FILED JUN 24 2015 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-14-1037-DaKiKu ) 6 OFF DOCK USA, INC., ) Bk. No. 12-41328 ) 7 Debtor. ) Adv. No. 13-01778 ______________________________) 8 ) OFF DOCK USA, INC., ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) BEACH BUSINESS BANK, ) 12 ) Appellee. ) 13 ) 14 Argued and Submitted on September 18, 2014 at Pasadena, California 15 16 Filed - June 24, 2015
17 Appeal from the United States Bankruptcy Court for the Central District of California 18 19 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding _________________________ 20 Appearances: Larry Wayne Gabriel of Jenkins Mulligan & Gabriel 21 LLP argued for appellant Off Dock USA, Inc.; 22 Gayle I. Jenkins of Winston & Strawn, LLP argued for appellee Beach Business Bank. 23 ________________________ 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1.
1 1 Before: DAVIS**, KIRSCHER, and KURTZ, Bankruptcy Judges. 2 Memorandum by Judge Davis Partial Concurrence and Partial Dissent by Judge Kurtz 3 4 INTRODUCTION 5 Appellant Off Dock USA, Inc. (“Off Dock”) appeals the 6 bankruptcy court’s order dismissing its amended adversary 7 complaint against Appellee Beach Business Bank (“Beach”). For 8 the reasons set forth below, we AFFIRM. 9 FACTS1 AND PROCEDURAL HISTORY 10 Off Dock’s amended complaint contained three causes of 11 action, as follows: (1) for breach of the implied covenant of 12 good faith and fair dealing; (2) for breach of fiduciary duty; 13 and (3) for intentional interference with prospective economic 14 advantage. The amended complaint refers to and attaches the 15 November 5, 2009 agreement for a $1,650,000 loan, and the 16 March 30, 20112 agreement for a $3,000,000 loan. 17 18 19 20 ** Hon. Laurel E. Davis, United States Bankruptcy Judge for 21 the District of Nevada, sitting by designation. 22 1 We take judicial notice of the adversary proceeding docket and the documents filed through the electronic docketing system. 23 See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 24 887 F.2d 955, 957-58 (9th Cir. 1989) (appellate court may take judicial notice of underlying bankruptcy records). 25 2 Where the amended complaint refers to a 2010 loan, it also 26 refers to Exhibit 2, the 2011 loan agreement. It thus appears 27 that other references in the amended complaint to a 2010 loan are in error, and this memorandum will use the term 2011 loan 28 instead.
2 1 According to Off Dock’s amended complaint3, in 2003 and 2004, 2 Off Dock launched, through its predecessor business names, a 3 business of owning and operating an intermodal depot facility for 4 storing and maintaining cargo shipping containers. Off Dock 5 subsequently leased 15 acres in the City of Carson, California, 6 to use as the staging area for its business. 7 In 2006, Beach provided Off Dock with an initial $250,000 8 credit facility that consisted of a $150,000 loan and a $100,000 9 line of credit. Thereafter, Off Dock and Beach communicated 10 frequently regarding Off Dock’s business operations and 11 profitability. 12 Off Dock exhausted its credit line, and in December 2008, 13 Beach and Off Dock entered into a forbearance agreement. As a 14 condition of the forbearance agreement, Beach required Off Dock 15 to hire an outside consultant, Phelps Consulting Group, Inc. and 16 its principal Ted Phelps (collectively “Phelps”), to oversee Off 17 Dock’s day-to-day business operations, which Off Dock claims was 18 equivalent to a liquidating receiver for Beach. Off Dock was 19 also required to close its accounts with other financial 20 institutions and keep all of its accounts at Beach. 21 In the first quarter of 2009, Off Dock obtained a new loan 22 from Beach in the amount of $1,650,000, and Off Dock’s 2006 loan 23 with Beach was repaid from the proceeds. Off Dock claims that 24 Beach insisted the 2009 loan proceeds could only be used to pay 25 “qualified account payables,” resulting in non-payment of 26 3 27 The facts are drawn from the amended complaint, which we must accept as true. Maya v. Centex Corp., 658 F.3d 1060, 1068 28 (9th Cir. 2011).
