KEKER, VAN NEST & PETERS LLP JOHN W. KEKER - #49092€¦ · Case No. 5:17-cv-03805-LHK DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS PLAINTIFFS’ THIRD

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS

PLAINTIFFS’ THIRD AMENDED COMPLAINT Case No. 5:17-cv-03805-LHK

1283128.01

KEKER, VAN NEST & PETERS LLP JOHN W. KEKER - #49092 [email protected] SUSAN J. HARRIMAN - #111703 [email protected] DANIEL PURCELL - #191424 [email protected] FRANCO MUZZIO - #310618 [email protected] 633 Battery Street San Francisco, CA 94111-1809 Telephone: 415 391 5400 Facsimile: 415 397 7188

Attorneys for Defendant SOUTHERN GLAZER’S WINE AND SPIRITS, LLC

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION ARENA RESTAURANT AND LOUNGE LLC, PACIFICA RESTAURANTS, LLC, VINE AND BARREL LLC, DANIEL FLORES, individually, and on behalf of all others similarly situated,

Plaintiffs,

v.

SOUTHERN GLAZER’S WINE AND SPIRITS, LLC, SOUTHERN GLAZER WINE & SPIRITS OF AMERICA, INC.,

Defendants.

Case No. 5:17-cv-03805-LHK DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED COMPLAINT

Date: October 11, 2018 Time: 1:30 p.m. Ctrm: Courtroom 8 - 4th Floor

Judge: Hon. Lucy H. Koh

Date Filed: July 5, 2017

Trial Date: October 15, 2019

Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 1 of 22

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

i DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS


1283128.01

TABLE OF CONTENTS

Page

NOTICE OF MOTION AND MOTION TO DISMISS ..................................................................1

I. INTRODUCTION ...............................................................................................................1

II. CASE BACKGROUND AND THE THIRD AMENDED COMPLAINT .........................2

III. LEGAL ARGUMENT .........................................................................................................3

A. The Court should dismiss plaintiffs’ first and second claims for fraud. ..................5

1. Plaintiffs have not pleaded any elements of the alleged fraud with the particularity required under Rule 9(b). ..................................................5

2. The economic loss rule bars plaintiffs’ fraud claims because plaintiffs have failed to make out a claim for fraudulent inducement. ..................................................................................................7

B. The Court should dismiss plaintiffs’ third through sixth claims for below-cost sales, loss-leader sales, secret rebates, threats and intimidation, and their catchall eighth claim for unfair competition....................................................8

1. Plaintiffs’ third through sixth claims for below-cost sales, loss-leader sales, secret rebates, and unlawful threats and intimidation fail because they have not pleaded the required factual basis for any of these claims..............................................................................................9

a. Plaintiffs fail to plead that they were subject to any below-cost or loss-leader sales, and fail to plead required information about Southern Glazer’s costs and prices. ...................9

b. Plaintiffs fail to plead that they were subject to any secret rebates, any injury therefrom, or that the secret rebate tended to destroy competition. .......................................................10

c. Plaintiffs fail to plead that they were subject to any unlawful threats or intimidation. ...................................................................11

2. Plaintiffs’ eighth claim for unfair business practices fails because they have failed to allege an actionable unfair practice or the required personal economic injury.............................................................12

C. The Court should dismiss plaintiffs’ seventh claim for breach of contract. ..........13

IV. CONCLUSION ..................................................................................................................15


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ii DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS


1283128.01

TABLE OF AUTHORITIES

Page(s)

Federal Cases

Ashcroft v. Iqbal 556 U.S. 662 (2009) ............................................................................................................... 3, 4

Bly-Magee v. California 236 F.3d 1014 (9th Cir. 2001) ................................................................................................... 4

Code Rebel, LLC v. Aqua Connect, Inc. No. CV-13-4539 RSWL (MANx), 2014 WL 46696, at *7 (C.D. Cal. Jan. 3, 2014)................................................................................................... 12

Doe v. Successfulmatch.com No. 13-cv-03376-LHK, 2014 WL 1494347 (N.D. Cal. Apr. 16, 2014) .................................... 5

Eastman v. Quest Diagnostics Inc. 108 F. Supp. 3d 827 (N.D. Cal. 2015) ..................................................................................... 10

Edwards v. Marin Park, Inc. 356 F.3d 1058 (9th Cir. 2004) ................................................................................................... 5

Foster Poultry Farms v. Alkar-Rapidpak-MP Equip., Inc. 868 F. Supp. 2d 983 (E.D. Cal. 2012)........................................................................................ 8

Hadley v. Kellogg Sales Co. 243 F. Supp. 3d 1074 (N.D. Cal. 2017) ......................................................................... 7, 13, 14

Kearns v. Ford Motor Co. 567 F.3d 1120 (9th Cir. 2009) ............................................................................................... 4, 7

Lancaster Cmty. Hosp. v. Antelope Valley Hosp. 940 F.2d 397 (9th Cir. 1991) ..................................................................................................... 4

Pac. Wood Windows, Inc. v. Kolbe & Kolbe Millwork Co., Inc. No. C-96-20162-JW, 1996 WL 251933 (N.D. Cal. May 8, 1996) ............................................ 9

Pet Food Express, Ltd. v. Royal Canin USA, Inc. No. C 09-1483 MHP, 2010 WL 583973 (N.D. Cal. Feb. 16, 2010) ........................................ 11

PHL Variable Ins. Co. v. Crescent Fin. & Ins. Agency, Inc. No. 2:16-cv-01307-CAS, 2018 WL 1577709 (C.D. Cal. Mar. 26, 2018) ............................... 11

Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc. No. 12-cv-05847-JST, 2013 WL 3242245 (N.D. Cal. June 25, 2013) .................................... 10

