Solar Integrated Roofing Corp. v. Massey

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

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11 SOLAR INTEGRATED ROOFING Case No.: 23-cv-2323-MMA (AHG)

CORP.,

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ORDER:

Plaintiff,

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v. GRANTING DEFENDANT

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METTIAS’S MOTION TO DISMISS

DAVID M. MASSEY; LAURA

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METTIAS; DOES 1 through 10,

[Doc. No. 34]

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Defendants.

17 GRANTING DEFENDANT

MASSEY’S MOTION TO DISMISS

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19 [Doc. No. 36]

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22 Solar Integrated Roofing Corp. (“SIRC” or “Plaintiff”) filed this civil action on

23 December 20, 2023 alleging Defendants David M. Massey and Laura Mettias committed

24 securities violations, fraud, negligence, conversion, unjust enrichment, breach of

25 fiduciary duties, and violations of the Racketeer Influenced and Corrupt Organizations

26 (“RICO”) Act. See Doc. No. 1. On April 30, 2024, default judgment was entered against

27 Defendant Massey because he had failed to respond to the summons issued by the Court

28 on December 21, 2023. Doc. No. 14.

1 On March 8, 2024, Defendant Mettias filed a Motion to Dismiss pursuant to

2 Federal Rule of Civil Procedure 12(b)(6), which the Court granted with leave to amend

3 on May 3, 2024. See Doc. Nos. 8, 8-1, 15. Defendant Massey then filed a Motion to Set

4 Aside Default Judgment, which the Court granted on June 24, 2024. See Doc Nos. 17,

5 35. Plaintiff filed an amended complaint on June 3, 2024, which is the operative pleading

6 in this case. Doc. No. 26 (First Amended Complaint, the “FAC”).

7 Both Defendants have now filed Motions to Dismiss pursuant to Federal Rule of

8 Civil Procedure 12(b). See Doc. Nos. 34, 36. Plaintiff has filed an Opposition to each

9 motion, and Defendants have filed Replies. Doc. Nos. 37–38, 40–41. The Court found

10 the matters suitable for determination on the papers and without oral argument pursuant

11 to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7.1.d.1. See Doc. Nos. 39,

12 42. For the reasons discussed below, the Court GRANTS both Defendant Mettias’s and

13 Defendant Massey’s Motions to Dismiss without prejudice and with leave to amend,

14 except as to Count III which is dismissed with prejudice.

15 I. BACKGROUND1

16 Defendant Massey was the Chief Executive Officer and a member of the Board of

17 Directors (“Board” or “the Board”) of SIRC. FAC ¶¶ 2, 18–19. In February of 2020,

18 SIRC’s Board issued Massey 5,000,000 shares of Class B SIRC stock worth

19 $1,500,000.00 as compensation after Massey allegedly told the Board he had not received

20 any compensation for his services for that year. Id. ¶¶ 18–20. The Board issued Massey

21 another 1,500,000 Class B shares four months later, again for compensation. Id. ¶ 21.

22 Both of these stock transfers were executed even though Massey had in fact received

23 compensation for his role as CEO. Id. ¶ 23. In September of 2021, Massey attempted to

24 convince the Board to buy his shares back for $10,000,000.00 but they refused. Id. ¶ 25.

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27 1 Because this matter is before the Court on a motion to dismiss pursuant to Federal Rule of Civil

Procedure 12(b)(6), the Court must accept as true the allegations set forth in the Complaint. See Barker

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2 The Board later agreed to buy 1,000,000 shares for $2,000,000.00 in lieu of

3 compensation, which Massey had again allegedly already received. Id.

4 According to SIRC, Massey created a shell company, SIRC, LLC, in June of 2021

5 as a vehicle to transfer his remaining SIRC stock and improperly profit from the

6 transaction. Id. ¶¶ 26–27. Using SIRC, LLC, Massey allegedly committed several

7 securities violations in his attempt to transfer and sell SIRC stock. Id. ¶¶ 35–41.

8 Ultimately, the FBI seized 6,258,96 SIRC shares on August 25, 2023. Id. ¶ 41.

9 SIRC also alleges Massey committed various instances of “reckless

10 mismanagement” of SIRC’s business, including serious accounting discrepancies, “toxic

11 debts,” regulatory noncompliance, a lack of due diligence in hiring and acquisitions,

12 gambling with SIRC funds, using SIRC money for personal expenditures, and lying to

13 investors. Id. ¶¶ 42–62.

14 SIRC further contends that Massey and Mettias agreed to prepare and submit false

15 loan applications to the Paycheck Protection Program (“PPP”), which provided Small

16 Business Administration (“SBA”) loans to businesses who were affected by the COVID-

17 19 pandemic. Id. ¶ 64. According to SIRC, Massey and Mettias lied about the number of

18 SIRC employees on the applications, thereby securing $6,375,014.00 in PPP loan

19 proceeds. Id. ¶¶ 66–67. Massey then paid Mettias $637,501.70, representing 10% of the

20 loan proceeds and Mettias divided this amount between herself and Massey. Id. ¶¶ 66–

21 67.

22 Plaintiff alleges it suffered significant financial and reputational damage as a result

23 of Massey’s and Mettias’s misconduct and seeks $100,000,000.00 in economic damages

24 and $1,000,000,000.00 in punitive damages. Id. at 25.2

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1 II. LEGAL STANDARD

2 A Rule 12(b)(6)3 motion to dismiss tests the sufficiency of the complaint. Navarro

3 v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “While a complaint attacked by a Rule

4 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s

5 obligation to provide the grounds of his entitlement to relief requires more than labels and

6 conclusions, and a formulaic recitation of the elements of a cause of action will not do.

7 Factual allegations must be enough to raise a right to relief above the speculative level.”

8 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations, brackets, and

9 citations omitted).

10 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the

11 truth of all factual allegations and must construe them in the light most favorable to the

12 nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996).

13 Legal conclusions need not be taken as true merely because they are cast in the form of

14 factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W.

15 Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, “conclusory

16 allegations of law and unwarranted inferences are not sufficient to defeat a motion to

17 dismiss.” Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998). In

18 determining the propriety of a Rule 12(b)(6) dismissal, generally, a court may not look

19 beyond the complaint for additional facts. United States v. Ritchie, 342 F.3d 903, 908

20 (9th Cir. 2003); Parrino v. FHP, Inc., 146 F.3d 699, 705–06 (9th Cir. 1998).

