Omega Liner Company, Inc. v. The Monte Vista Group, LLC

• Court: District Court, S.D. California
• Decided: May 13, 2020
• Docket: 3:19-cv-01771
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA

11 OMEGA LINER COMPANY, INC., Case No. 19-cv-01771-BAS-AGS 12 Plaintiff, ORDER GRANTING 13 DEFENDANT MONTE VISTA’S MOTION TO DISMISS 14 v. [ECF No. 56] THE MONTE VISTA GROUP, 15 LLC, RICHARD MONTEMARANO, and RENE 16 QUITTER,

17 Defendants. 18 19 Plaintiff Omega Liner Company, Inc. (“Omega”) commenced this diversity 20 action against Defendants The Monte Vista Group, Richard Montemarano 21 (Managing Director of Monte Vista), and Rene Quitter (Technology Director of 22 Monte Vista). Omega brings causes of action for intentional misrepresentation, 23 negligent misrepresentation, breach of contract, and breach of fiduciary duty against 24 Defendant Monte Visa and for intentional and negligent misrepresentation against 25 Defendants Montemarano and Quitter. (“SAC,” Second Amended Complaint, ECF 26 No. 53.) Monte Vista moves for dismissal of Omega’s breach of fiduciary duty cause 27 of action. (“Mot.” ECF No. 56.) Omega filed an opposition to the Motion (“Opp’n,” 1 this Motion suitable for determination on the papers and without oral argument. Civ. 2 L. R. 7.1(d)(1). For the reasons stated below, the Court GRANTS Defendant Monte 3 Vista’s Motion. 4 I. FACTUAL BACKGROUND 5 On January 9, 2017, Omega and Defendants entered into a Purchase and 6 License Agreement (hereinafter, the “Agreement”). (ECF No. 53-1.) Under the 7 Agreement, Omega agreed to sell and service manufacturing equipment for 8 ultraviolet cured-in-place pipe to Monte Vista. (Id. §§ 1–2.) In return, Monte Vista 9 agreed to license certain rights to Omega. (Id. §§ 12, 14.) 10 Pursuant to the terms of the Agreement, Omega constructed a cured-in-place 11 pipe liner manufacturing plant in South Dakota. (SAC ¶ 12.) Monte Vista visited 12 Omega’s plant to assist with installing the equipment and to train Omega in operating 13 the equipment. (Id. ¶ 14.) The first pipe liners produced during this site visit were 14 defective. (Id. ¶ 15.) Specifically, Omega alleges the pipe liners “exhibited 15 numerous areas of superficial cracking of the pure resin section above the fiberglass 16 sections, making the Liners unsightly and of questionable structural integrity.” (Id.) 17 Omega alleges Monte Vista’s training and methodology were the cause of the 18 defective liners. (Id. ¶¶ 17, 18.c.) Monte Vista instructed Omega to cease installation 19 of the defective liners on its client’s public works project. (Id. ¶ 16.) The defective 20 liners were shipped back to Omega’s manufacturing plant, and new liners were 21 produced without Monte Vista’s input and shipped to the project, resulting in a delay 22 of the project. (Id.) Omega alleges that Monte Vista acknowledged its responsibility 23 for the defective liners and agreed to “forego royalties under the Agreement until 24 [Omega] was compensated by [Monte Vista’s] insurance and/or waived royalties.” 25 (Id. ¶ 17.) Monte Vista allegedly “reneged on this offer and recently demanded 26 royalties from” Omega. (Id.) Omega alleges that Monte Vista’s actions constitute 27 “breaches of contract, breaches of fiduciary duty, lack of expertise, lack of 1 Omega alleges the Agreement “created a relationship under which . . . each 2 [company] contributed capital, time, and skill with the expectation of sharing in the 3 profits of their joint enterprise.” (Id. ¶ 42.) Omega alleges that “the parties agreed 4 to split the profits in accordance with a [set] formula.” (Id. ¶ 41.) Omega alleges 5 Monte Vista breached its fiduciary duty to Omega by “failing to exercise reasonable 6 care and failing to give priority to [Omega’s] best interests.” (Id. ¶ 43.) As a result 7 of Monte Vista’s breach of its duty, Omega states it has suffered damages. (Id. ¶ 44.) 8 II. LEGAL STANDARD 9 A complaint must plead sufficient factual allegations to “state a claim to relief 10 that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal 11 quotation marks and citations omitted). “A claim has facial plausibility when the 12 Omega pleads factual content that allows the court to draw the reasonable inference 13 that the Monte Vista is liable for the misconduct alleged.” Id. 14 A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil 15 Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. 16 Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court 17 must accept all factual allegations pleaded in the complaint as true and must construe 18 them and draw all reasonable inferences from them in favor of the nonmoving party. 