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MCGUIREWOODS LLP
William H. Kiekhofer, III, SBN # 94022
[email protected]
Payam Khodadadi, SBN #239906
[email protected]
1800 Century Park East, 8th Floor
Los Angeles, CA 90067-1501
Telephone: (310) 315-8200
Facsimile: (310) 315-8210

Attorneys for AutoPartSource LLC



UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

In re

STEPHEN CHARLES BRUTON,


Debtor.



AUTOPARTSOURCE LLC,


v.

STEPHEN CHARLES BRUTON,



Defendant.

Plaintiff,





Bankruptcy Case No.: 13-bk-41028

Chapter 7

Adv. Proc. No.: 13-04111

PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MOTION TO DISMISS
UNDER RULE 12(b)(6)

Hearing Information:
Date: August 1, 2013
Time: 11:00 a.m.
Place: U.S. Bankruptcy Court


Judge: Honorable Roger L. Efremsky

1300 Clay Street, Room 201
Oakland, CA 94612




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PLAINTIFF’S OPPOSITION TO DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(b)(6)

48973033.3



Case: 13-04111 Doc# 11 Filed: 07/17/13 Entered: 07/17/13 10:25:05 Page 1 of

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TABLE OF CONTENTS

Page(s)

MEMORANDUM OF POINTS AND AUTHORITIES……………………………………..……1

I.

II.



INTRODUCTION…………………………………………………………………………1

THE MOTION SHOULD BE DENIED……………………………………………..……1

A.

B.

C.

The Motion Is Fatally Flawed by Using Extraneous Evidence……………………1

The Complaint Complies with Pleading Requirements……………………………3

The Motion Mischaracterizes the Complaint………………………………………7

III.

CONCLUSION………………………………………………………………………..……8

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PLAINTIFF’S OPPOSITION TO DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(b)(6)

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FEDERAL CASES

TABLE OF AUTHORITIES

Page(s)

Arpin v. Santa Clara Valley Transp. Agency

261 F.3d 912 (9th Cir. 2001) .....................................................................................................2

Aschcroft v. Iqbal

556 U.S. 662 (2009) ...................................................................................................................3

Bell Atlantic Corp. v. Twombly

550 U.S. 544 (2007) ...........................................................................................................3, 4, 7

Broam v. Bogan

320 F.3d 1023 (9th Cir. 2003) ...................................................................................................3

Butler v. Los Angeles County

617 F. Supp.2d 994 (C.D.C.A. 2008) ........................................................................................2

Citibank (S.D.), N.A. v. Eashai (In re Eashai)

87 F.3d 1082 (9th Cir. 1996) .....................................................................................................5

Coto Settlement v. Eisenberg

593 F.3d 1031 (9th Cir. 2010) ...................................................................................................1

Erickson v. Pardus

551 U.S. 89 (2007) .....................................................................................................................3

Guerriero v. Kilroy (In re Kilroy)

354 B.R. 476 (Bankr. S.D. Tex. 2006) ..................................................................................4, 6

Hal Roach Studios, Inc. v. Richard Feiner & Co.

896 F.2d 1542 (9th Cir. 1989) ...................................................................................................2

Howwver r. Ronwin

466 U.S. 558 (1984) ...................................................................................................................3

In re Stacs Elecs. Sec. Litig.

89 F.3d 1399 (9th Cir. 1996) .....................................................................................................1

Mendiondo v. Centinela Hosp. Med. Ctr.

521 F.3d 1097 (9th Cir. 2008) ...............................................................................................3, 4

Stennis v. Davis (In re Davis)

486 B.R. 182 (Bankr. N.D. Cal. 2013) ......................................................................................5

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Trizna & Lepri v. Malcolm (In re Malcolm)

145 Bankr. 259 (Bankr. N.D. Ill. 1992) .....................................................................................5

Walleri v. Federal Home Loan Bank of Seattle

83 F.3d 1575 (9th Cir. 1996) .....................................................................................................4

CALIFORNIA STATUTES

Cal. Civil Code 3426.1(d) ................................................................................................................2

Bus. & Prof. Code § 16600 ..........................................................................................................7, 8

OTHER AUTHORITIES

Fed. R. Bankr. P. 7008 .....................................................................................................................3

Fed. R. Bankr. P. 7009 .....................................................................................................................4

Fed. R. Bankr. P. 7012 .....................................................................................................................2

Fed. R. Bankr. P. 7056 .....................................................................................................................2

Fed. R. Civ. P. 8(a) ..........................................................................................................................3

Fed. R. Civ. P. 12 .............................................................................................................................2

Fed. R. Civ. P. 9(b) ..........................................................................................................................4

Fed. R. Civ. P. 56 .............................................................................................................................2



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MEMORANDUM OF POINTS & AUTHORITIES

Plaintiff AutoPartSource LLC (“APS”) hereby opposes the Motion to Dismiss Under Rule

12(b)(6) (the “Motion”) filed by Stephen Charles Bruton (“Bruton”).
I.

