United States District Court, N.D. California
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO
DISMISS SECOND AMENDED COMPLAINT RE: DKT. NO. 43
C. SPERO CHIEF MAGISTRATE JUDGE
Royal Primo Corporation ("Royal Primo") and Don Lee
bring this action alleging that Defendant Whitewater West
Industries, Ltd. ("Whitewater") agreed to pay
Plaintiffs a 17% commission on contracts secured by
Whitewater as a result of Plaintiffs‘ efforts to
promote Whitewater to managers and representatives of a water
park project in South Korea, but failed to pay after
Plaintiffs completed their work and Whitewater secured the
contract. The Court previously dismissed Plaintiffs‘
original Complaint and First Amended Complaint for failure to
state a claim on which relief could be granted. Order
Granting Mot. to Dismiss ("Order I, " dkt.
Order Granting Mot. to Dismiss 1st Am. Compl. ("Order
II, " dkt. 38). Plaintiffs have now filed a Second Amended
Complaint ("SAC, " dkt. 39) and Whitewater again
moves to dismiss. The Court held a hearing on July 29, 2016.
For the reasons stated below, Whitewater‘s Motion is
GRANTED in part and DENIED in part.
Original Complaint and Dismissal Order
original Complaint alleged that Lee worked with non-party CDM
Group, Inc. ("CDM") to approach Whitewater in 2005
regarding an opportunity for water park design services in
South Korea. See Compl. (dkt. 1) ¶ 9. "In
March 2009, Whitewater both verbally and in writing confirmed
its contractual relationship with CDM and Lee and as further
inducement for Lee to continue his efforts promoting the
company . . . agreed to pay a 17% commission on any future
contract reached by Whitewater." Id. ¶ 10.
Geoff Chutter, Whitewater‘s president and CEO,
"confirmed" the terms of that agreement on multiple
occasions, including in a letter dated March 12, 2009 (the
"Chutter Letter"). Id. The Chutter Letter,
which was attached to the Complaint, stated that Whitewater
would pay a 17% commission for promotional work
"completed by CDM in association with Mr. Don Lee of
Korea, " and that it would pay that commission
"directly to CDM or to another as directed by CDM."
Id. Ex. A. The original Complaint sought only
declaratory relief. Id. ¶¶ 15-17.
moved to dismiss on the grounds that: (1) Plaintiffs failed
to allege adequately that they had any rights under a
contract that, by its terms, called for payment to non-party
CDM; and (2) CDM was a necessary party to the action.
See Mot. to Dismiss Compl. (dkt. 16). The Court
agreed that the Complaint did not plausibly allege any
entitlement to relief where Plaintiffs specifically alleged
that the Chutter Letter confirmed the terms of the agreement,
and the letter called for payment to CDM. Order I at 5-7. The
Court did not reach the question of whether CDM was a
necessary party, but noted that it "likely" was,
and instructed Plaintiffs to either add CDM as a party or
explain why CDM was not necessary to the case. Id.
at 7-8. The Court granted Plaintiffs leave to amend.
Id. at 8.
First Amended Complaint and Dismissal Order
First Amended Complaint omitted all reference to CDM and to
any written confirmation of the parties‘ alleged
agreement. See generally 1st Am. Compl. ("FAC,
" dkt. 28). Instead, it alleged that Lee approached
Chutter in 2005 about an opportunity that Lee and Royal Primo
had developed in South Korea, id. ¶ 9-omitting
a previous reference to Lee "confirm[ing]
credentials through his contact with CDM, " Compl.
¶ 9. The FAC alleged that Chutter orally agreed to pay
Lee and Royal Primo a 17% commission for any contract that
Whitewater obtained for work on the project in Korea. FAC
¶ 9. It contained no reference to Chutter confirming the
agreement‘s terms in writing, nor any suggestion that
CDM was involved in the promotional work or would receive the
commission. See generally Id. As in the original
Complaint, Plaintiffs further alleged that Lee and Royal
Primo expended significant effort on Whitewater‘s
behalf, Whitewater obtained a lucrative contract as a result,
and Whitewater has refused to pay Royal Primo the agreed
commission. See Id. ¶¶ 10-13. The FAC
included claims for breach of contract, quasi-contract,
fraud, and an accounting. Id. ¶¶ 14-37.
Unlike the original Complaint, the First Amended Complaint
sought money damages. Id. ¶¶ A-C (prayer
again moved to dismiss on the grounds that, inter
alia, Plaintiffs‘ new allegations in their FAC
conflicted with the original Complaint and the Chutter
Letter, and Plaintiffs therefore failed to state a plausible
entitlement to relief. Mot. to Dismiss Pl.‘s Am. Compl.
