2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 FOR THE EASTERN DISTRICT OF CALIFORNIA 9
10 RUSH AIR SPORTS, LLC, a California Limited No. 1:19-cv-00385-NONE-JLT 11 Liability Company, ORDER GRANTING IN PART AND 12 Plaintiff, DENYING IN PART CROSS- 13 DEFENDANTS’ MOTIONS TO DISMISS v. THE AMENDED COUNTER AND 14 CROSS COMPLAINT; ORDER RDJ GROUP HOLDINGS, LLC, a Virginia DENYING CROSS-DEFENDANTS’ 15 Limited Liability Company; RALPH PARK, an MOTION TO STRIKE AND MOTION individual; JEFF SHIRING, an individual; FOR MORE DEFINITE STATEMENT 16 DAVID SILVERMAN, an individual; and DOES 17 1–50, inclusive, (Doc. Nos. 41, 42, 43)
18 Defendants. 19 RDJ GROUP HOLDINGS, LLC, a Virginia Limited Liability Company; RALPH PARK, an 20 individual; JEFF SHIRING, an individual; DAVID SILVERMAN, an individual; FLIGHT 21 FIT N FUN (BAKERSFIELD) LLC, a Delaware 22 Limited Liability Company,
23 Cross-Complainants,
24 v. 25 RUSH AIR SPORTS, LLC; DAVID BYNUM, an 26 individual; and ARCH ADAMS, an individual,
27 Counter and Cross- Defendants. 28 1 INTRODUCTION
2 On October 2, 2019, the district judge previously assigned to this case granted in part and denied
3 in part the motions to dismiss filed by Counter-Defendant Rush Air Sports, LLC (“Rush Air”), and
4 Cross-Defendants David Bynum and Arch Adams (collectively “Cross-Defendants”). (Doc. No. 39.)
5 Cross-Complainants RDJ Group Holdings, LLC (“RDJ”), Ralph Park, Jeff Shiring, David Silverman,
6 and Flight Fit N Fun (Bakersfield) LLC (“Flight Fit N Fun”) filed their First Amended Counter and
7 Cross-Complaint on October 23, 2019 (“FACC”). (Doc. No. 40.) On November 13, 2019, Cross-
8 Defendants filed a motion to dismiss the FACC. (Doc. No. 43.) Cross-Defendants additionally filed a
9 motion to strike portions of the counter and cross-complaint and motion for more definite statement.
10 (Doc. Nos. 41–42.)
11 The court has determined the motion to dismiss, motion for more definite statement, and motion
12 to strike are suitable for decision based on the papers under Local Rule 230(g). For the reasons stated
13 below, Cross-Defendants’ motions to dismiss are GRANTED in part and DENIED in part with leave to
14 amend granted. The motion for more definite statement and motion to strike are DENIED AS MOOT.
15 FACTUAL BACKGROUND
16 Negotiations for the Three Trampoline Parks
17 In or around February or March 2017, Arch Adams approached RDJ and Flight Fit N Fun
18 regarding the potential sale of three trampoline parks in Bakersfield, California (“Bakersfield Facility”);
19 New Jersey (“New Jersey Facility”); and New York (“New York Facility”) (collectively, the “Three
20 Facilities”), all owned and operated by corporate entities in which Adams had an ownership interest.
21 (FACC ¶ 11.) Adams is regarded as “an experienced and well-known trampoline expert,
22 trampoline/family entertainment industry insider and businessman.” (Id. ¶ 12.) Adams and his
23 trampoline manufacturing business, Fun Spot, “had and have many customers which include
24 competitors of RDJ and Flight Fit N Fun whom Adams and Fun Spot know well and have had long- 25 standing relationships.” (Id. ¶ 13.) RDJ learned that Adams sought to divest his US Holdings, which 26 coincided with RDJ’s plan to expand its operations in the Northeast and in California. (Id. ¶ 14.) Thus, 27 RDJ and Flight Fit N Fun engaged in discussions with Adams regarding the purchase of the Three 28 Facilities. (Id.) Adams was part-owner of each of the companies that owned the Three Facilities. (Id.) 1 Cross-Defendant Rush Air owned a trampoline park in Bakersfield, California. (Id. ¶ 15.)
2 Adams owned a membership interest in Rush Air as manager of Waylaid, LLC. (Id.) Cross-Defendant
3 Bynum was the manager of Rush Air. (Id. ¶ 17.) Bynum served as legal counsel to Rush Air and its
4 members in connection with the sale of the Bakersfield Facility. (Id. ¶ 18.) “[U]pon information and
5 belief, [Bynum] served as counsel for the owners selling the New York Facility and New Jersey
6 Facility.” (Id.)
7 On or around October 18, 2017, “Rush Air and its members, including Adams and Bynum,
8 jointly signed and entered into an Asset Purchase Agreement (the ‘Bakersfield APA’) with the Buying
9 Parties.” (Id. ¶ 19.) Simultaneously, “RDJ through its respective subsidiaries and affiliates was also
10 engaged in discussions with the sellers of the New York Facility and New Jersey Facility.” (Id. ¶ 20.)
11 Adams was the principal of each seller. (Id.)
12 According to the FACC, Adams marketed and solicited the sale of the Three Facilities as a
13 “bundled” transaction. (Id. ¶ 21.) Based on Adams’ “vast experience” in the trampoline park industry,
14 Adams was the “main attraction” common to all Three Facilities in which RDJ was interested, “and all
15 parties in the transactions involving the Three Facilities knew that RDJ and its respective subsidiaries
16 and affiliates were buying the Three Facilities because of Adams as a ‘bundle’ for an agreed-upon
17 common denominator of a multiple of each Facility’s Earnings Before Interest, Tax, Depreciation and
18 Amortization (‘EBITDA’).” (Id. ¶ 22.) The same multiple of EBITDA was agreed upon for the Three
19 Facilities. (Id. ¶ 23.)
20 “The common denominator (i.e., multiplier) to be used for the Three Facilities as a ‘bundled’
21 acquisition was determined based upon the disclosures to RDJ and Cross-Plaintiffs that Adams and
22 Bynum made, both individually and on behalf of Rush Air, relating to all Three Facilities’
23 performances, both past performances and expected future performances.” (Id. ¶ 24.) “It was the
24 parties’ intent that the disclosures relating to both the New Jersey and New York facilities were also 25 disclosures relating under the Bakersfield APA and were necessary and relevant to the parties’ 26 determination of the common denominator.” (Id.) “Accordingly, any misrepresentations or omission 27 by Adams, Bynum, and Rush Air as to the New Jersey or New York facilities were also 28 misrepresentations and omissions under the Bakersfield APA and had a direct impact on the calculation 1 of the denominator to be used for the acquisition of the Bakersfield Facility.” (Id.)