INTRODUCTION.

The Motion is fatally flawed by (i) relying on “factual” allegations extraneous to the

Complaint for Determination of Non-Dischargeability of Debt Pursuant to 11 U.S.C. §§ 523(a)(2)

and (a)(6) (the “Complaint”) apparent from Bruton’s declaration filed in support of the Motion and

(ii) asking the Court to make determinations of credibility and weighting of the evidence, neither

of which is permitted in ruling on a motion to dismiss. Moreover, the Motion without any merit

and disingenuously alleges that the Complaint has not satisfied the pleading requirements to state

claims to relief that are plausible on their face. As set forth herein, the Complaint sets forth in

meticulous factual detail APS’s business, relationship between APS and Bruton, Bruton’s

employment, Bruton’s acts while he was employed at APS, Bruton’s actions after his employment

was terminated with APS, trade secret, confidential and proprietary information that Bruton has

taken from APS without any authority or consent from APS, Bruton’s unlawful use of such

information in starting a competing business, relevant dates for the foregoing and injuries that

Bruton has caused APS as a result of his conduct. Accordingly, the Motion should be denied in its

entirety.
II.

THE MOTION SHOULD BE DENIED.
A.
In deciding whether to dismiss, the court may consider only the facts alleged in the

The Motion Is Fatally Flawed by Using Extraneous Evidence.

pleading, documents attached as exhibits or incorporated by reference in the pleadings, and matters

of which the judge may take judicial notice. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038

(9th Cir. 2010) (“On a motion to dismiss, we may consider materials incorporated into the

complaint or matters of public record.”); In re Stacs Elecs. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th

Cir. 1996).

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In other words, in the context of a Rule 12(b)(6) motion, a court cannot consider any

additional material asserted in a memorandum opposing the motion or declarations in support of

such motion. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir. 2001)

(“extraneous evidence should not be considered in ruling on a motion to dismiss”); Hal Roach

Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 (9th Cir. 1989) (“Generally, a district

court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion.

However, material which is properly submitted as part of the complaint may be considered.”);
Butler v. Los Angeles County, 617 F. Supp.2d 994, 999 (C.D.C.A. 2008)1.

Here, the Motion is fatally flawed because it uses extraneous evidence. For example, in

support of the Motion, Bruton attaches his declaration [Docket No. 8-1], which cannot be

considered by this Court in ruling on the Motion. Moreover, the Motion references other

extraneous evidence, which must be disregarded. Some examples include the following:

(1)

The Motion at P. 6, Lines 4-5 states that:

First, suppliers of auto parts in China are not secrets, are ready available on
the internet and/or available through other public sources. Cal. Civil Code
3426.1(d).2

The foregoing clearly goes beyond the facts alleged in the Complaint, documents attached

as exhibits to or incorporated by reference in the Complaint or matters of which the judge may take

judicial notice. In any event, the reference to Cal. Civil Code 3426.1(d) does not stand for the

proposition that Bruton is citing. Rather, that section simply provides a definition for trade secrets


1 If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the
court, the motion must be treated as one for summary judgment under Rule 56. Fed. R. Bankr. P. 7012; Fed. R. Civ. P.
12(d). Rule 56(a) provides that the “court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Bankr. P. 7056; Fed.
R. Civ. P. 56. As is clear from the pleadings, Bruton clearly fails to show that there are no genuine disputes as to any
material fact.
2 Cal. Civil Code 3426.1(d) provides the following:

(d) “Trade secret” means information, including a formula, pattern, compilation, program,
device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally
known to the public or to other persons who can obtain economic value from its disclosure or
use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.

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and any interpretation thereof or the validity of such allegation goes to a factual dispute beyond the

pleadings.

(2)

The Motion at P. 7, Lines 25-27 states that:

If the information on the computer was or is so important, Plaintiff should
have backed it up. The employer is responsible for keeping important
information safeguarded, not the employee.

Again, these allegations are additional material asserted in the Motion and not contained in

the Complaint and bring about a factual dispute, which cannot be considered in ruling on the

Motion.

