In re: Off Dock USA, Inc. ( 2015 )

FILED
JUN 24 2015
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-14-1037-DaKiKu
)
6 OFF DOCK USA, INC., ) Bk. No. 12-41328
)
7 Debtor. ) Adv. No. 13-01778
______________________________)
8 )
OFF DOCK USA, INC., )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
BEACH BUSINESS BANK, )
12 )
Appellee. )
13 )
14 Argued and Submitted on September 18, 2014
at Pasadena, California
15
16 Filed - June 24, 2015
17 Appeal from the United States Bankruptcy Court
for the Central District of California
18
19 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding
_________________________
20
Appearances: Larry Wayne Gabriel of Jenkins Mulligan & Gabriel
21
LLP argued for appellant Off Dock USA, Inc.;
22 Gayle I. Jenkins of Winston & Strawn, LLP argued
for appellee Beach Business Bank.
23 ________________________
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.
1
1 Before: DAVIS**, KIRSCHER, and KURTZ, Bankruptcy Judges.
2 Memorandum by Judge Davis
Partial Concurrence and Partial Dissent by Judge Kurtz
3
4 INTRODUCTION
5 Appellant Off Dock USA, Inc. (“Off Dock”) appeals the
6 bankruptcy court’s order dismissing its amended adversary
7 complaint against Appellee Beach Business Bank (“Beach”). For
8 the reasons set forth below, we AFFIRM.
9 FACTS1 AND PROCEDURAL HISTORY
10 Off Dock’s amended complaint contained three causes of
11 action, as follows: (1) for breach of the implied covenant of
12 good faith and fair dealing; (2) for breach of fiduciary duty;
13 and (3) for intentional interference with prospective economic
14 advantage. The amended complaint refers to and attaches the
15 November 5, 2009 agreement for a $1,650,000 loan, and the
16 March 30, 20112 agreement for a $3,000,000 loan.
17
18
19
20 **
Hon. Laurel E. Davis, United States Bankruptcy Judge for
21 the District of Nevada, sitting by designation.
22 1
We take judicial notice of the adversary proceeding docket
and the documents filed through the electronic docketing system.
23
See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.),
24 887 F.2d 955, 957-58 (9th Cir. 1989) (appellate court may take
judicial notice of underlying bankruptcy records).
25
2
Where the amended complaint refers to a 2010 loan, it also
26 refers to Exhibit 2, the 2011 loan agreement. It thus appears
27 that other references in the amended complaint to a 2010 loan are
in error, and this memorandum will use the term 2011 loan
28 instead.
2
1 According to Off Dock’s amended complaint3, in 2003 and 2004,
2 Off Dock launched, through its predecessor business names, a
3 business of owning and operating an intermodal depot facility for
4 storing and maintaining cargo shipping containers. Off Dock
5 subsequently leased 15 acres in the City of Carson, California,
6 to use as the staging area for its business.
7 In 2006, Beach provided Off Dock with an initial $250,000
8 credit facility that consisted of a $150,000 loan and a $100,000
9 line of credit. Thereafter, Off Dock and Beach communicated
10 frequently regarding Off Dock’s business operations and
11 profitability.
12 Off Dock exhausted its credit line, and in December 2008,
13 Beach and Off Dock entered into a forbearance agreement. As a
14 condition of the forbearance agreement, Beach required Off Dock
15 to hire an outside consultant, Phelps Consulting Group, Inc. and
16 its principal Ted Phelps (collectively “Phelps”), to oversee Off
17 Dock’s day-to-day business operations, which Off Dock claims was
18 equivalent to a liquidating receiver for Beach. Off Dock was
19 also required to close its accounts with other financial
20 institutions and keep all of its accounts at Beach.
21 In the first quarter of 2009, Off Dock obtained a new loan
22 from Beach in the amount of $1,650,000, and Off Dock’s 2006 loan
23 with Beach was repaid from the proceeds. Off Dock claims that
24 Beach insisted the 2009 loan proceeds could only be used to pay
25 “qualified account payables,” resulting in non-payment of
26
3
27 The facts are drawn from the amended complaint, which we
must accept as true. Maya v. Centex Corp., 658 F.3d 1060, 1068
28 (9th Cir. 2011).
3
1 government fees, taxes, executive compensation or any vendor
2 whose account payable was in excess of 45 days.