3 1 government fees, taxes, executive compensation or any vendor 2 whose account payable was in excess of 45 days. 3 In December 2009, after Phelps had been paid approximately 4 $450,000, Off Dock fired Phelps with Beach’s consent. Off Dock 5 then hired Plan Bravo Partners, LLC, whose principals were 6 Charles W. Stevens and Joseph Prochot (collectively “Bravo”). 7 Off Dock claims that through Bravo, Beach exerted undue 8 control over Off Dock alleging that Beach instructed Bravo as to 9 what collections to make and Beach communicated directly with Off 10 Dock’s customers and a prospective customer. The alleged undue 11 control by Beach is claimed to have resulted in an adverse impact 12 on Off Dock’s interests and business operations. 13 In 2010, Off Dock began discussions with a new client to 14 expand its business and develop an exclusive repair program for 15 chilled containers, which required additional funding. Off Dock 16 alleges that Beach insisted upon meeting the customer, visiting 17 the proposed site for the project, and preparing numerous cash 18 flow projections to determine the size and structure of the loan. 19 However, the 2009 loan agreement contained a negative covenant 20 that prevented Off Dock from engaging in “business activities 21 substantially different than those in which Borrower is presently 22 engaged.” 23 In 2011, Beach loaned Off Dock $3,000,000, which extended 24 and increased the 2009 loan. Off Dock claims the 2011 loan was 25 conditioned upon the continued employment of Bravo and prepayment 26 of Off Dock’s lease obligation on the City of Carson lease in a 27 manner designed to eliminate Beach’s exposure on the loan and 28 result in a guarantee of the entire 2011 Loan by the Small
4 1 Business Administration. 2 In December 2011, Off Dock claims it attempted to terminate 3 Bravo because Bravo, who was paid in excess of $750,000, provided 4 no benefit to Off Dock and adversely impacted Off Dock’s 5 financial condition. Bravo was ultimately terminated in February 6 2012, after a “transition period” mandated by Beach. 7 Beach did not disburse the final $150,000 of the 2011 Loan. 8 Off Dock claims Beach did so with knowledge that Off Dock would 9 not be able to fund or fulfill the existing contracts for its new 10 business opportunity, thus causing Off Dock to lose this new 11 business opportunity. 12 In April 2012, Beach declared a default of the 2011 Loan. 13 Off Dock claims that Beach refused to meet with Off Dock’s 14 management, swept Off Dock’s bank accounts, and notified Off 15 Dock’s major vendors to pay Beach directly or risk double 16 liability. Beach then sought, but did not obtain, the 17 appointment of a receiver. 18 On September 14, 2012, Off Dock filed a petition for 19 chapter 11 relief in the Central District of California, Los 20 Angeles Division, as Case No. 2:12-bk-41328-TD. Two months 21 later, Off Dock commenced its adversary proceeding against Beach, 22 seeking damages for breach of fiduciary duty and breach of the 23 implied covenant of good faith and fair dealing. 24 The bankruptcy court granted Beach’s motion to dismiss the 25 complaint under Rule 70124 and Civil Rule 12(b)(6), with leave to 26 4 27 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 (continued...)
5 1 amend, holding as follows: 2 (1) The relationship between a lending institution and a borrower is not fiduciary in nature, absent 3 special circumstances such as a lender’s unusually active participation in the financed enterprise. See 4 Nymark v. Heart Fed. Savings & Loan Assoc., 231 Cal. App. 3d 1089, 1093 n.1, 1096 (1991). A commercial 5 lender is entitled to pursue its own economic interests in a loan transaction. Id. 6 (2) The First Cause of Action, Breach of Fiduciary 7 Duty, must be dismissed because the Complaint does not allege anything more than a series of arms-length 8 transactions in which Plaintiff Off Dock . . . and [Beach] negotiated terms [Beach] utilized to protect 9 its investment. 10 (3) The implied covenant of good faith and fair dealing is a supplement to express contractual terms. 11 See Pasadena Live, LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 1093-94 (2004). Therefore, [Off Dock] 12 must cite to specific contractual terms from which it asserts the implied covenant arises here. 13 (4) The Second Cause of Action, Breach of the 14 Implied Covenant of Good Faith and Fair Dealing, must be dismissed because [Off Dock] does not cite to 15 specific contractual terms with respect to [Beach’s] pre-contract negotiation conduct and distribution of 16 loan proceeds. [Off Dock] does not identify how [Beach’s] exercise of discretion in identifying 17 “qualifie[d] accounts payable” frustrates [Off Dock’s] ability to receive the rights or benefits of the 18 agreement. 19 Off Dock then filed its amended complaint. The amended complaint 20 adds a third cause of action for intentional interference with 21 prospective economic relations and inexplicably reduces and 22 summarizes the allegations of the complaint into a document that 23 is only five paragraphs longer than the complaint. The amended 24 complaint also contains copies of the 2009 and 2011 loan 25 26 4 (...continued) 27 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.
