Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_14-cv-01125/USCOURTS-caed-1_14-cv-01125-9/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

GRAYSON SERVICE, INC.,

Plaintiff,

v.

CRIMSON RESOURCE MANAGEMENT 

CORP. et al.,

Defendants.

Case No. 1:14-cv-01125-SAB

ORDER GRANTING DEFENDANTS‟ 

MOTION TO DISMISS IN PART AND 

DISMISSING DEFENDANT CAL 

ROYALTY FROM THIS ACTION AND 

CONTINUING SCHEDULING 

CONFERENCE

(ECF Nos. 51, 57, 58, 59, 62, 67, 68)

FOURTEEN DAY DEADLINE

Currently before the Court is Defendants‟ motion to dismiss filed July 16, 2015. 

I.

RELEVANT BACKGROUND

Plaintiff brings this action based upon diversity jurisdiction. Following several motions 

to dismiss and a motion for new trial, this action is proceeding on the second amended complaint 

on claims that Defendants Cal Royalty and Crimson 1) breached the covenant of quiet enjoyment 

and 2) for breach of contract with respect to Kern Water Bank Authority‟s interference with 

Plaintiff‟s water rights on the property outside the 23 acre parcel that is the subject of this 

dispute. (ECF No. 29.) 

On July 16, 2015, Defendants filed a motion to dismiss on the grounds of lack of 

diversity jurisdiction and that the non-diverse party is an indispensable party to this action. (ECF 

No. 51.) On August 6, 2015, the Court conducted an informal discovery dispute conference. 

Thereafter, an order issued requiring Defendant to provide an unredacted copy of Exhibit 51-1 

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attached to the motion to dismiss. (ECF No. 54.) Plaintiff filed an opposition to the motion to 

dismiss on August 10, 2015 and a supplement on August 13, 2015. (ECF No. 57, 59.1) 

Defendants filed a motion for a protective order on August 14, 2015. (ECF No. 60.) On 

August 20, 2015, the Court granted Defendants‟ motion for a protective order. (ECF No. 66.) In 

granting Defendants‟ motion for a protective order, the Court provided Plaintiff with the 

opportunity to conduct some limited discovery on the issue of jurisdiction and the parties were 

provided with an opportunity to file supplemental briefing on the issue of diversity jurisdiction. 

(Id.) 

Thereafter, Plaintiff served interrogatories on Defendant Cal Royalty, and responses were 

served on September 11, 2015. (ECF No. 67-1.) On September 21, 2015, Plaintiff filed a 

supplemental opposition. (ECF No. 67.) On September 24, 2015, Defendant filed a 

supplemental response. (ECF No. 68.)

II.

MOTION TO DISMISS

A. Legal Standard for Motion to Dismiss

Rule 12(b)(1) of the Federal Rules of Civil Procedure permits a party to file a motion to 

dismiss based upon lack of subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). “Unlike a Rule 

12(b)(6) motion, a Rule 12(b)(1) motion can attack the substance of a complaint‟s jurisdictional 

allegations despite their formal sufficiency, and in so doing rely on affidavits or any other evidence 

properly before the court.” St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989).

Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of an action for lack of 

subject matter jurisdiction. A jurisdictional attack under Rule 12(b)(1) may be facial or factual. 

Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A facial attack challenger 

the allegations in the complaint, asserting they are insufficient to invoke federal jurisdiction. 

Safe Air for Everyone, 373 F.3d at 1039. A factual attack challenges truth of the allegations that 

would otherwise invoke federal jurisdiction. Id. 

 

1

Plaintiff filed an amended supplement which shall be considered in resolving this motion and the supplement filed 

August 13, 2015 is disregarded.