3 In December 2009, after Phelps had been paid approximately
4 $450,000, Off Dock fired Phelps with Beach’s consent. Off Dock
5 then hired Plan Bravo Partners, LLC, whose principals were
6 Charles W. Stevens and Joseph Prochot (collectively “Bravo”).
7 Off Dock claims that through Bravo, Beach exerted undue
8 control over Off Dock alleging that Beach instructed Bravo as to
9 what collections to make and Beach communicated directly with Off
10 Dock’s customers and a prospective customer. The alleged undue
11 control by Beach is claimed to have resulted in an adverse impact
12 on Off Dock’s interests and business operations.
13 In 2010, Off Dock began discussions with a new client to
14 expand its business and develop an exclusive repair program for
15 chilled containers, which required additional funding. Off Dock
16 alleges that Beach insisted upon meeting the customer, visiting
17 the proposed site for the project, and preparing numerous cash
18 flow projections to determine the size and structure of the loan.
19 However, the 2009 loan agreement contained a negative covenant
20 that prevented Off Dock from engaging in “business activities
21 substantially different than those in which Borrower is presently
22 engaged.”
23 In 2011, Beach loaned Off Dock $3,000,000, which extended
24 and increased the 2009 loan. Off Dock claims the 2011 loan was
25 conditioned upon the continued employment of Bravo and prepayment
26 of Off Dock’s lease obligation on the City of Carson lease in a
27 manner designed to eliminate Beach’s exposure on the loan and
28 result in a guarantee of the entire 2011 Loan by the Small
4
1 Business Administration.
2 In December 2011, Off Dock claims it attempted to terminate
3 Bravo because Bravo, who was paid in excess of $750,000, provided
4 no benefit to Off Dock and adversely impacted Off Dock’s
5 financial condition. Bravo was ultimately terminated in February
6 2012, after a “transition period” mandated by Beach.
7 Beach did not disburse the final $150,000 of the 2011 Loan.
8 Off Dock claims Beach did so with knowledge that Off Dock would
9 not be able to fund or fulfill the existing contracts for its new
10 business opportunity, thus causing Off Dock to lose this new
11 business opportunity.
12 In April 2012, Beach declared a default of the 2011 Loan.
13 Off Dock claims that Beach refused to meet with Off Dock’s
14 management, swept Off Dock’s bank accounts, and notified Off
15 Dock’s major vendors to pay Beach directly or risk double
16 liability. Beach then sought, but did not obtain, the
17 appointment of a receiver.
18 On September 14, 2012, Off Dock filed a petition for
19 chapter 11 relief in the Central District of California, Los
20 Angeles Division, as Case No. 2:12-bk-41328-TD. Two months
21 later, Off Dock commenced its adversary proceeding against Beach,
22 seeking damages for breach of fiduciary duty and breach of the
23 implied covenant of good faith and fair dealing.
24 The bankruptcy court granted Beach’s motion to dismiss the
25 complaint under Rule 70124 and Civil Rule 12(b)(6), with leave to
26
4
27 Unless specified otherwise, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28 (continued...)
5
1 amend, holding as follows:
2 (1) The relationship between a lending institution
and a borrower is not fiduciary in nature, absent
3 special circumstances such as a lender’s unusually
active participation in the financed enterprise. See
4 Nymark v. Heart Fed. Savings & Loan Assoc., 231 Cal.
App. 3d 1089, 1093 n.1, 1096 (1991). A commercial
5 lender is entitled to pursue its own economic interests
in a loan transaction. Id.
6
(2) The First Cause of Action, Breach of Fiduciary
7 Duty, must be dismissed because the Complaint does not
allege anything more than a series of arms-length
8 transactions in which Plaintiff Off Dock . . . and
[Beach] negotiated terms [Beach] utilized to protect
9 its investment.
10 (3) The implied covenant of good faith and fair
dealing is a supplement to express contractual terms.
11 See Pasadena Live, LLC v. City of Pasadena, 114 Cal.
App. 4th 1089, 1093-94 (2004). Therefore, [Off Dock]
12 must cite to specific contractual terms from which it
asserts the implied covenant arises here.
13
(4) The Second Cause of Action, Breach of the
14 Implied Covenant of Good Faith and Fair Dealing, must
be dismissed because [Off Dock] does not cite to
15 specific contractual terms with respect to [Beach’s]
pre-contract negotiation conduct and distribution of
16 loan proceeds. [Off Dock] does not identify how
[Beach’s] exercise of discretion in identifying
17 “qualifie[d] accounts payable” frustrates [Off Dock’s]
ability to receive the rights or benefits of the
18 agreement.
