HiTex, LLC v. Vorel

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

HITEX, LLC, a Nevada limited )

Liability company, )

)

Plaintiff, )

)

v. ) Case No. CIV-21-1125-D

)

PAUL M. VOREL, )

JOHN ERNEST LIGHT, )

TINA S. LIGHT, )

ACCOUNTING FOR EDMOND, LLC, )

an Oklahoma limited liability company, and )

INVESTORS SERVICES, INC., an )

Oklahoma corporation, )

)

Defendants. )

ORDER

Before the Court is a Motion for Judgment on the Pleadings [Doc. No. 52] submitted

by Defendants John Ernest Light, Tina S. Light, and Investor Services, Inc. Plaintiff HiTex,

LLC, responded in opposition [Doc. No. 53] and Defendants replied [Doc. No. 54]. The

matter is fully briefed and at issue.

BACKGROUND

This case concerns the alleged misappropriation and conversion of funds from two

New Mexico payday lending businesses, Cashco, Inc., and Budget Payday Loans, L.P. By

oral agreement, Defendants were responsible for monitoring Cascho and Budget’s

financial activities, keeping accurate records, reconciling financial statements, and

conducting certain transactions on behalf of each store. Performing these duties in

exchange for a set monthly fee, Defendants had access to each of Cashco and Budget’s

operating accounts.

Defendants allegedly exploited this access by initiating a series of improper

distributions. Rather than distribute funds from the operating accounts to Cascho’s and

Budget’s owners—Randall C. Roche, Ronald Tsuchiyama, Michael Harada, and William

Montelongo (the “Individual Owners”)—Defendants withdrew and used $320,000 from

the accounts for their own benefit.1

In addition to owning Cascho and Budget, the Individual Owners also own Plaintiff

HiTex, LLC, an entity to which they assigned their claims in this case. Plaintiff asserts six

causes of action: (1) breach of contract; (2) breach of fiduciary duty; (3) conversion;

(4) fraud; (5) unjust enrichment; and (6) negligence. Plaintiff seeks monetary damages in

the amount of $320,000, plus interest and costs.

Defendants John Ernest Light, Tina S. Light, and Investors Services, Inc. argue that

they are entitled to judgment on the pleadings as a matter of law. They contend that

(1) Oklahoma law prohibits the assignment of the Individual Owners’ claims to HiTex,

LLC; and (2) even if the claims are assignable, Plaintiff’s breach of contract claim is barred

by the applicable statute of limitations.

1 Plaintiff alleges that the improper distributions occurred on November 7, 2013

($130,000), March 11, 2016 ($100,000), December 20, 2016 ($40,000), and February 9,

2017 ($50,000).

STANDARD OF DECISION

Federal Rule of Civil Procedure 12(c) provides that “[a]fter the pleadings are

closed—but early enough not to delay trial—a party may move for judgment on the

pleadings.” “A motion for judgment on the pleadings under Rule 12(c) is treated as a

motion to dismiss under Rule 12(b)(6).” Zevallos v. Allstate Prop. & Cas. Co., 776 F.

App’x 559, 561 n.1 (10th Cir. 2019) (quoting Atl. Richfield Co. v. Farm Credit Bank of

Wichita, 226 F.3d 1138, 1160 (10th Cir. 2000)). Accordingly, the Court “accepts as true

all well-pleaded factual allegations in the complaint, ‘resolve[s] all reasonable inferences

in the plaintiff's favor, and ask[s] whether it is plausible that the plaintiff is entitled to

relief.’” Woodie v. Berkshire Hathaway Homestate Ins. Co., 806 F. App’x 658, 666 (10th

Cir. 2020) (quoting Diversey v. Schmidly, 738 F.3d 196, 1199 (10th Cir. 2013)). “A claim

is facially plausible ‘when the plaintiff pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the misconduct alleged.’” Brokers’

Choice of Am., Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1104 (quoting Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009)). However, unlike a motion to dismiss, in ruling on a motion for

judgment on the pleadings the Court may, as the name suggests, consider the answer to the

complaint. See Park Univ. Enterprises, Inc. v. Am. Cas. Co. of Reading, PA, 442 F.3d 1239,

1244 (10th Cir. 2006), abrogated on other grounds by Magnus, Inc. v. Diamond State Ins.

Co., 545 F. App’x 750 (10th Cir. 2013).

DISCUSSION

I. Because Plaintiff’s claims arise from Defendants’ alleged breach of contract,

they are assignable.

