Opinion
CASE NO. C15-5485 BHS
10-05-2015
COSMO SPECIALTY FIBERS, INC., et al., Plaintiffs, v. RICHARD BASSETT, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS AND GRANTING PLAINTIFFS' LEAVE TO AMEND
This matter comes before the Court on Defendants Richard Bassett ("Bassett") and Charlestown Investments Holdings, Ltd.'s ("Charlestown") (collectively "Defendants") motion to dismiss. (Dkt. 14). The Court has considered the pleadings filed in support of and in opposition to the motion and the remainder of the file and hereby grants in part and denies in part the motion for the reasons stated herein.
I. PROCEDURAL HISTORY
On July 14, 2015, Plaintiffs Cosmo Specialty Fibers, Inc. ("Cosmo"), Cosmopolis Holdings, L.L.C., and Gores Capital Partners II, L.P., and Gores Co-Invest II Partnership (collectively "Plaintiffs") filed a complaint against Defendants asserting claims for misrepresentation or fraud in the inducement, fraudulent concealment, negligent misrepresentation, breach of contract, and a violation of Washington's Consumer Protection Act ("CPA"), RCW Chapter 19.86. Dkt. 1.
On August 5, 2015, Defendants filed a motion to dismiss. Dkt. 14. Defendants argue that Plaintiffs' claims are compulsory counterclaims that should have been brought in Cato Sales and Trading v. Cosmo Specialty Fibers, Inc., No. C14-5549BHS (W.D. Wash.) ("Cato v. Cosmo") and, in the alternative, Plaintiffs fail to state a claim for relief. Id. On August 24, 2015, Plaintiffs responded. Dkt. 16. On August 28, 2015, Defendants replied. Dkt. 19.
II. FACTUAL BACKGROUND
In this case, Plaintiffs' allegations and claims revolve around Defendants' "misrepresentations and breaches of contract relating to the purchase and re-start of the Mill for the production and sale of dissolving wood pulp that consists of high purity cellulose." Dkt. 1, ¶ 13. The contract in question is a consulting agreement between Cosmo and Charlestown in which Cosmo alleges that "Charlestown agreed to provide expert consulting services to ensure Cosmo had all the requisite information to successfully re-start and operate the Mill." Id. ¶ 97.
In contrast, the other case before the Court stems from a contract between Cosmo and Cato Sales and Trading ("Cato") "in which Cosmo appointed Cato as its exclusive sales agent for the mill's product . . . ." Cause No. 14-5549, Dkt. 1, ¶ 12. Cato is a "limited liability company incorporated under the laws of Switzerland" with members Richard Bassett and Benno Hafner. Id. ¶ 1.
III. DISCUSSION
A. Rule 13
Under the sub-heading "Compulsory Counterclaim," Rule 13(a) of the Federal Rules of Civil Procedure provides in part as follows:
a pleading shall state as a counterclaim any claim . . . the pleader has against any opposing party if it arises out of the same transaction or occurrence that is the subject matter of the opposing party's claim . . . .Id. A claim "arises out of the same transaction or occurrence," if "the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all of the issues be resolved in one lawsuit." Pochiro v. Prudential Ins. Co. of America, 827 F.2d 1246, 1249 (9th Cir. 1987); see also, Hydranautics v. Filmtec Corp., 70 F.3d 533, 536 (9th Cir. 1995) ("We determine whether a claim arises out of the same transaction or occurrence by analyzing 'whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.'"). See also, Albright v. Gates, 362 F.2d 928, 929 (9th Cir. 1966) (Noting that we have given Rule 13 an "increasingly liberal construction"). "Thus, courts should consider whether the facts necessary to prove the claim and counterclaim substantially overlap." Hart v. Clayton-Parker and Associates, Inc., 869 F. Supp. 774, 776 (D. Ariz. 1994).
In this case, Defendants argue that Plaintiffs' claims are compulsory counterclaims that should have been brought in Cato v. Cosmo. Although Defendants have a plausible argument that the claims may be considered part of the same transaction or occurrence, Defendants fail to show that Plaintiffs can be considered opposing parties in the other matter. Basset is a member of Cato, but these are separate legal entities and Defendants have failed to provide any reason for the Court to disregard the corporate form in this case. At most, the instant claims are related crossclaims that could have been brought in or consolidated with the other matter. However, even if these claims could be related crossclaims of Cosmo, Defendants fail to provide persuasive authority that the other plaintiffs in the case could somehow be freed to intervene in Cato v. Cosmo. Therefore, the Court denies Defendants' motion to dismiss Plaintiffs' claims as compulsive counterclaims.