19 Off Dock then filed its amended complaint. The amended complaint
20 adds a third cause of action for intentional interference with
21 prospective economic relations and inexplicably reduces and
22 summarizes the allegations of the complaint into a document that
23 is only five paragraphs longer than the complaint. The amended
24 complaint also contains copies of the 2009 and 2011 loan
25
26 4
(...continued)
27 all “Rule” references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037. All “Civil Rule” references are to
28 the Federal Rules of Civil Procedure.
6
1 agreements.
2 Beach, again, promptly moved to dismiss, arguing that the
3 amended complaint merely repackaged the same allegations
4 previously deemed insufficient to state claims for relief. The
5 bankruptcy court agreed and dismissed the amended complaint
6 without leave to amend, holding that “Plaintiff’s First Amended
7 Complaint adds no new allegations but is simply a reconfiguration
8 of the allegations of the original complaint,” incorporating by
9 reference Beach’s motion and reply filed with respect to the
10 complaint. However, the record is not clear as to the reasons
11 why the bankruptcy court dismissed the new third cause of action
12 for relief for intentional interference with prospective economic
13 relations, raised for the first time in the amended complaint.5
14 Off Dock timely appealed this order.6
15 JURISDICTION
16 The bankruptcy court had jurisdiction under 28 U.S.C.
17 §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under
18 28 U.S.C. § 158.
19 ISSUE
20 Did the bankruptcy court err when it dismissed the claims
21 for relief stated in Off Dock’s amended complaint?
22 STANDARD OF REVIEW
23 We review de novo the bankruptcy court’s Civil Rule 12(b)(6)
24
25 5
Beach’s motion to dismiss the amended complaint was
submitted on the pleadings.
26
6
27 Off Dock does not appeal the bankruptcy court’s denial of
leave to amend. We, therefore, do not address that portion of
28 the bankruptcy court’s ruling.
7
1 dismissal. Barnes v. Belice (In re Belice), 461 B.R. 564, 572
2 (9th Cir. BAP 2011).
3 DISCUSSION
4 I. Civil Rule 12(b)(6) Standards
5 When we review a matter de novo, we consider the matter anew
6 as if the bankruptcy court had not previously ruled. Sachan v.
7 Huh (In re Huh), 506 B.R. 257, 262 (9th Cir. BAP 2014)(en banc).
8 Therefore, we apply the same standards to Civil Rule 12(b)(6)
9 dismissal motions that all other federal courts are required to
10 apply. In re Belice, 461 B.R. at 572-73.
11 Under Rule 7012 and Civil Rule 12(b)(6), a bankruptcy court
12 may dismiss a complaint if it fails to “state a claim upon which
13 relief can be granted.” To survive a Civil Rule 12(b)(6)
14 dismissal motion, a complaint must present cognizable legal
15 theories and sufficient factual allegations to support those
16 theories. See Johnson v. Riverside Healthcare Sys., LP, 534 F.3d
17 1116, 1121-22 (9th Cir. 2008). As the Supreme Court has
18 explained:
19 [A] complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is
20 plausible on its face. . . . A claim has facial
plausibility when the plaintiff pleads factual content
21 that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct
22 alleged. . . . Threadbare recitals of the elements of
a cause of action, supported by mere conclusory
23 statements, do not suffice.
24 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(citations and
25 internal quotation marks omitted).
26 In reviewing the sufficiency of a complaint under Civil
27 Rule 12(b)(6), we must accept as true all facts alleged in the
28 complaint and draw all reasonable inferences in favor of the
8
1 plaintiff. Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th Cir.
2 2011); Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d
3 1038, 1043 n.2 (9th Cir. 2008). However, we do not need to
4 accept as true conclusory allegations in a complaint or legal
5 characterizations cast in the form of factual allegations. Bell
6 Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).
7 We also may consider the existence and content of documents
8 attached to and referenced in the complaint as exhibits. Lee v.
9 City of L.A., 250 F.3d 668, 688 (9th Cir. 2001); Durning v. The
10 First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987). Even
11 where a document is not physically attached to the complaint, we
12 may consider its existence and contents when its authenticity is
13 not contested and when it necessarily is relied upon by the
14 plaintiffs in their complaint. See United States v. Ritchie,
15 342 F.3d 903, 907-908 (9th Cir. 2003); Lee, 250 F.3d at 688.
