EPICREW USA, Case No. 5:24-cv-03676-EJD
Plaintiff, ORDER GRANTING IN PART MOTION TO DISMISS; DENYING AS v. MOOT MOTION FOR LEAVE TO AMEND TRADING, LLC, Re: ECF Nos. 13, 31 Defendant.
Defendant Capital Asset Exchange and Trading, LLC moves to dismiss Plaintiff Epicrew USA’s complaint. Having considered the parties’ pleadings, the record, and arguments at hearing, the Court GRANTS IN PART Capital Asset’s motion WITH LEAVE TO AMEND. As such, the Court also DENIES AS MOOT Epicrew’s separate motion for leave to amend.1 Epicrew filed suit in June 2024, raising several claims arising out of Capital Asset’s alleged failure to deliver certain semiconductor equipment that Epicrew had purchased even though Epicrew had already tendered payment to Capital Asset. Compl., ECF No. 1. Capital Asset filed a motion to dismiss for failure to state a claim. MTD, ECF No. 13. After the parties finished briefing the motion, the Court held a hearing. ECF No. 26. However, because the parties had indicated the possibility of early settlement, the Court held the motion in abeyance. Hr’g Tr. at 19:25–20:11, ECF No. 32. Instead, the Court directed the parties to participate in a settlement conference with Magistrate Judge Susan van Keulen. ECF No. 27. Shortly before beginning settlement discussions, Epicrew filed a motion for leave to amend, ECF No. 31, along with a proposed amended complaint. ECF No. 31-1, Ex. A. With its motion, Epicrew sought to make two amendments. First, it sought to correct its own name, explaining that it had mistakenly named Epicrew USA as the plaintiff when it should have named Epicrew Corporation. See ECF Nos. 24, 31. Second, Epicrew sought to join three of Capital Asset’s executives. See ECF No. 31. Before the Court could address Epicrew’s motion, the parties were able to “agree[] on an overall framework for resolving this matter.” ECF No. 41. However, after further settlement discussions, the parties’ agreement eventually fell apart. ECF Nos. 45, 46. The Court therefore turns to the pending motions to dismiss and for leave to amend. A. Motion to Dismiss Capital Asset moves to dismiss for failure to state a claim under Rule 12(b)(6). To survive such a motion, the complaint must contain sufficient factual allegations to support a reasonable inference that Capital Asset is liable for Epicrew’s claims. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To determine whether it is reasonable to make such an inference, the Court must accept all factual allegations as true and construe the complaint in Epicrew’s favor. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). The Court does not, however, accept conclusory allegations or draw unreasonable inferences from the allegations. In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted). In addition, for claims that sound in fraud, Rule 9(b) requires pleading with greater particularity. Namely, a plaintiff must plead “the who, what, when, where, and how” of the alleged fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). B. Motion for Leave to Amend Rule 15(a) governs Epicrew’s motion for leave to amend. In these circumstances, Rule 15(a) provides that a party may “amend its pleading only with the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). Under that Rule, courts should grant leave movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir. 2009) (citation omitted). A. Incorporation by Reference Before turning to the merits, the Court first sets the scope of the record on Capital Asset’s motion to dismiss. Normally, courts are limited to materials within the pleadings when deciding motions to dismiss under Rule 12(b)(6). Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). Capital Asset, however, cites to contract documents that were not attached to the complaint. See Epicrew Contracts, ECF Nos. 14-1, 14-2.2 The Court can consider those contracts only if they are subject to judicial notice or incorporation by reference. Khoja, 899 F.3d at 998. Here, the contracts are incorporated by reference because they “form the basis of” Epicrew’s contract claims; Epicrew alleges that Capital Asset breached those very contracts. Id. at 1002 (citation omitted). Therefore, the Court can consider the contracts. B. Breach of Contract The contracts at issue here are invoices through which Epicrew agreed to purchase certain semiconductor equipment from Capital Asset. See Epicrew Contracts. Epicrew alleges that Capital Asset breached those contracts in three ways: (1) by failing to deliver the promised equipment in a timely manner; (2) purporting to own the equipment when it did not, in violation of Section 5 of the contracts; and (3) violating the implied covenants of good faith and fair dealing. Compl. ¶¶ 37, 44. Capital Asset disputes all three theories of breach. Timely Delivery. Capital Asset argues that the Epicrew Contracts do not contain any provisions setting deadlines for delivery, so it could not have breached the Epicrew Contracts for failing to deliver the promised equipment in a timely manner. Capital Asset is correct that the contracts contain no express timing terms, but its conclusion does not follow. Under California law, “[t]he time for shipment or delivery or any other action under a contract if not . . . agreed upon shall be a reasonable time.” Cal. Com. Code § 2309. Therefore, the Epicrew