Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01190/USCOURTS-caed-2_07-cv-01190-5/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 05:551 Administrative Procedure Act

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1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

DENNIS W. BALL, an individual,

NO. CIV. S-07-1190 LKK/DAD

Plaintiff,

v.

 O R D E R

MIKE JOHANNS, et al,

Defendants.

 /

The plaintiff for the purposes of this motion is the United

States of America, on behalf of its Department of Agriculture and

Farm Service Agency (“FSA”). It has brought a cross-claim against

Defendant PremierWest Bank (“Premier”) alleging various equitable

and legal claims to recover a Guarantee Loss Claim paid to

Defendant. This case was brought as a cross-claim to Ball v.

Johanns, which was consolidated with Ball v. Premier West Bank.

Pending before the court is Premier’s motion to dismiss FSA’s

cross-claim. The court resolves the motion on the parties’ papers

and after oral argument. For the reasons explained below, the

motion is granted in part and denied in part.

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1These allegations are taken from the Answer of the United States

and Third Party Complaint filed on November 1, 2007.

2

I. Background and Allegations1

Plaintiff, FSA, is a federal agency that acts as a loan

guarantor. It guarantees payment to secured lenders for a

certain amount of the guaranteed loan. Defendant, Premier, is a

banking corporation organized and existing under the laws of the

state of Oregon and is authorized to conduct business in the

state of California. The case-in-chief involves two

consolidated claims of individual debtor, Ball. The first claim

is for breach of contract and related claims against Premier for

submitting the Loss Claim to FSA after entering into a

Settlement Agreement that allegedly terminated all of Ball’s

debts. The second claim is against FSA under the Administrative

Procedures Act for accepting and paying Premier’s loss claim and

subsequently declaring that Ball owed FSA a federal debt. These

cases’ allegations were described more fully in the court’s

October 23, 2007 order.

In its cross-claim, FSA alleges that Premier is liable for

the amount paid on the loss claim if it was inappropriate for

Premier to submit the claim. Specifically, FSA alleges that if

Premier improperly submitted the loss claim, FSA had no duty to

pay and is entitled to receive either restitution from Defendant

or an award of damages. FSA’s cross-claim alleges four causes

of action: (1) unjust enrichment, (2) breach of contract, (3)

money had and received, and (4) money paid by mistake of law or

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2 The holding in Twombly explicitly abrogates the well established

holding in Conley v. Gibson that, "a complaint should 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 claim which would entitle him to relief." 355 U.S. 41, 45-46

(1957); Twombly, 127 S. Ct. at 1968.

3

fact.

II. Standard for Dismissal Under 

Federal Rule of Civil Procedure 12(b)(6)

In order to survive a motion to dismiss for failure to

state a claim, plaintiffs must allege "enough facts to state a

claim to relief that is plausible on its face." Bell Atlantic

Corp. v. Twombly, -- U.S. --, 127 S. Ct. 1955, 1974 (2007). 

While a complaint need not plead "detailed factual allegations,"

the factual allegations it does include "must be enough to raise

a right to relief above the speculative level." Id. at 1964-65. 

As the Supreme Court observed, Federal Rule of Civil

Procedure 8(a)(2) requires a "showing" that the plaintiff is

entitled to relief, “rather than a blanket assertion” of

entitlement to relief. Id. at 1965 n.3. Though such assertions

may provide a defendant with the requisite "fair notice" of the

nature of a plaintiff's claim, only factual allegations can

clarify the "grounds" on which that claim rests. Id. "The

pleading must contain something more. . . than . . . a statement

of facts that merely creates a suspicion [of] a legally

cognizable right of action." Id. at 1965, quoting 5 C. Wright &

A. Miller, Federal Practice and Procedure, § 1216, pp. 235-36

(3d ed. 2004).2

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4

On a motion to dismiss, the allegations of the complaint

must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322

(1972). The court is bound to give the plaintiff the benefit of

every reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6

(1963). In general, the complaint is construed favorably to the

pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),

overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800

(1982). That said, the court does not accept as true

unreasonable inferences or conclusory legal allegations cast in

the form of factual allegations. W. Mining Council v. Watt, 643

F.2d 618, 624 (9th Cir. 1981).

