Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01052/USCOURTS-azd-2_06-cv-01052-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question

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WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Kourosh Moshir, 

Plaintiff, 

vs.

PatchLink Corporation, et al., 

Defendants. 

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No. CV-06-1052-PHX-FJM

ORDER

I.

Plaintiff Kourosh Moshir was employed as defendant PatchLink's President until

September 6, 2005, when he was terminated. The dispute in this case concerns plaintiff's

severance payment. 

The second amended complaint ("Amended Complaint") (doc. 25) was filed on

October 4, 2006. There, plaintiff alleges violation of 42 U.S.C. § 1981, against defendants

PatchLink, O'Driscoll, Acord and Smith; violation of A.R.S. § 23-353, breach of contract,

and breach of the covenant of good faith and fair dealing against defendants PatchLink and

Smith, and fraud and negligent misrepresentation against all defendants. Amended

Complaint at 4-8.

The court has before it defendants PatchLink, O'Driscoll, Acord and Frederickson's

motion to dismiss plaintiff's second amended complaint ("Motion to Dismiss") (doc. 26),

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defendant Smith's motion to dismiss plaintiff's second amended complaint (doc. 29),

plaintiff's response to both motions (doc. 30), and defendants PatchLink, O'Driscoll, Acord,

Frederickson and Smith's reply (doc. 33). Defendant Smith's motion incorporates by

reference the arguments presented in the remaining defendants' motion to dismiss. 

Defendants move to dismiss plaintiff's claims pursuant to Rule 12(b)(6), Fed. R. Civ.

P. For the reasons stated below, we conclude that plaintiff has stated viable claims for

violation of 42 U.S.C. § 1981, breach of contract, breach of the covenant of good faith and

fair dealing and fraud. However, we dismiss plaintiff's wage claim because he has not

actually performed services that qualify him for A.R.S. § 23-353 protection. We also dismiss

plaintiff's negligent misrepresentation claim because it is based on future conduct. 

II.

A complaint should only be dismissed if "it appears beyond doubt that the plaintiff can

prove no set of facts in support of his claim which would entitle him to relief." Conley v.

Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102 (1957). Therefore, we must accept all of

plaintiff's material factual allegations as true, and draw all reasonable inferences in plaintiff's

favor. Anderson v. Clow (In re Stac Elecs. Sec. Litig.), 89 F.3d 1399, 1403 (9th Cir. 1996).

A. Consideration of Exhibits Attached to 12(b)(6) Motion

"Generally, the scope of review on a motion to dismiss for failure to state a claim is

limited to the contents of the complaint." Marder v. Lopez, 450 F.3d 445, 448 (9th Cir.

2005). However, " ' when [the] plaintiff fails to introduce a pertinent document as part of his

pleading, [the] defendant may introduce the exhibit as part of his motion attacking the

pleading,' " so long as certain conditions are met. Branch v. Tunnell, 14 F.3d 449, 453 (9th

Cir. 1994) (alteration in original) (citation omitted), overruled on other grounds by Galbraith

v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). A court may consider such

evidence if "(1) the complaint refers to the document; (2) the document is central to the

plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the

12(b)(6) motion." Marder, 450 F.3d at 448. A complaint "refers" to a document if it is

specifically mentioned in the complaint. See Branch, 14 F.3d at 453. Considering such

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1

 See Motion to Dismiss at 5, 7 (relying on Exhibits A, B and C in arguing that

Counts Two and Three of plaintiff's Amended complaint should be dismissed because those

exhibits prove that the parties did not enter into an enforceable contract); id. at 8 (arguing

that because there is no enforceable contract, an argument that relies on the content of

Exhibits A, B and C, plaintiff's Count One claim fails); id. at 9 (relying on Exhibit D in

arguing that plaintiff's Count Four claim fails); id. at 10 (arguing that because there is no

enforceable contract, an argument that relies on the content of Exhibits A, B and C, plaintiff's

Count Four claim fails).

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documents does not covert a 12(b)(6) motion to dismiss into a motion for summary judgment,

because the documents are not outside the complaint. Id. at 453-54. 

