Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-01111/USCOURTS-casd-3_09-cv-01111-2/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1441 Petition for Removal

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

09cv1111

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

THOMAS F. CASEY, as an individual

and as a private attorney general on

behalf ofthe general public,

Plaintiff,

v.

ROBERT OLSON, an individual, et. al.,

Defendants. 

)

)

)

)

)

)

)

)

)

)

)

Civil No. 09cv1111 JAH (POR)

ORDER RE: MOTIONS TO

DISMISS [Doc. Nos. 7, 11, 32]

On April 9, 2009, Plaintiff filed a complaint for quiet title, rescission, breach of

contract, breach of fiduciary duty, negligence, indemnity, breach of covenant of good faith

and fair dealing, declaratory and injunctive relief, and violations of Business and

Professions Code section 17200, et. seq. naming Robert Olson, Lance Morque, Gary

Hawley, St. Stephen State Bank (“St. Stephen” “the Bank”), “all person unknown,

claiming any legal or equitable right, title, estate, lien or interest in the property described

in the complaint adverse to Plaintiff’s title” and Does 1 through 50 as Defendants.

Plaintiff’s action arises from the alleged breach of two written agreements entered into for

the purpose of obtaining financing for a proposed wedding park on land owned by

Plaintiff: (1) an “Agency Agreement” between plaintiff and Defendants Morque and

Hawley and (2) a “Loan Agreement” between Plaintiff and Defendant St. Stephen State

Bank. Plaintiff further alleges certain oral agreements surrounding the financing of the

wedding park.

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 1 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 1

St. Stephen also filed a motion to dismiss. However, pursuant to the parties’ joint motion to dismiss, St. Stephen was dismissed from the action with prejudice.

2 09cv1111

Defendant St. Stephen removed the matter to the district court on May 21, 2009.

Defendant Gary Hawley filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure. Defendant Olson filed a motion to dismiss pursuant to Rule

12(b)(6) and to strike portions of the complaint pursuant to Rule 12(f). Defendant

Morque also filed a motion to dismiss the complaint. Plaintiff filed oppositions to the

motions and the defendants filed replies. Upon review of the parties’ submissions, the

Court GRANTS IN PART AND DENIES IN PART Defendant Hawley’s motion to

dismiss, GRANTS Defendant Olson’s motion to dismiss and DENIES the motion to strike

and GRANTS IN PART AND DENIES IN PART Defendant Morque’s motion to

dismiss.1

LEGAL STANDARD

Defendants seek to dismiss the action for failure to state a claim for relief under

Federal Rule of Civil Procedure 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests

the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

 Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal

theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see

Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule 12(b)(6) authorizes a court to

dismiss a claim on the basis of a dispositive issue of law.”). Alternatively, a complaint may

be dismissed where it presents a cognizable legal theory yet fails to plead essential facts

under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give “detailed

factual allegations,” he must plead sufficient facts that, if true, “raise a right to relief above

the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially

plausible when the factual allegations permit “the court to draw the reasonable inference

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 2 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3 09cv1111

that the defendant is liable fo the misconduct alleged.” Id. In other words, “the nonconclusory ‘factual content,’ and reasonable inferences from that content, must be

plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service,

572 F.3d 962, 969 (9th Cir. 2009).

DISCUSSION

I. Defendant Hawley’s Motion to Dismiss

Applying California law, Defendant Hawley argues Plaintiff’s breach of contract

claim, rescission claim, negligence claim, breach of fiduciary duty, breach of the duty of

good faith and fair dealing, and declaratory relief claim should be dismissed as barred by

the applicable statute of limitations. He further seeks dismissal for failure to state a claim

against him.

A. Choice of Law

This Court, in diversity cases, must apply the choice of law rules of the forum state

in order to determine what law to apply here. Klaxon Co. v. Stentor Elec. Mfg. Co., 313

U.S. 487, 496 (1940). “To determine the law governing a contract, California courts look

to the relevant statute and, for further guidance to the choice-of -law principals outlined

in the Restatement.” Shannon-Vail Five, Inc. v. Bunch, 270 F.3d 1207, 1210 (9th Cir.

2001) (citing Henderson v. Superior Court, 77 Cal.App.3d 583 (1978)). A contract is

interpreted by the law and usage of the place of performance, or if not indicated, by the

law of the place where it was made. Cal.Civ. Code § 1646. Notwithstanding section

1646, the choice of law provision of a contract will generally govern its interpretation. See

Cal.Civ. Code § 1646.5.

