Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-04211/USCOURTS-cand-3_03-cv-04211-0/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

JOHN M MCKENZIE, et al,

Plaintiffs,

v

FRESENIUS MEDICAL CARE AG, et al, 

Defendants.

 /

No C 03-4211 VRW

ORDER

Fresenius Medical Care AG (Fresenius) and SRC Holding

Company (SRC) (collectively “defendants”) move to dismiss a large

portion of plaintiffs’ first amended complaint (FAC) and to strike

¶¶46, 47 and 48 of the FAC. Docs ##48, 58 (Mots Dismiss); Doc #33

(FAC). Plaintiffs oppose defendants’ motions. Docs ##67, 69. The

court heard oral argument on these motions on April 7, 2005. Based

upon the parties’ arguments and memoranda and the applicable law,

the court GRANTS IN PART defendants’ motions to dismiss and DENIES

the motion to strike.

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II

In its June 1, 2004, order, the court amply recited the

factual allegations contained in plaintiffs’ original complaint

(which were assumed to be true). Doc #31. Plaintiffs include few

new allegations in the FAC. As the parties and the court are

familiar with these factual allegations, only the most abridged

version need be recited here.

On May 15, 1997, plaintiffs’ company, Spectra

Laboratories, Inc (Spectra) entered into a merger agreement with

Fresenius and SRC (the “Agreement”). It is undisputed that events

subsequent to the merger did not go as plaintiffs had envisioned. 

First, defendants never implemented the “Employee Bonus Plan” that

was required pursuant to Section 5.10 of the Agreement. Next, it

is undisputed that plaintiffs received no money via the “Contingent

Payment Rights” to which they potentially were entitled pursuant to

Appendix A of the Agreement. Plaintiffs assert that their

contingent payment rights never came to fruition because defendants

(1) failed to use their best efforts to maximize the revenue for

the Homecare segment, (2) failed to use their best efforts to

maximize revenues for the Diagnostics segment and (3) used a

“corporate management fee” in determining monies payable under

Appendix A.

Alleging defendants’ post-merger misfeasance and

nonfeasance, plaintiffs filed the original complaint in this case

on September 15, 2003. Doc #1. Defendants moved to dismiss the

entire complaint pursuant to FRCP 12(b)(6), arguing (mainly) that

the statute of limitations barred each claim asserted in the

complaint. Doc #21. On June 1, 2004, the court granted (in large

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part) defendants’ motion to dismiss. Doc #31. The court gave

plaintiffs leave to amend to (1) clarify the factual bases of

certain claims and (2) plead facts demonstrating that their claims

for fraud and negligent misrepresentation were timely. 

Plaintiffs filed the FAC on June 24, 2004. Doc #33. The

FAC is currently the operative complaint in this action. The FAC

asserts five causes of action: (1) breach of contract, (2) fraud,

(3) negligent misrepresentation, (4) breach of the covenant of good

faith and fair dealing and (5) accounting. Fresenius and SRC both

filed individual motions to dismiss a large portion of the FAC. 

Docs ##48, 58. The two motions, however, substantially overlap and

thus the court will treat these motions together. Defendants,

again, base the majority of their motion to dismiss on statute of

limitations grounds. Additionally defendants assert that several

of the FAC’s claims should be dismissed for substantive

deficiencies. Plaintiffs’ opposition, argues that (1) all claims

asserted in the FAC are timely and substantively sufficient and (2)

even if some claims are untimely, defendants are estopped from

relying on the statute of limitations. Doc #67. Additionally,

defendants request the court to strike ¶¶46-48 of the FAC. Doc

#43.

II

A

Under FRCP 12(b)(6), dismissal is proper if the complaint

fails “to state a claim upon which relief can be granted.” The

court must accept the factual allegations as true and construe them

in the light most favorable to the plaintiff. Broam v Bogan, 320

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F3d 1023, 1028 (9th Cir 2003). Although a plaintiff is not held to

a “heightened pleading standard,” the plaintiff must provide more

than mere “conclusory allegations.” Swierkiewicz v Sorema NA, 534

US 506, 515 (2002) (rejecting heightened pleading standards);

Schmier v United States Court of Appeals for the Ninth Circuit, 279

F3d 817, 820 (9th Cir 2002) (rejecting conclusory allegations). A

motion to dismiss must be denied “unless 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 US

41, 45-46 (1957).