Table Bluff Reservation (Wiyot Tribe) v. Philip Morris, Inc., 256 F.3d 879 (9th Cir. 2001) ............................................................................................. 12, 13

Vess v. Ciba-Geigy Corp, USA 317 F.3d 1097 (9th Cir. 2003) ................................................................................................... 4


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

iii DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS


1283128.01

Wool v. Tandem Computers Inc. 818 F.2d 1433 (9th Cir. 1987) ................................................................................................... 4

Zapata Fonseca v. Goya Foods, Inc. No. 16-CV-02559-LHK, 2016 WL 4698942 (N.D. Cal. Sept. 8, 2016).................................... 5

State Cases

Aas v. Super. Ct. 24 Cal. 4th 627 (2000) ............................................................................................................... 7

Diesel Elec. Sales & Serv., Inc. v. Marco Marine San Diego, Inc. 16 Cal. App. 4th 202 (1993) .................................................................................................... 10

Erlich v. Menezes 21 Cal. 4th 543 (1999) ............................................................................................................... 8

G.H.I.I. v. MTS, Inc. 147 Cal. App. 3d 256 (1983) ................................................................................................... 10

Heritage Pac. Fin., LLC v. Monroy 215 Cal. App. 4th 972 (2013) .................................................................................................. 13

Indep. Journal Newspapers v. United W. Newspapers, Inc. 15 Cal. App. 3d 583 (1971) ..................................................................................................... 10

Khoury v. Maly's of Cal., Inc. 14 Cal. App. 4th 612 (1993) ................................................................................................ 9, 11

McKell v. Washington Mut., Inc. 142 Cal. App. 4th 1457 (2006) .......................................................................................... 13, 14

Philipson & Simon v. Gulsvig 154 Cal. App. 4th 347 (2007) .................................................................................................... 5

Robinson Helicopter Co. v. Dana Corp. 34 Cal. 4th 979 (2004) ............................................................................................................... 8

Rosenthal v. Great W. Fin. Sec. Corp. 14 Cal. 4th 394 (1996) ............................................................................................................... 6

Stansfield v. Starkey 220 Cal. App. 3d 59 (1990) ....................................................................................................... 4

Yanting Zhang v. Super. Ct. 57 Cal. 4th 364 (2013) ............................................................................................................. 12

State Statutes

Cal. Bus. & Profs. Code § 17000, et seq. ....................................................................................... 9

Cal. Bus. & Profs. Code § 17043 ............................................................................................... 8, 10



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

iv DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS


1283128.01

Cal. Bus. & Profs. Code § 17045 ..................................................................................... 8, 9, 10, 11


Federal Rules

Fed. R. Civ. P. 8 ........................................................................................................................... 3, 4

Fed. R. Civ. P. 9 ....................................................................................................................... 4, 5, 7

Fed. R. Civ. P. 12 ............................................................................................................................. 3

Treatises

1 Witkin, Summary of Cal. Law, Contracts § 624 (11th ed. 2017) ................................................. 9


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS


1283128.01

NOTICE OF MOTION AND MOTION TO DISMISS

PLEASE TAKE NOTICE that on October 11, 2018, at 1:30 p.m., before the Honorable

Lucy H. Koh, United States District Court, 280 South First Street, Courtroom 8, 4th Floor, San

Jose, California 95113, defendant Southern Glazer’s Wine and Spirits, LLC (“Southern Glazer”)

will, and hereby does, move the Court pursuant to Federal Rules of Civil Procedure 8, 9(b), and

12(b)(6) for an order dismissing the Third Amended Complaint (“TAC”) filed by plaintiffs Arena

Restaurant and Lounge, LLC, Pacifica Restaurants, LLC, Vine and Barrel, LLC, and Daniel

Flores (collectively “plaintiffs”), individually and purportedly on behalf of all others similarly

situated, and dismissing with prejudice all of plaintiffs’ claims for relief.

Southern Glazer respectfully requests that the Court grant this Motion to Dismiss with

prejudice on the following grounds:

1. Plaintiffs’ First and Second Claims for Relief allege fraudulent

misrepresentations by Southern Glazer, but plaintiffs fail to plead their fraud

claims with the particularity required by Federal Rule of Civil Procedure 9(b).

Moreover, as plaintiffs have failed to make out a viable claim for fraudulent

inducement, their fraud claims are barred by California’s economic loss rule.

2. Plaintiffs’ Third and Fourth Claims for Relief assert below-cost sales and loss-

leader sales by Southern Glazer for the purpose of injuring competitors or

destroying competition, but plaintiffs have not pleaded Southern Glazer’s sales

prices or costs, and have failed to plead that any below-cost sale resulted in an

actionable injury.

3. Plaintiffs’ Fifth Claim for Relief asserts secret rebates and differential pricing by

Southern Glazer for the purpose of injuring competitors or destroying

competition, but plaintiffs have failed to plead that they were subject to any

secret rebates, an injury to a competitor, or that the purportedly secret allowance

tended to destroy competition.

4. Plaintiffs’ Sixth Claim for Relief asserts unlawful threats and intimidation by

Southern Glazer for the purpose of injuring competitors or destroying


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

competition, but plaintiffs have not pleaded any factual detail supporting their

allegation that Southern Glazer threatened or intimidated others to effectuate a

violation of the Unfair Practices Act.

5. Plaintiffs’ Seventh Claim for Relief asserts breach of contract by Southern

Glazer, but plaintiffs have not specified the contracts upon which their claim is

based and have failed to attach the relevant contract to their TAC or to quote the

relevant contractual terms, as California law requires. Plaintiffs have thus failed

to plead the existence of any enforceable contract with Southern Glazer or the

terms of that contract that they allege were breached.