Accordingly, the Court should disregard the foregoing allegations in ruling on the Motion.
B.
Under Federal Rule of Civil Procedure 8(a)(2), made applicable to this adversary

The Complaint Complies with Pleading Requirements.

proceeding by Federal Rule of Bankruptcy Procedure 7008, a pleading must contain a “short and

plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Bankr. P. 7008;

Fed. R. Civ. P. 8(a). Rule 8(a) does not require “detailed factual allegations”. Bell Atlantic Corp.

v. Twombly, 550 U.S. 544, 555 (2007).

“Rule 12(b)(6) motions are viewed with disfavor. Dismissal without leave to amend is

proper only in ‘extraordinary’ cases.” See Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003).

To survive a motion to dismiss a complaint must contain sufficient factual matter, accepted as to

true, to “state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550

U.S. at 570. See also Aschcroft v. Iqbal, 556 U.S. 662, 884 (2009). “Factual allegations must be

enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550

U.S. at 555. “[T]he probability that [plaintiff] will not prevail at trial is no justification for

dismissing the complaint.” Howwver r. Ronwin, 466 U.S. 558, 588 (1984).

“[W]hen ruling on a defendant’s motion to dismiss, a judge must accept as true all of the

factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 94 (2007). See

also Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1100 (9th Cir. 2008) (“In reviewing

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a motion to dismiss, we accept the alleged facts as true.”); Walleri v. Federal Home Loan Bank of

Seattle, 83 F.3d 1575, 1580 (9th Cir. 1996) (“In general, a complaint is construed favorably to the

pleader”). “Rule 12(b)(6) does not countenance … dismissals based on a judge’s disbelief of a

complaint’s factual allegations.” Bell Atlantic Corp. v. Twombly, 550 U.S. at 556. In other words,

“a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those

facts alleged is improbable, and that a recovery is very remote and unlikely.” Id.

Furthermore, under Federal Rule of Civil Procedure 9(b), made applicable to this adversary

proceeding by Federal Rule of Bankruptcy Procedure 7009, “[i]n alleging fraud or mistake, a party

must state with particularity the circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Bankr. P.

7009; Fed. R. Civ. P. 9(b). APS does not dispute that Section 523(a)(2)(A) requires an allegation

of fraud and is subject to Rule 9(b). However, “section [523(a)(6)] does not necessitate the

pleading of fraud; and therefore, the heightened pleading requirement of Rule 9(b) is inapplicable.”

Guerriero v. Kilroy (In re Kilroy), 354 B.R. 476, 495 (Bankr. S.D. Tex. 2006).

Here, the Complaint clearly complies with the pleading requirements to survive the

Motion. The Complaint sets forth in meticulous factual detail APS’s business, relationship

between APS and Bruton, Bruton’s employment, Bruton’s acts while he was employed at APS,

Bruton’s actions after his employment was terminated with APS, the trade secret, confidential and

proprietary information that Bruton has taken from APS without any authority or consent, Bruton’s

unlawful use of such information in starting a competing business, relevant dates for the foregoing

and injuries that Bruton has caused APS as a result of his conduct. These allegations are

contained, among other places, in paragraph 15 through 99 of the Complaint, and which accepted

as true go well beyond stating claims to relief that are plausible on their face. Additional

allegations are contained in paragraphs 100 through 116.

A review of the allegations in the Complaint makes clear that Bruton’s allegation that the

Complaint does not meet the pleading standards is meritless. For example, with respect to the

Section 523(a)(2) cause of action, Bruton alleges at Page 5, Lines 14-28 of the Motion that the

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complaint does meet Rule 9(b) specificity requirements by failing to allege specific fraudulent

statements, dates of fraudulent statements and identification of persons to which person the
statements were made3, and cites to paragraphs 96 to 98 and 101 to 105 of the Complaint in
support of such allegations. By citing to paragraphs 101 to 105 of the Complaint, which are the

paragraphs that set forth, in part, the elements of the Section 523(a)(2) cause of action, and

paragraphs 96 to 98 of the Complaint, which set forth some, but certainly not all, of the allegations

regarding Bruton’s actions, Bruton is implicitly admitting he has overlooked approximately eighty

paragraphs of allegations (paragraph 15 through 95), which provide in detail the basis for this

cause of action, and which if accepted as true states a claim to relief that is plausible on its face. In

fact, paragraphs 15 through 95 contain with particularity names of numerous persons, dates and

times to satisfy Rule 9(b) for the Section 523(a)(2) cause of action.