A court has discretion to consider matters submitted as exhibits even if they are

outside the complaint so long as the motion for dismissal is converted into a motion for

summary judgement. See Cunningham v. Rothery (In re Rothery), 143 F.3d 546, 549 (9th

Cir. 1998). However, after conversion, a court must "give the parties a 'reasonable

opportunity to present all material made pertinent to such a motion by Rule 56.' " Bank Melli

Iran v. Pahlavi, 58 F.3d 1406, 1408 (9th Cir. 1995) (quoting Fed. R. Civ. P. 12(b)). That is,

a court must "apprise the parties that it will look beyond the pleadings to extrinsic evidence

and give them an opportunity to supplement the record." Id. 

Defendants attached six exhibits to their motion to dismiss. The exhibits consist of:

a September 14, 2005 e-mail from plaintiff to Corey Smith ("Exhibit A"); a "revised

separation and severance proposal" ("Exhibit B"); an "e-mail to Mr. Jellison," plaintiff's

counsel ("Exhibit C"); "Plaintiff's purported acceptance to the previously rejected and

revoked Proposed Agreement" ("Exhibit D"); a letter from defendant Acord to plaintiff

("Exhibit E"), and an email from defendant PatchLink's counsel ("Exhibit F"). See Motion

to Dismiss, Exhibits A-F; id. at 3-4 (describing the contents of the exhibits). Defendants rely

on four of these exhibits in arguing for dismissal of Counts One through Four of plaintiff's

Amended Complaint.1

 Therefore, as a preliminary matter, we must determine whether the

exhibits themselves are matters outside the complaint. 

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Exhibits A, B, C, E and F are documents unaddressed in the complaint. Accordingly,

they are matters outside the complaint and we may not consider them in ruling on a motion

to dismiss. Exhibit D, on the other hand, is a document we may consider in a 12(b)(6) ruling.

Defendants characterize Exhibit D as "Plaintiff's purported acceptance to the previously

rejected and revoked Proposed Agreement." This is the only document to which the

complaint refers. See Amended Complaint at 2-3 (describing a "Separation Agreement and

General Release and Waiver . . . signed by Defendant PatchLink's authorized representative,

Laura Frederickson" which plaintiff "accepted and signed" and returned to defendants).

Also, the document is central to plaintiff's claim, as plaintiff alleges it represents the contract

upon which several of his claims are based. Finally, although the parties do not agree on the

document's legal significance, neither question its authenticity. Therefore, Exhibit D is not

a matter outside the complaint. 

We have authority to consider each exhibit so long as we convert the motion to

dismiss into a motion for summary judgment. However, we decline to do so. The parties

have had, as of this date, very limited time in which to conduct discovery. The arguments

raised by exhibits not part of the complaint are best addressed by way of motions for

summary judgment. The summary judgment deadlines will provide the parties with ample

opportunity to discover and present to the court all material rendered relevant by the exhibits.

B. Counts One through Six

Mindful that we may consider only one exhibit, we turn to defendants' arguments that

each of plaintiff's claims should be dismissed. 

1. 42 U.S.C. § 1981

Defendants first argue that plaintiff's Section 1981 claim fails against defendants

PatchLink, O'Driscoll, Acord and Smith because the parties did not enter into an enforceable

contract. Motion to Dismiss at 8. However, a Section 1981 claim does not require the

existence of an enforceable contract. Domino's Pizza, Inc. v. McDonald, 546 U.S. 470, __

, 126 S.Ct. 1246, 1249-50 (2006). Rather, Section 1981 protects "the would-be contractor

along with those who already have made contracts." Id. at 1250. Therefore, defendants

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cannot defeat plaintiff's Section 1981 claim by simply alleging that a valid contract did not

exist. 

Defendants alternatively argue that plaintiff's Section 1981 claim fails against

defendants O'Driscoll and Acord, PatchLink officers, because officers cannot be liable for

the corporation's contracts. See Motion to Dismiss at 8 n.4. Their argument relies on a

misapplication of Domino's Pizza. As plaintiff notes, Domino's Pizza stands for the

proposition that a corporation's officers have no right to sue under Section 1981 if they have

no rights under the corporation's contracts. See Domino's, 126 S.Ct. at 1250-51. 

