Opinion
3:16-cv-01509-JR
05-22-2020
ROBERT JAMES CLAUS and SUSAN LYNNE CLAUS, Plaintiffs, v. COLUMBIA STATE BANK, Defendant.
OPINION AND ORDER
RUSSO, MAGISTRATE JUDGE:
Plaintiffs James and Susan Claus move to file a Third Amended complaint (“TAC”) against defendant Columbia State Bank pursuant to Fed.R.Civ.P. 15. All parties have consented to allow a Magistrate Judge enter final orders and judgment in this case in accordance with Fed.R.Civ.P. 73 and 28 U.S.C. § 636(c). For the reasons stated below, plaintiffs' motion is granted in part and denied in part.
BACKGROUND
The history of this matter is well known to all parties and therefore will be recounted only to the extent relevant to the present dispute. In October 2013, defendant issued a loan to plaintiffs, in the amount of $900,000, to develop eight lots on one of their properties in Sherwood, Oregon (the “McFall Subdivision”). Pursuant to that transaction, the parties executed both a deed of trust on the McFall Subdivision and a group of documents collectively constituting the Construction Loan Agreement.
Plaintiffs argue that the Court should not “consider [the existence of] the construction loan documents at this stage in the proceedings” because they “do not set forth the facts that actually occurred.” Pls.' Mot. Am. 4 (doc. 118). Defendant, in turn, asserts that “incorporation of the Construction Loan Documents remains proper” given that at least one of plaintiffs' claims proceeds in contract and they are otherwise necessary “to provide context to and to support the remaining claims in the TAC.” Def.'s Resp. to Mot. Am. 4-5 (doc. 120). As addressed herein, defendant does not contend that plaintiffs' motion should be denied due to the parties' written contracts. As such, the Court need not further address the Construction Loan Agreement.
Defendant required that Signature Homebuilders, LLC (“SHB”) fill the role of general contractor. Plaintiffs acquiesced based on defendant's representations about SHB that were allegedly false. Disputes subsequently arose between plaintiffs, defendant, SHB, and various suppliers and subcontractors regarding the McFall Subdivision, which ultimately prevented plaintiffs from selling the underlying properties for more money.
In June 2016, plaintiffs, via counsel, initiated this action in Washington County Circuit Court alleging claims for fraud, negligence, and breach of contract. In July 2016, defendant removed plaintiffs' claims to this Court.
On April 17, 2018, Judge Acosta granted defendant's motion to dismiss. See generally Claus v. Columbia State Bank, 2018 WL 1832871 (D. Or. Apr. 17, 2018). Plaintiffs filed their First Amended Complaint pro se on September 17, 2018, reasserting the breach of contract and fraud claims, in addition to alleging three new claims: negligent misrepresentation, contractual breach of the obligation of good faith and fair dealing, and promissory estoppel. Defendant filed a second motion to dismiss, which the Court granted. See generally Claus v. Columbia State Bank (“Claus II”), 2019 WL 5624754 (D. Or. Oct. 30, 2019). Leave to amend was provided but solely in regard to plaintiffs' claims for negligent misrepresentation, fraud, and contractual breach of good faith and fair dealing; all other claims were dismissed with prejudice.
Thereafter, plaintiff's obtained new counsel and the case was reassigned. On December 16, 2019, plaintiff filed their Second Amended Complaint, realleging claims for fraud, negligent misrepresentation, and contractual breach of good faith and fair dealing. Defendant filed a partial motion to dismiss as to the fraud and contractual breach of good faith and fair dealing claims, which the Court granted in part and denied in part. In particular, the Court found the inclusion of certain new facts sufficient to state a claim for contractual breach of good faith and fair dealing, but that plaintiffs' fraud claim failed for the same reasons articulated in Claus II. See generally Claus v. Columbia State Bank (“Claus III”), 2020 WL 1172693 (D. Or. Mar. 11, 2020). Given plaintiffs recent retention of counsel and identification of “additional facts in their possession that may establish the existence of both a fraud and tortious breach of good faith and fair dealing claim, ” the Court afforded plaintiffs one final opportunity to amend in this nearly four-year-old case. Id. at *6.
On April 9, 2020, plaintiffs filed the present motion to amend. Briefing on that motion was completed on May 6, 2020.
STANDARD OF REVIEW
Leave to amend pleadings “shall be freely given when justice so requires.” Fed.R.Civ.P. 15(a). Courts apply Rule 15 with “extreme liberality.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (citations omitted). In determining whether a motion to amend should be granted, the court generally considers four factors: (1) undue delay; (2) bad faith; (3) futility; and (4) prejudice to the opposing party. Forsyth v. Humana, Inc., 114 F.3d 1467, 1482 (9th Cir. 1997) (citation omitted).
