Royal Primo Corp. v. Whitewater West Industries, Ltd.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS SECOND AMENDED COMPLAINT RE: DKT. NO. 43

          JOSEPH C. SPERO CHIEF MAGISTRATE JUDGE

         I. INTRODUCTION

         Plaintiffs 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. 26)^[1]; Order Granting Mot. to Dismiss 1st Am. Compl. ("Order II, " dkt. 38).^[2] 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.^[3]

         II. PROCEDURAL BACKGROUND

         A. Original Complaint and Dismissal Order

         Plaintiffs‘ 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.

         Whitewater 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.

         B. First Amended Complaint and Dismissal Order

         Plaintiffs‘ 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]

         Whitewater‘s 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 for relief).

         Whitewater 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. Id.

         C. Second Amended Complaint and Present Motion

         The 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.

         Despite 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 relief).

         On this 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, 13^[4]; (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.

         III. ANALYSIS

         A. Legal Standard

         A 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).

         In 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).

         B. Whether Plaintiffs Failed to Join an Indispensable Party

         1. Legal Standard Under Rule 19

         In relevant part, Rule 19(a)(1) of the Federal Rules of Civil Procedure provides that a person must be joined as a party if:

(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 court

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).

         To 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 dismissal." Id.

         2. Parties’ Arguments

         In its 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 ...