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Joinder of parties in this action is a procedural issue governed by the Federal Rules of 

Civil Procedure. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102 125 

(1968). Under Rule 12(b)(7) dismissal may be sought for the failure to join a party under Rule 

19. Whether a party is necessary is governed by Federal Rule of Civil Procedure 19, which 

provides that a party who will not deprive the court of subject-matter jurisdiction must be joined 

if:

(A) in that person's absence, the court cannot accord complete relief among 

existing parties; or 

(B) that person claims an interest relating to the subject of the action and is so 

situated that disposing of the action in the person's absence may: 

(i) as a practical matter impair or impede the person's ability to protect the 

interest; or 

(ii) leave an existing party subject to a substantial risk of incurring double, 

multiple, or otherwise inconsistent obligations because of the interest. 

In deciding if a party is indispensable under Rule 19, the court first must consider 

whether the party is necessary and then determine whether the party is indispensable so that the 

suit must be dismissed. Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990). The 

necessary and indispensable inquiry under Rule 19 is practical and fact specific and designed to 

avoid the harsh results of rigid application. Hendricks v. Bank of America, N.A., 408 F.3d 1127, 

1136 (9th Cir. 2005). 

B. Plaintiff Has Failed to Allege Facts to Establish Diversity Jurisdiction

Defendant moves to dismiss this action on the ground that Plaintiff and Defendant Cal 

Royalty are both citizens of California and, therefore, diversity of citizenship does not exist. 

Plaintiff argues that Defendants have not met their burden of showing that Cal Royalty is a 

citizen of California. (ECF No. 57 at 6; ECF No. 67 at 2.

2

)

Federal courts are courts of limited jurisdiction and their power to adjudicate is limited to 

that granted by Congress. U.S v. Sumner, 226 F.3d 1005, 1009 (9th Cir. 2000). As relevant 

here, district courts have original jurisdiction of all civil actions between citizens of different 

States in which “the matter in controversy exceeds the sum or value of $75,000, exclusive of 

 

2 All references to pagination of specific documents pertain to those as indicated on the upper right corners via the 

CM/ECF electronic court docketing system.

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interest and costs.” 28 U.S.C. § 1332(a). This requires complete diversity of citizenship and the 

presence “of a single plaintiff from the same State as a single defendant deprives the district 

court of original diversity jurisdiction over the entire action.” Abrego Abrego v. The Dow 

Chemical Co., 443 F.3d 676, 679 (9th Cir. 2006) (citations omitted).

Initially, while Plaintiff argues that Defendants have not met their burden of establishing 

that Cal Royalty is a citizen of California, the party asserting diversity jurisdiction bears the 

burden of proof and the plaintiff‟s failure to specify the state citizenship of the parties is fatal to 

the assertion of diversity jurisdiction. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th 

Cir. 2001) (“Absent unusual circumstances, a party seeking to invoke diversity jurisdiction 

should be able to allege affirmatively the actual citizenship of the relevant parties.”). It is 

Plaintiff and not Defendants who bears the burden of pleading and proving that diversity 

jurisdiction exists in this action.

In the second amended complaint, Plaintiff alleges that Cal Royalty is a California 

Foreign Limited Liability Company whose nerve center of operations and principal place of 

business is in Denver, Colorado. (ECF No. 29 at ¶ 4.) Teresa Kenny, in her designation of the 

person most knowledgeable for Defendants, testified that Crimson and Cal Royalty are the same. 

(Id.) 

A limited liability company is a citizen of every state of which its owners or members are 

citizens. Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). 

The Supreme Court has rejected the argument that the character of the ownership is relevant to 

the citizenship of an artificial entity. Carden v. Arkoma Associates, 494 U.S. 185, 192 (1990) 

(“We have never held that an artificial entity, suing or being sued in its own name, can invoke 

the diversity jurisdiction of the federal courts based on the citizenship of some but not all of its 

members.” The amount of control exercised over the entity plays no part in the decisions 

regarding citizenship.) 

Plaintiff contends that the allegations in the complaint are sufficient to allege diversity 

jurisdiction. However, the nerve center and principal place of business for a limited liability 

company are irrelevant to the issue of its citizenship and Plaintiff‟s second amended complaint is 

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devoid of any mention of the citizenship of the owners of the LLC. A party asserting diversity 

jurisdiction bears the burden of proof and the plaintiff‟s failure to specify the state citizenship of 

the parties is fatal to the assertion of diversity jurisdiction. Kanter, 265 F.3d at 858. Since 

Plaintiff has failed to identify the citizenship of the members of the LLC., Defendants‟ motion to 

dismiss on this ground is granted.