2 The RDJ subsidiaries and affiliates entered into three nearly-identical Asset Purchase
3 Agreements on the same date—October 18, 2017—to purchase and acquire the Three Facilities. (Id. ¶
4 25.) Cross-Defendants Rush Air, Bynum, and Adams, and “their various and respective selling entities
5 and affiliates, including Plaintiff Rush Air, made various material and critical warranties and
6 representations which were extremely significant to RDJ and its affiliates (and to RDJ’s principals
7 Park, Shiring and Silverman) and upon which said parties relied upon in acquiring the Three Facilities.”
8 (Id. ¶ 26.)
9 Competing Trampoline Parks Open in New Jersey
10 Approximately a week before RDJ and its affiliates closed on the deal for the Three Facilities, a
11 new competitor, Altitude Trampoline Park (“Altitude”), opened a trampoline park nearly 11 miles from
12 the New Jersey Facility unbeknownst to RDJ, its affiliates, and Cross-Complainants. (Id. ¶ 35.)
13 Approximately two to three weeks after closing, another competitor, Urban Air Trampoline and
14 Adventure Park (“Urban Air”), opened a trampoline park approximately 13 miles from the New Jersey
15 Facility. (Id. ¶ 36.)
16 “As part of the due diligence process related to the acquisition of the Three Facilities, Rush Air,
17 Bynum, and Adams were asked to disclose any new competitor properties being built or existing ones
18 being refurbished or expanded within 25 miles of any of the Three Facilities.” (Id. ¶ 37.) In summer
19 2017, “Rush Air, Bynum, and Adams affirmatively stated in writing that they ‘were not aware of any
20 new competitor or refurbishments at this time’ that would be within 25 miles from either the New York
21 or New Jersey Facilities.” (Id.) In summer 2017, however, Adams, through his affiliated company Fun
22 Spot, entered into an agreement with Altitude to design and outfit Altitude’s facility with trampolines,
23 platforms, climbing walls, and foam pits by July 2017—three months before the parties entered into the
24 Bakersfield, New Jersey, and New York APAs. (See id. ¶ 39; FACC, Ex. A at 2 (Doc. No. 40-1) 25 (“Bakersfield APA”); FACC, Ex. B at 2 (Doc. No. 40-2) (“New Jersey APA”); FACC, Ex. C at 2 (Doc. 26 No. 40-3) (“New York APA”).) Adams’s contract with Altitude “was never disclosed during the 27 parties’ due diligence and/or negotiation of the common denominator that was to be used for all Three 28 Facilities.” (FACC ¶ 39.) 1 Rush Air, Bynum, and Adams were also aware of the pending opening of Urban Air as early as
2 April 2017. (Id. ¶ 40.) Ari Moses, the owner of Urban Air, contacted Adams and Fun Spot in March or
3 April 2017 as a potential trampoline vendor for the upcoming Urban Air facility. (Id.) Despite being
4 almost 13 miles away from the New Jersey Facility, Rush Air, Bynum, and Adams did not disclose the
5 Urban Air facility before the sale of the Three Facilities closed in October 2017. (Id.)
6 Cross-Complainants allege “[t]his disclosure was important as the New Jersey Facility was the
7 biggest facility of the Three Facilities and was the driving force behind what RDJ and the [Cross-
8 Complainants] would be willing to use as a denominator of EBIDTA for the purchase price of the
9 Three Facilities.” (Id. ¶ 37.) Therefore, “any new competitor to the New Jersey Facility would have an
10 impact on its financial performance and calculation of the EBITDA multiplier for the Three Facilities.”
11 (Id.) “Rush Air, Bynum, and Adams knew that the New Jersey Facility, and its expected future
12 performance, was integral to the acquisition of the Three Facilities as a bundled transaction and that
13 without the New Jersey Facility, RDJ and [Cross-Complainants] would not be willing to acquire the
14 New York or Bakersfield Facilities, or they would have purchased them at a much lower EBITDA
15 multiplier.” (Id. ¶ 38.)
16 Competition in the trampoline and multi-attraction family entertainment industry is allegedly
17 fierce. (Id. ¶ 41.) Unexpected competitors have a significant impact on the value and viability of an
18 ongoing facility. (Id.) New or existing competitors near a facility and the number of competitors are
19 material and significant factors in determining acquisition value and the fair and reasonable EBITDA of
20 existing facilities. (Id.)
21 Cross-Complainants allege, “[t]he operations of these competitors have had a ‘Materially
22 Adverse Effect’ on the financial condition, assets, business, and results of the New Jersey Facility.”
23 (Id. ¶ 42.) Moreover, “the unexpected presence of these competitors (and their active and aggressive
24 competition) ‘has affected the historical operation’ of the New Jersey Facility and will ‘adversely 25 affect’ in the future ‘all or any portion’ of the business of the New Jersey Facility so that the New 26 Jersey facility will not be able to perform ‘in a manner consistent with its historical practices and 27 performance.’” (Id. ¶ 43.) 28 ///// 1 Cross-Complainants allege that Rush Air, Bynum, and Adams intentionally failed to disclose
2 the Altitude and Urban Air facilities in summer 2017 to ensure that the Three Facilities were acquired
3 as a bundled transaction and that they could negotiate the highest common denominator for the
4 Bakersfield Facility due to an inflated EBITDA for the New Jersey Facility. (Id. ¶ 44.) Cross-
5 Complainants contend they would never have entered into the APAs if they knew that two competitors
6 would open near the New Jersey Facility before and shortly after closing on the Three Facilities. (Id. ¶
7 45.) “At best, RDJ and its affiliates would have paid a much lesser EBITDA multiple for the Three
8 Facilities.” (Id.)
9 The Bakersfield Asset Purchase Agreement
10 1. Required Disclosures
11 Article 3 of the Bakersfield APA provides that “Seller and the Members, jointly and
12 severally” made all warranties and representations therein. (See FACC ¶ 29 (citing Bakersfield
13 APA at 13).) Cross-Complainants allege that under Section 3.6(a)(vii) of the Bakersfield APA,
14 Rush, Bynum, and Adams were required to disclose any “Contract with any Related Party
15 relating to or in any way affecting the Business.” (Id. ¶ 27.) Specifically, Section 3.6(a)(vii) of
16 the Bakersfield APA provides that “Schedule 3.6(a) sets forth a true, complete and correct list of 17 all of the following Contracts1 to which Seller is a party or by which its assets and properties are
18 bound,” including “any Contract with any Related Party relating to or in any way affecting the
19 Business.” (Bakersfield APA § 3.6(a)(vii).)
20 Under the Bakersfield APA, the “Seller” is defined as “Rush Air Sports, LLC, a California
21 limited liability company. (See Bakersfield APA at 6, 68.) The “Related Parties” are defined as “(a)
22 any of [Seller’s] Affiliates or Employees or (b) the Members, their family members or any of their
23 Affiliates.” (See id. § 3.20; id. at 29, 67.) “‘Affiliate’ shall mean, with respect to any Person, any other
25 1 Under the Bakersfield APA, “‘Contracts’ shall mean all contracts, leases, arrangements, indentures, notes, bonds, mortgages, guarantees, loans, instruments, commitments or other agreements . . . written 26 or oral (including any amendments, supplements, restatements, extensions and other modifications 27 thereto), of Seller, to which Seller is a party or by which Seller, the Purchased Assets, or Seller’s assets or properties are bound and that are in effect as of the date of this Agreement.” Bakersfield APA, 28 Annex A at 61 (Doc. No. 40-1). 1 Person directly or indirectly controlling, controlled by, or under common Control with such Person.”
