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Two Investment Bankers Are No Strangers to Interference: Johnson v. Mazza
Posted on Categories Business & Employment, Court DecisionsTags , ,

By Paul J. Dubow

*A claim for interference with contract can only be alleged against a third party who is a stranger to the contract. **A claim of interference with contract will not lie if the contract was breached prior to the alleged interference. ***A claim for fraud that lumps two sets of defendants together will be dismissed for failure to plead with specificity.

Johnson vs. Mazza, No. 15-09183 (C.D. Cal., 2/17/17).

Cutting Out the Middle Man

Plaintiffs Matthew and Nathan Johnson owned plaintiff Gemini, an investment bank that provided capital market services to medium sized businesses, and plaintiff Alacrity, a fund that provided secured loans to companies unable to obtain traditional financing. Mazza agreed to give Gemini an exclusive on investment banking deals through CPA360, a web portal that he developed that purportedly matched clients in need of financial services with financial service providers in return for a $1 million loan from Alacrity to Alethean, a company controlled by Mazza and defendant West. Mazza purportedly induced the Johnsons to make the deal on a representation that two accounting firms, HBK and HA&W, were investors in CPA360. After Alethean failed to repay the loan and declared bankruptcy, plaintiffs sued Mazza, West, the two accounting firms, and two principals of the accounting firms for fraud. Mazza and West filed counterclaims against the Johnsons. The Johnsons move to dismiss the counterclaims and HBK and its principal, Allegretti, move for judgment on the pleadings. Mazza alleged that the Johnsons interfered with his contracts with Gemini and Alacrity.

Interference or Not?

The Court grants the motion to dismiss. The Johnsons control Alacrity and Gemini. Thus, they are not “strangers” to the contract. California law recognizes that the core of intentional interference business torts is interference with an economic relationship by a third party stranger to that relationship, so that a party with a direct interest or involvement in that relationship is not usually liable for harm. West claimed that Matthew Johnson interfered with a contractual relationship between Alethean and its payroll company for payment of taxes because he failed to pay a tax obligation due the IRS by Alethean, causing West to become liable because he was the guarantor. The tax obligation was associated with the payroll contract because the debt stemmed from payroll taxes that had gone unpaid. However, the counterclaim explicitly alleged that the tax obligation/debt was already overdue at the time Matthew Johnson took control of Alethean. Therefore, the contract was already breached and an interference with contract claim was not sufficiently alleged against Matthew Johnson.

Allegations of Fraud

The motions filed by HBK and Allegretti are based on plaintiffs’ failure to plead fraud with particularity, as required by FRCP Rule 9(b). These motions are granted. Plaintiffs’ fraud allegations against Allegretti and HBK are too vague to survive Rule 9(b) scrutiny. Plaintiffs impermissibly lump together allegations against multiple defendants, stating, for example, “Specifically, HA&W, HBK, and the Alethean parties represented that they would generate a minimum of $5 million in investment banking fees for Gemini within three years.” This type of group allegation is insufficient. Allegretti and HBK are separate from the other defendants in this action, and as such, they cannot adequately defend against allegations of fraud in which their actions are lumped in with the actions of separate entities. In addition, Plaintiffs’ allegations regarding Allegretti’s and HBK’s role in the purported misrepresentations are vague as to content. For example, Plaintiffs claim that HBK and Allegretti “concealed material facts . . . in order to induce Plaintiffs into entering into the business relationship.” Without more, this statement is conclusory; it does not provide the “how” or “why” for the inducement or HBK’s and Allegretti’s purported concealment of material facts.

(P. Dubow) (EIC: We summarized two prior decisions in this case in SLAs 2016-27 and 2016-45.)

(SLC Ref. No. 2017-11-03)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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