C. Leave to Amend to Allege Diversity 

Plaintiff contends that it can correct the jurisdictional deficiency by filing an amended 

complaint alleging that the members of Cal Royalty are citizens of Colorado. Rule 15 of the 

Federal Rules of Civil procedure governs the amendment of complaints. Rule 15(a) is very 

liberal and leave to amend “shall be freely given when justice so requires.” Amerisource Bergen 

Corp. v. Dialysis West, Inc., 465 F.3d 946, 951 (9th Cir. 2006) (quoting Fed. R. Civ. P. 15(a)). 

However, courts “need not grant leave to amend where the amendment: (1) prejudices the 

opposing party; (2) is sought in bad faith; (3) produces an undue delay in the litigation; or (4) is 

futile.” Id. For the reasons stated below, the Court finds that amendment of the complaint would 

be futile. 

Plaintiff argues that Defendants have not produced evidence that Cal Royalty is not a 

citizen of Colorado. In the motion to dismiss, Defendants produce the articles of organization 

for Cal Royalty showing that it is managed by Cardinal Resource Management Corp. (ECF No. 

51-1 at 2.) The operating agreement for Cal Royalty shows that the members are Cardinal 

Resource Management Corporation and a California limited partnership. (ECF No. 51-1 at 3-5.) 

The general partner of the limited partnership has an address in California. (ECF No. 51-1 at 5.) 

A partnership is the citizen of every state of which its partners are citizens. Johnson, 437 F.3d at 

899.3 

 

3

In support of the motion to dismiss, Defendants have included the declaration of Gary Buntmann, the President of 

Cardinal Management Corp, which states that Cardinal Resource Management Corp. is the manager of Cal Royalty. 

(ECF No. 51-2.) Mr. Buntmann declares that the only other member of Cal Royalty is a California limited 

partnership whose general partner is an individual who lives in the state of California with his family. (Id. at ¶ 4.) 

Mr. Buntmann states that he has known this individual for more than thirty years. (Id.) Mr. Buntmann states that 

this individual has “fixed his primary residence in California for decades and has no known plan to move outside 

California.” (Id. at ¶ 6.) The individual‟s primary occupation is as principal of another company in California that 

provides management consulting services, and has run that company for over two decades. (Id. at ¶ 7.) He has also 

worked for and served on the board of several other California businesses. (Id.) He has a California driver‟s license 

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While Plaintiff submits a third amended complaint that states all members of Cal Royalty 

are citizens of Colorado, Defendants argue that there is no reasonable basis of Plaintiff to make 

such an assertion. Defendants point out that Plaintiff has presented no evidence to demonstrate 

that the member of the California partnership is not a citizen of California and that Plaintiff‟s 

attempt to create diversity by making such an allegation is a flagrant violation of Rule 11 of the 

Federal Rules of Civil Procedure. (Reply 5, ECF No. 62.) 

The Court provided Plaintiff with the opportunity to serve interrogatories upon Cal 

Royalty inquiring into the citizenship of the member of the LLC who Defendants contend is a 

California citizen. Based upon the interrogatory responses, the partner of the California 

partnership was domiciled in California on July 17, 2014;4had a California residence and 

driver‟s license, filed taxes in California; and only held assets in California. The interrogatory 

responses demonstrate that it would be futile for Plaintiff to file an amended complaint alleging 

diversity jurisdiction against Cal Royalty. 

Plaintiff has no evidence upon which to assert a good faith belief that Cal Royalty is not a 

citizen of California, much less that it is a citizen of Colorado. Any pleading asserting such 

would be subject to Rule 11 sanctions. Accordingly, the Court finds that diversity jurisdiction 

does not exist between Plaintiff and Defendant Cal Royalty and they may not be joined as a party 

in this action. Therefore, Defendant Cal Royalty shall be dismissed from this action and the 

Court shall consider if Defendant Cal Royalty is an indispensable party in this action. 

