National Funding, Inc. v. Commercial Credit Counseling

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 10, 2020
• Docket: 19-55269
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 10 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

NATIONAL FUNDING, INC., a California No. 19-55269 Corporation, D.C. No. Plaintiff-Appellant, 2:18-cv-06437-MWF-AS

v. MEMORANDUM* COMMERCIAL CREDIT COUNSELING SERVICES, INC., DBA Corporate Turnaround, a New Jersey corporation, et al.,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Michael W. Fitzgerald, District Judge, Presiding

Submitted May 4, 2020** Pasadena, California

Before: OWENS and BADE, Circuit Judges, and MOSKOWITZ,*** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Barry Ted Moskowitz, United States District Judge for the Southern District of California, sitting by designation. Plaintiff-Appellant National Funding, Inc. appeals the dismissal of its second

amended complaint with prejudice and without leave to amend for failure to state a

claim upon which relief can be granted against Defendants-Appellees Commercial

Credit Counseling Services, Inc. d/b/a Corporate Turnaround and Bruce Putterman.

As the parties are familiar with the facts, we do not recount them here.1 We have

jurisdiction under 28 U.S.C. § 1291, and we affirm in part, vacate in part, and

remand for further proceedings.

“We review dismissals under Rule 12(b)(6) de novo, accepting as true all

well-pleaded allegations of fact in the complaint and construing them in the light

most favorable to the plaintiff[].” Zimmerman v. City of Oakland, 255 F.3d 734,

737 (9th Cir. 2001). “We can affirm a 12(b)(6) dismissal ‘on any ground

supported by the record, even if the district court did not rely on the ground.’”

United States v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011) (quoting

Livid Holdings, Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 950 (9th Cir.

2005)). Further, “[i]n a case requiring a federal court to apply California law, the

court ‘must apply the law as it believes the California Supreme Court would apply

it.’” Kairy v. SuperShuttle Int’l, 660 F.3d 1146, 1150 (9th Cir. 2011) (quoting

1 Defendants-Appellees ask us to take judicial notice of several documents on appeal pursuant to the incorporation-by-reference doctrine and Federal Rule of Evidence 201(b). Because we would reach the same conclusions regardless of whether we considered such documents, the request for judicial notice on appeal is denied as moot.

2 Gravquick A/S v. Trimble Navigation Int’l Ltd., 323 F.3d 1219, 1222 (9th Cir.

2003)). “In the absence of a controlling California Supreme Court decision, the

panel must predict how the California Supreme Court would decide the issue,

using intermediate appellate court decisions, statutes, and decisions from other

jurisdictions as interpretive aids.” Id. (quoting Gravquick A/S, 323 F.3d at 1222).

“We review a denial of leave to amend a complaint for an abuse of

discretion.” Chappel v. Lab. Corp. of Am., 232 F.3d 719, 725 (9th Cir. 2000). “A

district court acts within its discretion to deny leave to amend when amendment

would be futile, when it would cause undue prejudice to the defendant, or when it

is sought in bad faith.” Id. at 725-26. Nevertheless, dismissal without leave to

amend based upon futility “is not appropriate unless it is clear on de novo review

that the complaint could not be saved by amendment.” Eminence Capital, LLC v.

Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (per curiam).

1. The district court did not err when it concluded that National Funding failed

to sufficiently plead a claim for intentional interference with contractual relations.

In California, this claim “requires allegations of the following elements: ‘(1) a

valid contract between plaintiff and a third party; (2) defendant’s knowledge of this

contract; (3) defendant’s intentional acts designed to induce a breach or disruption

of the contractual relationship; (4) actual breach or disruption of the contractual

relationship; and (5) resulting damage.’” CRST Van Expedited, Inc. v. Werner

3 Enters., Inc., 479 F.3d 1099, 1105 (9th Cir. 2007) (quoting Quelimane Co. v.

Stewart Title Guar. Co., 960 P.2d 513, 530 (Cal. 1998)). Although we disagree

with the district court’s assessment that National Funding failed to plead how the

Defendants-Appellees “would have known about the” subject loan agreements

because we conclude such knowledge is reasonably inferred from the nature of the

debt-renegotiation scheme alleged in the second amended complaint, we agree that

National Funding failed to sufficiently plead the validity of the loan agreements.