19 Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). However, the 20 court is not obligated to “accept as true a legal conclusion couched as a factual 21 allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). Nor must the court accept 22 allegations in the complaint that are contradicted by documents the complaint 23 references. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th 24 Cir. 2008) (citing Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th 25 Cir. 2003). 26 To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed 27 factual allegations, rather, it must plead “enough facts to state a claim to relief that is 1 12(b)(6) dismissal may be based on either a ‘lack of a cognizable legal theory’ or ‘the 2 absence of sufficient facts alleged under a cognizable legal theory.’” Johnson v. 3 Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (quoting 4 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)). 5 III. ANALYSIS 6 Monte Vista moves to dismiss only Omega’s breach of fiduciary duty cause 7 of action. In analyzing Monte Vista’s motion, the Court may consider the 8 Agreement, which is attached to the complaint. See Hal Roach Studios, Inc. v. 9 Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (“[M]aterial which 10 is properly submitted as part of the complaint may be considered” in ruling on a Rule 11 12(b)(6) motion). Omega also attached to its Opposition an exhibit to the 12 Agreement.1 Before turning to the merits of Monte Vista’s Motion, the Court must 13 determine whether it may consider this exhibit. 14 A. Incorporation by Reference 15 Courts usually may not consider material outside the complaint when ruling 16 on a motion to dismiss. Id. However, the “incorporation by reference” doctrine 17 permits the court “to take into account documents ‘whose contents are alleged in a 18 complaint and whose authenticity no party questions, but which are not physically 19 attached to the [plaintiff’s] pleading.’” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th 20 Cir. 2005) (quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th 21 Cir. 1999)). To be incorporated, the document must be referred to extensively in the 22 complaint or it must form the basis of the plaintiff’s claim. United States v. Ritchie, 23 342 F.3d 903, 907–08 (9th Cir. 2003). When the court incorporates documents by 24 reference, the court treats the documents “as though they are a part of the complaint 25 itself.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018). A 26 court “may assume [an incorporated document’s] contents are true for purposes of a 27 1 motion to dismiss under Rule 12(b)(6).” Id. at 1003 (quoting Mardez v. Lopez, 450 2 F.3d 445, 448 (9th Cir. 2006)) (alteration in original). 3 Omega attached to its Opposition Exhibit E of the Agreement—the “Patent 4 License.” (“Patent License,” ECF No. 63-2.) The Patent License is only mentioned 5 three times in Omega’s complaint. (See SAC ¶¶ 8 n.1, 17, 41–42.) Thus, it cannot 6 be said that the document is referred to “extensively.” See Ritchie, 342 F.3d at 907– 7 08. However, Omega relies on the Patent License to demonstrate the existence of an 8 alleged fiduciary duty between itself and Monte Vista. (SAC ¶¶ 41–42.) 9 Specifically, Omega states that the Agreement and Patent License show the “the 10 parties agreed to split profits in accordance with a formula” and the “Agreement 11 created a relationship under which [Monte Vista and Omega] each contributed 12 capital, time, and skill with the expectation of sharing in the profits of their joint 13 enterprise.” (Id.; Opp’n at 3.) Because the Patent License is an integral part of the 14 Agreement and Omega relies on the documents to form a claim, the Court may 15 incorporate the Patent License by reference. No party questions the document’s 16 authenticity. Therefore, the Court considers the contents of the Patent License when 17 ruling on Monte Vista’s motion to dismiss. 18 B. Fiduciary Duty 19 Monte Vista moves to dismiss Omega’s claim for breach of fiduciary duty 20 because it argues there is no fiduciary relationship between the two parties. 21 To plead a claim for breach of fiduciary duty, the claimant must allege (1) the 22 existence of a fiduciary relationship giving rise to a fiduciary duty, (2) breach of that 23 duty, and (3) damage proximately caused by the breach. People ex rel. Harris v. 24 Rizzo, 214 Cal. App. 4th 921, 950 (2013). The existence of a fiduciary duty is a 25 question of law. Speirs v. BlueFire Ethanol Fuels, Inc., 243 Cal. App. 4th 969, 982 26 (2015) (citing Amtower v. Photon Dynamics, Inc., 158 Cal. App. 4th 1582 (2008)). 