2 (Bakersfield APA, Annex A at 60.) “Business” means “Rush Air Sports.” (See Bakersfield APA at 6;
3 id., Annex A at 60.)
4 Section 3.20 of the Bakersfield APA provides that “Schedule 3.20 sets forth a true, correct and
5 complete list of all Contracts and arrangements between or among Seller, on the one hand, and [the 6 Related Parties], on the other hand.” (Bakersfield APA § 3.20.3) Cross-Complainants allege:
7 Section 3.20 of the Bakersfield APA also requires Rush Air, Bynum, and Adams to disclose whether any “Related Party (i) has been involved in any 8 business agreement, arrangement or relationship with, relating to or in any
9 way affecting Seller or the Business (including furnishing services to or receiving services from, renting or leasing equipment, real estate or other 10 assets or properties to or from, or providing or receiving the benefit of properties or assets from non-arm’s length compensation) within the past 11 three (3) years.”
12 (FACC ¶ 28.)
13 2. Conditions Precedent
14 Article 6.3(c) of the Bakersfield APA’s Conditions Precedent section states the “obligation of
15 [the Selling Parties] to consummate the transactions to be performed by it at the Closing is subject to
16 the satisfaction . . . of each of the following conditions prior to or at the Closing date . . .” including
17 “[t]he simultaneous closing of the purchase of assets by RDJ . . . and their Affiliates from Air Plus
18 Trampoline Sports, Inc. [for the New Jersey Facility] and Current Holdings Group, Inc. [for the New
19 York Facility].” (Bakersfield APA § 6.3.)
20 3. Integration Clause/Guaranty
21 The Bakersfield APA contained an integration clause. Bakersfield APA § 8.1. Rush Air and its
22 members also agreed to indemnify the Buyer Group. (Id. § 7.2(a)–(b).) Section 7.2 of the Bakersfield
24 2 “Control,” “controlled by,” “controlling,” and “under common control with” means “possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of 25 such Person, whether through ownership of voting securities, by contract or otherwise.” Bakersfield APA, Annex A at 62. 26
3 The court has been unable to locate Schedules 3.6 and 3.20 in the exhibits to the FACC. Nonetheless, 27 at this stage of the litigation, the court is required to accept the pleadings as true and resolve all 28 inferences in the nonmoving party’s favor. Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 1 APA states:
2 7.2 Indemnification by Seller and the Members. Seller and the Members agree to defend, indemnify, and hold harmless, jointly and 3 severally, the Buyer Parties and each of their Affiliates (collectively, the 4 “Buyer Group”) (and, to the extent that Seller and the Members are required to . . . indemnify . . . with respect to Losses hereinafter described,
5 their respective officers, directors, managers, members, employees, agents, advisors, representatives, successors and assigns) (each hereinafter 6 referred to individually as a “Buyer Indemnified Person” and collectively as “Buyer Indemnified Persons”), . . . in respect of all Losses resulting 7 from, arising out of, relating to, or caused by . . . (a) any breach of any 8 representation or warranty made by Seller or the Members herein (without taking into account any “knowledge” or “material adverse effect”
9 qualification or other “materiality” qualifications) . . . [or] (b) any breach by Seller of, or failure by Seller to perform, . . . or otherwise fulfill or 10 comply with, any of the covenants, agreements, undertakings or obligations contained in this Agreement. 11
12 (Id. § 7.2(a)–(b) (emphasis omitted).) As part of the Bakersfield APA, Park, Shiring, and Silverman
13 signed as Guarantors from RDJ in favor of Rush Air. (Doc. No. 2-1 at 12–18.) Bynum signed the
14 Guaranty as the guaranteed party on behalf of Rush Air Sports. (Doc. No. 2-1 at 18.) The Bakersfield
15 APA defines “Contracts” to include guarantees. Bakersfield APA, Annex 1 at 61 (“‘Contracts’ shall
16 mean all contracts, leases, arrangements, . . . . guarantees . . . commitments or other agreements . . . of
17 Seller”) (emphasis omitted).
18 The Bakersfield APA established that California law governed the interpretation, construction,
19 and enforcement of the Bakersfield APA. (Id. § 8.9(a).) The Bakersfield APA also established that any
20 action involving any equitable or other claim arising out of the Bakersfield APA would be subject to suit
21 in the United States District court for the Eastern District of California or the state courts of California.
22 (Id. § 8.10.)
23 Procedural History and the FACC
24 On February 6, 2019, Plaintiff Rush Air filed a complaint in the Kern County Superior Court 25 against Defendants RDJ Group, Ralph Park, Jeff Shiring, David Silverman, and Does 1–50. (Doc. No. 26 2-1 at 3.) On March 25, 2019, Defendants removed the instant action to this federal court. (Doc. No. 27 2.) On April 26, 2019, RDJ Group, Park, Shiring, Silverman, and Flight Fit N Fun filed a counter and 28 cross-complaint against Rush Air, David Bynum, and Arch Adams. (Doc. No. 7.) On June 12, 2019, 1 Cross-Defendants filed three motions to dismiss, a motion for a more definite statement, and motion to
2 strike Cross-Complainants’ counter and cross-complaint. (Doc. Nos. 12–16.) On October 3, 2019, the
3 court granted in part and denied in part Cross-Defendants’ motions to dismiss. (Doc. No. 39 at 27–28.)
4 The court denied the remaining motions as having been rendered moot. (Id.) On October 23, 2019,
5 Cross-Complainants filed their FACC. (Doc. No. 40.)
6 Cross-Complainants assert the following claims against Cross-Defendants:
7 1. Count One: Breach of Contract for breach of the Bakersfield APA and breach of the
8 Non-Competition and Non-Disclosure Agreements as part of the Bakersfield APA
9 against Rush Air, Bynum, and Adams;
10 2. Count Two: Unjust Enrichment against Rush Air, Bynum, and Adams;
11 3. Count Three: Breach of the Implied Covenant of Good Faith and Fair Dealing against
12 Rush Air, Bynum, and Adams; 13 4. Count Four: Fraudulent Inducement against “Selling Parties4, particularly including but
14 not limited to Bynum and Adams” (Doc. No. 40 ¶ 69); and
15 5. Count Five: Declaratory Judgment against Rush Air.