If a claim is barred by the applicable statute of

limitations, dismissal pursuant to FRCP 12(b)(6) is appropriate. 

Morales v City of Los Angeles, 214 F3d 1151, 1153 (9th Cir 2000). 

“A motion to dismiss based on the running of the statute of

limitations period may be granted only if the assertions of the

complaint, read with the required liberality, would not permit the

plaintiff to prove that the statute was tolled.” Supermail Cargo,

Inc v United States of America, 68 F3d 1204, 1206 (9th Cir 1995)

(citation and internal quotation marks omitted). “In fact, a

complaint cannot be dismissed unless it appears beyond doubt that

the plaintiff can prove no set of facts that would establish the

timeliness of the claim. Id at 1207. 

“Generally, a district court may not consider any

material beyond the pleadings in ruling on a Rule 12(b)(6) motion.” 

Hal Roach Studios, Inc v Richard Feiner & Co, 896 F2d 1542, 1555

n19 (9th Cir 1990). The court, however, may consider “documents

whose contents are alleged in a complaint and whose authenticity no

party questions, but which are not physically attached to the

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pleading.” See Lapidus v Hecht, 232 F3d 679, 682 (9th Cir 2000)

(quotation marks omitted).

“[A] district court should grant leave to amend even if

no request to amend the pleading was made, unless it determines

that the pleading could not possibly be cured by the allegation of

other facts.” Lopez v Smith, 203 F3d 1122, 1127 (9th Cir 2000). 

The district court has broad discretion, however, to deny leave to

amend after the first amendment of the complaint. See Wagh v

Metris Direct, Inc, 348 F3d 1102, 1111 (9th Cir 2003).

B

Generally, a cause of action accrues “upon the occurrence

of the last element essential to the cause of action.” Howard

Jarvis Taxpayers Ass’n v City of La Habra, 25 Cal 4th 809, 815

(2001).

In this case, plaintiffs’ original complaint was filed on

September 15, 2003. Doc #1. Defendants concede that they entered

into tolling agreements with plaintiffs that tolled the statute of

limitations from March 1, 2003, to September 15, 2003. Doc #7 at

5. Accordingly, the court counts back from March 1, 2003, to

determine which claims, if any, in the FAC are barred by the

relevant statutes of limitations.

III

Breach of Contract

The FAC asserts that defendants breached the Agreement by

(1) failing to use their best efforts to maximize revenues in the

Homecare and Diagnostic segments, (2) failing to implement the

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Employee Bonus Plan and (3) using a corporate management fee in

determining monies payable under Appendix A. FAC at 14, ¶55. The

statute of limitations for a breach of contract claim in California

is four years. Cal Code Civ Pro § 337. Accordingly, absent

tolling, the statute of limitations bars any causes of action

accruing before March 1, 1999.

A

In the court’s June 1, 2004, order, the court held that

the Agreement was severable insofar as it related to plaintiffs’

Contingent Payment Rights because the Continent Payments were

scheduled to be paid out annually from 1998 through 2002. Doc #31

at 7-8. Only the 1999 - 2002 payouts (the timely claims) are

alleged in the FAC and defendants do not seek to have those claims

dismissed.

B

Next, plaintiffs assert that each time defendants

calculated the annual payments due under the Contingent Payment

Rights Plan, they “subtracted an unauthorized fee, called at

various points a ‘management fee’ or ‘corporate management fee.’” 

FAC at 12, ¶42. Each subtraction is severable and thus the FAC,

which alleges that the unauthorized fee was subtracted from the

1999 - 2002 annual calculations, is timely.

Anticipating the court’s reasoning regarding the annual

payments, defendants also another ground for dismissal. In the

FAC, plaintiffs contend that “there [is] no mention of a management

fee in Appendix A.” Doc #67 at 5. Defendants argue that all

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claims based upon the allegedly unauthorized corporate management

fee should be dismissed because the language of Appendix A

“specifically allows that ‘overhead costs and other indirect costs

will be allocated in accordance with [defendants’] customary

accounting practices.’” Doc #48 (Mot Dismiss) at 15 (quoting

Appendix A, Part I(A)). This passage, according to defendants,

clearly authorizes the subtraction of a corporate management fee. 

Defendants want the court to determine that there is no genuine

issue of material fact regarding the language of Appendix A, its

meaning and what sort of fee was actually charged to plaintiffs. 

In short, defendants seek judgment as a matter of law. 

Such a determination may be appropriate if there is no triable

issue of fact allowing for summary judgment, but it is not grounds

for dismissal under Rule 12(b)(6). See Jacobson v Hughes Aircraft,

105 F3d 1288, 1292 (9th Cir 1997) (“[A] court’s role at the

12(b)(6) stage is not to decide winners or losers or evaluate the

strength or weakness of claims. * * *. We must accept as true all

allegations in the complaint and decide only whether plaintiff has

advanced potentially viable claims”) (emphases in original)). 

C

The final breach of contract claim in the FAC, the claim

relating to defendants’ failure to implement the Employee Bonus

Plan, presents a closer question than the previous contract claims. 

In the original complaint, plaintiffs made only a conclusory

reference to defendants’ obligation to implement an Employment

Bonus Plan and no mention at all of when defendants allegedly

breached this portion of the Agreement or when plaintiffs

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discovered such breach. Accordingly, the court dismissed this

claim without prejudice to allow plaintiffs to include allegations

concerning these critical issues. Doc #31 at 14. 

Addressing the issues raised by the court’s June 1, 2004,

order, plaintiffs state that 

[i]n 1998 and 1999, when plaintiffs questioned

defendants’ officers whether a plan would be

implemented, such officers assured plaintiffs that

such an employee bonus plan would be implemented

promptly. It was not until after 2000 that

plaintiffs learned that no employee bonus plan had

been or would be implemented.

Id at ¶45. 

According to the FAC, the breach occurred sometime in 1998 or 1999. 

Clearly, these dates present a problem for plaintiffs.

“The cause of action for breach of contract ordinarily

accrues at the time of the breach, and the statute begins to run at

that time regardless of whether any damage is apparent or whether

the injured party is aware of his right to sue.” Witkin, B E 3

California Procedure § 486 (Bancroft-Whitney, 4th ed 1996)

(emphasis in original). 

Essentially recognizing that defendants have a

meritorious statute of limitations defense, plaintiffs argue that

defendants are estopped from relying on it. Doc #71 at 6. 

Specifically, plaintiffs assert that the misrepresentations of

defendants’ officers regarding implementation of the Employee Bonus

Plan induced plaintiffs not to file a breach of contract suit. Id

at 7 (stating that plaintiffs “questioned defendants within a

reasonable time regarding the establishment of an employee bonus

plan, and were assured it was being implemented.”). 

“A defendant will be estopped to invoke the statute of

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limitations where there has been some conduct by defendant, relied

upon by the plaintiff, which induces the belated filing of the

action.” Shaffer v Debbas, 17 Cal App 4th 33, 43 (1993) (citation

and internal quotation marks omitted). “‘Whether an estoppel

exists – whether the acts, representations or conduct lulled a

party into a sense of security * * * and whether the party relied

thereon to his prejudice – is a questions of fact and not of law.’” 

Id at 43 (quoting County of Santa Clara v Vargas, 71 Cal App 3d

510, 524 (1977)). Accordingly, resolution of the applicability of

equitable estoppel should be postponed until, at least, the summary

judgment phase of litigation. See Supermail Cargo, 68 F3d at 1206

(“Because the applicability of the equitable tolling doctrine often

depends on matters outside the pleadings, it is not generally

amenable to resolution on a 12(b)(6) motion.”) (citation omitted).

Accepting as true all allegations in the complaint (as

the court is required to do), plaintiffs have advanced a

potentially viable claim and the court cannot say beyond doubt that

plaintiffs can prove no set of facts that would establish that the

equitable estoppel doctrine applies. 

Finally, defendants assert that even if the equitable

estoppel defense is potentially applicable to this case, plaintiffs

have waived this defense by failing “specifically” to “plead”

estoppel as an element of their breach of contract claim. Doc # 71

at 6. Upon review of California case law, it appears defendants

are correct that California procedure requires a plaintiff

specifically to plead estoppel in the complaint. Estate of Pieper

v McCormick, 224 Cal App 2d 670, 692 (1964). In diversity cases,

however, this court applies federal procedure, not California

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procedure. Hanna v Plummer, 380 US 460 (1965). Nothing in FRCP

8(a) requires plaintiffs specifically to plead estoppel. 

