Opinion
No. C-01-0438 PJH
March 11, 2002
ORDER
Before the court is defendant's motion to dismiss the First Amended Complaint ("FAC"). Plaintiff has filed an opposition, and pursuant to this court's January 11, 2002 case management order, the matter is deemed submitted. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby rules as follows.
The January 11 order stated "There will be no Reply." Despite this unequivocal language, defendant filed a reply brief in support of its motion. Because plaintiff has suffered no prejudice, the motion to strike the reply brief is DENIED. Defense counsel is cautioned to pay closer attention to the court's orders in the future.
BACKGROUND
Plaintiff owns a logging business that, among other things, harvests, prepares and transports logs to sawmills. In 1998, one of those sawmills, the Eel River Lumber Company ("Eel River"), acquired the right to harvest timber from two separate tracts of land from the United States Forest Service under two respective contracts: the Crabtree Sale (contract no. 056666) and the Tub Springs Sale (contract no. 056682). Plaintiff was hired by Eel River to harvest the timber covered by those contracts.
Plaintiff alleges that after all logging operations had been completed on the Tub Springs Sale, a Forest Service employee, Lenora Crippa, concluded that plaintiff had violated Forest Service regulations while harvesting that tract through the following acts: damaging remaining timber; using equipment in prohibited areas; and causing excessive soil disturbance. Plaintiff alleges that Ms. Crippa confused the Tub Springs Sale operation with the Crabtree Sale operation, and mistakenly terminated the still continuing Crabtree Sale operation. Plaintiff alleges that there were never any allegations of violations at the Crabtree Sale site and that Ms. Crippa violated Forest Service regulations by failing to get written approval from her supervisor prior to terminating the operation.
Plaintiff alleges these conclusions are mistaken.
Plaintiff alleges that his reputation as a logging contractor acceptable to the Forest Service is critical to maintaining his business reputation and income, and that as a result of defendant's negligence, he has incurred a loss of business profits in the amount of $632, 540.
The original complaint, alleging a single claim of negligence under the Federal Tort Claims Act, was filed on January 26, 2001. Defendant moved to dismiss, arguing that the complaint sought relief for interference with contractual opportunities, a claim that is not cognizable under the FTCA. On October 3, 2001, defendant's motion to dismiss was granted, with leave to amend. The FAC was filed on October 25, 2001, and this motion followed. Once again, defendant argues that the complaint fails to state a claim upon which relief may be granted.
DISCUSSION
A. Legal Standard.
Motions to dismiss for failure to state a claim are disfavored. See Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997). A court should dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim only where it appears beyond doubt that plaintiff can prove no set of facts in support of the claim which would entitle the plaintiff to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957);Pillsbury, Madison Sutro v. Lerner, 31 F.3d 924, 928 (9th Cir. 1994). In dismissing for failure to state a claim, "a district court should grant leave to amend even if no request to amend the pleadings was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995) (citations omitted). Review is limited to the contents of the complaint. Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). Dismissal can be based upon "the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Silicon Knights, Inc. v. Crystal Dynamics, Inc., 983 F. Supp. 1303, 1307 (N.D. Cal. 1997).
B. Interference with Contract.
While the federal government has agreed to waive sovereign immunity for certain claims under the FTCA, it has specifically retained immunity from claims "arising out of . . . interference with contract rights." 28 U.S.C. § 2680(h). The phrase "interference with contract rights" includes actions for interference with prospective economic advantage.See Saratoga Sav, and Loan Ass'n v. Federal Home Loan Bank of San Francisco, 724 F. Supp. 683, 688 (N.D.Cal. 1989) (agreeing with the "majority of courts" in holding "the exception applicable to prospective contractual relations as well as existing contracts, reasoning that it would be illogical to hold the United States liable for interfering with the mere expectancy of entering a contract, but not liable for interfering with an existing contract.").
The key issue confronting the court is whether the FAC's single claim is one for negligent interference with contract. Plaintiff concedes that the original complaint stated such a claim, but argues that "[t]he amended complaint no longer alleges tortious interference in the Eel River Sawmill contracts or those prospective business advantages." Instead, plaintiff argues that the FAC alleges negligent operation of non-discretionary duties by defendant.