16 The Motion to Dismiss
17 All Cross-Defendants move to dismiss the FACC under Federal Rule of Civil Procedure
18 12(b)(3) for improper venue due to the parties’ forum selection clause. (Doc. No. 43-1 at 13–15.) Arch
19 Adams seeks to dismiss the FACC under Rule 12(b)(6) for the breach of contract and breach of the
20 covenant of good faith and fair dealing claims. (Doc. No. 43-1 at 6, 16–17.) All Cross-Defendants
21 seek to dismiss the unjust enrichment and fraud claims under Rule 12(b)(6). (Id. at 6, 13–14.) Lastly,
22 Rush Air moves to dismiss the declaratory relief claim. (Id. at 20–21.)
23 /////
24 ///// 25 ///// 26 ///// 27
28 4 Cross-Complainants define “Selling Parties” as Rush Air, Bynum, and Adams. (Doc. No. 40 ¶ 29.) 1 DISCUSSION
2 Motion to Dismiss for Improper Venue
3 Cross-Defendants seek dismissal of the entire FACC under Rule 12(b)(3) for improper venue 4 based on the parties’ forum selection clause.5 (Doc. No. 43-1 at 13–15.) An analysis under Rule
5 12(b)(3) allows district courts to consider facts outside of the pleadings. See Argueta v. Banco
6 Mexicano S.A., 87 F.3d 320, 324 (9th Cir. 1996). Nonetheless, the court must draw all reasonable
7 inferences and resolve all factual conflicts in favor of the non-moving party. See Murphy v. Schneider
8 Nat’l, Inc., 362 F.3d 1133, 1138 (9th Cir. 2004).
9 Federal law governs the enforceability of a forum selection clause. See Argueta, 87 F.3d at 324.
10 If a court determines that venue is improper, it may dismiss the case, or, if the interests of justice
11 require, the court may transfer the case to any district in which it properly could have been brought. 28
12 U.S.C. § 1406(a). The court has discretion on the decision to transfer. 28 U.S.C. § 1404(b); King v.
13 Russell, 963 F.2d 1301, 1304 (9th Cir. 1992).
14 1. Which APA Controls: New Jersey or California?
15 Here, the contracts contain forum selection clauses, which designate California, New Jersey,
16 and New York state and federal courts for litigation arising out of each of those contracts, respectively.
17 Cross-Defendants assert the New Jersey APA’s forum selection clause controls. (See Doc. No. 43-1 at
18 14.) In contrast, Cross-Complainants argue the Bakersfield APA applies because the FACC claims
19 arise from the Bakersfield APA. (Doc. No. 47 at 16–18.)
20 Cross-Defendants argue that Cross-Complainants have not cited to any provision in the
21 Bakersfield APA that would give rise to a breach of contract claim for the opening of competing parks
22 in New Jersey. (Doc. No. 52 at 3.) Cross-Defendants contend that Cross-Complainants’ framing of the
23 acquisitions as a “Bundled Transaction” does not change the fact that the three APAs were separate,
24 fully integrated documents, requiring three separate forums for their disputes. (See Doc. No. 52 at 3.) 25 Cross-Defendants further assert that Section 3.20 of the Bakersfield APA is insufficient because Cross- 26
27 5 Cross-Defendants appear to have inadvertently relied upon Rule 12(b)(1) as the basis for its motion 28 to dismiss despite acknowledging that such a motion to dismiss is properly brought under Rule 12(b)(3) 1 Complainants have failed to show that the opening of the competing New Jersey facilities affects Rush
2 Air Sports. (See id.)
3 In its prior Order addressing Cross-Defendants’ motions to dismiss for improper venue, the
4 court concluded that the New Jersey APA applied because Cross-Complainants did not cite any
5 provision in the Bakersfield APA that would give rise to contract claims stemming from the New
6 Jersey events. (Doc. No. 39 at 16–17.) The court finds that the FACC cures the defects which
7 originally failed to link the New Jersey events to the Bakersfield APA. Cross-Complainants highlight
8 Sections 3.6 and 3.20 of the Bakersfield APA. In Section 3.6(a), the Seller, Rush Air, represented that
9 it provided a “true, complete and correct list” of Contracts to which Seller [wa]s a party,” including
10 “any Contract with any Related Party relating to or in any way affecting the Business.” (Bakersfield
11 APA § 3.6(a)(vii).) Section 3.20 provides that Seller and “any of its Affiliates,” or “the Members, their
12 family members or any of their Affiliates (collectively, ‘Related Parties’) represent that they provided a
13 “true, correct and complete list of all Contracts and arrangements.” (Id. § 3.20.) The Related Parties
14 further represented that “no Related Party (i) has been involved in any business agreement, arrangement
15 or relationship with, relating to or in any way affecting Seller or the Business . . ..” (Id.)
16 Cross-Complainants allege that the acquisition of the Bakersfield Facility was part of a bundled
17 transaction with the New Jersey and New York Facilities, and any disclosures or omissions related to
18 any one of the facilities was a disclosure or omission to the other facilities. (See Doc. No. 47 at 16.) In
19 other words, an omission regarding the financial prospects of one facility—especially the New Jersey
20 Facility since it is the biggest trampoline park of the Three Facilities—affects the parties’ agreed upon
21 EBITDA multiplier for all Three Facilities. (See FACC ¶ 37.)
22 Indeed, this common multiplier was based on Adams’ and Bynum’s disclosures to Cross-
23 Complainants, individually and on Rush Air’s behalf, concerning all Three Facilities’ past
24 performances and expected future performances. (Doc. No. 47 at 16.) During due diligence, Cross- 25 Defendants were asked to disclose any new competitor properties within 25 miles of the Three 26 Facilities. (Id. at 17) (citing FACC ¶ 37). In summer 2017, Cross-Defendants stated in writing they 27 “[w]ere not aware of any new competitor or refurbishments at this time” that would be within 25 miles 28 from the New Jersey or New York facilities. (Id.) However, as early as March or April 2017, Urban 1 Air contacted Adams as a potential trampoline vendor for its upcoming Urban Air Facility—which was
2 approximately 13 miles from the New Jersey Facility. (FACC ¶ 40.) In the summer of 2017, Adams
3 and his company, Fun Spot, contracted with Altitude to design and outfit Altitude’s Facility—which
4 was approximately 11 miles from the New Jersey Facility. (FACC ¶¶ 35, 37.) The FACC alleges that
5 Cross-Defendants failed to disclose Adam’s relationship with Altitude in July 2017—which was three
6 months before the parties closed on the Three Facilities. (See FACC ¶ 39.) Thus, an “inflated financial
7 performance for the New Jersey Facility led to an inflated (and misrepresented) multiplier for all three
8 facilities and an overpayment for the Bakersfield Facility.” (Id.)
9 Further, Section 6.3(c) of the Bakersfield APA established as a condition precedent the
10 “simultaneous closing of the purchase of assets by RDJ . . . and their Affiliates from Air Plus
11 Trampoline Sports, Inc. [for the New Jersey Facility] and Current Holdings Group, Inc. [for the New
12 York Facility].” (Bakersfield APA § 6.3.)
13 In sum, Cross-Complainants sufficiently allege a link between the opening of competing parks
14 in New Jersey and Bakersfield APA Sections 3.6(a) and 3.20’s requirements for the Related Parties to
15 disclose any Contracts affecting the Business. Adams’s agreement to design the Altitude Facility and
16 his purported knowledge regarding the opening of the Urban Air Facility support the allegation that the
17 inflated EBIDTA multiplier concerning the New Jersey Facility—the “driving force” behind the
18 transactions as the largest facility—affected the Bakersfield and New York Facilities’ common
19 denominators. Moreover, the Bakersfield APA required the simultaneous closing of the Three
20 Facilities. Therefore, there is a sufficient nexus between the opening of the New Jersey competitors
21 and the Bakersfield APA such that the Bakersfield APA’s forum selection clause applies.
