Opinion
No. 2:12-cv-00891 JAM-CKD
04-03-2013
MILILANI GROUP, INC., Plaintiff, v. O'REILLY AUTOMOTIVE, INC., and CSK AUTO, INC. Defendants.
ORDER GRANTING DEFENDANTS'
MOTION TO DISMISS
This matter is before the Court on Defendants O'Reilly Automotive, Inc. ("O'Reilly"), and CSK Auto, Inc.'s ("CSK") (collectively "Defendants") Motion to Dismiss Plaintiff's Second Amended Complaint ("SAC") (Doc. #20). Plaintiff Mililani Group, Inc. ("Plaintiff") opposes the motion (Doc. #26) and Defendants replied (Doc. #28). For the following reasons, Defendants' motion is GRANTED.
This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for March 6, 2012.
I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
Defendants previously moved to dismiss all claims against O'Reilly and the waste claim; that motion was granted with leave to amend (Doc. #16). On December 18, 2012, Plaintiff filed its SAC (Doc. #17). In the SAC, Plaintiff alleges two causes of action against Defendants, the first for breach of contract and the second for waste. SAC ¶¶ 12-27. Defendants once more moved to dismiss all claims against O'Reilly and the waste claim (Doc. #20). Good cause having been shown, the Court granted Plaintiff leave to file a late opposition and gave Defendants a week to reply (Doc. #27).
Defendants also request judicial notice of several documents. Doc. #20. However, the Court finds these documents unnecessary for the determination of this motion and therefore, Defendants' request for judicial notice is denied.
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On or about August 29, 1988, CSK entered into a written lease agreement for warehouse and office space in Dixon, California (the "Property"). SAC ¶ 13. CSK vacated the Property on April 30, 2011. Id. ¶ 16. Plaintiff alleges that CSK breached the lease by failing to maintain insurance, maintain the Property, and return the Property to the condition required by the lease and its failure resulted in permanent diminution in value of the Property. Id. ¶ 25.
In addition, Plaintiff alleges that CSK merged with O'Reilly on July 11, 2008, and that since the merger, the day-to-day decisions regarding the Property were made by O'Reilly. Plaintiff further alleges that O'Reilly imposed unrealistic budgeting and financial goals on CSK that prevented CSK from carrying out the terms of the contracts to which it was obligated. Id. ¶¶ 6-8. Moreover, Plaintiff's management was allegedly informed that CSK managers had no control over spending decisions and budgets and that such decisions must be made by O'Reilly. Id.
II. OPINION
A. Legal Standard
A party may move to dismiss an action for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). In considering a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). Assertions that are mere "legal conclusions," however, are not entitled to the assumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To survive a motion to dismiss, a plaintiff needs to plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. Dismissal is appropriate where the plaintiff fails to state a claim supportable by a cognizable legal theory. Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).
Upon granting a motion to dismiss for failure to state a claim, the court has discretion to allow leave to amend the complaint pursuant to Federal Rule of Civil Procedure 15(a). "Dismissal with prejudice and without leave to amend is not appropriate unless it is clear . . . that the complaint could not be saved by amendment." Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).
B. Discussion
1. Alter Ego Liability
Defendants move to dismiss all claims against O'Reilly, contending that Plaintiff has failed to allege sufficient facts to establish alter ego liability. Plaintiff once again argues that it is not required to allege its claims in detail under the Federal Rules of Civil Procedure. Opp. at 2.
Federal courts apply the law of the forum state in determining whether to pierce the corporate veil. SEC v. Hickey, 322 F.3d 1123, 1128 (9th Cir. 2003) (citations omitted). Under California law, the corporate veil may be pierced when the corporation is the alter ego of a controlling shareholder. Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 537-38 (2000). Alter ego liability requires (1) "a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist" and (2) "an inequitable result if the acts in question are treated as those of the corporation alone." Id. at 538.