In California, “[w]here a contract is so uncertain and indefinite that the

intention of the parties in material particulars cannot be ascertained, the contract is

void and unenforceable.” Cal. Lettuce Growers, Inc. v. Union Sugar Co., 289 P.2d

785, 790 (Cal. 1955). “Typically, a contract involving a loan must include the

identity of the lender and borrower, the amount of the loan, and the terms for

repayment in order to be sufficiently definite.” Daniels v. Select Portfolio

Servicing, Inc., 201 Cal. Rptr. 3d 390, 413 (Ct. App. 2016); see also Kruse v. Bank

of Am., 248 Cal. Rptr. 217, 230 (Ct. App. 1988) (“essential terms” of a loan

agreement include “the amount of the loan, the rate of interest, the terms of

repayment, [and the] applicable loan fees and charges”). Because National

Funding failed to plead these essential terms of the relevant loan agreements with

sufficient definiteness, it failed to plead the first element of its intentional

interference claim. See PMC, Inc. v. Saban Entm’t, Inc., 52 Cal. Rptr. 2d 877, 890

4 (Ct. App. 1996) (“[A] cause of action for intentional interference with contract

requires an underlying enforceable contract.”), disapproved of on other grounds by

Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937 (Cal. 2003).

2. The district court did not err when it concluded that National Funding failed

to sufficiently plead a claim for violation of California’s Unfair Competition Law

(UCL) based upon the Defendants-Appellees’ unlawful intentional interference

with the loan agreements. As recognized by the district court below and the parties

on appeal, this UCL claim is derivative of National Funding’s intentional

interference with contractual relations claim. See Wilson v. Hewlett-Packard Co.,

668 F.3d 1136, 1140 (9th Cir. 2012) (“The UCL ‘borrows violations of other laws

and treats them as unlawful practices that the unfair competition law makes

independently actionable.’” (quoting Cel–Tech Commc’ns, Inc. v. L.A. Cellular

Tel. Co., 973 P.2d 527, 539 (Cal. 1999))). Because we conclude that National

Funding failed to sufficiently plead its predicate claim of intentional interference

with contractual relations, we likewise conclude that National Funding failed to

sufficiently plead this derivative UCL claim.

3. The district court did not err when it concluded that National Funding failed

to sufficiently plead a claim for violation of the UCL based upon Putterman’s

alleged practice of law in violation of California Business & Professions Code

§ 6125. In California, the “practice of law” includes “the doing or performing

5 services in a court of justice in any matter depending therein, throughout its

various stages,” as well as the provision of “legal advice and counsel and the

preparation of legal instruments and contracts by which legal rights are secured

although such matter may or may not be depending in a court.” Baron v. City of

Los Angeles, 469 P.2d 353, 357 (Cal. 1970) (internal quotation marks and citations

omitted). As recognized by the district court, National Funding failed to

sufficiently identify the substance of Putterman’s discussions with its borrowers to

make plausible its assertion that he provided legal advice to them. Even assuming

such discussions touched upon matters of legal import, National Funding failed to

allege facts demonstrating that the relevant issues were so “difficult or doubtful”

that they “reasonably demand[ed] the application of a trained legal mind.” Id. at

358 (internal quotation marks and citations omitted). And while “engaging in

negotiations with opposing counsel concerning settlement” of a legal dispute can,

in some instances, “constitute[] the practice of law,” Morgan v. State Bar, 797 P.2d

1186, 1188 (Cal. 1990), National Funding’s allegations concerning its negotiations

with Putterman fail to demonstrate that “no discussion[s] . . . would be possible

without reference to legal issues and no persuasive argument could be made which

did not include a discussion of legal principles[,]” Zelkin v. Caruso Discount

Corp., 9 Cal. Rptr. 220, 224 (Ct. App. 1960), or that these negotiations otherwise

required “the application of legal knowledge and technique[,]” Baron, 469 P.2d at

6 358. Nor do National Funding’s allegations demonstrate that Putterman prepared

any legal instruments, or performed any actions with regard to any pending

litigation, in connection with such negotiations. See Morgan, 797 P.2d at 1188

(“[W]e conclude that engaging in negotiations with opposing counsel concerning

settlement and agreeing that the case should be continued until a later date,

constitutes the practice of law.” (emphasis added)); Baron, 469 P.2d at 357. Here,

in regard to litigation, National Funding alleges that Putterman attempted to

negotiate a payment schedule for R. Makabali, MD Inc. (Makabali). But, by itself,

this is not the practice of law.