6. Plaintiffs’ Eighth Claim for Relief asserts unfair business practices by Southern

Glazer, but, in addition to the grounds stated in paragraph 1, above, relating to

the issue of alleged fraudulent conduct, plaintiffs have not pleaded that they

suffered any personal economic injury as the result of any unfair or unlawful

business practice by Southern Glazer, which is an essential element of a claim

for unfair business practices under California law.

Southern Glazer’s Motion is based upon this Notice, the attached Memorandum of Points

and Authorities in Support thereof, all pleadings, papers, and submissions before the Court in

connection with this action, and upon such further oral or written argument and evidence as may

be presented at or prior to the hearing of this matter.

Dated: May 21, 2018

By:

KEKER, VAN NEST & PETERS LLP

/s/ Daniel Purcell DANIEL PURCELL

Attorneys for Defendant

SOUTHERN GLAZER’S WINE AND SPIRITS, LLC


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

In its April 16, 2018 Order, this Court dismissed plaintiffs’ Second Amended Complaint

(“SAC”) against defendant Southern Glazer’s Wine and Spirits, LLC (“Southern Glazer”) in its

entirety, but granted leave to amend eight of plaintiffs’ eleven original claims. ECF No. 53 at 27

(“Order”). Much like the SAC, plaintiffs’ newly-filed Third Amended Complaint (“TAC”) fails

to address, let alone correct, the absence of factual support for their claims. The Court should

once again dismiss this case—this time with prejudice.

Despite adding 11 pages of vague and anonymous allegations of misconduct by Southern

Glazer sales representatives and managers, not a single factual allegation shows that any of the

four named plaintiffs were the target of any unlawful conduct by Southern Glazer or suffered any

personal harm from any alleged misconduct—the reason why the Court dismissed the SAC in its

April 16, 2018 Order. Because none of the named plaintiffs have made out a viable claim, none

of them can possibly serve as a class representative in a lawsuit against Southern Glazer, however

lurid their anonymous third-party allegations may be.

This total failure of pleading dooms all eight of plaintiffs’ claims, which suffer from the

following fatal defects:

• Plaintiffs’ first and second claims assert fraud, but, just as the Court explained in its Order, they still fail to identify “the who, what, when, where, and how” of any allegedly fraudulent statement, plead that they relied on or suffered damages caused by any such statement, and provide specific facts regarding Southern Glazer’s purported fraudulent scheme to make alcohol sales to third parties using plaintiffs’ account information.

• In the third and fourth claims for below-cost sales and loss-leader sales, plaintiffs have failed to plead Southern Glazer’s sale prices or costs, or that a below-cost sale resulted in an actionable injury to any of the plaintiffs.

• In the fifth claim for secret rebates, plaintiffs have failed to plead that any of them was subject to or suffered economic harm as the result of any secret rebate.

• In the sixth claim for unlawful intimidation, plaintiffs have failed to plead a single threat or intimidating act made against them for any purpose, much less an unlawful one.

• Despite the Court’s prior admonition, the seventh claim for breach of contract fails because the plaintiffs have not specified the contracts upon which this claim is based, nor adequately pleaded the existence of the operative contractual terms.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

• Plaintiffs’ eighth claim asserts unfair competition, fails to plead any unfair, unlawful, or fraudulent act against them by Southern Glazer, or the required personal economic injury resulting from any such act.

Every single one of these defects was present in plaintiffs’ previous complaints, called out

by Southern Glazer in its prior motions to dismiss, and specifically identified by the Court in its

April 16, 2018 Order as one of the bases for dismissing the SAC. Nevertheless, plaintiffs failed

to add a single word to the TAC substantiating the defective claims of the four named plaintiffs.

The Court should dismiss the TAC in its entirety with prejudice.

II. CASE BACKGROUND AND THE THIRD AMENDED COMPLAINT

The initial complaint in this action was filed on July 5, 2017 by James C. Nguyen, one of

the owners of a defunct restaurant and bar. On August 22, 2017, Southern Glazer timely moved

to dismiss Nguyen’s complaint. Two weeks later, on September 5, 2017, Nguyen filed a First

Amended Complaint (“FAC”), which deleted some claims asserted in the original complaint and

added others, but pleaded no new incidents or factual detail supporting any of Nguyen’s claims.

On September 19, 2017, Southern Glazer again moved to dismiss the FAC, noticing a hearing

date of February 1, 2018. On December 14, 2017, with the pending motion having been fully

briefed for two months, plaintiffs’ counsel sought Southern Glazer’s consent to file the SAC,

which substituted Nguyen’s business, Arena Restaurant and Lounge, as a plaintiff in Nguyen’s

place, and added three new named plaintiffs: Pacifica Restaurants, Vine & Barrel, and Daniel

Flores. Other than adding new representative plaintiffs, the SAC offered no new factual detail

describing even a single instance where any Southern Glazer customer, including any of the four

named plaintiffs, was subject to an unfair or unlawful act or practice.

On January 3, 2018, Southern Glazer moved to dismiss the SAC. After full briefing, this

Court granted Southern Glazer’s motion on April 16, 2018, dismissing all eleven of plaintiffs’

claims due to a lack of factual and legal support. The Court cautioned plaintiffs that any amended

claims in a TAC must cure the many factual defects in the SAC, including the absence of any

specific facts supporting their claim that Southern Glazer had fraudulently promised to keep their

account information confidential; the failure to plead any specific acts of below-cost or loss-

leader sales, secret rebates, or threats and intimidation; the failure to plead specific economic


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

harm as a result of Southern Glazer’s alleged unfair business practices; and the failure to identify

the contracts and contractual terms upon which their breach of contract claim is based. Order at

14-15, 20, 24, 25. The Court specifically warned plaintiffs that, if they failed to make those

corrections, their claims would be dismissed with prejudice. Id. at 27.