As discussed in the Court's previous Order, to pursue this theory of liability, a plaintiff must allege the elements of the doctrine and conclusory allegations are insufficient. Hokama v. E.F. Hutton & Co., Inc., 566 F. Supp. 636, 647 (CD. Cal. 1983). As to the first prong, Plaintiff provides general allegations that O'Reilly makes decisions for CSK through budgeting and management. However, these allegations are still too vague and do not include facts to show a unity of interest and ownership. See Wehlage v. EmpRes Healthcare, Inc., 791 F. Supp. 2d 774, 782-83 (N.D. Cal. 2011) (holding that broad allegations are not sufficient to show a unity of interest and ownership). As to the second prong, Plaintiff alleges, "Defendant O'Reilly acted in bad faith in that its refusal to permit CSK to perform the lease obligations constituted bad faith." SAC ¶ 9. This allegation is not only conclusory because Plaintiff provides no facts to show conduct amounting to bad faith, but also circular in logic because it assumes what Plaintiff is trying to prove. Therefore, Plaintiff has not satisfied the second prong.
Accordingly, the Court finds that Plaintiff has not alleged either element of alter ego liability and therefore, all claims against O'Reilly must be dismissed. Because Plaintiff has twice failed to state alter ego liability against O'Reilly, the Court does not grant leave to amend.
2. Waste Claim
Defendants also contend that the waste claim should be dismissed because Plaintiff has failed to plead facts to show a permanent depreciation in the Property's market value. Plaintiff rejoins that deliberately allowing the landscaping to die and the support columns to deteriorate is permanent damage to the building. Opp. at 3.
Waste is defined as an unlawful act or omission of duty on the part of a tenant, resulting in permanent injury to the property. Old Republic Ins. Co. v. Superior Court, 66 Cal.App.4th 128, 149 (1998) disapproved on other grounds by Vandenberg v. Superior Court, 21 Cal.4th 815, 982 P.2d 229 (1999) (citation omitted). To constitute waste, the market value of real property has to be permanently diminished. Smith v. Cap Concrete, Inc., 133 Cal.App.3d 769, 775 (1982). Proof of "conduct which has resulted in substantial depreciation of the market value of the land" establishes waste. Id.; see also Avalon Pac.-Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC, 192 Cal.App.4th 1183, 1215 (2011)(holding that "waste occurs when damage is sufficiently substantial and permanent to cause an injury to the reversion interest").
The Court previously held that Plaintiff could maintain this cause of action only if Plaintiff properly alleged permanent damage. Order at 7. Plaintiff argues that Defendants allowed the landscaping to die and the support columns to deteriorate placing the building in danger of falling, but those allegations are not found in the SAC and Plaintiff provides no facts that would allow Defendants or the Court to determine whether the Property's diminution in market value was permanent. Plaintiff only alleges that Defendants failure to maintain or repair the Property "resulted in the permanent diminution in value of the Premises beyond ordinary wear and tear." SAC ¶ 25. However, this bare assertion of a legal conclusion is insufficient to establish that the Property value was permanently diminished. Moreover, Plaintiff fails to allege that Defendants' conduct resulted in substantial damage. See Avalon Pac.-Santa Ana, L.P., 192 Cal.App.4th at 1215 (requiring permanent and substantial damage for a waste claim).
Accordingly, because Plaintiff has failed to allege sufficient facts for a waste claim, the Court dismisses Plaintiff's second cause of action. Plaintiff gives no indication of what more it could plead to state a claim, signaling that indeed there are no additional facts Plaintiff could include in the complaint were it granted leave to amend. Therefore, the Court dismisses this claim without leave to amend.
III. ORDER
For the reasons set forth above, Defendants' Motion to Dismiss is GRANTED WITH PREJUDICE. The case will proceed on the Second Amended Complaint on only the breach of contract claim against CSK. Further, Defendants' Motion to Strike Plaintiff's Second Amended Complaint (Doc. #18) is denied as moot.
IT IS SO ORDERED.
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JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE