Najarian Holdings LLC v. CoreVest American Finance Lender LLC

Background

Najarian Holdings LLC and Najarian Capital LLC alleged that they borrowed money from the defendant under revolving loan agreements and promissory notes secured by deeds of trust. The plaintiffs alleged that the defendant sent invoices late, charged late fees exceeding $75,000 in 2016 and early 2017, charged percentage-based fees on matured loan amounts, demanded $250 release fees not mentioned in the loan documents, and issued payoff statements that understated amounts later invoiced.

The third amended complaint asserted five causes of action: breach of contract; breach of the covenant of good faith and fair dealing; fraud; negligent misrepresentation; and unfair competition under California’s unfair competition law. A prior order had dismissed portions of the good-faith-and-fair-dealing claim with prejudice and dismissed the remaining claims with permission to amend. In this order, CoreVest moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the fraud, negligent-misrepresentation, and unfair-competition claims, and moved under Rule 12(f) to strike certain allegations. The plaintiffs also moved to strike portions of CoreVest’s dismissal motion.

Fraud claim

The court granted CoreVest’s motion to dismiss the fraud claim and dismissed it with prejudice. The court relied on its earlier determination that the economic-loss rule barred the claim and found that the third amended complaint added no new factual allegations supporting fraud. The court also noted that the plaintiffs did not defend the fraud claim in their opposition and conceded that they could not satisfy the heightened pleading requirements for fraud. The court concluded that further amendment would be futile.

Negligent-misrepresentation claim

The court granted CoreVest’s motion to dismiss the negligent-misrepresentation claim and dismissed it with prejudice. The court held that the claim was based on the same conduct as the fraud claim and therefore had to satisfy Federal Rule of Civil Procedure 9(b), which requires fraud-based allegations to identify details such as who made the statement, what was said, and when and where it was said. The court additionally held that the complaint failed even under the less demanding Rule 8 standard.

The court found that the plaintiffs’ new allegations were largely legal conclusions about why the loan-document fees were illegal and did not provide new factual allegations about specific statements by CoreVest’s representatives. It also found that the statements identified by the plaintiffs concerned pressure to sign an extension agreement, not representations that the fees had to be paid to obtain releases of CoreVest’s liens. The plaintiffs therefore did not plausibly allege reliance on the claimed misrepresentations. The court concluded that further amendment would be futile.

Unfair-competition claim

The court granted CoreVest’s motion to dismiss the unfair-competition claim and dismissed it with prejudice. The court explained that California’s unfair-competition law allows restitution and injunctive relief, but not compensatory damages. Although plaintiffs may generally plead alternative theories, the court found that the third amended complaint sought the same recovery for the late and release fees as the plaintiffs’ breach-of-contract claim. The court concluded that the requested recovery was compensatory damages rather than restitution available under the unfair-competition law.

Motions to strike

The court denied CoreVest’s motion to strike. CoreVest sought to strike allegations that repeated conduct previously dismissed with prejudice from the good-faith-and-fair-dealing claim. The court stated that the dismissed portions remained dismissed with prejudice, but found that it was not clear at this stage that the challenged allegations could have no bearing on later issues in the litigation.

The court also denied the plaintiffs’ motion to strike. The plaintiffs argued that CoreVest’s dismissal motion improperly sought reconsideration of issues addressed in the prior order and raised arguments that should have been made earlier. The court found that CoreVest was not seeking reconsideration and had previously raised the argument concerning damages under the unfair-competition law. The court therefore did not strike the challenged portions of the motion.

Disposition

The court granted CoreVest’s motion to dismiss the third, fourth, and fifth causes of action—fraud, negligent misrepresentation, and unfair competition—and dismissed each with prejudice. The court denied both motions to strike. The case proceeds on the first claim for breach of contract and on the second claim for breach of the covenant of good faith and fair dealing to the extent that claim is not duplicative of the contract claim. Judge Hamilton signed the order on October 9, 2020.