Defendants have pointed the court to no federal case law, and the

court could find none, holding that plaintiffs are required

specifically to plead the defense of equitable estoppel.

Accordingly, defendants’ motions to dismiss plaintiffs’

breach of contract claims are DENIED. 

IV

Breach of the Covenant of Good Faith and Fair Dealing

The FAC asserts that defendants breached the implied

covenant of good faith and fair dealing by failing to (1) implement

the Employee Bonus Plan and (2) use their best efforts to maximize

the revenues in the Homecare and Diagnostic segments. FAC at 17,

¶72. The original complaint asserted this same claim based upon

the same alleged nonfeasance by defendants. Doc #1 at 15, ¶70. 

Plaintiffs’ opposition to the first motion to dismiss, however,

characterized this claim as a claim for “tortious breach of

contract.” Doc #25 at 10. 

In its June 1, 2004, order, the court explained that

claims for tortious breach of contract “‘generally occur[] outside

the commercial context’ and involve ‘intentionally injurious

activities against vulnerable parties.’” Doc #31 at 23 (quoting

Freeman & Mills, Inc v Belcher Oil, Co, 11 Cal 4th 85, 104 (1995)

(Mosk, J, concurring and dissenting)). The court’s previous order

dismissed this claim without prejudice so that plaintiffs could

allege additional facts that would take their claim out of the

commercial context and demonstrate that plaintiffs did not possess

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equal bargaining power. Doc #31 at 24.

The FAC, while realleging a claim for breach of the

implied covenant of good faith and fair dealing, contains no

allegations concerning the commercial context of the merger or

plaintiffs’ bargaining power. Accordingly, defendants state that

this cause of action must again be dismissed, but this time with

prejudice. Doc #71 (Def Reply) at 1. The court agrees with

defendants insofar as plaintiffs’ claim for breach of the covenant

of good faith and fair dealing pleads a tort cause of action. 

Plaintiffs, however, state for the first time that they

seek to recover in contract for defendants’ alleged breach of the

duty of good faith and fair dealing. Doc #71 at 11-12. California

law gives plaintiffs the right to pursue this cause of action under

a tort or contract theory. See B E Witkin, 1 Summary of California

Law § 743 (Bancroft-Whitney, 9th ed 1987) (“Breach of the [implied]

covenant [of good faith and fair dealing] gives rise to either a

contract action * * * or a tort action.”); Pasadena Live, LLC v

City of Pasadena, 114 Cal App 4th 1089, 1090 (2004) (“the alleged

breach of the covenant of good faith and fair dealing constitutes a

breach of contract for which [plaintiff] may recover damages”)

(emphasis added).

Recognizing this distinction exists, defendants argue

that although plaintiffs seek to recover in contract, they are

still required to plead facts demonstrating that the merger

transaction was not “within the commercial context and involved

parties of involved parties of [un]equal bargaining power.” Doc

#71 at 11. The court disagrees. Neither Witkin nor the Pasadena

Live court mention any “special” context required to bring a

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contract action for breach of the covenant. In fact, the parties

in Pasadena Live clearly had equal bargaining power and the

transaction was commercial. Moreover, defendants cite no case law

imposing such contextual limitations on contract actions for breach

of the covenant. 

Defendants’ motions to dismiss plaintiffs’ causes of

action for breach of the implied covenant of good faith and fair

dealing are thus DENIED.

V

Fraud

The FAC states that: 

[d]efendants, and each of them, represented and

warranted to [p]laintiffs that: (a) they would

implement the Employee Bonus Plan, (b)use their best

efforts to maximize the revenue for the Homecare

segment, (c) use their best efforts to maximize the

revenues for the Diagnostic segment and (d) [not] use

a ‘corporate management fee’ in determining monies

payable under Appendix A.

