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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
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i 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
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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 2 of 22
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ii 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
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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 3 of 22
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iii 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
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
Cal. Bus. & Profs. Code § 17044 ............................................................................................... 8, 10
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 4 of 22
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iv DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS
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1283128.01
Cal. Bus. & Profs. Code § 17045 ..................................................................................... 8, 9, 10, 11
Cal. Bus. & Profs. Code § 17046 ............................................................................................... 8, 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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 5 of 22
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1 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
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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 6 of 22
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2 DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS
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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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 7 of 22
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1 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
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.
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 8 of 22
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2 DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS
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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
Case 5:17-cv-03805-LHK Document 55 Filed 05/21/18 Page 9 of 22
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3 DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS
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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
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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)).
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5 DEFENDANT SOUTHERN GLAZER’S WINE AND SPIRITS, LLC’S MOTION TO DISMISS
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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.
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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
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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).
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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.
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¶¶ 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”).
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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
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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
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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
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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.
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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.
/ / /
/ / /
/ / /
/ / /
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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
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