EDWARD J. LODGE, District Judge.
On November 17, 2009, United States Magistrate Judge Ronald E. Bush issued a Report and Recommendation (Docket No. 39) in this matter. Pursuant to 28 U.S.C. § 636(b)(1), the parties had ten days in which to file written objections to the Report and Recommendation. No objections were filed by the parties.
Pursuant to 28 U.S.C. § 636(b)(1)(C), this Court "may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge." Moreover, this Court "shall make a de novo determination of those portions of the report which objection is made." Id. In United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir.2003), the court interpreted the requirements of 28 U.S.C. 636(b)(1)(C):
See also Wang v. Masaitis, 416 F.3d 992, 1000 & n. 13 (9th Cir.2005). In this case, no objections were filed so the Court need not conduct a de novo determination of the Report and Recommendation.
RONALD E. BUSH, United States Magistrate Judge.
The Court has before it Defendant National City Mortgage Co.'s ("National City") Motion to Dismiss First Amended Complaint (Docket No. 21). Having carefully reviewed the record, considered oral arguments, and otherwise being fully advised, the Court enters the following Report and Recommendation:
Plaintiff Headwaters Construction Company ("Headwaters") filed its initial Complaint on January 15, 2009 in the Seventh Judicial District of the State of Idaho, in
Headwaters' First Amended Complaint alleges the following nine Counts against National City, arising out of loans between National City and a number of construction loan borrowers: (1) Count I: Unjust Enrichment; (2) Count II: Intentional Interference with Contract; (3) Count III: Negligent Interference with Contract; (4) Count IV: Breach of Contract (Assignment); (5) Count V: Breach of Contract (Third-Party Beneficiary); (6) Count VI: Promissory Estoppel; (7) Count VII: Lender Liability; (8) Count VIII: Negligence; and (9) Count IX: Priority of Liens. See First Am. Compl., pp. 19-31 (Docket No. 16). National City seeks dismissal of Counts I, III, IV, V, VI, VII, and VIII. See Mem. in Supp. of Mot. to Dismiss, p. 1 (Docket No. 22).
On July 6, 2009, Headwaters filed an Opposition to National City's pending Motion to Dismiss (Docket No. 27). The next day, on July 7, 2009, Headwaters also filed its Second Amended Complaint (Docket No. 28); two days later, however, Headwaters withdrew its Second Amended Complaint (Docket No. 29). Regardless, within its Opposition, Headwaters indicates that it "does not oppose the dismissal of [Count VI: Promissory Estoppel] without prejudice at this time." See Opp. to Mot. to Dismiss, p. 6 (Docket No. 27).
FRCP 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). While a complaint attacked by an FRCP 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955.
A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556, 127 S.Ct. 1955. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of `entitlement to relief.'" Id. at 557, 127 S.Ct. 1955.
In a more recent case, the Supreme Court identified two "working principles"
Providing too much in the complaint may also be fatal to a plaintiff. Dismissal may be appropriate when the plaintiff has included sufficient allegations disclosing some absolute defense or bar to recovery. See Weisbuch v. County of L.A., 119 F.3d 778, 783, n. 1 (9th Cir.1997) ("If the pleadings establish facts compelling a decision one way, that is as good as if depositions and other . . . evidence on summary judgment establishes the identical facts.").
A dismissal without leave to amend is improper unless it is beyond doubt that the complaint "could not be saved by any amendment." Simpson, 452 F.3d at 1046. The Ninth Circuit has held that "in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss and Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242, 247 (9th Cir.1990). "`The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" See Hydrick v. Hunter, 466 F.3d 676, 685 (9th Cir.2006) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).
Under FRCP 12(b)(6), the Court may consider matters that are subject to judicial notice. Mullis v. United States Bankruptcy, 828 F.2d 1385, 1388 (9th Cir. 1987). The Court may take judicial notice "of the records of state agencies and other undisputed matters of public record" without transforming the motions to dismiss into motions for summary judgment. Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 (9th Cir. 2004). The Court may also examine documents referred to in the complaint, although not attached thereto, without transforming the motion to dismiss into a motion for summary judgment. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir.2005).