III. Analysis

In its third party complaint, FSA alleges four causes of

action: (1) unjust enrichment, (2) breach of contract, (3) money

had and received, and (4) money paid by mistake of law or fact. 

For reasons stated in the following analysis, the motion to

dismiss is denied as to the claims of unjust enrichment, breach

of contract, and money had and received. The motion to dismiss

is granted for the claim of money paid by mistake of law or

fact.

A. Unjust Enrichment

In order to prove unjust enrichment, a plaintiff must

establish three elements: (1) a benefit conferred on the

defendant by the plaintiff, (2) an appreciation or knowledge by

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3 To support this proposition, Defendant cites to the National

Appeals Division’s, Director Review Determination, In the Matter

of Ball and Farm Services Agency, case no. 2006W000130, dated

November 21, 2006 (hereafter “NAD Review”) at 6. Defendant requests

the court take judicial notice of it. 

A court may take judicial notice of a fact not subject to

reasonable dispute pursuant to Fed. R. Evid. 201(b) and Fed. R.

Evid. 201(d). Here, the National Appeals Division Review is capable

of accurate and ready determination and its contents derive from

a source whose accuracy cannot reasonably be questioned.

Furthermore, Defendant has complied with Federal Rule of Evidence

201(d) by requesting judicial notice and supplying the court with

a copy of the Review. Therefore, the court takes judicial notice

5

the defendant of the benefit, and (3) the acceptance or

retention by the defendant of the benefit under such

circumstances as to make it inequitable for the defendant to

retain the benefit without payment of its value. Van Gemert v.

Boeing Co., 590 F.2d 433 (2d Cir. 1978), aff’d, 441 U.S. 942

(1980). The doctrine of unjust enrichment is recognized where

there is no enforceable agreement between the parties on the

subject matter at issue or where no adequate legal remedy

exists. McKesson HBOC, Inc. v. New York State Common Retirement

Fund, Inc., 339 F.3d 1087, 1090 (9th Cir. 2003); Beth Israel

Medical Center v. Horizon Blue Cross and Blue Shield of New

Jersey, Inc., 448 F.3d 573 (2d Cir. 2006). Here, FAS alleges

that if Ball prevails in its case against FSA, then Premier has

been unjustly enriched by FSA’s payment to Premier on its Loss

Claim. 

1. Inconsistency with FSA’s Prior Assertions

Premier makes three arguments. First, Premier asserts that

FSA previously determined in its administrative proceeding that

it was proper for Premier to be paid for the Loss Claim.3

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of the National Appeals Division’s, Director Review Determination,

In the Matter of Ball and Farm Services Agency, case no.

2006W000130, dated November 21, 2006. To note the decision and its

contents, is, of course, different from noting its propriety.

4 According to Federal Rule of Civil Procedure 13(g), cross claims

need not be limited to definite or matured claims or causes of

action. In other words, cross claims may be brought on the basis

of claims of a contingent nature where the ultimate outcomes of the

claims depend on the determination of other features or issues in

the case. Therefore in this situation, the contingent nature of

FSA’s cross claims on resolution of the case-in-chief, does not bar

the cross claim.

6

Premier argues that a court finding in favor of Ball against FSA

would do nothing to change the basis of FSA’s prior conclusion

that payment of the Loss Claim to Premier was proper. The court

is not persuaded by this argument. 

