Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-01265/USCOURTS-casd-3_09-cv-01265-0/pdf.json

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

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09cv1265

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MOTOHOUSE INTERNATIONAL,

LLC,

Plaintiff,

v.

PPG INDUSTRIES, INC., et al.,

Defendants. _________________________________

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Civil No. 09cv1265-L(JMA)

ORDER GRANTING IN PART

DEFENDANTS’ MOTION TO

DISMISS AND DENYING THEIR

MOTION TO STRIKE 

In this breach of contract and fraud action, Defendants filed a motion to dismiss the First

Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and strike the punitive

damages request pursuant to Rule 12(f). Plaintiff opposed the motion. For the reasons which

follow, the motion to dismiss is GRANTED IN PART AND DENIED IN PART. Defendants’

motion to strike is DENIED.

At the relevant time, Plaintiff was the owner and manager of the PPG Motoworld Suzuki

and Motoworld PPG Yamaha professional motocross racing teams (collectively “Team”). 

Defendant PPG Industries, Inc. (“PPG”) allegedly began sponsoring the Team in 2003. In

exchange for sponsoring the Team, PPG received marketing opportunities and media exposure. 

The dispute in this case arises over PPG’s sponsorship in 2006 and 2007. Plaintiff alleges that

PPG, through Defendant Senior Regional Manager James Downey, promised to pay Plaintiff

$150,000 each for the 2006 and 2007 racing seasons, but failed to do so. In the First Amended

Case 3:09-cv-01265-L-JMA Document 19 Filed 02/04/10 Page 1 of 7
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Complaint Plaintiff alleges claims for breach of contract, breach of the covenant of good faith

and fair dealing, fraud and negligent misrepresentation. 

Defendants moved to dismiss pursuant to Rule 12(b)(6). A Rule 12(b)(6) motion to

dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

2001). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed

factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause

of action will not do. Factual allegations must be enough to raise a right to relief above the

speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation

marks, brackets and citations omitted). In reviewing a motion to dismiss under Rule 12(b)(6),

the court must assume the truth of all factual allegations and must construe them in the light

most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38

(9th Cir. 1996). Legal conclusions need not be taken as true merely because they are cast in the

form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W.

Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, “conclusory allegations of

law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. Fed.

Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

Defendants first argue that the complaint should be dismissed because Plaintiff did not

register with the state of California as required by California law. Plaintiff is a Colorado limited

liability company. (First Am. Compl. at 2.) Accordingly, California law applies to the

determination whether Plaintiff has the capacity to sue in California. Fed. R. Civ. P. 17(b)(3). 

Under California law, “A foreign limited liability company transacting intrastate business

in this state shall not maintain any action, suit, or proceeding in any court of this state until it has

registered in this state.” Cal. Corp. Code § 17456(a). Since the filing of Defendants’ motion,

Plaintiff has registered. (Decl. of Jonathan Hangartner, filed Nov. 23, 2009.) Plaintiff provided

a copy of the certificate of registration issued by the California Secretary of State. When ruling

on a motion to dismiss, the court may consider matters of which the court takes judicial notice. 

MGIC Indem. Co. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986). Records and reports of

Case 3:09-cv-01265-L-JMA Document 19 Filed 02/04/10 Page 2 of 7
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administrative agencies are matters of public record which can be judicially noticed. Barron v.

Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). Because Plaintiff is now in compliance with the

registration requirement, Defendants’ motion to dismiss is denied to the extent it is based on

Plaintiff’s capacity to sue.

Second, Defendants contend that Plaintiff cannot state a claim for negligent

misrepresentation in this case. Plaintiff’s theory of negligent misrepresentation is that

“Defendants negligently represented to [Plaintiff] that Defendants would pay for the agreed upon

sponsorship in full. [¶] At the time Defendants made said representations, Defendants lacked

sufficient facts upon which to make such representations, and/or the facts available to

Defendants did not reasonably lead to the conclusion that said representation was accurate.” 

(First Am. Compl. at 7.) A fraud claim based on a defendant’s failure to perform a promise must

be based on intent not to perform at the time the promise is made. Tarmann v. State Farm Mut.