In the TAC, plaintiffs ignored that warning. The TAC does not add a single factual

allegation of any kind related to any of the four named plaintiffs. Once again, plaintiffs fail to

plead specific facts suggesting that they were fraudulently induced into contractual agreements

with Southern Glazer or that Southern Glazer misused their account information to perpetuate a

fraudulent scheme. Nor do plaintiffs identify Southern Glazer’s sale prices, the costs of its

products, or an actionable injury as a result of a below-cost or loss-leader sale. Likewise,

plaintiffs do not allege a secret rebate that tended to destroy competition, or that Southern Glazer

unlawfully threatened or otherwise intimated them. Plaintiffs yet again fail to establish that any

of them actually suffered harm from the alleged scheme, by misreporting a tax liability, having to

restate any tax filings, or suffering any penalty. And although plaintiffs assert a claim for breach

of contract, the TAC still fails to attach the operative contract between Southern Glazer and any

named plaintiff (or any other Southern Glazer customer) to the complaint, or quote the contractual

terms plaintiffs allege were breached.

These foundational pleading deficiencies require dismissal of the TAC with prejudice.

III. LEGAL ARGUMENT

In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the United States Supreme Court established a

two-step process for evaluating whether a complaint sufficiently pleads claims under Rule 8 or

should be dismissed under Rule 12(b)(6). First, the district court should identify and eliminate

from the complaint assertions “that, because they are no more than conclusions, are not entitled to

the assumption of truth.” 556 U.S. at 679. Second, the district court should evaluate the

remaining, non-conclusory allegations “to determine if they plausibly suggest an entitlement to

relief.” Id. at 681. This “plausibility standard” requires “more than a sheer possibility that a

defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a

defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

relief.” Id. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 557 (2007) (internal

citation and quotation marks omitted)). Determining whether a complaint states a plausible claim

is “a context-specific task that requires the reviewing court to draw on its judicial experience and

common sense.” Id. at 679.

In addition, where a plaintiff’s claims rely on “averments of fraud,” such claims also must

satisfy the heightened pleading standard of Rule 9(b), which “requires a pleader of fraud to detail

with particularity the time, place, and manner of each act of fraud, plus the role of each defendant

in each scheme.” Lancaster Cmty. Hosp. v. Antelope Valley Hosp., 940 F.2d 397, 405 (9th Cir.

1991). “Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ of

the misconduct charged.” Vess v. Ciba-Geigy Corp, USA, 317 F.3d 1097, 1106 (9th Cir. 2003)

(quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). “A party alleging fraud must ‘set

forth more than the neutral facts necessary to identify the transaction.’” Kearns v. Ford Motor

Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541,

1548 (9th Cir. 1994)) (emphasis in original). Broad allegations including “no particularized

supporting detail” are insufficient. Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001);

see also Wool v. Tandem Computers Inc., 818 F.2d 1433, 1439 (9th Cir. 1987) (“mere conclusory

allegations of fraud are insufficient”), overruled on other grounds as stated in Flood v. Miller,

35 Fed. App’x 701, 703 n.3 (9th Cir. 2002). Importantly, the Rule 9(b) particularity standard

applies to any claim, under federal or state law, which is “grounded in fraud” or “sound[s] in

fraud.” See Vess, 317 F.3d at 1103.1

Plaintiffs’ TAC deserves the same fate as the earlier iterations of their complaint. Despite

having already faced three motions to dismiss that pointed out the absence of factual support for

any of their remaining claims, and despite having received a clear directive from the Court

regarding what they needed to allege to make out viable claims, plaintiffs have failed to correct

any of the defects called out in this Court’s April 16, 2018 Order. The TAC fails to satisfy Rule 8,

1 Although federal pleading rules govern here, California courts likewise require particularity in pleading fraud-based claims. See Stansfield v. Starkey, 220 Cal. App. 3d 59, 73 (1990) (quoting Hills Trans. Co. v. Southwest Forest Indus. Inc., 266 Cal. App. 2d 702, 707 (1968)).


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

much less Rule 9(b). This Court should dismiss it in its entirety.2

A. The Court should dismiss plaintiffs’ first and second claims for fraud.

1. Plaintiffs have not pleaded any elements of the alleged fraud with the particularity required under Rule 9(b).

The basic elements of a claim for fraud under California law are (1) a misrepresentation

by the defendant; (2) that the defendant knows to be false; (3) with the intent to defraud the

plaintiff; (4) justifiable reliance by the plaintiff; and (5) resulting damage. See Philipson & Simon

v. Gulsvig, 154 Cal. App. 4th 347, 363 (2007) (citing Agriculture Ins. Co. v. Superior Court,

70 Cal. App. 4th 385, 402 (1999) and 5 Witkin, Summary of Cal. Law § 676, at 778 (9th ed.

1988)). Pursuant to Rule 9(b), a plaintiff must “state with particularity the circumstances

constituting fraud.” Fed. R. Civ. P. 9(b). This means that allegations for fraud must state with

precision “the time, place, and specific content of the false representations as well as the identities

of the parties to the misrepresentations.” Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th

Cir. 2004) (citation omitted). Here, plaintiffs do nothing of the sort.

