1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 James Sweet, No. CV-19-05312-PHX-JJT
10 Plaintiff, ORDER
11 v.
12 John R. Tomlinson, et al.,
13 Defendants. 14 15 At issue is Plaintiff’s Motion for Leave to Amend Plaintiff’s First Amended 16 Complaint Pursuant to Rule 15(b) (Doc. 55), to which Defendants filed a Response 17 (Doc. 57), and Plaintiff filed a Reply (Doc. 63). No party requested oral argument on the 18 Motion, and the Court finds this matter appropriate for resolution without oral argument. 19 See LRCiv 7.2(f). 20 I. BACKGROUND 21 The Proposed Second Amended Complaint (Doc. 55-1, PSAC) provides as follows. 22 AVI Mail Internet Solutions, LLC was formed in 2002 with Fortune Media & Marketing, 23 LLC and TechFX, Inc. as its sole members; none of these entities is party to this lawsuit. 24 Defendant John Tomlinson was and remains AVI’s sole manager. Plaintiff James Sweet 25 alleges that, in 2004, he conferred a benefit of $141,000 on AVI by various means resulting 26 in a 4% membership interest in AVI, albeit without any documentation memorializing his 27 capital contribution or membership interest. For the next nine years, Plaintiff relied on 28 1 Tomlinson’s oral assurances that he would repay Plaintiff and Plaintiff would receive a 2 large return on his investment, neither of which occurred. 3 In 2014, Plaintiff obtained a copy of a 2003 amendment to AVI’s Operating 4 Agreement indicating that the organizational rules did not alter the default rules provided 5 by Arizona law requiring the unanimous consent of all members for AVI to take certain 6 acts, including to make changes to the operating agreement; authorize transactions 7 unrelated to AVI’s purpose or business; issue an interest in AVI; or fix, release, or modify 8 a member’s obligation to make a capital contribution in exchange for an interest in AVI. 9 (PSAC ¶¶ 31, 35, 44.) Moreover, the Operating Agreement did not modify the default rules 10 provided by Arizona law requiring distributions to be proportional to members’ unreturned 11 capital contributions. (PSAC ¶ 48.) Over the years, Plaintiff has never given his consent 12 for any actions taken by AVI or received a distribution, which he claims implies breaches 13 of the Operating Agreement based on his allegation that he is a member of AVI. 14 In its Order resolving Defendants’ Motion to Dismiss Plaintiff’s First Amended 15 Complaint, the Court found that, based on Plaintiff’s allegations, Plaintiff’s claims were 16 time-barred by the applicable statutes of limitations because he did not file this lawsuit 17 until 2019—15 years after he allegedly made a capital contribution to AVI in exchange for 18 a membership interest and over five years after he allegedly discovered the contents of the 19 2002 and 2003 Operating Agreements in 2014—and Plaintiff did not allege any actionable 20 conduct on the part of Defendants within the limitations periods. (Doc. 45.) After 21 conditionally dismissing Plaintiff’s claims, the Court ultimately granted Plaintiff leave to 22 file a Motion to Amend if he could propose amendments to the First Amended Complaint 23 that would cure the defects identified by the Court in his breach of contract, breach of the 24 covenant of good faith and fair dealing, and breach of fiduciary duties claims. (Docs. 45, 25 48.) The Court now resolves Plaintiff’s Motion to Amend. 26 II. LEGAL STANDARD 27 Federal Rule of Civil Procedure 15(a) states that “leave to amend shall be freely 28 given when justice so requires.” Foman v. Davis, 371 U.S. 178, 182 (1962) (citation and 1 internal quotation marks omitted). “In exercising its discretion with regard to the 2 amendment of pleadings, a court must be guided by the underlying purpose of Rule 15— 3 to facilitate a decision on the merits rather than on the pleadings or technicalities.” Eldridge 4 v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987) (citation and internal quotation marks 5 omitted). 6 However, the policy in favor of allowing amendments is subject to limitations. After 7 a defendant files a responsive pleading, leave to amend is not appropriate if the 8 “amendment would cause prejudice to the opposing party, is sought in bad faith, is futile, 9 or creates undue delay.” Madeja v. Olympic Packers, 310 F.3d 628, 636 (9th Cir. 2002) 10 (citation and internal quotation marks omitted). “Futility alone can justify the denial of a 11 motion for leave to amend.” Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2003). 