The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
EUGENE DIVISION
NATIONS FUND I, LLC, a Delaware Case No. 6:20-cv-00498-AA
limited liability company, OPINION AND ORDER
Plaintiff,
vs.
WESTWARD MANAGEMENT
COMPANY, LLC, a Washington limited
liability company; et al.,
Defendants.
AIKEN, District Judge:
This action arises from plaintiff Nations Fund I, LLC’s sale/leaseback
transaction with a third party, Axis Crane LLC (“Axis”). Plaintiff alleges that, during
the solicitation and negotiation process and in the sale/leaseback documents
themselves, defendants made representations that caused plaintiff to buy a crane
package from Axis for about $1.2 million more than it was worth. Defendants now
move to dismiss plaintiff’s claims for failure to state a claim. Doc. 21.1 For the
following reasons, defendants’ motion is GRANTED in part and DENIED in part.
BACKGROUND
The following facts are taken from the Complaint (doc. 1). Plaintiff is specialty
commercial finance company incorporated and based in Delaware. Defendants are
three Washington companies, Westward Management Company, LLC; Westward
Management Company II, LLC; and Westward Partners, LLC (“Westward entities”);
and three individuals based in Washington and Oregon, Alexander Clark, Travis
Wilt, and Robert Andrew Baldridge. Axis, a third party, was a full-service rental
company incorporated and based in Oregon. Wilt was the President of Axis and on
its board of directors, Clark was the Vice President of Axis, and Baldrige is the
founder and managing director of the Westward entities and was also on Axis’ board.
This action arises from plaintiff’s sale/leaseback transaction with Axis, which
involved a crane unit that Axis had been leasing from another third party, Bigge
Crane and Rigging Company (“Bigge”). In the transaction, Axis would exercise its
option to purchase the crane unit from Bigge and, in turn, sell the crane unit to
plaintiff. Plaintiff would then buy the crane unit from Axis for its fair market value
and lease it back to Axis.
1 The Motion to Dismiss (doc. 21) was initially filed by defendants Westward Management
Company, LLC; Westward Management Company II, LLC; Westward Partners, LLC; Travis Wilt; and
Andrew Baldridge. Later, defendant Alexander Clark filed a Notice of Joinder (doc. 32) in the motion
and its supporting declarations.
When the sale/leaseback transaction closed in June 2018, plaintiff paid Axis
$1.2 million for its equity in the crane unit and paid Bigge $1.5 million for the
remaining debt on the crane unit. Id. ¶ 6. At the time, plaintiff believed that it was
purchasing a 2006 Liebherr crane with accessories that included a wide frame and
narrow track system (collectively “entire crane package”). But after Axis filed for
bankruptcy and plaintiff obtained relief from the Bankruptcy Court’s automatic stay
to allow plaintiff to recover the crane, plaintiff learned that just before the sale
between Axis and Bigge, “one or more of Defendants” told Bigge that Axis would not
be purchasing the wide frame and narrow track system and, ultimately, Axis
purchased only the 2006 Liebherr crane. Id. ¶ 74.
Plaintiff then filed this action, asserting claims for fraud, fraudulent
inducement, and alter ego. Plaintiff alleges that defendants made representations
during the solicitation and negotiation process and in the sale/leaseback documents
themselves which led plaintiff to believe that it was purchasing the entire crane
package and, ultimately, to buy the 2006 Liebherr crane for a price that was
$1,200,000 above fair market value. Id. ¶ 75. In response, defendants filed this
motion under Federal Rule of Civil Procedure 12(b)(6), seeking dismissal of all three
claims for failure to state a claim.
STANDARDS
When considering a motion to dismiss, courts construe complaints in favor of
the plaintiff and takes all factual allegations as true. Odom v. Microsoft Corp., 486
F.3d 541, 545 (9th Cir. 2007). “[F]or a complaint to survive a motion to dismiss, the
non-conclusory ‘factual content,’ and reasonable inferences from that content, must
be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret
Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). A “formulaic recitation of the elements of a cause of action” or “naked
assertions devoid of further factual enhancement” are not sufficient to state a
plausible claim. Iqbal, 556 U.S. at 678. “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. “Dismissal under Rule
12(b)(6) is proper only when the complaint either (1) lacks a cognizable legal theory
or (2) fails to allege sufficient facts to support a cognizable legal theory.” Zixiang Li
v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013).