Headwaters concedes dismissal of Count VI of its First Amended Complaint. See supra at p. 1186. Accordingly, the Court will grant National City's Motion to Dismiss with respect to Headwaters' promissory estoppel claim. National City also seeks dismissal of Counts I, III, IV, V, VII, and VIII. The Court will address each Count below:
"A prima facie case of unjust enrichment consists of three elements: (1) there was a benefit conferred upon the defendant by the plaintiff; (2) appreciation by the defendant of such benefit; and (3) acceptance of the benefit under circumstances that would be inequitable for the defendant to retain the benefit without payment to the plaintiff for the value thereof." See Mem. in Supp. of Mot. to
Within its Motion to Dismiss, National City seems to raise two distinct arguments. First, National City claims that it does not own each of the ten properties referenced in Headwaters' First Amended Complaint and, therefore, could not have received the requisite benefit(s) to support an unjust enrichment claim. See id. at pp. 3-4 ("For purposes of a motion to dismiss pursuant to FRCP 12(b)(6), Headwaters must at least allege a benefit conferred on National City, rather than merely speculate as to a potential future benefit."). Second, National City claims that Headwaters failed to exhaust its remedies against the borrowers before seeking recovery from National City itself. See id. at p. 4 ("Because Headwaters seeks to use the theory of unjust enrichment to collect from National City amounts owed by the [b]orrowers under their construction contracts, prior to exhausting all its remedies against the [b]orrowers, the Court should dismiss Headwaters' claim for unjust enrichment in its entirety.").
The Court agrees that, in not alleging ownership of all ten properties, Headwaters' unjust enrichment claim is compromised. Indeed, Headwaters' First Amended Complaint clearly states that only two of the ten properties are actually owned by National City:
See First Am. Compl., pp. 19-20, ¶ 126 (Docket No. 16); see also id. at p. 20, ¶ 127 ("Based upon recent trustee sales for houses in the Teton Springs development in Victor, Idaho, almost all of which have produced no bidders, Headwaters expects that National City will credit bid and take ownership of the houses described herein." (Emphasis added)). Contemplated ownership and, likewise, anticipated benefit is not enough to suggest a conferred benefit upon National City as to eight of the above-referenced properties. Still, Headwaters adequately alleges National City's ownership of two properties—the Gonzales and Kosowicz houses. See id. at ¶ 126.
Other than disputing the allegation itself (see Mem. in Supp. of Mot. to Dismiss, p. 3, n. 1 (Docket No. 22)), National City offers no argument that, as to these two discrete properties, Headwaters asserts a conferred benefit upon National City. See id. at p. 4 ("Because National City does not own eight of the ten properties improved by Headwaters, and Headwaters fails to allege any other benefit conferred on National City, Headwaters' Complaint fails to state a claim for unjust enrichment as to those eight properties." (Emphasis added)); see also Reply in Supp. of Mot. to Dismiss, p. 3 (Docket No. 30) ("Because Headwaters fails to plead National City received any benefit for at least eight of the ten homes, Headwaters['] First Amended Complaint fails to state a claim for Unjust Enrichment as to those properties." (Emphasis added)). It would seem, then, that Headwaters has alleged a viable claim against National City as to the remaining two properties.
Except, as National City points out, Headwaters must first exhaust its remedies against the borrowers themselves before pursuing an unjust enrichment claim against National City. See Mem. in Supp. of Mot. to Dismiss, p. 4 (Docket No. 22) (citing Idaho Lumber v.
Here, Headwaters essentially concedes that it has not fully exhausted its remedies against the borrowers—the individuals with whom it had contracted.
Therefore, at this point, the Court should grant National City's Motion to Dismiss as to Headwaters' unjust enrichment claim. Count I should be dismissed without prejudice.