Although Bruton tries to couch this cause of action as solely one that requires an

affirmative fraudulent statement, the law is clear that concealment also satisfies a Section

523(a)(2) cause of action. Citibank (S.D.), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1089 (9th

Cir. 1996) (“[B]ankruptcy courts have conceded that a debtor’s silence or omission regarding a

material fact can constitute a false representation which is actionable under § 523(a)(2)(A).”)

citing Cooke v. Howarter (In re Howarter), 114 Bankr. 682, 684 n.2 (Bankr. 9th Cir. 1990) (noting

that the debtor’s silence or concealment of a material fact can create a false impression which

constitutes a misrepresentation actionable under § 523(a)(2)(A)) and Trizna & Lepri v. Malcolm

(In re Malcolm), 145 Bankr. 259, 263 (Bankr. N.D. Ill. 1992) (stating that “when the

circumstances imply a particular set of facts, and one party knows the facts to be otherwise, that

party may have a duty to correct what would otherwise be a false impression”). See also Stennis v.

Davis (In re Davis), 486 B.R. 182, 191 (Bankr. N.D. Cal. 2013) (“It is, thus, ‘well recognized that

silence, or the concealment of a material fact, can be the basis of a false impression which creates a


3 It is not clear to APS why in support of this argument Bruton cites to Paragraph 16 of the Complaint, which states
“APS distributes a number of automotive products, including brake systems, brake rotors/drums, cabin air filters and
exhausts.”

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misrepresentation actionable under §523(a)(2)(A).’”). Here, paragraphs 15 to 95 of the Complaint

set forth detailed facts that Bruton concealed material facts from APS in connection with his

employment at APS. In any event, the Complaint also makes allegations regarding overt

misrepresentations including Bruton’s misrepresentations that he had attended the December 2012

trade show. See, e.g., Paragraphs 48-50 and 89 of the Complaint.

Similarly, regarding the Section 523(a)(6) cause of action, Bruton overlooks tens of

paragraphs of allegations in the Complaint.4 For example, on P. 7, Lines 12 through 16 of the
Motion, Bruton alleges that the only allegation for this cause of action is set forth in paragraph 108

of the Complaint. Among other places and the background set forth in the Complaint, paragraphs

67-99 and 107 to 116 of the Complaint directly relate to and support this cause of action.

Bruton further wrongly alleges on P. 7, Lines 18-19 of the Motion that “Plaintiff has not

identified any trade secrets or other proprietary information that was misappropriated by

Defendant Bruton.” Bruton again appears to overlook the allegations, among other places, set

forth in paragraphs 46 and 67-81 of the Complaint. In fact, any further disclosure is not justified in

a public record pleading for the precise reason that trade secrets, confidential and proprietary

information are to be protected and not disclosed to the public.

True to form, Bruton further alleges on P. 7, Lines 21-22 of the Motion that APS “fails to

identify a single incident that damaged the Plaintiff as a result of Defendant Bruton’s action.”

Bruton again overlooks the numerous allegations in the Complaint, which among things, set forth

the allegations regarding Bruton’s taking of APS’s trade secrets, confidential information and

proprietary information, his deletion of various information from APS’s systems, his acts diverting

customers away from APS, and compensation paid by APS to Bruton while he was an employee of

APS and was engaging in such conduct. See Paragraphs 15 to 99 and 107 to 116 of the Complaint.


4 Although the Complaint has pled with particularity this cause of action as well, as cited above, “section [523(a)(6)]
does not necessitate the pleading of fraud; and therefore, the heightened pleading requirement of Rule 9(b) is
inapplicable.” Guerriero v. Kilroy (In re Kilroy), 354 B.R. at 495.

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Bruton’s further argument on P. 7, Lines 23-25 of the Motion that “Plaintiff asks us to

believe that deleting information on a company computer somehow cost Plaintiff money or

reduced Plaintiffs revenues from unnamed companies that purchased Auto parts from Plaintiff”

also fails. These allegations bring up factual questions regarding damages that cannot be

considered in ruling on the Motion. Moreover, as cited above, “a well-pleaded complaint may

proceed even if it strikes a savvy judge that actual proof of those facts alleged is improbable, and

that a recovery is very remote and unlikely.” Bell Atlantic Corp. v. Twombly, 550 U.S. at 556.

