Achilles v. Pender Capital Asset Lending Fund 1, LP

EDWARD J. EMMONS, CLERK 13 G □□ \o. U.S. BANKRUPTCY COURT □□ NORTHERN DISTRICT OF CALIFORNIA =I y □□ aM 1 . □ □□□ € □□ Signed and Filed: October 18, 2022 □□□□ OL [2] Mini hi 4 Vin fod 5 DENNIS MONTALI U.S. Bankruptcy Judge [6] 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA [9] In re ) Bankruptcy Case 10 ) No. 21-30202-DM THEOS FEDRO HOLDINGS, LLC, ) 11 ) Chapter 11 12 Debtor. ) ea) 13 ) PHILIP ACHILLES, individually ) Adversary Case No. 21-03023-DM 14 lland in his capacity as trustee ) 15 of the Achilles Revocable Trust ) dated May 27, 2003, and THEOS ) 16 FEDRO HOLDINGS, LLC, a ) California LLC, ) 17 ) 18 Plaintiffs, ) ) 19 ||V- ) ) 20 ||PENDER CAPITAL, INC., a ) California Corporation, PENDER ) CAPITAL ASSET LENDING FUND 1, ) 22 LP; LABOR COMMISSIONER OF THE ) STATE OF CALIFORNIA; AND DOES 1) 23 ||through 30, inclusive, ) ) 24 Defendants. ) [25] ) 26 PENDER CAPITAL ASSET LENDING ) FUND I, LP, ) 28 Counter-Claimant, ) -l1- 1 v. ) ) ) [2] PHILIP ACHILLES, individually ) 3 and in his capacity as trustee ) of the Achilles Revocable Trust ) 4 dated May 27, 2003, and THEOS ) FEDRO HOLDINGS, LLC, a ) [5] California LLC, ) 6 ) Counter-Claim Defendants. ) 7 ) ) [8] PENDER CAPITAL ASSET BASED ) 9 LENDING FUND I, LP, ) ) 10 Cross-Claimant, ) ) [11] v. ) 12 ) JOHN A. WISE & ASSOCIATES, PLLC, ) 13 and AMY P. FRYAR, ) ) 14 Cross-Claim Defendants. ) 15 ) [16] MEMORANDUM DECISION ON MOTION TO DISMISS THIRD AMENDED COMPLAINT 17 WITHOUT LEAVE TO AMEND 18 On July 13, 2022, the court entered its Tentative Ruling on 19 Alternative Motion to Dismiss (“Tentative Ruling”) (Dkt. 58). 20 On July 14, 2022, upon the parties’ acceptance of the Tentative 21 Ruling, the court entered an Order Granting Alternative Motion 22 to Dismiss (Dkt. 59) dismissing chapter 11 trustee Janina 23 Hoskins’ (“Trustee”) Second Amended Complaint with leave to 24 amend. 25 On August 10, 2022, the Trustee filed a Third Amended 26 Complaint (Dkt. 63). On August 24, 2022, Defendant Pender 27 Capital Asset Based Lending Fund I, LP (“Pender”) filed a Motion 28 to Dismiss Third Amended Complaint (“Motion to Dismiss”) (Dkt. -21 64). At the conclusion of a hearing on the Motion to Dismiss on 2 September 23, 2022, the court took the matter under submission. 3 Upon due consideration and for the reasons discussed below, 4 the court will grant the Motion to Dismiss without leave to 5 amend. 6 I. STANDARD FOR DISMISSAL 7 A motion to dismiss pursuant to Federal Rule of Civil 8 Procedure 12(b)(6) (made applicable by Federal Rule of 9 Bankruptcy Procedure 7012) is a challenge to the sufficiency of 10 the allegations set forth in the complaint. To overcome a Rule 11 12(b)(6) motion to dismiss, a plaintiff must plead “enough facts 12 to state a claim to relief that is plausible on its face.” Bell 13 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim 14 has facial plausibility when the plaintiff pleads factual 15 content that allows the court to draw the reasonable inference 16 that the defendant is liable for the misconduct alleged.” 17 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility 18 standard is not akin to a probability requirement, but it asks 19 for more than a sheer possibility that a defendant has acted 20 unlawfully.” Id. (internal quotation marks omitted). A pleading 21 that “tenders naked assertions devoid of further factual 22 enhancement” does not meet this standard. Id. (internal 23 quotation marks omitted). In considering a Rule 12(b)(6) 24 motion, this court must “accept factual allegations in the 25 complaint as true and construe the pleadings in the light most 26 favorable to the nonmoving party.” Manzarek v. St. Paul Fire & 27 Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). [28] -31 II. DISCUSSION 2 The court’s Tentative Ruling made clear that any amended 3 complaint must allege that the Debtor was not in breach of 4 contract, or excused from performance, at the time that the 5 Trustee alleges that Pender blocked the transfer of the $515,000 6 holdback or did anything else that might support a breach of 7 contract or “good faith and fair dealing” theory of relief. The 8 Tentative Ruling also stated that an amended complaint must 9 allege more facts as to the other claims against Pender. 10 A. Trustee’s First Claim: Breach of Contract Against Pender 11 All claims against Pender stem from the rights and 12 obligations set forth in the underlying Deed of Trust, 13 Promissory Note, and Business Agreement1 (the “Loan Documents”). 