In its Order dismissing the SAC, this Court construed plaintiffs’ fraud theory “as arising

from a breach of express contract terms.” Order at 11. Plaintiffs have not changed that framing

in their TAC. Just as the SAC did, the TAC alleges that, prior to entering into contracts with

plaintiffs, “Southern Glazer promised that it would store private customer information in

accordance with law and reasonable business practices, and would not disclose private customer

information except under . . . limited circumstances.” TAC ¶ 87; SAC ¶ 69; see also TAC ¶ 96;

SAC ¶ 122. The TAC likewise maintains the SAC’s allegation that disclosing the “private

2 In light of this Court’s general practice of declining to address at the pleading stage conflict-of-laws questions presented by nationwide class allegations, see Zapata Fonseca v. Goya Foods, Inc., No. 16-CV-02559-LHK, 2016 WL 4698942, at *4 (N.D. Cal. Sept. 8, 2016); Doe v. Successfulmatch.com, No. 13-cv-03376-LHK, 2014 WL 1494347, at *7 (N.D. Cal. Apr. 16, 2014), Southern Glazer does not now raise potential conflicts between the laws of California and the laws of other states that could apply to plaintiffs’ asserted nationwide class. Plaintiffs have limited their California statutory claims (Claims 3 through 6 and 8) to the putative California class only, and Southern Glazer is unaware of material differences in the laws of various states regarding the foundational pleading defects with plaintiffs’ remaining common-law claims. Because California law requires dismissal of each of plaintiffs’ claims, the Court should decide this motion under the law of the forum state.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

customer information” caused plaintiffs “to suffer economic losses and other general and specific

damages.” TAC ¶ 93, 101; SAC ¶ 75, 127. And, as in the SAC, plaintiffs assert the same

underlying facts and damages with respect to their breach of contract claim in the TAC. TAC

¶¶ 135-39; Order at 12 (citing SAC ¶¶ 137-41). As a result, the fraud theory underlying both

claims remains that Southern Glazer induced plaintiffs into contractual agreements by promising

not to misuse their account information but, despite that promise, Southern Glazer allegedly used

the “information to make sales to third parties.” Order at 14. And as the theory remains the

same, so do its shortcomings.

In dismissing the fraud claims in its April 16, 2018 Order, the Court admonished plaintiffs

for failing to include any specific factual allegations supporting their fraud claims. Order at 14-

15. Despite the Court’s clear instruction that plaintiffs needed to plead those claims with

particularity, plaintiffs have failed to add specific factual allegations to support their fraud theory

in the TAC.

Under California law, fraudulent inducement occurs when the “promisor knows what he is

signing but his consent is induced by fraud, mutual assent is present and a contract is formed,

which by reason of the fraud, is voidable.” Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th

394, 415 (1996). None of the newly-added allegations in the TAC relate to the named plaintiffs,

or address how Southern Glazer induced any customer (including the named plaintiffs) into a

contractual agreement. See generally TAC at pp. 20-31. Nowhere in the TAC do plaintiffs

identify the content of a single alleged misstatement by Southern Glazer that induced one of them

(or anyone else) to enter into a contract. Nor do they identify which Southern Glazer employee

made the alleged misstatement, to whom the misstatement was made, or when or where it was

made. Accordingly, nothing in the TAC gives Southern Glazer the required notice “of the

particular misconduct . . . so that they can defend against the charge and not just deny that they


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

have done anything wrong.” Kearns, 567 F.3d at 1124 (quoting Bly-Magee, 236 F.3d at 1019).3

Having failed to specify any allegedly fraudulent statements by Southern Glazer, plaintiffs

likewise fail to allege which of their employees relied on any such statement or how their reliance

caused any of them to suffer damages. Both reliance and causation are essential elements of a

fraud claim, and plaintiffs allege neither with particularity. As with the SAC, the TAC alleges

reliance only in the most general sense, referring to “the promise,” TAC ¶ 91, or “said

misrepresentation,” id. ¶¶ 97, 99, without identifying what misrepresentation they are talking

about, and that their purported reliance on “said misrepresentations was the sole cause of his/their

suffering/harm.” Id. ¶ 100. These conclusory statements fall far short of what Rule 9(b) requires.

This Court should dismiss plaintiffs’ fraud claims without leave to amend. See Hadley v.

Kellogg Sales Co., 243 F. Supp. 3d 1074, 1094 (N.D. Cal. 2017) (dismissing claims without leave

to amend after the plaintiff failed to correct deficiencies through amendment).

2. The economic loss rule bars plaintiffs’ fraud claims because plaintiffs have failed to make out a claim for fraudulent inducement.

Plaintiffs’ fraud claims should also be dismissed because, as pleaded, they do not qualify

for an exception to the economic loss rule. Under the economic loss rule, a plaintiff suffering

only economic damages “may not ordinarily recover in tort for the breach of duties that merely

restate contractual obligations.” Aas v. Super. Ct., 24 Cal. 4th 627, 643 (2000), superseded by

statute on other grounds as stated in McMillin Albany LLC v. Superior Court, 4 Cal. 5th 241, 247

(2018). “[T]he economic loss rule ‘prevent[s] the law of contract and the law of tort from

3 Even the new allegations in the TAC from anonymous third parties fail to provide specific facts to support plaintiffs’ fraud claims. See generally TAC at pp. 20-31. Although the new allegations provide general examples of Southern Glazer purportedly misusing customer account information, plaintiffs still do not allege who made the alleged third-party sales, when the sales were made, what type of alcohol was sold, or to whom it was sold. For example, the TAC vaguely describes how a Southern Glazer sales representative used the Army and Air Force Exchange Service’s account information to purchase liquor and then deliver that liquor to a third party. Id. ¶ 68. The TAC, however, fails to identify the sales representative, the type and cost of liquor purchased, the third party to whom it was sold, and the date this alleged fraud occurred. Id. The TAC also describes how another unnamed third party was allowed to purchase an unspecified amount of alcohol from Southern Glazer using another accountholder’s “identifying number.” Id. ¶ 80. Plaintiffs provide no other information regarding that incident. Id.; see also ¶¶ 75, 81 (providing additional vague examples of the use of accountholder information to deliver alcohol to third parties).