22 2. Enforceability of the Forum Selection Clause
23 Neither party has addressed the validity of the Bakersfield APA’s forum selection clause. “A
24 forum selection clause is presumptively valid; the party seeking to avoid a forum selection clause bears 25 a ‘heavy burden’ to establish a ground” on which a forum selection clause should not be enforced. Doe 26 1 v. AOL LLC, 552 F.3d 1077, 1083 (9th Cir. 2009). There are three circumstances under which 27 enforcement of a forum selection clause would be unreasonable: 28 ///// 1 (1) if the inclusion of the clause in the agreement was the product of fraud or overreaching; (2) if the party wishing to repudiate the clause would 2 effectively be deprived of his day in court were the clause enforced; and
3 (3) if enforcement would contravene a strong public policy of the forum in which suit is brought. 4
5 Murphy, 362 F.3d at 1140 (internal citations and quotation marks omitted). Forum selection clauses are
6 also scrutinized for “fundamental fairness,” and may be deemed unfair if inclusion of the clause was
7 motivated by bad faith, or if the party had no notice of the forum provision. Carnival Cruise Lines, Inc.
8 v. Shute, 499 U.S. 585, 595 (1991). “The party challenging the clause bears a ‘heavy burden of proof.’”
9 Murphy, 362 F.3d at 1140 (quoting Bremen v. Zapata Off–Shore Co., 47 U.S. 1, 17, (1972)).
10 a. Fraud or Overreaching
11 Nothing in the parties’ filings demonstrate that the forum selection clauses designating
12 California, New Jersey, and New York as the proper forums to litigate claims arising from those states,
13 respectively, were products of fraud or overreaching. While other allegations of fraud appear in the
14 cross-complaint, none relate to negotiations over provisions in the three contracts. As such,
15 consideration of this factor weighs in favor of enforcing the Bakersfield APA forum selection clause.
16 b. Deprivation of Cross-Complainants’ Day in court
17 Neither party argues that enforcement of the Bakersfield APA’s forum selection clause would
18 deprive them of their day in court. Thus, the court will turn to an examination of the next factor.
19 c. Contravention of Strong Public Policy
20 The court sees no strong public policy that would be implicated if it enforces the Bakersfield
21 APA’s forum selection clause. Based on the parties’ filings, there appears to have been sophisticated
22 parties on both sides of the negotiation at issue. Adams is purported to be a trampoline industry insider,
23 Cross-Complainants already operated trampoline parks on the East Coast, and the remaining Cross-
24 Defendants were involved in the trampoline park and family entertainment business. Enforcing the 25 Bakersfield APA forum selection clause would not contravene strong public policy principles. 26 The court therefore finds that the Bakersfield APA’s forum selection clause designating this 27 court as the proper venue for disputes is enforceable. Accordingly, Cross-Defendants’ motion to 28 dismiss under Rule 12(b)(3) will be DENIED. 1 Motion to Dismiss for Failure to State a Claim
2 A motion to dismiss pursuant to Rule 12(b)(6) is a challenge to the sufficiency of the allegations
3 set forth in the complaint. Dismissal under Rule 12(b)(6) is proper where there is either a “lack of a
4 cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.”
5 Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). In considering a motion to
6 dismiss for failure to state a claim, the court generally accepts as true the allegations in the complaint,
7 construes the pleading in the light most favorable to the party opposing the motion, and resolves all
8 doubts in the pleader’s favor. Lazy Y. Ranch LTD, 546 F.3d at 588.
9 To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a
10 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A
11 claim has facial plausibility when the Plaintiff pleads factual content that allows the court to draw the
12 reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
13 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks
14 for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550
15 U.S. at 556). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
16 factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires
17 more than labels and conclusions.” Twombly, 550 U.S. at 555 (internal citations omitted). Thus, “bare
18 assertions . . . amount[ing] to nothing more than a ‘formulaic recitation of the elements’. . . are not
19 entitled to be assumed true.” Iqbal, 556 U.S. at 681. “[T]o be entitled to the presumption of truth,
20 allegations in a complaint . . . must contain sufficient allegations of underlying facts to give fair notice
21 and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th
22 Cir. 2011). In practice, “a complaint . . . must contain either direct or inferential allegations respecting
23 all the material elements necessary to sustain recovery under some viable legal theory.” Twombly, 550
24 U.S. at 562. To the extent that a deficient pleading can be cured by the allegation of additional facts, 25 however, a plaintiff should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. N. Cal. 26 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted). 27 ///// 28 ///// 1 1. Adams’s Motion to Dismiss
2 Adams moves to dismiss the breach of contract and breach of the covenant of good faith and fair
3 dealing claims because he was not a party to the Bakersfield APA. (Doc. No. 43-1 at 13.) Adams
4 contends that his only involvement in the Bakersfield APA was signing as manager of Waylaid, which is
5 a member of Rush Air. (Id.) Adams argues he cannot be found personally liable for Waylaid’s debts or 6 obligations under California law. (Id.) (citing Cal. Corp. Code § 17703).6
7 As Cross-Complainants highlight, this court previously held that Adams was subject to its
8 personal jurisdiction given his alleged involvement with the Three Facilities transactions. (Doc. No. 39
9 at 12–13.) However, a finding that a party is subject to the court’s personal jurisdiction is not
10 dispositive of the issue raised in Adams’s motion—whether Adams, who signed the Bakersfield APA on
11 Waylaid’s behalf, can be held personally liable for breach of contract or breach of the implied covenant
12 of good faith and fair dealing. The court notes that the parties have failed to cite any case law in
13 support of their arguments on this issue.
14 a. Breach of Contract.
15 Neither party disputes that the Bakersfield APA is a valid contract. Generally, only a party to a
16 contract can breach it. See EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002). Typically, members
17 of a California limited liability company cannot be personally liable on a contract signed on behalf of
18 the limited liability company. Cal. Corp. Code § 17703.04(a)(2) (“debts, obligations, or other liabilities
19 of a limited liability company, whether arising in contract, tort, or otherwise . . . do not become the
20 debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as 21 a member or manager acting as a manager for the limited liability company.”) (emphasis added).7
22 Limited liability company members “may not be held liable for the wrongful conduct of the companies
23 merely because of the managers’ status, they may nonetheless be held accountable under [the
24 predecessor Corporations Code] for their personal participation in tortious or criminal conduct, even 25 when performing their duties as manager.” People v. Pacific Landmark, LLC, 129 Cal. App. 4th 1203, 26 27 6 California Corporations Code § 17703 was repealed in 1999.