Headwaters' First Amended Complaint alleges that the borrowers assigned their interests in the construction contracts to National City and that National City breached those contracts by then "failing and refusing to pay the final draws for construction of each of the houses to Headwaters." See First Am. Compl., p. 24, ¶¶ 156-158 (Docket No. 16). However, as noted by National City, nowhere in Headwaters' First Amended Complaint does it allege that National City assumed any obligations under any construction contract. See Opp. to Mot. to Dismiss, p. 5 (Docket No. 27). "A transferee of property or contract rights is not personally liable for third party claims affecting the property or arising from acts of the transferor, in the absence of proof that the transferee assumed and agreed to pay such obligations." See Murr v. Selag Corp., 113 Idaho 773, 780, 747 P.2d 1302 (Idaho Ct.App.1987) (citing Klundt v. Carothers, 96 Idaho 782, 537 P.2d 62 (Idaho 1975); Hinckley Estate Co. v. Gurry, 53 Idaho 551, 26 P.2d 121 (Idaho 1933)).
"When a contract is made expressly for the benefit of a third person, the contract may be enforced by the third person at any time before the parties to the contract rescind it." See Partout v. Harper, 145 Idaho 683, 687, 183 P.3d 771 (Idaho 2008). Idaho law requires, as an element of a third-party beneficiary claim, identification of a written contract and the terms showing the contracting parties' intent to directly benefit the third party. Id. (Internal citations omitted). "The third party must show the contract was made primarily for his benefit; it is not sufficient that the third party is a mere incidental beneficiary to the contract." Id. (Internal citations omitted). In these respects, "[t]he intent to benefit the third party must be expressed in the contract itself." Id. (Internal citations omitted).
Here, Headwaters alleges that National City entered into written contracts with the borrowers, and that National City provided the funding agreements to both Headwaters and all of the borrowers setting forth the payment draw procedures. See First Am. Compl., p. 25, ¶¶ 162 & 164 (Docket No. 16). Specific to its third-party beneficiary claim, Headwaters further alleges that "[t]hese agreements and the loan agreements reflect the parties' intent to benefit Headwaters" and "Headwaters was a known and intended beneficiary of the loans from National City to the borrowers and of the agreements thereto." See id. at ¶¶ 164 & 165.
Despite these allegations, National City argues that Headwaters' third-party beneficiary claim must fail because Headwaters (1) fails to attach any documentation evidencing the at-issue loans which it claims to be a third-party beneficiary; (2) fails to identify the express contract terms demonstrating that Headwaters is an intended third-party beneficiary; and (3) fails to allege that the relevant contracts were fully enforceable and not in breach by the borrowers at the time the final draws were requested. See Mem. in Supp. of Mot. to Dismiss, pp. 5-7 (Docket No. 22). The Court disagrees.
At this stage of the litigation, Headwaters is not obligated to attach the particular contracts supporting its breach of contract claims, nor must it prove its thirdparty beneficiary claim as National City suggests it must do. In Partout (see supra at p. 1190), cited favorably by National City, the Idaho Supreme Court rejected the plaintiff's third-party beneficiary claim on summary judgment after it specifically
See Partout, 145 Idaho at 687, 183 P.3d 771. Headwaters' similar allegations here (indeed, identified by an altogether separate cause of action, in contrast to the plaintiff's claim in Partout) are sufficient to overcome National City's challenge at this time. This finding is not an implicit blessing by the Court as to the merits of Headwaters' claim but, rather, a mere finding that Headwaters has stated a claim—however questionable it may be. Going forward, Headwaters must address National City's arguments and, ultimately, establish the essential elements of its third-party beneficiary claim, lest it risk that claim's later dismissal on summary judgment like Partout. In the meantime, however, the Court should deny National City's Motion to Dismiss as to Headwaters' breach of contract (third-party beneficiary) claim.
As noted by National City, no Idaho court has ever recognized a specific claim for "lender liability." See Mem. in Supp. of Mot. to Dismiss, pp. 8-9 (Docket No. 22). National City therefore contends that Headwaters' lender liability claim should be dismissed because it does not/cannot state a cause of action. See id. at p. 10.
