Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-00573/USCOURTS-azd-2_08-cv-00573-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1332 Diversity-Fraud

---

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

WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Paradigm Precision Holdings, LLC, a

Delaware limited liability company, 

Plaintiff, 

vs.

Prospect Manufacturing d/b/a Sonic

Machine and Tool, LLC, an Arizona

limited liability company; John Mohnach

and Sharon Mohnach, husband and wife;

Scott Mohnach and Jennifer Reiner,

husband and wife, 

Defendants. 

Prospect Manufacturing d/b/a Sonic

Machine and Tool, LLC, an Arizona

limited liability company,

Counterclaimant,

vs.

Paradigm Precision Holdings, LLC, a

Delaware limited liability company and

Smith West LLC, a Delaware limited

liability company,

Counterdefendants

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. 08-CV-00573-PHX-FJM

ORDER

Case 2:08-cv-00573-FJM Document 68 Filed 09/24/08 Page 1 of 5
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 -

The court has before it counterdefendant Smith West LLC’s (“Smith West”) motion to

dismiss (doc. 45), counterclaimant Prospect Manufacturing d/b/a Sonic Machine and Tool

LLC’s (“Sonic”) response (doc. 48), and counterdefendant’s reply (doc. 54). 

I

Both Smith West and Sonic manufacture and sell precision machine parts for the

aerospace industry. Smith West is a wholly-owned subsidiary of Paradigm Precision

Holdings, LLC (“Paradigm”). Paradigm brought this action against the defendants

alleging several causes of action, most of which stem from a supply agreement between

Sonic and Smith West. Paradigm asserts that it is the proper party to bring this action

because it has been assigned all of Smith West’s rights and obligations under the supply

agreement. Motion to Dismiss at 2-3. 

Sonic filed a counterclaim against both Paradigm and Smith West for breach of the

supply agreement. Although not a party to the supply agreement, Sonic joined Paradigm

as a counterdefendant because Paradigm “claims in the Complaint that it is the successor

to [Smith West] and/or a permitted assignee of [Smith West] under the Agreement.” 

Answer and Counterclaim at 17. Smith West now moves to dismiss the counterclaim as

to itself arguing that Sonic consented to Smith West’s assignment of the supply

agreement. Smith West’s argument is based on an email exchange between lawyers for

Sonic and Smith West between May 6 and May 27, 2008. 

II

Smith West does not state under which federal rule of civil procedure it brings this

motion. Because it is styled as a motion to dismiss, we treat it as one under Rule

12(b)(6), Fed. R. Civ. P. 

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

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

2006). Evidence outside the pleadings may be considered if the complaint “necessarily

relies” on a document and “(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

Case 2:08-cv-00573-FJM Document 68 Filed 09/24/08 Page 2 of 5
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 -

attached to the 12(b)(6) motion.” Id. A court may also consider evidence outside the

pleadings if the motion to dismiss is converted to a motion for summary judgment. Fed.

R. Civ. P. 12(d); Cunningham v. Rothery (In re Rothery), 143 F.3d 546, 549 (9th Cir.

1998). 

Sonic’s counterclaim could not have necessarily relied on the emails attached to Smith

West’s motion because they were created after the counterclaim was filed. If we consider

this email exchange, we must convert Smith West’s motion to dismiss into a motion for

summary judgment. We will exercise our discretion to do so. Because both parties have

referred to matters outside of the pleadings, they have been ‘fairly apprised’ that the court

would be deciding a motion for summary judgment. Cunningham, 143 F.3d at 549. This

issue has been fully briefed, and further discovery is unlikely to lead to additional

relevant evidence. 

III

The parties do not dispute that Sonic consented to Smith West’s assignment of

contractual rights to Paradigm. They dispute, however, the effect of that consent. Sonic’s

lawyer, Mr. Gallagher, stated in his May 6, 2008 email:

Our clients have agreed to consent to the assignment of the Sonic

Agreement from Smith West, LLC (“Smith West”) to [Paradigm].