28 7 Because California Corporations Code § 17703 has been repealed, the court analyzes § 17703.04 for 1 1212 (2005) (emphasis in original); Cal. Corp. Code § 17703.04(b). “[T]he privilege against personal
2 liability is not absolute.” Comercializadora Recmaq v. Hollywood Auto Mall, LLC, No. 12-cv-0945-
3 AJB (MDD), 2014 WL 3628272, *7 (S.D. Cal. July 21, 2014) (citing Pac. Landmark, 129 Cal. App. 4th
4 at 1212). “Fraud in the inducement is a subset of the tort of fraud.” Hinesley v. Oakshade Town Ctr.,
5 135 Cal. App. 4th 289, 294 (2005).
6 Here, Cross-Complainants allege fraudulent inducement, discussed more fully in Section B.3. of
7 this Order. Cross-Complainants outline Adams’s allegedly tortious conduct as follows: Adams acted in
8 his own interest—not on Waylaid’s behalf—when he personally approached Cross-Complainants in
9 March 2017 with the proposed bundled transaction (Doc. No. 47 at 19); “Adams marketed and solicited
10 the sale of the Three Facilities as a ‘bundled’ transaction.” (id. at 23); “all parties in the transactions . . .
11 were buying the Three Facilities because of . . . Adams as a ‘bundle.’” (id.); Adams’s had ownership
12 rights in each of the Three Facilities (id. at 19); the common multiplier for the Three Facilities was
13 based upon Adams’s disclosures (see id. at 23); Adams contracted with Altitude to design and outfit
14 Altitude’s facility in summer 2017 (id. at 24); Urban Air’s manager contacted Adams in April 2017 for
15 potential trampoline services (id.); during the parties’ due diligence in summer 2017, Adams stated in
16 writing that he was not aware of new competitors that would be within 25 miles of the New Jersey
17 facility (id.); Altitude opened its facility a week before the parties closed on the sale of the Three
18 Facilities (id.); and Urban Air opened two-to-three weeks after the parties closed on the sale of the Three
19 Facilities (id.).
20 Cross-Complainants argue they “engaged with Adams, not his various companies, to purchase
21 the Three Facilities” because “Adams was the ‘main attraction’ or factor to [Cross-Complainants],
22 common to all of the Three Facilities.” (Id. at 19) (citing FACC ¶ 22). Cross-Complainants assert that
23 Adams “knew of certain facts that were critical to the purchase of the Three Facilities as a bundled
24 transaction for the agreed upon multiplier,” but “as one of the selling parties of the Three Facilities, 25 ‘intentionally concealed these facts from [Cross-Complainants] to induce [Cross-Complainants] to enter 26 into the APAs for the Three Facilities, including the Bakersfield APA.’” (Id.) (citing FACC ¶¶ 26, 76– 27 77).
28 ///// 1 Cross-Complainants have sufficiently alleged that Adams engaged in tortious conduct to invoke
2 personal liability under California Corporation Code § 17703.04. Accordingly, Adams’s motion to
3 dismiss the breach of contract claim will be DENIED.
4 b. Good Faith and Fair Dealing
5 “Breach of the covenant of good faith and fair dealing is nothing more than a cause of action for
6 breach of contract.” Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga, 175 Cal. App. 4th
7 1306, 1344 (2009). “There is an implied covenant of good faith and fair dealing in every contract that
8 neither party will do anything which will injure the right of the other to receive the benefits of the
9 agreement.” Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 400 (2000). The implied
10 covenant is “as much a part of the instrument as if [the covenant] were written out.” Comunale v.
11 Traders & General Ins. Co., 50 Cal. 2d 654, 662 (1958). The claim of the implied covenant of good
12 faith and fair dealing also survives if there are allegations of “bad faith on the part of the accused.” See
13 Sam Kohli Enters., Inc. v. BOC Grp., Inc., No. 11-cv-299, 2011 WL 3298902, *5 (S.D. Cal. Aug. 1,
14 2011).
15 For the same reasons applicable to Adams’s motion to dismiss the breach of contract claim, the
16 court finds that Cross-Complainants sufficiently allege Adams’s bad faith conduct. Adams’s motion to
17 dismiss the breach of the implied covenant of good faith and fair dealing claim will therefore likewise be
18 DENIED.
19 2. Unjust Enrichment
20 Cross-Complainants’ second cause of action is for “unjust enrichment,” which Cross-
21 Defendants urge the court to dismiss as inconsistent with Cross-Complainants’ allegations of an
22 express contract. (See Doc. No. 43-1 at 17–18.) As this court stated in its October 3, 2019, order,
23 Cross-Complainants’ two claims are mutually exclusive for purposes of judgment and awarding
24 damages: “[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists 25 between the parties a valid express contracting covering the same subject matter.” (Doc. No. 39 at 26– 26 27 (quoting Lance Camper Mfg. Corp. v. Republic Indem. Co., 44 Cal. App. 4th 194, 203 (1996)).) 27 “Restitution may be awarded in lieu of breach of contract damages when the parties had an express 28 contract, but it was procured by fraud or is unenforceable or ineffective for some reason.” McBride v. 1 Boughton, 123 Cal. App. 4th 379, 388 (2004). The two claims may be pled simultaneously as
2 alternatives, but a plaintiff must be precise in pleading these alternative claims. Compare, e.g.,
3 Gerlinger v. Amazon.Com, Inc., 311 F. Supp. 2d 838, 856 (N.D. Cal. 2004) (a quasi-contract claim
4 incorporating by reference an allegation of an express agreement defeats the quasi-contract claim), with
5 Ball v. Johanns, No. 07-cv-1190-LKK-DAD, 2008 WL 269069, *3 (E.D. Cal. Jan. 29, 2008) (unjust
6 enrichment claim not barred despite simultaneous claim for breach of contract).
7 Once again, in pleading their quasi-contract claim, Cross-Complainants incorporate by
8 reference all previous allegations which include the allegation of an express, enforceable agreement
9 between the parties; this is fatal to the quasi-contract claim. (Doc. No. 40 ¶ 64.) The facts pled to
10 maintain the alternative claim must support that alternative. This is a very simple and technical
11 pleading defect and should presumably not be difficult to cure. Cross-Complainants’ alternative claim
12 for unjust enrichment—which is really a quasi-contract claim for restitution—will be DISMISSED with
13 leave to amend. Cross-Complainants are warned that if they fail to carefully consider and abide by the
14 court’s instructions in this regard, this claim will be dismissed without further leave and imposition of
15 sanctions may be considered.