Additionally, in actions not involving a contract, “[q]uestions of choice of law are

determined ... by the ‘governmental interest analysis’ ... [U]nder the governmental interest

analysis approach, the forum in a conflicts situation ‘must search to find the proper law

to apply based upon the interests of the litigants and the involved states.’” Offshore Rental

Co. v. Continental Oil Co., 22 Cal.3d 157, 161 (1978). To do so, this Court must analyze

“the respective interests of the states involved ... the object of which is to ‘determine the

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 3 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4 09cv1111

law that most appropriately applies to the issue involved.’” Hurtado v. Superior Court, 11

Cal.3d 574, 579, quoting Reich v. Purcell, 67 Cal.2d 551, 554 (1967).

California employs a three part “governmental interest analysis” to determine which

jurisdiction’s law will apply. Bowoto v. Chevron Corp., 2006 WL 2455761, *7 (N.D.

Cal. Aug. 22, 2006)(quoting Abogados v. AT & T, Inc., 223 F.3d 932, 934 (9th Cir.

2000)). This choice of law analysis carries a presumption that California law applies and

that the proponent of the foreign state law bears the burden of showing a compelling

reason justifying displacement of California law. Marsh v. Burrell, 805 F. Supp. 1493,

1496 (N.D.Cal. 1992). First, the court examines whether the substantive law of each state

differs. Second, if there is a difference in the laws, the court determines whether each of

the states has a legitimate interest in the application of the rule of the decision at issue.

If both states have a legitimate interest, then the court moves to the third step. Third, the

court identifies and applies the law of the state whose interest would be more impaired if

its law were not applied.” Abogados, 223 F. 3d at 934. “When neither party identifies a

meaningful conflict between California law and the law of another state, California courts

apply California law.” Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th

Cir. 2003).

Applying section 1646 and the “government interest test”, Defendant Hawley

maintains California law should govern in this matter. Plaintiff briefly addresses the

choice of law issue presented by the action, maintains two of the agreements in dispute

state Minnesota law apply, but ultimately states he will use California law in addressing

the motion although he does not concede California law applies. Because both parties

apply California law and Plaintiff fails to meet his burden of showing that there is a

compelling reason to displace California law, the Court will apply California law.

B. Analysis

Applying California’s two year limitations period of section 339 of the California

Code of Civil Procedure, Defendant Hawley argues the breach of contract claim, claim for

rescission, claim for breach of a fiduciary duty, breach of the duty of good faith and fair

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 4 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

Plaintiff includes a number of legal conclusions couched as allegations which are not entitled to any presumption of truth. See Iqbal, 129 S.Ct. at 1950.

5 09cv1111

dealing and claim for declaratory relief are all time-barred. 

1. Breach of Contract

Plaintiff seeks relief for breach of contract in his fourth cause of action against

Defendants Hawley and Morque. Defendant argues the claim is barred by the applicable

two year statute of limitations. Upon review of the complaint and the parties’ arguments,

the Court is unable to determine the date of the alleged breach as Plaintiff fails to properly

allege a breach of the contract by Defendant Hawley. In order to state a claim for breach

of contract, Plaintiff must allege: (1) the existence and terms of the contract itself; (2)

Plaintiff’s performance of the contract or excuse for nonperformance; (3) Defendant’s

breach; and (4) the resulting damage to the Plaintiff. See McDonald v. John P. Scripps

Newspaper, 210 Cal.App.3d 100, 104 (1989). “A fundamental rule of law is that

‘whether the action be in tort or contract compensatory damages cannot be recovered

unless there is a causal connection between the act or omission complained of and the

injury sustained.” Id. (citing Capell Associates, Inc. v. Central Valley Security Co., 260

Cal.App.2d 773, 779 (1968)).

The only nonconclusory2, factual allegations against Defendant Hawley in support

of the breach of contract claim are: (1) Plaintiff executed a written agreement in which he

agreed Morque and Hawley would serve as exclusive placement agents to obtain financing

for the development of a wedding park and Hawley and Morque would receive a fee equal

to four percent of the principal amount of the loan. Complaint ¶¶ 15, 45, 65; (2) Plaintiff

believes Defendant Hawley did not have a broker’s license. Id. ¶ 54; (3) Hawley entered

into the oral Agency Agreement and agreed to act as Plaintiff’s exclusive agent. Id. ¶ 65;

(4) Hawley “negligently or intentionally” misrepresented facts regarding the Bank’s

intention or ability to fund the loan. Id.; and (5) Hawley failed to disclose Morque was

the Bank’s agent. Id. ¶¶ 65, 71.

In response to the motion, Plaintiff suggests that Morque’s “dual agency”, based

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 5 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6 09cv1111

upon his work for the Bank on the same loan for which he agreed to represent Plaintiff

exclusively, was the breach committed by Defendant Hawley. There is no non-conclusory

allegation that Hawley acted as an agent for the Bank, that he knew Morque was an agent

for the bank or that he was required, under the terms of the agreement to inform Plaintiff

Morque was an agent of the Bank. Furthermore, while Plaintiff alleges Hawley did not

have a broker’s license, he does not allege failure to have a license is a breach of the

contract. Finally, there are no allegations that Hawley was aware of the Bank’s secret

intentions, or that the contract required him to reveal them to Plaintiff if he knew. As

such, Plaintiff fails to allege Hawley breached the Agency Agreement.