(dkt. 32) at 4-6. The Court agreed that the FAC was not
plausible without some explanation of how the
previously-alleged contract between Whitewater and CDM
relates to the newly-alleged oral agreement between
Whitewater and Plaintiffs, although the Court noted that it
"will not hold Plaintiffs to a strict reading of their
previous allegation that the letter to CDM 'confirmed the
terms‘ of their agreement with Whitewater." Order
II at 6 & fn. 5. The Court did not reach the other
arguments raised by Whitewater in the Motion. Id. at
7. The Court granted Plaintiffs leave to amend but advised
that failure to include sufficient allegations may lead the
Court to conclude that further amendments would be futile.
Second Amended Complaint and Present Motion
Second Amended Complaint alleges that Royal Primo, with Lee
as its representative, was the "exclusive agent"
handling relationships with foreign vendors for the Kangwon
Land water park project in South Korea. SAC ¶¶ 7,
9. The Plaintiffs now allege that CDM was one such foreign
vendor that Royal Primo had arranged to be involved in the
project and that Lee contacted Whitewater on CDM‘s
recommendation. Id. ¶¶ 9, 14. According to
Plaintiffs, after initially speaking with the then vice
president of business development of Whitewater, Lee spoke
directly to Chutter and the parties agreed that Royal Primo
would promote Whitewater to the Kangwon Land project in
return for a 17% commission on any contract secured by
Whitewater in the project. Id. ¶ 9. As in the
original Complaint and the FAC, Plaintiffs allege that they
expended significant effort on Whitewater‘s behalf,
Whitewater obtained a lucrative contract as a result, and
Whitewater has refused to pay Royal Primo the agreed
commission. Id. ¶¶ 10, 13, 17- 18.
Plaintiffs further allege that Whitewater was aware of and
actively encouraged Royal Primo‘s activities on
Whitewater‘s behalf, that Whitewater orally confirmed
the commission agreement during at least four conference
calls between 2005 and 2009, and that various communications
from Whitewater acknowledged its contractual obligations,
including a January 2007 letter from Chutter to Lee which
stated that Whitewater was "interested in the
opportunity to provide the waterpark components for the
Kangwon Land" project, a March 2008 letter from
Whitewater to CDM acknowledging that there were
"commissions and mark ups due to Don Lee, " a
February 2010 letter from Chutter to Lee confirming that
Whitewater and Royal Primo had been working on the water park
project "over the last couple of years, " and an
April 2010 letter from Chutter to Lee referring to
Plaintiffs‘ as Whitewater‘s agent. Id.
¶¶ 11-12, 38.
the oral agreement, according to Plaintiffs, Royal Primo
"struggled to get Whitewater to put the terms of their
arrangement into a formally executed contract."
Id. ¶ 15. Plaintiffs allege that Lee
communicated these difficulties to CDM, who had a working
relationship with Whitewater and was aware of the agreement
between Royal Primo and Whitewater, and that CDM contacted
Whitewater on Royal Primo‘s behalf. Id.
According to Plaintiffs, Whitewater subsequently delivered
the Chutter Letter indicating Whitewater‘s desire to
directly engage CDM as its agent in the water park project.
Id. Plaintiffs allege that they had not consented to
any assignment of their rights to CDM. Id.
Plaintiffs further explain that they attached the Chutter
Letter to the original Complaint in order to demonstrate that
Whitewater was aware of Royal Primo‘s activities on its
behalf and that Whitewater was willing to pay a 17%
commission on its contracts for the water park project.
Id. Plaintiffs also explain that CDM is not a
necessary or indispensable party because they are not parties
to the alleged oral contract between Royal Primo and
Whitewater and that joining CDM is not feasible because it is
no longer in existence. Id. ¶ 16, Ex. 2. There
is no allegation as to whether CDM accepted
Whitewater‘s proposal to pay CDM the commission that
Whitewater owed Plaintiffs. The Second Amended Complaint
seeks money damages and includes claims for breach of
contract, quasi-contract, fraud, and unfair business
practices. Id. ¶¶ 14-37, A-F (prayer for
Motion, Whitewater argues that: (1) Plaintiffs‘ breach
of contract claim does not state a plausible entitlement to
relief, is precluded by the parol evidence rule, and is
barred by the applicable statute of limitations, Mot. to
Dismiss 2nd Am. Compl. ("Mot., " dkt. 43) at 8, 11,
(2) Plaintiffs‘ fraud claim is barred by the doctrine
of election of remedies, is not pled with particularity, and
is barred by the applicable statute of limitations,
id. at 14; (3) Plaintiffs‘ quasi-contract
claim is precluded by a valid express contract and is barred
by the applicable statute of limitations, id. at 17;
(4) Plaintiffs failed to state a plausible claim for unfair
business practices, id. at 18; and (5) Plaintiffs
failed to join a necessary party, id. at 19.
complaint may be dismissed for failure to state a claim on
which relief can be granted under Rule 12(b)(6) of the
Federal Rules of Civil Procedure. "The purpose of a
motion to dismiss under Rule 12(b)(6) is to test the legal
sufficiency of the complaint." N. Star Int’l
v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir.