16 3. Fraudulent Inducement
17 Under California law, the elements of fraud are: “[1] misrepresentation (false representation,
18 concealment, or nondisclosure); [2] knowledge of the falsity (or ‘scienter’); [3] intent to defraud, i.e., to
19 induce reliance; [4] justifiable reliance; and [5] resulting damage.” Lazar v. Super. Ct., 12 Cal. 4th 631,
20 638 (1996). Federal Rule of Civil Procedure 9(b) requires a party alleging fraud to “state with
21 particularity the circumstances constituting [the] fraud[.]” Fed. R. Civ. P. 9(b). The party must set forth
22 in detail “the who, what, when, where, and how” of the alleged fraudulent conduct. Vess v. Ciba-Geigy
23 Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted).
24 “Fraud in the inducement is a subset of the tort of fraud. It occurs when the promisor knows 25 what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, 26 which by reason of the fraud, is voidable.” Hinesley, 130 Cal. App. 4th at 294 (internal citations and 27 quotation marks omitted). 28 ///// 1 Cross-Defendants move to dismiss the fraud claim because it does not state with particularity
2 “when” the alleged fraudulent conduct occurred “or state the other details.” (Doc. No. 43-1 at 19.)
3 Cross-Defendants further argue the Bakersfield APA does not contain any disclosure requirements 4 relating to New Jersey and that “Buying Parties” is limited to RDJ and Flight Fit N Fun. 8 (Id.)
5 First, Cross-Complainants allege that during the parties’ due diligence for the Three Facilities,
6 Rush Air, Bynum, and Adams were asked to disclose any new competitor properties being built or
7 existing ones being refurbished or expanded within 25 miles of any of the Three Facilities. (See Doc.
8 No. 47 at 23) (citing FACC ¶ 27). In summer 2017, “Rush Air, Bynum, and Adams affirmatively stated
9 in writing that they ‘were not aware of any new competitor or refurbishments at this time’ that would be
10 within 25 miles from either the New York or New Jersey Facilities.” (Id. at 24) (quoting FACC ¶ 37).
11 However, Cross-Complainants allege that Rush Air, Bynum, and Adams knew about Altitude’s pending
12 opening because Adams’s company, Fun Spot, entered into an agreement with Altitude to design and
13 outfit the Altitude facility by July 2017—three months before the parties entered into the Bakersfield
14 APA. (See id.) (citing FACC ¶ 39). Additionally, Cross-Complainants allege Urban Air’s owner
15 contacted Adams and Fun Spot in March or April 2017 “as a potential trampoline vendor for the
16 upcoming Urban Air Facility.” (Id.) (quoting FACC ¶ 40). Unbeknownst to Cross-Complainants,
17 Altitude opened its facility roughly 11 miles from the New Jersey Facility approximately a week before
18 the parties closed on the APAs for the Three Facilities. (Id.) (citing FACC ¶¶ 35, 38). Moreover, Urban
19 Air opened its facility roughly 13 miles from the New Jersey Facility approximately two-to-three weeks
20 after the parties closed on the APAs. (Id.) (citing FACC ¶ 36). Based on the foregoing allegations, the
21 court finds that Cross-Complainants have sufficiently pled “when” the alleged fraud occurred.
22 Intent to defraud is also sufficiently pled based on Cross-Defendants allegedly “marketed and
23 solicited the sale of the Three Facilities as a ‘bundled’ transaction (id. at 23) (citing FACC ¶ 21); “all
24 parties in the transactions . . . were buying the Three Facilities because of [Cross-Defendant] Adams as a 25 ‘bundle’” (id.) (citing FACC ¶ 22); the common multiplier for the Three Facilities as a “bundled” 26 acquisition was determined based upon Adams’s and Bynum’s disclosures—both individually and on 27 28 8 The court rejects Cross-Defendants’ argument that the Bakersfield APA does not contain disclosure 1 Rush Air’s behalf—relating to all Three Facilities’ past and expected performances (id.) (citing FACC ¶
2 24); “This disclosure was important as the New Jersey Facility was the biggest facility of the Three
3 Facilities and was the driving force behind what [Cross-Complainants] would be willing to use as a
4 denominator of EBIDTA for the purchase price of the Three Facilities” (id.); “Rush Air, Bynum, and
5 Adams knew that the New Jersey Facility, and its expected future performance, was integral to the
6 acquisition of the Three Facilities as a bundled transaction (id.) (citing FACC ¶ 38); and Adams’s
7 contract was never disclosed during the parties’ due diligence or negotiations for the Three Facilities’
8 common denominator (id.).
9 Cross-Complainants have also sufficiently pled justifiable reliance where the FACC alleges Rush
10 Air, Adams, and Bynum made various material and critical warranties and representations regarding the
11 Three Facilities. (Id.) (citing FACC ¶¶ 26, 29). Nothing in Cross-Defendants’ filings suggests that
12 Cross-Complainants had reason to know during their negotiations of Adams’s or Fun Spot’s agreement
13 with Altitude or of Urban Air’s business inquiry with Adams and Fun Spot in March or April 2017.
14 Cross-Complainants sufficiently pled damages where they allege that they would not have
15 entered into any of the APAs had they known competing facilities would open nearby the New Jersey
16 Facility, or at the very least, they would have negotiated a much lesser EBITDA multiple for the Three
17 Facilities. (Id.) (citing FACC ¶¶ 44–45). Cross-Complainants further allege that “the unexpected
18 presence of these competitors (and their active and aggressive competition) ‘has affected the historical
19 operation’ of the New Jersey Facility and will ‘adversely affect’ in the future ‘all or any portion’ of the
20 business of the New Jersey Facility” where the New Jersey Facility will not be able to perform “in a
21 manner consistent with its historical practices and performance.” (FACC ¶ 43) (quoting Bakersfield
22 APA § 3.26).
23 The court finds that Cross-Complainants have sufficiently pled Adams and Rush Air had
24 “knowledge of the falsity,” but have not done so as to Bynum. The FACC’s allegations plausibly 25 demonstrate that Adams and Rush Air (through Adams as Waylaid’s manager), had knowledge of the 26 opening of competing facilities within 25 miles of the New Jersey Facility as early as March or April 27 2017, but failed to disclose that information during the parties’ due diligence in summer 2017. (See id.; 28 FACC ¶¶ 39–40.) The allegations fail to explain, however, how Adams’s and Rush Air’s knowledge of 1 the opening of Altitude’s or Urban Air’s facilities may be imputed to Bynum. Accordingly, the motion
2 to dismiss will be DENIED as to Rush Air and Adams. However, the motion to dismiss will be
3 GRANTED as to Bynum with leave to amend also being granted.
4 a. Cross-Complainants Park, Shiring, and Silverman
5 Cross-Defendants argue the term “Buying Parties” in the FACC is limited to only RDJ and
6 Flight Fit N Fun. (Doc. No. 43-1 at 19.) Cross-Defendants argue that because “Park[], Silverman, and
7 Shiring are not alleged recipients and they have not pled reliance or damages, the fraud cause of action
8 fails to allege facts supporting each element necessary for them to state a cause of action . . . .” (Id.) It
9 is unclear what Cross-Defendants mean by “alleged recipients.”
