Fusa Franchisor SPV LLC v. Moda Collision Repair, LLC

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 FUSA FRANCHISOR SPV LLC, a Case No.: 23-CV-1559 JLS (BGS) Delaware limited liability company, [12] ORDER DENYING DEFENDANT Plaintiff, 13 ANDREY STEFANCO’S MOTION v. TO DISMISS PLAINTIFF’S [14] COMPLAINT MODA COLLISION REPAIR, LLC dba [15] FIX AUTO VANCOUVER-WALNUT (ECF No. 8) 16 GROVE, a Washington limited liability company; and ANDREY STEFANCO, an [17] individual, [18] Defendants. [19] 20 Presently before the Court is Defendant Andrey Stefanco’s Motion to Dismiss 21 Plaintiff’s Complaint (“Mot.,” ECF No. 8). Plaintiff FUSA Franchisor SPV LLC 22 (“Plaintiff” or “FUSA”) filed an Opposition to the Motion (“Opp’n,” ECF No. 9), and 23 Defendant submitted a Reply (“Reply,” ECF No. 13). The Court previously took this 24 matter under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). See 25 ECF No. 12. Having carefully reviewed the Parties’ arguments and the law, the Court 26 DENIES Defendant’s Motion. 27 / / / 28 / / / 1 BACKGROUND 2 Defendant MODA Collision Repair, LLC (“MODA”) is a Washington State limited 3 liability company. Compl. ¶ 6. On May 31, 2019, MODA entered into a “Fix Auto 4 Franchise Agreement” (the “Franchise Agreement”) with FUSA, Inc.2 Id. ¶ 8. Under the 5 Franchise Agreement, MODA was to operate a Fix Auto Shop (the “Shop”) in Vancouver, 6 Washington, through May 30, 2024. Id. ¶¶ 8–9. The Franchise Agreement required 7 MODA to, among other things, pay FUSA certain fees. Id. ¶ 12. 8 The Franchise Agreement also required owners with a stake of 10% or greater in 9 MODA to execute a personal guaranty (the “Personal Guaranty”). Id. ¶ 10. Stefanco, as 10 the sole owner of MODA, signed the Personal Guaranty. Id. Under the terms of the 11 Personal Guaranty, Stefanco promised to “immediately make each payment required of” 12 MODA in the event MODA failed to keep up its end of the bargain. ECF No. 1-2 at 59.3 13 The week of August 31, 2020, MODA began defaulting on its obligations. 14 Compl. ¶ 13. When MODA failed to resume payments, FUSA twice served MODA and 15 Stefanco with notices of default: once in June of 2021 and once in July of 2022. Id. 16 ¶¶ 15–16. FUSA later received word that MODA sold the Shop, without FUSA’s 17 permission or input, on September 30, 2022. Id. ¶ 17. Per FUSA, this unauthorized sale 18 represented a material breach of the Franchise Agreement, so FUSA sent MODA and 19 Stefanco notices of termination. Id. ¶¶ 18–19. That notice informed Defendants that 20 FUSA was seeking payment for “all amounts of any kind owed . . . in conjunction with the 21 transfer, termination or expiration of the Franchise.” Id. ¶ 20. Defendants failed to comply. 22 See id. ¶¶ 21–22. [24] 1 The facts alleged in Plaintiffs’ Complaint are accepted as true for purposes of Defendant’s Motion. See 25 Vasquez v. Los Angles Cnty., 487 F.3d 1246 , 1249 (9th Cir. 2007) (holding that, in ruling on a motion to dismiss, the Court must “accept all material allegations of fact as true”). [26] 2 Plaintiff FUSA is the successor-in-interest to FUSA, Inc. Compl. ¶ 4. [28] 3 Pin citations to docketed material in this Order refer to the CM/ECF page numbers stamped across the 1 Also unbeknownst to FUSA, Stefanco filed a petition under Chapter Seven of the 2 United States Bankruptcy Code on May 6, 2020. Id. ¶ 23. Stefanco failed to list the 3 Personal Guaranty on his bankruptcy paperwork, nor did he seek to have FUSA informed 4 of the bankruptcy proceedings. See id. ¶ 24. Then, in September of 2020, the United States 5 Bankruptcy Court for the Western District of Washington entered an Order discharging 6 “most” of Stefanco’s debts pursuant to 11 U.S.C. § 727 . Id. ¶¶ 23, 26 . 