Roth v. CNR Products Inc

Opinion

4 UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON 5 AT SEATTLE

6 ) 7 WILLIAM ROTH ) CASE NO. 2:20-cv-00256-BJR ) 8 Plaintiff, ) ORDER GRANTING IN PART AND ) DENYING IN PART DEFENDANTS’ 9 v. ) MOTION TO DISMISS PLAINTIFF’S ) SECOND AMENDED COMPLAINT 10 CNR PRODUCTS, INC., et al., ) PURSUANT TO FED. R. CIV. P. 12(b)(6) ) AND REQUEST FOR FEE AWARD 11 Defendants. ) ____________________________________) 12

13 I. INTRODUCTION 14 Before the Court is Defendants’ second Motion to Dismiss. Defs.’ Mot. to Dismiss Pl.’s 15 Second Am. Compl. Pursuant to Fed. R. Civ. P. 12(b)(6) and Request for Fee Award, Dkt. No. 23 16 (“Second MTD”). The Court previously granted in part and denied in part Defendants’ first 17 Motion to Dismiss, but granted Plaintiff leave to amend his Complaint. See Order Granting in Part 18 and Den. In Part Defs.’ Mot. to Dismiss, Dkt. No. 12 (“MTD Order”). Having reviewed the current 19 20 Motion, the opposition thereto, the record of the case, and the relevant legal authorities, the Court 21 will grant dismissal of Plaintiff’s action but deny Defendants’ request for attorney’s fees and costs. 22 The reasoning for the Court’s decision follows. 23 II. BACKGROUND 24 The Court recounted the facts of this case in its previous order. See MTD Order at 1–3. 25 1 Briefly, Plaintiff worked as the Vice President of Sales for Defendant CNR Products, Inc. d/b/a/ 1 Three Cheers for Girls (“CNR”) from January 2014 to December 2019 when the company was 2 3 sold. Second Am. Compl., Dkt. No. 18 (“SAC”) ¶¶ 1.1, 3.6, 3.25. Prior to its sale, CNR was 4 jointly owned by Defendants Cinthia Russiyan, who served as CNR’s President, and Nicholas 5 Russiyan. Id. ¶¶ 1.3, 3.1. Plaintiff claims that when he was hired, he received a formal, written 6 offer including terms for salary, bonuses, and a partnership stake in the business. Id. ¶ 3.2. He 7 also alleges that certain representations were made to him about the financial stability of the 8 company upon which he relied when accepting the offer. Id. ¶¶ 3.3–3.5. 9 In reality, according to Plaintiff, the financial health of the company was precarious. Id. ¶ 10 11 3.8. As matters got worse, Plaintiff claims he entered into an agreement with CNR’s owners to 12 receive a 40% ownership share in CNR via common stock. Id. ¶¶ 3.19–3.20 (citing SAC, Ex. A, 13 Dkt. No. 18-1 at 1–2). When CNR’s owners informed Plaintiff that they were thinking of selling 14 the company, Plaintiff claims he and the owners modified their agreement so that he would receive 15 40% of the net proceeds from any sale in lieu of stock. Id. ¶ 3.23 (citing SAC, Ex. B, Dkt. No. 18- 16 1 at 1–2). Plaintiff claims he never saw any of the compensation he was promised when the 17 18 company was actually sold. Id. ¶ 3.26. 19 Plaintiff filed suit in King County Superior Court on February 7, 2020 advancing eight 20 separate causes of action. William Roth v. CNR Products, Inc. et al., Case No. 20-2-03457-6 SEA; 21 see also Compl., Dkt. No. 1-2. The case was then removed to this Court on February 19, 2020, 22 see Notice of Removal, Dkt. No. 1, where Defendants filed their first Motion to Dismiss, see Defs.’ 23 Mot. to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6), Dkt. No. 5. 24 The Court granted in part and denied in part Defendants’ Motion. See MTD Order, Dkt. 25 2 No. 12. Specifically, the Court: (1) dismissed four claims as uncontested, id. at 3, (2) dismissed 1 Plaintiff’s Breach of Contract and unlawful withholding of wages under RCW 49.48.010 claims 2 3 with leave to amend;1 (3) dismissed Plaintiff’s Civil Conspiracy claim without leave to amend; 4 and (4) granted in part and denied in part dismissal of Plaintiff’s Negligent Misrepresentation 5 claim. As to the Negligent Misrepresentation claim, the Court dismissed with prejudice any such 6 claim premised on representations about CNR’s financial stability made before 2015 as time- 7 barred by the expiration of the statute of limitations. Id. at 7–8. The Court, however, allowed 8 Plaintiff to replead a Negligent Misrepresentation claim premised on Defendants’ alleged 9 misrepresentation regarding an offer of partnership in CNR. Id. at 8. 10 11 Based on the foregoing, Plaintiff filed his Second Amended Complaint advancing only one 12 cause of action: Negligent Misrepresentation. SAC ¶¶ 4.1–4.8. Defendants now move to dismiss 13 this final claim and for attorney’s fees and costs. Second MTD, Dkt. No. 23. 14 III. LEGAL STANDARD 15 Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for failure 16 to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6); MTD Order at 4. When 17 reviewing a motion brought pursuant to Rule 12(b)(6), the Court views all well-pleaded factual 18 19 allegations “in the light most favorable to the nonmoving party” and considers only the complaint, 20 materials incorporated into the complaint by reference, and matters appropriate for judicial notice. 21 Abcarian v. Levine, No. 19-55129, 2020 WL 5000077 (9th Cir. Aug. 25, 2020) (internal quotations 22 23