Doc #33 at 15, ¶60 

Moreover, “at the time defendants made these representations and

warranties to plaintiffs [i e, at the signing of the Agreement],

defendants had no intention of honoring them.” Id, ¶61. Rather,

defendants 

intended: (a) not to implement the Employee Bonus Plan; (b)

not to use their best efforts to maximize the revenue for

the Homecare segment; (c) not to use their best efforts to

maximize the revenue for the Diagnostics segment; and (d)

improperly to use a ‘corporate management fee’ in

determining monies payable under Appendix A.

Based upon these alleged broken promises, plaintiffs have brought

four fraud claims. The state of limitations for a fraud claim is

three years. Cal Civ Pro § 338(d). Accordingly, any fraud claims

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that accrued prior to March 1, 2000, are barred by the statute of

limitations.

Causes of action for fraud do not accrue “until the

discovery, by the aggrieved party, of the facts constituting the

fraud.” Cal Code Civ Pro § 338(d). The period of limitations

“begin[s] to run when the plaintiff has a ‘suspicion of

wrongdoing’; in other words, when he or she has notice of

information or circumstances to put a reasonable person on

inquiry.” Brandon G v Gray, 111 Cal App 4th 29, 35 (2003) (quoting

Jolly v Eli Lilly & Co, 44 Cal 3d 1103 (1988)). 

In its order of June 1, 2004, the court stated that “if

the complaint is brought more than three years after the fraud is

alleged to have occurred, a ‘plaintiff has the burden of pleading

and proving that he did not make the discovery until within three

years prior to the filing of the complaint.’” Doc #31 at 17

(quoting Samuels v Mix, 22 Cal 4th 1, 14 (1999) (emphasis added). 

In their opposition to defendants’ first motion to dismiss,

plaintiffs agreed that “they had not pled the reasons why the

alleged fraud was not discovered before March 1, 2000.” Doc #31 at

17 (emphasis added). Accordingly, the court dismissed the fraud

claims without prejudice so plaintiffs could remedy this alleged

“pleading” defect.

Upon review, however, the court believes it misapplied

the law regarding pleading in a diversity case. 

The manner of pleading in the federal courts are

governed by the [FRCP] regardless of the source of

substantive law to be applied in the particular

action * * *. Since the Supreme Court’s decision in

Hanna v Plummer, it can no longer be doubted that

the rules regarding that standard of specificity to

be applied to federal pleadings * * * are all

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governed by the federal rules and not by the

practice of the courts in the state in which the

federal court happens to be sitting.

5 Wright, Charles A, et al, Federal Practice and

Procedure §1204 (Thomson West, 3d ed 2004). 

See also Tango Music, LLC v Deadquick Music, Inc, 2001 US Dist

LEXIS 11669, *15 (ND Ill 2001) (stating that federal pleading

governs in diversity cases based upon state substantive law). 

Accordingly, the court erred in dismissing plaintiffs’ fraud claims

and ordering them to amend and “plead” the reasons why they had not

discovered the fraud prior to March 1, 2000. Such pleading

requirements are imposed under California procedure, not the FRCP.

The only FRCP applicable to plaintiffs’ claims for fraud

is FRCP 9(b) which demands that “all averments of fraud * * * [be

pled] with particularity.” “Rule 9(b) requires particularity as to

the circumstances of fraud – this requires pleading facts that by

any definition are ‘evidentiary’: time, place, persons, statements

made, explanation of why or how such statements were false or

misleading.” In re Glenfeld, Inc Securities Litigation, 42 F3d

1541, 1547n7 (9th Cir 1994). 

The FAC is clear as to the time (May 1997), place,

statements made (the express provisions of the Agreement), persons

(Fresenius and SRC) and why these provisions were false (defendants

did not intend to follow through on any of them). Hence, the

requirements of Rule 9(b) are met. Defendants, however, still

challenge the timeliness of plaintiffs’ fraud claims.

A

Plaintiffs’ first fraud claim is that defendants intended

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“not to implement the Employee Bonus Plan” at the time they

promised to do so. FAC at 15, ¶61. It is clear that the statute

of limitations on this fraud claim began to run long before March

1, 2000. Plaintiffs state in their complaint that in 1998 and

1999, plaintiffs repeatedly inquired of defendants when (and

whether) an Employee Bonus Plan would be implemented. Id at 12,

¶45. This questioning by plaintiffs undoubtedly demonstrates that

plaintiffs, as early as 1998, had a “suspicion of wrongdoing”

sufficient to begin the running of the statute of limitations.