14 Accordingly, the court incorporates by reference and considers 15 the Loan Documents in the context of the Motion to Dismiss. See, 16 e.g., U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (noting 17 that courts may “consider certain materials — documents attached 18 to the complaint, documents incorporated by reference in the 19 complaint, or matters of judicial notice — without converting 20 the motion to dismiss into a motion for summary judgment”). The 21 Loan Documents make clear that no disbursements needed to be 22 made, given the existence of a default by the borrower. [24] 25 1 Though the Trustee only references the Deed of Trust and Promissory Note, Pender contends, and the court agrees, that the 26 Business Agreement along with the Deed of Trust and Promissory Note were part of a single loan transaction and thus must be 27 construed together as one contract. Cal. Civ. Code § 1642 ; Holguin v. Dish Network LLC, 229 Cal.App.4th 1310, 1320 (Cal. [28] Ct. App. 2014). -41 According to the Trustee, Pender breached the contract when 2 Pender or its agent refused to release the holdback funds to the 3 Debtor. However, the Third Amended Complaint does not address 4 that Debtor was in default from the outset of the making of the 5 loan under the terms of the Loan Documents. Because the Third 6 Amended Complaint does not address the reality of Debtor’s 7 default, the Trustee did not respond to the court’s request 8 regarding Debtor’s own performance or excuse from performance 9 under the Loan Documents. 10 The Trustee alternately asserts that Pender’s First Amended 11 Crossclaim (“Crossclaim”) (Dkt. 62) against Defendant John Wise 12 & Associates, PLLC (Wise), is a conclusive admission that Wise, 13 and thereby Pender, breached the contract reflected in the Loan 14 Documents. As the court explained at the hearing, the court 15 cannot and will not infer liability from Pender’s filing of the 16 Crossclaim, which serves ultimately as a demand for 17 indemnification if Pender is ultimately held liable for some or 18 all the Trustee’s claims. To infer liability from the 19 Crossclaim would be to short-circuit the court’s duty to 20 determine whether Pender’s own conduct was wrongful. Stated 21 otherwise, an assertion by Pender of a breach of another 22 contract by Wise does not amount to an admission of its own 23 breach, whether by judicial estoppel or otherwise. 24 The Trustee also does not address that the holdback was for 25 discrete amounts that were to be disbursed only upon the 26 happening of certain events. The Third Amended Complaint does 27 not allege that the conditions precedent to release of the funds [28] -51 had been met independent of Debtor’s default, only that the 2 funds were not disbursed and therefore Pender was in breach. 3 B. Trustee’s Second Claim and Ninth Claims: Breach of the 4 Covenant of Good Faith and Fair Dealing and Violation of 5 Business and Professions Code Section 17200 Et Seq. Against 6 Pender. 7 As to the claim that Pender breached the implied covenant 8 of good faith and fair dealing, the Trustee alleges a variety of 9 acts by Pender, including a scheme to have Debtor unknowingly 10 enter a “loan to own” debt that Debtor would inevitably default 11 upon, and conspiring with Wise to steer Debtor into a doomed 12 deal. These are bare assertions, with no further facts from the 13 Third Amended Complaint or the incorporated contracts that could 14 give rise to an inference of the deal being any type of “loan to 15 own” scheme. Even if more facts were incorporated, the Trustee 16 does not elaborate how a “loan to own” scheme, while perhaps 17 felt to be distasteful, is on its own contrary to any state or 18 federal laws or otherwise would give rise to a claim for relief. 19 As Pender notes, “[i]n order to state a claim for breach of 20 an implied covenant of good faith and fair dealing, the specific 21 contractual obligation from which the implied covenant of good 22 faith and fair dealing arose must be alleged.” Griffin v. Green 23 Tree Servicing, LLC (C.D. Cal. 2015) (internal quotations and 24 citations omitted). Here, Trustee alleges no specific 25 contractual obligation from which the implied covenant and fair 26 dealing arose, and instead alleges a general motive of 27 wrongdoing in originating the loan at all, under the conclusory 28 “loan to own” label. This label, without facts regarding the -61 spirit of any specific provision of the Loan Documents or other 2 contract that may have been violated, is not sufficient to 3 successfully plead this claim. This is all the more so in light 4 of the extensive contractual provisions that protected Pender in 5 the event of a breach by Debtor. 