Contracts contain implied terms that require delivery within a “reasonable time.” Epicrew alleges that it paid for one piece of promised equipment on May 25, 2023, and for the other on December 6, 2023. Compl. ¶¶ 15, 24. Epicrew still has not received either piece of equipment. Drawing all inferences in favor of Epicrew, a delay of well over one year is sufficient to support Epicrew’s claim that Capital Asset failed to timely deliver the promised equipment. Section 5. Section 5 of the Epicrew Contracts reads as follows: “All Equipment is offered to Buyer based on its prior sale to [Capital Asset]. Should such prior sale not occur, this invoice shall be null and void.” On its face, Section 5 does not require Capital Asset to take any action or refrain from taking any action. That is, there is nothing in Section 5 for Capital Asset to breach. If Epicrew is correct that the equipment at issue was not sold to Capital Asset, such fact would not establish a breach. Rather, it would void the Epicrew Contracts. So, Epicrew’s theory of a breach of Section 5 fails. Implied Covenants. Epicrew raises the implied covenants as a theory of its contract claim in addition to raising a standalone claim for breach of the implied covenants. Compl. ¶¶ 37, 44, 49–54. It is not clear whether Epicrew intends to advance different theories for breach of the implied covenants by doing so. Regardless, Epicrew has failed to respond to Capital Asset’s arguments to dismiss the implied covenant claims. See MTD at 6–7; Opp’n, ECF No. 18. By failing to respond to those arguments, Epicrew
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EPICREW USA, Case No. 5:24-cv-03676-EJD
Plaintiff, ORDER GRANTING IN PART MOTION TO DISMISS; DENYING AS v. MOOT MOTION FOR LEAVE TO AMEND TRADING, LLC, Re: ECF Nos. 13, 31 Defendant.
Defendant Capital Asset Exchange and Trading, LLC moves to dismiss Plaintiff Epicrew USA’s complaint. Having considered the parties’ pleadings, the record, and arguments at hearing, the Court GRANTS IN PART Capital Asset’s motion WITH LEAVE TO AMEND. As such, the Court also DENIES AS MOOT Epicrew’s separate motion for leave to amend.1 Epicrew filed suit in June 2024, raising several claims arising out of Capital Asset’s alleged failure to deliver certain semiconductor equipment that Epicrew had purchased even though Epicrew had already tendered payment to Capital Asset. Compl., ECF No. 1. Capital Asset filed a motion to dismiss for failure to state a claim. MTD, ECF No. 13. After the parties finished briefing the motion, the Court held a hearing. ECF No. 26. However, because the parties had indicated the possibility of early settlement, the Court held the motion in abeyance. Hr’g Tr. at 19:25–20:11, ECF No. 32. Instead, the Court directed the parties to participate in a settlement conference with Magistrate Judge Susan van Keulen. ECF No. 27. Shortly before beginning settlement discussions, Epicrew filed a motion for leave to amend, ECF No. 31, along with a proposed amended complaint. ECF No. 31-1, Ex. A. With its motion, Epicrew sought to make two amendments. First, it sought to correct its own name, explaining that it had mistakenly named Epicrew USA as the plaintiff when it should have named Epicrew Corporation. See ECF Nos. 24, 31. Second, Epicrew sought to join three of Capital Asset’s executives. See ECF No. 31. Before the Court could address Epicrew’s motion, the parties were able to “agree[] on an overall framework for resolving this matter.” ECF No. 41. However, after further settlement discussions, the parties’ agreement eventually fell apart. ECF Nos. 45, 46. The Court therefore turns to the pending motions to dismiss and for leave to amend. A. Motion to Dismiss Capital Asset moves to dismiss for failure to state a claim under Rule 12(b)(6). To survive such a motion, the complaint must contain sufficient factual allegations to support a reasonable inference that Capital Asset is liable for Epicrew’s claims. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To determine whether it is reasonable to make such an inference, the Court must accept all factual allegations as true and construe the complaint in Epicrew’s favor. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). The Court does not, however, accept conclusory allegations or draw unreasonable inferences from the allegations. In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted). In addition, for claims that sound in fraud, Rule 9(b) requires pleading with greater particularity. Namely, a plaintiff must plead “the who, what, when, where, and how” of the alleged fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). B. Motion for Leave to Amend Rule 15(a) governs Epicrew’s motion for leave to amend. In these circumstances, Rule 15(a) provides that a party may “amend its pleading only with the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). Under that Rule, courts should grant leave movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir. 2009) (citation omitted). A. Incorporation by Reference Before turning to the merits, the Court first sets the scope of the record on Capital Asset’s motion to dismiss. Normally, courts are limited to materials within the pleadings when deciding motions to dismiss under Rule 12(b)(6). Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). Capital Asset, however, cites to contract documents that were not attached to the complaint. See Epicrew Contracts, ECF Nos. 14-1, 14-2.2 The Court can consider those contracts only if they are subject to judicial notice or incorporation by reference. Khoja, 899 F.3d at 998. Here, the contracts are incorporated by reference because they “form the basis of” Epicrew’s contract claims; Epicrew alleges that Capital Asset breached those very contracts. Id. at 1002 (citation omitted). Therefore, the Court can consider the contracts. B. Breach of Contract The contracts at issue here are invoices through which Epicrew agreed to purchase certain semiconductor equipment from Capital Asset. See Epicrew Contracts. Epicrew alleges that Capital Asset breached those contracts in three ways: (1) by failing to deliver the promised equipment in a timely manner; (2) purporting to own the equipment when it did not, in violation of Section 5 of the contracts; and (3) violating the implied covenants of good faith and fair dealing. Compl. ¶¶ 37, 44. Capital Asset disputes all three theories of breach. Timely Delivery. Capital Asset argues that the Epicrew Contracts do not contain any provisions setting deadlines for delivery, so it could not have breached the Epicrew Contracts for failing to deliver the promised equipment in a timely manner. Capital Asset is correct that the contracts contain no express timing terms, but its conclusion does not follow. Under California law, “[t]he time for shipment or delivery or any other action under a contract if not . . . agreed upon shall be a reasonable time.” Cal. Com. Code § 2309. Therefore, the Epicrew Contracts contain implied terms that require delivery within a “reasonable time.” Epicrew alleges that it paid for one piece of promised equipment on May 25, 2023, and for the other on December 6, 2023. Compl. ¶¶ 15, 24. Epicrew still has not received either piece of equipment. Drawing all inferences in favor of Epicrew, a delay of well over one year is sufficient to support Epicrew’s claim that Capital Asset failed to timely deliver the promised equipment. Section 5. Section 5 of the Epicrew Contracts reads as follows: “All Equipment is offered to Buyer based on its prior sale to [Capital Asset]. Should such prior sale not occur, this invoice shall be null and void.” On its face, Section 5 does not require Capital Asset to take any action or refrain from taking any action. That is, there is nothing in Section 5 for Capital Asset to breach. If Epicrew is correct that the equipment at issue was not sold to Capital Asset, such fact would not establish a breach. Rather, it would void the Epicrew Contracts. So, Epicrew’s theory of a breach of Section 5 fails. Implied Covenants. Epicrew raises the implied covenants as a theory of its contract claim in addition to raising a standalone claim for breach of the implied covenants. Compl. ¶¶ 37, 44, 49–54. It is not clear whether Epicrew intends to advance different theories for breach of the implied covenants by doing so. Regardless, Epicrew has failed to respond to Capital Asset’s arguments to dismiss the implied covenant claims. See MTD at 6–7; Opp’n, ECF No. 18. By failing to respond to those arguments, Epicrew concedes dismissal of its implied covenant claims. Conservation Force v. Salazar, 677 F. Supp. 2d 1203, 1211 (N.D. Cal. 2009) (“Where plaintiffs fail to provide a defense for a claim in opposition, the claim is deemed waived.”), aff’d, 646 F.3d 1240 (9th Cir. 2011). * * * In sum, the Court DISMISSES Epicrew’s claims for the breach of Section 5 and breach of the implied covenants. Epicrew’s claim for breach of contract based on Capital Asset’s alleged failure to timely deliver the promised equipment can proceed. C. Fraud and Misrepresentations Epicrew next raises claims for fraud, negligent misrepresentation, and intentional misrepresentation. These three claims all fail for the same reason: Epicrew has not identified any false statement by Capital Asset. In its opposition, Epicrew refers to four categories of false statements: (1) that Capital Asset owned the equipment at issue; (2) that Capital Asset could and would deliver the equipment; (3) that the equipment would be shipped imminently; and (4) that Capital Asset would not allow Epicrew to cancel the transactions or receive a refund. Opp’n at 6. The paragraphs of the complaint that Epicrew cites in support of its first category of statements do not actually contain any statements. Compl. ¶¶ 58, 63. Meanwhile, the paragraphs cited in support of Epicrew’s second category only vaguely mention a “promise” but give no more detail. Id. ¶¶ 92–95. That is not specific enough to satisfy Rule 9(b). While Epicrew provides more specific statements for its third category, none of those statements assert that shipment would be imminent. Id. ¶¶ 13, 24. Finally, the Court simply cannot tell what Epicrew means by the fourth category. Epicrew appears to argue that Capital Asset lied about refusing to cancel Epicrew’s equipment purchase and refusing to provide a refund. This argument implies that Capital Asset is willing to cancel the transactions or provide a refund. That seems to contradict the entire premise of Epicrew’s lawsuit, which is that Capital Asset refuses to return Epicrew’s money. Accordingly, the Court DISMISSES Epicrew’s claims for fraud, negligent