Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-00955/USCOURTS-azd-2_07-cv-00955-0/pdf.json

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

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WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

John Covington and Deborah Covington,

Plaintiffs, 

vs.

Patriot Motorcycles Corp., et al., 

Defendants. 

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No. CV-07-0955-PHX-FJM

ORDER

The court has before it defendants Dick Simon and Dianne Simon’s motion to dismiss

(doc. 25), plaintiffs’ response (doc. 28), and defendants’ reply (doc. 29). Plaintiffs have

alleged seven counts against multiple defendants. Defendants move to dismiss the only three

counts of the amended complaint (doc. 25) that apply to them. For the reasons below, the

motion is granted in part and denied in part.

I.

The first amended complaint alleges the following facts. Plaintiffs, residents of

Arizona, were shareholders and officers of a motorcycle manufacturing business called

Surgical-Steeds Classic American Motorcycles, Inc. (“Surgical-Steeds”). In July 2005,

plaintiffs sold some of their Surgical-Steeds assets to Patriot Motorcycles Corp. (“Patriot”),

a Nevada corporation that conducts business in Arizona, and entered into employment

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agreements with Patriot. Plaintiffs also owned various registered trademarks associated with

the Surgical-Steeds brand and later licensed several of them to Patriot. The relationship

quickly soured. In October 2006, Patriot asked plaintiffs to repurchase some of the assets;

when plaintiffs refused, Patriot terminated their employment agreements.

Of the seven claims brought by plaintiffs, only three (counts I, VI, and VII) apply to

Dick and Dianne Simon (“defendants”), both residents of California. Dick Simon is a former

employee and shareholder of Patriot. Generally, the complaint alleges that Mr. Simon made

misleading statements to entice plaintiffs to transact with Patriot, that he contributed to the

misuse of the licensed trademarks, and that he sold Patriot stock without a broker’s license.

Count I alleges breach of contract; count VI alleges common law fraud; and count VII alleges

aiding and abetting tortious conduct, namely, violation of the Lanham Act and state unfair

competition law. Dianne Simon has never worked for Patriot and is named in this action

only because she is the wife of Dick Simon, whose “actions were for the benefit of their

marital community.” Complaint ¶ 4. 

II.

We first address defendants’ contention that “Dianne Simon is not personally liable

under any of the counts contained in the complaint by reason of marriage.” Motion to

Dismiss at 11. The contention misses the point. Dianne Simon was named solely to help

plaintiffs reach community property in the event of a monetary judgment. Under Arizona

law, for example, one spouse acting “for the benefit of the community” can incur community

debts, but both spouses must be joined as defendants in order for a judgment creditor to reach

community assets. A.R.S. § 25-215(d). Where an action is based on one spouse’s unilateral

conduct, the joinder requirement is not to pin personal liability on the “innocent” spouse;

rather, it is to give that spouse an opportunity to contend that the underlying conduct was not

for the benefit of the community. 

Defendants suggest that only California community property law applies in this

action. If that is so, and if under California law joinder of both spouses is unnecessary for

judgment creditors to reach community assets, then we would see no need for Dianne Simon

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to continue as a defendant in this matter, and we would dismiss all claims against her.

Defendants preserve the right to make such a showing, but we believe that it has not been

made sufficiently at this time.

III.

We now address the substantive allegations. In Count I, headed “Breach of

Employment Agreements/Wrongful Termination,” plaintiffs allege that “Patriot, in

conjunction with the individual defendants [including Mr. Simon], breached the employment

agreement[s].” Complaint ¶ 26. However, Mr. Simon cannot be liable for breach of

contract, because he was not a party to the employment agreements between plaintiffs and

Patriot.

Plaintiffs also allege that Mr. Simon “aided and abetted the breach of the employment

agreement between Patriot and [plaintiffs].” Complaint ¶ 28. Defendants contend that aiding

and abetting breach is not a cause of action. In response, plaintiffs support their allegation

by advancing two tort theories: aiding and abetting tortious conduct and tortious interference

with contract. Response at 4. The first theory, aiding and abetting tortious conduct, is

inappropriate in count I because plaintiffs allege that Mr. Simon abetted breach of contract,

which by itself is not tortious conduct. Despite the complaint heading, plaintiffs do not, and

probably could not, plead an independent tort of “wrongful discharge,” on which to anchor

liability for aiding and abetting. 

