Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02353/USCOURTS-caed-2_06-cv-02353-7/pdf.json

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

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

EUGENE N. GORDON, INC., a 

California Corporation, JIM 

REEGO, and LIZ REEGO, as 

individuals

2:06-cv-2353-MCE-DAD

Plaintiffs,

v. MEMORANDUM AND ORDER

LA-Z-BOY, INC., a Michigan

Corporation, and DOES 1 to

150, inclusive,

Defendants.

----oo0oo----

Through the present action, Plaintiff Eugene N. Gordon, Inc.

(“Gordon, Inc.”) alleges Defendant La-Z-Boy, Inc. (“Defendant”)

breached written contracts between them; breached the implied

covenant of good faith and fair dealing; and committed

intentional and negligent misrepresentation. Defendants Jim

Reego and Liz Reego (“Reegos”) allege Defendant committed

intentional and negligent misrepresentation. 

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 Because oral argument will not be of material assistance, 1

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

2

More specifically, Gordon, Inc. alleges that Defendant permitted

another retailer to use, inter alia, color schemes, marketing

materials, display environments, and product lines (“Gallery

Motif”) in violation of the Parties’ retail agreements (“Retail

Agreements”). In addition, Plaintiffs aver that Defendant orally

misrepresented that it would protect Gordon, Inc.’s right to

exclusive use of the Gallery Motif in a predetermined territory.

Plaintiffs’ complaint was originally filed in Superior Court

on October 3, 2006 and was subsequently removed to this Court

based on diversity jurisdiction under 28 U.S.C. § 1332. This

Court previously granted in part and denied in part Defendant’s

Motion to Dismiss the original complaint pursuant to Fed. R. Civ.

P. 12(b)(6).

Plaintiffs subsequently filed a First Amended Complaint

(“FAC”) claiming 1) Breach of Contract, 2) Breach of the Implied

Covenant of Good Faith and Fair Dealing, 3) Intentional

Misrepresentation, 4) Negligent Misrepresentation, 5) Intentional

Misrepresentation (the Reegos against Defendant), 6) Negligent

Misrepresentation (the Reegos against Defendant), 7) Price

Discrimination, 8) Violation of the California Unfair Business

Act, and 9) Unfair Competition. (All claims are by Gordon, Inc.

unless otherwise specified.) Before this Court is Defendant’s

Motion to Dismiss claims two through six of the FAC and to dismiss

the Reegos as plaintiffs pursuant to Fed. R. Civ. P. 54(b).1

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3

BACKGROUND

Plaintiff Gordon, Inc. is a retail operator of several “LaZ-Boy Galleries” in the greater Sacramento area. Plaintiffs

Reegos own and operate Gordon, Inc. Defendant La-Z-Boy, Inc. is

a Michigan Corporation engaged in the business of manufacturing

and wholesaling home furnishings. Beginning in 1992, Gordon,

Inc. and Defendant entered into a series of Retail Agreements

that authorized Gordon, Inc. to retail La-Z-Boy products through

outlets generally called “La-Z-Boy Galleries.” Pursuant to those

Retail Agreements, Gordon, Inc. proceeded to establish several

outlets in the greater Sacramento area over the next ten years. 

Each additional retail outlet was memorialized by a substantially

identical Retail Agreement regarding the operation of those

outlets. During this time, Gordon, Inc.’s multiple retail

locations operated without material incident.

In 2004, Defendant authorized Plaintiffs to open another

retail outlet in Rocklin, California, which is near Sacramento. 

By July 2005, Plaintiffs learned that Defendant intended to

permit a competing furniture store, RC Willey, to retail La-Z-Boy

products through an outlet also located in Rocklin, California

(“RC Willey Gallery”), nearly across the street from Plaintiffs’

store. Plaintiffs immediately alerted Defendant that they

believed the use of the “in store” Gallery Motif would be a

violation of the exclusive territory provisions contained in the

Retail Agreements. Defendant responded that it would “ensure a

fair playing field.” 

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4

Relying upon that assurance, the Reegos proceeded to expend

substantial sums in anticipation of the planned Rocklin retail

outlet (“Gordon Gallery”).

Between 2004 and June 2006, the Parties were in frequent

communication regarding the anticipated opening of the Gordon

Gallery and the RC Willey Gallery. Plaintiffs allege that during

those communications, Defendant made numerous affirmative

statements that the RC Willey Gallery would not be carrying the

full line of La-Z-Boy products. In June 2006, however, Defendant

informed Plaintiffs that it would not meaningfully restrict the

product lines and marketing materials available to the RC Willey.

STANDARD

A court may dismiss a complaint or cause of action for

failure to state a claim upon which relief can be granted

pursuant to Fed. R. Civ. P. 12(b)(6). Dismissal is proper under

the rule where there is either a “lack of a cognizable legal

theory” or “the absence of sufficient facts alleged under a

cognizable legal theory.” Balistreri v. Pacifica Police Dept.,

901 F.2d 696, 699 (9th Cir. 1990). On a motion to dismiss for a

failure to state a claim, all allegations of material fact must

be accepted as true and construed in the light most favorable to

the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d

336, 337-38 (9th Cir. 1996). A complaint will not be dismissed

for failure to state a claim “‘unless it appears beyond doubt

that the plaintiff can prove no set of facts in support of [his

or] her claim that would entitle [him or] her to relief.’” 

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5

Yamaguchi v. Dep’t of the Air Force, 109 F.3d 1475, 1480 (9th

Cir. 1997). 

ANALYSIS

1. Breach of Covenant Claim (Gordon, Inc. against Defendant)

In its previous order, this Court granted Defendant’s motion

to dismiss Plaintiff’s claim for breach of the implied covenant

of good faith and fair dealing, with leave to amend. Order at

12. This Court found that, under the applicable Michigan law as

required by the Retail Agreements choice of law provisions, it

would not recognize a claim for breach of the implied covenant

based on ambiguity, but only “where the contract leaves the

manner of one party’s performance to that party’s own

discretion.” Id. at 11-12. Further, the Court found that

Plaintiff’s original complaint “fails to allege any abuse of

discretion by Defendant.” Id. at 12. 

The FAC specifically alleges that “LZB has through it change

in its business model abused its discretion and acted in bad

faith with respect to the performance of the Agreements.” FAC

¶ 61. The Retail Agreements contain numerous provisions that

expressly grant Defendant discretion as to the particular

elements that comprise the Gallery Motif. Further, the FAC does

not pray for punitive damages on this claim in compliance with

this Court’s previous order dismissing Plaintiff’s request

without leave to amend. FAC at 31.

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6

Because the FAC expressly alleges an abuse of discretion in

Defendant’s performance of its contractual obligations and does

not plead this claim in tort, Defendant’s Motion to Dismiss the

claim for breach of the implied covenant of good faith and fair

dealing is denied.

2. Intentional and Negligent Misrepresentation (Gordon, Inc.

against Defendant)

In its previous order, this Court granted Defendant’s motion

to dismiss the claims of Gordon, Inc. for intentional and

negligent misrepresentation, with leave to amend. Order at 14.

Fed. R. Civ. P. 9(b) requires that “[i]n all averments of fraud

or mistake, the circumstances constituting fraud or mistake shall

be stated with particularity.” To meet this standard, the

allegations must identify the time, place, and content of the

alleged misrepresentation. Miscellaneous Serv. Workers, Drivers,

& Helpers, Teamsters Local #427 v. Philco-Ford Corp., 661 F.2d

776, 782 (9th Cir. 1981). A plaintiff must also plead facts

explaining why the statement was false when it was made. Fecht

v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995). This Court

found that Plaintiff’s original complaint “[did] not state the

specific content, recipient, times, or places” of the statements

alleged to contain misrepresentations nor did it explain why the

statements were false when made. Order at 13.

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7

 The particularity with which the FAC has been plead is

sufficient to meet the requirements of Rule 9(b). The FAC

specifically details numerous dates on which particular, false

statements allegedly were made by the Defendant, along with the

content of those statements, to whom they were made, and the

place at which they were made. See, e.g., FAC ¶¶ 26-27. The FAC

also alleges that the Defendant either “knew or should have

known” that the statements were false at the time of their

issuance. Id. ¶ 26.

To plead a cause of action for fraud, a plaintiff must

allege that 1) a defendant made a knowingly false representation

2) with an intent to defraud or to induce reliance, and that

3) the plaintiff acted in justifiable reliance and 4) sustained

damages as a result. Croeni v. Goldstein, 21 Cal. App. 4th 754,

758 (1994). Gordon, Inc. alleges with sufficient detail all the

elements required to state a claim for fraud. The FAC details

several statements that Defendant purportedly made with knowledge

of their falsity. See, eg., FAC ¶¶ 26-27. Gordon, Inc. also

avers that Defendant made these statements “with the intent to

deceive, defraud, and mislead.” Id. ¶ 66. The FAC further

alleges a plausible basis for the reliance of Gordon, Inc. on

these statements, and that damages resulted from Defendant’s

actions. Id. ¶¶ 68-69.

