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Casey v. Olson

September 7, 2010


The opinion of the court was delivered by: John A. Houston United States District Judge

ORDER RE: MOTIONS TO DISMISS [Doc. Nos. 7, 11, 32]

On April 9, 2009, Plaintiff filed a complaint for quiet title, rescission, breach of contract, breach of fiduciary duty, negligence, indemnity, breach of covenant of good faith and fair dealing, declaratory and injunctive relief, and violations of Business and Professions Code section 17200, et. seq. naming Robert Olson, Lance Morque, Gary Hawley, St. Stephen State Bank ("St. Stephen" "the Bank"), "all person unknown, claiming any legal or equitable right, title, estate, lien or interest in the property described in the complaint adverse to Plaintiff's title" and Does 1 through 50 as Defendants. Plaintiff's action arises from the alleged breach of two written agreements entered into for the purpose of obtaining financing for a proposed wedding park on land owned by Plaintiff: (1) an "Agency Agreement" between plaintiff and Defendants Morque and Hawley and (2) a "Loan Agreement" between Plaintiff and Defendant St. Stephen State Bank. Plaintiff further alleges certain oral agreements surrounding the financing of the wedding park.

Defendant St. Stephen removed the matter to the district court on May 21, 2009. Defendant Gary Hawley filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendant Olson filed a motion to dismiss pursuant to Rule 12(b)(6) and to strike portions of the complaint pursuant to Rule 12(f). Defendant Morque also filed a motion to dismiss the complaint. Plaintiff filed oppositions to the motions and the defendants filed replies. Upon review of the parties' submissions, the Court GRANTS IN PART AND DENIES IN PART Defendant Hawley's motion to dismiss, GRANTS Defendant Olson's motion to dismiss and DENIES the motion to strike and GRANTS IN PART AND DENIES IN PART Defendant Morque's motion to dismiss.*fn1


Defendants seek to dismiss the action for failure to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law."). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give "detailed factual allegations," he must plead sufficient facts that, if true, "raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially plausible when the factual allegations permit "the court to draw the reasonable inference that the defendant is liable fo the misconduct alleged." Id. In other words, "the nonconclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009).


I. Defendant Hawley's Motion to Dismiss

Applying California law, Defendant Hawley argues Plaintiff's breach of contract claim, rescission claim, negligence claim, breach of fiduciary duty, breach of the duty of good faith and fair dealing, and declaratory relief claim should be dismissed as barred by the applicable statute of limitations. He further seeks dismissal for failure to state a claim against him.

A. Choice of Law

This Court, in diversity cases, must apply the choice of law rules of the forum state in order to determine what law to apply here. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1940). "To determine the law governing a contract, California courts look to the relevant statute and, for further guidance to the choice-of -law principals outlined in the Restatement." Shannon-Vail Five, Inc. v. Bunch, 270 F.3d 1207, 1210 (9th Cir. 2001) (citing Henderson v. Superior Court, 77 Cal.App.3d 583 (1978)). A contract is interpreted by the law and usage of the place of performance, or if not indicated, by the law of the place where it was made. Cal.Civ. Code § 1646. Notwithstanding section 1646, the choice of law provision of a contract will generally govern its interpretation. See Cal.Civ. Code § 1646.5.

Additionally, in actions not involving a contract, "[q]uestions of choice of law are determined ... by the 'governmental interest analysis' ... [U]nder the governmental interest analysis approach, the forum in a conflicts situation 'must search to find the proper law to apply based upon the interests of the litigants and the involved states.'" Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 161 (1978). To do so, this Court must analyze "the respective interests of the states involved ... the object of which is to 'determine the law that most appropriately applies to the issue involved.'" Hurtado v. Superior Court, 11 Cal.3d 574, 579, quoting Reich v. Purcell, 67 Cal.2d 551, 554 (1967).

California employs a three part "governmental interest analysis" to determine which jurisdiction's law will apply. Bowoto v. Chevron Corp., 2006 WL 2455761, *7 (N.D. Cal. Aug. 22, 2006)(quoting Abogados v. AT & T, Inc., 223 F.3d 932, 934 (9th Cir. 2000)). This choice of law analysis carries a presumption that California law applies and that the proponent of the foreign state law bears the burden of showing a compelling reason justifying displacement of California law. Marsh v. Burrell, 805 F. Supp. 1493, 1496 (N.D.Cal. 1992). First, the court examines whether the substantive law of each state differs. Second, if there is a difference in the laws, the court determines whether each of the states has a legitimate interest in the application of the rule of the decision at issue. If both states have a legitimate interest, then the court moves to the third step. Third, the court identifies and applies the law of the state whose interest would be more impaired if its law were not applied." Abogados, 223 F. 3d at 934. "When neither party identifies a meaningful conflict between California law and the law of another state, California courts apply California law." Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir. 2003).

Applying section 1646 and the "government interest test", Defendant Hawley maintains California law should govern in this matter. Plaintiff briefly addresses the choice of law issue presented by the action, maintains two of the agreements in dispute state Minnesota law apply, but ultimately states he will use California law in addressing the motion although he does not concede California law applies. Because both parties apply California law and Plaintiff fails to meet his burden of showing that there is a compelling reason to displace California law, the Court will apply California law.

B. Analysis

Applying California's two year limitations period of section 339 of the California Code of Civil Procedure, Defendant Hawley argues the breach of contract claim, claim for rescission, claim for breach of a fiduciary duty, breach of the duty of good faith and fair dealing and claim for declaratory relief are all time-barred.

