Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-00821/USCOURTS-casd-3_06-cv-00821-3/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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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

J. MICHAEL SCHAEFER,

Plaintiff,

CASE NO. 06CV821-H (BLM)

ORDER DENYING

DEFENDANT’S MOTION TO

DISMISS PLAINTIFF’S

SECOND AMENDED

COMPLAINT

vs.

ROBBINS & KEEHN, LLP

Defendant. _______________________________

ROBBINS & KEEHN, LLP,

Counterclaimant,

 vs.

J. MICHAEL SCHAEFER,

Counter-defendant.

On April 7, 2006, pro se plaintiff J. Michael Schaefer (“Plaintiff”), a former

lawyer, filed a complaint alleging breach of contract, negligence, breach of the implied

covenant of good faith and fair dealing, and intentional misrepresentation against

defendant Robbins & Keehn, APC, named “Robbins & Keehn, LLP” (“Defendant”).

(Doc. No. 1.) On August 29, 2006, the Court granted Defendant’s motion to dismiss

the claims of breach of contract, breach of the implied covenant of good faith and fair

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dealing, and negligence, with prejudice, for being time barred by California’s statute

of limitations. (Doc. No. 33.) The Court also granted Defendant’s motion to dismiss

the claim for intentional misrepresentation, without prejudice, for failure of Plaintiff to

plead with particularity the elements of the claim, and granted Plaintiff 30 days to file

an amended complaint. (Id.) On September 28, 2006, Plaintiff filed a first amended

complaint (“FAC”) alleging intentional misrepresentation against Defendant and L.

Scott Keehn. (Doc. No. 35.) On November 28, 2006, the Court granted with prejudice

Defendant and Keehn’s motion to dismiss Plaintiff’s claim for intentional

misrepresentation based on their alleged misrepresentation regarding Mr. Keehn’s

intended association with the appellate case, and granted without prejudice Defendant

and Keehn’s motion to dismiss Plaintiff’s claim for intentional misrepresentation based

on their alleged misrepresentation regarding their conflict of interest in representing

Plaintiff. (Doc. No. 44.) On January 11, 2007, Plaintiff filed a second amended

complaint (“SAC”) alleging misrepresentation against Defendant. (Doc. No. 48.) On

February 1, 2007, Defendant filed a motion to dismiss the SAC. (Doc. No. 52.) On

February 26, 2007, Plaintiff filed an opposition to Defendant’s motion to dismiss.

(Doc. No. 60.) On March 5, 2007, Defendant filed a reply. (Doc. No. 64.)

The Court exercises its discretion to decide this matter without oral argument

pursuant to Local Civil Rule 7.1(d)(1). For the following reasons, the Court DENIES

Defendant’s motion to dismiss Plaintiff’s claim for intentional misrepresentation. 

Background

Plaintiff, a disbarred attorney, represented himself in an action brought in

California Superior Court by Robert Lauer and ECommerce Hotel Com, Inc. See Lauer

v. Schaefer, Case No. GIC762340, slip op. (Super. Ct. San Diego 2001). Plaintiff lost

the case. See id. On or about December 10, 2001, Plaintiff hired Defendant to

represent him for his appeal of Lauer v. Schaefer (“the appellate case”). (Compl. ¶¶ 3-

4; FAC ¶ 4; SAC ¶ 6; Def’s Mem. P’s & A’s Supp. Mot. Dismiss SAC, at 3 (“Def’s

Mem.”).) Plaintiff hired Defendant upon the endorsement of Sandor Shapery. (FAC

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¶ 15; SAC ¶ 9.) The California Court of Appeal denied Plaintiff’s appeal on November

20, 2003. (Def.’s Mem. at 3.) Plaintiff terminated his relationship with Defendant on

December 30, 2003. (Id.) 