7 Plaintiff initiated this action on August 24, 2023. Plaintiff seeks a declaratory 8 judgment stating that Stefanco’s bankruptcy discharge does not apply to any debts he owes 9 under the Personal Guaranty. See id. ¶¶ 27–31. The Complaint also raises a claim for 10 breach of the Franchise Agreement against MODA, and a breach of personal guaranty 11 claim against Stefanco. See id. at 7–9. 12 LEGAL STANDARD 13 Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 14 defense that the complaint “fail[s] to state a claim upon which relief can be granted.” The 15 Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in 16 light of Federal Rule of Civil Procedure 8(a), which requires a “short and plain statement 17 of the claim showing that the pleader is entitled to relief.” Although Rule 8 “does not 18 require ‘detailed factual allegations,’ . . . it [does] demand[] more than an unadorned, the19 defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662 , 678 20 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a 21 plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more 22 than labels and conclusions, and a formulaic recitation of the elements of a cause of action 23 will not do.” Twombly, 550 U.S. at 555 (alteration in original). A complaint will not 24 suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, [25] 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557 ). 26 To survive a motion to dismiss, then, “a complaint must contain sufficient factual 27 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 28 Twombly, 550 U.S. at 570 ). A claim is facially plausible when the facts pled “allow[] the 1 court to draw the reasonable inference that the defendant is liable for the misconduct 2 alleged.” Id. This review requires a context-specific analysis that involves the Court’s 3 “judicial experience and common sense.” Id. at 679 . “[W]here the well-pleaded facts do 4 not permit the court to infer more than the mere possibility of misconduct, the complaint 5 has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. (second 6 alteration in original) (quoting Fed. R. Civ. P. 8(a)(2)). 7 ANALYSIS 8 Defendant contends the Complaint’s claims against him must be dismissed because 9 (1) Plaintiff’s breach of personal guaranty claim is barred by the bankruptcy court’s 10 discharge injunction under 11 U.S.C § 524; (2) Plaintiff’s claim for declaratory relief relies 11 entirely on the personal guaranty claim and so must also be dismissed; and (3) in any event, 12 this forum is improper. See generally Mot. The Court addresses each argument in turn. 13 I. Defendant’s Discharge Injunction Defense 14 Defendant argues any claim Plaintiff may have had was discharged, so “the 15 discharge injunction . . . prohibits Plaintiff from proceeding” with its breach of personal 16 guaranty claim. Id. at 9. Defendant cannot prevail with that argument at this stage. 17 Defendant relies on two statutory provisions. First is 11 U.S.C. § 727 (b), through 18 which “a discharge under subsection (a) of this section discharges the debtor from all debts 19 that arose before the date of the order for relief under this chapter.” Defendant argues 20 Plaintiff’s claim “arose before” the bankruptcy court entered an order of discharge in 21 Defendant’s case.4 Plaintiff does not dispute that point, so the Court presumes but does 22 not decide that Defendant is correct. Next comes 11 U.S.C. § 524 (a), which states that a 23 “discharge in a case under this title operates as an injunction against the commencement or 24 continuation of an action, the employment of process, or an act, to collect, recover or offset 25 any such debt as a personal liability of the debtor.” 