Accordingly, the Court finds Plaintiff fails to state a claim for breach of contract

against Defendant Hawley and the claim is subject to dismissal.

2. Rescission

Plaintiff seeks rescission of the various agreements and notes at issue in the matter

and an award returning the parties to the status quo ante.

Defendant argues Plaintiff’s claim for rescission should be dismissed as time-barred.

Specifically, he argues the latest date, based on the facts of the complaint, that Plaintiff

could have discovered his right to rescind the contract was March 15, 2007, when Plaintiff

was informed the Bank would not be able to fund the loan as originally agreed and the

complaint asserting the claim was filed beyond the two year limitations period. He further

argues there is nothing for him to give back to put the parties in their original position as

there is no allegation that he was paid the commission agreed upon and, therefore,

Plaintiff fails to state a claim.

Plaintiff contends he states a claim for rescission against Hawley because he alleges

his consent to execute the loan documents was given by mistake or obtained through fraud

or undue influence and the consideration failed in a material respect through the fault of

the defendants. Plaintiff further argues the allegations of the complaint demonstrate the

Bank refused to proceed with the loan on May 7, 2007.

Contrary to Plaintiff’s contention, the Court finds Plaintiff fails to state a claim for

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 6 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

For example, Plaintiff alleges “[t]he consideration for Plaintiff’s obligations under the Agency Agreement, the Loan Agreement and the Loan Documents has failed in a

material respect, in whole or in part, through the fault of the Bank, Morque and Hawley.” This statement is no more than a recitation of one of the grounds for rescission presented in section 1689 of the California Civil Code. 

7 09cv1111

rescission against Defendant Hawley. In the complaint, Plaintiff alleges Defendant

Hawley engaged in conduct entitling him to rescission in only conclusory terms.3

Accordingly, the claim is subject to dismissal.

3. Breach of Fiduciary Duty

In his fifth cause of action, Plaintiff seeks relief based upon Hawley’s breach of a

fiduciary duty for failure to notify Plaintiff that Morque was working as an agent of the

bank. Complaint ¶ 71. As discussed above, there are no allegations that Hawley was

aware of this fact. Accordingly, Plaintiff fails to state a claim for breach of a fiduciary

duty.

4. Negligence

In his sixth cause of action, Plaintiff alleges Defendant Hawley breached his duty

to exercise reasonable skill in performing his duties as Plaintiff’s agent by failing “to

conduct a reasonably competent and diligent investigation of the Bank’s intent and ability

to place or to fund” the loan and to properly document the Bank’s promises. Id. ¶ 76. 

Defendant argues the negligence claim is barred, because Plaintiff’s ability to rescind

the contract with the Bank occurred when the Bank informed him it would not be able to

fund the loan as agreed on March 15, 2007, more than two years before the action was

filed. Plaintiff again argues the Bank did not “pull the plug on the loan until May 2007.”

Opp. at 14.

“[A] complaint cannot be dismissed unless it appears beyond doubt that the

plaintiff can prove no set of facts that would establish the timeliness of the claims.” 

Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206-07 (9th Cir. 1995). The running of

the limitations period must be apparent on the face of the complaint. See id.; see also

Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). Construing all

reasonable inferences in Plaintiff’s favor, the Court finds it is not clear from the face of the

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 7 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8 09cv1111

complaint that the negligence claim is untimely. See Knievel v. ESPN, 393 F.3d 1068,

1072 (9th Cir. 2005). Accordingly, the motion to dismiss the negligence claim as time

barred is denied.

5. Breach of the Duty of Good Faith and Fair Dealing

Plaintiff seeks relief against Defendant Hawley for breach of the covenant of good

faith and fair dealing in the eighth cause of action. Inherent in every contract is a duty of

good faith and fair dealing, which is imposed on each party in its performance and its

enforcement. See McClain v. Octagon Plaza, LLC, 159 Cal. App.4th 784, 798 (2008).

To establish a breach of the implied covenant of good faith and fair dealing, a plaintiff

must establish the existence of a contractual obligation, along with conduct that frustrates

the other party’s rights to benefit from the contract. See Racine & Laramie, Ltd. v.

Department of Parks & Recreation, 11 Cal. App.4th 1026, 1031-32 (1992).

Defendant argues the implied covenant of good faith and fair dealing is based upon

the oral contract and is therefore subject to the two year limitations period. He further

argues the breach occurred on March 15, 2007, when the bank informed Plaintiff it would

not fund the loan which was the latest point for Plaintiff to rescind the contract. Plaintiff

argues he sufficiently alleges the existence of a contract and a breach of the covenant of

good faith and fair dealing.