16 II. Breach of the Implied Covenant of Good Faith and Fair
Dealing (First Claim for Relief)
17
18 The bankruptcy court originally dismissed this claim for
19 relief in the complaint because it: (1) failed to cite to
20 specific contractual terms from which the implied covenant
21 allegedly arises in this case; (2) failed to cite to specific
22 contractual terms with respect to Beach’s pre-contract
23 negotiation conduct and distribution of loan proceeds; and
24 (3) failed to identify how Beach’s exercise of discretion in
25 identifying “qualified accounts payable” frustrates Off Dock’s
26 ability to receive the rights or benefits of the agreement.
27 Because it adds “no new allegations but is simply a
28 reconfiguration of the allegations of the original complaint,”
9
1 this claim for relief was also dismissed when the bankruptcy
2 court granted the motion to dismiss the amended complaint. The
3 reconfigured amended complaint generally described and attached
4 copies of the 2009 and 2011 loan agreements, but it did not
5 identify any of their terms, and reduced from seven to four the
6 operative paragraphs of this claim for relief. Based upon our de
7 novo review, the amended complaint fails to satisfy the relevant
8 standards and the bankruptcy court properly dismissed it.
9 As a preliminary matter, because the implied covenant is a
10 supplement to an existing contract, it does not require parties
11 to negotiate in good faith prior to entering into any agreement.
12 For that reason, any allegations that a defendant violated the
13 implied covenant during the negotiation of a loan fail to state a
14 claim. McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784, 799
15 (2008) (citing Racine & Laramie, Ltd., Inc. v. Dep’t of Parks &
16 Recreation, 11 Cal. App. 4th 1026, 1032 (1992)). Off Dock is
17 thus not able to rely upon the first 12 paragraphs of the amended
18 complaint to support this cause of action because those
19 paragraphs allege facts that occurred prior to the parties’
20 execution of the 2009 and 2011 loan agreements.
21 In California, “[t]he implied covenant of good faith and
22 fair dealing is limited to assuring compliance with the express
23 terms of the contract, and cannot be extended to create
24 obligations not contemplated by the contract.” Pasadena Live,
25 LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 1094 (2004)
26 (quoting 1 Witkin, Summary of Cal. Law (2003 supp.) Contracts,
27 § 743, p. 449) (emphasis in original). Because the covenant is
28 implied into the contract, it is limited to ensuring compliance
10
1 with the express contractual terms agreed to by the parties and
2 does not create additional obligations on the parties. See
3 Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 36 (1995)
4 (“[T]he covenant is implied as a supplement to the express
5 contractual covenants, to prevent a contracting party from
6 engaging in conduct that frustrates the other party’s rights to
7 the benefits of the agreement.”). In order to prevail, a
8 plaintiff must “identify the specific contractual provision that
9 was frustrated.” Plastino v. Wells Fargo Bank, 873 F. Supp. 2d
10 1179, 1191 (N.D. Cal. 2012) (citation and internal quotation
11 marks omitted).
12 Other than to provide copies of the 2009 and 2011 loan
13 agreements as exhibits, the amended complaint wholly fails to
14 identify any express provision of either loan agreement that is
15 disturbed by the alleged breaches of the implied covenant.
16 Instead, Paragraph 34 of the amended complaint claims that Beach
17 breached the implied covenant of good faith and fair dealing by
18 “exercising complete dominion and control over Off Dock’s
19 business operations, including controlling the use of the loan
20 proceeds such that Off Dock was denied the benefit of its bargain
21 (the use of the loan proceeds).” The rest of this claim for
22 relief consists of incorporation by reference of the prior
23 33 paragraphs of the amended complaint which are likewise devoid
24 of any express term of either loan agreement.
25 Further, a cause of action for breach of the implied
26 covenant fails when the contract authorizes defendant’s actions.
27 See Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc.,
28 2 Cal. 4th 342, 374 (1992). As set forth on page one of each
11
1 loan agreement, Beach’s obligation to make loan advances under
2 each loan agreement was “subject to the fulfillment to [Beach]’s
3 satisfaction of all of the conditions set forth in this Agreement
4 and in the Related Documents.” Those conditions include, among
5 other terms, Off Dock’s multiple covenants and representations
6 made in support of each loan, as well as the absence of an event
7 of default. Moreover, each loan agreement authorized Beach to
8 cease loan advances even in the absence of an event of default:
9 CESSATION OF ADVANCES. If Lender has made any
commitment to make any Loan to Borrower, whether under
10 this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to
11 disburse Loan proceeds if: . . . (E) Lender in good
faith deems itself insecure, even though no Event of
12 Default shall have occurred.
13 For all of these reasons, the amended complaint fails to
14 state facts giving rise to a plausible claim and we affirm the
15 bankruptcy court’s order dismissing the first claim for relief.