 If Ball prevails in his claims against Premier, the

factfinder necessarily will have determined that Premier acted

improperly in submitting the loss claim to FSA. This finding

against Premier could affect the basis of FSA’s conclusion in

its administrative proceedings that its payment to Premier was

proper. Since the determinative issues on which the cross-claim

depends are inextricably linked to the consolidated case-inchief and have yet to be resolved, it is premature to dismiss

this argument for failure to state a claim.4 Consequently, it

appears that there are potential facts supporting FSA’s claim

that Premier inequitably retained the benefit of payment of the

Loss Claim. See Twombly, 127 S. Ct. at 1968.

2. Effect of the Express Contract On FSA’s Unjust

Enrichment Claim

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Second, Premier maintains that the Lender’s Agreement

between it and FSA governs the issue of FSA’s payment to Premier

in response to the filing of the Loss Report, and that FSA has

conceded this by pleading a breach of contract claim. Premier

argues, therefore, that the existence of the contract precludes

FSA’s claim for unjust enrichment. See McKesson HBOC, Inc., 339

F.3d at 1090. 

Here, FSA has pled that the Lender’s Agreement was an

express contract between the parties. However, pursuant to

Federal Rule of Civil Procedure 8(e)(2), the plaintiff may plead

alternative, inconsistent theories. See, e.g., In re Wal-Mart

Wage and Hour Employment Practices Litigation, 490 F. Supp. 2d

1091, 1117 (D.Nev. 2007). Furthermore, the liberal policy

reflected in Rule 8(e)(2) instructs courts not to construe a

pleading “as an admission against another alternative or

inconsistent pleading in the same case.” McCalden v. Cal.

Library Ass’n, 955 F.2d 1214, 1219 (9th Cir. 1990)(quoting

Molsbergen v. United States, 757 F.2d 1016, 1019 (9th Cir.

1985). Thus, Plaintiff’s claim for unjust enrichment should not

be barred despite the simultaneous claim for breach of contract. 

To the extent the Plaintiff is ultimately able to prevail on a

legal breach of contract theory, the Plaintiff will be barred

from also recovering under an equitable claim for unjust

enrichment. See E.H. Boly & Son, Inc. v. Schneider, 525 F.2d

20, 23 n.3 (9th Cir. 1975). However, if the factfinder

determines that the terms of the Lender’s Agreement did not

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8

govern the conduct in dispute in the cross-claim, then the

unjust enrichment claim is proper. See McKesson HBOC, Inc., 339

F.3d at 1090; Van Gemert, 590 F.2d 433 

3. Unclean Hands

Third, Defendant argues that if the court finds in favor of

Ball against FSA, this requires a determination that FSA did not

act equitably and thus is not entitled to an equitable remedy

against Premier. Defendant specifically maintains that “one

seeking equity must do equity.” In re. Beaty, 306 F.3d 914, 925

(9th Cir. 2002). Since unjust enrichment is an equitable

doctrine, Defendant asserts that a finding for Ball against FSA

precludes an equitable remedy for FSA against Premier.

FSA’s duty to pay Premier does not revolve around the

concept of equitable behavior by FSA. While the court in Beaty

did state that debtors who have “unclean hands” may not invoke

laches, the court further explained that debtors also fail to

comply with their obligations innocently, inadvertently and in

good faith. Beaty, 306 F.3d at 925-26. The Beaty court held

that the debtor in that case did not have “unclean hands”

because the debtor’s actions were inadvertent. Id. at 926. The

Beaty court did not clearly state the standard for finding

“unclean hands” but implied that “unclean hands” might be

avoided if there is inadvertent or innocent behavior in good

faith. 

Based on the pleadings in the cross-claim and the cases in

chief, it appears that FSA’s conduct as alleged by Ball in Ball

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v. Johanns would not constitute “unclean hands,” as there is no

suggestion of FSA’s willfull impropriety. As the court

understands Ball’s causes of actions, he alleges that, at most,

FSA’s acts were negligent in its payment of the Loss Claim. This

is not the type of conduct that would prevent FSA from

subsequent recovery from Premier on equitable principles. See

Beaty, 306 F.3d at 925-26. 