Citing to Okla. Stat. tit. 12, § 2017(D), Defendants argue that the Individual Owners

improperly assigned their claims to Plaintiff. They contend that, because each of Plaintiff’s

claims sound in tort, they are barred pursuant to Okla. Stat. tit. 12, § 2017(D), which

prohibits “[t]he assignment of claims not arising out of contract.”

Plaintiff asserts that the claims were properly assigned, as each claim “arise[s] from

the Defendants’ breach of contract with Cascho and Budget to provide certain accounting

related services and to distribute funds to the [Individual] Owners.” [Doc. No. 53] at p. 6.

Although Plaintiff does not dispute that its claims for breach of fiduciary duty, conversion,

unjust enrichment, fraud, and negligence are tort claims, it maintains that the claims “are

properly assignable since they stem from a breach of contract claim.” Id.

Defendants rely on two principal cases to support their argument that Plaintiff’s

claims are not assignable: F.D.I.C. v. Regier Carr & Monroe, 996 F.2d 222 (10th Cir.

1993) and Trinity Mortg. Cos., Inc. v. Dryer, 451 F. App’x 776 (10th Cir. 2011). The Court

addresses each in turn.

In Regier, Territory Savings and Loan Association hired Regier, Carr, and Monroe,

an accounting firm, to serve as an independent outside auditor. 996 F.2d at 223. Territory

subsequently sued Reiger, arguing that Reiger breached its contract by failing to timely

advise Territory’s board of directors about mismanagement by Territory’s president. Id. at

224.

Reiger argued that Territory’s claim sounded in tort for malpractice and was thus

barred by the two-year tort statute of limitations. The Tenth Circuit noted that “if the

alleged contract of employment merely incorporates by reference or by implication a

general standard of skill or care which a defendant would be bound independent of the

contract, a tort case is presented governed by the tort limitation period.” Id. (quoting Great

Plains Federal Savings and Loan Ass’n v. Dabney, 846 P.2d 1088, 1092 (Okla. 1993)).

Applying this principle, the court concluded that the action sounded in tort, as the

letter from Territory that engaged the services of Reiger simply incorporated by reference

generally accepted auditing standards, and “proposed nothing beyond the general standard

of care for certified public accountants.” Reiger, 996 F.2d at 224. Ultimately, the court held

that the action was time-barred, because “an action for malpractice . . . though based on a

contract of employment, is an action in tort and is governed by the two-year statute of

limitations.” Id. (quoting Funnell v. Jones, 737 P.2d 105, 107 (Okla. 1985)).

Trinity applies similar reasoning in the context of a legal malpractice claim. Trinity

Mortg. Cos., Inc., 451 F. App’x at 779. After being sued in a separate wrongful termination

action, Trinity engaged David Dryer as its attorney. The court eventually entered default

judgment against Trinity due to Dryer’s failure to file an answer on Trinity’s behalf. Id. at

777. Trinity was later administratively dissolved, and pursuant to a settlement agreement,

assigned its malpractice claim against Dryer to Dennis Junker. Id. at 778. Trinity, via

Junker’s new control, then filed suit against Dryer for legal malpractice, fraud, breach of

fiduciary duty, and breach of contract. Each claim was based on Dryer’s alleged failure to

follow the Rules of Professional Conduct while representing Trinity in the wrongful

termination action. Id.

Acknowledging that malpractice, fraud, and breach of fiduciary duty are all tort

claims, the Tenth Circuit determined that the assignment from Trinity to Junker was

prohibited under Okla. Stat. tit. 12, § 2017(D). In addition, it held that the breach of contract

claim also sounded in tort, as it was grounded in Dryer’s alleged breach of an oral contract

to adhere to the general standard of care set forth in the Rules of Professional Conduct. Id.

at 779-80.

Defendants insist that Reiger and Trinity require a finding that Plaintiff’s claims are

grounded in tort, and therefore barred pursuant to Okla. Stat. tit. 12, § 2017(D). Plaintiff

concedes that claims for breach of fiduciary duty, conversion, unjust enrichment, fraud,

and negligence ordinarily sound in tort. Nevertheless, it argues that the claims are

assignable because they are premised on a contractual relationship—specifically,

Defendants’ promise to fully distribute funds to the Individual Owners under the oral

agreement. See [Doc. No. 53] at pp. 7-8.

At this early stage, resolving all reasonable inferences in favor of Plaintiff, the Court

is unable to conclude that Okla. Stat. tit. 12, § 2017(D) prevents Plaintiff from assigning

its claims. Plaintiff’s claims are brought pursuant to Defendants’ alleged failure to

distribute payments to the Individual Owners, as required under the alleged oral agreement.

