Norio Mitsuoka v. Fumoto Engineering Of America, Inc. ( 2015 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
NORIO MITSUOKA, No. 72123-2-1
Appellant,
ro
FUMOTO ENGINEERING OF
AMERICA, INC., a Washington o
corporation; NAOYUKI YAMAMOTO, ex
FUMOTO GIKEN CO., LTD, a UNPUBLISHED OPINION
Japanese corporation,
FILED: June 22, 2015
Respondents.
Verellen, J. — After being fired as president of Fumoto Engineering of America
(FEA), a company created to be the exclusive dealer of oil valves supplied by Fumoto
Giken Company (FGC), Norio Mitsuoka sued FEA, FCG, and the owner of FCG,
alleging wrongful termination and tortious interference with a business expectancy. He
appeals the trial court's dismissal of his complaint on a CR 12(b)(b) motion. Because
the complaint fails to allege sufficient facts establishing that Mitsuoka had a contract for
employment terminable only for just cause, the trial court properly dismissed the
complaint for failure to state a claim for wrongful termination or tortious interference.
Accordingly, we affirm.
No. 72123-2-1/2
FACTS
Based on allegations in the second amended complaint, in 1983, Naoyuki
Yamamoto approached Norio Mitsuoka about starting a company in the United States
that would serve as an exclusive distributor of oil changer valves produced by
Yamamoto's company, Fumoto Giken Co., Ltd. (FGC). Yamamoto is a Japanese
citizen and resident of Japan, and FGC marketed and sold its valves in Japan.
Mitsuoka is also a Japanese citizen, but has been living in the United States since 1981.
In 1984, TATM Corporation, doing business as Fumoto Engineering of America,
Inc. (FEA) was incorporated in California. FEA entered into a written agreement with
FGC that FEA would be the exclusive distributor of FGC's valves so long as FEA
wished to sell the product. Mitsuoka was a 50 percent shareholder of FEA.1 Mitsuoka
agreed to serve as president of FEA in exchange for permanent employment as
president so long as FEA was successful. Mitsuoka had sole responsibility for the
operations and management of FEA.
In 1991, Mitsuoka moved to Washington state, and FEA was reincorporated as a
Washington corporation. After reincorporation in Washington, Mitsuoka remained
president of FEA with a 12.5 percent share ownership. The remaining shares were
owned by FGC at 62.5 percent and Hamai Industries (Hamai) at 25 percent. Hamai
manufactured the valves in Japan and was FGC's sole supplier.
For the next several years, Mitsuoka continued to serve as president of FEA and
its sole employee and had sole responsibility for the operations and management of
1 It appears that Yamamoto and FGC were not initial shareholders. See Clerk's
Papers (CP) at 586 ("FGC and Hamai Industries would later join Plaintiff as
shareholders for FEA.").
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FEA. FGC was FEA's sole supplier, and FEA was the exclusive representative of
FGC's products in the United States and elsewhere, except in Japan. During this time,
FEA increased its gross revenue from $500,000 in 1991 to approximately $3,000,000
by April of 2012.
In 2005, Yamamoto's son attended school in New York and began selling the
FGC valves from a website he created for his company, Quik Valve. Yamamoto
requested that his son's new company be permitted to use the name "Fumoto New
York." Mitsuoka objected, having concerns about market confusion and violation of the
exclusive distributor agreement with FEA. At the direction of Yamamoto, FGC sold
valves directly to the son's business in New York, undercutting FEA's sales and giving
the son's business a competitive advantage.
In 2010, one of FEA's distributors suggested Mitsuoka develop a different source
of valve supply to avoid currency fluctuation problems with purchasing valves from
Japan. Mitsuoka presented this idea to Yamamoto, and Yamamoto asked Mitsuoka to
investigate this possibility. Mitsuoka did so, informed Yamamoto of his progress, and in
2012, sent Yamamoto sample alternative valves.
In December 2012, Yamamoto held a meeting in Japan with his son, a
representative of Hamai, and a man named Rick Harder, who operated a company in
California that was a subsidiary of Hamai. Mitsuoka received no notice of the meeting
and did not attend. After the meeting, Yamamoto sent Mitsuoka an e-mail with a letter
attached dated August 20, 2010, stating that Yamamoto was opposed to the idea of
FEA investigating manufacturers other than Hamai. This was the first time Mitsuoka
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had seen the letter, but he stopped all activity relating to alternative sources of the
valves.