12 “A proposed amended complaint is futile if it would be immediately subject to 13 dismissal. Thus, the proper test to be applied when determining the legal sufficiency of a 14 proposed amendment is identical to the one used when considering the sufficiency of a 15 pleading challenged under Rule 12(b)(6).” Nordyke v. King, 644 F.3d 776, 788 n.12 (9th 16 Cir. 2011) (quotations and citations omitted), aff’d on reh’g en banc on other grounds, 681 17 F.3d 1041 (9th Cir. 2012). To survive a Rule 12(b)(6) motion, a complaint must allege 18 “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. 19 Twombly, 550 U.S. 544, 570 (2007). A dismissal for failure to state a claim can be based 20 on either (1) the lack of a cognizable legal theory or (2) insufficient facts to support a 21 cognizable legal claim. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 22 1990). 23 III. ANALYSIS 24 As a threshold matter, the Court observes that the parties filed numerous materials 25 outside the pleadings, none of which merit judicial notice or will be considered by the Court 26 in resolving Plaintiff’s Motion to Amend. The sole question before the Court is whether 27 the PSAC contains sufficient factual content regarding Defendants’ alleged acts within the 28 limitations periods to plausibly state Plaintiff’s proposed claims. 1 The Court laid out the applicable statute of limitations periods for Plaintiff’s claims 2 in its prior Order, and indeed Plaintiff now includes those periods as allegations in the 3 PSAC, calling them the “Relevant Time Period.” (PSAC ¶¶ 12-14.) The breach of contract 4 claim (Count 1) has a six-year statute of limitations period, so acts constituting a breach of 5 contract must have occurred after October 2, 2013. (Doc. 45; PSAC ¶ 12.) The breach of 6 the covenant of good faith and fair dealing and breach of fiduciary duties claims (Counts 2 7 & 3) have a two-year statute of limitations period, so acts constituting a breach of these 8 covenants and duties must have occurred after October 2, 2017. (Doc. 45; PSAC ¶ 13.) 9 In the PSAC, Plaintiff fails to allege sufficient facts from which the Court can 10 plausibly infer any of Plaintiff’s claims. For example, as allegations of breaches of the 11 Operating Agreement—presuming for the sake of this analysis that such a claim could have 12 merit against Tomlinson and the Tomlinson Trust—Plaintiff simply states what each 13 operational rule is and that Defendants violated it within the relevant limitations period.
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 James Sweet, No. CV-19-05312-PHX-JJT
10 Plaintiff, ORDER
11 v.
12 John R. Tomlinson, et al.,
13 Defendants. 14 15 At issue is Plaintiff’s Motion for Leave to Amend Plaintiff’s First Amended 16 Complaint Pursuant to Rule 15(b) (Doc. 55), to which Defendants filed a Response 17 (Doc. 57), and Plaintiff filed a Reply (Doc. 63). No party requested oral argument on the 18 Motion, and the Court finds this matter appropriate for resolution without oral argument. 19 See LRCiv 7.2(f). 20 I. BACKGROUND 21 The Proposed Second Amended Complaint (Doc. 55-1, PSAC) provides as follows. 22 AVI Mail Internet Solutions, LLC was formed in 2002 with Fortune Media & Marketing, 23 LLC and TechFX, Inc. as its sole members; none of these entities is party to this lawsuit. 24 Defendant John Tomlinson was and remains AVI’s sole manager. Plaintiff James Sweet 25 alleges that, in 2004, he conferred a benefit of $141,000 on AVI by various means resulting 26 in a 4% membership interest in AVI, albeit without any documentation memorializing his 27 capital contribution or membership interest. For the next nine years, Plaintiff relied on 28 1 Tomlinson’s oral assurances that he would repay Plaintiff and Plaintiff would receive a 2 large return on his investment, neither of which occurred. 3 In 2014, Plaintiff obtained a copy of a 2003 amendment to AVI’s Operating 4 Agreement indicating that the organizational rules did not alter the default rules provided 5 by Arizona law requiring the unanimous consent of all members for AVI to take certain 6 acts, including to make changes to the operating agreement; authorize transactions 7 unrelated to AVI’s purpose or business; issue an interest in AVI; or fix, release, or modify 8 a member’s obligation to make a capital contribution in exchange for an interest in AVI. 9 (PSAC ¶¶ 31, 35, 44.) Moreover, the Operating Agreement did not modify the default rules 10 provided by Arizona law requiring distributions to be proportional to