Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03735/USCOURTS-cand-5_06-cv-03735-2/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 28:1331 Fed. Question

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ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC

E-FILED on 11/20/06 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

COMERICA BANK,

Plaintiff,

v.

MICHAEL L. McDONALD and ALAN P.

McDONALD,

Defendants.

No. C-06-03735 RMW

ORDER GRANTING COMERICA'S

MOTION TO DISMISS COUNTERCLAIM

FOR FRAUD

[Re: Docket No. 14] 

MICHAEL L. McDONALD and ALAN P.

McDONALD,

Counter-claimants,

v.

COMERICA BANK,

Counter-defendant.

Plaintiff Comerica Bank ("Comerica") moves to dismiss defendants Michael and Alan

McDonald's ("the McDonalds") fraud counterclaim for failure to state a claim. The McDonalds

oppose the motion. The court has read the moving and responding papers and considered the

argument of counsel. For the reasons set forth below, the court grants Comerica's motion to dismiss

Case 5:06-cv-03735-RMW Document 29 Filed 11/20/06 Page 1 of 8
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1 The McDonalds do not specify who participated in the actual financing negotiations. 

The McDonalds' allegation that "[t]he parties began negotiating" is unclear as to whether "parties"

included only the McDonalds and Austin Ventures, or whether it included Comerica as well. CC ¶¶

11-12. The McDonalds also allege that Comerica was "involved" in the completion of the "series of

agreements." CC ¶ 13.

2 Although not clear from the McDonalds' pleadings, Comerica's motion suggests that

the guaranties were given in exchange for Comerica's forbearance. See Mot. at 1.

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 2

the McDonalds' fraud counterclaim. The McDonalds have 20 days from the date of this order to

amend their claim. 

I. BACKGROUND

The McDonalds partially own and operate Truckload, a start-up company providing

construction supply services. CC ¶¶ 6, 8; Mot. at 1. Austin Ventures is a venture capital firm who

invested $9.5 million in Truckload as the controlling shareholder in September 2003. CC ¶ 7; Opp.

at 1. At the time, because Truckload allegedly had no cash, no credit capacity and no history of

profitable operations, it could not qualify for traditional bank loans. CC ¶ 8. In October 2003,

Comerica's Bank Technology and Life Science Division in Palo Alto, California provided a high-risk

loan of $5 million to Truckload through Austin Ventures. Id. The McDonalds allege that Austin

Ventures "almost exclusively" uses such division as a provider of high-risk financing. Id. As part of

the "loan 'package,'" Comerica acquired shares and became an owner of Truckload. Id. 

As Truckload began to run very low on cash in the summer of 2004, Truckload and Austin

Ventures negotiated various rounds of financing.1

 CC ¶¶ 10, 12. According to the counterclaim,

Comerica "helped craft and approved [a] course of action" whereby the McDonalds would "target[]

individual or 'retail' accredited investors similar to those who invested in Truckload from 2001 to

2003." CC ¶ 12. In this manner, Comerica allegedly "led [the McDonalds] to believe" that such

retail accredited investors "would be acceptable." Id. 

In October 2004, the McDonalds each provided personal guaranties of up to $1 million of the

loan made by Comerica. Compl. ¶¶ 9-10, Exs. A, B. Truckload issued common stock options to the

McDonalds as consideration for their guaranties.2

 CC ¶ 17. Around the same time, at least two other

agreements were executed. CC ¶ 14. Comerica and Truckload signed a Forbearance Agreement,

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3 Comerica requests judicial notice of the Forbearance Agreement. The McDonalds

request judicial notice of the Refinancing Agreement. Neither party opposes the other's request. 

The McDonalds' counterclaim refers to both the Forbearance Agreement and the Refinancing

Agreement, and the parties' pleadings rely upon these agreements. CC ¶ 3. Accordingly, the court

takes judicial notice of both agreements pursuant to Federal Rule of Evidence 201. See also

Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir. 1998); In re Silicon Graphics, Inc.

Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999) (considering documents referenced in the complaint

relied on by plaintiff's allegations).

4 It is unclear whether the Forbearance Agreement had been extended beyond

December 2004.

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 3

whereby Comerica would forbear from exercising its default remedies under the original debt

agreement until December 2004, such as its right to foreclose on Truckload's collateral. Declaration

of William Stuart Bell in Supp. of Comerica's Mot. to Dismiss ("Bell Decl."), Ex. 1.3

 Under the

agreement, if Truckload raised a certain amount of capital by December 2004, Comerica would

extend its forbearance until April 2005. Bell Decl., Ex. 1 at 2. 