On or about March 21, 2013, Harder met with Mitsuoka and told Mitsuoka that he
was being fired from his position as president and employee of FEA. He identified no
cause for the termination, but stated that he was acting on instructions from Yamamoto
and Hamai. Mitsuoka then received a notice of a shareholders' meeting of FEA
scheduled for April 4, 2013. On April 2, 2013, Yamamoto sent Mitsuoka a letter stating
that his termination was due to his unauthorized investigation of an alternate source of
valves for FEA to sell, which led to the manufacture of an alternatively sourced valve.
At the April 4, 2013 shareholder meeting, Mitsuoka was terminated as president,
director, and employee of FEA. Harder was elected president of FEA, and Yamamoto's
son was elected as a director of FEA.
In June 2013, Mitsuoka filed a complaint against FEA, Yamamoto, and FGC
(collectively defendants), alleging shareholder oppression, breach of fiduciary duties,
and wrongful termination of employment. In October 2013, Mitsuoka filed an amended
complaint omitting the shareholder oppression claim and adding a claim for interference
with contractual relations. He then filed a second amended complaint adding a claim for
tortious interference with a business opportunity.
The defendants moved to dismiss the complaint for failure to state a claim under
CR 12(b)(6), and the trial court granted the motion. Mitsuoka moved for reconsideration
and leave to amend the complaint, submitting a proposed third amended complaint with
additional factual allegations and adding back in a claim for minority shareholder
oppression. The trial court denied the motion for reconsideration and declined to
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consider the motion for leave to amend, finding that the third amended complaint was
not properly before the court. Mitsuoka appeals.
DISCUSSION
I. Wrongful Termination Claim
Mitsuoka contends that the trial court erred by dismissing his claim for wrongful
termination because the complaint alleged facts showing that he had a contract
guaranteeing him just cause termination and because the reason given for his firing was
a pretext for an improper purpose. We disagree. Even under the deferential
CR 12(b)(6) standard, Mitsuoka fails to adequately state a claim for relief.
We review a CR 12(b)(6) dismissal de novo.2 "'Dismissal is warranted only ifthe
court concludes, beyond a reasonable doubt, the plaintiff cannot prove any set of facts
which would justify recovery.'"3 The court assumes the truth of all facts alleged in the
complaint and may consider hypothetical facts supporting the plaintiff's claim.4 But if a
plaintiff's claim remains legally insufficient even under hypothetical facts, dismissal
pursuant to CR 12(b)(6) is appropriate.5
We review the second amended complaint, which was before the court on the
CR 12(b)(6) motion. Mitsuoka contends the complaint pleads a claim for wrongful
termination based on a contract guaranteeing him just cause termination. He argues
the complaint alleges three theories in support of this claim: that Mitsuoka had an
2 FutureSelect Portfolio Management, Inc. v. Tremont Group Holdings. Inc.. 180
Wash. 2d 954, 962, 331 P.3d 29 (2014).
3 Id. (internal quotation marks omitted) (quoting Tenore v. AT&T Wireless Servs.,
136 Wash. 2d 322, 329-30, 962 P.2d 104 (1998)).
4]d.
5 Id. at 963.
No. 72123-2-1/6
express employment contract for just cause termination, that he had an implied contract
for such employment, and that he gave additional consideration to imply such a
contract.
"Generally, an employment contract, indefinite as to duration, is terminable at will
by either the employee or employer."6 An employment contract is terminable by the
employer only for cause if (1) there is an expressed or implied agreement to that effect
or (2) the employee gives consideration in addition to the contemplated service."7
A. Express Contract
To support his express contract theory, Mitsuoka focuses on the allegations in
paragraph 11 of the complaint:
FEA Contract of Permanent Employment: At the time FEA was first
incorporated [in] California, at re-incorporation in Washington and
thereafter, Plaintiff agreed to serve and continue to serve as President and
work for FEA in exchange for employment on a permanent basis as the
President of FEA so long as Plaintiff chose and so long as the Company
was successful. In addition to the Distribution Agreement and discussions
with Yamamoto, evidence of this agreement of permanent employment
and Plaintiff's ongoing personal investment in and additional consideration
to FEA is the parties' subsequent course of dealing, course of
performance and acts or omissions.[8]
But these allegations are limited to an agreement for "permanent employment," with no
mention of a contract between FEA and Mitsuoka limiting termination of his employment
only for just cause.
An agreement for "permanent" or "steady" employment does not require just
cause termination. As the court recognized in Roberts v. ARCO, there must be an
6 Thompson v. St. Regis Paper Co.. 102 Wash. 2d 219, 223, 685 P.2d 1081 (1984).
7 jd, at 233.