/ / /

 

and owns at least one vehicle licensed in the state of California; owns real and personal property in the state; and 

pays taxes in the state of California. (Id. at ¶¶ 8, 9.) Plaintiff objects to the declaration of Gary Buntmann on the 

grounds that it is hearsay. 

Hearsay is “a statement that: (1) the declarant does not make while testifying at the current trial or hearing; and (2) a 

party offers in evidence to prove the truth of the matter asserted in the statement.” Fed. R. Evid. 801(c). Hearsay is 

not admissible unless authorized by a federal statute, the Federal Rules of Evidence, “or other rules prescribed by 

the Supreme Court.” Fed. R. Evid. 802. The declaration of Mr. Buntmann is an out of court statement offered to 

prove the truth of the matter asserted and is therefore hearsay. Plaintiff‟s objection to the declaration on that ground 

is sustained.

4

It is the domicile of the defendant on the date the action is filed that is relevant to determine whether diversity 

jurisdiction exists. See Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570 (2004) (“for purposes of 

determining the existence of diversity jurisdiction, the citizenship of the parties is to be determined with reference to 

the facts as they existed at the time of filing”).

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D. Indispensable Party

Defendants move to dismiss this action on the ground that Cal Royalty is an 

indispensable party as Defendant Crimson conveyed all interests in the Ohio lease to Cal Royalty 

in 1995. (ECF No. 51 at 7.) Plaintiff counters that Cal Royalty is merely a holding company for 

Defendant Crimson and Crimson remained the lessor under the Ohio lease.5 (ECF No. 57 at 14-

16.) Since Cal Royalty cannot be joined in this action without destroying diversity and depriving 

this Court of jurisdiction, the Court next considers if Cal Royalty is an indispensable party.

Determining whether a party is indispensable involves a three step inquiry: 1) Is the 

absent party necessary? 2) If the party is necessary, is it feasible to order the absent party to be 

joined in the action? and 3) If joinder is not feasible, can the action proceed without the absent 

party, or is the party indispensable requiring the action to be dismissed. Salt River Project Agr. 

Imp. and Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th Cir. 2012). Therefore, the Court shall 

address the three step inquiry.

1. Cal Royalty Is a Necessary Party in this Action

First, the Court shall consider whether Cal Royalty is a necessary party in this action. 

While Plaintiff alleges in the second amended complaint that Cal Royalty manages the Ohio 

Lease on behalf of Defendant Crimson (ECF No. 29 at ¶ 4), and that a portion of the minerals 

were transferred from Crimson to Cal Royalty (id. at ¶ 24); these allegations are contradicted by 

the Mineral Deed, Assignment and Conveyance which is attached to the amended complaint.6 

(ECF No. 29-6.) The Court is not required to accept as true allegations that contradict exhibits 

attached to the complaint or matters properly subject to judicial notice, or allegations that are 

merely conclusory, unwarranted deductions of fact, or unreasonable inferences. Daniels-Hall v. 

 

5

Plaintiff also contends that the Court should deny the motion on the ground that Defendants failed to timely raise 

the issue. However, the Court declines to decide the issue on this ground. If Cal Royalty is an indispensable party

then adjudicating this action without their presence would implicate due process concerns. 

6 As a general rule, the court may not consider any material outside the pleadings in ruling on a Rule 12(b)(6) 

motion. United States v. Corinthian Colleges, 655 F.3d 984, 998 (9th Cir. 2011). However, the incorporation by 

reference doctrine allows material that is attached to the complaint to be considered, as well as “unattached evidence 

on which the complaint „necessarily relies‟ if: (1) the complaint refers to the document; (2) the document is central 

to plaintiff‟s claim; and (3) no party questions the authenticity of the document.” Corinthian Colleges, 655 F3d at 

999. The Mineral Deed, Assignment and Conveyance is attached to the second amended complaint and the court 

shall consider this document under the incorporation by reference doctrine. 

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National Educ. Ass‟n, 629 F.3d 992, 998 (9th Cir. 2010). 