1. Breach of Contract

Plaintiff seeks relief for breach of contract in his fourth cause of action against Defendants Hawley and Morque. Defendant argues the claim is barred by the applicable two year statute of limitations. Upon review of the complaint and the parties' arguments, the Court is unable to determine the date of the alleged breach as Plaintiff fails to properly allege a breach of the contract by Defendant Hawley. In order to state a claim for breach of contract, Plaintiff must allege: (1) the existence and terms of the contract itself; (2) Plaintiff's performance of the contract or excuse for nonperformance; (3) Defendant's breach; and (4) the resulting damage to the Plaintiff. See McDonald v. John P. Scripps Newspaper, 210 Cal.App.3d 100, 104 (1989). "A fundamental rule of law is that 'whether the action be in tort or contract compensatory damages cannot be recovered unless there is a causal connection between the act or omission complained of and the injury sustained." Id. (citing Capell Associates, Inc. v. Central Valley Security Co., 260 Cal.App.2d 773, 779 (1968)).

The only nonconclusory*fn2 , factual allegations against Defendant Hawley in support of the breach of contract claim are: (1) Plaintiff executed a written agreement in which he agreed Morque and Hawley would serve as exclusive placement agents to obtain financing for the development of a wedding park and Hawley and Morque would receive a fee equal to four percent of the principal amount of the loan. Complaint ¶¶ 15, 45, 65; (2) Plaintiff believes Defendant Hawley did not have a broker's license. Id. ¶ 54; (3) Hawley entered into the oral Agency Agreement and agreed to act as Plaintiff's exclusive agent. Id. ¶ 65; (4) Hawley "negligently or intentionally" misrepresented facts regarding the Bank's intention or ability to fund the loan. Id.; and (5) Hawley failed to disclose Morque was the Bank's agent. Id. ¶¶ 65, 71.

In response to the motion, Plaintiff suggests that Morque's "dual agency", based upon his work for the Bank on the same loan for which he agreed to represent Plaintiff exclusively, was the breach committed by Defendant Hawley. There is no non-conclusory allegation that Hawley acted as an agent for the Bank, that he knew Morque was an agent for the bank or that he was required, under the terms of the agreement to inform Plaintiff Morque was an agent of the Bank. Furthermore, while Plaintiff alleges Hawley did not have a broker's license, he does not allege failure to have a license is a breach of the contract. Finally, there are no allegations that Hawley was aware of the Bank's secret intentions, or that the contract required him to reveal them to Plaintiff if he knew. As such, Plaintiff fails to allege Hawley breached the Agency Agreement.

Accordingly, the Court finds Plaintiff fails to state a claim for breach of contract against Defendant Hawley and the claim is subject to dismissal.

2. Rescission

Plaintiff seeks rescission of the various agreements and notes at issue in the matter and an award returning the parties to the status quo ante.

Defendant argues Plaintiff's claim for rescission should be dismissed as time-barred. Specifically, he argues the latest date, based on the facts of the complaint, that Plaintiff could have discovered his right to rescind the contract was March 15, 2007, when Plaintiff was informed the Bank would not be able to fund the loan as originally agreed and the complaint asserting the claim was filed beyond the two year limitations period. He further argues there is nothing for him to give back to put the parties in their original position as there is no allegation that he was paid the commission agreed upon and, therefore, Plaintiff fails to state a claim.

Plaintiff contends he states a claim for rescission against Hawley because he alleges his consent to execute the loan documents was given by mistake or obtained through fraud or undue influence and the consideration failed in a material respect through the fault of the defendants. Plaintiff further argues the allegations of the complaint demonstrate the Bank refused to proceed with the loan on May 7, 2007.

Contrary to Plaintiff's contention, the Court finds Plaintiff fails to state a claim for rescission against Defendant Hawley. In the complaint, Plaintiff alleges Defendant Hawley engaged in conduct entitling him to rescission in only conclusory terms.*fn3 Accordingly, the claim is subject to dismissal.

3. Breach of Fiduciary Duty

In his fifth cause of action, Plaintiff seeks relief based upon Hawley's breach of a fiduciary duty for failure to notify Plaintiff that Morque was working as an agent of the bank. Complaint ¶ 71. As discussed above, there are no allegations that Hawley was aware of this fact. Accordingly, Plaintiff fails to state a claim for breach of a fiduciary duty.

4. Negligence

In his sixth cause of action, Plaintiff alleges Defendant Hawley breached his duty to exercise reasonable skill in performing his duties as Plaintiff's agent by failing "to conduct a reasonably competent and diligent investigation of the Bank's intent and ability to place or to fund" the loan and to properly document the Bank's promises. Id. ¶ 76.

Defendant argues the negligence claim is barred, because Plaintiff's ability to rescind the contract with the Bank occurred when the Bank informed him it would not be able to fund the loan as agreed on March 15, 2007, more than two years before the action was filed. Plaintiff again argues the Bank did not "pull the plug on the loan until May 2007." Opp. at 14.

"[A] complaint cannot be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that would establish the timeliness of the claims." Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206-07 (9th Cir. 1995). The running of the limitations period must be apparent on the face of the complaint. See id.; see also Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). Construing all reasonable inferences in Plaintiff's favor, the Court finds it is not clear from the face of the complaint that the negligence claim is ...

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