In the complaint, Plaintiff alleges Hawley breached the covenant of good faith and

fair dealing by his failure to disclose Morque was acting as the Bank’s agent in connection

with the loan and failing to inform Plaintiff they were performing services without the

broker’s license required by the California Department of Real Estate. As discussed above

Plaintiff fails to allege Hawley was aware of Morque’s work for the Bank. Additionally,

there are insufficient facts in the complaint to support Plaintiff’s allegation that Defendant

Hawley’s failure to have a broker’s license, as a resident of Minnesota, frustrated Plaintiff’s

rights to the benefit of the contract. The Court finds Plaintiff fails to state a claim for

breach of the duty of good faith and fair dealing against Defendant Hawley.

//

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 8 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9 09cv1111

6. Declaratory Relief

In his ninth cause of action, Plaintiff seeks declaratory relief. Specifically, he seeks

a declaration of the rights and obligations under the various agreements at issue in this

matter. Because the Court finds the claims against Hawley, with the exception of the

negligence claim, are subject to dismissal as discussed above, he has failed to properly

allege he is entitled to declaratory relief. 

7. Violations of the Business and Professions Code § 17200

In his tenth cause of action, Plaintiff alleges Defendants actions are in violation of

the law and are unlawful conduct under section 17200 of the California Business and

Professions Code. 

Section 17200 of the California Business and Professions Code prohibits “any

unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200.

A business practice can violate this section even if it is merely unfair and not unlawful.

Gregory v. Albertson's, Inc., 104 Cal. App.4th 845, 850 (2002). An act is “unlawful”

under section 17200 if it violates an underlying state or federal statute or common law.

Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 180

(1999). An act is “unfair” if the act “threatens an incipient violation of an antitrust law,

or violates the policy or spirit of one of those laws because its effects are comparable to or

the same as a violation of the law.” Id. at 187. However, “a plaintiff alleging unfair

business practices under the UCL must state with reasonable particularity the facts

supporting the statutory elements of the violation.” Khoury v. Maly’s of California, Inc.,14

Cal. App. 4th 612, 619 (1993).

Defendant argues the cause of action fails to state a claim, because there is no

allegation that he received anything of value and therefore has nothing to disgorge as

restitution. He further argues injunctive relief under section 17200 et. seq. is improper

because injunctive relief requires a showing of no adequate remedy at law and the

complaint is replete with allegations of monetary damages. With no discussion, Plaintiff

contends he alleges specific facts supporting his claim for violation of section 17200 et. seq.

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 9 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10 09cv1111

of the Business and Professions code.

In his tenth cause of action, Plaintiff summarily states the previously plead conduct

constitutes violations of the California Business and Professions Code, and further states

he seeks a judicial determination as to the various defendants’ advertising and promotional

materials provided to the general public. See Complaint ¶¶ 93 - 102. Plaintiff makes no

allegations as to any advertising or statement to the public by Defendant Hawley.

Additionally, the tenth cause of action fails to state, with any particularity, the facts

supporting the violation against Defendant Hawley. Accordingly, Plaintiff fails to state

a claim for violation of the California Business and Professions Code against Defendant

Hawley.

8. Indemnity

Plaintiff seeks indemnity from Defendant Hawley in his seventh cause of action.

He alleges the amounts owed to the Bank and his damage which will result from the loss

of his property are caused by the misrepresentation, breach of fiduciary duty and

negligence of Olson, Morque and Hawley. As discussed above, Plaintiff fails to properly

allege claims against Hawley for misrepresentation and breach of fiduciary duty.

Accordingly, he fails to sufficiently allege he is entitled to this remedy based upon those

claims. Additionally, Plaintiff alleges

“[t]he amounts owed to the Bank by Plaintiff, if any, under the Loan Documents, and Plaintiff’s damage which will result from the loss of his

Property through foreclosure by the Bank are caused primarily and ultimately by the misrepresentations, breach of fiduciary duty and negligence of Olson, Morque and Hawley

Complaint ¶ 79. He fails to allege any payment of the underlying claim and therefore fails

to state a claim for indemnity. See Jocer Enterprises, Inc. v. Price, 183 Cal.Appl4th 559,

574 (2010) (A claim for indemnity accrues when the plaintiff pays the underlying claim.).

II. Defendant Olson’s Motions

Defendant Olson seeks to dismiss the fifth, sixth, seventh, eighth, ninth and tenth

causes of action for failure to state a claim. Defendant also seeks to strike paragraphs 16-

20, 22-36, 38, 46-55, 59-61, 72, 74, 83, 85, 86 and 96-101 of the complaint, Plaintiff’s

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 10 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

As discussed below, the claims are subject to dismissal for failure to state a claim. The Court, therefore, will not address the timeliness argument. However, the Court notes

that whether a claim is untimely must be apparent on the face of the complaint and reading the current complaint and all reasonable inferences in Plaintiff’s favor, Plaintiff’s

claims are not clearly untimely.