8 Clerk's Papers (CP) at 587.
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additional showing that either the parties intended that termination could only be for
cause, or the employee gave additional consideration:
[A] contract for 'permanent' or 'steady' employment (as opposed to
'temporary' or 'lifetime' employment) is terminable by the employer only for
just cause if: (1) there is an implied agreement to that effect, or (2) the
employee gives consideration in addition to the contemplated services."191
As discussed below, the complaint does not adequately allege facts to establish either
an implied agreement or additional consideration. Mitsuoka's allegations of an
agreement for "permanent employment" fail to demonstrate any valid express contract
theory.
B. Implied Contract
The complaint also fails to allege sufficient facts to support the theory that
Mitsuoka had an implied agreement for employment terminable only for just cause. To
determine whether such an implied agreement exists, "courts will look at the alleged
'understanding,' the intent of the parties, business custom and usage, the nature of the
employment, the situation of the parties and the circumstances of the case to ascertain
the terms of the claimed agreement."10 But this theory depends on an agreement
between the employer and the employee, which is not alleged here.
At every turn, the articulation of Mitsuoka's implied contract theory begins with
conversations and alleged understandings between Yamamoto, FGC, and Mitsuoka,
even before FEA, the employer, came into existence.11 The implied contract allegations
9 88 Wash. 2d 887, 894, 568 P.2d 764 (1977) (emphasis omitted); see also
Gensman v. West Coast Power Co.. 3 Wash. 2d 404, 412, 101 P.2d 316 (1940).
10 Roberts, 88 Wash. 2d at 894.
11 At oral argument, counsel clarified that FEA was not yet created when the
agreement was made.
No. 72123-2-1/8
continue with the exclusive distributorship agreement between FGC and FEA, and
mentions the reincorporation of FEA. But there are no allegations in the second
amended complaint related to an implied agreement between FEA and Mitsuoka.
Those other collateral discussions and representations may be consistent with some
kind of implied agreement, but even under the generous CR 12(b)(6) standard, they do
not constitute an allegation of an implied employment contract between FEA and
Mitsuoka. No matter how many alleged conversations between Yamamoto and
Mitsuoka or between FEA and FGC there were over the years, those do not imply a
contract between FEA and Mitsuoka for employment terminable only for cause.
Accordingly, the complaint fails to state a claim for wrongful discharge based on an
implied employment contract for just cause termination.
Mitsuoka's reliance on Malarkev Asphalt Co. v. Wvbornev is misplaced.12 There,
the court held there was sufficient evidence to establish an implied agreement for
employment terminable only for cause. The plaintiff and defendants formed a company
to purchase and operate an asphalt facility, and the plaintiff invested $9,900 for a one-
sixth interest in the company and loaned the company $31,748. As part of the deal to
purchase the facility, the plaintiff was required to give up his interest in another
business. Once the company purchased the facility, the plaintiff assumed primary
responsibility for running the daily operations of the new company, as he had
experience and expertise in the marketing and production of asphalt. He received a
12 62 Wash. App. 495, 814 P.2d 1219 (1991).
8
No. 72123-2-1/9
salary as plant manager, but the company was not profitable enough to pay dividends.
He was eventually fired and brought a wrongful discharge claim.13
The court concluded there was sufficient evidence that the parties intended an
agreement for just cause termination:
There is no dispute that [plaintiff's] expertise was the motivating factor that
caused [defendants] to desire his participation, in that [one defendant] did
not wish to personally run the business and [the other defendant] desired
to continue to serve as a salesman. If all that [plaintiff] had wanted was a
job as a plant manager for so long as that suited the wishes of
[defendants], there would have been little motivation for him to become a
shareholder. If all that [defendants] wanted was an at-will plant manager,
it is unlikely that they would have allowed [plaintiff] to purchase a one-six
interest for $9900 when [one defendant] paid $50,000 for his one-sixth
interest.. ..
The jury was entitled to consider whether business custom and
usage is such that these three principals, given their respective situations,
would have made the deal they did without an implied agreement that
[plaintiff] was more than an at-will employee.[14]
But here, there were no facts alleged about the original investment in FEA by any
of the parties, except that Mitsuoka initially had a 50 percent share and that Yamamoto
and Hamai "later join[ed] Plaintiff as shareholders."15 Nor were there other details
related to Mitsuoka's agreement to work for FEA evidencing that FEA and Mitsuoka
intended a contract for employment terminable only for just cause. The complaint fails
to allege that there was an implied employment agreement.