Furthermore, since the court has yet to determine whether

Premier properly submitted the Loss Claim to FSA and whether FSA

acted properly in accepting and paying the loss claim, it is

premature to dismiss FSA’s claim for unjust enrichment against

Premier. Premier’s motion to dismiss FSA’s first cause of action

is therefore denied. 

B. Breach of Contract

FSA also alleges that if Premier was precluded by its

Settlement Agreement with Ball from filing a Loss Claim with

FSA, Premier breached the terms of its Lender’s Agreement with

FSA. Premier argues that FSA had already determined in its

administrative proceedings that if Premier breached its Lender’s

Agreement with FSA by failing to keep FSA informed of the

settlement, the breach was not substantive. Premier contends

that FSA’s opinion and subsequent performance constitutes a

waiver of any alleged breach. Cutting v. Bryan, 30 F.2d 754,

756 (9th Cir. 1929).

Premier’s argument that Plaintiff waived any alleged breach

through agency proceedings and subsequent performance is not

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persuasive. In Cutting, 30 F.2d at 756, the court simply held

that the “acceptance of acts of performance may operate as a

waiver of strict or complete compliance.” FSA’s administrative

decision does not constitute waiver as a matter of law, and

Premier has presented no authority to indicate that it does. A

factfinder reasonably could conclude that FSA’s administrative

decision was based on the assumption that Premier’s Loss Claim

was lawful, in that it properly stated that there was a balance

on the loan to which Premier was entitled, but that it did not

constitute a knowing waiver of FSA’s rights under the Lender’s

Agreement. Consequently, there are facts sufficient to state a

claim for breach of contract that is plausible on its face. 

Twombly, 127 S. Ct. at 1974.

C. Money Had and Received

FSA’s third cause of action seeks restitution from Premier

if the court finds FSA had no duty to pay the Loss Claim to

Premier. In order to succeed on an action for money had and

received, the plaintiff must show that what the defendant has

received should in good conscience be returned to plaintiff. 

Independent Order of Foresters v. Donald, Lufkin & Jenrette,

Inc., 157 F.3d 933 (2d Cir. 1998); Dickey v. Royal Banks of

Missouri, 111 F.3d 580 (8th Cir. 1997). As Defendant properly states,

a claim for “money had and received” is a legal claim, although it is subject to

equitable principles. Myers v. Hurley Motor Co., 273 U.S. 18, 24-5

(1927).

////

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1. Unclean Hands

Premier reasserts its “unclean hands” argument that a court

finding in favor of Ball against FSA will necessarily lead to

FSA’s “unclean hands” and preclude the equitable remedy FSA

seeks. The court rejects this argument for the reasons stated

in section A.3, supra.

2. Judicial Deference to Agency Determinations

Second, Defendant argues that FSA’s cause of action asks

the court to review the correctness of FSA’s own agency

determination that payment to Premier was proper where the

standard of review is deference to agency determinations. This

implies that the court should affirm the FSA’s decision that

Ball owes a federal debt to the FSA. See Morgan v. United

States, 304 U.S. 1, 18 (1938)(stating the deferential standard

for judicial review of agency decisions); Love v. Thomas,

Administrator, Environmental Protection Agency, 858 F.2d 1347,

1356 (9th Cir. 1988).

The court cannot accept Premier’s characterization of FSA’s

cause of action. FSA is not asking for the court to review the

correctness of its own Agency determinations. Instead, FSA’s

claim alleges that Premier acted unlawfully in submitting the

Loss Claim to FSA, which caused FSA to erroneously pay the

claim. FSA alleges in its opposition to Premier’s motion and at

oral argument that the administrative proceedings did not

inquire into the factual validity of the loss Premier asserted

in its Loss Claim, and that the FSA presumed that the claim was

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made in good faith. As such, while the standard of judicial

deference is relevant to the court’s determination of issues in

Ball’s action against FSA, this standard is irrelevant to the

determination of Premier’s liability for submitting its Loss

Claim to FSA. Premier’s motion to dismiss must be denied as to

this cause of action. 

