Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_10-cv-00280/USCOURTS-cand-5_10-cv-00280-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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**E-filed 07/12/2010** 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

KENNETH L. CRAWFORD, et al.,

 Plaintiffs, 

 v. 

ZACHARIA MELZER, et al., 

 

 Defendants. 

____________________________________/

No. C 10-0280 RS 

ORDER DENYING MOTION TO 

DISMISS 

I. INTRODUCTION 

 Defendant Tova Industries, LLC is a limited liability company headquartered in Louisville, 

Kentucky. It was founded by husband and wife Zacharia and Yael Melzer, who are its only 

members. Tova is in the food distribution service business, and for several years had a division 

based in Union City, California. Tova entered into an agreement to sell that division to plaintiff 

Kenneth Crawford, who, without objection from the Melzers, ultimately took title in the name of 

plaintiff New Horizon Foods, Inc. Crawford and New Horizon brought this action sounding in 

contract, fraud, and declaratory relief, in essence contending that they paid far too much based on 

false financial information given to them. 

 Based on an extremely narrow reading of the parties’ agreements, defendants now move to 

dismiss, arguing that plaintiffs have failed to state a claim. The Melzers further contend that there is 

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no personal jurisdiction over them. This matter was submitted without oral argument, pursuant to 

Civil Local Rule 7-1(b). With the exception of dismissing three specific claims to the extent those 

claims are brought against the individual defendants, the motion will be denied. 

II. DISCUSSION 

 

 A. The nature of the contractual relationship

 The relevant transactional documents are attached to the amended complaint as Exhibits AD. They are (1) an Asset Purchase Agreement, dated on or about January 9, 2009, (2) an Addendum 

to the Asset Purchase Agreement, dated on or about April 6, 2009, (3) a Promissory Note, dated on 

or about April 6, 2009 and (4) a Bill of Sale, dated on or about April 6, 2009. 

Defendants’ arguments virtually all turn on their contentions this was only the sale of business 

assets, not the sale of an ongoing business, and that the Melzers were not individually parties to any 

of the agreements. 

 Although the first two documents are entitled “asset purchase agreement” and an addendum 

thereto, numerous provisions in them reflect an intent to transfer an ongoing business that the new 

owner would continue to operate. For example the buyer had the right during escrow “for access to 

inspect the premises as may be reasonably required to evaluate the business.” Section 5(a) 

(emphasis added). Conversely, the seller had a similar right to “evaluate the Buyer’s qualifications 

to purchase and operate the business.” Section 5(b) (emphasis added). The seller also had the 

obligation to make extensive representations that plainly related to the viability of operating the 

business as an ongoing concern. Section 9. The first agreement also included a non-compete 

agreement, which was substantially modified and customized by the addendum, but which further 

demonstrates the parties were aware that this was to be an ongoing business. Other examples 

abound. 

 The Melzers’ contention that they are not individual parties to any of the agreements fares 

little better. The first document listed “seller, shareholders, and Zack Meltzer, individually” as the 

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parties bound by the non-compete agreement. It is true there was no individual signature block for 

either of the Melzers on this document, but the subsequent addendum is dispositive. That document 

expressly provided that the agreement is between Crawford or his assignee on the one hand, and 

Tova and its owners on the other. The document had separate signature blocks for Tova Industries, 

LLC., and “Seller’s Owners.” Zacharias Meltzer signed in both places. 

On a counterpart signature page, Yael Melzer signed in the space immediately next to her husband’s 

signature in the block labeled “Seller’s Owners.” 

 The Melzers contend, notwithstanding the above, that they not liable as individual 

signatories because they each included a reference to Tova and to their respective titles with their 

signatures. The Melzers suggest this brings them within section 3402(b)(1) of the California 

Commercial Code providing that where a “form of the signature shows unambiguously that the 

signature is made on behalf of the represented person who is identified in the instrument, the 

representative is not liable on the instrument.” The form of the signatures, however, are anything 

but unambiguously made on behalf of Tova, given that they appear in the block labeled for sellers’ 

owners, and further given that Zacharias Melzer had already separately signed on behalf of Tova. 

At most, the Melzers may still be entitled to attempt to prove to a trier of fact that “the original 

parties did not intend the representative to be liable on the instrument.” Cal. Comm. Code § 

3402(b)(1). At the pleading stage, however, plaintiffs have adequately established that the Melzers 

are individually parties to the contract, through operation of the Addendum. 

 B. Personal jurisdiction over the Melzers1

 The Melzers’ motion to dismiss for lack of personal jurisdiction rests entirely on their 

arguments that they had no interactions with plaintiffs, except in their capacities as officers and 

owners of Tova. While they likely will still contend that no actions they undertook on behalf of 

Tova can be counted as “minimum contacts” against them, they appear to recognize that if they are 

 

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 The Melzers motion to dismiss originally alleged improper service on them, but they have 

withdrawn that portion of the motion. 

