Gauba v. Florence Hospital LLC et al

Filing 14

ORDER granting 11 Defendant McEachern's Motion to Dismiss for Failure to State a Claim. Plaintiff shall file a first amended complaint on or before March 21, 2013. Signed by Judge David G Campbell on 2/19/13.(DMT)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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No. CV12-02439-PHX-DGC

Dinesh Gauba,
Plaintiff,

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v.

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ORDER

Florence Hospital, LLC, an Arizona
Limited Liability Company; Edward
McEachern, as an individual,

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Defendants.

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Before the Court is the motion to dismiss filed by Defendant Edward McEachern.

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Doc. 11. The motion is fully briefed. No party has requested oral argument. For the

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reasons that follow, the Court will grant the motion.

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I.

Background.

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Plaintiff Dinish Gauba loaned Defendant Florence Hospital, LLC (“Florence

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Hospital”) $250,000 pursuant to a Loan Agreement and Promissory Note (the “loan

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agreement”) executed by McEachern on behalf of Florence Hospital on May 17, 2012.

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Doc. 1 at ¶¶ 6-7. In consideration for the loan, Florence Hospital and McEachern agreed

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to repay the $250,000 principal sum plus additional fees in the amount of $62,500, on or

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before May 25, 2012. Id. at ¶ 9. The loan agreement states that it “is entered into

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between: BORROWER: FLORENCE, HOSPITAL, LLC, . . . and LENDER: Dinesh

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Gauba.” Id. at 6. The loan agreement provides that Florence Hospital “shall be in default

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if the entire indebtedness amount is not paid by 5/25/2012.” Id. at 6.

The agreement

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also provides that “Borrower’s Chairman of the Board, Edward McEachern, MD, will

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personally guarantee loan for the term of the note in its principal sum of $250,000,

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additional fees of $62,500, and fees incurred upon the event of Default.” Id. at 6. The

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loan agreement is signed “FLORENCE HOSPITAL, LLC, By: Edward McEachern,

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Manager.” Id at 7.

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Plaintiff wire transferred $250,000 to Florence Hospital on May 17, 2012. Id. at

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¶ 8. Florence Hospital and McEachern failed to repay the loan by May 25, 2012. Id. at

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¶ 10. Plaintiff’s complaint alleges a breach of contract claim against Florence Hospital

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and a breach of contract claim against McEachern. Doc. 1 at 2-4.

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II.

Legal Standard.

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When analyzing a complaint for failure to state a claim to relief under Rule

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12(b)(6), the well-pled factual allegations “‘are taken as true and construed in the light

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most favorable to the nonmoving party.’” Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th

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Cir. 2009) (citation omitted). Legal conclusions couched as factual allegations “are not

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entitled to the assumption of truth,” Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and they

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“‘are insufficient to defeat a motion to dismiss for failure to state a claim,’” In re Cutera

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Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010) (citation omitted). To avoid a Rule

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12(b)(6) dismissal, the complaint must plead “enough facts to state a claim to relief that is

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plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This

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plausibility standard “is not akin to a ‘probability requirement,’ but it asks for more than

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a sheer possibility that a defendant has acted unlawfully.”

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(quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the

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court to infer more than the mere possibility of misconduct, the complaint has alleged B

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but it has not ‘show[n]’ B ‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed.

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R. Civ. P. 8(a)(2)).

Iqbal, 556 U.S. at 678

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Generally, the Court will not consider evidence or documents beyond the

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pleadings when ruling on a Rule 12(b)(6) motion. Fed. R. Civ. P. 12(d); see also Hal

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Roach Studios, Inc. v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.
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1989).

“[M]aterial which is properly submitted as part of the complaint may be

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considered,” Hal Roach Studios, 896 F.2d at 1555 n. 19, and “a document is not ‘outside’

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the complaint if the complaint specifically refers to the document and its authenticity is

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not questioned.” Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994) (overruled on other

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grounds by Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002)). Because

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the loan agreement was attached to the complaint (Doc. 1 at 6-7), the Court will consider

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it in ruling on McEachern’s motion.

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III.

McEachern’s Motion.

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McEachern argues that the Court should dismiss Plaintiff’s claim against him for

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breach of contract because the claim is barred by the statute of frauds. Doc. 11 at 2. The

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Arizona statute of frauds provides that “[n]o action shall be brought in any court” to

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enforce a contract “[t]o charge a person upon a promise to answer for the debt . . . of

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another” unless the contract “is in writing and signed by the party to be charged.” A.R.S.

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§ 44-101(2). Plaintiff alleges that McEachern breached the loan agreement by failing “to

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meet his obligation as guarantor of Florence Hospital’s obligations under the contract.”

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Doc. 1 at ¶¶ 12, 20. McEachern argues that he signed the agreement on behalf of

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Florence Hospital, and not in an individual capacity, and thus the agreement cannot be

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charged against him. Doc. 11 at 2 (citing Ferrarell v. Robinson, 465 P.2d 610, 612 (Ariz.

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Ct. App. 1970) (“One who signs an agreement as the agent of a fully disclosed principal

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is not a party to that agreement and thus incurs no personal liability for the principal’s

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breach of that agreement.”)).