6 1 agreements. 2 Beach, again, promptly moved to dismiss, arguing that the 3 amended complaint merely repackaged the same allegations 4 previously deemed insufficient to state claims for relief. The 5 bankruptcy court agreed and dismissed the amended complaint 6 without leave to amend, holding that “Plaintiff’s First Amended 7 Complaint adds no new allegations but is simply a reconfiguration 8 of the allegations of the original complaint,” incorporating by 9 reference Beach’s motion and reply filed with respect to the 10 complaint. However, the record is not clear as to the reasons 11 why the bankruptcy court dismissed the new third cause of action 12 for relief for intentional interference with prospective economic 13 relations, raised for the first time in the amended complaint.5 14 Off Dock timely appealed this order.6 15 JURISDICTION 16 The bankruptcy court had jurisdiction under 28 U.S.C. 17 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 18 28 U.S.C. § 158. 19 ISSUE 20 Did the bankruptcy court err when it dismissed the claims 21 for relief stated in Off Dock’s amended complaint? 22 STANDARD OF REVIEW 23 We review de novo the bankruptcy court’s Civil Rule 12(b)(6) 24 25 5 Beach’s motion to dismiss the amended complaint was submitted on the pleadings. 26 6 27 Off Dock does not appeal the bankruptcy court’s denial of leave to amend. We, therefore, do not address that portion of 28 the bankruptcy court’s ruling.
7 1 dismissal. Barnes v. Belice (In re Belice), 461 B.R. 564, 572 2 (9th Cir. BAP 2011). 3 DISCUSSION 4 I. Civil Rule 12(b)(6) Standards 5 When we review a matter de novo, we consider the matter anew 6 as if the bankruptcy court had not previously ruled. Sachan v. 7 Huh (In re Huh), 506 B.R. 257, 262 (9th Cir. BAP 2014)(en banc). 8 Therefore, we apply the same standards to Civil Rule 12(b)(6) 9 dismissal motions that all other federal courts are required to 10 apply. In re Belice, 461 B.R. at 572-73. 11 Under Rule 7012 and Civil Rule 12(b)(6), a bankruptcy court 12 may dismiss a complaint if it fails to “state a claim upon which 13 relief can be granted.” To survive a Civil Rule 12(b)(6) 14 dismissal motion, a complaint must present cognizable legal 15 theories and sufficient factual allegations to support those 16 theories. See Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 17 1116, 1121-22 (9th Cir. 2008). As the Supreme Court has 18 explained: 19 [A] complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is 20 plausible on its face. . . . A claim has facial plausibility when the plaintiff pleads factual content 21 that allows the court to draw the reasonable inference that the defendant is liable for the misconduct 22 alleged. . . . Threadbare recitals of the elements of a cause of action, supported by mere conclusory 23 statements, do not suffice. 24 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(citations and 25 internal quotation marks omitted). 26 In reviewing the sufficiency of a complaint under Civil 27 Rule 12(b)(6), we must accept as true all facts alleged in the 28 complaint and draw all reasonable inferences in favor of the
8 1 plaintiff. Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th Cir. 2 2011); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 3 1038, 1043 n.2 (9th Cir. 2008). However, we do not need to 4 accept as true conclusory allegations in a complaint or legal 5 characterizations cast in the form of factual allegations. Bell 6 Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). 7 We also may consider the existence and content of documents 8 attached to and referenced in the complaint as exhibits. Lee v. 9 City of L.A., 250 F.3d 668, 688 (9th Cir. 2001); Durning v. The 10 First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987). Even 11 where a document is not physically attached to the complaint, we 12 may consider its existence and contents when its authenticity is 13 not contested and when it necessarily is relied upon by the 14 plaintiffs in their complaint. See United States v. Ritchie, 15 342 F.3d 903, 907-908 (9th Cir. 2003); Lee, 250 F.3d at 688. 16 II. Breach of the Implied Covenant of Good Faith and Fair Dealing (First Claim for Relief) 17 18 The bankruptcy court originally dismissed this claim for 19 relief in the complaint because it: (1) failed to cite to 20 specific contractual terms from which the implied covenant 21 allegedly arises in this case; (2) failed to cite to specific 22 contractual terms with respect to Beach’s pre-contract 23 negotiation conduct and distribution of loan proceeds; and 24 (3) failed to identify how Beach’s exercise of discretion in 25 identifying “qualified accounts payable” frustrates Off Dock’s 26 ability to receive the rights or benefits of the agreement. 27 Because it adds “no new allegations but is simply a 28 reconfiguration of the allegations of the original complaint,”