24 1 Plaintiff submitted an amended complaint repleading both claims, see Am. Compl., Dkt. No. 14, but later 25 stipulated to withdrawing these claims, see Min Order, Dkt. No. 17. 3 and citations removed). The Court need not, however, accept as true “legal conclusion[s] couched 1 as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 2 3 Twombly, 550 U.S. 544, 555 (2007)). 4 To sufficiently state a claim under Rule 12(b)(6), a complaint “must contain sufficient 5 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 6 Twombly, 550 U.S. at 570). In order to achieve plausibility, a plaintiff must plead “factual content 7 that allows the court to draw the reasonable inference that the defendant is liable for the misconduct 8 alleged.” Id. 9 IV. DISCUSSION 10 11 A. Negligent Misrepresentation 12 To prevail on a claim of Negligent Misrepresentation, a plaintiff must show by “clear, 13 cogent, and convincing evidence” that 14 (1) a defendant supplied information for the guidance of others in their business 15 transactions that was false, (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in business transactions, (3) the 16 defendant was negligent in obtaining or communicating false information, (4) the plaintiff relied on the false information supplied by the defendant, (5) the plaintiff’s 17 reliance on the false information supplied by the defendant was justified, and (6) the false information was the proximate cause of damages to the plaintiff. 18

19 Baker Boyer Nat’l Bank v. Foust, 436 P.3d 382, 388–89 (Wash. Ct. App. 2018) (citing Lawyers Title Ins. Corp. v. Baik, 55 P.3d 619, 623–24 (Wash. 2002)). 20 Plaintiff claims that CNR’s owners negligently misrepresented that he would receive 40% 21 of the proceeds from CNR’s sale. See Pl.’s Response in Opp’n to Defs.’ Second MTD, Dkt. No. 22 23 24 (“Response”) at 4 (“Ms. Russiyan repeatedly reassured Mr. Roth, both verbally and in writing, 24 that Mr. Roth would receive 40% of the net proceeds from the sale of CNR”); see also SAC ¶¶ 25 3.23, 4.5–4.6. According to Plaintiff, this 40% share of proceeds derived from a partnership 4 agreement he concluded with CNR’s owners. 1 The Court finds that Plaintiff’s repled Negligent Misrepresentation claim fails for much 2 3 the same reason his original breach of contract claim failed; he has not shown the existence of an 4 enforceable partnership agreement or action by which he actually took an ownership share in CNR 5 and, therefore, could not have reasonably expected to benefit from its sale. See MTD Order at 4– 6 7. As evidence of a consummated partnership agreement, Plaintiff relies on an email sent by 7 Plaintiff to Ms. Russiyan, which discusses terms for a partnership agreement. SAC ¶¶ 3.19–3.20 8 (referencing SAC, Ex. A). However, upon examination it is clear that this email constitutes an 9 offer for terms of a partnership purchase agreement. Plaintiff has failed to show an acceptance by 10 11 Defendants. Plaintiff has never been able to show, nor does his Second Amended Complaint 12 allege, that he actually purchased the stock or assets necessary to take an ownership share. Without 13 a finalized agreement or affirmative step to give him ownership in the company, it is unreasonable 14 for Plaintiff to have concluded he owned a stake in CNR and would, thus, benefit from its sale. 15 See Lawyers Title, 55 P.3d at 624 (reliance is justified where “reliance was reasonable under the 16 surrounding circumstances”). 17 18 Plaintiff’s reference to emails sent by Ms. Russiyan to Plaintiff, which he claims 19 demonstrate her negligent misrepresentation that he would receive a benefit from CNR’s sale, does 20 not alter this conclusion. Specifically, Plaintiff relies on three emails, which are appended to his 21 Second Amended Complaint, to argue that representations made therein demonstrate that Ms. 22 Russiyan assured him a 40% share of the proceeds from CNR’s sale. See, e.g., SAC, Ex. B at 5 23 (“[o]nce all debt is paid off – 40% of the net proceeds goes to you and 60% goes to me and nick”), 24 6 (“[i]f you want to share the valuation you had done, it might help in this negotiation and of course 25 5 it would be in your best interest in terms of getting more dollars for your 40%”). Defendants point 1 out persuasively that, taken in context, these comments represent Ms. Russiyan’s opinion on 2 3 “potential future outcomes” of a sale, once a partnership agreement with Plaintiff could be 4 finalized. Defs.’ Reply in Support of their Second MTD, Dkt. No. 25 at 3. 5 Even viewing these comments in a light most favorable to Plaintiff—as the Court must— 6 reliance on them as proof of ownership and, therefore, a benefit from the company’s sale, was 7 patently unreasonable without an affirmative agreement with CNR’s owners or acquisition of a 8 single share or asset. Simply put, one does not so lightly gain part ownership of a company. 9 Without an ownership share in the company, Plaintiff could not have reasonably expected to 10 11 benefit from its sale. Plaintiff, therefore, has failed to state a claim for Negligent Misrepresentation 12 and the Court will grant dismissal of this sole remaining claim. 13 B. Attorney’s Fees and Costs 14 Defendants argue they are entitled to attorney’s fees and costs based on (1) Plaintiff’s 15 failure to follow the Court’s previous orders and (2) based on Washington’s long-arm statute. 16 Second MTD at 13–15. As to the claim of failure to follow Court orders, Defendants point to the 17 fact that the Prayer for Relief section of Plaintiff’s Second Amended Complaint seeks double 18 19 damages pursuant to RCW § 49.52.070 and reasonable attorney’s fees pursuant to RCW § 20 49.48.030. SAC at 8 ¶¶ 3, 4. Both of these sections refer to the unlawful withholding of wages 21 claim Plaintiff stipulated to dismissing, and for which the Court granted dismissal. See Stipulated 22 Mot. to Withdraw Pl.’s Am. Compl., Strike Defs.’ Mot. to Dismiss, and Authorize Pl. to File SAC, 23 Dkt. No. 16; Min. Order, Dkt. No. 17. 24 Plaintiff, in response, admits that inclusion of reference to these sections was in error, but 25 6 argues the transgression is not severe enough to warrant a sanction of fees. Response at 11–13. 1 The Court agrees. A simple Scrivner’s error does not justify the sanction of attorney’s fees and 2 3 costs. 4 The Court also finds an award of that attorney’s fees and costs pursuant to Washington’s 5 long arm statute, RCW § 4.28.185(5), is not warranted. That section provides that “[i]n the event 6 the defendant is personally served outside the state . . . and prevails in the action, there may be 7 taxed and allowed to the defendant as part of the costs of defending the action a reasonable amount 8 to be fixed by the court as attorneys’ fees.” WASH. REV. CODE § 42.28.185(5) (emphasis added); 9 see also Scott Fetzer Co. v. Weeks, 786 P.2d 265 (Wash. 1990). As the language of the statute 10 11 makes clear, the Court has the discretion to determine if an award of fees is appropriate, even 12 where a party has fulfilled the terms of the provision by prevailing in the action. See Cabell v. 13 Zorro Prods., Inc., No. 13-cv-00449, 2015 WL 11233121, at *1 (W.D. Wash. Mar. 23, 2015) 14 (listing cases). 15 The purpose of the long arm statute’s fee shifting provision is to balance “‘recompensing 16 an out-of-state defendant for its reasonable efforts’ and deterring plaintiffs from invoking long- 17 18 arm jurisdiction as a means to harass foreign defendants’” with “‘encouraging the full exercise of 19 state jurisdiction.’” Id. (quoting Fetzer, 859 P.2d at 1215). Thus, courts in this district have 20 recognized that an award of fees is not appropriate where the plaintiff had “a reasonable basis for 21 seeking the protections of this state’s courts.” Id. at *2 (listing cases). Balancing the interest of 22 encouraging long arm jurisdiction against the interest of recompensing the out-of-state Defendants 23 for their efforts, and taking into account the record of the case at hand, the Court finds that an 24 award of fees in not appropriate. Even though the Court has determined that Plaintiff’s suit should 25 7 be dismissed, the Court finds that bringing suit in Washington was not done to harass Defendants

7 but, rather, was a reasonable place for Plaintiff to file his lawsuit. Plaintiff lived and worked in 3 || the State of Washington, and Defendants appeared to have known as much when hiring him. Thus, 4 || it was reasonable to bring suit in this State when an employment dispute arose. The Court will, 5 || therefore deny Defendants’ request for attorney’s fees and costs. 6 V. CONCLUSION ’ For the foregoing reasons, the Court hereby GRANTS Defendants’ Motion to Dismiss but DENIES Defendants’ request for attorney’s fees and costs.

10 11 DATED this 25th day of September, 2020.

13 BARBARA J. ROTHSTEIN 14 UNITED STATES DISTRICT JUDGE 15 16 17 18 19 20 21 22 23 24 25