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Plaintiff argues that McEachern incurred personal liability under the loan

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agreement because the agreement specifically provides for McEachern, an agent to

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Florence Hospital, to personally guarantee the loan. Doc. 12 at 5-6. This contention does

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not, however, displace the statute of frauds because McEachern did not sign the loan

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agreement in his personal capacity. Doc. 1 at 7. Although Plaintiff submits that it is

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“morally offensive” “that a signatory should be allowed to avoid his clear and

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straightforward promise, because he signed his name only once, rather than twice” (Doc.
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12 at 4), that is what the statute of frauds provides. The loan agreement was only signed

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by Florence Hospital — specifically by Edward McEachern as manager of Florence

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Hospital — and thus the statute of frauds bars Plaintiff’s claim against McEachern.

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Plaintiff argues that the primary purpose exception takes Defendant’s guarantee

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outside the statute of frauds because he “had a personal, immediate and pecuniary interest

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in the loan and promised to guarantee the loan” because he “is Chairman of the Board of

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Florence Hospital” and the loan “was to be used for payroll for Florence Hospital’s

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employees.” Doc. 12 at 7. The primary purpose exception provides that “when the main

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purpose of the promisor is not to answer for the debt of another, but to obtain a

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substantial benefit to himself, which he actually secures as the consideration for his

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promise, then not only is the promise valid though oral, it is supported by good and

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sufficient consideration.” Yarbro v. Neil B. McGinnis Equip. Co., 420 P.2d 163, 167

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(Ariz. 1966) (finding that there was sufficient consideration where the creditor had legal

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right to repossess the subject of its conditional sales contract, but that it forbore from

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doing so because the defendant promised that he would pay the delinquent installment

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payments).

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Florence Hospital sought a loan from Plaintiff. The complaint alleges only that Plaintiff

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agreed to loan Florence Hospital the sum of $250,000. Doc. 1 at ¶ 7. The Court cannot

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conclude from the complaint or the loan agreement that the primary purpose of

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McEachern’s personal guarantee was for some substantial benefit to himself, or that the

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guarantee was not made simply to answer for the loan of another. Accordingly, the Court

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finds that the primary purpose exception does not take McEachern’s personal guarantee

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outside the statute of frauds.

Absent from the complaint (Doc. 1) is any allegation relating to why

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Plaintiff next argues that McEachern is estopped from asserting the statute of

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frauds defense. Doc. 12 at 8. Arizona follows the definition of promissory estoppel set

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forth in Restatement (Second) of Contracts § 90(1). Chewning v. Palmer, 650 P.2d 438,

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440 (Ariz. 1982). The remedy is equitable in nature and is used when a plaintiff is unable

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to establish an otherwise enforceable contract. Double AA Builders, Ltd. Grand State
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Constr., L.L.C., 114 P.3d 835, 843 (Ariz. Ct. App. 2005). “The elements of promissory

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estoppel are a promise, which the promisor should reasonably foresee would cause the

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promisee to rely, upon which the promisee actually relies to his detriment.” Contempo

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Constr. Co. v. Mountain States Tel. & Tel. Co., 736 P.2d 13, 16 (Ariz. Ct. App. 1987)

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(citation omitted).

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Plaintiff making the above-described loan, Defendant Edward McEachern, personally

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guaranteed timely payment of the above loan and the repayment schedule” (Doc. 1 at ¶

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18), and that “Plaintiff relied upon Defendant McEachern’s promise to guarantee

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Florence Hospital LLC’s performance of its obligations under the contract and repayment

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of the loan and fees thereon and would not have entered into the above-described

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transaction except in reliance upon Defendant McEachern’s promise” (id. at ¶ 19).

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Plaintiff has not, however, pled a claim for promissory estoppel. The sole claim against

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McEachern is for breach of contract. Doc. 1 at 3-4.

The complaint does allege that “[a]s a material inducement for

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Finally Plaintiff argues that the Court should construe the loan agreement to give

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effect to the parties’ intentions, which was “a mutual intention that Defendant McEachern

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personally guarantee the obligation” and that “the parties intended the document to be

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binding upon Dr.. [sic] McEachern’s single signature.” Doc. 12 at 9. But the complaint

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lacks any allegations about what the parties’ intended in having the loan agreement

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signed by McEachern only in his capacity as Florence Hospital’s manager, and Plaintiff’s

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contract construction argument therefore is insufficient to render the breach of contract

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claim plausible.

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IV.

Leave to Amend.

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Plaintiff requests leave to amend “to allege more specific facts and additional

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causes of action that will bind Defendant McEachern to the Note” if the Court grants

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McEachern’s motion. Doc. 12 at 9. Leave to amend should be freely given when justice

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so requires. Fed. R. Civ. P. 15(a)(2). The Court cannot determine that the deficiencies of

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the complaint could not be cured by amendment and therefore will grant leave to amend.

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IT IS ORDERED:

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Defendant McEachern’s motion to dismiss (Doc. 11) is granted.

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2.

Plaintiff shall file a first amended complaint on or before March 21, 2013.

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Dated this 19th day of February, 2013.

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