On April 7, 2006, Plaintiff brought this diversity suit for negligence, breach of

contract, breach of the implied covenant of good faith and fair dealing, and intentional

misrepresentation. (Compl. ¶¶ 1-15.) On June 15, 2006, Defendant filed a

counterclaim alleging claims for breach of contract, account stated, open book account,

and quantum meruit. (Countercl. ¶¶ 1-24 (Doc. No. 7.).) On August 29, 2006, the

Court granted Defendant’s motion to dismiss the claims of breach of contract, breach

of the implied covenant of good faith and fair dealing, and negligence, with prejudice,

and Defendant’s motion to dismiss the claim for intentional misrepresentation, without

prejudice. On September 28, 2006, Plaintiff filed a FAC alleging intentional

misrepresentation against Defendant and L. Scott Keehn. (FAC ¶¶ 1-17.) On

November 28, 2006, the Court granted with prejudice Defendant and Keehn’s motion

to dismiss Plaintiff’s claim for intentional misrepresentation based on their alleged

misrepresentation regarding Mr. Keehn’s intended association with the appellate case,

and granted without prejudice Defendant and Keehn’s motion to dismiss Plaintiff’s

claim for intentional misrepresentation based on their alleged misrepresentation

regarding their conflict of interest in representing Plaintiff. Plaintiff filed a SAC

alleging intentional misrepresentation against Defendant on January 11, 2007.

Discussion

A. Legal Standards 

1. Fed. R. Civ. P. 12(b)(6)

 A motion to dismiss for failure to state a claim pursuant to section 12(b)(6) of the

Federal Rules of Civil Procedure tests the legal sufficiency of the claims in the

complaint. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Rule 12(b)(6) permits

dismissal of a claim either where that claim lacks a cognizable legal theory, or where

insufficient facts are alleged to support plaintiff's theory. See Balistreri v. Pacifica

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Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering the sufficiency of a

complaint under Rule 12(b)(6), courts cannot grant a motion to dismiss “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.” Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46

(1957)). In resolving a Rule 12(b)(6) motion, the court must: (1) construe the complaint

in the light most favorable to the plaintiff; (2) accept all well-pleaded factual allegations

as true; and (3) determine whether plaintiff can prove any set of facts to support a claim

that would merit relief. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–338 (9th

Cir. 1996). 

Dismissal is proper, however, if a complaint is vague, conclusory, and fails to set

forth any material facts in support of the allegation. See North Star Intern. v. Arizona

Corp. Com'n, 720 F.2d 578, 583 (9th Cir. 1983). Furthermore, a court may not “supply

essential elements of the claim that were not initially pled.” Ivey v. Bd. of Regents of

the Univ. of Alaska, 673 F.2d 266, 268 (9th Cir. 1982). If a complaint is found to fail

to state a claim, the court should grant leave to amend unless it determines that the

pleading could not possibly be cured by the allegation of other facts. See Vess v. CibaGeigy Corp. USA, 317 F.3d 1097, 1108 (9th Cir. 2003); Doe v. United States, 58 F.3d

494, 497 (9th Cir.1995). 

As a general matter, a court may only consider the pleadings and judicially

noticed facts in deciding a 12(b)(6) motion. See Hal Roach Studios, Inc. v. Richard

Feiner & Co., 896 F.2d 1542, 1555 (9th Cir. 1990). Material that is properly attached

to the complaint may properly be considered for purposes of the motion to dismiss

without converting the motion into one for summary judgment. See Hal Roach Studios,

Inc., 896 F.2d at 1555 n.19. Also, a court may consider documents whose contents are

alleged in a complaint and whose authenticity no party questions, but which are not

physically attached to the plaintiff's pleading. See Knievel v. ESPN, 393 F.3d 1068,

1076 (9th Cir. 2005). This doctrine extends to situations in which the plaintiff's claim

depends on the contents of a document and the defendant attaches the document to its

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motion to dismiss, even though the plaintiff does not explicitly allege the contents of

that document in the complaint. See id.

2. Fed. R. Civ. P. 9(b)

Federal Rule of Civil Procedure 9(b) requires that in allegations of fraud, the

circumstances constituting fraud are to be stated with particularity, although intent,

knowledge, and other conditions of mind may be alleged generally. Rule 9(b)’s

specificity requirement applies to state law causes of action brought in a federal court

under diversity jurisdiction. See Vess, 317 F.3d at 1103. 