Plaintiffs, however, counter that defendants are

equitably estopped from relying on the statute of limitations: 

“When plaintiffs questioned defendants’ officers whether a plan

would be implemented, such officers assured plaintiffs that such an

Employee Bonus Plan would be implemented promptly.” FAC at 12,

¶45, Doc #71 at 8-9. Whether these alleged statements actually

occurred or whether plaintiffs reasonably relied upon them to their

detriment is a question best left for summary judgment. Supermail,

68 F3d at 1206. 

B

Next, plaintiffs assert that defendants intended “not to

use their best efforts to maximize the revenue for the Homecare

segment” and the “Diagnostics segment” at the time they promised to

do so. FAC at 15, ¶61. Plaintiffs further allege that

“immediately after the Merger, defendants requested that plaintiffs

not involve themselves with the Homecare segment.” Id at ¶37. 

Moreover, plaintiffs allege that “[o]n August 5, 1998, Fresenius

issued a press release indicating that, during the last fiscal

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quarter, Fresenius completely divested its Homecare and Diagnostic

businesses.” Id at ¶39.

If plaintiffs received notice in August 1998 that

defendants completely divested themselves of the Homecare and

Diagnostics business segments, then plaintiffs’ cause of action for

fraud would, as a matter of law, have accrued at that time. That

defendants completely divested two of the three business segments

upon which plaintiffs’ contingent payment rights depended would

cause a reasonable person to suspect that defendants might have

made fraudulent promises at the time of the merger agreement. 

While plaintiffs do not explicitly state that they received notice

of this August 5, 1998, press release, such notice can be inferred

because plaintiffs tell the court that “after the sale of the

Homecare business and Diagnostic business, officers of defendants *

* * assured plaintiffs that the operations that had been sold were

not the operations that were governed by Appendix A.” FAC at 11,

¶40. Plaintiffs would not have questioned defendants regarding the

sale of the two segments unless plaintiffs were on notice that the

two segments had in fact been sold.

Accordingly, the statute of limitations on these two

fraud claims began to run before March 1, 2000. As with the first

fraud claims, however, plaintiffs assert that defendants are

equitably estopped from relying on the statute of limitations

because they misrepresented to plaintiffs that the sale of the two

segments did not affect the Contingent Payment Rights or Appendix

A. Hence, plaintiffs’ fraud claims are potentially viable, making

dismissal at this early point inappropriate. 

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C

Plaintiffs’ final fraud claim is that defendants intended

“improperly to use a ‘corporate management fee’ in determining

monies payable under Appendix A.” FAC at 15, ¶61. It is

undisputed that plaintiffs received the first annual calculation of

the Contingent Payment Rights in late 1998. Moreover, this

calculation included the subtraction of the allegedly unauthorized

“corporate management fee.” Accordingly, plaintiffs’ fraud claim

began to run well before March 1, 2000. Plaintiffs again seek to

rely upon the doctrine of equitable estoppel to prevent their claim

from being time barred. Plaintiffs assert that after the initial

1998 calculation containing the corporate management fee was

received, defendants “fail[ed] to provide them with calculations

for the years 1999 through 2002. It was not until plaintiffs’

receipt of the earn-out calculations in 2003 that [plaintiffs]

discovered” defendants’ continued use of the corporate management

fee to decrease plaintiffs’ payment amounts. Doc #71 at 9. 

This assertion (which the court will accept as true)

serves to hurt plaintiffs more than it helps them. The statute of

limitations began to run in 1998 when plaintiffs received the first

earn out calculation of their contingent payment rights. Brandon

G, 111 Cal App 4th at 35 (fraud action accrues when plaintiff has

notice of information or circumstances to put a reasonable person

on inquiry). That defendants followed up by not giving plaintiffs

any calculation at all for the 1999 year would not lull plaintiffs

into a sense of security. Rather, such behavior would make a

reasonable person even more suspicious of defendants’ wrongdoing. 

Accordingly, even taking all allegations as true, the assertions of

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the complaint would not permit plaintiffs to prove that the statute

was tolled. The fraud claim, having been amended once and the pled

circumstances demonstrating that further amendment would be futile,

is dismissed with prejudice.