A careful review of both the language used in the FAC and the substance of the claim therein reveals that plaintiff is, at bottom, alleging negligent interference with contract. The "negligent operation" referred to by plaintiff is described in ¶ X of the FAC. That description is prefaced with the statement: "Lenora Crippa caused Plaintiffs logging operations on the Crabtree Sale to be ceased and terminated through the following negligent acts." Plaintiff then goes on to allege three allegedly negligent acts by Ms. Crippa: (1) she mistakenly concluded that plaintiff had violated regulations at the Tub Springs Sale site; (2) she confused the two sites and mistakenly terminated operations at the Crabtree Sale site even though no finding of violations had been made there; and (3) she terminated the operation at the Crabtree Sale site without first obtaining written approval. Plaintiff clarifies in his opposition brief that he is alleging the following breaches of the duty of due care: "Crippa failed to secure permission from her supervisors before she shut down a logging operation. And that Crippa mistakenly shut down the wrong business operation without probable cause.
The FAC goes on to allege that defendant knew that plaintiff was a timber operator working in the Northern California area and that defendant was "aware that plaintiffs reputation as a logging contractor acceptable to the Forest Service was critical to maintaining plaintiffs business reputation and business income." Plaintiff alleges, without explanation, that defendant's negligence resulted in lost business profits.
As an initial matter, a superficial review of the FAC gives the strong impression that plaintiff is indeed attempting to allege a claim for negligent interference with prospective economic advantage. Plaintiff alleges that defendant had knowledge of plaintiffs profession, his current and prospective customers, and the impact that damage to his reputation would have on those relationships. Although the FAC is vague (perhaps purposefully so) on this point, it can only be inferred that plaintiff is also alleging that defendant negligently damaged his reputation, thus resulting in a loss of profits.
However, the mere fact that plaintiff is seeking lost profits does not require that his claim be construed as one for interference with prospective economic advantage. See Mundy v. U.S., 983 F.2d 950, 953 (9th Cir. 1993). Indeed, the court must "draw a distinction `between the tortious wrong alleged in plaintiffs complaint and the items of damage flowing therefrom (. . .)'" Id. (quoting Black v. Sheraton Corp. of America, 564 F.2d 531, 541 (D.C. Cir. 1977)). In Mundy, plaintiff alleged that the government negligently processed his request for a security clearance which resulted in a denial of that request and his subsequent termination by his employer. Mundy, 983 F.2d at 951. The Ninth Circuit rejected the argument that Mundy, who was seeking lost wages and other damages related to his termination, was making a contractual interference claim: "Even though the damages sought by Mundy are similar to those obtainable on an interference claim, the tortious wrong alleged in his complaint is the failure to process a security clearance with due care, not an interference with contract." Id. at 953. Thus, the court must focus on the nature of the tortious wrong alleged by plaintiff.
It is clear that plaintiff is alleging negligent interference, not with prospective business relations, but with his Crabtree Sale contract. Plaintiff makes this claim clearly in the FAC when he alleges that Ms. Crippa's allegedly negligent acts "caused Plaintiffs logging operations on the Crabtree Sale to be ceased and terminated." He makes this claim just as clearly in briefing before the court when he alleges that Ms. Crippa was negligent in "shut[ting] down" the Crabtree Sale operation without permission or probable cause. The essence of the tortious wrong alleged by plaintiff is the negligent termination of his work on the Crabtree Sale contract.
In Mundy, the government's alleged negligence resulted in a denial of security clearance. Then, as a result of that denial, plaintiff was terminated. Mundy, 983 F.2d at 951. Here, in contrast, the direct effect of Ms. Crippa's alleged negligence was the termination of the Crabtree Sale operation. The lost profits then flowed from that allegedly tortious act.
The fact that plaintiff does not attach a copy of the Crabtree Sale contract to the FAC, or directly allege a loss of profits on that particular contract, does not change the essential nature of plaintiffs claim. Even assuming that plaintiff is seeking only lost profits not anticipated under the Crabtree Sale contract, the tortious act that allegedly caused those lost profits was the negligent termination of his work under the Crabtree Sale contract. Plaintiff cannot state a claim. Because plaintiff has already been given the opportunity to amend, his complaint is DISMISSED with prejudice.
The court notes that although plaintiff claims the FAC has eliminated his previously stated claim for interference with contract, both complaints seek identical sums in damages. In a previously filed case management statement plaintiff averred that due to defendant's negligence in shutting down the Crabtree Sale operations, "plaintiff lost the benefit of that contract and he lost prospective business."
CONCLUSION
In accordance with the foregoing, defendant's motion to dismiss is GRANTED without leave to amend. This order fully adjudicates the motions listed at Nos. 18-1 and 22-1 on the clerk's docket for this case. It further terminates all pending matters for this case. The clerk shall close the file.
IT IS SO ORDERED.