misrepresentation, and intentional misrepresentation. D. Fraudulent Concealment Epicrew also alleges that Capital Asset fraudulently concealed “the fact that it did not own the [equipment] at the time it purported to sell such [equipment] to Epicrew.” Compl. ¶ 85. The problem with this claim is that the Epicrew Contracts themselves reveal Capital Asset did not own the equipment. Section 5 of the contracts states, “All Equipment is offered to Buyer based on its prior sale to [Capital Asset]. Should such prior sale not occur, this invoice shall be null and void.” This makes clear that the sale of the relevant equipment to Epicrew was contingent on the Capital that Capital Asset would be unable to do so. The existence of that possibility necessarily implies that Capital Asset did not own the relevant equipment at the time. So, the Court DISMISSES Epicrew’s claim for fraudulent concealment. E. Promissory Fraud A claim for promissory fraud requires a plaintiff to plead “a promise made without intention to perform.” Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152 (S.D. Cal. 2001). In this case, Epicrew makes the conclusory allegation that Capital Asset “did not intend to perform [its] promise.” Compl. ¶ 93. Then, the only supporting fact Epicrew pleads is that Capital Asset did not own the relevant equipment at the time it purported to sell the equipment. Id. The Court does not credit the conclusory allegation. In re Gilead, 536 F.3d at 1055. And the fact of non- ownership does not support a reasonable inference of intent given that Capital Asset expressly disclosed the possibility it would be unable to secure the equipment, and that its failure to secure the equipment would render the contracts (and therefore Capital Asset’s promises) null and void. Epicrew Contracts § 5. The Court DISMISSES Epicrew’s claims for promissory fraud. F. Unfair Competition Law (UCL) The UCL bars companies from engaging in business activities that are “unlawful, unfair or fraudulent.” Cal. Bus. & Prof. Code § 17200. Epicrew raises claims under the “fraudulent” and “unfair” prongs.3 Compl. ¶ 102. Epicrew’s claim under the fraudulent prong fails for the same reason that Epicrew’s other fraud-based claims fail. And Epicrew’s claim under the unfair prong fails because Epicrew relies on “deceptive business practices,” Opp’n at 9, and Epicrew has not alleged any misleading statements or conduct. Thus, the Court DISMISSES the UCL claims. G. Declaratory Relief Finally, Epicrew asks for declaratory relief. Capital Asset opposes such relief on the grounds that Epicrew is essentially seeking backwards-looking damages rather than a forward- 3 Epicrew briefly mentions the “unlawful” prong in its opposition, stating in conclusory fashion that “[t]he Complaint states claims under all three prongs” of the UCL. Opp’n at 8. But Epicrew makes no argument on the unlawful prong beyond that. Absent any real argument, the Court looking declaration. MTD at 21. Not so. Epicrew specifically asks for a “[d]eclaration that the [contracts] between Epicrew and [Capital Asset] [are] null and void as a matter of law.” Compl., Prayer for Relief ¶ 1. Epicrew is not seeking a declaration that Capital Asset owes it damages. Rather, if the Epicrew Contracts were declared to be null and void, that would alter the relationship between the parties moving forward. To be sure, such a declaration might unlock other avenues for recovering the payments that Epicrew made to Capital Asset since Capital Asset would no longer have contractual entitlement to those payments. But that is a function of the changed relationship between the parties. Accordingly, Epicrew may proceed with its declaratory judgment claim. H. Summary Epicrew may proceed with its claim for breach of contract based on Capital Asset’s alleged failure to timely deliver the promised equipment, and with its claim for a declaration that the Epicrew Contracts are null and void. The Court DISMISSES all other claims. Because this is the first time that the Court has dismissed the complaint, it cannot be sure that amendment would be futile. Accordingly, the Court grants leave to amend. Having granted leave to amend as part of its ruling on Capital Asset’s motion to dismiss, the Court DENIES Epicrew’s separate motion for leave to amend as moot. However, the Court briefly clarifies that, in granting leave to amend, it is expressly permitting Epicrew to amend its name and to join the three Capital Asset executives identified in the motion for leave to amend. There is no opposition to Epicrew amending its name. And although Capital Asset objected to the joinder of its executives on the basis of futility, Capital Asset based its objections on Epicrew’s proposed amended complaint. Now that the Court has ruled on Capital Asset’s motion to dismiss, the proposed amended complaint itself is moot, and Epicrew may file an amended complaint that is different from the one it proposed. /// /// 1 V. CONCLUSION 2 The Court GRANTS IN PART Capital Asset’s motion to dismiss WITH LEAVE TO 3 AMEND. Any amended complaint must be filed within 21 days of this Order. As a result, the 4 Court also DENIES AS MOOT Epicrew’s separate motion for leave to amend. 6 Dated: May 13, 2025 7 8 EDWARD J. DAVILA 9 United States District Judge 10 11 a 12
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