11 09cv1111

claim for tort damages and use of the term “loan agreement” in the complaint.

A. Motion to Dismiss

Defendant Olson argues Plaintiff fails to allege any personal liability against him

and fails to set forth sufficient facts to state a claim against him in his individual capacity.

Defendant further argues Plaintiff’s claims are time-barred.4

1. Breach of Fiduciary Duty

Defendant Olson joins in the arguments made by Defendant St. Stephen State

Bank in its motion to dismiss. St. Stephen argued Plaintiff fails to establish the existence

of a fiduciary relationship between Plaintiff and St. Stephen, and even if a fiduciary

relationship is alleged, Plaintiff fails to allege facts suggesting a breach of any duty owed

under the agreement. Defendant Olson further argues a corporate officer or director’s

potential personal liability to a third party does not extend to mere pecuniary loss. Olson

maintains, at all relevant times, he was acting in his representative capacity as an officer

and director of the bank. He also argues, even if St. Stephen were acting as a fiduciary,

as director of the bank, he would not be deemed individually to have any fiduciary

obligations to Plaintiff.

Plaintiff argues the general proposition that the relationship between a bank and

a borrower does not give rise to a fiduciary duty may not apply here, where the bank

actively pursued Plaintiff. He further argues, that St. Stephen had a general obligation not

to engage in misrepresentation. Plaintiff does not specifically address Olson’s argument

that acting in his capacity as an officer of the bank, Olson, individually, had no fiduciary

obligations to Plaintiff.

To the extent Plaintiff seeks relief for breach of a fiduciary duty against St. Stephen

and its officers, the complaint fails to state a claim. Under California law, a lender does

not generally owe a fiduciary duty, unless the lender exerts a high degree of control or

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 11 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12 09cv1111

dominance over the borrower. See Pension Trust Fund for Operating Engineers v. Federal

Ins. Co., 307 F.3d 944, 955 (9th Cir. 2002). There are no allegations demonstrating the

level of control necessary to find a fiduciary duty under California law. Accordingly,

Plaintiff’s cause of action for breach of a fiduciary duty against Defendant Olson fails to

state a claim. 

2. Negligence

Defendant argues Plaintiff fails to allege facts to establish Olson had any duty to

Plaintiff as a director of the bank. He further argues Plaintiff only alleges pecuniary harm

which does not give rise to liability against Defendant Olson. Plaintiff maintains he alleges

sufficient facts entitling him to relief in his negligence claim. He maintains he alleges

Olson is personally liable for his acts. In reply, Defendant maintains the negligence claim

fails because it lacks the duty element.

“The elements of a cause of action for negligence are (1) a legal duty to use

reasonable care, (2) breach of that duty, and (3) proximate cause between the breach and

(4) the plaintiff’s injury.” Mendoza v. City of Los Angeles, 66 Cal.App.4th 1333, 1339

(1998) (citation omitted). As alleged in his complaint, Olson’s conduct was undertaken

as a director of and on behalf of the Bank. Generally, directors and officers are not

personally liable for torts “unless they participate in the wrong, or authorize or direct that

it be done.” United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., 1 Cal.3d 586, 595

(1970). A breach of an officer’s duty to the corporation is insufficient to support liability

to third persons. Id. The alleged tortious conduct must constitute a breach to the third

person. Id. However, California courts have limited the imposition of liability on

directors for their active participation in tortious acts to those resulting in physical injury.

See Haidinger-Hayes, 1 Cal.3d at 595. 

Here, Plaintiff alleges Olson personally told Plaintiff the Bank’s was willing to fund

a loan for Plaintiff’s proposed wedding park and Olson discussed the various terms of the

loan. See Complaint ¶¶ 17 - 29. Plaintiff further alleges the Bank failed to fund the

entire amount of the loan and Olson breached his duty to exercise reasonable skill in

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 12 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13 09cv1111

performing his duties by failing to conduct a investigation into the Bank’s intent to fund

the loan, to disclose Morque was acting as the Bank’s agent and to properly document the

Bank’s promises. Id. ¶¶ 33, 76. Plaintiff asserts he was damaged in the amount of

$750,000 as a result of Olson’s breach. Id. ¶ 77. Plaintiff’s allegations amount to Olson

performing his duties on behalf of the Bank which resulted in pecuniary harm. Plaintiff

fails to sufficiently allege Defendant Olson’s conduct was a breach of a duty he owed to

Plaintiff. As such, Plaintiff fails to state a claim for negligence against Defendant Olson.