To meet the particularity requirement of Rule 9(b), allegations of fraud must be

“specific enough to give defendants notice of the particular misconduct which is alleged

to constitute the fraud charged so that they can defend against the charge and not just

deny that they have done anything wrong.” Bly-Magee v. California, 236 F.3d 1014,

1019 (9th Cir. 2001). “While statements of the time, place and nature of the alleged

fraudulent activities are sufficient, mere conclusory allegations of fraud are

insufficient.” Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.

1989). A plaintiff must set forth more than the neutral facts necessary to identify the

transaction, the plaintiff must set forth what is false or misleading about a statement,

and why it is false. See id. As with Rule 12(b)(6) dismissals, dismissals for failure to

comply with Rule 9(b) should ordinarily be without prejudice unless the district court

determines that the pleading could not possibly be cured by the allegation of other facts.

See Vess, 317 F.3d at 1107-08.

B. Plaintiff’s Misrepresentation Claim 

In diversity cases, the substantive elements of fraud are determined by state law,

but those elements must be pleaded with particularity as required by Federal Rule of

Civil Procedure 9(b). See Vess, 317 F.3d at 1103. To survive a motion to dismiss, a

plaintiff must plead each element of intentional misrepresentation with particularity,

except that intent, knowledge, and other conditions of mind may be averred generally.

See Fed. R. Civ. P. 9(b); see also 389 Orange Street Partners v. Arnold, 179 F.3d 656,

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662-63 & 663 n.2 (9th Cir. 1999) (requiring party to plead each state law element of

fraud with particularity under Rule 9(b)). The allegations of fraud must be

accompanied by the who, what, when, where, and how of the misconduct charged. See

Vess, 317 F.3d at 1106. The allegations must be specific enough to give Defendants

notice of the particular misconduct which is alleged to constitute the fraud so that they

can defend against the charge and not just deny that they have done anything wrong.

See id.

The elements of intentional misrepresentation in California are:

(a) misrepresentation (false representation, concealment or nondisclosure);

(b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance;

(d) justifiable reliance; and (e) resulting damage. See Agosta v. Astor, 120 Cal. App.

4th 596, 603 (2004); see also 5 Witkin, Summary of California Law (10th ed. 2005)

Torts, § 772, p. 1121. Defendant argues that Plaintiff has failed to properly allege these

elements, and therefore the suit should be dismissed. 

1. Misrepresentation

Plaintiff alleges that Defendant misrepresented its personal and professional

relationship with Sandor Shapery, a relationship which created a conflict of interest

with regards to Defendant’s representation of Plaintiff in the appellate case. (SAC ¶¶

6-7, 9.) Plaintiff alleges a conflict existed because he held a $1,800,000 promissory

note from Shapery and/or his controlled interests. (Id.) Plaintiff alleges that Defendant

had a duty to disclose its relationship with Shapery, but that it intentionally concealed

this relationship. (Id. ¶¶ 7, 9.)

Defendant argues that the SAC fails to allege that it made a misrepresentation

because the SAC only alleges that Defendant was silent regarding the alleged conflict

of interest, which is inadequate because Plaintiff is required to allege an affirmative act

of concealment of its relationship with Shapery to survive a motion to dismiss.

Defendant cites Vega v. Jones, Day, Reavis & Pougue, 121 Cal. App. 4th 282, 292

(2004) to support this notion, as well as a case from another jurisdiction. 

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1 Rule 3-310 of the California Rules of Professional Conduct states in relevant

part:

(B) A member shall not accept or continue representation of a client

without providing written disclosure to the client where:

(1) The member has a legal, business, financial, professional, or personal relationship with a party or witness in the same

matter; or 

(2) The member knows or reasonably should know that: 

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The Vega court held that the plaintiff sufficiently alleged a fraud claim based on

the defendant attorneys’ active concealment of facts concerning their pre-acquisition

financing of an acquiring corporation with “toxic stock”through the provision of a

sanitized version of a disclosure schedule. See Vega, 121 Cal. App. 4th at 292. A fraud

plaintiff does not necessarily have to allege an active concealment against a defendant

that has a fiduciary duty to the plaintiff, however, when a fiduciary relationship exists,

nondisclosure of a material fact is sufficient to establish a claim of fraud, sometime

referred to as constructive fraud. See Lee v. Escrow Consultants, Inc., 210 Cal. App.