21 III. DISCUSSION

22 Massey first argues the FAC violates Rule 8 because it is a “shotgun” pleading.

23 Doc. No. 36-1 at 8–10. Massey also seeks dismissal of Count I of the FAC because it

24 does not sufficiently allege a violation of the Securities Exchange Act of 1934 (the

25 “Exchange Act”), nor does it satisfy the pleading requirements of the Private Securities

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1 Litigation Reform Act (“PSLRA”). Id. at 10–13. Mettias and Massey seek dismissal of

2 SIRC’s fraud claim in Count II, arguing that SIRC fails to satisfy Rule 9(b)’s particularity

3 requirement. Id. at 14–17; Doc. No. 34-1 at 8–10. They seek dismissal of the remaining

4 counts for failure to allege sufficient facts under Rule 12(b)(6). Doc. No. 34-1 at 10–20;

5 Doc. No. 36-1 at 17–30. In its Oppositions to the Motions to Dismiss, SIRC argues it has

6 provided sufficient facts to state a claim. Doc. Nos. 37, 40.

7 A. Rule 8

8 As an initial matter, Massey contends the FAC should be dismissed as a “shotgun”

9 or “puzzle” pleading which violates Rule 8 and the Court agrees. See Doc. No. 36-1 at

10 8–10. “Shotgun pleadings are pleadings that overwhelm defendants with an unclear mass

11 of allegations and make it difficult or impossible for defendants to make informed

12 responses to the plaintiff’s allegations.” Sollberger v. Wachovia Securities, LLC, No. 90-

13 cv-0766-AG (ANx), 2010 WL 2674456, at *4 (C.D. Cal. June 30, 2010). “A ‘puzzle

14 pleading’ is a complaint that forces the defendants and/or court to sort out the alleged

15 statements and match them with the corresponding alleged facts in order to solve the

16 puzzle of interpreting Plaintiff’s claims.” Cheng Jiangchen v. Rentech, Inc., No. 17-cv-

17 1490-GW (FFMX), 2017 WL 10363990, at *5 (C.D. Cal. Nov. 20, 2017) (citing In re

18 Intuitive Surgical Sec. Litig., 65 F. Supp. 3d 821, 831 (N.D. Cal. 2014)). SIRC has

19 alleged more than 70 paragraphs of factual allegations but has not sufficiently explained

20 how those facts map onto the elements of each of the claims in the FAC; therefore, SIRC

21 has not met the requirements of Rule 8. Nevertheless, for the sake of completeness, the

22 Court will address the plausibility of each of SIRC’s claims.

23 B. Count I: Violations of the Securities Exchange Act of 1934

24 Plaintiff alleges in Count I that Massey violated Section 10(b) of the Exchange

25 Act, as codified at 15 U.S.C. § 78j(b). FAC ¶ 73. That section makes it unlawful for a

26 person to:

27 use or employ, in connection with the purchase or sale of any security . . . any

manipulative or deceptive device or contrivance in contravention of such rules

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1 and regulations as the Commission may prescribe as necessary or appropriate

in the public interest or for the protection of investors.

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3 15 U.S.C. § 78j(b).

4 “In a typical § 10(b) private action a plaintiff must prove (1) a material

5 misrepresentation or omission by the defendant; (2) scienter; (3) a connection between

6 the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon

7 the misrepresentation or omission; (5) economic loss; and (6) loss causation. Stoneridge

8 Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008). “At the pleading

9 stage, a complaint stating claims under section 10(b) . . . must satisfy the dual pleading

10 requirements of Federal Rule of Civil Procedure 9(b) and the [Private Securities

11 Litigation Act (PSLRA)].” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990

12 (9th Cir. 2009). Rule 9(b) requires that allegations of “fraud or mistake . . . must state

13 with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). The

14 “circumstances” required by Rule 9(b) are the “who, what, when, where, and how” of the

15 fraudulent activity. Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003);

16 Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). In addition, the allegations “must

17 set forth what is false or misleading about a statement, and why it is false.” Vess, 317

18 F.3d at 1106 (quoting In re Glenfed, Inc. Secs. Litig., 42 F.3d 1541, 1548 (9th Cir.

19 1994)). In cases involving multiple defendants, “Rule 9(b) does not allow a complaint to

20 merely lump multiple defendants together but require[s] plaintiffs to differentiate their

21 allegations . . . and inform each defendant separately of the allegations surrounding his

22 alleged participation in the fraud.” Swartz v. KPMG LLP, 476 F.3d 756, 765–66 (9th Cir.

23 2007); see also Pegasus Holdings v. Veterinary Ctrs. of Am., Inc., 38 F. Supp. 2d 1158,

24 1163 (C.D. Cal. 1998) (where an action involves multiple defendants, a plaintiff “must

25 provide each and every defendant with enough information to enable them to know what

26 misrepresentations are attributable to them and what fraudulent conduct they are charged

27 with.”) (citations omitted). Further, “[a]ll securities fraud complaints since 1995 . . . are

28 subject to the more exacting pleading requirements of the PSLRA,” which requires a

1 plaintiff to “plead with particularity both falsity and scienter.” Zucco Partners, LLC v.

2 Digimarc Corp., 552 F.3d at 991. “[W]hen “determining whether the pleaded facts give

3 rise to a ‘strong’ inference of scienter, the court must take into account plausible

4 opposing inferences” Id. (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.

5 308, 322–23 (2007)).

6 1. Material Misrepresentation

7 The PSLRA requires a plaintiff to “‘specify each statement alleged to have been

8 misleading, the reason or reasons why the statement is misleading, and, if an allegation

9 regarding the statement or omission is made on information and belief, . . . state with

10 particularity all facts on which that belief is formed.’” Id. at 990–91 (quoting Gomper v.

11 VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002) and 15 U.S.C. § 78u–4(b)(1)). In the

12 FAC’s 70 paragraphs of facts, there are six allegations that are or could be construed as a

13 misleading statement or misrepresentation: (1) Massey “represented” to the Board he was

14 not compensated for his role as CEO of SIRC in 2020, FAC ¶ 18; (2) Massey told an

15 investor in March of 2023 that SIRC’s share price would reach $0.20 in the next 30 days,

16 id. ¶ 54; (3) Massey told a journalist in February of 2023 that he had secured funding for

17 SIRC, id. ¶ 56; (4) Massey submitted false PPP loan applications, id. ¶ 67; (5) Massey

18 told a shareholder that “My counsel told me not to speak to shareholders anymore,” id.

19 ¶ 60; and (6) Massey told a shareholder that “I’ve been advised I cannot communicate

20 with shareholders anymore so I cannot take your calls for McCanna’s [sic] affective [sic]

21 for 10 as effective I cannot talk to you,” id. Massey contends SIRC has not adequately

22 identified specific statements made by Massey and why they are misleading. Doc. No.

23 36-1 at 10–12. The Court agrees.