These factors are not weighted equally: “futility of amendment alone can justify the denial of a motion [to amend].” Ahlmeyer v. Nev. Sys. of Higher Educ., 555 F.3d 1051, 1055 (9th Cir. 2009). A proposed amendment is futile if it would be immediately “subject to dismissal.” Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1298 (9th Cir. 1998). Thus, the proposed complaint must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
DISCUSSION
Via the proposed TAC, plaintiffs recount their negligent misrepresentation and contractual breach of good faith and fair dealing claims. In addition, plaintiffs seek the following substantive changes: (1) assert a new claim for tortious breach of good faith and fair dealing; and (2) add facts that are purportedly adequate to state a plausible fraud claim. Pls.' Mot. Am. 2-3 (doc. 118).
Defendant opposes plaintiffs' tortious breach of good faith and fair dealing claim on the grounds that it is untimely and futile. Def.'s Resp. to Mot. Am. 6-12 (doc. 120). Specifically, defendant suggests that the TAC's proposed new claim is unduly prejudicial and brought in bad faith because it “is essentially a negligence claim, ” and plaintiffs alleged a negligence claim in their original complaint and then abandoned it until now. Id. at 8. In addition, defendant asserts that any such claim is futile because “the history and nature of a good faith claim in tort is specious at best [based] on a line of cases from California, ” and plaintiffs have not “allege[d] facts supporting that Columbia's conduct was the cause of [their] harm.” Id. at 11-12. Finally, defendant argues that plaintiffs' proposed fraud claim fails for the same reasons discussed in Claus II and Claus III. Id. at 13-20.
I. Preliminary Matter
Plaintiffs attempt to interject new facts into their contemporaneously filed TAC via their motion: they assert they have consulted with two individual, but unnamed, experts and “are prepared to present evidence” that defendant's conduct in relation to SHB evinces fraud. See, e.g., Pls.' Mot. Am. 6 (doc. 118). Aside from the fact that these purported expert opinions neither appear in the record nor is there any indication that they have been properly authenticated, it is well-established that “a court may not look beyond the complaint to a plaintiff's moving papers” in evaluating the sufficiency of pleadings. Schneider v. Cal. Dep't of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (emphasis removed). Accordingly, the Court will not consider any new facts or purported evidence outside of the TAC in resolving the present motion.
II. Tortious Breach of Good Faith and Fair Dealing Claim
“To state a claim for tortious breach of the covenant of good faith and fair dealing Plaintiff must allege Defendant's conduct violated some standard of care that is not part of an explicit or implied contractual obligation and that the independent standard of care stems from ‘a particular special relationship' between the parties.” Nguyen v. Madison Mgmt. Servs., LLC, 2016 WL 4708535, *8 (D. Or. Sept. 7, 2016) (quoting Rapacki v. Chase Home Fin. LLC, 797 F.Supp.2d 1085, 1091 (D. Or. 2011)).
As an initial matter, defendant's intimation that tortious breach of good faith and fair dealing claims are not cognizable is unpersuasive. See Thompson v. Allied Mut. Ins. Co., 2000 WL 264318, *1-2 (D. Or. Mar. 3, 2000) (rejecting the defendants' argument that “Oregon does not recognize claims for tortious bad faith”). Such claims are well-recognized at both the state and federal levels. See W. Prop. Holdings, LLC v. Aequitas Capital Mgmt., Inc., 284 Or.App. 316, 331, 392 P.3d 770 (2017) (parties to a contract are typically restricted to seeking contractual remedies, unless a special relationship existed in which case tort remedies can be enforced); see also Columbia Aircraft Mfg. Corp. v. Affiliated FM Ins. Co., 2008 WL 717723, *1-2 (D. Or. Mar. 17, 2008) (discussing the elements of “a claim for bad faith (or, tortious breach of the duty of good faith)”).
Further, defendant's arguments regarding bad faith and prejudice all stem from its assertion that plaintiffs' newly alleged claim is untimely. However, as defendant acknowledges, “the nature of the claims and allegations contained in” the TAC is at least partially the same as “the negligent misrepresentation claim and the prior negligence claim.” Def.'s Resp. to Mot. Am. 10 (doc. 120). In other words, defendant had notice of the factual predicate of plaintiff's newly alleged claim since the original complaint was timely filed. Compare Compl. ¶¶ 10-16, 21, 35-36 (doc. 1-1) (alleging negligence based on defendant's failure to adequately vet and supervise SHB during the construction process), with TAC ¶ 58 (doc. 118-1) (alleging tortious breach of good faith and fair dealing based on defendant's failure to adequately vet and supervise SHB during the construction process); see also Fed.R.Civ.P. 15(c) (1)(B) (“[a]n amendment to a pleading relates back to the date of the original pleading when . . . the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out - or attempted to be set out - in the original pleading”).