B. Rule 12(b)(6)
Motions to dismiss brought under Rule 12(b)(6) may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under such a theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). Material allegations are taken as admitted and the complaint is construed in the plaintiff's favor. Keniston v. Roberts, 717 F.2d 1295, 1301 (9th Cir. 1983). To survive a motion to dismiss, the complaint does not require detailed factual allegations but must provide the grounds for entitlement to relief and not merely a "formulaic recitation" of the elements of a cause of action. Twombly, 127 S. Ct. at 1965. Plaintiffs must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 1974.
The parties' initially dispute what materials the Court may consider. Generally, the scope of review on a motion to dismiss is limited to the contents of the complaint. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). The Court, however, may consider documents that are not attached to the complaint "if the documents' authenticity . . . is not contested and the plaintiff's complaint necessarily relies on them." Id. (internal quotation marks omitted).
In this case, Defendants submitted 133 pages of supplemental material for the Court to consider. While some of the material is acceptable, most is beyond the scope of review. For example, Defendants submit the complaint and answer from Cato v. Cosmo. The Court may take judicial notice of these documents, but may not consider the veracity of the allegations contained therein. On the other hand, the Court has never accepted deposition testimony when considering a motion to dismiss because "factual challenges to a plaintiff's complaint have no bearing on the legal sufficiency of the allegations . . . ." Lee, 250 F.3d at 688. Relying on Plaintiffs' allegedly inconsistent factual contentions in concurrent litigation sounds more in judicial estoppel than failure to state a plausible claim for relief. See, e.g., Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001) ("Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position."). Therefore, the Court declines to consider any of these additional materials because, at most, they merely contain factual allegations.
With regard to the arguments of Defendants' motion, they attack the reliance elements of Plaintiffs' claims based on fraud and misrepresentation, Plaintiffs' alleged internally inconsistent positions on the contract claim, and the elements of Plaintiffs' CPA claim. First, the majority of Defendants' arguments on the elements of reliance use deposition testimony to attack the factual allegations supporting Plaintiffs' claims. The Court declines to consider these improper arguments. Based on a review of the complaint, Plaintiffs have stated claims for relief and, therefore, the Court denies Defendants' motion on this issue.
Second, Defendants argue that Plaintiffs have pled themselves out of court by asserting internally inconsistent positions in their claim for breach of contract. While Defendants focus on one factual allegation supporting Plaintiffs' claim, Plaintiffs assert at least four other ways in which Charleston breached the agreement in question. Dkt. 1, ¶ 99(a)-(e). A possible factual inconsistency in one of five factual predicates does not show that Plaintiffs failed to state a plausible claim for relief. Therefore, the Court denies Defendants' motion on this issue.
Third, Defendants argue that Plaintiffs fail to plead sufficient facts in support of all five elements of the CPA claim. Although Defendants attack the veracity of the factual allegations instead of the existence of factual allegations, the Court agrees with Defendants that Plaintiffs have failed to state a claim for relief. Upon review of the complaint, Plaintiffs' cause of action is "merely a 'formulaic recitation' of the elements of a cause of action." Twombly, 127 S. Ct. at 1965. Plaintiffs simply conclude that Defendants' "conduct described above" meets every independent element of a CPA claim without elaboration. Dkt. 1, ¶¶ 102-106. In other words, Plaintiffs state no facts in support of this claim and force both Defendants and the Court to guess what conduct described in the preceding paragraphs supports the elements of the asserted claim. Therefore, the Court grants Defendants' motion on Plaintiffs' CPA claim. Because the Court is not convinced that any amendment would be futile, the Court grants Plaintiffs leave to amend their CPA claim. See Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).
IV. ORDER
Therefore, it is hereby ORDERED that Defendants' motion to dismiss (Dkt. 14) is GRANTED in part and DENIED in part as set forth herein. Plaintiffs are GRANTED leave to file an amended complaint consistent with this order.
Dated this 5th day of October, 2015.
/s/_________
BENJAMIN H. SETTLE
United States District Judge