11 U.S.C. § 524 (a)(2). In short, 26 Defendant argues that because his debt was discharged pursuant to § 727(b), Plaintiff is [28] 1 enjoined from bringing its personal guaranty claim by § 524(a). 2 As Plaintiff notes, however, § 727(b) is subject to the exceptions provided in § 523. 3 Id. § 727(b). And per § 523, 4 A discharge under section 727 . . . does not discharge an individual debtor from any debt neither listed nor [5] scheduled . . . with the name, if known to the debtor, of the 6 creditor to whom such debt is owed, in time to permit . . . timely filing of a proof of claim, unless such creditor had notice or actual [7] knowledge of the case in time for such timely filing. [8] 9 Id. § 523(a)(3)(A). “The language contained in § 523(a)(3)(A) is clear and not ambiguous: 10 a debt is excepted from discharge if the creditor was neither listed nor scheduled and did 11 not otherwise know of the bankruptcy case in time to file a timely [proof of claim].” In re 12 Mahakian, 529 B.R. 268, 275 (B.A.P. 9th Cir. 2015). 13 Per Plaintiff, Defendant did not list Plaintiff’s personal guaranty claim on his 14 bankruptcy schedule, name Plaintiff “or any of its affiliates as creditors,” nor include 15 Plaintiff “or any of its affiliates on his mailing matrix.” Compl. ¶ 24. So, Plaintiff argues, 16 it was neither scheduled nor given notice of Defendant’s bankruptcy case in time to file a 17 proof of claim. See Opp’n at 9. Plaintiff asks the Court to take judicial notice of records 18 from Defendant’s bankruptcy proceedings, a request the Court grants,5 to bolster its 19 argument. Bankruptcy court documents dated June 6, 2020, and September 8, 2020, appear 20 to confirm Plaintiff’s contentions—Plaintiff had not been scheduled or given formal notice 21 as of those dates. See generally ECF No. 9-2. If true, this suggests Plaintiff’s breach of 22 personal guaranty claim could be excepted from the § 524 injunction. 23 Countering, Defendant claims Plaintiff did receive notice of the bankruptcy 24 proceedings after Defendant filed supplemental paperwork. In support, Defendant points [26] 5 Courts may take “judicial notice of the dockets for the bankruptcy proceedings and filings made in the [27] bankruptcy proceedings, as judicial notice may be taken of court records.” Ng v. US Bank, NA, No. 1528 CV-04998-KAW, 2016 WL 6995884 , at *3 (N.D. Cal. Nov. 30, 2016) (citations omitted), aff’d, 1 to an amended Official Form 106E/F, which indicates Defendant added “Fix Auto 2 Corporate” as an unsecured creditor in his case on September 16, 2022. ECF No. 13-2 3 at 5, 7.6 Records further show that the amended schedule was mailed to Fix Auto Corporate 4 at a San Diego address on September 19 of the same year. See id. at 9 . Per Defendant, 5 FUSA “also operates under the name Fix Auto” and uses the same San Diego address as 6 Fix Auto. Reply at 2 n.1. So, Defendant argues, Plaintiff had notice of its opportunity to 7 pursue its claim in bankruptcy court almost a year before Plaintiff initiated this case. 8 Defendant’s argument, though not without some logical appeal, has multiple flaws. 9 For one thing, while it appears plausible to the Court that FUSA and “Fix Auto” are at the 10 very least closely connected companies, the Parties briefing does not address whether 11 notice to a related entity would satisfy § 523(a)(3)(A)’s requirements, nor whether the 12 alleged notice provided Plaintiff with enough time to file a proof of claim. Moreover, 13 Defendant fails to cite any judicially noticeable sources to support its assertion that FUSA 14 and Fix Auto are one and the same. See id. (citing “buzzfile.com” and “Plaintiff’s Dun & 15 Brandstreet credit profile” without elaboration); see also Jianjun Chen v. 2425 Broadway 16 Chao Rest., LLC, No. 1:16-CV-5735-GHW, 2017 WL 2600051 , at *3 (S.D.N.Y. 17 June 15, 2017) (denying motion to dismiss where nothing in the “[c]omplaint or any other 18 material that the Court [could] properly consider” showed plaintiffs “had notice or actual 19 knowledge of the bankruptcy case”). 