3d 915, 925 (1989) (holding that due to defendant’s fiduciary relationship with plaintiff,

its nondisclosure of facts it had a duty to disclose could form the basis of a fraud cause

of action); La Jolla Village Homeowners’ Assn. v. Superior Court, 212 Cal. App. 3d

1131, 1151 (1989) (disapproved on other grounds by Jimenez v. Superior Court, 29 Cal.

4th 473, 479-80 (2002)) (“The general rule for liability for non-disclosure is that even

if material facts are known to one party and not the other, failure to disclose those facts

is not actionable fraud unless there is some fiduciary or confidential relationship giving

rise to a duty to disclose.”); see also 5 Witkin, California Procedure (4th ed. 1997)

Pleading, § 678, p. 136 (“Mere nondisclosure is ordinarily not actionable unless the

defendant is a fiduciary with a duty to disclose, in which case the fraud is

constructive.”). 

Plaintiff alleges that Defendant violated Rule 3-310 of the California Rules of

Professional Conduct,1

 which generally forbids attorneys from having a conflict of

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(a) the member previously had a legal, business,

financial, professional, or personal relationship with a party or witness in the same matter; and 

(b) the previous relationship would substantially affect

the member's representation; or 

(3) The member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would

be affected substantially by the resolution of the matter; or 

(4) The member has or had a legal, business, financial, or professional interest in the subject matter of the representation. 

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interest without the informed written consent of all of their affected clients, by failing

to disclose its personal and professional relationship with Shapery, with whom Plaintiff

was in a legal dispute regarding a debt. Rule 9(b)’s requirement that fraud be plead

with particularity applies equally to claims of fraudulent nondisclosure. See Wright v.

Brooke Group Ltd., 114 F. Supp. 2d 797, 834 (N.D. Iowa 2000); Sterling Nat. Bank &

Trust Co. of New York v. Federated Dept. Stores, 612 F. Supp. 144, 147 (S.D.N.Y.

1985). The Court concludes, however, that Plaintiff’s allegations are sufficient to put

Defendants on notice with particularity regarding Plaintiff’s allegation that Defendant

failed to disclose its conflict of interest in representing Plaintiff. 

Defendant also argues that Plaintiff failed to allege with particularity that a

conflict of interest existed regarding Defendant’s representation of Plaintiff, such that

Defendant had a duty to disclose that conflict, and that Plaintiff failed to adequately

allege how any purported relationship between Defendant and Shapery would

“substantially affect” Plaintiff. In its SAC, Plaintiff alleges that at the time he hired

Defendant to represent him in the appellate case, Defendant represented Shapery in

concluded trial proceedings. (SAC ¶ 6.) Plaintiff further alleges that his and Shapery’s

interests are adverse to each other because of a $1,800,000 note held by Plaintiff against

Shapery and/or his controlling interests, many details of which Plaintiff and Shapery

had been in disagreement. (Id.) Plaintiff alleges that Defendant’s long standing,

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lucrative, personal and professional relationship with Shapery created a situation where

despite Defendant’s representation of Plaintiff, his loyalty was to Shapery. (Id. ¶¶ 8-9,

13.) Finally, Plaintiff alleges that Shapery had a strong interest in Plaintiff losing the

appellate case, because it would force Plaintiff into bankruptcy, which would enable

Shapery to receive more favorable treatment regarding resolution of the note’s

contested details. (Id. ¶¶ 10, 13.) Taken these allegations as true, as the Court must for

purposes of a motion to dismiss, the Court concludes that Plaintiff has sufficiently plead

the source of the conflict of interest with particularity, and that Defendants’ arguments

to the contrary are better suited for summary judgment. 