9 1 this claim for relief was also dismissed when the bankruptcy 2 court granted the motion to dismiss the amended complaint. The 3 reconfigured amended complaint generally described and attached 4 copies of the 2009 and 2011 loan agreements, but it did not 5 identify any of their terms, and reduced from seven to four the 6 operative paragraphs of this claim for relief. Based upon our de 7 novo review, the amended complaint fails to satisfy the relevant 8 standards and the bankruptcy court properly dismissed it. 9 As a preliminary matter, because the implied covenant is a 10 supplement to an existing contract, it does not require parties 11 to negotiate in good faith prior to entering into any agreement. 12 For that reason, any allegations that a defendant violated the 13 implied covenant during the negotiation of a loan fail to state a 14 claim. McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784, 799 15 (2008) (citing Racine & Laramie, Ltd., Inc. v. Dep’t of Parks & 16 Recreation, 11 Cal. App. 4th 1026, 1032 (1992)). Off Dock is 17 thus not able to rely upon the first 12 paragraphs of the amended 18 complaint to support this cause of action because those 19 paragraphs allege facts that occurred prior to the parties’ 20 execution of the 2009 and 2011 loan agreements. 21 In California, “[t]he implied covenant of good faith and 22 fair dealing is limited to assuring compliance with the express 23 terms of the contract, and cannot be extended to create 24 obligations not contemplated by the contract.” Pasadena Live, 25 LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 1094 (2004) 26 (quoting 1 Witkin, Summary of Cal. Law (2003 supp.) Contracts, 27 § 743, p. 449) (emphasis in original). Because the covenant is 28 implied into the contract, it is limited to ensuring compliance
10 1 with the express contractual terms agreed to by the parties and 2 does not create additional obligations on the parties. See 3 Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 36 (1995) 4 (“[T]he covenant is implied as a supplement to the express 5 contractual covenants, to prevent a contracting party from 6 engaging in conduct that frustrates the other party’s rights to 7 the benefits of the agreement.”). In order to prevail, a 8 plaintiff must “identify the specific contractual provision that 9 was frustrated.” Plastino v. Wells Fargo Bank, 873 F. Supp. 2d 10 1179, 1191 (N.D. Cal. 2012) (citation and internal quotation 11 marks omitted). 12 Other than to provide copies of the 2009 and 2011 loan 13 agreements as exhibits, the amended complaint wholly fails to 14 identify any express provision of either loan agreement that is 15 disturbed by the alleged breaches of the implied covenant. 16 Instead, Paragraph 34 of the amended complaint claims that Beach 17 breached the implied covenant of good faith and fair dealing by 18 “exercising complete dominion and control over Off Dock’s 19 business operations, including controlling the use of the loan 20 proceeds such that Off Dock was denied the benefit of its bargain 21 (the use of the loan proceeds).” The rest of this claim for 22 relief consists of incorporation by reference of the prior 23 33 paragraphs of the amended complaint which are likewise devoid 24 of any express term of either loan agreement. 25 Further, a cause of action for breach of the implied 26 covenant fails when the contract authorizes defendant’s actions. 27 See Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 28 2 Cal. 4th 342, 374 (1992). As set forth on page one of each
11 1 loan agreement, Beach’s obligation to make loan advances under 2 each loan agreement was “subject to the fulfillment to [Beach]’s 3 satisfaction of all of the conditions set forth in this Agreement 4 and in the Related Documents.” Those conditions include, among 5 other terms, Off Dock’s multiple covenants and representations 6 made in support of each loan, as well as the absence of an event 7 of default. Moreover, each loan agreement authorized Beach to 8 cease loan advances even in the absence of an event of default: 9 CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under 10 this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to 11 disburse Loan proceeds if: . . . (E) Lender in good faith deems itself insecure, even though no Event of 12 Default shall have occurred. 