24 a. Representation to the Board About Compensation

25 SIRC bases its claim that Massey lied to the Board about his 2020 compensation

26 on Exhibits 1–3. See FAC ¶¶ 17–21. Exhibit 1 is a W-2 Wage and Tax Statement for

27 David Massey which reflects that Workforce Business Services paid him $92,077.00 for

28 the 2020 tax year. See FAC at pp. 28. SIRC asserts Workforce Business Services is the

1 payroll company for SIRC. Id. at pp. 5 fn.1. Exhibit 2 is a document, signed in February

2 of 2020, entitled “Written Consent of the Board of Directors of Solar Integrated Roofing

3 Corporation,” which contains the statements “David Massey has been serving as the

4 Company’s CEO and President since 2015 and Robert N. Jones has been serving as

5 Company’s CFO since January 2019.” Id. at 30. Exhibit 2 next states that “Mr. Massey

6 and Mr. Jones have not received compensation for their services,” and that the Board

7 wishes to issue five million shares of preferred stock to Massey and three million shares

8 of preferred stock to Jones. Id. at 30. Exhibit 3 is another document, dated June of 2020,

9 entitled “Written Consent of the Board of Directors of Solar Integrated Roofing

10 Corporation,” stating that the Board “wishes to issue 1,500,000 shares of Series B

11 preferred stock to David Massey for his services as CEO of the Company.” Id. at 32.

12 Although SIRC states Massey “represented” to the Board that he was not

13 compensated for his 2020 work as CEO, it does not plead Massey made any specific

14 statement about his compensation, and Exhibits 2 and 3 do not identify Massey as the

15 speaker or source of the Board’s statements that he had not received compensation for his

16 role as CEO. FAC ¶¶ 17–21, 30–32. Further, SIRC provides no detail about the facts

17 and circumstances surrounding when Massey made any statement or to whom he made

18 any statement about his compensation. FAC ¶¶ 17–21. At bottom, the PSLRA requires a

19 plaintiff to “specify each statement alleged to have been misleading, ” Zucco Partners,

20 LLC, 552 F.3d at 990–91, and SIRC identifies no statement made by Massey with respect

21 to his compensation. Accordingly, SIRC has not adequately pleaded its securities fraud

22 claim based on Massey’s representation to the Board about compensation.

23 b. Statements to Investors and a Journalist

24 As noted above, SIRC pleads several statements that Massey made to investors and

25 a journalist. SIRC vaguely alleges that the funding statement to the journalist was false.

26 FAC ¶ 56. Apart from that allegation, SIRC does not plead Massey’s statements to

27 investors regarding SIRC’s share price or his statements telling investors that he could no

28 longer communicate with them on advice of counsel were false. Nor does SIRC allege

1 how any of these statements were misleading. Absent more information as to how these

2 statements were false or misleading, SIRC’s claim does not comply with the PSLRA.

3 c. PPP Loan Applications

4 Assuming Massey’s verification of the PPP loan applications were statements,

5 SIRC has plausibly alleged they were false because they contained inflated employees

6 numbers. See FAC ¶ 67. However, SIRC has not plausibly alleged any connection

7 between the false PPP loan applications and the purchase or sale of a security. See

8 Stoneridge Inv. Partners, LLC, 552 U.S. at 15. Consequently, SIRC does not adequately

9 plead his securities fraud claim based upon the PPP loan applications.

10 2. Scienter

11 “The required state of mind under the PSLRA is a ‘mental state embracing intent

12 to deceive, manipulate, or defraud,’” and in the Ninth Circuit, it includes recklessness.

13 See Stoneridge Inv. Partners, LLC, 552 U.S. at 157; Inchen Huang v. Higgins, 443 F.

14 Supp. 3d 1031, 1042 (N.D. Cal. March 11, 2020) (quoting Ernst & Ernst v. Hochfelder,

15 425 U.S. 185, 193–94 n.12 (1976). To satisfy the scienter requirement of the PSLRA,

16 SIRC must plausibly allege “with particularity facts giving rise to a strong inference that

17 the defendant acted with the required state of mind” when he made each statement. Id. at

18 991 (quoting 15 U.S.C. § 78u–4(b)(2)).

19 Assuming SIRC adequately pleads a false or misleading statement, the Court finds

20 that SIRC has alleged sufficient facts to show that Massey intended to “deceive,

21 manipulate, or defraud” when he lied to the Board about his 2020 compensation. FAC

22 ¶¶ 20–23. It has also adequately alleged Massey’s scienter with respect to the PPP loan

23 fraud. FAC ¶ 67. But SIRC has not supported Massey’s alleged scienter with respect to

24 his statements to investors and the journalist. To be sure, there is no information in the

25 FAC explaining whether or how Massey knew those statements were false or even if

26 those statement were in fact false. SIRC also pleads no facts regarding whether he

27 intended to deceive these listeners.

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1 3. Causation

2 Further, assuming SIRC adequately identifies a material misrepresentation and

3 plausibly alleges that Massey possessed the requisite scienter when he made them, the

4 Court finds that SIRC fails to plead loss causation. In order to sufficiently plead a claim

5 under Section 10(b) of the Exchange Act, a plaintiff must plausibly allege “a causal

6 connection between the material misrepresentation and the loss’ experienced by the

7 plaintiff . . . .” Inchen Huang, 443 F. Supp. 3d at 1043 (quoting Dura Pharm., Inc. v.

8 Broudo, 544 U.S. 336, 342 (2005) (internal quotation marks omitted)). Under Ninth

9 Circuit law, a plaintiff must plead “loss causation” with the particularity required by Rule

10 9(b). Id. (citing Oregon Public Employees Retirement Fund v. Apollo Group Inc., 774

11 F.3d 598, 605 (9th Cir. 2014)). Plaintiff states that Massey’s conduct “directly and

12 proximately caused SIRC’s damages,” but does not allege specific facts which show a

13 causal connection between either Massey’s allegedly false statements about his

14 compensation to the Board or his allegedly illegal and “off-the-books” securities

15 transactions and the damages it seeks beyond this conclusory statement. Id. ¶¶ 72–24.