See Compl. [Doc. No. 1] at ¶¶ 17-18 (“Under the contracts, Defendants were responsible

for . . . payment of distributions to [the Individual Owners].”). Unlike the contracts at issue

in Reiger and Trinity, here, it does not appear that the contracts merely incorporate a

general standard of care that Defendants would otherwise be bound by. Rather, the

contracts require Defendants to distribute monies to the Individual Owners, which

Defendants allegedly failed to do.

Although breach of fiduciary duty, conversion, unjust enrichment, fraud, and

negligence claims ordinarily sound in tort, here, they are claims premised on a contractual

relationship. Thus, the claims arise “out of contract” for purposes of Okla. Stat. tit. 21,

§ 2017(D) and may be assigned. See Chimney Rock Ltd. P’Ship v. Hongkong Bank of Can.,

857 P.2d 84, 88 (Okla. Civ. App. 1993) (holding that tort claims are assignable where “the

alleged torts are grounded in the contracts and would not be capable of existing except for

contracts”); see also Southcrest, LLC v. Bovis Lend Lease, Inc., No. 10-CV-362-CVE-

FHM, 2012 WL 3776981, at *2 (N.D. Okla. Aug. 29, 2012) (“[W]here a tort claim is

premised on a contractual relationship, courts have held that the claim arises ‘out of

contract’ for purposes of § 2017(D) and may be assigned.”).

II. Plaintiff’s breach of contract claim is not barred by the statute of limitations.

Defendants alternatively argue that even if Plaintiff’s breach of contract claim

survives, it is barred by the applicable statute of limitations. An action for breach of

contract accrues when the contract is breached, “regardless of whether the plaintiff knows,

or in the exercise of reasonable diligence, should have known of the breach.” Morgan v.

State Farm Mut. Auto. Ins. Co., 488 P.3d 743, 753 (Okla. 2021). However, the statute of

limitations period is tolled if a defendant fraudulently conceals material facts and thereby

prevents a plaintiff from discovering the wrong or the fact that a cause of action has

accrued. Id. Under Oklahoma law, oral contracts are governed by a three-year statute of

limitations. Okla. Stat. tit. 12, § 95(A)(2).

Plaintiff’s complaint, filed on July 28, 2021, alleges that Defendants executed

improper distributions on November 7, 2013, March 11, 2016, December 20, 2016, and

February 9, 2017. See Compl. [Doc. No. 1] at pp. 4-6. Defendant argues that, because

Plaintiff initiated its action more than three years after the alleged breaches occurred, the

breach of contract claim is time-barred. Although Defendants acknowledges that the statute

of limitations for a breach of contract action may be tolled pursuant to fraudulent

concealment, they argue that “nothing alleged suggests [Plaintiff] or the [Individual]

Owners were prevented from discovering the wrong themselves.” [Doc. No. 52] at p. 9.

The Court disagrees. In its complaint, Plaintiff alleges that Defendants’ actions

prevented it from discovering the alleged wrongs. See Compl. [Doc. No. 1] at Count IV,

¶ 2 (“Defendants represented to Cashco, Budget and the [Individual] Owners that all

amounts distributed to the [Individual] Owners by Cashco and Budget were paid to the

[Individual] Owners.”); Id. at Count IV, ¶ 4 (“[Individual] Owners had no reason to know

that Defendants misrepresentations were false when made, due to the long period of time

during which Defendants had operated Cashco’s and Budget’s business without any serious

problems.”).

“[W]hen there is some actual artifice or some affirmative act of concealment, or

some misrepresentation which induces the other party to inaction, or to forgo inquiry, the

guilty party may not cover up the harm he has thus wrought by aid of the statute of

limitations.” Masquat v. DamilerChrysler Corp., 195 P.3d 48, 55 (Okla. 2008) (internal

quotation omitted). As detailed, Plaintiff alleges that Defendants concealed and

misrepresented the improper distributions. Thus, viewing the facts in the light most

favorable to Plaintiff, the Court is unable to conclude that Defendants have “clearly

established that no material issue of fact remains to be resolved [such that it] is entitled to

judgment as a matter of law.” Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138,

1141 (10th Cir. 2012).

CONCLUSION

For the reasons set forth herein, Defendants’ Motion for Judgment on the Pleadings

[Doc. No. 52] must be DENIED.

IT IS SO ORDERED this 14" day of October, 2022.

Md □□ OiPt

TIMOTHY D. DeGIUSTI

Chief United States District Judge