13 For all of these reasons, the amended complaint fails to 14 state facts giving rise to a plausible claim and we affirm the 15 bankruptcy court’s order dismissing the first claim for relief. 16 III. Breach of Fiduciary Duty (Second Claim for Relief) 17 In California, “[t]he relationship between a lending 18 institution and its borrower-client is not fiduciary in nature. 19 Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d 1089, 20 1093 n.1 (1991). “A commercial lender is instead entitled to 21 pursue its own economic interests in a loan transaction.” Id. 22 “This right is inconsistent with the obligations of a fiduciary 23 which require that the fiduciary knowingly agree to subordinate 24 its interests to act on behalf of and for the benefit of 25 another.” Id. As a result: 26 [A] financial institution owes no duty of care to a borrower when the institution’s involvement in the loan 27 transaction does not exceed the scope of its conventional role as a mere lender of money. . . . 28 Normal supervision of the enterprise by the lender for
12 1 the protection of its security interest in loan collateral is not active participation in the financed 2 enterprise beyond that of the ordinary role of a lender in a loan transaction. 3 4 Id. at 1096-1097. (Citations, brackets and internal quotation 5 marks omitted.) 6 Thus, "a lender does not assume any obligations regarding 7 the viability of the project or investment which is financed by 8 the loan funds as long as the conduct of the lender is limited to 9 the activities which customarily are associated with the lending 10 function." Peterson Dev. Co. v. Torrey Pines Bank, 233 Cal. App. 11 3d 103, 119 (1991) (citations and internal quotation marks 12 omitted). 13 Off Dock alleges that Beach exceeded the role of a 14 conventional lender by exerting excessive control over Off Dock’s 15 business operations and thus committed a breach of fiduciary 16 duty. In order to prevail, Off Dock must prove: “the existence 17 of a fiduciary relationship, its breach, and damage proximately 18 caused by that breach." Pierce v. Lyman, 1 Cal. App. 4th 1093, 19 1101 (1991). 20 Off Dock’s amended complaint asserts that Beach had a 21 “fiduciary responsibilit[y] to act in the best interests of Off 22 Dock,” citing Barrett v. Bank of Am., 183 Cal. App. 3d 1362 23 (1986). Off Dock appears to rely upon dicta contained in the 24 Barrett court’s discussion of trial court error in failing to 25 provide a jury instruction on constructive fraud, wherein the 26 court states “[t]he relationship of a bank to depositor is at 27 least quasi-fiduciary” and recognizes a “duty of disclosure of 28 facts which may place the bank or a third party at an advantage
13 1 with respect to the customer.” Id. at 1369. 2 Barrett involved the question of constructive fraud. In 3 Barrett, the bank’s loan officer advised the borrowers that they 4 would be released from personal guarantees if they consummated a 5 merger of their business, but withheld information that the bank 6 stood to benefit from the merger. Id. at 1365, 1369. The 7 borrowers in Barrett had also shared unfavorable confidential 8 information with the officer and relied upon the officer’s 9 advice. Id. at 1369. 10 We agree with the bankruptcy court that the continued 11 validity of Barrett is questionable: 12 The holding[] of . . . Barrett [is] inconsistent with both past authority and current trends in the law. It 13 has long been regarded as axiomatic that the relationship between a bank and its depositor arising 14 out of a general deposit is that of a debtor and creditor. . . . A debt is not a trust and there is not 15 a fiduciary relation between debtor and creditor as such. The same principle should apply with even 16 greater clarity to the relationship between a bank and its loan customers. 17 18 Price v. Wells Fargo Bank, 213 Cal. App. 3d 465, 476 (1989). 19 Off Dock’s other case authority7 also fails to establish the 20 existence of a fiduciary duty. Wagner v. Benson, 101 Cal. App. 21 3d 27 (1980), involved claims against a lender brought by 22 23 7 Pension Trust Fund for Operating Eng’rs v. Fed. Ins. Co., 24 307 F.3d 944, 949-55 (9th Cir. 2002) is an action by an investment trust against its insurance company for the insurance 25 company’s failure to defend the investment trust in a third party action for fiduciary breach. The Pension Trust case did not 26 address the substantive sufficiency of the allegations of the 27 breach of fiduciary claims (on which Pension Trust prevailed at trial against Winncrest), but whether the allegations alone were 28 sufficient to trigger a duty to defend.