16 This is insufficient to satisfy Rule 9(b).

17 For all of these reasons, Plaintiff has not provided sufficient, plausible, and specific

18 allegations to state a claim for securities fraud under the PSLRA. The Court therefore

19 GRANTS Massey’s Motion to Dismiss as to Count I without prejudice.

20 C. Count II: Common Law Fraud

21 In Count II, SIRC alleges Massey engaged in common law fraud when he “made

22 false representations of material fact and knowingly concealed material information from

23 SIRC’s Board, siphoned funds for personal expenditures, and engaged in other wrongful

24 conduct outlined herein,” and that Massey and Mettias committed common law fraud by

25 lying on applications for loans under the PPP program and taking the proceeds from the

26 loans for their personal use. FAC ¶75–78. Both Massey and Mettias contend SIRC’s

27 Amended Complaint does not provide the specificity of pleading required by Rule 9(b).

28 See Doc. Nos. 34-1, 36-1.

1 As this Court noted in its May 3, 2024 dismissal order, “due to variances among

2 state laws, failure to allege which state law governs a common law claim is grounds for

3 dismissal.” Romero v. Flowers Bakeries, LLC, No. 14-CV-05189-BLF, 2016 WL

4 469370, at *12 (N.D. Cal. Feb. 8, 2016); see also Moore v. EO Products, LLC, No. 22-

5 cv-7618-JST, 2023 WL 6391480, at *09 (N.D. Cal. Sept. 23, 2023). Assuming that

6 California law, applies, however “The elements of a cause of action for fraud in

7 California are: (a) misrepresentation (false representation, concealment, or

8 nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to

9 induce reliance; (d) justifiable reliance; and (e) resulting damage.’” Kearns v. Ford

10 Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009) (quoting Engalla v. Permanente Med.

11 Group, Inc., 15 Cal. 4th 951, 974 (1997) (internal quotation marks omitted).

12 As noted above, Rule 9(b) requires that allegations of “fraud or mistake . . . must

13 state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). The

14 “circumstances” required by Rule 9(b) are the “who, what, when, where, and how” of the

15 fraudulent activity. Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003);

16 Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). In addition, the allegations “must

17 set forth what is false or misleading about a statement, and why it is false.” Vess, 317

18 F.3d at 1106 (quoting In re Glenfed, Inc. Secs. Litig., 42 F.3d 1541, 1548 (9th Cir.

19 1994)). However, “intent, knowledge, and other conditions of a person’s mind may be

20 alleged generally.” Fed. R. Civ. P. 9(b); see also Neubronner, 6 F.3d at 672. In cases

21 involving multiple defendants, “Rule 9(b) does not allow a complaint to merely lump

22 multiple defendants together but require[s] plaintiffs to differentiate their allegations . . .

23 and inform each defendant separately of the allegations surrounding his alleged

24 participation in the fraud.” Swartz v. KPMG LLP, 476 F.3d 756, 765–66 (9th Cir. 2007);

25 see also Pegasus Holdings v. Veterinary Ctrs. of Am., Inc., 38 F. Supp. 2d 1158, 1163

26 (C.D. Cal. 1998) (where an action involves multiple defendants, a plaintiff “must provide

27 each and every defendant with enough information to enable them to know what

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1 misrepresentations are attributable to them and what fraudulent conduct they are charged

2 with.”) (citations omitted).

3 1. Lying to the Board about Compensation

4 SIRC alleges Massey “made false representations of material fact and knowingly

5 concealed material information when he lied to SIRC’s Board, siphoned funds for

6 personal expenditures, and engaged in other wrongful conduct.” FAC at ¶¶ 76–78. But

7 SIRC has not explained what or when Massey told the Board about his compensation.

8 SIRC has also not explained with sufficient specificity what funds Massey siphoned,

9 when or how he did so, nor any specifics about the “other wrongful conduct” it alleges

10 Massey engaged in. SIRC has also not plausibly alleged any facts regarding how

11 fraudulent statements by Massey to the Board about his compensation caused its

12 damages. See Lazar v. Superior Court, 12 Cal. 4th 631, 645 (1996) (stating that damage

13 causation “must be pled specifically; general and conclusory allegations do not suffice”).

14 2. PPP Loan Fraud

15 SIRC alleges Massey and Mettias “submitted PPP loan applications for each of

16 SIRC’s subsidiaries . . . [which] falsely represented that SIRC had 532 employees.” FAC

17 ¶¶ 13–10, 67. SIRC then received $6,375,014.00 in PPP loans and Massey paid Mettias

18 $637,501.70 from the loan proceeds. Id. SIRC alleges Mettias divided this money

19 between herself and Massey. Id. ¶¶ 3–20. SIRC claims Massey and Mettias concealed

20 their PPP loan activities from SIRC. Id. ¶¶ 11–12, 22–24. A fraud claim based on

21 concealment requires a plaintiff to plausibly allege:

22 (1) the defendant must have concealed or suppressed a material fact, (2) the

defendant must have been under a duty to disclose the fact to the plaintiff,

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(3) the defendant must have intentionally concealed or suppressed the fact

24 with the intent to defraud the plaintiff, (4) the plaintiff must have been

unaware of the fact and would not have acted as he did if he had known of the

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concealed or suppressed fact, and (5) as a result of the concealment or

26 suppression of the fact, the plaintiff must have sustained damage.”

27 Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal. App. 4th 858, 868 (Cal.

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1 Ct. App. 2018) (quoting Marketing West, Inc. v. Sanyo Fisher (USA) Corp., 6 Cal. App.

2 4th 603, 612–613 (Cal. Ct. App. 1992)).

3 SIRC has not plausibly alleged with sufficient specificity the “what, when, and

4 how” of the alleged PPP loan fraud. It has not identified the amount sought on each loan

5 application, when each PPP loan application was submitted and on behalf of what entity,

6 what fraudulent information regarding the number of employees each application

7 contained, how the amount of the loans SIRC received differed from what SIRC and its

8 subsidiaries were entitled to had there been no fraud, the amount of each of the loans the

9 subsidiaries actually received, or how much money Massey received from the loan funds.

10 While Plaintiff states it expects to gain this information in discovery, “the Supreme Court

11 has been clear that discovery cannot cure a facially insufficient pleading.” Whitaker v.

12 Tesla Motors, Inc., 985 F.3d 1172, 1177 (9th Cir. 2021) (citing Iqbal, 556 U.S. at 678–

13 79). “Our case law does not permit plaintiffs to rely on anticipated discovery to satisfy

14 Rules 8 and 12(b)(6); rather, pleadings must assert well-pleaded factual allegations to

15 advance to discovery.” Id. (citing Twombly, 550 U.S. at 559).