[Paradigm’s] Reply Memorandum of Law in Further Support Of Its

Application states (at 6) that “Smith West, LLC ... has authorized its parent,

[Paradigm], to prosecute these claims, and has assigned its claims under the

Agreement to [Paradigm].” (Emphasis added).

Motion to Dismiss, Ex. 4 (emphasis in original). Smith West claims that Sonic has

agreed to the assignment without restrictions and without retaining any rights to

enforce obligations against Smith West. Motion to Dismiss at 6. Sonic counters

that its consent was to an assignment of rights only and that Smith West remains

liable under the supply agreement. We agree.

A party to a contract does not avoid contract obligations by simply assigning

that contract. Grant v. Harper, 29 Ariz. 41, 44, 239 P. 296, 297 (1925). An

assignment does not “discharge[] any duty or liability of the delegating obligor”

Case 2:08-cv-00573-FJM Document 68 Filed 09/24/08 Page 3 of 5
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 -

unless agreed to by the obligee. Restatement (Second) of Contracts, § 318 (3)

(1981). To avoid liability, Smith West must show that Sonic agreed to Smith

West’s assignment of both claims and liabilities to Paradigm. Id. § 318 cmt. d

(“An obligor is discharged by the substitution of a new obligor only if the contract

so provides or if the obligee makes a binding manifestation of assent, forming a

novation.”).

Smith West claims that Sonic consented to a general assignment of the supply

agreement, thereby releasing Smith West of its liabilities. Smith West has shown

no evidence, however, of a general release other than pointing to the language of

Sonic’s consent. Taken in context, Sonic’s consent neither expressly nor impliedly

released Smith West of its liabilities. Consent was only granted while specifically

emphasizing that the assignment had been characterized by Paradigm as an

assignment of claims under the agreement. 

Smith West also argues that Sonic has assented to a novation in substance. A

novation, or the complete substitution of one party for another, requires the assent

of all parties involved. Catalina Groves, Inc. v. Oliver, 73 Ariz. 38, 42, 236 P.2d

1022, 1025 (1951); see also Dunbar v. Steiert, 31 Ariz. 403, 405, 253 P. 1113,

1114 (1927). Assent may be shown by either express words, facts and

circumstances surrounding the transaction, or the conduct of parties. Catalina, 73

Ariz. at 42, 236 P.2d at 1025. The intent of the parties is the determining factor in

whether a novation has been accomplished. Id.

Smith West fails to show that Sonic agreed to a novation in substance. First,

Sonic did not expressly agree to substitute Paradigm as a party to the supply

agreement. Motion to Dismiss, Ex. 4. Second, after consenting to the assignment,

Sonic dropped its challenge to Paradigm’s standing, but refused to drop its breach

of contract claim against Smith West. Sonic’s actions are consistent with and

show a clear intent to consent to an assignment of rights and not a novation. 

Case 2:08-cv-00573-FJM Document 68 Filed 09/24/08 Page 4 of 5
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 -

We conclude that Sonic’s consent to the assignment did not alleviate Smith

West of its liability under the supply agreement. 

IV

Smith West also argues that, in the absence of general consent by Sonic,

Paradigm should be allowed to amend its complaint to substitute Smith West as the

proper plaintiff. Reply at 7. But no such motion is before us. The plaintiff,

Paradigm, is the proper party to move for leave to amend its pleadings. Fed. R.

Civ. P. 15(a)(2) (“a party may amend its pleading”). Even were Smith West the

proper party to make such a motion, it has failed to comply with the local rules. A

party who moves for leave to amend “must attach a copy of the proposed amended

pleading as an exhibit to the motion.” LRCiv 15.1. Finally, if it is the case that

Smith West has assigned its rights under the contract to Paradigm, Smith West no

longer owns those rights and thus would not be able to enforce them as a plaintiff

here. 

V

Accordingly, IT IS ORDERED DENYING counterdefendant’s motion to

dismiss (doc. 45).

DATED this 24th day of September, 2008.

Case 2:08-cv-00573-FJM Document 68 Filed 09/24/08 Page 5 of 5