16 III. Breach of Fiduciary Duty (Second Claim for Relief)
17 In California, “[t]he relationship between a lending
18 institution and its borrower-client is not fiduciary in nature.
19 Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d 1089,
20 1093 n.1 (1991). “A commercial lender is instead entitled to
21 pursue its own economic interests in a loan transaction.” Id.
22 “This right is inconsistent with the obligations of a fiduciary
23 which require that the fiduciary knowingly agree to subordinate
24 its interests to act on behalf of and for the benefit of
25 another.” Id. As a result:
26 [A] financial institution owes no duty of care to a
borrower when the institution’s involvement in the loan
27 transaction does not exceed the scope of its
conventional role as a mere lender of money. . . .
28 Normal supervision of the enterprise by the lender for
12
1 the protection of its security interest in loan
collateral is not active participation in the financed
2 enterprise beyond that of the ordinary role of a lender
in a loan transaction.
3
4 Id. at 1096-1097. (Citations, brackets and internal quotation
5 marks omitted.)
6 Thus, "a lender does not assume any obligations regarding
7 the viability of the project or investment which is financed by
8 the loan funds as long as the conduct of the lender is limited to
9 the activities which customarily are associated with the lending
10 function." Peterson Dev. Co. v. Torrey Pines Bank, 233 Cal. App.
11 3d 103, 119 (1991) (citations and internal quotation marks
12 omitted).
13 Off Dock alleges that Beach exceeded the role of a
14 conventional lender by exerting excessive control over Off Dock’s
15 business operations and thus committed a breach of fiduciary
16 duty. In order to prevail, Off Dock must prove: “the existence
17 of a fiduciary relationship, its breach, and damage proximately
18 caused by that breach." Pierce v. Lyman, 1 Cal. App. 4th 1093,
19 1101 (1991).
20 Off Dock’s amended complaint asserts that Beach had a
21 “fiduciary responsibilit[y] to act in the best interests of Off
22 Dock,” citing Barrett v. Bank of Am., 183 Cal. App. 3d 1362
23 (1986). Off Dock appears to rely upon dicta contained in the
24 Barrett court’s discussion of trial court error in failing to
25 provide a jury instruction on constructive fraud, wherein the
26 court states “[t]he relationship of a bank to depositor is at
27 least quasi-fiduciary” and recognizes a “duty of disclosure of
28 facts which may place the bank or a third party at an advantage
13
1 with respect to the customer.” Id. at 1369.
2 Barrett involved the question of constructive fraud. In
3 Barrett, the bank’s loan officer advised the borrowers that they
4 would be released from personal guarantees if they consummated a
5 merger of their business, but withheld information that the bank
6 stood to benefit from the merger. Id. at 1365, 1369. The
7 borrowers in Barrett had also shared unfavorable confidential
8 information with the officer and relied upon the officer’s
9 advice. Id. at 1369.
10 We agree with the bankruptcy court that the continued
11 validity of Barrett is questionable:
12 The holding[] of . . . Barrett [is] inconsistent with
both past authority and current trends in the law. It
13 has long been regarded as axiomatic that the
relationship between a bank and its depositor arising
14 out of a general deposit is that of a debtor and
creditor. . . . A debt is not a trust and there is not
15 a fiduciary relation between debtor and creditor as
such. The same principle should apply with even
16 greater clarity to the relationship between a bank and
its loan customers.
17
18 Price v. Wells Fargo Bank, 213 Cal. App. 3d 465, 476 (1989).
19 Off Dock’s other case authority7 also fails to establish the
20 existence of a fiduciary duty. Wagner v. Benson, 101 Cal. App.
21 3d 27 (1980), involved claims against a lender brought by
22
23 7
Pension Trust Fund for Operating Eng’rs v. Fed. Ins. Co.,
24 307 F.3d 944, 949-55 (9th Cir. 2002) is an action by an
investment trust against its insurance company for the insurance
25 company’s failure to defend the investment trust in a third party
action for fiduciary breach. The Pension Trust case did not
26 address the substantive sufficiency of the allegations of the
27 breach of fiduciary claims (on which Pension Trust prevailed at
trial against Winncrest), but whether the allegations alone were
28 sufficient to trigger a duty to defend.
14
1 individual plaintiffs who speculated in a cattle raising program.