27 But whether a fiduciary relationship exists is a question of fact. Michelson v. 1 Ordinarily, a contract alone does not create a fiduciary relationship. Rickel v. 2 Schwinn Bicycle Co., 144 Cal. App. 3d 648, 654 (1983); Waverly Prods., Inc. v. RKO 3 Gen., Inc., 217 Cal. App. 2d 721, 732 (1963). For such a relationship to exist, 4 something more must be present. One way to establish the existence of a fiduciary 5 relationship giving rise to a duty is by “pleading the existence of partnership or joint 6 venture.” Second Measure, Inc. v. Kim, 143 F. Supp. 3d 961, 979 (N.D. Cal. 2015). 7 Plaintiff argues that the “Agreement created a relationship under which [Monte Vista] 8 and [Omega] each contributed capital, time, and skill with the expectation of sharing 9 in the profits of their joint enterprise.” (SAC ¶ 42.) 10 A joint venture is defined as “an association of two or more persons who 11 combine their property, skill or knowledge to carry out a single business enterprise 12 for profit.” Holtz v. United Plumbing & Heating Co., 49 Cal. 2d 501, 506 (1957). 13 Whether a joint venture has been formed depends on the intention of the parties at 14 the time of the agreement. Id. The intent of the parties should be determined by the 15 terms of the agreement. Constans v. Ross, 106 Cal. App. 2d 381, 386 (1951). A 16 contract need not explicitly refer to the relationship as a joint venture if the parties’ 17 acts and declarations make their intentions clear. See Holtz, 49 Cal. 2d at 507. The 18 factors that courts look to in determining whether a joint venture has been established 19 include community or ownership interest in the business, an equal right to control 20 and manage the business, a share in the profits and losses, and a close relationship 21 between the parties. See Unruh-Haxton v. Regents of Univ. of Cal.,162 Cal. App. 4th 22 343, 370 (2008); Buck v. Standard Oil Co., 157 Cal. App. 2d 230, 239 (1958). 23 Here, the Agreement makes no mention of a joint venture. The primary 24 purpose of the Agreement was for Omega to purchase equipment, services, and 25 software and patent license agreements from Monte Vista. (See Agreement § 1.) 26 The Agreement resembles a typical purchase and licensing agreement. Although the 27 Agreement indicates that Monte Vista agreed to contribute its property and services 1 loss sharing. (Id.) The Patent License only requires Omega to pay Monte Vista 2 quarterly royalties based on net sales. (Patent License § 6.1.) The license defines 3 “Net Sales” as: 4 the amount received for the sale of Products by [Omega] less (a) amounts repaid or credited by reason of return or rejection, (b) price 5 allowances, commissions, and discounts actually allowed and taken; (c) 6 rebates, reimbursements, fees, taxes or similar payments; and (d) reasonable charges for storage, delivery, transportation, shipping and 7 packing to the extent included as a separate line item in the gross 8 amount billed or invoiced. 9 (Id. § 1.18.) Neither the Agreement nor the Patent License specify if Monte Vista 10 receives royalties on all products sold by Omega or only on products that use Monte 11 Vista’s equipment or licenses. Nevertheless, a profit-sharing agreement alone is not 12 enough to create a partnership or joint venture. Bank of Cal. v. Connolly, 36 Cal. 13 App. 3d 350, 364 (1973). Similarly, a contractual duty to receive royalties is not 14 sufficient to give rise to a fiduciary relationship. Cusano v. Klein, 280 F. Supp. 2d 15 1035, 1040 (C.D. Cal. 2003). To form a joint venture, the parties must also manage 16 the business jointly. Dickenson v. Samples, 104 Cal. App. 2d 311, 315 (1951); cf. 17 Bank of Cal., 36 Cal. App. 3d at 364 (“An essential element of a partnership or joint 18 venture is the right of joint participation in the management and control of the 19 business.”). 20 No terms of either the Agreement or the Patent License indicate joint 21 management and control of a business. This Agreement appears to be nothing more 22 than a standard contract. Accordingly, a joint venture has not been created. Omega 23 has not pled the existence of a fiduciary relationship, thus it cannot plead a breach of 24 fiduciary duty. 25 IV. CONCLUSION 26 Omega has failed to state a claim upon which relief can be granted. Therefore, 27 the Court GRANTS Defendant’s Monte Vista’s Motion to Dismiss Omega’s breach 1 |/to plead the existence of a fiduciary relationship, thus, the dismissal is with prejudice. 2 ||Monte Vista is to file an answer as to the remaining causes of action on or before 3 ||May 29, 2020. Finally, as ordered by Magistrate Judge Schopler, within 5 days of 4 ||the date of this order, the parties must contact Judge Schopler to set a further Case 5 ||Management Conference. (See ECF No. 72.) 6 IT IS SO ORDERED. 7 8 || DATED: May 13, 2020 / . , 9 (Yin 4 (Laphn 6 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28