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

dissolving one into the other,’” see Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988

(2004), and “[c]ourts have applied the economic loss rule to bar fraud claims where the damages

plaintiffs seek are the same economic losses arising from the alleged breach of contract.” Foster

Poultry Farms v. Alkar-Rapidpak-MP Equip., Inc., 868 F. Supp. 2d 983, 991 (E.D. Cal. 2012)

(citation omitted).

In dismissing plaintiffs’ SAC, the Court noted that the California courts have recognized

exceptions to the economic loss rule outside of the insurance context where: (1) a defendant’s

actions that constituted breach of contract also caused physical injury; (2) a wrongful discharge

violated a fundamental public policy; or (3) where the plaintiff was fraudulently induced to enter

a contract. Erlich v. Menezes, 21 Cal. 4th 543, 551-52 (1999). Plaintiffs have never alleged that

Southern Glazer caused a physical injury or wrongfully discharged an employee. The only

exception that could possibly apply is fraudulent inducement. But because plaintiffs have failed

to plead fraudulent inducement with the required specificity, their fraud claims remain within the

scope of the economic loss rule and are thus barred as a matter of law.

B. The Court should dismiss plaintiffs’ third through sixth claims for below-cost sales, loss-leader sales, secret rebates, threats and intimidation, and their catchall eighth claim for unfair competition.

Plaintiffs bring five claims for various unfair business practices: (1) their third claim for

below-cost sales in violation of California Business & Professions Code (“B&P Code”) section

17043, TAC ¶¶ 103-11; (2) their fourth claim for loss-leader sales under B&P Code section

17044, id. ¶¶ 112-17; (3) their fifth claim for secret rebates under of B&P Code section 17045, id.

¶¶ 118-125; (4) their sixth claim for unlawful threats and intimidation under B&P Code section

17046, id. ¶¶ 126-33; and (5) their catchall eighth claim under the California Unfair Competition

Law, which appears to be based on alleged violations of federal and state antitrust laws. Id.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

¶¶ 140-146. Plaintiffs have failed to make out viable claims under any of these statutes.4

1. Plaintiffs’ third through sixth claims for below-cost sales, loss-leader sales, secret rebates, and unlawful threats and intimidation fail because they have not pleaded the required factual basis for any of these claims.

A plaintiff alleging any unfair business practice under B&P Code section 17000, et seq.,

“must state with reasonable particularity the facts supporting the statutory elements of the

violation.” Khoury v. Maly's of Cal., Inc., 14 Cal. App. 4th 612, 619 (1993).

Here, plaintiffs have failed to state any facts supporting the statutory elements of any of

their claims under the B&P Code, whether for below-cost sales, loss-leader sales, secret rebates,

or unlawful threats. They have not pleaded any facts showing that Southern Glazer sold any of

the four named plaintiffs any products at below cost or a loss, gave a secret rebate to any of them,

or made any threats against any of them.

a. Plaintiffs fail to plead that they were subject to any below-cost or loss-leader sales, and fail to plead required information about Southern Glazer’s costs and prices.

With respect to alleged below-cost or loss-leader sales by Southern Glazer, plaintiffs offer

the same conclusory assertion previously rejected by the Court—that they have suffered

“economic losses and other general and specific damages” due to “monies paid and/or owed to

Southern Glazer and/or to third-party taxing authorities.” TAC ¶¶ 110, 116. But this is just a

conclusion. Plaintiffs plead no facts tending to show that any of them bought any product below

cost, much less that this discount caused plaintiffs to suffer any economic injury. Here, plaintiffs

do not even try to grapple with the contradiction inherent in this claim, because if they had

received products at an unlawful discount, this would have caused them an economic benefit, not

4 The Court rejected Southern Glazer’s argument in its previous motion to dismiss that plaintiffs lack standing to bring their third and fourth claims for below-cost sales and loss-leader sales because they are not competitors of Southern Glazer. Southern Glazer continues to maintain that plaintiffs do not have standing to bring claims under California’s Unfair Practices Act, including their related claims for secret rebates and unlawful threats and intimidation. See, e.g., Pac. Wood Windows, Inc. v. Kolbe & Kolbe Millwork Co., Inc., No. C-96-20162-JW, 1996 WL 251933, at *4 (N.D. Cal. May 8, 1996) (finding amendment to add a claim under section 17045 would be futile because the parties in the case were not competitors); 1 Witkin, Summary of Cal. Law, Contracts § 624 (11th ed. 2017) (noting that the Unfair Practices Act “regulates horizontal, not vertical, price relations”).


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

economic injury. Plaintiffs cannot rely on conclusory suggestions that a campaign of below-cost

pricing caused some harm to competition generally; they must plead personal economic harm to

have any entitlement to relief. See Eastman v. Quest Diagnostics Inc., 108 F. Supp. 3d 827, 838

(N.D. Cal. 2015) (holding that plaintiffs had not pleaded an actionable injury where they alleged,

without providing a factual basis, that the defendant’s below-cost pricing led to above-

competitive pricing or reduced competition).