members’ unreturned 11 capital contributions. (PSAC ¶ 48.) Over the years, Plaintiff has never given his consent 12 for any actions taken by AVI or received a distribution, which he claims implies breaches 13 of the Operating Agreement based on his allegation that he is a member of AVI. 14 In its Order resolving Defendants’ Motion to Dismiss Plaintiff’s First Amended 15 Complaint, the Court found that, based on Plaintiff’s allegations, Plaintiff’s claims were 16 time-barred by the applicable statutes of limitations because he did not file this lawsuit 17 until 2019—15 years after he allegedly made a capital contribution to AVI in exchange for 18 a membership interest and over five years after he allegedly discovered the contents of the 19 2002 and 2003 Operating Agreements in 2014—and Plaintiff did not allege any actionable 20 conduct on the part of Defendants within the limitations periods. (Doc. 45.) After 21 conditionally dismissing Plaintiff’s claims, the Court ultimately granted Plaintiff leave to 22 file a Motion to Amend if he could propose amendments to the First Amended Complaint 23 that would cure the defects identified by the Court in his breach of contract, breach of the 24 covenant of good faith and fair dealing, and breach of fiduciary duties claims. (Docs. 45, 25 48.) The Court now resolves Plaintiff’s Motion to Amend. 26 II. LEGAL STANDARD 27 Federal Rule of Civil Procedure 15(a) states that “leave to amend shall be freely 28 given when justice so requires.” Foman v. Davis, 371 U.S. 178, 182 (1962) (citation and 1 internal quotation marks omitted). “In exercising its discretion with regard to the 2 amendment of pleadings, a court must be guided by the underlying purpose of Rule 15— 3 to facilitate a decision on the merits rather than on the pleadings or technicalities.” Eldridge 4 v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987) (citation and internal quotation marks 5 omitted). 6 However, the policy in favor of allowing amendments is subject to limitations. After 7 a defendant files a responsive pleading, leave to amend is not appropriate if the 8 “amendment would cause prejudice to the opposing party, is sought in bad faith, is futile, 9 or creates undue delay.” Madeja v. Olympic Packers, 310 F.3d 628, 636 (9th Cir. 2002) 10 (citation and internal quotation marks omitted). “Futility alone can justify the denial of a 11 motion for leave to amend.” Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2003). 12 “A proposed amended complaint is futile if it would be immediately subject to 13 dismissal. Thus, the proper test to be applied when determining the legal sufficiency of a 14 proposed amendment is identical to the one used when considering the sufficiency of a 15 pleading challenged under Rule 12(b)(6).” Nordyke v. King, 644 F.3d 776, 788 n.12 (9th 16 Cir. 2011) (quotations and citations omitted), aff’d on reh’g en banc on other grounds, 681 17 F.3d 1041 (9th Cir. 2012). To survive a Rule 12(b)(6) motion, a complaint must allege 18 “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. 19 Twombly, 550 U.S. 544, 570 (2007). A dismissal for failure to state a claim can be based 20 on either (1) the lack of a cognizable legal theory or (2) insufficient facts to support a 21 cognizable legal claim. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 22 1990). 23 III. ANALYSIS 24 As a threshold matter, the Court observes that the parties filed numerous materials 25 outside the pleadings, none of which merit judicial notice or will be considered by the Court 26 in resolving Plaintiff’s Motion to Amend. The sole question before the Court is whether 27 the PSAC contains sufficient factual content regarding Defendants’ alleged acts within the 28 limitations periods to plausibly state Plaintiff’s proposed claims. 1 The Court laid out the applicable statute of limitations periods for Plaintiff’s claims 2 in its prior Order, and indeed Plaintiff now includes those periods as allegations in the 3 PSAC, calling them the “Relevant Time Period.” (PSAC ¶¶ 12-14.) The breach of contract 4 claim (Count 1) has a six-year statute of limitations period, so acts constituting a breach of 5 contract must have occurred after October 2, 2013. (Doc. 45; PSAC ¶ 12.) The breach of 6 the covenant of good faith and fair dealing and breach of fiduciary duties claims (Counts 2 7 & 3) have a two-year statute of limitations period, so acts constituting a breach of these 8 covenants and duties must have occurred after October 2, 2017. (Doc. 45; PSAC ¶ 13.) 