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8

To plead a cause of action for negligent misrepresentation,

a plaintiff must allege that 1) a defendant made a

misrepresentation of material fact, 2) without any grounds for

believing it to be true, 3) with the intent that plaintiff rely

on it, and that 4) the plaintiff did rely on the

misrepresentation, unaware of its falsity, and 5) sustained

damages as a result. Friedman v. Merck & Co., 107 Cal. App. 4th

454, 476 (2003). Gordon, Inc. alleges with sufficient detail all

the elements required to state a claim for negligent

misrepresentation. The FAC details several statements that

Defendant purportedly made that were false. See, eg., FAC ¶¶ 26-

32. Gordon, Inc. also avers that Defendant made these statements

with “no reasonable grounds for believing them to be true.” Id.

¶ 74. The FAC further alleges that Gordon, Inc. reasonably

relied on these statements and that damages resulted from

Defendant’s actions. Id. ¶¶ 68-69, 74-75.

Because the FAC meets the pleading requirements of Rule 9(b)

and also alleges the elements necessary to plead a cause of

action for fraud and negligent misrepresentation, Defendant’s

Motion to Dismiss the claims of Gordon, Inc. for intentional and

negligent misrepresentation is DENIED.

3. Intentional and Negligent Misrepresentation (Reegos against

Defendant)

In its previous order, this Court granted Defendant’s motion

to dismiss the Reegos in their individual capacities, with leave

to amend. Order at 15. 

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9

The Court did not resolve the dispute as to whether the

misrepresentation claims of the Reegos were injuries to them

personally or to Gordon, Inc. Id. The original complaint

alleged that “GORDON executed an agreement for the purchase of

real property.” Compl. ¶ 23. “GORDON” was defined to include

either the corporation, or the Reegos, or both. Id. ¶¶ 1-3. 

Thus the original complaint did not specifically allege that

misrepresentations were made to the Reegos in their individual

capacities.

The FAC specifically alleges that certain misrepresentations

were made to the Reegos in their individual capacities, as

opposed to solely as shareholders, with the aim of inducing the

Reegos to act in their individual capacities. Id. ¶¶ 80-81. In

acquiring the property in Rocklin in their individual capacities,

the Reegos did so act. Whether Defendant did in fact make

misrepresentations, and did so to the Reegos in their individual

capacities, is a fact issue subject to proof. 

The Reegos have met the requirements of Fed. R. Civ. P. Rule

9(b) regarding pleading with particularity the allegations of

intentional and negligent misrepresentation in the same manner

that Gordon, Inc. has plead. The FAC details the time, place,

and content of numerous statements made both to Gordon, Inc. via

the Reegos and Jim Reego himself. FAC ¶¶ 22-39. The FAC further

alleges that the Defendant knew or should have known that the

statements were false when made. Id. Further, the elements of

both intentional and negligent misrepresentation have been

sufficiently plead. Id. ¶¶ 22-39, 77-90.

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10

Because the FAC meets the pleading requirements of Rule 9(b)

and also alleges the elements necessary to plead a cause of

action for fraud and negligent misrepresentation, Defendant’s

Motion to Dismiss the intentional and negligent misrepresentation

claims of the Reegos is DENIED.

4. Final Judgment Pursuant to Rule 54(b).

Judgments made pursuant to Fed. R. Civ. P. are to be limited

to the “unusual case in which the costs and risk of multiplying

the number of proceedings and of overcrowding the appellate

docket are outbalanced by pressing needs of the litigants for an

early and separate judgment as to come claims or parties.”

Morrison-Knudsen Co. v. Archer, 655 F.2d 962, 965 (9th Cir.

1981). “A similarity of legal or factual issues will weigh

heavily against entry of judgment under the rule.” Id. In a case

with similar issues, a ruling under Rule 54(b) is appropriate

“only where necessary to avoid a harsh and unjust result.” Id.

The legal and factual issues in the case at bar contain

substantial similarities between the Plaintiffs Gordon, Inc. and

the Reegos. Further, Defendant has failed to identify any facts

pointing to a harsh and unjust result should this Court not grant

the relief it seeks. Accordingly, Defendant’s Motion to enter

final judgment pursuant to Fed. R. Civ. P. 54(b) as to the Reegos

is DENIED.

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CONCLUSION

For the reasons set forth above, Defendant’s Motion to

Dismiss Plaintiffs’ claims for relief two through six and Motion

to enter final judgment pursuant to Fed. R. Civ. P. 54(b) as to

the Reegos is DENIED.

IT IS SO ORDERED.

Dated: September 12, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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