In addition, a Refinancing Agreement was executed among Austin Ventures, Alan McDonald,

and Truckload. CC ¶ 14; McDonalds' Request for Judicial Notice ("RJN"), Ex. A. Pursuant to the

Refinancing Agreement, Austin Ventures agreed that Truckload would sell at least $2,000,000 of a

newly designated Series C preferred stock to "accredited investors," which would allegedly be used

to pay Truckload's debt to Comerica. Id., Ex. B at 1-2; CC ¶ 23; Opp. at 9. However, the McDonalds

allege that Comerica "never . . . inten[ded] to continue the operations of Truckload or allow it to take

on additional investors." CC ¶ 18. Instead, Comerica and Austin Ventures allegedly "held secret

meetings" and "conspired to defraud and induce [the McDonalds] to execute the [personal]

Guaranties with a plan to shut down Truckload." CC ¶ 21. 

In March 2005, Michael McDonald allegedly recruited a potential institutional investor to

purchase the Series C stock and recapitalize the company.4

 CC ¶ 22. The McDonalds allege that

Comerica and Austin Ventures negotiated in bad faith with the investor and thereby "prevent[ed] a

successful . . . round" of refinancing. CC ¶¶ 22, 23. Comerica then exercised its foreclosure rights

on Truckload's loan. CC ¶ 24.

On June 12, 2006, Comerica filed a Complaint for breach of guaranties against the

McDonalds. On August 22, 2006, the McDonalds filed this counterclaim against Comerica. The

McDonalds generally claim that Comerica fraudulently induced the McDonalds to personally

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ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 4

guarantee $2 million of Truckload's debt by falsely leading them to believe that Comerica would

allow Truckload to "take on additional investors" while secretly intending to shut Truckload down. 

CC ¶¶ 12, 23. Comerica filed the present motion to dismiss the McDonalds' counterclaim. 

II. ANALYSIS

Comerica seeks to dismiss the counterclaim for failure to state a claim pursuant to Federal

Rules of Civil Procedure 12(b)(6) and 9(b). Comerica contends that the McDonalds have not alleged

facts sufficient to state a claim of fraud with sufficient specificity as required by Fed. R. Civ. P. 9(b)

and that the McDonalds' theory of fraud is barred by the parol evidence rule. 

A. Legal Standard

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint.

Dismissal can be based on the "lack of a cognizable legal theory" or "the absence of sufficient facts

alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th

Cir. 1988). The issue is not whether the non-moving party will ultimately prevail but whether it is

entitled to offer evidence to support the claims asserted. Gilligan v. Jamco Dev. Corp., 108 F.3d 246,

249 (9th Cir. 1997). When evaluating a Rule 12(b)(6) motion, the court must accept all material

allegations in the complaint as true and construe them in the light most favorable to the non-moving

party. Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994). However, the court is not required to

accept conclusory legal allegations "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). 

Rule 9(b) of the Federal Rules of Civil Procedure further requires that "when averments of

fraud are made, the circumstances constituting the alleged fraud be specific enough to give

defendants notice of the particular misconduct so that they can defend against the charge and not just

deny that they have done anything wrong." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th

Cir. 2003) (internal quotations and citations omitted). The allegations "must be accompanied by 'the

who, what, when, where, and how' of the misconduct charged." Id. However, "the requirement of

specificity is relaxed when the allegations indicate that 'the defendant must necessarily possess full

information concerning the facts of the controversy'" or "when the facts lie more in the knowledge of

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5 A fraudulent concealment claim requires an allegation that defendant "concealed or

suppressed the fact with an intent to defraud." Williamson v. Gen. Dynamics Corp., 208 F.3d 1144,

1156 n.3 (9th Cir. 2000). 

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 5

the opposite party." Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. Rptr. 2d 861, 863 (1991)

(quoting Turner v. Milstein, 230 P.2d 25 (1951)). 

B. Fraud Claim

Comerica argues that the counterclaim should be dismissed because (1) the McDonalds do not

allege any false representation of an existing fact, (2) the McDonalds' theory of fraud is barred by the

parol evidence rule and the integration clause of the guaranty agreements, and (3) the McDonalds do

not plead the details of the fraud with the required particularity. 

Under California law, a claim for fraud requires the following elements: (1) misrepresentation

such as concealment5

 or nondisclosure; (2) knowledge of falsity; (3) intent to defraud or induce

reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 909 P.2d 981,

984-85 (1996). Promissory fraud is a subspecies of an action for fraud based on a promise made

without intention to perform. Id.; see also Tarmann, 2 Cal. Rptr. 2d at 863-64 (1991) (finding that

"action based on a false promise is simply a type of intentional misrepresentation, i.e., actual fraud").

The McDonalds do not adequately allege a misrepresentation. In an action for promissory

fraud, the element of misrepresentation may be satisfied by alleging a promise. Tarmann, 2 Cal.

