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Hoot Winc, L.L.C v. Rsm Mcgladrey Financial Process Outsourcing

February 22, 2011

HOOT WINC, L.L.C.,
PLAINTIFF,
v.
RSM MCGLADREY FINANCIAL PROCESS OUTSOURCING, LLC, AND DOES 1 TO 50, INCLUSIVE,
DEFENDANTS.
RSM MCGLADREY FINANCIAL PROCESS OUTSOURCING, LLC, COUNTERCLAIMANT,
v.
HOOT WINC, LLC, COUNTERDEFENDANT.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT AS A MATTER OF LAW PRECLUDING PLAINTIFF FROM SEEKING OR RECOVERING DAMAGES ALLEGEDLY SUSTAINED BY NONPARTY ENTITIES

Defendant has filed a motion for partial summary judgment as a matter of law precluding Plaintiff from seeking or recovering damages allegedly sustained by nonparty entities. For the reasons discussed below, Defendant's motion is DENIED.

I. FACTUAL BACKGROUND

Plaintiff Hoot Winc, LLC, is a management company that provides business services to a group of Hooters restaurants and a casino gaming operation in Spokane, Washington. In December 2005, Plaintiff and Defendant entered into a Services Agreement ("Agreement") (Def. Ex. A) whereby Defendant agreed to provide an array of business support services to Plaintiff and the Hooters restaurants, including but not limited to preparation of financial statements, maintaining and processing payroll, invoice entry, invoice coding, weekly accounts payable and cash requirements, check preparation and mailing, processing of employee expense reports, preparation of 1099 forms, daily cash deposit verification, filing of tax returns, and making tax payments.

Plaintiff claims that Defendant ineptly provided the contracted services, repeatedly failed to adhere to the requisite standard of care, failed to remedy deficiencies in its performance despite Plaintiff's reasonable requests, and recklessly and willfully breached the contractual and statutory duties owed to Plaintiff. Plaintiff terminated the Services Agreement in December, 2006.

In its Second Amended Complaint, Plaintiff asserts claims for (1) professional negligence; (2) breach of contract; (3) fraud; (4) negligent misrepresentation; and (5) reckless misrepresentation.

II. PROCEDURAL BACKGROUND

In December 2009, Plaintiff filed a motion to add 34 Hooters entities (including 28 Hooters restaurant or "store" limited liability companies and 6 regional holding companies) as plaintiffs. In an order filed on February 19, 2010, the Court denied Plaintiff's motion to add the 34 new plaintiffs because Plaintiff had not shown good cause for failing to comply with the Rule 16 Scheduling Order [Doc. No. 44], which provided that the deadline for filing a motion to join other parties was April 9, 2009. The Court explained:

Plaintiff has not shown that it has acted with diligence to add the other restaurant entities as plaintiffs. To the extent these 34 other entities suffered damages separate and apart from those suffered by Plaintiff as a result of Defendant's failure to properly provide financial and accounting services, these entities should have been included as plaintiffs from the beginning of the action.

Order Granting in Part and Denying in Part Plaintiff's Motion for Leave to File Second Amended Complaint [Doc. No. 108] at 5:12-16.

Subsequently, the 34 entities filed a separate action in the Central District of California. The case, LA Wings LLC, et al. v. Quatrro FPO Solutions LLC, 10cv1600 BTM(WMc), was transferred to this district and is pending before the Court.

III. DISCUSSION

As set forth in the reports of Plaintiff's damages expert, Neill W. Freeman, Plaintiff seeks damages that include damages sustained by the 34 Hooters entities ("Hooters entities") that are not plaintiffs in this action. (Def. Exs. F, K.) Defendant contends that since Plaintiff does not own the other Hooters entities, Plaintiff cannot recover damages sustained by them. The Court disagrees. As discussed below, there is a triable issue of material fact with respect to whether Plaintiff entered into the Agreement as an agent for undisclosed principals (the 34 Hooters entities), thereby authorizing Plaintiff to sue in its own name on behalf of the principals.

A. Law Governing Agency and When an Agent Can Sue on a Contract on Behalf of Principals Agency is "a fiduciary relationship that ...


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