9 In the PSAC, Plaintiff fails to allege sufficient facts from which the Court can 10 plausibly infer any of Plaintiff’s claims. For example, as allegations of breaches of the 11 Operating Agreement—presuming for the sake of this analysis that such a claim could have 12 merit against Tomlinson and the Tomlinson Trust—Plaintiff simply states what each 13 operational rule is and that Defendants violated it within the relevant limitations period. 14 For example, Plaintiff alleges: 15 During the Relevant Contractual Time Period, [Defendants] have and 16 continue to cause AVI to, inter alia, fix or modify the amount and character of the capital contributions that its members were to make or promised to 17 make in exchange for an interest[] in AVI without [Plaintiff’s] agreement or 18 consent in material breach of the Operating Agreement as amended and/or supplemented by applicable Arizona statutory law. 19 20 (PSAC ¶ 103.) 21 The Court agrees with Defendants that such allegations, devoid of any factual 22 content, are entirely conclusory; indeed, the Court identified this defect at several points in 23 its prior Order (Doc. 45) examining Plaintiff’s prior complaint. The PSAC matter-of-factly 24 states a rule and that Defendants violated it, without alleging how or when. That the 25 Operating Agreement (guided by associated Arizona law) provides rules does not by itself 26 lead to the plausible inference that Defendants broke the rules within the limitations 27 periods. Likewise, Plaintiff provides no factual allegations in the PSAC to underpin his 28 otherwise-conclusory breach of covenants and duties claims. 1 Plaintiff can answer his own questions regarding how the allegations in the PSAC 2 can be considered conclusory (Reply at 2) by reading the seminal cases regarding pleading 3 a claim in federal court. For example, in Twombly, the Supreme Court examined whether 4 a complaint was sufficient to state a Sherman Act antitrust claim based in part on 5 agreements companies allegedly made to refrain from competing with each other. The 6 Court held that stating a claim 7 requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an 8 agreement does not impose a probability requirement at the pleading stage; 9 it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. . . . [A]n allegation of parallel 10 conduct and a bare assertion of conspiracy will not suffice. Without more, 11 parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show 12 illegality. Hence, when allegations of parallel conduct are set out in order to 13 make a [Sherman Act] claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could 14 just as well be independent action. 15 16 The need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement reflect the threshold requirement of Rule 17 8(a)(2) that the “plain statement” possess enough heft to “show that the 18 pleader is entitled to relief.” A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement 19 necessary to make out a [Sherman Act] claim. 20 550 U.S. at 556-57. 21 In the PSAC, Plaintiff’s claims include no factual allegations of a context or setting 22 for Defendants’ alleged violations of the Operating Agreement or the associated covenants 23 and duties but are instead naked assertions that Defendants violated these within the 24 limitations periods. This is precisely the type of claim that Twombly, Iqbal, and their 25 progeny found to be inadequate under Rule 8. See Ashcroft v. Iqbal, 556 U.S. 662, 680 26 (2009). For this reason, Plaintiff again fails to state a claim in the PSAC. 27 The Court gave Plaintiff an opportunity to cure this otherwise fatal defect by filing 28 the Motion to Amend and PSAC (Docs. 45, 48), and Plaintiff did not so cure. From this, || the Court must conclude that Plaintiff is unable to allege any non-conclusory facts to 2|| support his claims. Without a sufficient pleading, the Court cannot allow this case to go 3|| forward, and the Court will therefore deny Plaintiffs Motion to Amend and dismiss this case. 5 IT IS THEREFORE ORDERED denying Plaintiff's Motion for Leave to Amend 6|| Plaintiffs First Amended Complaint Pursuant to Rule 15(b) (Doc. 55) and dismissing this case. 8 IT IS FURTHER ORDERED directing the Clerk of Court to enter final judgment 9|| in favor of Defendants and close this case. 10 Dated this 12th day of August, 2021. CN 11 “wok: 12 Unig StatesDistrict Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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