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potentially personally liable by virtue of having signed the addendum in their personal capacities, 

there is more than a sufficient basis for jurisdiction. They individually contracted with a California 

party regarding a sale and other obligations to be performed in California. Accordingly, the motion 

to dismiss for lack of personal jurisdiction is denied. 

 

 C. Breach of Contract 

 Defendants raise two basic arguments against the primary claim for breach of contract. First, 

the Melzers contend they cannot be individually liable, an argument that has been rejected for the 

reasons set out above. Second, insisting that this transaction involved only the sale of assets, not 

the sale of a business, Tova insists plaintiffs have failed to allege that any asset covered by the 

agreement was not properly delivered. As discussed above, however, the agreements are rife with 

provisions contemplating a sale of an ongoing business, and Tova and its owners had a lengthy list 

of disclosure and warranty obligations with which they had to comply. Among other things, 

defendants repeatedly undertook that the financial statements they were providing were complete 

and accurate. Plaintiffs have stated a claim for breach of contract by alleging that the financial 

information they were provided was false. 

 

 D. Fraud

 The complaint quite specifically and in significant detail alleges how plaintiffs believe they 

were misled by information in various financial documents given to them by defendants in the 

course of the transaction. Defendants make four basic arguments as why they nonetheless believe 

the pleading is inadequate. First, they contend there is insufficient detail regarding which 

defendants made which alleged misrepresentations. As all three defendants undertook to ensure that 

plaintiffs received complete and accurate financial information during the transaction, it is difficult 

to see what more is required. 

 Next, defendants suggest that plaintiff were not entitled to rely on a “Confidential Business 

Review” prepared by defendants’ accountants, because the accountants disclaimed any guarantee of 

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its accuracy, and instead directed plaintiffs to look to the representations in the parties’ written 

agreements. The disclaimer may have been sufficient to get the accountants off the hook, but as 

between the parties, their written agreements included the representation that all materials provided 

such as the “Confidential Business Review” would be accurate. 

 Defendants next suggest that plaintiffs have not pleaded falsity in sufficient detail, because 

they do not specifically allege how much lower the “true” financial figures would have been. 

Defendants fault plaintiffs for not stating what “documentation” they have found to support their 

allegations. Although Rule 9(b) of the Federal Rules of Civil Procedure requires plaintiffs to plead 

fraud claims in significant detail, it does not require them to prove their case at the pleading stage. 

 Finally, defendants return to their argument that this was only an asset purchase, and 

plaintiffs therefore cannot show damages even if they were given false financial information. This 

argument is rejected for reasons previously discussed. 

 

 E. Declaratory relief

 Plaintiffs seek declaratory relief that they should be relieved of the obligation to make 

further payments under the promissory note they issued in connection with the purchase. 

Defendants move to dismiss, contending there is no present controversy, because plaintiffs stayed 

current on payments under the note. The fact that payments remained current would not rule out 

the existence of a present controversy about whether relief from the note obligation is appropriate. 

In any event, plaintiffs have now quit making payments, and defendants have filed a counterclaim 

on the note, thereby effectively admitting the existence of a present controversy. That said, the 

Melzers are not parties to the note as individuals, so they will both be dismissed from this claim. 

 F. Conversion

 After the sale transaction was complete, New Horizon sent invoices to a customer totaling 

just under $45,000. The customer mistakenly made payment by check to Tova, which negotiated 

the check. While the parties have no real dispute that this gives rise to a claim for conversion 

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against Tova, the question is whether the Melzers can also be liable. Plaintiffs argue that they have 

alleged Tova acted at the direction of the Melzers, but do not allege any act of conversion by them. 

Accordingly, the Melzers will both be dismissed from this claim. 

 G. Second breach of contract claim 

 In June of 2009, New Horizon provided Tova $13,400 worth of a particular baking 

ingredient and sent out an invoice, which Tova allegedly has not paid. Defendants make some 

argument that the particulars of this contract are not adequately alleged, but a copy of the invoice is 

attached to the complaint and suffices. Again, the question remains whether the Melzers can be held 

individually liable. As the complaint contains no facts suggesting they were parties to the contract, 

and the opposition to this motion does not so argue, they will both be dismissed from this claim for 

relief as well. 

IV. CONCLUSION 

 The Melzers are dismissed as individual defendants from the third, fourth, and fifth claims 

for relief. The motion to dismiss is otherwise denied. 

IT IS SO ORDERED. 

Dated: 07/12/2010 

RICHARD SEEBORG 

UNITED STATES DISTRICT JUDGE 

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