Further, to make out claims for below-cost sales or loss-leader sales under sections 17043

and 17044, plaintiffs must, at a minimum, allege that an unlawful sale took place by pleading

defendant’s cost of purchasing the product at issue and its sales price. G.H.I.I. v. MTS, Inc., 147

Cal. App. 3d 256, 275-76 (1983); see also Indep. Journal Newspapers v. United W. Newspapers,

Inc., 15 Cal. App. 3d 583, 587 (1971) (“In order to have a violation of either section 17043 or

section 17044, a sale below cost must occur.”). In its April 16, 2018 Order dismissing the unfair

business practice claims with leave to amend, this Court specifically instructed plaintiffs on this

very point, ordering that “any amendment . . . must plead the cost of the product at issue to the

defendant and the defendant’s sales prices.” Order at 20. Plaintiffs have disregarded the Court’s

instruction and have once again failed to plead the cost of products at issue or defendant’s sale

prices. See generally TAC. The Court therefore should dismiss with prejudice plaintiffs’ third

and fourth claims for below-cost and loss-leader sale claims. See, e.g., Eastman, 108 F. Supp. 3d

at 838 (dismissing section 17043 and 17044 claims because the plaintiffs, as here, did not plead

the defendant’s costs or prices); Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-cv-

05847-JST, 2013 WL 3242245, at *15-16 (N.D. Cal. June 25, 2013) (same).

b. Plaintiffs fail to plead that they were subject to any secret rebates, any injury therefrom, or that the secret rebate tended to destroy competition.

Plaintiffs’ fifth claim for secret rebates under section 17045 fails for the same fundamental

reason—plaintiffs have not pleaded that any of them were subject to any secret rebates. A claim

brought pursuant to Section 17045 has three elements: (1) there must be a “secret” allowance of

an “unearned” discount; (2) there must be an “injury” to a competitor; and (3) the allowance must

tend to destroy competition. Diesel Elec. Sales & Serv., Inc. v. Marco Marine San Diego, Inc., 16


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

Cal. App. 4th 202, 212 (1993); see also Pet Food Express, Ltd. v. Royal Canin USA, Inc., No. C

09-1483 MHP, 2010 WL 583973, at *5 (N.D. Cal. Feb. 16, 2010) (stating that the party alleging a

secret rebate claim must make a “serious attempt” to identify the relevant market, the absence or

ubiquity of similar discounts in the industry, the prices offered by the opposing party as compared

its competitors, and indicia that competitors suffered an actual loss in sales or other harm).

Plaintiffs have failed to allege any of the required elements of this claim. They have not pleaded

that they received any secret rebate, that any secret rebate injured a competitor, or that any secret

rebate tended to destroy competition. For those reasons, this Court should dismiss plaintiffs’ fifth

claim for secret rebates. See PHL Variable Ins. Co. v. Crescent Fin. & Ins. Agency, Inc., No.

2:16-cv-01307-CAS (AJWx), 2018 WL 1577709, at *5 (C.D. Cal. Mar. 26, 2018) (in a default

judgment action, finding that the plaintiff failed to state a claim under § 17045 because there were

no allegations that the defendant’s actions injured a competitor or tended to destroy competition).

c. Plaintiffs fail to plead that they were subject to any unlawful threats or intimidation.

Plaintiffs’ sixth claim for unlawful threats or intimidation under B&P Code section 17046

also fails. Section 17046 prohibits “any person to use any threat, intimidation, or boycott, to

effectuate any violation” of the Unfair Practices Act. Plaintiffs allege that “Southern Glazer

threatened and/or otherwise intimidated” them and other purported class members “to effectuate

provision of liquor products below cost in violation of [Sections 17043, 17044, and 17045].”

TAC ¶ 127. This conclusory allegation falls far short of the applicable pleading standard that

California courts apply to B&P Code claims. See Khoury, 14 Cal. App.4th at 619. Plaintiffs fail

to assert that they were subject to a single threat or intimidating act by Southern Glazer of any

kind, let alone a threat made to effectuate below-cost sales, loss-leader sales, or secret rebates, or

otherwise destroy competition, as section 17046 requires. Having failed to plead that they were

the victim of any threats, plaintiffs relatedly fail to plead they suffered any economic injury as a

result.

This Court has provided plaintiffs multiple opportunities to cure their defective B&P Code

claims. Not only have plaintiffs failed to plead actionable claims, their TAC does not even


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

attempt to satisfy the relevant requirements. These named plaintiffs have not alleged a single

specific wrongful act by Southern Glazer giving rise to an injury to any of them. This Court

should dismiss these claims without leave to amend. See Code Rebel, LLC v. Aqua Connect, Inc.,

No. CV 13-4539 RSWL (MANx), 2014 WL 46696, at *7 (C.D. Cal. Jan. 3, 2014) (dismissing a

plaintiff’s below-cost sales claim without leave to amend after the court previously provided

leave to amend to allege the defendant’s sales price, cost in product, and cost of doing business

and the plaintiff failed to allege such facts after amendment).

2. Plaintiffs’ eighth claim for unfair business practices fails because they have failed to allege an actionable unfair practice or the required personal economic injury.

Plaintiffs’ eighth claim under the Unfair Competition Law relies only on legal conclusions

accusing Southern Glazer of “manipulative and/or high pressure sales, incentive and distribution

tactics, illegal pricing schemes, quasi-monopolistic distribution and sales methods, deceptive

business practices, and modifying, concealing and/or destroying evidence of its wrongdoing in

violation of” federal and state antitrust laws. TAC ¶ 142. To the extent plaintiffs are basing their

UCL claim on allegedly wrongful below-cost sales, loss-leader sales, secret rebates, or threats and

intimidation, any such claim fails for the reasons set forth above.