16 Further, SIRC has not alleged Mettias had a duty to disclose material facts to

17 SIRC. See Blickman Turkus, LP, LLC, 162 Cal. App. 4th at 868. Nor has SIRC plausibly

18 alleged either Massey or Mettias intended to defraud SIRC, as opposed to the SBA and/or

19 the PPP loan program, because based upon its own pleading, SIRC was not entitled to the

20 $6,375,014.00 in PPP loan money in the first place. SIRC refers to Exhibit 40 as support

21 for the allegations in Count II, which is a portion of an email exchange in which Mettias

22 states she is sending “bills for my personal property” to Massey, and Massey asks for

23 “the payoff for the lease,” which Mettias promises to provide. FAC ¶¶ 65–66; id. at 251–

24 52. But this Exhibit provides no details as to whether, how, or when any PPP loan

25 proceeds were used to pay Mettias’s “bills for her personal property” or a lease. SIRC

26 also refers to Exhibit 41 as support for Count II, which is a portion of an email exchange

27 from Curiel reminding Massey that Massey told him Mettias said SIRC had 532

28 employees, which contradicted SIRC’s Human Resource’s statement that SIRC had 203

1 employees in 2022. FAC ¶¶ 65–66, pp. 254–57. This email also does not provide any

2 details of the PPP loan fraud alleged, such as when Mettias reported a false number of

3 employees on PPP loan applications and on behalf of what entity the applications were

4 submitted.

5 Further, SIRC has not plausibly alleged how, specifically, the fraud caused its

6 damages. See Blickman Turkus, LP, 162 Cal. App. 4th at 868. Plaintiff claims “the

7 concrete loss to SIRC was $637,501.70.” FAC ¶¶ 12–13, 67. But this is simply the

8 amount paid to Mettias for her work submitted the PPP loan applications. SIRC has not

9 explained how this number reflects the actual damages it claims it suffered as a result of

10 the fraud, nor has it explained how those damages – which it vaguely identifies as

11 “ongoing SBA audits related to the PPP loan funds” and negative effects on its business –

12 were caused by Massey’s and Mettias’s actions.

13 Accordingly, the Court GRANTS Massey’s and Mettias’s Motions to Dismiss as

14 to Count II without prejudice.

15 D. Count III: Wire Fraud

16 SIRC alleges in Count III that Massey committed wire fraud in violation of 18

17 U.S.C. § 1343. FAC ¶¶ 79–81. Although SIRC is correct that wire fraud is one of the

18 predicate acts alleged under Count VI, see FAC ¶¶ 90–93, 18 U.S.C. § 1343 is a criminal

19 statute that does not provide for a private, civil cause of action. See Tillman v. Los

20 Angeles County District Attorney’s Office, No. 22-cv-5755-SSS (MAA), 2022 WL

21 19829379, at *2 (C.D. Cal. Sept. 21, 2022) (stating there is no private cause of action for

22 wire fraud under 18 U.S.C. § 1343); Riley v. Quality Loan Serv. Corp., No. 18-cv-1297-

23 WQH (AGS), 2019 WL 157838, at *2 (S.D. Cal. Jan 10, 2019) (concluding that 18

24 U.S.C. § 1343 does not provide a private right of action); Chen v. T.T. Group, No. 14-cv-

25 0138-DOC (DFMx), 2014 WL 12613519, at *1 (C.D. Cal. May 29, 2014) (“18 U.S.C.

26 §§ 1341 and 1343 are criminal wire fraud statutes. They do not create civil causes of

27 action . . . .”). Accordingly, the Court GRANTS Massey’s Motion to Dismiss as to

28 Count III with prejudice.

1 E. Count IV: Negligence

2 In Count IV, SIRC brings a negligence claim against Massey. FAC ¶¶ 82–84.

3 Massey asks the Court to dismiss Count IV because SIRC has failed to identify the

4 applicable state law and because the Amended Complaint is too vague and conclusory to

5 provide notice of the allegations against him. Doc. No. 36-1 at 27–28.

6 As noted above, a plaintiff must specify which state law governs a common law

7 claim. See Romero, 2016 WL 469370, at *12; Moore, 2023 WL 6391480, at *9.

8 Assuming that California law, applies, however, “[t]o establish liability for negligence

9 under [California] law, a plaintiff must prove duty, breach, causation, and damages.”

10 Jackson v. Airbnb, Inc., 639 F. Supp. 3d 994, 1006 (C.D. Cal. 2022) (citing Conroy v.

11 Regents of Univ. of Cal., 45 Cal. 4th 1244, 1250 (2009).) In California, “the required

12 element of legal causation has two components: ‘cause in fact and proximate cause.’”

13 Steinle v. United States, 17 F.4th 819, 823 (9th Cir. 2021) (quoting S. Coast Framing,

14 Inc. v. Workers’ Comp. Appeals Bd., 61 Cal. 4th 291, 198 (2015).)

15 To determine causation in fact, California has adopted the substantial factor

test set forth in the Restatement Second of Torts, Section 431. “An event will

16

be considered a substantial factor in bringing about harm if it is recognizable

17 as having an appreciable effect in bringing it about.” Kumaraperu v. Feldsted,

237 Cal. App. 4th 60, 68, 187 Cal. Rptr. 3d 583 (2015) (internal citations and

18

quotation marks omitted). An “actor’s negligent conduct is not a substantial

19 factor in bringing about harm to another if the harm would have been

sustained even if the actor had not been negligent.” Mills v. U.S. Bank, 166

20

Cal. App. 4th 871, 899, 83 Cal.Rptr.3d 146 (2008) (internal citations and

21 quotation marks omitted) (emphasis removed) (citing Viner v. Sweet, 30 Cal.

4th 1232, 1240, 135 Cal. Rptr. 2d 629, 70 P.3d 1046 (2003)).

22

23 Bhatia v. Silvergate Bank, __ F. Supp. 3d __, 2024 WL 1199679, at *23 (S.D. Cal. March

24 20, 2024).

25 SIRC has not adequately identified what duty Massey had to SIRC; it simply

26 asserts Massey had a “tort duty to SIRC.” FAC ¶ 83. With respect to causation, SIRC

27 states in support of Count IV that Massey’s “material breaches [of] his tort duties directly

28 and proximately caused SIRC’s damages.” Id. This is simply a restatement of the law.

1 SIRC has not provided sufficient facts to plausibly allege how Massey’s breach of his

2 duties had “an appreciable effect in bringing . . . about” the $100,000,000.00 in damages

3 it alleges it suffered. Bhatia, 2024 WL 1199679, at *23. As it stands, the Amended

4 Complaint simply restates the element of causation and as such is not sufficient to

5 plausibly allege any breach of duty by Massey caused the economic damages SIRC

6 claims it suffered. Accordingly, the Court GRANTS Massey’s Motion to Dismiss as to

7 Count IV without prejudice.

8 F. Count V: Conversion

9 In Count V, SIRC alleges that Massey and Mettias “exercised unauthorized control

10 over SIRC’s assets” and “divert[ed] PPP loan proceeds to personal use in collaboration

11 with Mr. Massey.” FAC ¶¶ 85–89. In California, “[t]he elements of a claim for

12 conversion are (1) the plaintiff’s ownership or right to possession of the property at the

13 time of the conversion, (2) the defendant’s conversion by a wrongful act or disposition of

14 property rights, and (3) damages.” Miller v. Bank of America, N.A., No. 1:21-cv-00337-

15 JLT, 2022 WL 3704093, at *4 (E.D. Cal. Aug. 26, 2022) (citing Prakashpalan v.

16 Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1135 (Cal. Ct. App. 2014)).