While it is true that an agent (officer) is not liable for a disclosed principal's

(corporation) contract obligations, "corporate officers are personally liable for their torts even

if the torts were committed on behalf of the corporation." Mone v. Dranow, 945 F.2d 306,

308 (9th Cir. 1991). Recognizing that "[a]n action brought under statutes forbidding racial

discrimination is fundamentally for the redress of a tort," Tillman v. Wheaton-Haven

Recreation Ass'n, 517 F.2d 1141, 1143 (4th Cir. 1975) (citing Curtis v. Loether, 415 U.S.

189, 195, 94 S. Ct. 1005 (1974), at least one circuit has held that "directors become

personally liable when they intentionally cause a corporation to infringe the rights secured

by §§ 1981 and 1982." Id. at 1146. For these reasons, we deny defendants' motions to

dismiss plaintiff's Section 1981 claim on this alternative ground. 

2. Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing

Defendants argue that plaintiff cannot state a valid claim for breach of contract or

breach of the covenant of good faith and fair dealing because the parties did not enter into

an enforceable contract. An enforceable contract exists where there is an offer, acceptance,

and consideration, and the parties intend to be bound. See Tabler v. Indus. Comm'n of Ariz.,

202 Ariz. 518, 520-21, 47 P.3d1156, 1158-59 (App. 2002). An offer to enter into a contract

on certain terms cannot be accepted by an offeree's counteroffer that declines those terms.

See Hargrave v. Heard Inv Co., 56 Ariz. 77, 80, 105 P.2d 520, 521 (1940). After an offeree's

counteroffer is made, the original offer loses its effect. Id. Similarly, "[a]n offeree's power

of acceptance is terminated when the offeree receives from the offeror a manifestation of an

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intention not to enter into the proposed contract." Restatement (Second) of Contracts § 42

(1981). 

Defendants first contend that plaintiff's contract claims should be dismissed because

plaintiff's counteroffer terminated its power to accept defendant PatchLink's original offer.

 See Motion to Dismiss at 4-6. However, in so arguing, defendants rely exclusively on the

purported counteroffer contained in Exhibit A, a document we may not consider. Next,

defendants contend that PatchLink's subsequent offer revoked its original offer. Id. at 6-7.

Yet this contention is based solely on Exhibits B and C, documents we also may not

consider. Plaintiff's Amended Complaint alleges the existence of an enforceable contract,

contending that there was an offer, acceptance, and consideration, and that the parties

intended to be bound. Claims are thus stated. Defendants will have an opportunity to raise

their contentions on summary judgment. 

3. A.R.S. § 23-353

Defendants move to dismiss plaintiff's wage claim on four independent grounds.

First, they argue that the claim fails because it requires proof of an enforceable contract,

which plaintiff has failed to allege. Motion to Dismiss at 8. Next, defendants contend that

because PatchLink's severance pay offer was discretionary, it does not qualify as wages for

purposes of A.R.S. § 23-350(5). Id. at 9. Third, defendants allege that plaintiff's obligations

under the severance pay agreement are not the kind of work for which an employer is

required to pay wages. Id. at 10. Finally, defendants argue that even if plaintiff did promise

to perform obligations for which wages would generally be due, the wage claim nevertheless

fails because the obligations were never actually provided. Id. at 9. We find merit in

defendants' final argument, and therefore need not reach the remaining grounds. 

An employer is required to pay wages due an employee within time periods specified

by A.R.S. § 23-353. If the employer fails to do so, the employee may recover "an amount

which is treble the amount of the unpaid wages." § 23-355. Severance pay qualifies as

wages for purposes of A.R.S. § 23-355 if it is "nondiscretionary compensation due an

employee in return for labor or services rendered by an employee for which the employee has

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a reasonable expectation to be paid whether determined by a time, task, piece, commission

or other method of calculation." § 23-350(5). Section 23-355 "protects employees from an

employer's groundless refusal to pay compensation which was promised and which was due

'in return for work performed.' " Schade v. Diethrich, 158 Ariz. 1, 12, 760 P.2d 1050, 1061

(1988) (quoting Nieto-Santos v. Fletcher Farms, 743 F.2d 638, 642 (9th Cir.1984)). Plaintiff

does not allege that any of his obligations under the severance pay agreement were actually

performed. Therefore, we dismiss plaintiff's wage claim.