2 A third party, MSR, acted as the plaintiffs’ agent in buying,
3 maintaining and marketing the cattle, including “prenegotiating”
4 plaintiffs’ loan with the bank. Beef prices declined and costs
5 rose, ultimately resulting in a default of the loan. Plaintiffs
6 sued the bank, alleging that the bank had assured them the
7 investment was “safe” and the margin calls to maintain the 75%
8 loan to value ratio would be minimal. The trial court dismissed
9 plaintiff’s negligence and bad faith claims and limited trial to
10 the claim for misrepresentation. The court of appeals affirmed
11 summary disposition of the plaintiffs’ claims at trial,
12 reiterated the general rule enunciated by Nymark and held “[t]he
13 Bank’s limited involvement in the MSR enterprise falls far short
14 of the extensive control and shared profits which give rise to
15 liability.” Wagner, 101 Cal. App. 3d at 35.
16 In addition, Kim v. Sumitomo Bank of Calif., 17 Cal. App.
17 4th 974 (1993), is not applicable here. Off Dock’s
18 representation that Kim held “a borrower [sic] exercises
19 excessive control over a borrower where the lender dominate[s]
20 the borrower to the extent that the borrower has lost its
21 separate identity,” is erroneous. That language was not the
22 court’s holding, but was merely a quote from a law review article
23 cited by plaintiffs and rejected by the court. Id. at 980. Kim
24 instead involved an action for fiduciary breach arising from the
25 loan document’s requirement for a disbursing agent, wherein the
26 court of appeals affirmed the trial court’s order granting
27 summary judgment in favor of the bank, holding as a matter of law
28 that the bank was not liable as either a “control lender” or
15
1 based upon a theory of fiduciary breach. Id. at 979-984.
2 Similar to the borrowers in Kim, Off Dock complains of
3 conduct that is authorized by the agreements it signed with Beach
4 and thus cannot argue these requirements form the basis of a
5 claim for breach of fiduciary duty. Off Dock’s most pervasive
6 allegation challenges the forbearance agreement’s requirement
7 that Off Dock hire outside management consultants. However, the
8 2009 loan agreement maintains this requirement by its provision
9 that Off Dock comply with all of the terms and conditions of the
10 forbearance agreement. Both loan agreements require Off Dock to
11 maintain executives and management with the same qualifications
12 and experience as present personnel, with written notice to Beach
13 of any changes.
14 Off Dock also heartily complains about the quantity of
15 business and financial information provided to Beach, sometimes
16 gained through direct communications with Off Dock’s outside
17 consultants, vendors, and customers. Both loan agreements
18 contain extensive provisions that grant Beach “free access” to
19 virtually all of Off Dock’s premises, operations, books and
20 records, regardless of whether or not such information is in the
21 possession of third parties. Additionally, Off Dock must provide
22 Beach with periodic financial reports, permit Beach to “examine
23 and audit” Off Dock’s books and records, and provide Beach with
24 financial reports requested by Beach “at such frequency and in
25 such detail as lender may reasonably request.”
26 Off Dock’s fatal problem here is the conclusory allegations
27 of the amended complaint. As noted above, despite the bankruptcy
28 court’s dismissal of its complaint for failure to state a claim
16
1 for relief, Off Dock chose to reduce, in a reconfigured fashion,
2 rather than enhance the allegations in the amended complaint. In
3 doing so, Off Dock’s allegations have become even more conclusory
4 and thus less likely to state a claim for relief for breach of
5 fiduciary duty. In identifying the “special relationship”
6 between Off Dock and Beach, the amended complaint simply
7 concludes that Beach’s requirement for outside consultants
8 results in Beach’s “dominion and control” over Off Dock’s
9 operations, with one line about collections and “interfacing with
10 Off Dock’s customers,” which as set forth above, is authorized by
11 the loan agreements.
12 The Supreme Court has made it clear that “labels and
13 conclusions” or “formulaic recitation of the elements of a cause
14 of action” are insufficient. Plaintiff must instead articulate
15 “enough facts to state a claim to relief that is plausible on its
16 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). As
17 a result, “the non-conclusory ‘factual content,’ and reasonable
18 inferences from that content must be plausibly suggestive of a
19 claim entitling the plaintiff to relief.” Moss v. United States
20 Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). “Threadbare
21 recitals of the elements of a cause of action, supported by mere
22 conclusory statements, do not suffice.” Ashcroft v. Iqbal,
23 556 U.S. 662, 678 (2009). “[A]nalyzing the sufficiency of a
24 complaint’s allegations is a ‘context-specific task that requires
25 the reviewing court to draw on its judicial experience and common
26 sense.’” Sheppard v. David Evans & Assocs., 694 F.3d 1045 (9th
27 Cir. 2012) (citing Iqbal, 556 U.S. at 679).
28 Because Off Dock’s second amended complaint did not allege
17
1 any legally cognizable harm arising from any fiduciary breach,
2 the bankruptcy court did not err when it dismissed Off Dock’s
3 fiduciary breach claim.