Bruton makes two final meritless statements, both of which should be disregarded. The

first meritless statement is that the Section 523(a)(6) cause of action is a disguised breach of

contract claim and therefore cannot be sustained. See, e.g, Motion, P. 8, Lines 1-5. The

allegations in the Complaint make explicitly clear that the bases for this cause of action is not for

breach of contract but are rather for malicious and willful acts taken by Bruton while an employee

of APS and after his termination with the intent to injure APS. The second meritless statement is

that APS has not alleged a causal connection with lost revenue from an existing supplier. See

Motion, P. 7, Lines 7-8. This argument also fails because, among other places, Paragraph 115 of

the Complaint alleges that “As a direct and proximate result of Bruton’s actions alleged herein,

APS has suffered damages and continues to suffer damages, in an amount to be determined,

including but not limited to lost profits, loss of business, loss of trade, loss of goodwill, data

recreation costs, and damage to its reputation.”

Accordingly, APS has complied with the pleading requirements.
C.
Bruton blatantly mischaracterizes the Complaint to raise specious red-herring arguments.

The Motion Mischaracterizes the Complaint.

For example, Bruton argues at P. 6, Lines 6-7 of the Motion that:

Second, Plaintiff may not prohibit former employees from working for or starting a
competing business. Business and Professions Code § 16600.

Business and Professions Code § 16600 provides the following: “Except as provided in this

chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade,

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or business of any kind is to that extent void.” This is California’s law restricting non-compete

agreements. The Complaint does not allege that APS has a non-compete agreement with Bruton.

Rather, the Complaint alleges APS fired Bruton for cause, without any non-compete agreement,

because he, among other things, intentionally made false statements to, or concealed his true

intentions from, APS in connection with his employment at APS, willfully and maliciously injured

APS or property of APS by improperly deleting, taking, transferring and using APS’s trade secrets

and other confidential or proprietary information and started a competing business with such

unlawfully gained information. Accordingly, the citation to Business and Professions Code

§ 16600 is clearly irrelevant and should not be considered by this Court.
III. CONCLUSION

Wherefore, APS respectfully requests that this Bankruptcy Court deny the Motion in its

entirety and order Bruton to file an answer to the Complaint. If the Court is inclined to grant the

Motion, APS respectfully requests that it should be granted leave to amend its Complaint.

DATED: July 17, 2013

MCGUIREWOODS LLP






By: /s/ Payam Khodadadi

William H. Kiekhofer, III
Payam Khodadadi
Attorneys for AutoPartSource LLC

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CERTIFICATE OF SERVICE

On July 17, 2013, I caused a true and correct copy of the foregoing PLAINTIFF’S

OPPOSITION TO DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(b)(6) to be

filed electronically in pdf format with the United States Bankruptcy Court, Northern District of

California, which caused an email Notice of Electronic filing ("NEF") to be automatically

generated by the Court's Electronic Filing System to registered efilers, constituting service of the

filed document on Filing Users.







Attorneys for Defendant Stephen C. Bruton

Terry R. Hunt, Esq.
Law Office of Terry Hunt
917 Seventh Street
Sacramento, CA 95814
Email: terry[email protected]
In addition, on July 17, 2013, I served the foregoing described document via postage-paid

First Class U.S. Mail by placing a true and correct copies of same into sealed envelopes addressed

as follows:

Attorney for Debtor Stephen Charles Bruton









United States Trustee


Patrick Riazi, Esq.

1007 Seventh St. #203
Sacramento CA 95814
Telephone: (916) 442-8400
Email: [email protected]

United States Trustee
Office of the United States Trustee
1301 Clay St. #690N
Oakland, CA 94612
Telephone: (510) 637-3200
Email: [email protected]

Tevis Thompson
P.O. Box 1110
Martinez, CA 94553
Tel: 925-228-0120
Email: [email protected],
[email protected]
I am “readily familiar” with the firm’s practice of collection and processing

Chapter 7 Trustee









correspondence for mailing with the United States Postal Service. Under that practice, it would be

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PLAINTIFF’S OPPOSITION TO DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(b)(6)

Case: 13-04111 Doc# 11 Filed: 07/17/13 Entered: 07/17/13 10:25:05 Page 13 of

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deposited with the United States Postal Service that same day in the ordinary course of business.

Such envelope(s) were placed for collection and mailing with postage thereon fully prepaid at

Los Angeles, California, on that same day following ordinary business practices.




















/s/ Payam Khodadadi
Payam Khodadadi



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PLAINTIFF’S OPPOSITION TO DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(b)(6)

Case: 13-04111 Doc# 11 Filed: 07/17/13 Entered: 07/17/13 10:25:05 Page 14 of

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