Defendants contend that the second theory, tortious interference with contract, fails

on the merits. We do not reach the merits. Even reading the complaint in the light most

favorable to the non-moving party, plaintiffs have not pled tortious interference with

contract; the theory was raised for the first time in their response. Count I against defendants

is dismissed.

IV.

In count VI, plaintiffs allege common law fraud. Defendants contend that the claim

was not pled in accordance with the Federal Rules of Civil Procedure, and we agree. “In all

averments of fraud or mistake, the circumstances constituting fraud shall be stated with

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particularity.” Rule 9(b), Fed. R. Civ. P. This rule applies to state-law claims brought in

federal court. Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103 (9th Cir. 2003). Where, as

in this action, fraud is alleged against multiple defendants, Rule 9(b) does not allow blanket

allegations; rather, it requires plaintiffs to “inform each defendant separately of the

allegations surrounding his alleged participation in the fraud.” Swartz v. KPMG LLP, 476

F.3d 756, 765 (9th Cir. 2007).

The complaint alleges that “numerous representation were made by the Individual

Defendants in both their individual and corporate capacities that were false.” Complaint

¶ 13. The complaint includes four characterizations of Patriot’s business practices as

examples, but without identifying the speaker. Id. In this action, plaintiffs have named one

corporate defendant and six individual defendants. All seven are grouped together in the

fraud claim with no attempt to identify who said what to whom, when. While we do not

expect plaintiffs to aver the exact date and time that statements were made, Mr. Simon must

be given more notice of the allegations against him. See Vess, 317 F.3d at 1106. Because

fraud is a serious allegation, which impugns the character of a defendant, plaintiffs may not

allege fraud with the hope of building a case in discovery. The strictures of Rule 9(b) might

be relaxed in extreme circumstances where a plaintiff is denied access to the information

necessary for specific allegations, but plaintiffs have made no showing that this is such an

extreme case. If plaintiffs are able, consistent with their Rule 11 obligations, to allege fraud

in a way that comports with Rule 9(b), they will have to amend the complaint. Count VI

against defendants is dismissed.

V.

In count VII, headed “Aiding and Abetting Tortious Conduct,” plaintiffs allege that

Mr. Simon “aided and abetted Patriot to violate its contracts with [plaintiffs], to commit

unfair competition and to violate the Lanham Act.” Complaint ¶ 60. Defendants deny the

existence of such a cause of action, but it is clearly recognized in both Arizona and

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We do not at this point have sufficient facts to decide whether Arizona or California

law applies to count VII.

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California.1 Wells Fargo Bank v. Ariz. Laborers Local 395 Pension Trust Fund, 201 Ariz.

474, 485, 38 P.3d 12, 23 (2002) (“[A] person who aids and abets a tortfeasor is himself liable

for the resulting harm to a third person”); Sindell v. Abbott Labs., 607 P.2d 924, 932 (Cal.

1980); see also Restatement (Second) of Torts § 876(b) (stating that a person may be liable

for providing “substantial assistance or encouragement” to the tortious conduct of another).

Therefore, defendants’ motion to dismiss count VII, which was not reiterated in the reply

brief, is denied. However, as explained above, aiding and abetting tortious conduct cannot

be rooted in breach of contract, which is not tortious conduct. Therefore, any aiding and

abetting claim must be connected to unfair competition or Lanham Act violations.

VI.

For the foregoing reasons, IT IS ORDERED GRANTING the motion to dismiss

counts I and VI of the first amended complaint against Dick Simon and Dianne Simon, and

IT IS FURTHER ORDERED denying the motion to dismiss count VII. Plaintiffs shall

have to and including November 2, 2007, to file a second amended complaint. Pursuant to

Rule 15(a), Fed. R. Civ. P., defendants shall have ten days from the filing of the second

amended complaint to file an answer. If no second amended complaint is timely filed,

defendants shall have to and including November 9, 2007, to answer count VII of the first

amended complaint.

DATED this 29th day of October, 2007.

 

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