DISCUSSION
Plaintiff asserts three claims: (1) fraud, (2) fraudulent inducement, and (3)
alter ego. Defendants assert that all three should be dismissed because plaintiff
failed to allege applicable governing law. They also assert that the fraud claim should
be dismissed as either duplicative of the fraudulent inducement claim or as a
disguised breach of contract claim. Finally, defendants assert that plaintiff’s alter
ego claim should be dismissed because it is not a stand-alone cause of action and
plaintiff has not alleged sufficient facts to state an alter ego theory of liability.
I. Applicable Law
Defendants argue that all three claims are “facially defective because they are
generic causes of action and do not identify the applicable common or statutory law
governing the claim.” Mot. to Dismiss (doc. 21) at 2. Defendants assert that the
Complaints failure to do so provides insufficient notice under Federal Rule of Civil
Procedure 8. Reply (doc. 34) at 3. But a straightforward application of Oregon’s
choice of law rules demonstrates that Oregon law applies to plaintiff’s common law
tort claims at this stage.
“Federal courts sitting in diversity look to the law of the forum state . . . when
making choice of law determinations.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171,
1175 (9th Cir. 2014). Under Oregon’s choice of law rules, courts apply Oregon law
unless the party seeking to apply a different state’s law identifies a material
difference between Oregon law and the law of the other state. Great Am. All. Ins. Co.
v. SIR Columbia Knoll Assocs. Ltd. P’ship, 416 F. Supp. 3d 1098, 1102 (D. Or. 2019).
Both parties agree that Oregon law applies to plaintiff’s tort claims for purposes of
this motion to dismiss. Although defendants’ motion suggests that they may seek to
apply another state’s law at a later stage, defendants do not explain why that
presents a notice issue at the pleading stage. The Court concludes that any future
choice of law dispute could be resolved by applying Oregon’s choice of law rules.
Defendants are, therefore, not entitled to dismissal on this ground.
II. Fraud Claim
Next, defendants argue that plaintiff’s fraud claim should be dismissed
because it is duplicative of plaintiff’s fraudulent inducement claim. Under Oregon
law, a plaintiff must prove the following elements to prevail on a claim of fraud:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s
knowledge of its falsity or ignorance of its truth; (5) his intent that it
should be acted on by the person and in the manner reasonably
contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on
its truth; (8) his right to rely thereon; (9) and his consequent and
proximate injury.
Or. Pub. Emps.’ Ret. Bd. ex rel. Or. Pub. Emps.’ Ret. Fund. v. Simat, Helliesen &
Eichner, 191 Or. App. 408, 424 (2004) (citation and quotation marks omitted).
Fraudulent inducement is a specific subset of fraud that requires a plaintiff to show
“that he was (1) induced to enter into a contract by an (2) intentional [and material]
(3) misrepresentation.” EnSoftek, Inc. v. Sw. Behavioral & Health Servs., Inc., No.
3:19-cv-000615-MO, 2020 WL 390891, at *2 (D. Or. Jan. 23, 2020).
In the Complaint, plaintiff alleges that Wilt, Clark and Baldridge made
affirmative misrepresentations during the solicitation, negotiation, and underwriting
for the sale/leaseback transaction and that Wilt and Baldridge made affirmative
misrepresentations in the sale/leaseback documents themselves, which they
executed. In its fraud claim, plaintiff alleges that defendants made these
misrepresentations with the intent that plaintiff rely, and plaintiff did rely, on them
to buy the 2006 Liebherr Crane. Compl. ¶¶ 78–79, 84, 86. In its fraudulent
inducement claim, plaintiff alleges that defendants made these misrepresentations
with the intent that plaintiff rely, and plaintiff did rely, on them to enter into the
sale/leaseback contract. Id. ¶¶ 89–90, 94–95. As pleaded, the claims are based on
distinct theories of defendants’ intent and plaintiff’s reliance. And, though they may
ultimately be shown to be duplicative, they are not sufficiently overlapping as pleaded
to warrant dismissal under the Rule 12(b)(6) standards.