In determining if the party is necessary, the court must decide if complete relief is 

possible among those already party to the suit, or alternately, whether the absent party has a 

legally protected interest in the suit that will be impaired or impeded by its absence or expose the 

parties to a risk of multiple or inconsistent obligations by reason of that interest. Makah Indian 

Tribe, 910 F.2d at 558; Dawavendewa v. Salt River Project Agr. Imp. And Power Dist., 276 F.3d 

1150, 1155 (9th Cir. 2002). If the party satisfies either of these alternative tests it is considered a 

necessary party in this action. Dawavendewa, 276 F.3d at 1055. 

As of January 1, 1995, Defendant Crimson conveyed to Cal Royalty “the oil and gas 

mineral fee estates[;]” “the surface rights in and to the Land that the owner of a mineral estate is 

entitled to by virtue of ownership of the estate;” “the oil and gas leases, . . .the leasehold estates 

created by the Leases, the rights and interests attributable or allocable to the Leases by virtue of 

the Leases;” “all unitization, communitization, pooling, and operating agreements, and the units 

created thereby which relate to the Leases or Land or interests[;]” and “all oil, natural gas, 

natural gas liquids or condensate inventory, . . . or the proceeds thereof” under the Ohio Lease. 

(Id. at 1.1.) The Mineral Deed, Assignment and Conveyance transferred all interest in the Ohio 

Lease to Cal Royalty.

Cal Royalty claims a legally protected interest in the suit based upon the transfer of the 

Ohio Lease from Defendant Crimson to Cal Royalty. In this action, Plaintiff is seeking a 

judgment against the lessor for breaching the lease. (ECF No. 29 at 17-18.) Cal Royalty, as the 

lessor, has a legally protected interest in the lease. Defendants argue that a party to a contract is 

indispensable to determine whether there has been a breach of contract. The Ninth Circuit has 

recognized the fundamental principle that “a party to a contract is necessary, and if not 

susceptible to joinder, indispensable to litigation seeking to decimate that contract.” 

Dawavendewa, 276 F.3d at 1157; see also Lomayaktewa v. Hathaway, 520 F.2d 1324, 1325 (9th 

Cir. 1975) (“No procedural principle is more deeply imbedded in the common law than that, in 

an action to set aside a lease or a contract, all parties who may be affected by the determination 

of the action are indispensable.”). Here, Plaintiff is not seeking to “decimate” the contract, but 

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have a finding that the contract was breached and to receive damages. (ECF No. 29 at p.p. 17-

18.) 

While courts recognize that there are situations in which a breach of contract action could 

proceed without all parties to the contract, in this instance, Cal Royalty‟s legally protected 

interest in the lease would be impaired by a decision in Plaintiff‟s favor. Although Plaintiff 

alleges that Cal Royalty is an agent or alter ego of Defendant Crimson, the agreement between 

Cal Royalty and Crimson transfers all interest in the Ohio Lease to Cal Royalty. Based on the 

evidence before the Court, there are two parties to the contract at issue here: Plaintiff, the lessee, 

and Cal Royalty, the lessor. Adjudicating whether there has been a breach of the lease implicates 

Cal Royalty‟s legally protected interest.

Additionally, proceeding in this action without Cal Royalty‟s presence in this action 

could subject it to inconsistent judgments. There is nothing to prevent Cal Royalty from 

instituting a separate action seeking a declaration that the lease was not breached. This could 

result in exposing Cal Royalty to inconsistent obligations if the two courts came to different 

decisions on whether the same alleged conduct breached the contract.

In this instance, Cal Royalty is a necessary party to litigate whether there has been a 

breach of the contract. If Cal Royalty is the only other party to the contract, it has a right to 

defend in the action to protect its rights under the contract. Accordingly, the Court finds that Cal 

Royalty is a necessary party to this action.

2. It is Not Feasible for Cal Royalty to be Joined in this Action

As discussed above, based on the citizenship of Cal Royalty, it cannot be joined in this 

action without destroying subject matter jurisdiction. 

