Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01298/USCOURTS-cand-3_07-cv-01298-4/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 Northern District of California

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 The parties agree that the motion to dismiss should be applied to the First Amended

Complaint. (Docket No. 21.) 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FINANCIAL TECHNOLOGY PARTNERS

L.P.,

Plaintiff,

 v.

FNX LIMITED, FARID NAIB, and DOES 1-

20

Defendants. /

No. C 07-01298 JSW

ORDER DENYING

DEFENDANTS’ MOTION TO

DISMISS

Now before the Court is the motion to dismiss filed by defendants FNX Limited

(“FNX”) and Farid Naib (collectively, “Defendants”). The Court finds that this matter is

appropriate for disposition without oral argument and it is hereby deemed submitted. See Civ.

L.R. 7-1(b). Accordingly, the hearing set for June 29, 2007 is HEREBY VACATED. Having

carefully considered the parties’ arguments and relevant legal authority, the Court hereby denies

Defendants’ motion. 

BACKGROUND

This action concerns a contract dispute between FNX and plaintiff Financial Technology

Partners, L.P. (“FT Partners”). In September 2002, the parties executed a Financial Advisory

Agreement (“Agreement”) under which FT Partners provided FNX with financial and strategic

advice regarding the possible sale of all or a portion of FNX. (First Amended Complaint

(“FAC”), ¶¶ 9-10, Ex. 1.)1

 FNX terminated the Agreement in March 2004. (Id., ¶ 17.) FT

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Partners alleges that it was not paid for services rendered pursuant to the Agreement. More

specifically, FT Partners alleges that FNX owes it money from the following transactions: (1) in

June 2003, FNX obtained $2 million in convertible debt financing from Trident Capital; (2) in

September 2004, FNX received $10 million in funding from Conning Capital Partners and

Lazard Technology Partners in exchange for FNX stock; and (3) in January 2007, GL Trade

agreed to acquire FNX. (Id., ¶¶ 16, 19, 26.) FT Partners further alleges that FNX failed to

reimburse FT Partners for its expenses, which exceed $36,000. (Id., ¶ 24.) FT Partners asserts

causes of action for breach of contract, breach of the implied covenant of good faith and fair

dealing, and declaratory relief. Under its claim for declaratory relief, FT Partners seeks a

judicial declaration regarding whether FNX owes it money under the Agreement based on the

sale of FNX to GL Trade. (Id., ¶¶ 49, 50.)

FNX now moves to dismiss the claim for declaratory relief and claim for breach of the

implied covenant of good faith and fair dealing. The Court will address additional specific facts

as required in the analysis.

ANALYSIS

A. Legal Standard on a Motion to Dismiss.

A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the

pleadings fail to state a claim upon which relief can be granted. A motion to dismiss should not

be granted unless it appears beyond a doubt that a plaintiff can show no set of facts supporting

his or her claim. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Thus, dismissal is proper “only

if it is clear that no relief could be granted under any set of facts that could be proved consistent

with the allegations.” Hishon v. King & Spaulding, 467 U.S. 69, 73 (1984). The complaint is

construed in the light most favorable to the non-moving party and all material allegations in the

complaint are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). The

court, however, is not required to accept legal conclusions cast in the form of factual

allegations, if those conclusions cannot reasonably be drawn from the facts alleged. Cleggy v.

Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994) (citing Papasan v. Allain, 478

U.S. 265, 286 (1986)).

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Documents whose contents are alleged in a complaint and whose authenticity no party

questions, but which are not physically attached to the pleading, may be considered in ruling on

a Rule 12(b)(6) motion to dismiss. Such consideration does not convert the motion to dismiss

into a motion for summary judgment. See Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994);

United States v. Ritchie, 343 F.3d 903, 908 (9th Cir. 2003). 

B. Defendants’ Motion.

1. Claim for Declaratory Relief.

FNX argues that because the GL Trade sale occurred more than one year after the

Agreement was terminated, it does not owe any money to FT Partners under the clear language

of the Agreement. (Mot. at 3.) FT Partners reads the language of the Agreement differently. 