1983). Generally, a plaintiff‘s burden at the pleading
stage is relatively light. Rule 8(a) of the Federal Rules of
Civil Procedure states that "[a] pleading which sets
forth a claim for relief . . . shall contain . . . a short
and plain statement of the claim showing that the pleader is
entitled to relief." Fed.R.Civ.P. 8(a).
ruling on a motion to dismiss under Rule 12(b)(6), the court
analyzes the complaint and takes "all allegations of
material fact as true and construe[s] them in the light most
favorable to the non-moving party." Parks Sch. of
Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995).
Dismissal may be based on a lack of a cognizable legal theory
or on the absence of facts that would support a valid theory.
Balistreri v. Pacifica Police Dep’t, 901 F.2d
696, 699 (9th Cir. 1990). A complaint must "contain
either direct or inferential allegations respecting all the
material elements necessary to sustain recovery under some
viable legal theory." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 562 (2007) (citing Car
Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106
(7th Cir. 1984)). "A pleading that offers 'labels
and conclusions‘ or 'a formulaic recitation of the
elements of a cause of action will not do.‘"
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 555). "Nor does a
complaint suffice if it tenders 'naked
assertion[s]‘ devoid of 'further factual
enhancement.‘" Id. (quoting
Twombly, 550 U.S. at 557). Rather, the claim must be
"‗plausible on its face, ‘" meaning
that the plaintiff must plead sufficient factual allegations
to "allow the court to draw the reasonable inference
that the defendant is liable for the misconduct
alleged." Id. (quoting Twombly, 550
U.S. at 570).
Whether Plaintiffs Failed to Join an Indispensable
Legal Standard Under Rule 19
relevant part, Rule 19(a)(1) of the Federal Rules of Civil
Procedure provides that a person must be joined as a party
(A) in that person‘s absence, the court cannot accord
complete relief among existing parties; or (B) that person
claims an interest relating to the subject of the action and
is so situated that disposing of the action in the
person‘s absence may: (i) as a practical matter impair
or impede the person‘s ability to protect the interest;
or (ii) leave an existing party subject to a substantial risk
of incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). When it is not feasible to join a
party that is required to be joined under Rule 19(a), the
must determine whether, in equity and good conscience, the
action should proceed among the existing parties or should be
dismissed. The factors for the court to consider include: (1)
the extent to which a judgment rendered in the person‘s
absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or
avoided by: (A) protective provisions in the judgment; (B)
shaping the relief; or (C) other measures; (3) whether a
judgment rendered in the person‘s absence would be
adequate; and (4) whether the plaintiff would have an
adequate remedy if the action were dismissed for nonjoinder.
Fed. R. Civ. P. 19(b).
determine whether a party is "indispensable" under
Rule 19, there are "three successive inquiries."
E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779
(9th Cir. 2005). First, the court determines whether a
nonparty is required to be joined under Rule 19(a); that is,
whether a nonparty is "necessary." Id. If
a nonparty is necessary, the court then determines whether
joinder is feasible. Id. Joinder is not feasible
"when venue is improper, when the absentee is not
subject to personal jurisdiction, and when joinder would
destroy subject matter jurisdiction." Id.
Finally, if joinder of a necessary nonparty is not feasible,
then the court must determine "whether in 'equity
and good conscience‘ the case should be dismissed under
Fed.R.Civ.P. 19(b)." Makah Indian Tribe v.
Verity, 910 F.2d 555, 559 (9th Cir. 1990). "The
inquiry is a practical one and fact specific and is designed
to avoid the harsh results of rigid application."
Id. at 558 (citations omitted). "The moving
party has the burden of persuasion in arguing for
Motion, Whitewater argues that CDM is a necessary party
because "any determinations as to the validity, effect,
or substance of Plaintiffs‘ alleged oral contract, [the
Chutter Letter], or any related assignment, may impair or
impede CDM‘s interests." Mot. at 19. Whitewater
further argues that Plaintiffs have no standing to sue for
breach of contract because they are not parties to the
contract underlying the Chutter Letter. Id. at 20.
Alternatively, Whitewater contends that CDM is a necessary
party because if the case proceeds without adjudicating
CDM‘s rights, then Whitewater could face inconsistent
obligations and risk of double recovery from Plaintiffs and
from CDM. Id. In response to the SAC‘s
allegation that joining CDM is not feasible because of
CDM‘s forfeited business status in California,
Whitewater argues that California law allows service of
process upon a forfeited ...