3. Can the Action Proceed Without Cal Royalty‟s Presence

In determining whether Cal Royalty is an indispensable party, there are four factors that a 

court must consider: first, to what extent a judgment rendered in the person's absence might be 

prejudicial to the person or those already parties; second, the extent to which, by protective 

provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be 

lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; 

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fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for 

nonjoinder. Fed. R. Civ. P. 19(b). “For the purpose of clarity, the Supreme Court characterized 

these factors as inquiring into: (1) the plaintiff's opportunity to proceed in an alternate forum; (2) 

the defendant's interest in avoiding inconsistent relief, multiple litigation; (3) the interests of the 

public and the courts in consistent, complete, and efficient settlement of cases, and (4) prejudice 

to the absent party.” Expeditors Int‟l of Washington, Inc. v. Expeditors (Japan), Ltd., 224 F.R.D. 

661, 665-66 (W.D. Wash. 2004) (citations omitted). “[T]he most relevant factors proposed by 

Rule 19(b) are whether a judgment rendered in the person's absence will be adequate and 

whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.” 

Anrig v. Ringsby United, 603 F.2d 1319, 1326 (9th Cir. 1978). 

a. Possibility of Shaping Relief

Plaintiff is seeking a finding that the lease has been breached and the lessor is required to 

pay the costs of defending the underlying state court action based upon a breach of the lease. 

There is no way for the Court to shape relief in this action to avoid prejudice to Cal Royalty as it 

is the sole lessor under the Mineral Deed, Assignment and Conveyance from Defendant 

Crimson. Since Cal Royalty is the lessor under the contract, the Court cannot shape the relief 

requested, requiring the lessor to pay to defend the underlying state action, to lessen or avoid the 

prejudice to Cal Royalty.

b. An Adequate Remedy Exists

Whether an adequate remedy exists if this action is dismissed for nonjoinder weighs in 

favor of finding Cal Royalty an indispensable party. Plaintiff is a bringing a state court claim 

and the breach of contract suit can be litigated in state court. Plaintiff has an adequate remedy if 

this action is dismissed due to the inability to join an indispensable party.

c. An Adequate Remedy is Not Possible without Cal Royalty’s Presence

Plaintiff seeks a finding that the lease in this instance was breached and the lessor is 

required to pay the costs of defending the underlying state court action. Since Cal Royalty is the 

lessor under the contract, they are entitled to defend this action to protect their rights under the 

lease. Further, Cal Royalty will not be bound by any judgment entered in this action if they are 

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dismissed and do not have the opportunity to defend their rights under the contract. Proceeding 

with this action without the presence of Cal Royalty will preclude this Court from being able to 

afford complete relief in this action and would be prejudicial to Cal Royalty. Accordingly, the 

Court finds that the factors weigh in favor of finding that Cal Royalty is an indispensable party to 

the breach of contract claim. 

d. Alter Ego Liability

To overcome this, Plaintiff argues in opposition to Defendants‟ motion to dismiss that 

Cal Royalty and Crimson are alter egos. Defendants assert that Cal Royalty and Defendant 

Crimson are separate legal entities and neither company owns any portion of the other. 

A district court applies state law to evaluate alter ego claims. Hambleton Bros. Lumber 

Co. v. Balkin enterprises, Inc., 397 F.3d 1217, 1227 (9th Cir. 2005). Generally only the parties 

to a contract may be liable for a breach of the contract. Wady v. Provident Life and Accident 

Ins. Co. of America, 216 F.Supp.2d 1060, 1065 (C.D. Cal. 2002). However, a corporate entity 

can be held liable on an alter ego theory. 