Under FT Partner’s interpretation, FNX’s obligation to pay FT Partners does not have a

temporal end. (Opp. at 1.) 

Under California law, “[t]he interpretation of contracts ... involves a complex interplay

of questions of fact and questions of law.” City of Santa Clara v. Watkins, 984 F.2d 1008, 1012

(9th Cir. 1993). Whether a contract term in a written agreement is ambiguous is a question of

law for the Court to decide. Id. A contract term is ambiguous if it is reasonably susceptible to

more than one meaning. ASP Properties Group v. Fard, Inc., 133 Cal. App. 4th 1257, 1270

(2005). In order to determine whether a contract term is ambiguous, “[e]ven if the written

agreement is clear and unambiguous on its face, the trial judge must receive relevant extrinsic

evidence that can prove a meaning to which the language of the contract is ‘reasonably

susceptible.’” City of Santa Clara, 984 F.2d at 1012; Pacific Gas & E. Co. v. G. W. Thomas

Drayage & Rigging Co., Inc., 69 Cal.2d 33, 37 (1968) (“The test of admissibility of extrinsic

evidence to explain the meaning of a written instrument is not whether it appears to the court to

be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a

meaning to which the language of the instrument is reasonably susceptible.”). 

The language at issue in the Agreement is as follows: 

Our services may be terminated by you or us at any time with or without cause

effective upon receipt of written notice to that effect. We will be entitled to the

applicable transaction success fee set forth above in the event that at any time prior

to the expiration of one year after such termination an agreement is entered into 

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with respect to a sale of all or a portion of the stock or assets of the Company

which is eventually consummated; provided, however, that upon the sale of the

Company as described herein, the fee paid to FT Partners shall never, under any

circumstance, including those described in this paragraph, be less than $750,000.

(FAC, Ex. 1 at 3) (emphasis added.) 

Defendants argue that this provision expressly limits their obligation to pay FT Partners

for transactions completed after the agreement is terminated to transactions that are completed

within one year of the termination. (Mot. at 3.) According to Defendants, the highlighted

language in the above provision merely sets a minimum payment owned to FT Partners. (Id. at

3-4.) FT Partners counters that Defendants’ interpretation ignores the language “including

those described in this paragraph,” and that giving meaning to this phrase must mean that the

obligation to pay at least $750,000 applies to circumstances in addition to sales consummated

within one year of termination. (Opp. at 4.) FT Partners further argues that the language

“never, under any circumstance” means that the obligation to pay at least $750,000 applies to

the sale of the Company at any time after termination.

The Court finds that the contract language is ambiguous when read in light of the entire

Agreement. In a paragraph preceding the one at issue, the Agreement sets the minimum

transaction success fee for a sale of the company. If more than 50 percent of the FNX is sold,

FT Partners will be owed a minimum transaction success fee of $1 million. If less than 50

percent of FNX is sold, FT Partners will be owed a transaction success fee agreed to by both

parties, but in no event less than five percent of the consideration paid or $1 million. (FAC, Ex.

1 at 1.) The paragraph at issue provides FT Partners will be owed the transaction success fee if

all or a portion of FNX’s stock or assets are sold within one year of the Agreement being

terminated. (FAC, Ex. 1 at 3.) While the Court agrees that it is unlikely that FNX would agree

to pay FT Partners at least $750,000 for any sale transaction after the Agreement is terminated

regardless of when it occurs, the meaning of the language “provided, however, that upon the

sale of the Company as described herein, the fee paid to FT Partners, shall never, under any

circumstance, including those described in this paragraph, be less than $750,000” is unclear. In

light of the fact that the Agreement sets forth the minimum transaction success fees and the

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Agreement provides that such fee will be paid for any agreement to sell FNX made within one

year of the Agreement’s termination, reading the provision at issue as merely setting a

minimum payment renders it either superfluous or conflicting with the preceding paragraph. 

Moreover, even if the language were not ambiguous on its face, FT Partners is entitled

to have an opportunity to present evidence to demonstrate the existence of a latent ambiguity. 