10 As part of the Bakersfield APA, Park, Shiring, and Silverman signed as Guarantors from RDJ in
11 favor of Rush Air. (Doc. No. 40-1 at 71.) Indeed, the court previously held that Park, Silverman, and
12 Shiring are guarantors to whom indemnity may be later available under § 7.2(a)–(b) of the Bakersfield
13 APA. (Doc. No. 39 at 22–24.) However, Cross-Complainants write in a footnote:
14 If the Court determines that Count Four does not sufficiently allege that 15 fraud was committed as to Cross-Plaintiffs Park, Shiring, and Silverman because they weren’t individual[ly] identified as the ‘Buying Parties’ in 16 the Bakersfield APA, then Cross-Plaintiffs ask for leave to amend the
17 Counter and Cross-Complaint to further address their individual roles in the negotiation and execution of the Bakersfield APA—which includes the 18 fact that each of them were induced to individually sign personal Guarantees in connection with the Bakersfield APA as a result of Cross- 19 Defendants’ intentional omission of material facts related to the bundled transaction. 20
21 (Doc. No. 47 at 23 n.4.)
22 While the court acknowledges Park, Shiring, and Silverman’s roles as guarantors for purposes of
23 the indemnification clause, their fraud allegations are not pled with the specificity required under Rule
24 9(b). To the extent Cross-Complainants elect to amend their counter and cross-complaint, they are 25 directed to clarify Park, Shiring, and Silverman’s roles in the negotiation process and any alleged 26 inducement into signing the guarantees in connection with the Bakersfield APA. 27 ///// 28 ///// 1 4. Declaratory Relief
2 Rush Air contends that the court must dismiss Cross-Complainants’ claim for declaratory relief
3 because the court lacks subject matter jurisdiction. (Doc. No. 43 at 20–21.) The court agrees that the
4 parties have not presented federal questions. Rush Air argues that there is no diversity jurisdiction
5 because “there are California entities on both sides of the action.” (Id. at 20.) In particular, Rush Air
6 contends that Flight Fit N Fun’s “principal place of business” is its corporate headquarters, and Rush
7 Air and Bynum are California citizens. (See id. at 20–21.) Lastly, Rush Air argues supplemental
8 jurisdiction does not apply here because it is a standalone claim that cannot survive without Cross-
9 Complainants’ breach of contract claims. (See Doc. No. 52 at 8.)
10 Diversity jurisdiction requires that the matter in controversy exceeds $75,000 and is between
11 citizens of different states. 28 U.S.C. § 1332(a)(1). On February 6, 2019, Cross-Defendant Rush Air, a 12 California LLC,9 filed the original complaint in the Kern County Superior Court against Defendants 13 RDJ, a Virginia LLC10; Park, a Pennsylvania citizen; Shiring, a Virginia citizen; and Silverman, a
14 Virginia citizen. (Doc. No. 2-1 at 3.) The amount in controversy is $413,377.91. (Id. at 6.) On March
15 25, 2019, Defendants removed the instant action to this federal court under 28 U.S.C. § 1332(a)(1).
16 (Doc. No. 2 ¶ 7.) The court finds that the amount-in-controversy in the original complaint exceeds
17 $75,000. The original complaint is between citizens of different states, which includes California and
18 Georgia citizens on one side, and Virginia, Delaware, and Pennsylvania citizens on the other. 19 Accordingly, the requirements for diversity jurisdiction are satisfied.11
20 /////
22 9 It appears that all but one of Rush Air’s members are citizens of California. (Doc. No. 2 ¶ 9.) The remaining member, Waylaid, is a Georgia limited liability company. (Bakersfield APA at 6.) The 23 filings do not contain any additional information regarding the members of Waylaid other than Adams, 24 who is a Georgia citizen. (Doc. No. 40 ¶ 9.)
25 10 RDJ’s members are citizens of Virginia and Pennsylvania. (Doc. No. 2 ¶ 10.)
26 11 Rush Air argues that there is no diversity jurisdiction because Cross-Complainant Flight Fit N Fun LLC (Bakersfield) is a California citizen. The court need not address Rush Air’s argument because 27 diversity jurisdiction exists in the original complaint. “[C]ross-claims do not defeat diversity.” 28 McDaniel v. Loya, 304 F.R.D. 617, 638 (D.N.M. 2015). The court exercises supplemental jurisdiction 1 Title 28 U.S.C. § 2201 provides that “[i]n a case of actual controversy within its jurisdiction, . . .
2 any court of the United States, upon the filing of an appropriate pleading, may declare the rights and
3 other legal relations of any interested party seeking such declaration, whether or not further relief is or
4 could be sought.” Title 28 U.S.C. § 1367(a) provides:
5 [I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other 6 claims that are so related to the claims in the action within such original 7 jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental
8 jurisdiction shall include claims that involve the joinder of intervention of additional parties. 9
10 In the original complaint, Rush Air sought to enforce a promissory note and personal guarantees
11 executed as part of the Bakersfield APA. (Doc. No. 2-1 ¶¶ 9–19.) Given that the FACC concerns
12 breaches relating to the Bakersfield APA, and Cross-Complainants’ declaratory relief claim seeks, in
13 part, a “[j]udgment declaring and adjudging that the Note and the Guaranty are null and void and are
14 rescinded” (Doc. No. 40 at 17), the court finds the claims in the FACC are “so related to the claims” in
15 the original complaint such “that they form part of the same case or controversy.” 28 U.S.C. § 1367(a).
16 Accordingly, Rush Air’s motion to dismiss will be DENIED.
17 CONCLUSION
18 For the reasons set forth above:
19 1. Cross-Defendants’ motion to dismiss under Rule 12(b)(3) for improper venue is DENIED (Doc.
20 No. 43);
21 2. Adams’s motion to dismiss under Rule 12(b)(6) for the breach of the Bakersfield APA is
22 DENIED (Doc. No. 43);
23 3. Adams’s motion to dismiss the breach of the covenant of good faith and fair dealing claim is
24 DENIED (Doc. No. 43); 25 4. Cross-Defendants’ motion to dismiss the unjust enrichment claim is GRANTED with leave to 26 amend (Doc. No. 43); 27 5. Rush Air and Adams’s motion to dismiss the fraudulent inducement claim is DENIED (Doc. 28 No. 43); 1 6. Bynum’s motion to dismiss the fraudulent inducement claim is GRANTED with leave to amend 2 (Doc. No. 43); 3 7. Cross-Defendants’ motion to dismiss Park, Shiring, and Silverman’s fraudulent inducement 4 claims is GRANTED with leave to amend (Doc. No. 43); and 5 8. Rush Air’s motion to dismiss the declaratory relief claim is DENIED (Doc. No. 43). 6 Based on the aforementioned reasons, Cross-Defendants’ motion to strike (Doc. No. 42) and 7 | motion for more definite statement (Doc. No. 41) are DENIED AS MOOT. Cross-Complainants have 8 || 30 days to file amended pleadings or file a notice informing the court that they will not amend. 9 10 IT IS SO ORDERED. * ue 11 Dated: _ February 14, 2020 wee ee ae UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28