“To satisfy the alter ego exception to the general rule that a subsidiary and the parent are 

separate entities, the plaintiff must make out a prima facie case „(1) that there is such unity of 

interest and ownership that the separate personalities [of the two entities] no longer exist and (2) 

that failure to disregard [their separate identities] would result in fraud or injustice.‟ ” Harris 

Rutsky Co. Ins. Services, Inc., 328 F.3d at 1134-35 (citations omitted). This requires the 

plaintiff to show that the control that the parent exercises over the subsidiary renders the 

subsidiary the mere instrumentality of the parent. Id. at 1135. “Where the alter ego doctrine 

applies, . . . the two corporations are treated as one for purposes of determining liability.” M/V 

Am. Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1490 (9th Cir. 1983). “The effect 

of applying the alter ego doctrine . . . is that the corporation and the person who dominates it are 

treated as one person, so that any act committed by one is attributed to both, and if either is 

bound, by contract, judgment, or otherwise, both are equally bound.” Dudley v. Smith, 504 F.2d 

979, 982 (5th Cir. 1974) (citation omitted). The alter ego doctrine applies to limited liability 

companies. Walsh v. Kindred Healthcare, 798 F.Supp.2d 1073, 1082.

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Under California law, two conditions must be met to invoke the alto ego doctrine: 1) 

there must be such a unity of interest and ownership that the separate personalities of the entities 

do not really exist; and 2) there must be an inequitable result if the alleged acts are treated as 

those of the entity alone. Walsh, 798 F.Supp.2d at 1082. In the second amended complaint, 

Plaintiff alleges that Defendant Crimson and Cal Royalty have the same principal place of 

business and nerve center. (ECF No. 29 at ¶¶ 3, 4.) Cal Royalty is an affiliate of Defendant 

Crimson and was established by Defendant Crimson to manage and control certain assets that 

Defendant Crimson owns. (Id. at ¶ 4.) At the state court trial, Teresa Kenney testified as the 

person most knowledgeable on behalf of Defendant Crimson and Cal Royalty that they are “the 

same.” (Id.) Defendant Crimson delegated in full or in part the duty to manage the Ohio lease as 

it pertains to Plaintiff‟s rights under the lease. (Id. at ¶ 26.) Both companies share identical 

management. (Id.) 

The allegations that Crimson and Cal Royalty have the same principal place of business 

and management and there was testimony at the state court trial that the entities are the same are 

insufficient to allege that a unity of interest and ownership is present such that the separate 

personalities of the entities do not really exist. Further, the second amended complaint is devoid 

of any allegations that inequity would result if the acts alleged in the complaint are treated as 

those of Cal Royalty alone. Plaintiff‟s conclusory allegations in the second amended complaint 

are insufficient to state a plausible claim for an alter ego theory of liability. Walsh, 798 

F.Supp.2d at 1082.

Defendants have provided no reason for the Court to find that it would be futile to allow 

Plaintiff an opportunity to amend the complaint to allege alter ego liability on the part of 

Defendant Crimson. Since Rule 15 is to be liberally applied, Amerisource Bergen Corp., 465 

F.3d at 951, the Court shall provide Plaintiff with one final opportunity to file an amended 

complaint in this action to allege a claim against Defendant Crimson. Plaintiff is advised that if 

the amended complaint fails to allege sufficient factual allegations to state a claim for alter ego 

liability this action will be dismissed without leave to amend.

/ / /

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III.

CONCLUSION AND ORDER

Based on the foregoing, IT IS HEREBY ORDERED that:

1. Defendants‟ motion to dismiss Defendant Cal Royalty, LLC pursuant to Fed. R. 

Civ. P. 12(b)(1) and to dismiss the second amended complaint for failure to join 

an indispensable party is GRANTED IN PART as follows:

a. Defendant Cal Royalty is DISMISSED from this action;

b. Plaintiff‟s second amended complaint is DISMISSED with leave to amend the 

claims against Defendant Crimson; 

c. Plaintiff shall file a third amended complaint within fourteen (14) days from the 

date of service of this order; 

2. The scheduling conference set for November 17, 2015 is CONTINUED to 

January 5, 2016 at 9:45 a.m. in Courtroom 9; and 

3. Failure to file a third amended complaint in compliance with this order will result 

in this action being dismissed for failure to state a claim.

IT IS SO ORDERED.

Dated: October 28, 2015 

UNITED STATES MAGISTRATE JUDGE

Case 1:14-cv-01125-SAB Document 72 Filed 10/28/15 Page 13 of 13