14 1 individual plaintiffs who speculated in a cattle raising program. 2 A third party, MSR, acted as the plaintiffs’ agent in buying, 3 maintaining and marketing the cattle, including “prenegotiating” 4 plaintiffs’ loan with the bank. Beef prices declined and costs 5 rose, ultimately resulting in a default of the loan. Plaintiffs 6 sued the bank, alleging that the bank had assured them the 7 investment was “safe” and the margin calls to maintain the 75% 8 loan to value ratio would be minimal. The trial court dismissed 9 plaintiff’s negligence and bad faith claims and limited trial to 10 the claim for misrepresentation. The court of appeals affirmed 11 summary disposition of the plaintiffs’ claims at trial, 12 reiterated the general rule enunciated by Nymark and held “[t]he 13 Bank’s limited involvement in the MSR enterprise falls far short 14 of the extensive control and shared profits which give rise to 15 liability.” Wagner, 101 Cal. App. 3d at 35. 16 In addition, Kim v. Sumitomo Bank of Calif., 17 Cal. App. 17 4th 974 (1993), is not applicable here. Off Dock’s 18 representation that Kim held “a borrower [sic] exercises 19 excessive control over a borrower where the lender dominate[s] 20 the borrower to the extent that the borrower has lost its 21 separate identity,” is erroneous. That language was not the 22 court’s holding, but was merely a quote from a law review article 23 cited by plaintiffs and rejected by the court. Id. at 980. Kim 24 instead involved an action for fiduciary breach arising from the 25 loan document’s requirement for a disbursing agent, wherein the 26 court of appeals affirmed the trial court’s order granting 27 summary judgment in favor of the bank, holding as a matter of law 28 that the bank was not liable as either a “control lender” or
15 1 based upon a theory of fiduciary breach. Id. at 979-984. 2 Similar to the borrowers in Kim, Off Dock complains of 3 conduct that is authorized by the agreements it signed with Beach 4 and thus cannot argue these requirements form the basis of a 5 claim for breach of fiduciary duty. Off Dock’s most pervasive 6 allegation challenges the forbearance agreement’s requirement 7 that Off Dock hire outside management consultants. However, the 8 2009 loan agreement maintains this requirement by its provision 9 that Off Dock comply with all of the terms and conditions of the 10 forbearance agreement. Both loan agreements require Off Dock to 11 maintain executives and management with the same qualifications 12 and experience as present personnel, with written notice to Beach 13 of any changes. 14 Off Dock also heartily complains about the quantity of 15 business and financial information provided to Beach, sometimes 16 gained through direct communications with Off Dock’s outside 17 consultants, vendors, and customers. Both loan agreements 18 contain extensive provisions that grant Beach “free access” to 19 virtually all of Off Dock’s premises, operations, books and 20 records, regardless of whether or not such information is in the 21 possession of third parties. Additionally, Off Dock must provide 22 Beach with periodic financial reports, permit Beach to “examine 23 and audit” Off Dock’s books and records, and provide Beach with 24 financial reports requested by Beach “at such frequency and in 25 such detail as lender may reasonably request.” 26 Off Dock’s fatal problem here is the conclusory allegations 27 of the amended complaint. As noted above, despite the bankruptcy 28 court’s dismissal of its complaint for failure to state a claim
16 1 for relief, Off Dock chose to reduce, in a reconfigured fashion, 2 rather than enhance the allegations in the amended complaint. In 3 doing so, Off Dock’s allegations have become even more conclusory 4 and thus less likely to state a claim for relief for breach of 5 fiduciary duty. In identifying the “special relationship” 6 between Off Dock and Beach, the amended complaint simply 7 concludes that Beach’s requirement for outside consultants 8 results in Beach’s “dominion and control” over Off Dock’s 9 operations, with one line about collections and “interfacing with 10 Off Dock’s customers,” which as set forth above, is authorized by 11 the loan agreements. 