Even assuming that National Funding’s allegations demonstrate Putterman

engaged in the practice of law, however, they nonetheless fail to plausibly

demonstrate that he did so “in California.” See Birbrower, Montalbano, Condon &

Frank v. Superior Court, 949 P.2d 1, 5-6 (Cal. 1998), as modified (Feb. 25, 1998)

(explaining that a violation of section 6125 requires that practice of law occur in

California). For example, National Funding does not allege whether any of

Putterman’s challenged conduct occurred while he was physically present in

California. Further, except for the two emails sent by Putterman to National

Funding regarding Makabali in April 2018, National Funding does not allege any

non-conclusory facts demonstrating the frequency with which Putterman’s

purported practice of law involved “virtual” entry into California. See id. (“[W]e

7 . . . reject the notion that a person automatically practices law ‘in California’

whenever that person practices California law anywhere, or ‘virtually’ enters the

state by telephone, fax, e-mail, or satellite.”).

Moreover, other than as to Makabali, National Funding failed to allege the

relevant borrowers’ states of residence or the law governing their respective loan

agreements, and therefore it is unclear whether Putterman’s provision of advice or

his negotiations with National Funding concerned California borrowers or matters

of California law. See id. at 5 (“Mere fortuitous or attenuated contacts will not

sustain a finding that the unlicensed lawyer practiced law ‘in California.’ The

primary inquiry is whether the unlicensed lawyer engaged in sufficient activities in

the state, or created a continuing relationship with the California client that

included legal duties and obligations.”). Because National Funding failed to plead

Putterman’s predicate unauthorized practice of law in California, the district court

properly dismissed this UCL claim. See Wilson, 668 F.3d at 1140.

4. The district court did not err when it denied National Funding leave to

amend its unlicensed practice of law UCL claim, but did err when it denied

National Funding leave to amend its intentional interference with contractual

relations claim and related UCL claim. In denying National Funding leave to

amend, the district court stated that its prior order dismissing the first amended

complaint with leave to amend “pointed out the deficiencies that have not been

8 corrected” in the second amended complaint and had “warned that any future

successful motion to dismiss would be granted without leave to amend.”

On the unlicensed practice of law UCL claim, we agree National Funding’s

second amended complaint failed to cure the deficiencies explicitly identified by

the district court in its prior order, namely the absence of facts demonstrating

Putterman’s interpretation of law or application of law to facts in either his

provision of advice to borrowers or negotiations with National Funding. Nor has

National Funding alleged, even in a conclusory fashion, that Putterman performed

any actions that would constitute the practice of law in any pending litigation or

prepared any legal instruments in connection with his dealings with National

Funding or its borrowers. Given that National Funding has failed to delineate any

additional facts it would add in support of this claim to cure these deficiencies if

given leave to amend, we conclude that National Funding cannot save this claim

by amendment and therefore the district court did not abuse its discretion in

denying leave to amend.

But with regard to National Funding’s intentional interference claims, the

second amended complaint corrected the only deficiencies explicitly identified by

the district court in its prior order, specifically National Funding’s failure to

“supply . . . the identity of any third party with whom it had contracted” and

provide a “factual basis for [the] conclusory assertion” that the loan agreements

9 would not have been breached but for the Defendants-Appellees’ interference.

And although we agree with the district court that National Funding’s allegations

on the material terms of the loan agreements are insufficient, the district court did

not make it clear in its prior order that it considered such allegations deficient and

the underlying record reflects that National Funding could easily plead such

information if given leave to amend. Because it is not clear that further

amendment of these claims would be futile, the district court abused its discretion

in denying leave to amend on the predicate intentional interference with

contractual relations claim and the derivative UCL intentional interference claim.

See Eminence Capital, LLC, 316 F.3d at 1052.

Based upon the foregoing, we vacate the district court’s dismissal with

prejudice and without leave to amend the second amended complaint’s intentional

interference with contractual relations claim and derivative UCL intentional

interference claim and remand this action to the district court for further

proceedings. Each party shall bear their own costs on appeal.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.