D. Money Paid by Mistake of Law or Fact

Finally, FSA has brought a claim seeking restitution if the

court finds that FSA was misled by Premier submitting its Loss

Claim to FSA and FSA had no factual or legal duty to pay said

claim. Mistake of law arises when (1) there is a

misapprehension of the law by all parties, and (2) there is a

misapprehension of the law by one party of which the other party

is aware at the time of contracting but which they do not

rectify. Cal. Civ. Code § 1578. Mistake of fact, on the other

hand, arises when (1) an unconscious ignorance or forgetfulness

of a fact past or present that is material to the contract, and

(2) belief in the present existence of a thing material to the

contract which does not exist or in the past existence of such a

thing which has not existed. Cal. Civ. Code § 1577. 

Furthermore, mistake in judgment alone is not a basis for

avoiding a contract or transaction. MWS Wire Industries, Inc.

v. California Fine Wire Co., 797 F.2d 799, 803 (9th Cir. 1986);

American Nat’l Ins. Co. v. Continental Parking Corp., 42 Cal.

App. 3d 260, 267 (1974). The doctrine of mistake of fact or law

is utilized in the context of consent to a contract. Cal Civ.

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Code § 1567(5); Cal. Civ. Code § 3391(4). Thus, a mistake of

law or fact satisfying the requirements of the law will form the

basis for an affirmative action for rescission. Cal. Civ. Code

§ 1689(b)(1).

First, Premier argues that the doctrine of mistake is an

affirmative defense and mistake must be mutual or made where the

other party knows of the mistake. Here, FSA does not plead that

the Lender’s Agreement should be rescinded. Moreover, even if

FSA did plead this, it is doubtful that it could be pled as a

cause of action, since it is an affirmative defense if Premier

sought to enforce the contract against FSA.

Furthermore, Premier is correct in pointing out that FSA

does not point to any specific facts that FSA mistook at the

time of contract formation with Premier via the Lender’s

Agreement. In addition, FSA’s cross-claim pleads no facts as to

what facts or law FSA misapprehended at the time of contracting.

On this basis, the claim must fail. Twombly, 127 S. Ct. 1965.

To the extent the FSA intended to plead actual or

constructive fraud, it has not done so. In order to prove a

claim of actual fraud, the plaintiff must demonstrate the

following elements: (1) a false material assertion, (2)

knowledge of the falsity or a high degree if disregard for

whether the assertion was correct, (3) intention to induce the

plaintiff to act or refrain from action, (4) justifiable

reliance on the assertion, and (5) damage to the plaintiff. 

Coffel v. Stryker Corp., 284 F.3d 625 (5th Cir. 2002); Southern

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5

Premier’s additional arguments, alleging FSA acted with

unclean hands and that the court should defer to agency

determinations, were considered and rejected in section III.C,

supra. 

14

Union Co. v. Southwest Gas Corp., 180 F. Supp. 2d 1021 (D. Ariz.

2002)(applying California law). The elements for constructive

fraud are similar although knowledge of the falsity is not

required. In re Harmon, 250 F.3d 1240 (9th Cir. 2001)(applying

California law). Neither these elements nor the facts comprising

them have been pled in FSA’s cross-claim.5

The court therefore grants the motion to dismiss this

count, as FSA has not plead a cause of action on which relief

may be granted. See Twombly, S. Ct. at 1965 n.3.

IV. Conclusion

For the reasons explained above, Defendant’s motion to

dismiss is GRANTED as to FSA’s fourth cause of action and DENIED

as to FSA’s first, second, and third causes of action. FSA is

granted leave to amend.

IT IS SO ORDERED.

DATED: January 29, 2008.

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