Moreover, the UCL claim must also be dismissed because, as in the SAC, all four named

plaintiffs have yet again failed to allege the required “economic injury caused by the alleged

unfair competition.” Yanting Zhang v. Super. Ct., 57 Cal. 4th 364, 382 (2013). Since the passage

of Proposition 64 in 2004, all private UCL plaintiffs must plead and prove that they personally

suffered economic harm as a result of the challenged business practice. Further, the economic

injury alleged must be personal to the plaintiff bringing the claim; an allegation that some

unnamed absent person (or putative class member) suffered economic harm due to Southern

Glazer’s alleged misconduct cannot establish standing to sue. See Table Bluff Reservation (Wiyot

Tribe) v. Philip Morris, Inc., 256 F.3d 879, 884 (9th Cir. 2001) (holding that plaintiffs “cannot

establish injury in fact by alleging that unnamed members of the class were injured”).

Although it is unclear what conduct by Southern Glazer is being challenged in plaintiffs’

UCL claim, there is no dispute that none of the four named plaintiffs has pleaded any personal


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

economic injury. Nguyen briefly claims that he was “assessed thousands of dollars in taxes” for

wrongful sales, TAC ¶ 25, but immediately moves on from this subject, never raising the issue

again, and never pleads that he actually paid any additional taxes the State may have assessed.

Vine and Barrel makes a similarly fleeting reference to “falsified sales invoices,” id., but provides

no further detail and never pleads that it suffered any financial harm, much less specifically.

In its April 16, 2018 Order, this Court specifically pointed out plaintiffs’ failure to allege

economic harm due to unfair, unlawful, or fraudulent business practices. Order at 24. The Court

granted plaintiffs leave to amend on the ground that they could “conceivably” fix that deficiency.

Plaintiffs’ failure even to make an effort to plead personal economic harm in the TAC proves that

they cannot. This Court should dismiss the eighth claim without leave to amend. See Hadley,

243 F. Supp. 3d at 1094.

C. The Court should dismiss plaintiffs’ seventh claim for breach of contract.

A valid claim for breach of contract under California law “requires pleading of a contract,

plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to

plaintiff resulting therefrom.” McKell v. Washington Mut., Inc., 142 Cal. App. 4th 1457, 1489

(2006) (citing 4 Witkin, Cal. Procedure § 476, at 570 (4th ed. 1997)). “A written contract may be

pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached

to the complaint and incorporated therein by reference—or by its legal effect.” Id. (citing 4

Witkin, Cal. Procedure §§ 479-80, at 572–573). To plead a contract by asserting its legal effect,

plaintiff must “allege the substance of its relevant terms,” which “requires a careful analysis of

the instrument, comprehensiveness in statement, and avoidance of legal conclusions.” Id. (citing

4 Witkin, Cal. Procedure § 480, at 573); see also Heritage Pac. Fin., LLC v. Monroy, 215 Cal.

App. 4th 972, 993 (2013) (applying same rule).

Plaintiffs’ seventh claim for relief asserts that Southern Glazer breached its contracts with

not only them, but all Southern Glazer customers in the United States by misusing license

information and permitting unauthorized sales of alcoholic beverages to third parties. TAC

¶¶ 134-139. Elsewhere in the TAC, they contend that Southern Glazer had a “common contract”

with all its customers. Id. ¶ 96.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

In its order dismissing the SAC, this Court instructed plaintiffs that they “must specify the

contracts upon which their breach of contract claim is based in any amended complaint.” Order

at 25. Despite that unambiguous instruction from this Court, plaintiffs once again have failed

either to attach the alleged common contract to the complaint or to quote the relevant provisions

of the contract that impose the obligations that they allege Southern Glazer breached. Nor have

they otherwise specified which of the “express and/or implied promises” Southern Glazer

allegedly made were express and which were implied, and have failed to state which agreements

contained those promises. TAC ¶ 56.

Indeed, plaintiffs now have asserted even less detail as to the purported contacts between

the parties by removing their allegation that Southern Glazer agreed in writing that it would not

disclose the private information of purported class members “unless it is required to do so by law,

to verify your continuing financial stability or in an effort or action to collect your unpaid debt.”

Compare SAC ¶¶ 53-57 with TAC ¶¶ 53-56; see also Order at 25 (noting that this was the only

contractual term plaintiffs identified in the SAC). Plaintiffs also no longer attach Southern

Glazer’s Application and Credit Agreement to their complaint. See ECF No. 34-1.

As a result, plaintiffs have failed to establish the existence of any contract between them

and Southern Glazer, much less the alleged contractual terms that are the basis of their breach of

contract claim. They simply have referred generally to alleged contractual obligations without

setting forth the basis for their contention that those obligations exist. They have not provided

any “careful analysis of the instrument” or comprehensively stated the relevant contractual terms,

offering only legal conclusions about what the unidentified contract purportedly requires. See

McKell, 142 Cal. App. 4th at 1489. Accordingly, they have ignored the Court’s instructions and

yet again failed to plead a viable breach of contract claim. The Court should also dismiss the

seventh claim without leave to amend. See Hadley, 243 F. Supp. 3d at 1094.

/ / /

/ / /

/ / /

/ / /


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28



1283128.01

IV. CONCLUSION

Plaintiffs have failed for a fourth time to set out actionable claims, and have done so

despite this Court’s specific instructions regarding what is required to state valid claims for relief.

When it dismissed the SAC, the Court warned plaintiffs that this next chance would be their last.

Because further opportunities to amend would be futile, the Court should dismiss the TAC in its

entirety with prejudice. Dated: May 21, 2018

By:

KEKER, VAN NEST & PETERS LLP

/s/ Daniel Purcell DANIEL PURCELL

Attorneys for Defendant

SOUTHERN GLAZER’S WINE AND SPIRITS, LLC


Documents

KEKER, VAN NEST & PETERS LLP JOHN W. KEKER - #49092€¦ · Case No. 5:17-cv-03805-LHK DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS PLAINTIFFS’ THIRD