4 IV. Intentional Interference with Prospective Economic Relations
(Third Claim for Relief)
5
6 The amended complaint adds a new claim for intentional
7 interference with prospective economic relations. Under
8 California law, such a claim has five elements: “(1) an economic
9 relationship between the plaintiff and some third party, with the
10 probability of future economic benefit to the plaintiff; (2) the
11 defendant’s knowledge of the relationship; (3) intentional acts
12 on the part of the defendant designed to disrupt the
13 relationship; (4) actual disruption of the relationship; and
14 (5) economic harm to the plaintiff proximately caused by the acts
15 of the defendant.” Korea Supply Co. v. Lockheed Martin Corp.,
16 29 Cal. 4th 1134, 1153 (2003) (citation and internal quotation
17 marks omitted).
18 To establish the third element, Off Dock must also plead
19 that Beach’s conduct “was wrongful by some legal measure other
20 than the fact of interference itself.” Id. at 1153 (citation and
21 internal quotation marks omitted).
22 An act is not independently wrongful merely because
defendant acted with an improper motive. . . . [T]he
23 law usually takes care to draw lines of legal liability
in a way that maximizes areas of competition free of
24 legal penalties. . . . The tort of intentional
interference with prospective economic advantage is not
25 intended to punish individuals or commercial entities
for their choice of commercial relationships or their
26 pursuit of commercial objectives, unless their
interference amounts to independently actionable
27 conduct. . . . We conclude therefore that an act is
independently wrongful if it is unlawful, that is, if
28 it is proscribed by some constitutional, statutory,
18
1 regulatory, common law, or other determinable legal
standard.
2
3 Id. at 1158-59. Off Dock asserts this requirement for
4 independently actionable conduct is satisfied because the amended
5 complaint alleges that Beach failed to fully fund the loan and
6 improperly directed the manner in which loan proceeds were
7 distributed. However, in California, a creditor is entitled “to
8 take all legal steps to obtain payment of [a] debt owed to it,
9 even if the result was that [the debtor] would default on its
10 obligations to other creditors.” Webber v. Inland Empire Inv.,
11 74 Cal. App. 4th 884, 906 (1999). Indeed, “exercise of [a]
12 contractual right does not constitute wrongful conduct. . . .”
13 Weststeyn Dairy 2 v. Eades Commodities Co., 280 F. Supp. 2d 1044,
14 1090 (E.D. Cal. 2003). We have already determined that the loan
15 agreements authorized Beach to direct and withhold advances, even
16 in the absence of an event of default. Thus, based upon our de
17 novo review of the amended complaint, Off Dock did not allege
18 conduct that is independently actionable. As a result, Off Dock
19 fails to allege an essential element to this claim for relief.
20 For these reasons, Off Dock has failed to allege all of the
21 elements necessary to establish a cause of action for intentional
22 interference with prospective economic relations, and we affirm
23 the bankruptcy court’s dismissal of the third cause of action of
24 the amended complaint.
25 CONCLUSION
26 The judgment of the bankruptcy court is AFFIRMED.
27
28 Partial Concurrence and Partial Dissent begins on next page.
19
1 KURTZ, Bankruptcy Judge, concurring in part and dissenting in
2 part:
3
4 While I agree with my colleagues’ conclusion that the
5 bankruptcy court correctly dismissed Off Dock’s claim for
6 intentional interference with prospective economic relations, I
7 disagree with their conclusion that Off Dock failed to state
8 legally-sufficient claims for breach of fiduciary duty and for
9 breach of the implied covenant of good faith and fair dealing.
10 In Pension Trust Fund for Operating Eng'rs v. Federal Ins.
11 Co., 307 F.3d 944, 955 (9th Cir. 2002), the Ninth Circuit Court
12 of Appeals interpreted California law and explicitly held that “a
13 lender . . . owes a fiduciary duty to a borrower when it
14 excessively controls or dominates the borrower.” Id. Following
15 Pension Trust Fund for Operating Eng'rs, the Ninth Circuit
16 reiterated this interpretation of California law in Giles v. Gen.