C. Consideration
Finally, the complaint fails to allege sufficient facts for Mitsuoka's third theory,
that he gave consideration beyond the contemplated services to imply an employment
13 ]g\ at 499-500.
14 IdL at 504.
15 CP at 53.
No. 72123-2-1/10
agreement for just cause termination. As the court recognized in Malarkev. "the
consideration must be an integral part of the employment agreement, so as to negate
the general proposition of law that 'employment for life' is the equivalent of indefinite
employment, terminable at the will of either party."16
In Malarkev, the court held there was sufficient evidence that the plaintiff's
employment was terminable only for just cause because he gave the additional
consideration of making an initial investment and loan at the time of the company's
formation and gave up an interest in another company in order to start the company.17
The court concluded that the evidence was sufficient to support a finding that the
plaintiff "'purchased a job' rather than merely purchased a minority interest in this
closely held corporation."18 But the court was careful to confine its holding, noting that
not "any purchaser of a minority interest in a closely held company who is also
employed there has automatically 'purchased a job,' for purposes of this exception," and
emphasizing that the consideration must be an integral part of "the employment
agreement."19
The consideration alleged here does not equate with a negotiated integral term of
the employment agreement. The complaint alleges that Mitsuoka gave consideration by
foregoing a salary in the first six months of the company's existence, personally
16 Malarkev, 62 Wash. App. 505-06 (emphasis omitted).
17 jU; see also Bakotich v. Swanson, 91 Wn. App. 311,317-18, 957 P.2d 275
(1998) (reiterating that such consideration must be "an integral part of the employment
agreement," and holding that an employee's agreement to invest his pension in the new
employer's pension fund was not an integral part of the employment agreement making
the employment terminable only for just cause).
18 Malarkev, 62 Wash. App. at 505.
19 Id. at 505-06.
10
No. 72123-2-1/11
guaranteeing a $200,000 loan and an $150,000 line of credit for FEA, personally
loaning $390,000 to FEA over the course of his employment, unilaterally reducing his
salary to offset reduction in revenue and profit in 2008, and working full time at various
times without receiving a salary. But these all occurred after Mitsuoka agreed to run the
company and were simply part of keeping the business going. As the trial court noted:
All of these decisions that were made are consistent with actions
that would be made by a president of a company who is looking to keep
the company afloat because, in his whole discretion, he gets the proceeds
from the company. And none of these things necessarily are linked to any
pre-employment condition or condition precedent to hiring him as the
president.1201
Thus, the complaint fails to establish that Mitsuoka gave consideration beyond the
contemplated services.
The second amended complaint fails to allege a valid legal theory that Mitsuoka
was not an at-will employee. The complaint fails to state a claim for wrongful discharge.
The trial court properly dismissed the claim.
II. Tortious Interference Claims
Mitsuoka also contends that the trial court erred by dismissing the tortious
interference claims. We disagree.
The elements of a prima facie case of tortious interference with contractual
relationship or business expectancy are
"(1) the existence of a valid contractual relationship or business
expectancy; (2) knowledge of the relationship or expectancy on the part of
the interferor; (3) intentional interference inducing or causing a breach or
termination of the relationship or expectancy; and (4) resultant damage to
the party whose relationship or expectancy has been disrupted. Ill will,
spite, defamation, fraud, force, or coercion, on the part of the interferor,
20 Report of Proceedings (May 23, 2014) at 60.
11
No. 72123-2-1/12
are not essential ingredients, although such may be shown for such
bearing as they may have upon the defense of privilege."[21]
The complaint alleges claims for tortious interference with contract and business
expectancy based on (1) Mitsuoka's "contractual relationship and business expectancy
with FEA for permanent employment,"22 (2) the distributor agreement between FEA and
FGC, and (3) Yamamoto's fiduciary duties as a majority shareholder to FEA and to
Mitsuoka, as a shareholder and employee of FEA. The complaint alleges that
Yamamoto's misrepresentations to Hamai about Mitsuoka's investigation of alternative
valve sources caused FEA to purposefully interfere with Mitsuoka's "implied and
express contractual rights with Defendant FEA,"23 and that Yamamoto's diversion of the
distribution and sale of FCG valves to his son's business violated the exclusive
distribution agreement with FEA and breached Yamamoto's fiduciary duties to FEA and
Mitsuoka "as shareholder and as employee."24 The complaint further alleges that such
interference caused FEA to terminate Mitsuoka without just cause.