3. Indemnity

Defendant argues the claim for indemnity, which is entirely derivative of the

negligence and breach of fiduciary duty claims likewise fails. Defendant argues Plaintiff

may only recover indemnity against Olson based upon Olson’s negligent performance of

contractual obligations owed to Plaintiff and the complaint fails to allege any contractual

relationship between Olson personally and Plaintiff. 

Corporate officers are not personally liable on contracts on behalf of a corporation

unless they bind themselves individually. Haidinger-Hayes, Inc., 1 Cal.3d at 595. There

are no allegations to support personal obligations by Defendant Olson. Accordingly, the

indemnity cause of action is subject to dismissal.

4. Breach of Implied Covenant of Good Faith and Fair Dealing

Defendant argues Plaintiff fails to allege any facts to support his claim that Olson

had a contractual relationship or breached an implied covenant of good faith and fair

dealing. Because the complaint fails to allege a contractual relationship between Olson

and Plaintiff, the claim for breach of the implied covenant of good faith and fair dealing

fails to state a claim. See Racine & Laramie, 11 Cal.4th at 1031-32 (A plaintiff must

establish the existence of a contractual obligation to support a claim for breach of the

covenant of good faith and fair dealing).

5. Declaratory and Injunctive Relief

Defendant argues the claim for declaratory and injunctive relief fails to state a

claim, because it is entirely derivative of Plaintiff’s claims for breach of fiduciary duty,

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 13 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

Defendant also joins in St. Stephen’s identical argument.

14 09cv1111

negligence, and breach of the implied covenant of good faith and fair dealing. Without

argument in support, Plaintiff maintains he sufficiently alleges facts that entitle him to

relief and the motion should be denied.

Because the Court finds the claims for breach of fiduciary duty, negligence and

breach of the implied covenant of good faith and fair dealing fail to state a claim, the claim

for declaratory and injunctive relief, which is derivative of those claims, also fails.

6. Violation of Business and Professions Code section 17200

Defendant Olson argues Plaintiff’s tenth cause of action does not allege any specific

facts, but merely refers back to the previously alleged conduct and maintains it is unlawful,

unfair, fraudulent and deceptive” and thus constitutes a violation of sections 17200 and

17500 of the California Business and Professions Code.5

 Defendant further argues there

is no allegation of any advertisement or public statement by Olson that was false or

misleading and Plaintiff has otherwise failed to allege unfair or unlawful conduct. In

response, Plaintiff contends he will re-plead all previously made factual allegations if the

Court so requires and argues Defendant Olson fails to meet his burden that the claim must

be dismissed. He further asserts he should be provided an opportunity to amend his

complaint if the Court is inclined to dismiss any of the claims. Plaintiff does not address

Defendant’s specific argument that Plaintiff fails to allege any predicate conduct to

support a claim under sections 17200 and 17500.

Plaintiff’s tenth cause of action states the various defendants’ conduct constitutes

a violations of the California Business and Professions Code in conclusory terms and lacks

the required particularity. The cause of action also states Plaintiff seeks relief on behalf

of the general public for advertising and promotional materials. However, the complaint

contains no allegations that Olson engaged in any advertising or made statements to the

general public promoting his or the Bank’s services. Therefore, the claim is subject to

dismissal.

//

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 14 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15 09cv1111

7. Request for Leave to Amend

Defendant opposes Plaintiff’s request to amend the complaint. The Court finds

Plaintiff should be provided an opportunity to amend the complaint to properly allege

claims against the defendants. See Cook, Perkiss and Liehe, Inc. v. Northern Cal.

Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 

B. Motion to Strike

Because the Court is dismissing the claims against Defendant Olson, the motion to

strike allegations and language of the current complaint with respect to Defendant Olson

is denied as moot.

III. Defendant Morque’s Motion to Dismiss

Defendant argues Plaintiff’s complaint fails to state a claim and is time barred.

A. Choice of Law

The parties set forth the same choice of law discussion presented in Defendant

Hawley’s motion. As such, for the reasons stated in the choice of law analysis above, the

Court will apply California law. 

B. Analysis

1. Breach of Contract

Defendant Morque maintains Plaintiff alleges he entered into an oral agreement

with defendant on June 26, 2006, and alleges three breaches: (1) dual agency; (2) lack of

a broker’s license; and (3) misrepresentation of the Bank’s intentions. Defendant argues

the allegations do not properly or timely allege a breach of the Agency Agreement. 