12 The Supreme Court has made it clear that “labels and 13 conclusions” or “formulaic recitation of the elements of a cause 14 of action” are insufficient. Plaintiff must instead articulate 15 “enough facts to state a claim to relief that is plausible on its 16 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). As 17 a result, “the non-conclusory ‘factual content,’ and reasonable 18 inferences from that content must be plausibly suggestive of a 19 claim entitling the plaintiff to relief.” Moss v. United States 20 Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). “Threadbare 21 recitals of the elements of a cause of action, supported by mere 22 conclusory statements, do not suffice.” Ashcroft v. Iqbal, 23 556 U.S. 662, 678 (2009). “[A]nalyzing the sufficiency of a 24 complaint’s allegations is a ‘context-specific task that requires 25 the reviewing court to draw on its judicial experience and common 26 sense.’” Sheppard v. David Evans & Assocs., 694 F.3d 1045 (9th 27 Cir. 2012) (citing Iqbal, 556 U.S. at 679). 28 Because Off Dock’s second amended complaint did not allege
17 1 any legally cognizable harm arising from any fiduciary breach, 2 the bankruptcy court did not err when it dismissed Off Dock’s 3 fiduciary breach claim. 4 IV. Intentional Interference with Prospective Economic Relations (Third Claim for Relief) 5 6 The amended complaint adds a new claim for intentional 7 interference with prospective economic relations. Under 8 California law, such a claim has five elements: “(1) an economic 9 relationship between the plaintiff and some third party, with the 10 probability of future economic benefit to the plaintiff; (2) the 11 defendant’s knowledge of the relationship; (3) intentional acts 12 on the part of the defendant designed to disrupt the 13 relationship; (4) actual disruption of the relationship; and 14 (5) economic harm to the plaintiff proximately caused by the acts 15 of the defendant.” Korea Supply Co. v. Lockheed Martin Corp., 16 29 Cal. 4th 1134, 1153 (2003) (citation and internal quotation 17 marks omitted). 18 To establish the third element, Off Dock must also plead 19 that Beach’s conduct “was wrongful by some legal measure other 20 than the fact of interference itself.” Id. at 1153 (citation and 21 internal quotation marks omitted). 22 An act is not independently wrongful merely because defendant acted with an improper motive. . . . [T]he 23 law usually takes care to draw lines of legal liability in a way that maximizes areas of competition free of 24 legal penalties. . . . The tort of intentional interference with prospective economic advantage is not 25 intended to punish individuals or commercial entities for their choice of commercial relationships or their 26 pursuit of commercial objectives, unless their interference amounts to independently actionable 27 conduct. . . . We conclude therefore that an act is independently wrongful if it is unlawful, that is, if 28 it is proscribed by some constitutional, statutory,
18 1 regulatory, common law, or other determinable legal standard. 2 3 Id. at 1158-59. Off Dock asserts this requirement for 4 independently actionable conduct is satisfied because the amended 5 complaint alleges that Beach failed to fully fund the loan and 6 improperly directed the manner in which loan proceeds were 7 distributed. However, in California, a creditor is entitled “to 8 take all legal steps to obtain payment of [a] debt owed to it, 9 even if the result was that [the debtor] would default on its 10 obligations to other creditors.” Webber v. Inland Empire Inv., 11 74 Cal. App. 4th 884, 906 (1999). Indeed, “exercise of [a] 12 contractual right does not constitute wrongful conduct. . . .” 13 Weststeyn Dairy 2 v. Eades Commodities Co., 280 F. Supp. 2d 1044, 14 1090 (E.D. Cal. 2003). We have already determined that the loan 15 agreements authorized Beach to direct and withhold advances, even 16 in the absence of an event of default. Thus, based upon our de 17 novo review of the amended complaint, Off Dock did not allege 18 conduct that is independently actionable. As a result, Off Dock 19 fails to allege an essential element to this claim for relief. 20 For these reasons, Off Dock has failed to allege all of the 21 elements necessary to establish a cause of action for intentional 22 interference with prospective economic relations, and we affirm 23 the bankruptcy court’s dismissal of the third cause of action of 24 the amended complaint. 25 CONCLUSION 26 The judgment of the bankruptcy court is AFFIRMED. 27 28 Partial Concurrence and Partial Dissent begins on next page.
