutory Unfair Competition

Continental claims that Mundo’s conduct “constitutes

unlawful, unfair, or fraudulent business acts or practices,”

entitling Continental to recover under California’s unfair

competition law (the “UCL”), California Business and Professions

Code section 17200 et seq. The ARA created an agency

relationship that authorized Mundo to sell tickets for

Continental’s flights. Continental alleges that in the course of

issuing tickets pursuant to the ARA, Mundo engaged in certain

improper behavior. Accordingly, all of the conduct that

Continental alleges violates the UCL arises from the relationship

of the parties that the ARA created. The Court holds that

Virginia law applies to Continental’s unfair competition claim. 

See Nedlloyd, 3 Cal. 4th at 469. 

A valid choice-of-law provision selecting another state’s

law is grounds to dismiss a claim under California’s UCL. 

Medimatch, Inc. v. Lucent Techs., Inc., 120 F. Supp. 2d 842, 862

(N.D. Cal. 2000) (agreement that “construction, interpretation

and performance of this Agreement shall be governed by the local

laws of the State of New Jersey” required dismissal of California

UCL claims). Continental claims that Virginia recognizes a claim

for “unfair competition,” citing M-CAM v. D'Agostino, No. Civ. A.

3:05CV00006, 2005 WL 2123400 (W.D. Va. Sept. 1, 2005). According

to M-CAM, “Virginia law defines unfair competition as:

‘deception, by means of which the goods of one dealer are palmed

off as those of another.’” Id. at *2 (citing Monoflo Int’l v.

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Sahm, 726 F.Supp. 121, 127 (E.D. Va. 1989)). Continental has not

alleged that Mundo has improperly “palmed off” any of

Continental’s goods or services as another’s or another’s goods

or services as Continental’s. 

The Court is unaware of any authority for Continental’s

unfair competition claim under Virginia law. Counsel for

Continental alluded at oral argument to other cases that

recognize a cause of action under Virginia law on the facts

Continental alleges. Continental remains free to file an amended

complaint that pleads an unfair competition claim based on

Virginia law. Accordingly, Continental’s Fifth Cause of Action

is DISMISSED WITHOUT PREJUDICE.

ACCORDINGLY:

1. Continental’s Fifth Cause of Action for Statutory Unfair

Competition is DISMISSED WITHOUT PREJUDICE.

2. Mundo’s motion to dismiss is DENIED with respect to

Continental’s other causes of action.

3. Continental shall file a second amended complaint within 30

days of the issuance of this order. Failure to comply will

result in dismissal of the action.

IT IS SO ORDERED.

Dated: January 25, 2006 /s/ Robert E. Coyle 

810ha4 UNITED STATES DISTRICT JUDGE

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