Defendants also argue that the Court should dismiss the fraud claim as a
disguised breach of contract claim because defendants were not parties to the
sale/leaseback agreement and plaintiff has not alleged facts sufficient to establish a
plausible case for piercing the corporate veil or treating defendants as Axis’ alter ego.
To state a claim for breach of contract under Oregon law, a plaintiff must allege the
existence of a contract, the relevant terms of the contract, the plaintiff’s full
performance and lack of breach, and the defendant’s breach resulting in damage to
the plaintiff. Slover v. Or. State Bd. of Clinical Soc. Workers, 144 Or. App. 565, 570
(1996).2 The elements of fraud, outlined above, are therefore distinct from those of
breach of contract. Most notably, fraud requires a showing related to the defendant’s
state of mind—and intentional or reckless misrepresentation—while breach of
contract does not.
Defendants’ reliance on New York and Pennsylvania law is unpersuasive.
First, defendants cite Garret v. Music Publishing Company of America, LLC, 740 F.
Supp. 2d 457 (S.D.N.Y. 2010). In Garret, the Southern District of New York observed:
As a general matter, a fraud claim may not be used as a means of
restating what is, in substance, a claim for breach of contract. Thus,
general allegations that defendant entered into a contract while lacking
the intent to perform it are insufficient to support a fraud claim.
2 Defendants assert that New York law applies to any contract claims, but “there is no material
different between the elements of a breach of contract claim in Oregon and New York.” Vesta Corp. v.
Amdocs Mgmt. Ltd., 80 F. Supp. 3d 1152, 1158 (D. Or. 2015). To state a claim for breach of contract
under New York law, a plaintiff must allege “the existence of a contract, the plaintiff’s performance
under the contract, the defendant’s breach of that contract, and resulting damages.” JP Morgan Chase
v. J.H. Elec. of New York, Inc., 839 N.Y.S. 2d 237, 239 (2010).
Id. at 464 – 65 (citations omitted and alterations normalized). But, here, the fraud
claim is not based on general allegations that defendants entered into a contract with
the intent not to perform it. It is based on allegations that defendants made
affirmative misrepresentations to plaintiff before plaintiff entered into the
sale/leaseback contract and in the contract itself. In Amsan, LLC v. Prophet 21, Inc.,
the Eastern District of Pennsylvania considered whether the plaintiff’s fraud and
fraudulent inducement claims should be dismissed under Pennsylvania’s “gist of the
action” test, which applies “[w]hen a plaintiff alleges that the defendant committed a
tort in the course of carrying out a contractual agreement.” 2020 WL 1231819, at *3
(E.D.P.A. Oct. 15, 2001). Even assuming that test could apply to Oregon tort claims,
plaintiff alleges that defendants committed fraud by making statements that they
knew were false before the contract was carried out by Axis.
III. Alter Ego
Finally, defendants move to dismiss plaintiff’s alter ego claim. “[A]lter ego is
not a stand-alone claim, but is a means of obtaining relief for the wrongful conduct of
a corporate entity from parties otherwise shielded by the corporate veil.” Towne v.
Robbins, No. CV02-1688-MO, 2005 WL 139077, at *5 (D. Or. Jan. 20, 2005); see also
In re. Capriati Constr. Corp., Inc., 2018 WL 1404439, at *7 (9th Cir. B.A.P. Mar. 20,
2018) (“[T]he general rule in most (if not all) states is that ‘alter ego’ is not an
independent cause of action, but is an equitable remedy—a legal theory or doctrine
used to impose liability against the alter ego defendant under another cause of
action.”). Plaintiff’s third claim for relief is, therefore, dismissed to the extent that it
seeks to assert an independent “alter ego” claim. The Court concludes, however, that
the Complaint adequately alleges an alter ego theory of liability at the pleading stage
and that, whether the Westward defendants should be held liable as Axis’ alter ego
is better suited for resolution at a later stage and after further factual development.
CONCLUSION
For the reasons stated above, defendant’s Motion to Dismiss (doc. 21) is
GRANTED with respect to plaintiff’s alter ego claim, to the extent that it seeks to
assert an independent alter ego cause of action, and otherwise DENIED.
IT IS SO ORDERED.
Dated this _3_0_t_h_ day of September 2021.
________/s_/_A_n__n_ A__ik__e_n_______
Ann Aiken
United States District Judge