4. Fraud

Defendants allege that plaintiff's fraud claim fails for four, independent reasons: (1)

the parties' communications constituted negotiations that lacked any element of fraud; (2) the

representations upon which plaintiff bases his fraud claims were promises of future conduct;

(3) Arizona's economic loss rule bars the claims, and (4) the claims are not pled with

sufficient particularity. We address these arguments in turn, and conclude that each lacks

merit.

Defendants first argue that plaintiff's fraud claim must fail because "the parties' backand-forth contract negotiations reveal that there was no 'fraud' and that, instead, Plaintiff

rejected the Proposed Agreement on which he now sues." Motion to Dismiss at 10

(emphasis in original). This argument presupposes that plaintiff must first prove the

existence of an enforceable contract in order to bring a fraud claim. However, the law of

contracts and the law of torts impose separate, and at times independent, duties. The absence

of a viable contract claim does not automatically eviscerate a fraud claim. In fact, defendants

offer no authority in support of their assertion. Therefore, we deny their motion to dismiss

plaintiff's fraud claim on this ground. 

Defendants next argue that plaintiff's fraud claim fails because "[a] promise of future

conduct is not a factual misrepresentation capable of supporting a claim for fraud." Motion

to Dismiss at 11. A representation is actionable as fraud when it relates to a present or

preexisting fact, "and cannot be based on unfulfilled promises or statements as to future

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events." Ahmed v. Collins, 23 Ariz. App. 54, 56-57 (App. 1975). Unkept promises relating

to future events are, at most, a breach of contract. Id. at 57. However, an established

exception to this general rule is a promise made without present intention to perform; there,

"the misstatement of the present intention is regarded as a misrepresentation of fact." Id.

Plaintiff's complaint alleges that defendants promised to provide him with a severance

payment if he executed a "General Release and Waiver," and that defendants never provided

the payment. Amended Complaint at 6-7. However, the Amended Complaint goes on to

allege that defendants engaged in fraudulent conduct because "[d]efendants knew when they

promised Plaintiff he would be compensated under the terms of the Agreement that the

promise was false and Defendants had no intention of providing Plaintiff his full severance

when the representations were made." Id. at 7. Contrary to defendants' assertion, plaintiff

does not predicate his fraud claim on promises of future action. Rather, he alleges that

defendants made a promise without a present intention to perform. Therefore, we deny

defendants' motion on this alternative ground. 

Defendants third argument contends that Arizona's economic loss rule provides that

"an individual who suffers economic damages as a result of the conduct of another cannot

recover those losses in tort." Motion to Dismiss at 12. 

Stated generally, the economic loss theory is alleged to bar tort liability "for a purely

economic tort," where there is contractual liability. Richard A. Posner, Common-Law

Economic Torts: An Economic and Legal Analysis, 48 Ariz. L. Rev. 735, 740 (2006). In a

dispute between parties to a contract, the broadest application of this rule would bar tort

claims, and leave the plaintiff to recover, if at all, on the contract. See Dan B. Dobbs, An

Introduction to Non-Statutory Economic Loss Claims, 48 Ariz. L. Rev. 713, 728 (2006).

Arizona courts have barred recovery for economic damages in the context of construction

liability, where " ' the resulting failure to receive the benefit of the bargain is a core concern

of contract, not tort, law.' " Carstens v. City of Phoenix, 206 Ariz. 123, 126, 75 P.3d 108,

1084 (App. 2003) (citation omitted). Federal courts applying Arizona law have extended the

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2

 "[T]he idea of on economic loss rule applicable to fraud claims seems to date from

the late 1980s, but no earlier," and "[t]he notion has been promoted primarily by federal

courts." Jean Braucher, Deception, Economic Loss and Mass-Market Customers: Consumer

Protection Statutes as Persuasive Authority in the Common Law of Fraud, 48 Ariz. L. Rev.

829, 840 (2006); see All-Tech Telecom, Inc. v. Amway, 174 F.3d 862, 866-67 (7th Cir.

1999) (criticizing federal courts that have implied that the economic loss doctrine abolishes

the tort of misrepresentation, including deliberate fraud, in cases in which the parties have

a preexisting contractual relationship, because those courts have given binding effect to state

courts' economic loss dicta). 

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rule to "non-products liability tort claims," Southwest Pet Prods. v. Koch Indus., 89 F. Supp.