Mitsuoka's claims of interference with his permanent employment are premised
on Mitsuoka not being an at-will employee. Because this theory has not been
adequately pleaded, the tort claims also fail under CR 12(b)(6). As discussed above,
the complaint fails to allege facts establishing that Mitsuoka had an employment
contract for just cause termination, and an at-will employee has no valid business
21 Pleas v. City of Seattle, 112 Wash. 2d 794, 800, 774 P.2d 1158 (1989) (quoting
Calbom v. Knudtzon. 65 Wash. 2d 157, 162-63, 396 P.2d 148 (1964)).
22 CP at 595.
23 Id,
24 Id. at 596.
12
No. 72123-2-1/13
expectancy in continued employment.25 Accordingly, the complaint fails to state a claim
for tortious interference based on Mitsuoka's contract or business expectancy for
permanent employment, and was properly dismissed.
The complaint also fails to state a claim for tortious interference based on
Yamamoto's interference with the distributor agreement with FEA. While the complaint
alleges that Yamamoto's diversion of FEA's business to his son interfered with FGC's
distributor agreement with FEA, this simply establishes interference with FEA's contract,
not a contract with Mitsuoka.
Nor does the complaint state a claim of tortious interference based on a breach
of Yamamoto's fiduciary duty to Mitsuoka as a shareholder and employee. The
allegations establish that Yamamoto's diversion of business to his son was contrary to
FEA's interests and hurt FEA's profitability. But the harm identified in the complaint is
Mitsuoka's wrongful termination, which is the result of the alleged improper firing, not
Yamamoto's alleged disloyalty to FEA.
Finally, Mitsuoka contends that the complaint stated a claim for minority
shareholder oppression. But the second amended complaint did not include that claim,
and it was therefore not subject to the CR 12(b)(6) motion.26 Thus, that issue is not
properly before this court for review.
25 Evergreen Monevsource Mortg. Co. v. Shannon, 167 Wash. App. 242, 258, 274
P.3d 375 (2012) (quoting Woody v. Stapp, 146 Wash. App. 16, 24, 189 P.3d 807 (2008)).
26 See CP at 70 (track changes version of the proposed third amended complaint
indicating addition of a fourth cause of action for oppression of plaintiff as a minority
shareholder).
13
No. 72123-2-1/14
III. Leave to Amend
Mitsuoka challenges the trial court's failure to grant his motion for leave to amend
after the court ruled on the CR 12(b)(6) motion and dismissed the complaint. He
contends that the amended complaint sought to supply additional facts that the court
indicated were "missing" and necessary to state a claim and that not allowing him to
present those facts in an amended complaint was an abuse of discretion. We disagree.
The decision to grant leave to amend the pleadings is within the trial court's
discretion.27 "The trial court's decision 'will not be disturbed on review except on a clear
showing of abuse of discretion, that is, discretion manifestly unreasonable, or exercised
on untenable grounds, or for untenable reasons.'"28 "The touchstone for the denial of a
motion to amend is the prejudice such an amendment would cause to the nonmoving
party."29 "In determining whether prejudice would result, a court can consider potential
delay, unfair surprise, or the introduction of remote issues."30 A court may also consider
whether the new claim is futile or untimely.31
Mitsuoka fails to show that the trial court abused its discretion by denying him
leave to amend. This was his fourth attempt to plead his claims. He makes no showing
why he could not have included these additional allegations earlier, or at the very least,
in conjunction with his response to the CR 12(b)(6) motion. Instead, Mitsuoka waited
until after the court's adverse ruling on the CR 12(b)(6) motion and then crafted yet
27 Wilson v. Horslev, 137 Wash. 2d 500, 505, 974 P.2d 316 (1999).
28 ]g\ (quoting State ex rel. Carroll v. Junker, 79 Wash. 2d 12, 26, 482 P.2d 775
(1971)).
29 id,
30 Karlbero v. Often, 167 Wash. App. 522, 529, 280 P.3d 1123 (2012).
31 Ino Ino. Inc. v. City of Bellevue, 132 Wash. 2d 103, 142, 937 P.2d 154 (1997).
14
No. 72123-2-1/15
another complaint that not only adds substantial factual allegations, but includes a claim
previously pleaded and deleted. Granting Mitsuoka's request for leave to amend at this
juncture in the proceedings—after the defendants have already responded to multiple
complaints and obtained a ruling on a motion to dismiss—would result in undue delay,
thereby prejudicing the defendants. Mitsuoka fails to establish an abuse of discretion.
We affirm.
WE CONCUR:
S^c/"(Ts)
15