In response, Headwaters seems to concede that its lender liability claim may not be a recognized cause of action under Idaho law. See Opp. to Mot. to Dismiss, p. 6 (Docket No. 27) ("Headwaters acknowledges that a lender liability claim/fiduciary relationship may not have yet been explicitly recognized under identical circumstances, but in the wake of the recent mortgage crisis, the bounds of lender liability have been continually expanding."). Yet, Headwaters asks the parties (and this Court) to "speculate what claims an Idaho Court might acknowledge in the current local and economic conditions." See id.
The standard for considering a defendant's motion to dismiss is not whether this Court can or "cannot rule out the possibility that Idaho courts might now recognize such a claim" as Headwaters argues. See id.; see also supra at pp. 1186-87. Not only has Idaho not adopted a lender liability claim, to the extent Headwaters is asserting a breach of fiduciary duty claim instead, Idaho has rejected its application to the circumstances alleged here. See Mem. in Supp. of Mot. to Dismiss, p. 9 (Docket No. 22) (citing Idaho First Nat'l Bank v. Bliss Foods, Inc., 121 Idaho 266, 824 P.2d 841 (Idaho 1991); Black Canyon Racquetball Club Inc. v. Idaho First Nat'l Bank, N.A., 119 Idaho 171,
"The elements of a common law negligence action are (1) a duty, recognized by law, requiring the defendant to conform to a certain standard of conduct; (2) a breach of that duty; (3) a causal connection between the defendant's conduct and the resulting injury; and (4) actual loss or damage." See Black Canyon, 119 Idaho at pp. 175-76, 804 P.2d 900. To support its claims for both negligent inference with contract and negligence, Headwaters alleges that "National City had a duty to exercise ordinary care to prevent unreasonable, foreseeable risks of harm to Headwaters." See First Am. Compl., pp. 23 & 30, ¶¶ 149 & 202 (Docket No. 16).
National City disagrees, arguing that such generalized assertions of duty do not exist within a typical borrower/lender relationship. See Mem. in Supp. of Mot. to Dismiss, pp. 11-12 (Docket No. 22). Headwaters ignores the specific context giving rise to its claims, stating only that "[t]hese Counts are general negligence claims that do not require allegations of any specific relationship or duty between the parties." See Opp. to Mot. to Dismiss, p. 6 ("Instead, they are based upon the duty of care that all individuals and entities owe to others to prevent foreseeable harm.").
However, as recognized above, the problem for Headwaters is the existence of a duty recognized by law to this situation. See supra at p. 1192. Here, Headwaters offers nothing except a generic duty not to cause harm; but courts are reluctant to find such a duty in a borrower/lender relationship, let alone one involving an alleged third-party beneficiary. More to the point, it cannot be said that a lender owes a duty of care to a borrower/third-party when its involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money. Liability to a borrower for a claim sounding in negligence arises only when the lender actively participates in the transaction beyond the domain of the usual money lender. Headwaters has not offered any such allegations. Further, Headwaters disregards the fact that a lender is under no duty to ensure the success of the borrower's investment; instead, a lender's attempt to determine a borrower's creditworthiness and ability to repay are for the lender's protection-not necessarily the borrower's or any other third-party.
Therefore, the Court finds that Headwaters' allegations specific to its negligence-related claims are not supported by a recognized duty that can be extended to and breached by National City. Without a duty, National City's Motion to Dismiss as to Headwaters' negligent interference with contract and negligence claims should be granted.
In accordance with the foregoing Report, the Court RECOMMENDS that National City's Motion to Dismiss First Amended Complaint (Docket No. 21) be GRANTED in part and DENIED in part as follows:
See Murr, 113 Idaho at 780, 747 P.2d 1302 (internal citations omitted); see also Chambers v. Thomas, 123 Idaho 69, 71, 844 P.2d 698 (Idaho 1992) ("Idaho courts will not presume an obligation from the fact of an assignment. Instead, the party asserting such a personal obligation must prove the existence of an express assumption by clear and unequivocal proof.").