2d 1115, (D. Ariz. 2000), and have used it to foreclose claims of negligent misrepresentation.

See Apollo Group v. Avnet, Inc., 58 F.3d 477, 480 (9th Cir. 1995). But in Arizona, there is

no "blanket disallowance of tort recovery for economic losses." Salt River Project v.

Westinghouse Elec. Corp., 143 Ariz. 368, 379, 694 P.2d 198, 209 (1984).

We have already held that the economic loss rule has no application to the tort of

fraud under Arizona law. KD & KD Enter., LLC, v. Touch Automation, LLC, 2006 U.S.

Dist. LEXIS 93730 *1, at *6 (Dec. 27, 2006) (explaining that such an extension would

compromise both the "principles underlying the economic loss rule" and public policy).2

Central to our conclusion is the fact that contractual remedies for fraud will be either

insufficient, or, more likely, unavailable. In order to recover in contract on a fraud claim

based on a promise made without present intention to perform, a party must first foresee, and

then contract around, the very fraudulent statements that induced it into the contractual

relationship. To impose that sort of foresight on contracting parties is both impractical and

unreasonable. The economic loss rule has no logical application to the tort of fraud, which

by its very nature is designed for stand alone economic injury. Therefore, we conclude that

Arizona's economic loss rule does not bar plaintiff's fraud claim, and deny defendants' motion

on this ground.

Finally, defendants argue that plaintiff has not pled fraud with sufficient particularity,

see Motion to Dismiss at 15, but has merely parroted the elements of a fraud claim. Reply

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at 9. "Federal Rule of Civil Procedure 9(b) requires a pleader of fraud to detail with

particularity the time, place, and manner of each act of fraud, plus the role of each defendant

in each scheme." Lancaster Comty Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405

(9th Cir. 1991). A federal court will examine state law to determine whether the elements

of fraud have been pled sufficiently to state a cause of action. Vess v. Ciba-Geigy Corp.

USA, 317 F.3d 1097, 1103 (9th Cir. 2003). However, " 'the Rule 9(b) requirement that the

circumstances of the fraud must be stated with particularity is a federally imposed rule.' "

Id. (citation omitted). That is, while we will look to Arizona's substantive law to determine

whether the elements of fraud have been sufficiently pled, Arizona's procedural rules do not

govern our particularity analysis. 

Plaintiff's complaint alleges that "[d]uring September, 2005, Plaintiff was

continuously promised by Defendants that he would receive a severance payment if he

executed a General Release and Waiver," that "Defendants failed to provide Plaintiff with

payment under the Agreement," that "Defendants' representations to Plaintiff regarding the

actual terms of the Agreement were false in that Defendants did not intend to make the

promised payment," and that defendants knew their promise was false. Amended Complaint

at 6-7. We find that these statements meet Rule 9(b), Fed. R. Civ. P.'s requirements. 

5. Negligent Misrepresentation

Defendants argue that plaintiff's negligent misrepresentation claim should be

dismissed for the same four reasons that warrant dismissal of the fraud claim. However, we

need only discuss defendants' contention that the representations upon which plaintiff bases

his claim are unactionable promises of future conduct. 

As in the context of fraud claims, a promise of future conduct that is unkept cannot

support a claim for negligent misrepresentation. See McAlister v. Citibank, 171 Ariz. 207,

215, 829 P.2d 1253, 1261 (App. 1992). However, unlike fraud, negligent misrepresentation,

which is predicated upon the failure to exercise reasonable care, does not carve out an

exception for a promise made without present intention to perform. See Restatement

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(Second) of Torts § 552 (1977). Plaintiff bases its negligent misrepresentation claim on

defendants' failure to keep their promise to provide plaintiff with a severance payment. See

Amended Complaint at 7. This promise of future conduct, even if unkept, cannot support a

negligent representation claim. Therefore, we grant defendant's motion to dismiss this count

of plaintiff's complaint. 

Therefore, IT IS ORDERED DENYING defendants' motions to dismiss Counts One,

Two, Three and Five of the Second Amended Complaint and IT IS ORDERED

GRANTING defendants' motions to dismiss Counts Four and Six of the Second Amended

Complaint (docs. 26 and 29). 

DATED this 12th day of February, 2007.

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