19 1 KURTZ, Bankruptcy Judge, concurring in part and dissenting in 2 part: 3 4 While I agree with my colleagues’ conclusion that the 5 bankruptcy court correctly dismissed Off Dock’s claim for 6 intentional interference with prospective economic relations, I 7 disagree with their conclusion that Off Dock failed to state 8 legally-sufficient claims for breach of fiduciary duty and for 9 breach of the implied covenant of good faith and fair dealing. 10 In Pension Trust Fund for Operating Eng'rs v. Federal Ins. 11 Co., 307 F.3d 944, 955 (9th Cir. 2002), the Ninth Circuit Court 12 of Appeals interpreted California law and explicitly held that “a 13 lender . . . owes a fiduciary duty to a borrower when it 14 excessively controls or dominates the borrower.” Id. Following 15 Pension Trust Fund for Operating Eng'rs, the Ninth Circuit 16 reiterated this interpretation of California law in Giles v. Gen. 17 Motors Acceptance Corp., 494 F.3d 865, 882 n.1 (9th Cir. 2007). 18 Unlike my colleagues, I believe I am bound by Pension Trust Fund 19 for Operating Eng'rs’s interpretation of California law on this 20 point. Footnote 7 of the majority decision attempts to explain 21 why we do not need to follow Pension Trust Fund for Operating 22 Eng'rs, but I do not find footnote 7 persuasive. 23 I also believe that the allegations in Off Dock’s amended 24 complaint adequately pled a claim for breach of fiduciary duty. 25 Unlike my colleagues, I do not perceive as conclusory Off Dock’s 26 allegations regarding Beach’s dominion and excessive control over 27 Off Dock’s operations. Indeed, I see the allegations as quite 28 specific on this point. According to the allegations,
1 1 particularly those in paragraphs 12, 15, 17, 18 and 22 of the 2 amended complaint, Beach insisted, in and after 2009, that Off 3 Dock hire and pay for specific consultants (identified in the 4 amended complaint by name), further insisted that these 5 consultants be given day-to-day control over Off Dock’s 6 operations, and further insisted that the consultants take their 7 orders from Beach. 8 The amended complaint also contained some specifics 9 regarding how Beach exercised control through the consultants. 10 For instance, in paragraphs 26 and 27 of the amended complaint, 11 Off Dock alleged that, at Beach’s insistence, the consultants ran 12 Off Dock’s bookkeeping and accounting departments, interfaced 13 with Off Dock’s clients, attended or participated in sales 14 efforts, controlled Off Dock’s hiring and firing of personnel, 15 interviewed customers and prospective customers so that Beach 16 could approve them, controlled payments made to vendors, and made 17 collection demands on Off Dock’s customers, even when Off Dock 18 would not have made such demands, out of fear that it would 19 adversely affect its business relationship with those customers. 20 These specifics meet or exceed the level of factual detail 21 required to state a claim under federal law. See Fed.R.Civ.P. 8 22 (requiring “a short and plain statement of the claim showing that 23 the pleader is entitled to relief.”). The amended complaint also 24 adequately explained how Beach violated its fiduciary duty: by 25 putting its own interest in minimizing its risk exposure arising 26 from the loans over Off Dock’s interest in successfully operating 27 its business. 28 I likewise believe that these same allegations sufficiently
2 1 pled a claim for breach of the implied covenant of good faith and 2 fair dealing. The majority decision opined that this claim was 3 legally insufficient because it did not explicitly identify the 4 particular provision of the loan agreements implicated by this 5 claim. I disagree. I consider it obvious which contractual 6 obligation of Beach’s was implicated: its obligation to make 7 loan advances to Off Dock under certain terms and conditions. 8 See generally Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th 9 Cir. 2009) (citing Twombly and noting that court, in making 10 determination on a motion to dismiss, must consider both the 11 factual content of the complaint and all reasonable inferences 12 that can be drawn from that factual content). In my view, the 13 amended complaint adequately alleged that Beach, in bad faith, 14 stripped Off Dock of its principal contractual benefit under the 15 loan agreements – the receipt of loan funds – by taking control 16 of Off Dock’s operations and making operational decisions based 17 on Beach’s own interests as opposed to making operational 18 decisions based on Off Dock’s interests. 19 Alternately, the majority decision opines that the implied 20 covenant of good faith and fair dealing is not violated by 21 conduct that the parties’ agreement explicitly permits. However, 22 I have not found anything in the record indicating that any 23 provision of the parties’ various agreements permitted Beach to 24 exercise dominion and control over Off Dock’s operations and run 25 those operations to suit its own interests and in a manner 26 adverse to Off Dock’s interests. 27 In closing, I note my suspicion that Off Dock’s claims 28 likely would have made excellent candidates for resolution by
3 1 summary judgment. Nonetheless, I believe that its claims for 2 breach of fiduciary duty and for breach of the implied covenant 3 of good faith and fair dealing were legally sufficient as alleged 4 and should have survived Beach’s 1`Fed.R.Civ.P. 12(b)(6) motion 5 to dismiss. 6 Accordingly, I respectfully concur in part and dissent in 7 part. I only would have affirmed the bankruptcy court’s 8 dismissal of Off Dock’s claim for intentional interference with 9 prospective economic relations. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28