Specifically, Defendant contends the use of the term “exclusive” in the agency

agreement is Plaintiff’s promise not to use any other agents besides Morque and Hawley

to obtain the loan and is not a promise by Defendant to represent only Plaintiff. He

further contends the claim is untimely because, as of October 27, 2006, when Defendant

Morque sent a letter to Plaintiff using the Bank’s letterhead, the relationship between the

Bank and Morque was disclosed to Plaintiff. Additionally, Defendant argues whether or

not a broker’s license is required is immaterial as it is not a contract term, and therefore,

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 15 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

Plaintiff introduces new facts in his opposition to dispute Defendant’s suggestion that the letter dated October 27, 2006 provided him notice Morque was working for the Bank. Because these facts are not contained in the complaint, the Court will not consider

them. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). 

7

 The letter was attached to Plaintiff’s complaint. See Lee v. City of Los Angeles, 250 F.3d at 688-89 (A court may consider documents submitted with the complaint on a motion to dismiss).

16 09cv1111

it is not a breach. He further argues there is no contract term requiring him to disclose

anything concerning the Bank’s intentions and there is no allegation that he knew about

the Bank’s purported secret intentions regarding the loan. Defendant argues the latest

Plaintiff could have discovered the breach was March 15, 2007, when the bank informed

him that it would not fund the loan as previously claimed.

Plaintiff argues the statute of limitations bar must clearly appear from the face of

the complaint and he maintains there are disputed facts surrounding the breach.6

Plaintiff does not address Defendant’s arguments regarding the misrepresentation of facts

or the broker’s license.

A review of the complaint demonstrates Plaintiff fails to allege a broker’s license was

required by the terms of the contract or that Morque was required to inform Plaintiff of

the Bank’s secret intentions, or that he was even aware of the Bank’s intentions. Reading

the facts of the complaint in Plaintiff’s favor, the “exclusive” language of the Agency

Agreement may be read as suggesting Morque would work on his behalf to obtain a loan

and not on behalf of the proposed lender. However, the letter drafted by Defendant

Morque on St. Stephen letterhead7

 should have put Plaintiff on notice that Morque was

working on behalf of the Bank as of the date on the letter. See April Enters. v. KTTV, 147

Cal.App.3d 805 (1983) (Under the discovery rule a breach of contract claim accrues from

the date a plaintiff knew or should have known of the facts giving rise to his action). As

such, based upon the facts alleged in the complaint and materials submitted with the

complaint, the breach of contract claim against Morque is untimely and subject to

dismissal.

//

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 16 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17 09cv1111

2. Rescission

Defendant argues Plaintiff knew or was put on notice of facts entitling him to

rescind a contract no later than March 15, 2007, when the Bank informed him it would

not be able to fund the loan as originally agreed and the action filed more than two years

later is barred. Additionally, he argues there is nothing for him to disgorge or give back,

because there is no allegation that he received any commission.

Plaintiff argues he sufficiently alleges his consent to the Agency Agreement and the

Loan Agreement were given by mistake or obtained through fraud or undue influence

exercised by the defendants or the connivance of the defendants and the consideration for

his obligations failed in a material respect through the fault of the defendants. He

maintains this satisfies the pleading requirements for a claim of rescission. He further

argues the statute of limitations began to run from May 2007, when the St. Stephen

refused to proceed with the loan.

As discussed above, the breach of contract claim as to the Agency Agreement is

untimely. The cause of action for rescission is likewise untimely. Additionally, there are

no allegations that Defendant Morque was a party to the Loan Agreement. Accordingly,

the rescission claim is subject to dismissal.

3. Sixth Cause of Action for Negligence

Defendant argues the claim for negligence is barred by the two year limitations

period, as Plaintiff should have been aware of the facts supporting his claim for negligence

on March 15, 2007. Plaintiff argues St. Stephen did not “pull the plug” on the loan until

May 2007. As discussed above, it is not clear from the face of the complaint that the

negligence claim is untimely. As such, the motion to dismiss this cause of action is denied.

4. Breach of Fiduciary Duty

Defendant contends Plaintiff’s claim is one for professional negligence and is

therefore subject to the two year limitations period. He argues Plaintiff should have been

aware of the facts supporting his claim as of March 15, 2007. Plaintiff argues he did not

discover Morque was serving as the bank’s agent until November 2008 and St. Stephen

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 17 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18 09cv1111

refused to fund the loan in May 2007. 

As discussed above, the allegations of the complaint suggest that Plaintiff should

have known about Morque serving as the Bank’s agent in October 2006 when he received

the letter from Morque on the Bank’s letterhead. Therefore, Plaintiff’s claim for breach

of fiduciary duty based upon Morque’s “dual agency” is subject to dismissal. The claim

based upon Morque’s representations regarding the Bank’s intention and ability to fund

the loan is not clearly untimely. Accordingly, the motion to dismiss the claim is granted

as to the “dual agency” allegation and denied as to the misrepresentation allegation.