Auto Ins. Co., 2 Cal. App. 4th 153, 158-59 (1991). “Given this requirement, an action based on

a false promise is simply a type of intentional misrepresentation, i.e., actual fraud. The specific

intent requirement . . . precludes pleading a false promise claim as a negligent misrepresentation

. . ..” Id. at 159 (emphasis in original, footnote omitted). Defendants’ motion to dismiss is

therefore granted with respect to the negligent misrepresentation claim.

Third, Defendants argue that Plaintiff cannot state a claim for fraud based on failure to

perform a contract. Plaintiff’s theory of fraud is that Defendants represented that PPG would

pay $150,000 per year for 2006 and 2007, knowing that these representations were false when

made, and that they made them with the intent to induce Plaintiff’s reliance. (First Am. Compl.

at 6.) “A person may not ordinarily recover in tort for the breach of duties that merely restate

contractual obligations.” Aas v. Super. Ct. (William Lyon Co.), 24 Cal.4th 627, 643 (2000),

superseded by statute on other grounds as noted in Rosen v. State Farm Gen. Ins. Co., 30 Cal.4th

1017, 1078-79 (2003). However, contrary to Defendants’ argument, California law recognizes

fraud claims based on failure to perform a promise, if the promise was made with intent not to

perform. Cal. Civ. Code § 1710(4); Tenzer v. Superscope, Inc., 39 Cal.3d 18, 28-31 (1985) (a

real estate broker can state a claim for fraud based on the client’s failure to perform its promise

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1 The parties’ reliance on California law for pleadings requirements is in error. 

Irrespective of the source of subject matter jurisdiction and irrespective of whether the

substantive law at issue is state or federal, in federal court, procedure is governed by federal law,

particularly when an issue is directly covered by the Federal Rules of Civil Procedure. Hanna v.

Plumer, 380 U.S. 460 (1965); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir.

2003). 

4 09cv1265

to pay commission); Tarmann, 2 Cal. App. 4th at 158-59. Defendants’ argument is therefore

rejected.

Defendants also maintain that the fraud claim should be dismissed because it does not

meet the pleading requirements of Rule 9(b).1

 They contend that Plaintiff did not allege

fraudulent intent with sufficient particularity. Rule 9(b) does not require that fraudulent intent

be pleaded with specificity. To the contrary, “Malice, intent, knowledge and other conditions of

a person’s mind may be alleged generally.” Fed. R. Civ. Proc. 9(b). 

Accordingly, the general pleading standard of Rule 8(a) applies. Under Rule 8,

“Twombly and [Ashcroft v.] Iqbal[, 129 S. Ct. 1937 (2009)], do not require that the complaint

include all facts necessary to carry the plaintiff’s burden. ‘Asking for plausible grounds to infer’

the existence of a claim for relief ‘does not impose a probability requirement at the pleading

stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal

evidence’ to prove that claim.” Al-Kidd v. Ashcroft, 580 F.3d 949, 977 (9th Cir. 2009), quoting

Twombly, 550 U.S. at 556. 

Under California law, intent to defraud is equated with the intent to induce reliance. 

Lazar v. Super. Ct. (Rykoff-Sexton, Inc.), 12 Cal.4th 631, 638 (1996). Because another party’s

state of mind is often not expressly known to the plaintiff, it must often be established by

inference. See Tenzer, 39 Cal.3d at 30-31; Locke v. Warner Bros., Inc., 57 Cal. App. 4th 354,

368 (1997). Here Plaintiff does not merely rely on Defendants’ failure ultimately to perform the

contract. This alone would be insufficient to infer intent. Tenzer, 39 Cal.3d at 30-31. Plaintiff

alleges that Defendants’ representations that they would pay for the sponsorship were false,

made to induce Plaintiff’s reliance and that Plaintiff relied on them when it continued to provide

sponsorship benefits through the 2007 racing season. (First Am. Compl. at 6.) In combination

with Plaintiff’s allegation that Defendants ultimately refused to perform (id. at 4 & 5),

Case 3:09-cv-01265-L-JMA Document 19 Filed 02/04/10 Page 4 of 7
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Defendants’ continued assurances that they would pay, Plaintiff’s detrimental reliance, and

Defendants’ success in securing sponsorship benefits not only for 2006 but also for 2007 (id.)

raise a reasonable expectation that discovery will reveal evidence sufficient to show that

Defendants’ representations were made with the intent to deceive Plaintiff and induce it to

provide sponsorship benefits to Defendants. Plaintiff therefore sufficiently alleged intent to

defraud.