20 More fundamentally, the foregoing questions involve contested factual issues that 21 are not amenable to resolution at this stage. Cf. Garrett Tr. for Estate of Taylor v. 22 Rothschild, No. C18-5863 BHS, 2019 WL 1957929 , at *7 (W.D. Wash. May 2, 2019) 23 (“Affirmative defenses are not properly raised on a motion to dismiss if they involve 24 disputed questions of fact.”). Defendant’s Motion rests on particularly shaky grounds 25 because “the burden is on the debtor to show notice to the creditor,” and, “given the posture [28] 6 The Court grants Defendant’s Request for Judicial Notice for the same reason the Court granted 1 of this case, the [C]ourt draws all inferences in favor of the nonmoving party.” Jarreau2 Griffin v. City of Vallejo, 531 B.R. 829 , 832–33 (E.D. Cal. 2015) (citing In re Maya Const. 3 Co., 78 F.3d 1395, 1399 (9th Cir.1996)). Defendant’s attempt to dismiss this action on 4 § 524 grounds is thus premature at best. 5 II. Claim for Declaratory Relief 6 Defendant next argues Plaintiff’s claim for declaratory relief must fail. Defendant 7 explains that “to state a claim for declaratory relief under federal law,” Plaintiff “must 8 allege and prove a ‘substantial controversy between the [P]arties exist.” Mot. at 5. In the 9 Complaint, Plaintiff contends such a controversy exists “regarding the applicability of 10 Stefanco’s bankruptcy discharge and the injunction . . . to the claims asserted by Plaintiff.” 11 Compl. ¶ 28. But “no such dispute can exist,” Defendant claims, “because the debt has 12 already been discharged” and Plaintiff is enjoined from bringing its personal guaranty 13 claim. Mot. at 6. Defendant’s declaratory judgment contention thus relies entirely on the 14 success of his discharge injunction defense. As the Court rejects said defense at this stage 15 of the proceedings, Defendant’s declaratory judgment argument also fails. 16 III. Wrong Venue 17 Finally, Defendant argues this case should be dismissed because “the Bankruptcy 18 Court is a more suitable forum for the claims to be heard and determined.” Mot. at 9. To 19 that end, Defendant contends that the issues in this case are closely “connected with the 20 bankruptcy estate,” and are therefore “inherently matters” which “the Bankruptcy Court 21 has been entrusted to resolve.” Id. at 10. 22 The Court is not convinced. As Plaintiff points out, Defendant’s bankruptcy 23 proceedings have been closed for some time. See Opp’n at 15. It is therefore unclear why 24 dismissing this action and sending the Parties to another court would be the most efficient 25 path forward. And to the extent Defendant means to imply that the bankruptcy court has 26 exclusive jurisdiction over this matter, he is mistaken. See DIRECTV, Inc. v. Busdon, 27 No. CV-04-265-S-LMB, 2005 WL 1364571 , at *2 (D. Idaho June 8, 2005) (noting district 28 courts and bankruptcy courts concurrently hold jurisdiction over “dischargeability” issues). 1 || Indeed, the sole case Defendant cites supports the same conclusion. See Celotex Corp. v. 2 || Edwards, 514 U.S. 300, 308 (1995) (explaining a jurisdictional statute’s phrasing needed 3 ||to be interpreted broadly to allow bankruptcy courts and district courts to effectuate 4 || Congress’s intentions). 5 CONCLUSION 6 In light of the foregoing, Defendant’s Motion to Dismiss Plaintiff's Complaint (ECF 7 || No. 8) is DENIED. 8 IT IS SO ORDERED. 9 ||Dated: March 5, 2024 psi L. Lo meeaitie10 on. Janis L. Sammartino United States District Judge