VI

Negligent Misrepresentation

Based upon the same four express provisions underlying

the fraud and contract claims, plaintiffs assert a cause of action

for negligent misrepresentation. FAC at 16, ¶67. The statute of

limitations on a claim for negligent misrepresentation in

California is two years. Cal Code Civ Pro § 339. Accordingly, any

negligent misrepresentation claims that accrued prior to March 1,

2001, are time-barred.

For the same reasoning explained above in relation to the

fraud claims, plaintiffs’ negligent misrepresentation claims based

upon defendants’ failure to (1) implement the Employee Bonus Plan,

(2) use their best efforts to maximize profits in the Homecare

segment and (3) use their best efforts to maximize profits in the

Diagnostics segment are not time-barred at this stage in the

proceedings. The claim premised on defendants’ alleged improper

use of the management fee, however, is untimely and is dismissed

with prejudice.

VII

Accounting

Defendants assert that the language of the Agreement

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provides for an accounting procedure and thus a judicial accounting

is not available. Plaintiffs, however, argue that in light of the

alleged bad faith by defendants, an accounting of the financial

records pursuant to the Agreement would be of little value. Again,

these factual disputes are best left for a motion for summary

judgment, not a Rule 12(b)(6). Defendants’ motions to dismiss

plaintiffs’ claim for an accounting are DENIED.

VIII

Finally, the court addresses defendants’ motion to strike

¶¶46 - 48 of the FAC. Doc #43. Under FRCP 12(f), a court “may

order stricken from any pleading * * * any redundant, immaterial,

impertinent, or scandalous matter.” Immaterial matters have “no

essential or important relationship to the claim for relief.” 

Fantasy, Inc v Fogerty, 984 F2d 1524, 1527 (9th Cir 1993), rev’d on

other grounds, 510 US 517, 534-35 (1994). Impertinent matters

consist of “statements that do not pertain, and are not necessary,

to the issues in question.” Id. Motions to strike are not favored

and “should not be granted unless it is clear that the matter to be

stricken could have no possible bearing on the subject matter of

the litigation.” Colaprico v Sun Microsystem, Inc, 758 F Supp

1335, 1339 (ND Cal 1991). A court must deny the motion to strike

if there is any doubt whether the allegations in the pleadings

might be relevant in the action. Id. 

The original complaint relied upon the allegations in

¶¶46 - 48 to state a claim for intentional misrepresentation

relating to Fresenius stock. Doc #1 at 10, ¶¶38 - 40. The court,

however, dismissed with prejudice plaintiffs’ claims for

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intentional misrepresentation. Doc #31 at 19-20. While the FAC

does not reallege a claim for intentional misrepresentation, it

does reallege the facts upon which this claim was based. Hence

these allegations are, according to defendants, immaterial and

impertinent. Doc #43 at 4. The court disagrees. 

While plaintiffs are barred from pursuing claims based

upon these alleged misrepresentations, the court cannot conclude

that these facts will have no bearing on the subject of the

litigation. Indeed, the alleged misrepresentations concerning the

Fresenius stock could serve to strengthen plaintiffs’ fraud claims

by evidencing defendants’ intent to defraud. Accordingly, the

motion to strike is DENIED. 

IX

In sum, the court GRANTS IN PART defendants’ motions to

dismiss (Docs ##48, 58) and DENIES the motion to strike (Doc #43). 

Defendants are reminded that, pursuant to FRCP 12(a)(4)(A), their

responsive pleading must be served within ten days of the date of

this order. 

To be clear, the court will summarize the claims

remaining in this case. First, plaintiffs may proceed with their

claims for breach of contract. Next, plaintiffs’ claims for breach

of the covenant of good faith and fair dealing may proceed under a

contract theory. Plaintiffs’ claims for fraud and negligent

misrepresentation may proceed insofar as they are based upon

defendants’ failure to (1) implement the Employee Bonus Plan and

(2) use their best efforts to maximize profits in the Homecare and

Diagnostic segments. Finally, plaintiffs may proceed with their

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claim for an accounting. 

Additionally, the court ORDERS the parties to attend a

further case management conference on August 2, 2005, at 9:00 am,

or on another such date that the parties may arrange with each

other and the court’s deputy, Cora Delfin. 

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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