Defendants’ argument that FT Partners should be denied this opportunity because it has not yet

proffered any evidence is misplaced. On a motion to dismiss, it would be improper for the

Court to consider evidence that is not incorporated into a complaint or judicially noticeable. 

Accordingly, the Court denies Defendants’ motion as to the claim for declaratory relief.

2. Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing.

Defendants move to dismiss FT Partners’ claim for breach of the implied covenant of

good faith and fair dealing on the grounds that it is entirely duplicative of its breach of contract

claim. (Mot. at 4.) “[U]nder California law, all contracts have an implied covenant of good

faith and fair dealing.” In re Vylene Enterprises, Inc., 90 F.3d 1472, 1477 (9th Cir. 1996)

(citing Harm v. Frasher, 181 Cal.App.2d 405, 417 (1960)). The covenant “exists merely to

prevent one contracting party from unfairly frustrating the other party’s right to receive the

benefits of the agreement actually made.” Guz v. Bechtel Nat. Inc., 24 Cal.4th 317, 349 (2000).

However, the covenant “cannot impose substantive duties or limits on the contracting parties

beyond those incorporated in the specific terms of their agreement.” Id. Thus, to the extent a

plaintiff seek to impose limits “beyond those to which the parties actually agreed, the [implied

covenant] claim is invalid. To the extent the implied covenant claim seeks simply to invoke

terms to which the parties did agree, it is superfluous.” Id. at 352 (emphasis in original); see

also Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990) (holding

that if the allegations supporting a claim for breach of the implied covenant of good faith and

fair dealing “do not go beyond the statement of a mere contract breach and, relying on the same

alleged acts, simply seek the same damages or other relief already claimed in a companion

contract cause of action, they may be disregarded as superfluous as no additional claim is

actually stated.”). “The central teaching of Guz is that in most cases, a claim for breach of the

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implied covenant can add nothing to a claim for breach of contract.” Lamke v. Sunstate

Equipement Co., LLC., 387 F. Supp. 2d 1044, 1047 (N.D. Cal. 2004).

Nevertheless, a plaintiff may bring implied covenant claim where the plaintiff alleges

that the defendant acted in bad faith to frustrate the contract’s benefits. See Guz, 24 Cal. 4th at

353 n.18 (acknowledging that “the covenant might be violated if termination of an at-will

employee was a mere pretext to cheat the worker out of another contract benefit to which the

employee was clearly entitled....”); see also McCollum v. XCare.net, Inc., 212 F. Supp. 2d 1142,

1153 (N.D. Cal. 2002) (applying California law). 

In McCullum, the plaintiff alleged that she was hired as a sales manager to consummate

an agreement with the defendant company’s client. McCollum, 212 F. Supp. 2d at 1144. 

Plaintiff earned a base salary plus commissions. Id. According to plaintiff, the client was to

sign a two-year contract that would have provided the defendant company approximately $10

million in revenue. The agreement was intended to be signed on October 12, 2000 and was

actually signed on October 20, 2000. However, the defendant company terminated the plaintiff

effective on October 11, 2000. Id. at 1144-45. The court found that there was evidence from

which a fact finder could find that the defendant company intended to frustrate the plaintiff’s

legitimate expectations to commissions by terminating the plaintiff less than two weeks before

the agreement with the client was signed, and thus found the defendant was not entitled to

summary judgment on the claim for breach of the implied covenant of good faith and fair

dealing. Id. at 1153.

Similarly here, FT Partners argues that it alleges that FNX terminated the Agreement

shortly before entering into lucrative transactions in order to avoid paying FT Partners

compensation for such transactions. (Opp. at. 10.) Reading the FAC in the light most favorable

to FT Partners, the Court agrees that it sufficiently alleges a claim for breach of the implied

covenant of good faith and fair dealing. Accordingly, the Court denies Defendants’ motion to

dismiss as to this claim.

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CONCLUSION

For the foregoing reasons, the Court DENIES Defendants’ motion to dismiss. The

Court FURTHER ORDERS that the Case Management Conference scheduled for June 29, 2007

at 9:00 a.m. will be held at 1:30 p.m. on June 29, 2007.

IT IS SO ORDERED.

Dated: June 27, 2007 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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