17 Money can only be the subject of a conversion claim if “a specific, identifiable sum is

18 involved.” Ortega v. Toyota Motor Sales, USA, Inc., 572 F. Supp. 2d 1218, 1220 (S.D.

19 Cal. 2008) (citing Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445, 452 (Cal. Ct. App.

20 1997)).

21 SIRC claims Massey converted its assets by “(a) selling restricted shares obtained

22 through deceit, (b) misappropriating company funds for personal use, . . . and

23 (d) engaging in illegal off-the-books transactions with shares of SIRC stock through the

24 shell company ‘SIRC, LLC.’” FAC ¶ 86. With respect to these allegations, SIRC does

25 not identify a specific, identifiable sum that Massey is alleged to have converted through

26 his sale of SIRC stock or a specific amount of money that Massey misappropriated from

27 SIRC.

28

1 SIRC also alleges Massey and Mettias converted SIRC’s assets to their own use by

2 diverting PPP loan proceeds for personal gain. Id. ¶ 87. Given SIRC’s contention that

3 the PPP loans they received were fraudulently obtained, it does not appear SIRC has

4 plausibly alleged they owned or had a right to own the PPP funds. See Miller, 2022 WL

5 3704093, at *4; Prakashpalan, 223 Cal. App. 4th at 1135. With respect to Massey, SIRC

6 has not identified a specific sum of money Massey allegedly received from the PPP loan

7 proceeds, and explicitly acknowledges that “[t]he exact amounts of [the PPP loan

8 proceeds] shared with Mr. Massey are unknown to SIRC at this time . . . .” FAC ¶ 67.

9 As to Mettias, SIRC alleges she received a total of $637,501.70, her agreed-upon fee for

10 submitting the allegedly fraudulent loans. Id. According to SIRC, the normal and

11 customary fee for Mettias’s services would have been $50,000. Id. But SIRC’s

12 Amended Complaint simply lists the amounts Mettias was paid by each of SIRC’s

13 subsidiaries and does not sufficiently allege that the $637,501.70 came from PPP loan

14 proceeds or that Mettias gained that amount by a wrongful act rather than as simply

15 payment for her services.

16 Accordingly, the Court GRANTS Massey’s and Mettias’s Motions to Dismiss as

17 to Count V without prejudice.

18 G. Count VI: RICO Violations

19 SIRC alleges in Count VI that Mettias and Massey engaged in racketeering

20 activity, in violation of 18 U.S.C. § 1961, et seq., the federal civil RICO Act. FAC

21 ¶¶ 90–93. A private individual may bring a RICO action pursuant to 18 U.S.C. § 1964(c)

22 if they have been “injured in [their] business or property by reason of a violation of

23 § 1962.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Bridge v. Phoenix

24 Bond & Indem. Co., 553 U.S. 639, 647 (2008). To state a RICO claim under § 1962, a

25 plaintiff must allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of

26 racketeering activity.” Sedima, 473 U.S. at 496. A plaintiff must also allege the RICO

27 activity caused injury to his business or property. Living Designs, Inc. v. E.I Dupont de

28 Numours & Co., 431 F.3d 353, 361 (9th Cir.)

1 SIRC alleges that Massey “through his position in SIRC, operated as part of an

2 enterprise and engaged in a pattern of racketeering activity,” which it identifies as

3 “multiple acts of securities fraud in violation of 15 U.S.C. § 78j(b) and wire fraud in

4 violation of 18 U.S.C. § 1343.” FAC ¶ 91. SIRC also alleges that together, Mettias and

5 Massey “executed a fraudulent scheme involving the misappropriation of PPP funds,”

6 and “made false representations to the Board and PPP lenders” by “submitting deceptive

7 applications for PPP funds, which were then diverted for personal expenditures rather

8 than for the legitimate business purposes of SIRC.” Id. ¶ 92. According to SIRC, this

9 activity also included wire fraud, in violation of 18 U.S.C. § 1343, as well as “potentially

10 other federal statutes.” Id. The Court concludes SIRC has not plausibly alleged all

11 elements of a RICO claim.

12 1. The Enterprise

13 The Supreme Court has held the term “conduct” encompasses an element of

14 direction. “In order to ‘participate, directly or indirectly, in the conduct of such

15 enterprise’s affairs,’ one must have some part in directing those affairs.” Reves v. Ernst

16 & Young, 507 U.S. 170, 179 (1993). “Simply being ‘a part’ of the enterprise or

17 ‘performing services’ for the enterprise does not rise to the level of direction required to

18 satisfy this element.” LD v. United Behavioral Health, 508 F. Supp. 3d 583, 602 (N.D.

19 Cal. Dec. 18, 2020) (citing Walter v. Drayson, 538 F.3d 1244, 1249 (9th Cir. 2008)). The

20 RICO statute defines “enterprise” as “any individual, partnership, corporation,

21 association, or other legal entity, and any union or group of individuals associated in fact

22 although not a legal entity.” 18 U.S.C. § 1961(4). “[T]o establish liability under section

23 1962(c), one must allege and prove the existence of two distinct entities: (1) a ‘person’;

24 and (2) an ‘enterprise’ that is not simply the same ‘person’ referred to by a different

25 name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).

26 SIRC’s allegations do not sufficiently define the alleged “enterprise.” SIRC

27 alleges that Massey, “through his position in SIRC, operated as part of an enterprise” by

28 “misleading the Board to trigger stock issuances, illegal securities transactions, selling

1 restricted shares in off-the-books transactions, and making false and deceptive statements

2 and practices.” FAC ¶ 91. These allegations appear to suggest that SIRC itself is the

3 enterprise. See Moran v. Bromma, 675 Fed. App’x 641, 645 (9th Cir. 2017) (stating that

4 “a corporate officer is sufficiently distinct from the corporation for which he works such

5 that a plaintiff can allege the officer as the RICO person and the corporation as the RICO

6 enterprise”). But SIRC also alleges Massey and Mettias agreed to participate together in

7 a “fraudulent scheme” to submit false PPP loan applications which inflated the number of

8 SIRC’s employees; they would then retain 10% of the fraudulently obtained loan

9 proceeds for themselves. Id. ¶ 67. The RICO statute defines “enterprise” to include “any

10 union or group of individuals associated in fact although not a legal entity.” 18 U.S.C.