5. Breach of Duty of Good Faith and Fair Dealing

Defendant maintains the two year limitations period applies because it is based

upon an oral contract. He argues Plaintiff knew or should have inquired about facts

supporting his claim on March 15, 2007. Plaintiff argues he has sufficiently established

the statute of limitations has not run

The claim for breach of the duty of good faith and fair dealing stems from the

Agency Agreement and is based upon Morque’s alleged “dual agency.” As discussed above,

the claim is untimely. Therefore, this claim is subject to dismissal.

6. Declaratory Relief

Defendant argues the two year statute of limitations bars the claim for declaratory

relief because Plaintiff seeks relief based upon a breach of an oral contract and the time

period began to run on or before March 15, 2007. Plaintiff argues the claim was timely

plead.

This claim is based upon the obligations under the Agency Agreement and the Loan

Agreement and Loan Documents. As discussed above, Plaintiff should have known of any

claims arising under the breach of the Agency Agreement as of October 2006 when he

received the letter from Defendant Morque on the Bank’s letterhead. Thus, the claim

based upon the breach of the Agency Agreement is untimely. Additionally, Plaintiff fails

to allege Morque is a party to or has any obligations under the Loan Agreement or the

Loan Documents. Accordingly, he fails to state a claim for declaratory relief as to those

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 18 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

19 09cv1111

agreements and the declaratory relief claim is subject to dismissal. 

7. Violation of Business and Professions Code section 17200

Defendant argues Plaintiff fails to state a claim for violation of California Business

and Professions Code because restitution is not supported by the allegations and there is

nothing for Morque to disgorge. He further argues injunctive relief is not warranted under

section 17203, because the complaint alleges monetary damages and an injunction

requires there be no adequate remedy at law. Plaintiff argues he sufficiently pleads this

cause of action and contends Morque fails to meet his burden.

As discussed previously, Plaintiff’s tenth cause of action states the various

defendants’ conduct constitutes violations of the California Business and Professions Code

in conclusory terms and lacks the required particularity. Plaintiff also fails to allege

Morque engaged in any advertising or made statements to the general public promoting

his services. Accordingly, Plaintiff fails to properly allege a cause of action for violation

of California’s Business and Professions Code against Defendant Morque.

8. Indemnity Claim

Defendant argues Plaintiff fails to allege Morque and Casey were joint tortfeasors

who share liability and therefore, fails to state a claim for indemnification. He further

argues the gravaman of Plaintiff’s action is to recover for alleged wrongs and is barred by

the two year statute of limitations. 

Plaintiff argues he states a claim for implied contractual indemnity against

Defendant Morque. In California, implied contractual indemnity is a form of equitable

indemnity. See Bay Development, Ltd. v. Superior Court, 50 Cal.3d 1012 (1990). It is

“applied to contract parties and is designed to apportion loss among contract parties based

on the concept that one who enters a contract agrees to perform the work carefully and

to discharge foreseeable damages resulting from the breach.” Smoketree-Lake Murray,

Ltd. v. Mills Concrete Construction Co., 234 Cal.App.3d 1724, 1136 (1991). Loss is

apportioned according to the parties’ breach. Id. Implied contractual indemnity requires

the indemnitee and indemnitor share liability and is unavailable in “the absence of joint

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 19 of 20
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20 09cv1111

legal obligation to the injured party.” Jocer Enterprises, Inc. v. Price, 183 Cal.Appl4th 559

(2010).

A claim for implied contractual indemnity accrues “at the time the indemnity

claimant suffers loss or damage-that is, at the time of payment of the underlying claim.”

Id. at 574. In his complaint, Plaintiff alleges the amounts owed to the Bank “if any” are

a result of Morque’s negligence. As alleged, the complaint fails to allege payment of the

underlying claim and, therefore, fails to state a claim for implied contractual indemnity.

CONCLUSION AND ORDER

Based on the foregoing, IT IS HEREBY ORDERED:

1. Defendant Hawley’s motion to dismiss is GRANTED IN PART AND

DENIED IN PART. The motion is DENIED as to the negligence claim

against Defendant Hawley. The motion is GRANTED as to the remaining

claims. The claims are dismissed without prejudice.

2. Defendant Olson motion to dismiss is GRANTED. The claims against

Defendant Olson are dismissed without prejudice. The motion to strike is

DENIED as moot.

3. Defendant Morque’s motion to dismiss is GRANTED IN PART AND

DENIED IN PART. The motion is DENIED as to the negligence and

breach of fiduciary duty claims. The motion is GRANTED as to the

remaining claims against Defendant Morque. The claims are dismissed

without prejudice.

4. Plaintiff may file an amended complaint addressing the deficiencies noted

above on or before October 5, 2010.

DATED: September 7, 2010

JOHN A. HOUSTON

United States District Judge

Case 3:09-cv-01111-POR Document 41 Filed 09/08/10 Page 20 of 20