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VFS Leasing Co. v. Silverado Stages Inc.

United States District Court, D. Arizona

August 15, 2019

VFS Leasing Company, et al., Plaintiffs,
v.
Silverado Stages Incorporated, et al., Defendants.

          ORDER

          DOUGLAS L. RAYES UNITED STATES DISTRICT JUDGE.

         Before 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).[1] (Doc. 32.) The motion is fully briefed.[2](Docs. 37, 43.) For the following reasons, the Galushas' motion is granted.

         I. Background

         Beginning 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”). (Id.)

         For 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.)

         On 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.)

         In 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.)

         II. Legal Standards

         A. Fed.R.Civ.P. 12(b)(6)

         When 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).

         B. Fed.R.Civ.P. 9(b)

         Rule 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).

         III. Discussion

         The Galushas argue that Plaintiffs' fraud claim should be dismissed because it is barred by the economic loss rule and because Plaintiffs have ...


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