11 § 1961(4). The Supreme Court has interpreted this language to mean that “RICO reaches

12 ‘a group of persons associated together for a common purpose of engaging in a course of

13 conduct.’” Boyle v. U.S., 556 U.S. 938, 948 (2009) (quoting U.S. v. Turkette, 452 U.S.

14 576, 583 (1981)). The allegations regarding the PPP loan fraud appear to suggest that the

15 enterprise is an association between Massey and Mettias. Without further clarity, the

16 Court finds that SIRC has not plausibly alleged or defined the required “enterprise.”

17 2. Pattern of Racketeering Activity

18 To establish a “pattern,” a plaintiff must show “at least two acts of racketeering

19 activity” within a ten-year period. 18 U.S.C. § 1961(5). “Racketeering activity” is

20 defined in 18 U.S.C. § 1961(1), which lists dozens of criminal acts. “A ‘pattern’ of

21 racketeering activity also requires proof that the racketeering predicates are related and

22 ‘that they amount to or pose a threat of continued criminal activity.’” Turner v. Cook,

23 362 F.3d 1219, 1229 (9th Cir. 2004) (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229,

24 239 (1989)). “Predicate acts are related if they have ‘the same or similar purposes,

25 results, participants, victims, or methods of commission, or otherwise are interrelated by

26 distinguishing characteristics and are not isolated events.’” Metaxas v. Lee, 503 F. Supp.

27 3d 923, 941 (N.D. Cal. Nov. 30, 2020) (quoting H.J. Inc., 492 U.S. at 240)). “Continuity

28 has been interpreted as encompassing ‘both a closed- and open-ended concept . . . .’” Id.

1 (quoting H.J. Inc., 492 U.S. at 241). “Closed-ended continuity entails ‘a series of related

2 predicates extending over a substantial period of time,” i.e., more than “a few weeks or

3 months,” while “[o]pen-ended continuity involves ‘past conduct that by its nature

4 projects into the future with a threat of repetition.’” Id. (quoting H.J. Inc., 492 U.S. at

5 241).

6 SIRC alleges Massey engaged in a “pattern of racketeering” by engaging in wire

7 fraud and securities fraud, more specifically misleading the Board to trigger stock

8 issuances, “illegal securities transactions, selling restricted shares in off-the-books

9 transactions.” FAC ¶ 91. Although wire fraud is a predicate offense under the RICO

10 statute, the PSLRA amended the statute to state that “no person may rely upon any

11 conduct that would have been actionable as fraud in the purchase or sale of securities to

12 establish a violation of [RICO].” 18 U.S.C. §§ 1961(1), 1964(c); Rezner v. Bayerishce

13 Hypo-Und Vereinsbank AG, 630 F.3d 866, 871 (9th Cir. 2010). Accordingly, securities

14 fraud cannot be relied upon as a predicate act.

15 SIRC also alleges Massey “[made] false and deceptive statements.” FAC ¶ 91.

16 Assuming this refers to SIRC’s allegation that Massey lied to the Board about his

17 compensation, as discussed above, SIRC has not plausibly alleged that Massey falsely

18 told the Board he was not compensated for his role as CEO in 2020. SIRC has also not

19 sufficiently explained how Massey’s and Mettias’s actions, other than the alleged wire

20 fraud, fall under the enumerated RICO offenses in 18 U.S.C. § 1361. SIRC’s allegations

21 against Massey’s and Mettias’s participation in the PPP loan fraud are also not sufficient

22 to plausibly allege a racketeering activity. Where fraud is alleged as the predicate acts to

23 a RICO claim, the allegations must satisfy Rule 9(b)’s specificity requirement. Edwards

24 v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004). As discussed above, SIRC’s

25 fraud allegations are insufficient to satisfy Rule 9(b).

26 3. Causation

27 “[T]o state a claim under civil RICO, the plaintiff is required to show that a RICO

28 predicate offense “not only was a ‘but for’ cause of his injury, but was the proximate

1 cause as well.” Hemi Group, LLC v. City of New York, N.Y., 559 U.S. 1, 9 (2010)

2 (quoting Holmes v. Securities Investor Protector Corp., 503 U.S. 258, 268 (1992)).

3 “When a court evaluates a RICO claim for proximate causation, the central question it

4 must ask is whether the alleged violation led directly to the plaintiff’s injuries.” Anza v.

5 Ideal Supply Corp., 547 U.S. 451, 461 (2006). A plaintiff must show a “direct relation

6 between the injury asserted and the injurious conduct alleged.” Painters & Allied Trades

7 Dist. Council 82 Health Care Fund v. Takeda Pharmaceuticals Co. Ltd., 943 F.3d 1243,

8 1249 (9th Cir. 2019) (quoting Holmes, 503 U.S. at 269–70)). Although SIRC alleges

9 damages in the amount of $100,000,000.00, it does not plausibly allege a direct

10 relationship between Massey’s and Mettias’s racketeering activity and the damages it

11 claims it suffered or how that activity proximately caused the damages.

12 For these reasons, the Court GRANTS Massey’s and Mettias’s motion to dismiss

13 Count VI without prejudice.

14 H. Count VII: Unjust Enrichment

15 “There is no cause of action in California labeled ‘unjust enrichment.’” City of

16 Oakland v. Oakland Raiders, 83 Cal. App. 5th 458, 477 (Cal. Ct. App. 2022); see also

17 Sepanossian v. National Ready Mix Co., Inc., 97 Cal. App. 5th 192, 206–07 (Cal. Ct.

18 App. 2023) (stating that “an unjust enrichment claim is grounded in equitable principles

19 of restitution”); Helems v. Game Time Supplements, LLC, No. 22-cv-1122-L (AHG),

20 2023 WL 5986130, at *6 (stating that “there is no unjust enrichment cause of action in

21 California, instead there is only a claim for restitution”). Rather, “[u]njust enrichment is

22 synonymous with restitution. Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370

23 (Cal. Ct. App. 2010). In California, “[r]estitution is a quasi-contract theory, which allows

24 for ‘the return of the excess of what the plaintiff gave the defendant over the value of

25 what the plaintiff received [citation] where the benefit to the defendant was conferred

26 through fraud, duress, conversion, or similar conduct.” Echo & Rig Sacramento, LLC v.

27 AmGuard Insurance Co., 698 F. Supp. 3d 1210, 1218 (E.D. Cal. Oct. 18, 2023).

28

1 SIRC alleges Massey unjustly enriched himself at SIRC’s expense by manipulating

2 SIRC’s stock, engaging in unauthorized securities transactions, including off-the-books

3 securities transactions, and siphoning off SIRC’s assets for personal use. FAC ¶¶ 94–97.