Finally, Defendant argues that Plaintiff’s allegations demonstrate that Defendant

was not required to disclose any relationship with Shapery because Plaintiff was already

aware of the extent of Defendant’s relationship with Shapery. Construing Plaintiff’s

complaint in the light most favorable to Plaintiff, he only alleges that he knew that

Shapery and Defendant were acquainted, and any argument that he had greater

knowledge of Shapery and Defendant’s relationship is better suited for summary

judgment. Accordingly, the Court denies Defendant’s motion to dismiss Plaintiff’s

intentional misrepresentation claim for failure to adequately allege a misrepresentation.

2. Intent to Defraud

Defendant argues that Plaintiff has failed to adequately allege that Defendant

intended to defraud Plaintiff, and therefore his fraud claim should be dismissed. Rule

9(b) does not require “particularity” with respect to a defendant’s intent, rather such

conditions of mind may be alleged generally. Plaintiff alleges that Defendant did not

disclose the fact that Shapery was their client in order to encourage Plaintiff to hire

them, for which Defendant stood to be paid more than $100,000 for their legal services.

(SAC ¶¶ 7, 9.) This allegation is sufficient to generally allege intent under Rule 9(b).

Accordingly, the Court denies Defendant’s motion to dismiss based on their argument

that Plaintiff failed to adequately allege the element of intent.

/ / /

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 3. Knowledge

Defendant argues that Plaintiff has failed to adequately allege that Defendant had

the requisite knowledge regarding the promissary note that Plaintiff allegedly held and

was negotiating the details over with Shapery, and that his fraud claim should therefore

be dismissed. Defendant also argues that since Plaintiff’s fraud claim is based on the

fact that Shapery had a financial stake in the appellate case, and that Plaintiff was aware

of that fact, Plaintiff has failed to allege that Defendant had any knowledge that Plaintiff

himself did not have. 

Knowledge, like intent, is a state of mind that may be alleged generally, rather

than with particularity. See Fed. R. Civ. Proc. 9(b). Plaintiff alleges that Defendant

intentionally concealed his prior, present, and future relationship with Shapery from

Plaintiff in order to encourage Plaintiff to hire Defendant to represent him in the

appellate case. (SAC ¶¶ 7, 9.) Plaintiff also alleges that Defendant was aware of the

debt Shapery owed Plaintiff, since this was an important part of Shapery’s financial and

legal planning. (SAC ¶ 10.) These allegations are sufficient to meet the general

pleading requirement that Defendant had knowledge of the fact that it had a relationship

with Shapery that it was obliged to communicate to Plaintiff. The fact that Plaintiff was

aware that Shapery allegedly stood to gain from Plaintiff losing the appellate case does

not affect the knowledge element because, according to Plaintiff’s pleadings, Plaintiff

was unaware of the full relationship between Defendant and Shapery. Any argument

to the contrary is better suited for summary judgment. Therefore, the Court denies

Defendant’s motion to dismiss Plaintiff’s fraud claim based on a failure to adequately

allege the element of knowledge. 

 4. Resulting Damage

Defendant argues that Plaintiff’s complaint fails to allege how Defendant’s

nondisclosure of its relationship with Shapery caused Plaintiff damage. Plaintiff alleges

that Defendant’s loyalty to Plaintiff was divided, and that subsequently Plaintiff lost the

appellate case, causing Plaintiff damages. (SAC ¶¶ 8, 9, 12, 13.) The Court concludes

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that these allegations sufficiently put Defendant on notice regarding how Defendant’s

alleged nondisclosure allegedly caused Plaintiff damage. Any argument that Plaintiff

was not damaged by Defendant’s alleged nondisclosure of a conflict of interest is better

suited for summary judgment. Accordingly, the Court grants Defendant’s motion to

dismiss Plaintiff’s fraud claim on this ground. 

Conclusion

For the reasons discussed, the Court DENIES Defendants’ motion to dismiss

Plaintiff’s claim for intentional misrepresentation. 

IT IS SO ORDERED. 

DATED: March 7, 2007

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

COPIES TO:

J. Michael Schaefer

1101 Saint Paul Street, Suite 1605

Baltimore, MD 21202

L. Scott Keehn

Leslie Faye Keehn

Keehn and Associates 

402 West Broadway 

Suite 1210 

San Diego, CA 92101 

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