United States District Court, D. Arizona
DOUGLAS L. RAYES UNITED STATES DISTRICT JUDGE.
the Court is Defendants James and Sharron Galusha's
motion to dismiss Count IV of the first amended complaint for
failure to state a claim pursuant to Federal Rules of Civil
Procedure 9(b) and 12(b)(6). (Doc. 32.) The motion is fully
briefed.(Docs. 37, 43.) For the following reasons,
the Galushas' motion is granted.
in March 2013, Plaintiffs VFS Leasing Co. and Volvo Financial
Services, a division of VFS U.S. LLC, extended credit to
Michelangelo Leasing, Inc. (“Michelangelo”) for
equipment under a series of financial agreements. (Doc. 11
¶¶ 18-32.) In 2017, Silverado Stages, Inc.
(“Silverado”) and the Galushas-Silverado's
majority shareholders-informed Plaintiffs that they intended
to assume Michelangelo's obligations and refinance the
debt (“Michelangelo Debt”). (¶ 33.) At the
same time, Silverado and the Galushas also sought to finance
nineteen additional pieces of equipment from Plaintiffs
(“Additional Credit, ” together with the
Michelangelo Debt, the “Credit Request”).
Plaintiffs to evaluate the Credit Request, Silverado and the
Galushas were required to provide certain financial
information, including a Personal Financial Statement
(“PFS”). (¶ 34.) The Galushas December 31,
2016 PFS identified as assets their personal residence and
three other real estate properties they owned as tenants in
common. (¶¶ 35, 37.) The PFS also represented that
they held assets in trust as “The Jim & Sharron
Galusha Revocable Trust, ” but did not individually
identify specific assets. (¶ 38.) The Galushas and the
Bankruptcy Defendants executed continuing guaranties.
(¶¶ 47-48.) Based in part on the Galushas
representation of their personal assets in the PFS,
Plaintiffs granted the Credit Request. (¶ 39.)
January 6, 2017, Silverado executed an assignment under which
they agreed to be responsible for “all obligations and
performance of Michelangelo Debt[.]” (¶ 40.)
Beginning in June 2017, Silverado entered into a series of
financial schedules under which Plaintiffs agreed to extend
Additional Credit. (¶¶ 41-44.) In 2017 and 2018,
the parties also entered into Modification Agreements to
modify payments due on the Michelangelo Debt. (¶¶
45-46.) Despite the parties' modification efforts,
Silverado defaulted on the agreements. (¶ 55-58.)
September 2018, Plaintiffs filed this action against
Silverado, the Galushas, and Bankruptcy Defendants for
failure to remit payments to Plaintiffs. (¶ 55.)
Plaintiffs allege breach of leases, loans, and continuing
guaranties, in addition to common law fraud and replevin.
(¶¶ 64-96.) The Galushas now move to dismiss Count
IV (fraud) of Plaintiffs' complaint under Fed.R.Civ.P.
9(b) and 12(b)(6). (Doc. 32.)
analyzing a complaint for failure to state a claim to relief
under Rule 12(b)(6), the well-pled factual allegations are
taken as true and construed in the light most favorable to
the nonmoving party. Cousins v. Lockyer, 568 F.3d
1063, 1067 (9th Cir. 2009). Legal conclusions couched as
factual allegations are not entitled to the assumption of
truth, Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009),
and therefore are insufficient to defeat a motion to dismiss
for failure to state a claim, In re Cutera Sec.
Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). To avoid
dismissal, the complaint must plead sufficient facts to state
a claim to relief that is plausible on its face. Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This
plausibility standard “is not akin to a
‘probability requirement,' but it asks for more
than a sheer possibility that a defendant has acted
unlawfully.” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 556).
9(b) requires allegations of fraud to be pled with
particularity. “To comply with 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 they can defend against the charge and not
just deny that they have done anything wrong.”
Bly-Magee v. Cal., 236 F.3d 1014, 1019 (9th Cir.
2001). The allegations must include “the who, what,
when, where, and how” of the misconduct charged and
“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.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d
1097, 1106 (9th Cir. 2003).
Galushas argue that Plaintiffs' fraud claim should be
dismissed because it is barred by the economic loss rule and
because Plaintiffs have ...