6 Trustee claims that Pender has breached Business and 7 Professions Code 17200 et seq (codifying claims of unlawful and 8 unfair business practices) by virtue of Pender’s breach of 9 contract and breach of the covenant of good faith and fair 10 dealing. Because the court has determined that insufficient 11 facts regarding either claim have been plead, so too is this 12 claim insufficient. 13 C. Trustee’s Third, Eighth, and Tenth Claims: Negligence, 14 and Aiding and Abetting Breach of Fiduciary Duty, and Conspiracy 15 Against Pender. 16 The court stated in its Tentative Ruling that the Trustee 17 needed to “bolster her allegations of her aiding and abetting, 18 negligence and conspiracy claims,” meaning the court expected 19 that in any amended complaint, the claims, if plead again, 20 should contain enough facts for the court to infer that Pender 21 is liable for those claims. Upon review of the Third Amended 22 Complaint, the court concludes that the Trustee has not and 23 cannot plead sufficient facts necessary to make any facially 24 plausible claim of negligence, aiding and abetting, or 25 conspiracy. Though the Trustee claims that the making of the 26 contract itself established a duty of care owed to Debtor by 27 Pender, as Pender correctly counters, “under California law, a 28 financial institution owes no duty of care to a borrower when -71 the institution's involvement in the loan transaction does not 2 exceed the scope of its conventional role as a mere lender of 3 money.” Rockridge Trust v. Wells Fargo, N.A., 98 F. Supp. 2d 4 1110, 1160 (N.D. Cal. 2013) (internal quotations omitted). 5 Similarly, the court cannot infer from the facts that 6 Pender aided and abetted Wise’s alleged breach of fiduciary duty 7 to Debtor or engaged in a conspiracy with Wise to place Debtor 8 into default. Trustee does not dispute that the plain text of 9 the Loan Documents incorporated a holdback of certain funds 10 subject certain conditions precedent being met. As noted above, 11 Trustee does not claim those conditions were met. Nor does 12 Trustee allege facts as to how Pender either prevented Wise from 13 disbursing funds, or conspired with Wise to ensure the funds 14 were not disbursed. At the hearing, it appears the thrust of 15 the Trustee’s arguments regarding either aiding and abetting or 16 conspiracy is that the contractually held-back funds were not 17 disbursed but Pender continued to charge Debtor interest. 18 However, the Trustee does not allege that this interest was 19 somehow contrary to the Loan Documents (they were not) and does 20 not connect this charging of interest to a breach of Wise’s 21 duties or to a broader conspiracy to cause Debtor to default. 22 D. Leave to File a Fourth Amended Complaint is Futile 23 The Trustee, in her Opposition to the Motion to Dismiss 24 (“Opposition”) (Dkt. 67) and at the hearing, proposes a Fourth 25 Amended Complaint. While the court acknowledges that the Third 26 Amended Complaint represents the Trustee’s second complaint in 27 this adversary proceeding, it would be both unfair and futile to 28 force Pender to defend itself for a fifth time, in an adversary -81 proceeding that has not moved past the initial pleading stage 2 after more than a year. 3 Leave to amend a complaint may be denied where the 4 amendment sought “(1) prejudices the opposing party; (2) is 5 sought in bad faith, (3) produces an undue delay in litigation; 6 or (4) is futile.” AmerisourceBergen Corp. v. Dialyst West, 7 Inc., 465 F.3d 946, 951 (9th Cir. 2006). An amendment is futile 8 “where previous attempts have failed to cure a deficiency and it 9 is clear that the proposed amendment does not correct the 10 defect.” Serpa v. SBC Telecomm., Inc., 318 F.Supp.2d 865 , 872 11 (N.D. Cal. 2004) (citations omitted). 12 The Trustee’s recent attempt failed to set forth the 13 specific facts the court determined would be necessary for a 14 successful amended complaint. The Trustee’s proposed amendments 15 set forth in the Opposition and at the hearing still do not 16 contemplate addressing the Debtor’s initial default under the 17 Loan Documents. The Trustee did not assert these facts even 18 with specific prompting from the court, and the Trustee still 19 has not proposed asserting these facts in an amended complaint. 20 Accordingly, the court must conclude that the Trustee lacks 21 ability to set forth a complaint that corrects the defects 22 addressed here. 23 III. CONCLUSION 24 For the reasons set forth above, the Motion to Dismiss will 25 GRANTED without leave to amend. A separate order consistent 26 with this Memorandum Decision is being issued this date. [27] 28 **END OF MEMRANDUM DECISION** -91 COURT SERVICE LIST Marc L. Libarle [2] Law Offices of Marc L. Libarle 3 1388 Sutter Street Suite 910 4 San Francisco, CA 94109 [28] -10-