In addition, Defendants argue that Plaintiff did not comply with Rule 9(b) with respect to

other aspects of the fraud claim. To comply with Rule 9(b), “the circumstances constituting

fraud . . . shall be stated with particularity.” Fed. R. Civ. P. 9(b). “A pleading is sufficient under

Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an

adequate answer from the allegations.” Moore v. Kayport Package Express, Inc., 885 F.2d 531,

540 (9th Cir. 1989). In this regard, it is sufficient to plead items such as the time, place and

nature of the alleged fraudulent activities. Id. Generally, Rule 9(b) also requires a plaintiff to

attribute particular fraudulent statements or acts to individual defendants. Moore, 885 F.2d at

540. 

Specifically, Defendants argue that the complaint does not sufficiently allege who made

the misrepresentations. The complaint alleges that, 

All of the sponsorship agreements entered into between PPG and Motoworld were

negotiated by and agreed upon by Downey, who served as Motohouse’s point of

contact at PPG throughout the sponsorship relationship. Downey repeatedly and

consistently held himself out as PPG’s representative, with authority to bind PPG

to the terms of the agreements entered into with Motohouse. 

(First Am. Compl. at 4.) These allegations are sufficient to determine who made the alleged

misrepresentations. 

Next, Defendants contend that Plaintiff does not sufficiently allege where, when and how

the alleged misrepresentations were made. Although the complaint could be more specific in

these regards, in light of identifying the individual who made the representations and a general

place and time frame (First Am. Compl. at 2-4, see also Defs’ P.&A. filed Aug. 21, 2009 at 2), it

provides sufficient information for Defendants to prepare an adequate answer. Defendants’

motion is therefore denied to the extent they seek dismissal of the fraud claim.

Case 3:09-cv-01265-L-JMA Document 19 Filed 02/04/10 Page 5 of 7
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Defendants also move to strike Plaintiff’s demand for punitive damages. Under Rule

12(f), “the court may order stricken from any pleading any insufficient defense or any redundant,

immaterial, impertinent, or scandalous matter." A motion to strike may be used to strike any part

of the prayer for relief when the damages sought are not recoverable as a matter of law." 

Bureerong v. Uvawas, 922 F. Supp. 1450, 1479 n.34 (C.D. Cal. 1996). Defendants argue that

Plaintiff is not entitled to punitive damages because it does not allege any tort claims. 

Defendants did not prevail on their motion to dismiss the fraud claim; accordingly, their

argument is rejected. Defendants’ motion to strike is denied.

Plaintiff did not request leave to amend if the motion to dismiss is granted in any part. 

Nevertheless, the court must consider whether a motion to dismiss should be granted with leave

to amend. See Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th

Cir. 2004). Rule 15 advises the court that leave to amend shall be freely given when justice so

requires. Fed. R. Civ. P. 15(a). “This policy is to be applied with extreme liberality.” Eminence

Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks and

citation omitted). Dismissal with prejudice and without leave to amend is not appropriate unless

it is clear that the complaint could not be saved by amendment. Id. at 1052. Because Plaintiff

may decide to plead a different theory of negligent misrepresentation, the claim could

conceivably be saved by amendment. Plaintiff is therefore granted leave to amend.

Based on the foregoing, Defendants’ motion to dismiss the First Amended Complaint is

GRANTED with respect to the negligent misrepresentation claim only, and DENIED in all

other respects. Their motion to strike is DENIED. Plaintiff is GRANTED LEAVE TO

AMEND. If Plaintiff chooses to amend the complaint, it must file and serve the second

amended complaint no later than February 12, 2010. Defendants shall file and serve any

response to the second amended complaint within the time set in Rule 15(a)(3). The same due

/ / / / /

/ / / / /

/ / / / /

/ / / / /

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date shall apply for Defendants’ answer, if Plaintiff chooses not to file a second amended

complaint.

IT IS SO ORDERED.

DATED: February 4, 2010

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. JAN M. ADLER

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

Case 3:09-cv-01265-L-JMA Document 19 Filed 02/04/10 Page 7 of 7