Although defendant maintains that granting leave to amend deprives it of “the benefit of prior court decisions, ” as well as “prior decisions [made] as part of its case strategy, ” nothing in the record squarely addresses or otherwise limits plaintiffs' ability to add new claims at this stage in the proceedings. Def.'s Resp. to Mot. Am. 10 (doc. 120). In fact, discovery is not yet complete and there is no current case schedule in place. Moreover, Judge Acosta addressed many of the same arguments raised by defendant in these proceedings and found no undue delay, prejudice, or bad faith. Claus II, 2019 WL 5624754 at *13-16. This Court likewise finds there is no prejudice arising from plaintiffs' tortious breach of good faith and fair dealing claim, nor any indication of bad faith.
Finally, concerning futility, there are ample facts in the TAC reflecting that defendant's conduct was the cause of plaintiffs' harm. See, e.g., TAC ¶¶ 16-46 (doc. 118-1). Therefore, plaintiffs' motion is granted as to their tortious breach of good faith and fair dealing claim.
III. Fraud Claim
To establish a claim for fraud under Oregon law, a plaintiff must show: (1) the defendant made a material representation that was false; (2) the defendant knew the representation was false; (3) the defendant intended the plaintiff to rely on the misrepresentation; (4) the plaintiff justifiably relied on the misrepresentation; and (5) the plaintiff was damaged as a result of that reliance. Horton v. Nelson, 252 Or.App. 611, 616, 288 P.3d 967 (2012) (citation omitted).
Even presuming the TAC cured the previously identified pleading deficiencies regarding knowledge of falsity and intent to induce, plaintiffs have not alleged any new facts regarding justifiable reliance sufficient to state a plausible claim for relief. See TAC ¶¶ 8, 16 (doc. 118-1) (newly alleging, in relevant part, only that plaintiffs' concentration was impaired by their health conditions and they knew of several reputable contractors but were unfamiliar with SHB). Plaintiffs were specifically instructed in both Claus II and Clause III that they needed to provide additional facts showing their duty to investigate was affected such that their reliance was reasonable, especially given that their allegations otherwise demonstrated that plaintiffs independently contracted with a builder to complete construction on Lots Five and Six, had a long professional history as land developers and were only semi-retired from the construction field when planning for the McFall Subdivision began, had recently sold a significant property and were developing at least one other subdivision concurrently with the McFall Subdivision, owned multiple income producing properties, and were sufficiently apprised of or involved with SHB's actions to convey objections to defendant. Claus II, 2019 WL 5624754 at *6, 24; Claus III, 2020 WL 1172693 at *6; see also Cocchiara v. Lithia Motors, Inc., 353 Or. 282, 298, 297P.3d 1277 (2013) (“the standard for reasonable or justifiable reliance in the context of fraud is both subjective and objective”).
Plaintiffs address these facts only cursory, asserting simply that the Court must consider the timing of their actions. See Pls.' Reply to Mot. Am. 9-10 (doc. 121) (acknowledging that their health conditions improved in 2014 and 2015, but they nonetheless “were suffering health problems during 2011 to 2013 that rendered them unable to complete an investigation”). While the Court does not doubt the severity of plaintiffs' health conditions prior to 2013, the fact remains that they voluntarily sought out financing for a large development project (a daunting task in-and-of itself) and, as discussed both above and in prior iterations of this lawsuit, appear to have engaged in other semi-professional activities during this time period. As this Court previously denoted, “the[se] facts [which were also] noted by Judge Acosta still significantly undercut the Clauses' narrative and render their claim implausible.” Claus III, 2020 WL 1172693 at *6.
In any event, plaintiffs did not meaningfully begin discussing the underlying line of credit with defendant until July 2013 and the loan was not disbursed until October 2013. Claus, 2018 WL 1832871 at *1 (D. Or. Apr. 17, 2018); Claus II, 2019 WL 5624754 at *2; TAC ¶¶ 17-20, 23-24 (doc. 118-1). Although a precise timeline is not provided in the TAC, actual construction presumably did not begin on the McFall Subdivision until late 2013 or early 2014. This inference is further bolstered by the fact that plaintiffs do not allege the emergence of any problems with SHB until well into 2014, at which point their health had admittedly improved. TAC ¶¶ 27-31 (doc. 118-1).
The Court therefore cannot conclude, despite the liberal amendment standard, that plaintiffs' reliance on defendant's alleged misrepresentations was reasonable. In other words, the TAC does not cure the previously identified defects regarding justifiable reliance, such that plaintiffs' motion is denied as to their fraud claim.
CONCLUSION
For the reasons stated herein, plaintiffs' Motion to Amend (doc. 118) is granted as to the tortious good faith and fair dealing claim and denied in all other respects with prejudice. Plaintiffs' request for oral argument is denied as unnecessary. In accordance with this ruling, plaintiffs shall file their third amended complaint within thirty days of the date of this order. In addition, the parties are ordered to file a stipulated case schedule within thirty days of the date of this order that includes information concerning whether the parties intend to pursue settlement.
IT IS SO ORDERED.