Rptr. 2d at 863; see also 5 Witkin Cal. Proc. § 677 (4th ed. 1997) (stating that in pleading a

promissory fraud claim, "[t]he allegation of a promise (which implies a representation of intention to

perform) is the equivalent of the ordinary allegation of a representation of fact" ). Here, the

McDonalds generally allege that Comerica "led [the McDonalds] to believe [retail accredited]

investors would be acceptable." CC ¶ 12. However, the McDonalds do not allege either how

Comerica misled them or what statements Comerica made during the refinancing negotiations, if any,

that led the McDonalds to their alleged beliefs. 

In addition, the requirement of specificity in a fraud action against a corporation requires the

plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their

authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. 

Tarmann, 2 Cal. Rptr. 2d at 863, citing Sanders v. Ford Motor Co., 158 Cal. Rptr. 656 (1979). Here,

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6 Comerica also argues that because the guaranties and the Forbearance Agreement

each contain an integration clause, the McDonalds may not allege fraud based on extra-contractual

representations. Mot. at 6-9. The court notes that the mere existence of integration clause does not

preclude a plaintiff from proving fraud through extra-contractual representations. Ron Greenspan

Volkswagen, Inc. v. Ford Motor Land Dev. Corp., 38 Cal. Rptr. 2d 783 (1995). Nevertheless, the

parol evidence rule may bar a false promise claim if the claim is based on an oral promise which

contradicts with a written contract between the parties. 5 Witkin Cal. Proc. § 677 (4th ed. 1997) ("if

the complaint shows a false oral promise that is ineffective under the parol evidence rule because it

contradicts a written agreement, it fails to state a cause of action in California"). 

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 6

the McDonalds do not allege any names of the persons who made the allegedly misleading promises

as required for fraud actions against a corporation. The McDonalds' general allegations of

Comerica's concealment by harboring "secret[] plan[s]" and holding "secret meetings and

communications" do not suffice for a fraudulent concealment claim. CC ¶¶ 11, 21. 

The McDonalds argue that because the details of Comerica's concealment are "information

exclusively within Comerica's and Austin Venture's knowledge and control," a relaxed pleading

standard applies pursuant to Wood v. Apadoca, 375 F. Supp. 2d 942 (N.D. Cal. 2005). Opp. at 12. 

The court in Wood held that Rule 9(b)'s requirement to plead with particularity "may be relaxed as to

matters within the opposing party's knowledge." Wood, 375 F. Supp. 2d at 949 (finding plaintiff's

pleading sufficient under 9(b) even without identification of place where alleged fraud occurred,

since plaintiff pled that such knowledge was within defendants' knowledge) (quoting Moore v.

Kavport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989)). However, the McDonalds do not

identify the specific content and source(s) of Comerica's alleged obligation. The McDonalds also do

not allege that details regarding such obligation were only within Comerica's knowledge. Comerica

was not a party to the Refinancing Agreement, and the McDonalds have not alleged how Comerica

was obligated by it. Thus, the McDonalds fail to allege with sufficient specificity a misrepresentation

by Comerica.

The court finds the McDonalds have not sufficiently alleged at least one of the required

elements to state a claim for fraud.6

 Even accepting the McDonalds' allegations as true, they are

insufficient to state the existence of a fraud claim. Therefore, the court dismisses the McDonalds'

counterclaim.

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ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 7

C. Leave to Amend

Leave to amend is to be freely granted when justice so requires. See Fed. R. Civ. P. 15(a). "A

party may amend the party's pleading once as a matter of course at any time before a responsive

pleading is served . . . . Otherwise a party may amend the party's pleading only by leave of court or

by written consent of the adverse party." Fed. R. Civ. P. 15(a). A motion to dismiss is not a

"responsive pleading" within the meaning of Fed. R. Civ. P. 15(a). Breier v. N. Cal. Bowling

Proprietors' Ass'n, 316 F.2d 787, 789-90 (9th Cir. 1963). No responsive pleading has been served in

response to this counterclaim. The amended complaint, in particular, should set forth specific facts

showing how Comerica is responsible for representations in the Refinancing Agreement to which it

was not a party.

III. ORDER

For the foregoing reasons, the court grants Comerica's motion to dismiss the McDonalds'

fraud counterclaim. The McDonalds have 20 days from the date of this order to amend their claim.

DATED: 11/17/06

RONALD M. WHYTE

United States District Judge

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ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR FRAUD—C-06-03735 RMW

SC 8

Notice of this document has been sent to:

Counsel for Defendants Michael and Alan McDonald:

Michael Glanzberg mgg@kelher.com

John Ferry jferry@kelher.com

Don Colleluori don.colleluori@figdav.com

Andrew Speicher drew.speicher@figdav.com

Counsel for Plaintiff Comerica:

Geraldine Freeman gfreeman@sheppardmullin.com

David DeGroot ddegroot@sheppardmullin.com

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 11/20/06 SPT Chambers of Judge Whyte

Case 5:06-cv-03735-RMW Document 29 Filed 11/20/06 Page 8 of 8