17 Motors Acceptance Corp., 494 F.3d 865, 882 n.1 (9th Cir. 2007).
18 Unlike my colleagues, I believe I am bound by Pension Trust Fund
19 for Operating Eng'rs’s interpretation of California law on this
20 point. Footnote 7 of the majority decision attempts to explain
21 why we do not need to follow Pension Trust Fund for Operating
22 Eng'rs, but I do not find footnote 7 persuasive.
23 I also believe that the allegations in Off Dock’s amended
24 complaint adequately pled a claim for breach of fiduciary duty.
25 Unlike my colleagues, I do not perceive as conclusory Off Dock’s
26 allegations regarding Beach’s dominion and excessive control over
27 Off Dock’s operations. Indeed, I see the allegations as quite
28 specific on this point. According to the allegations,
1
1 particularly those in paragraphs 12, 15, 17, 18 and 22 of the
2 amended complaint, Beach insisted, in and after 2009, that Off
3 Dock hire and pay for specific consultants (identified in the
4 amended complaint by name), further insisted that these
5 consultants be given day-to-day control over Off Dock’s
6 operations, and further insisted that the consultants take their
7 orders from Beach.
8 The amended complaint also contained some specifics
9 regarding how Beach exercised control through the consultants.
10 For instance, in paragraphs 26 and 27 of the amended complaint,
11 Off Dock alleged that, at Beach’s insistence, the consultants ran
12 Off Dock’s bookkeeping and accounting departments, interfaced
13 with Off Dock’s clients, attended or participated in sales
14 efforts, controlled Off Dock’s hiring and firing of personnel,
15 interviewed customers and prospective customers so that Beach
16 could approve them, controlled payments made to vendors, and made
17 collection demands on Off Dock’s customers, even when Off Dock
18 would not have made such demands, out of fear that it would
19 adversely affect its business relationship with those customers.
20 These specifics meet or exceed the level of factual detail
21 required to state a claim under federal law. See Fed.R.Civ.P. 8
22 (requiring “a short and plain statement of the claim showing that
23 the pleader is entitled to relief.”). The amended complaint also
24 adequately explained how Beach violated its fiduciary duty: by
25 putting its own interest in minimizing its risk exposure arising
26 from the loans over Off Dock’s interest in successfully operating
27 its business.
28 I likewise believe that these same allegations sufficiently
2
1 pled a claim for breach of the implied covenant of good faith and
2 fair dealing. The majority decision opined that this claim was
3 legally insufficient because it did not explicitly identify the
4 particular provision of the loan agreements implicated by this
5 claim. I disagree. I consider it obvious which contractual
6 obligation of Beach’s was implicated: its obligation to make
7 loan advances to Off Dock under certain terms and conditions.
8 See generally Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th
9 Cir. 2009) (citing Twombly and noting that court, in making
10 determination on a motion to dismiss, must consider both the
11 factual content of the complaint and all reasonable inferences
12 that can be drawn from that factual content). In my view, the
13 amended complaint adequately alleged that Beach, in bad faith,
14 stripped Off Dock of its principal contractual benefit under the
15 loan agreements – the receipt of loan funds – by taking control
16 of Off Dock’s operations and making operational decisions based
17 on Beach’s own interests as opposed to making operational
18 decisions based on Off Dock’s interests.
19 Alternately, the majority decision opines that the implied
20 covenant of good faith and fair dealing is not violated by
21 conduct that the parties’ agreement explicitly permits. However,
22 I have not found anything in the record indicating that any
23 provision of the parties’ various agreements permitted Beach to
24 exercise dominion and control over Off Dock’s operations and run
25 those operations to suit its own interests and in a manner
26 adverse to Off Dock’s interests.
27 In closing, I note my suspicion that Off Dock’s claims
28 likely would have made excellent candidates for resolution by
3
1 summary judgment. Nonetheless, I believe that its claims for
2 breach of fiduciary duty and for breach of the implied covenant
3 of good faith and fair dealing were legally sufficient as alleged
4 and should have survived Beach’s 1``Fed.R.Civ.P. 12(b)(6) motion
5 to dismiss.
6 Accordingly, I respectfully concur in part and dissent in
7 part. I only would have affirmed the bankruptcy court’s
8 dismissal of Off Dock’s claim for intentional interference with
9 prospective economic relations.
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