4 SIRC has not explained how Massey manipulated SIRC’s stock or how he benefitted

5 from that manipulation. SIRC claims Massey created a shell corporation, SIRC, LLC, to

6 convert his shares into cash. Id. ¶¶ 26–40. But it is not clear from the Amended

7 Complaint whether Massey actually succeeded in accomplishing this before the FBI

8 seized 6,258,986 shares of SIRC stock. Id. Nor is it clear to the Court what SIRC is

9 referring to when it alleges that Massey “siphoned SIRC’s assets.” Id. ¶ 96.

10 SIRC also alleges Massey and Mettias were unjustly enriched by the $637,501.70

11 they allegedly received from the fraudulent PPP loan funds. But SIRC also alleges those

12 funds came from the United States government via the SBA and the PPP loan program,

13 not SIRC. See Quiby Inc. v. Posey, No. 17-cv-3847-EMC, 2018 WL 732493, at *4 (N.D.

14 Cal. Feb. 6, 2018) (stating that a plaintiff fails to state a claim when asserting a claim for

15 unjust enrichment where the defendant was enriched with money provided to it by

16 someone other than the plaintiff). Following SIRC’s logic, if SIRC was not entitled to

17 the entire $6,375,034.00 because it was obtained via inflated employee numbers, it was

18 also not entitled to all of the $637,501.70 it claims Massey and Mettias took from those

19 funds. Accordingly, SIRC has not plausibly alleged it is entitled to any restitution with

20 respect to the alleged PPP loan fraud. The Court therefore GRANTS Massey’s and

21 Mettias’s Motions to Dismiss as to Count VII without prejudice.

22 I. Count VIII: Breach of Fiduciary Duty

23 SIRC contends Massey breached his fiduciary duty as CEO of SIRC by

24 “manipulating SIRC’s stock, engaging in unauthorized securities transactions, selling

25 restricted shares in of-the-books transactions, making ludicrous business decisions that no

26 reasonable similarly situated CEO would have made, misappropriating company and PPP

27 funds for personal use, committing wire fraud and otherwise violating federal and state

28 law.” FAC ¶¶ 98–101. SIRC also claims Massey made decisions and took actions that

1 were not in the best interests of SIRC, and his business decisions and fraudulent practices

2 “harmed SIRC financially [and] also exposed the company to significant legal and

3 reputational risks.” Id. Massey argues the allegations in Count VIII are too vague and

4 conclusory to state a claim. Doc. No. 36-1 at 27–29.

5 “The elements of a claim for breach of fiduciary duty [in California] are (1) the

6 existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused

7 by that breach.” O’Neal v. Stanislaus Cnty. Emps.’ Ret. Ass’n, 8 Cal. App. 5th 1184,

8 1215 (Cal. Ct. App. 2017) (internal quotation marks omitted). SIRC plausibly alleges

9 Massey was a director of SIRC, see FAC ¶ 19, and “in California, it is beyond dispute

10 that corporate directors owe a fiduciary duty to the corporation and its shareholders . . .”

11 which requires them to “serve ‘in good faith, in a manner such director believes to be in

12 the best interests of the corporation and its shareholders.’” Berg & Berg Enterprises,

13 LLC v. Boyle, 179 Cal. App. 4th 1020, 1037 (Cal. Ct. App. 2009) (citing Cal. Corp. Code

14 § 309(a)). SIRC also plausibly alleges Massey breached this duty by, among other

15 things, making a financially unsound $4.2 million loan to Arbiter Capital, LLC in

16 exchange for a future loan to SIRC of $42 million which never materialized, took out a

17 loan on behalf of SIRC which had an 88.5% interest rate, entered into a securities

18 transaction with an unlicensed securities dealer who converted SIRC stock at $0.05 when

19 the stock was trading at $0.50, purchased a 60% interest in SunUp Solar LLC despite the

20 fact that it did not have any tangible assets and which resulted in millions of dollars of

21 damages to SIRC, and engaged in insider trading by providing SIRC’s confidential

22 documents to selected investors and a financial journalist. FAC ¶¶ 46–62.

23 As to causation, however, SIRC falls short because it has not plausibly alleged

24 Massey’s conduct “‘was a substantial factor in bringing about the harm to the plaintiff.’”

25 Pacific Select Fund v. Bank of New York Mellon, No. 2012 WL 12886483, at *6 (C.D.

26 Cal. Jan. 30, 2012) (quoting Servs. Emps. Int’l Union, Local 250 v. Colcord, 160 Cal.

27 App. 4th 362, 375 (Cal. Ct. App. 2008)). While SIRC alleges its damages are estimated

28 at $100,000,000 and it was “once valued at $100 million with a share price regularly

1 above $0.30 [and it] now teeters on the brink of insolvency,” it does not sufficiently

2 ||connect Massey’s actions with its current financial condition. SIRC provides insufficient

3 || facts regarding how it would have fared in the absence of Massey’s actions or how,

4 specifically, Massey’s actions damaged SIRC. Accordingly, the Court GRANTS

5 || Massey’s Motion to Dismiss as to Count VIII without prejudice.

6 IV. CONCLUSION

7 For the foregoing reasons, the Court GRANTS Massey’s and Mettias’s Motions to

8 || Dismiss and DISMISSES all claims. The dismissal is without prejudice as to all claims

9 ||except Count III. Because amendment would be futile, dismissal of Count HI is with

10 || prejudice.

11 Any amended complaint will be the operative pleading and shall be filed no later

12 October 9, 2024. Defendant must respond within the time prescribed by Federal

13 ||Rule of Civil Procedure 15.4 Any claim not re-alleged and any Defendant not named in

14 || the second amended complaint will be considered waived. See CivLR 15.1; Hal Roach

15 || Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1546 (9th Cir. 1989) (“[AJn

16 |}amended pleading supersedes the original.”); Lacey v. Maricopa Cnty., 693 F.3d 896, 928

17 Cir. 2012) (noting that claims dismissed with leave to amend which are not re-

18 || alleged in an amended pleading may be “considered waived if not repled”’).

19 IT IS SO ORDERED.

20 || Dated: September 11, 2024

21 Mbiduk lu - Leleg llr

22 HON. MICHAEL M. ANELLO

United States District Judge

23

24

25

26 ||

27 ||4 In addition, the Court notes that any amended pleading must be accompanied by a version of that

3g || pleading that shows—through redlining or similar method—how that pleading differs from the

previously dismissed pleading. See CivLR 15.1.c.