Carpenter v. All American Games et al

Filing 30

ORDER denying 25 Motion to Dismiss for Failure to State a Claim. Signed by Judge David G Campbell on 1/30/2017.(DGC, nvo)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Chad Carpenter, an individual,
Plaintiff/Defendant,

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ORDER

v.

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No. CV16-01768-PHX DGC

All American Games, a limited liability
company, Douglas Berman, an individual,
and Does 1-30, inclusive,

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Defendants/Counterclaimants

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On September 27, 2016, Defendants All American Games (“AAG”) and Douglas

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Berman filed an amended counterclaim against Plaintiff Chad Carpenter.

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Plaintiff filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil

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Procedure. Doc. 25. Defendants filed a response (Doc. 26), and Plaintiff did not reply.

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Neither party has requested oral argument. For the reasons set forth below, the Court will

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deny the motion.

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I.

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Doc. 20.

Background.
The Court takes the allegations of Defendants’ counterclaim as true for purposes

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of a motion to dismiss.

Defendants, through a wholly owned subsidiary, Football

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University, LLC (“FBU”), operate a national football tournament for youth football

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players (“FBU tournament”). Doc. 20, ¶ 4. Defendants also operate football camps

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throughout the United States, including in Phoenix, Seattle, and various cities in

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California. Id. Plaintiff is a former employee of Defendants. Id. He worked as a

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“regional player representative in the western region” and was “responsible for assisting

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in recruiting athletes to attend [the camps] and recruiting teams to participate in the [FBU

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tournament].” Id., ¶ 5. Plaintiff began his affiliation with Defendants as a coach at the

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camps in 2010. Id., ¶ 6. Plaintiff became a full time employee in September 2012,

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making a base salary of $65,000 and receiving commissions based on camp revenues and

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payments from FBU tournament participation. Id., ¶ 6. Prior to June 2015, Defendant

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paid Plaintiff two commissions: $7,500 as payment for his work on the 2014 FBU

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tournament, and $3,110 as payment for his promotional activities for the 2015 FBU

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camps in his region. Id. There is a factual dispute between the parties about whether

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additional commissions are due. Doc. 25, at 4; Doc. 26 at 5-6.

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In May 2015, Defendants discovered a “troubling and improper relationship

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between Plaintiff and another former employee.”

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Defendants, this former employee was manipulating “[Defendants’] financial systems to

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inflate the revenue numbers for the FBU regional camps being held in Phoenix, Seattle

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and California.” Id., ¶ 8. Following the former employee’s termination on June 2, 2015,

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Defendants discovered “considerable evidence that Plaintiff was fully knowledgeable of

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the fraudulent actions of the dismissed former employee.” Id., ¶¶ 9-10. Defendants’

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investigation revealed that “Plaintiff extended reduced pricing to customers that were

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unauthorized by AAG in order to inflate the revenue numbers for those camps,” and that

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Plaintiff had acted with “gross insubordination with respect to his supervisor.” Id., ¶¶ 11-

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12. Within days of the first employee’s termination, Defendants terminated Plaintiff. Id.,

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¶ 13; Doc. 1, ¶ 13.

Doc. 20, ¶ 7.

According to

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Plaintiff contends that, after his termination, Defendants sent an e-mail regarding

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his termination to over 200 employees and outside affiliates, calling into question his

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character, jeopardizing his future employment, and potentially making him

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“untouchable” as a coach. Doc. 1, ¶ 13. Plaintiff sued Defendants for defamation,

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unpaid wages, unjust enrichment, and breach of contract. Doc. 1. Defendants’ amended

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counterclaim followed, alleging breach of contract, unjust enrichment, breach of implied

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covenant, breach of fiduciary duty of good faith and loyalty to AAG, and conversion.

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Doc. 20 at 10-14.

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II.

Legal Standard.

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A successful motion to dismiss under Rule 12(b)(6) must show either that the

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complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its

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theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A

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complaint that sets forth a cognizable legal theory will survive a motion to dismiss as

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long as it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief

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that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when “the

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plaintiff pleads factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.” Id., 556 U.S. at 678 (citing Twombly,

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550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,’

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but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

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(citing Twombly, 550 U.S. at 556). Arizona law governs Defendants’ state law claims.

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United Mine Workers of America v. Gibbs, 383 U.S. 715, 726 (1996).

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III.

Defendants’ Motion to Dismiss.

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A.

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Plaintiff argues that Defendants’ amended counterclaim recites only legal

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conclusions and fails to plead sufficient factual allegations that, if true, would state a

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cause of action for breach of contract. Doc. 25 at 2. The elements of a breach of contract

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claim are the existence of a contract, breach, and resulting damages.

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Montelucia Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013). Defendants’ counterclaim

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alleges that Plaintiff became a full-time employee in September 2012, and that his salary

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and commissions were contingent upon his responsibilities as a player representative and

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recruiter. Doc. 20, ¶¶ 5-6. Defendants contend that Plaintiff breached his employment

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contract by “[s]pecifically and without limitation fail[ing] to follow FBU procedures with

Breach of Contract.

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Thomas v.

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regard to billing and pricing for camps, which were Plaintiff’s job responsibilities

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pursuant to his Agreement with AAG.” Id., ¶ 20. Specifically, Defendants allege that

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Plaintiff failed to follow FBU procedures regarding billing and pricing by extending

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unauthorized discounts to certain AAG customers to inflate the revenue figures for his

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camps, causing Defendants both financial and reputational damage. Id., ¶¶ 11, 20, 22.

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Defendants also assert that Plaintiff’s alleged insubordination was in violation of FBU

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policies and procedures. Id., ¶ 20. These allegations provide a sufficient factual basis to

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support the claim for breach of contract.

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Plaintiff also argues that Defendants’ amended counterclaim only cites “conduct

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by a third party employee and fails to establish any facts related to the duties of an

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agreement or the breach of those duties by Plaintiff.” Doc. 25 at 3. To the contrary,

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Defendants have pled when the employment relationship began with Plaintiff, when and

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how they discovered his failure to comply with billing and pricing policies and

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procedures, and the injury Plaintiff’s conduct has caused them. Although Defendants do

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allege that Plaintiff was aware of the former employee’s fraudulent actions (Doc. 20,

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¶¶ 7-10), the Court need not decide if that factual allegation alone is sufficient because it

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is not the sole allegation upon which Defendants’ breach of contract claim depends.

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Defendants have pled sufficient facts to state a claim that is plausible on its face. See

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Iqbal, 556 U.S. at 678.

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B.

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A party is unjustly enriched when it “has and retains money or benefits which in

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justice and equity belong to another.” City of Sierra Vista v. Cochise Enters., Inc., 697

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P.2d 1125, 1131 (Ariz. Ct. App. 1984). The five elements of unjust enrichment are “(1)

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an enrichment; (2) an impoverishment; (3) a connection between the enrichment and the

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impoverishment; (4) absence of justification for the enrichment and the impoverishment,

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and (5) an absence of a remedy provided by law.” Id. Plaintiff argues that Defendants

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have not pled sufficient facts as to elements 1-4. Doc. 25 at 4. The Court disagrees.

Unjust Enrichment.

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Defendants allege that Plaintiff was enriched by accepting his salary and

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commissions, resulting in an impoverishment to Defendants, because Plaintiff did not

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perform his obligations and responsibilities according to AAG policies and procedures.

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Doc. 20, ¶¶ 23-25. If Defendants’ allegations are true, then Plaintiff’s acceptance of

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salary and commissions based on inflated revenues and unauthorized discounts

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reasonably suggests that Defendant was impoverished, Plaintiff was enriched, and there

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was a connection between and absence of justification for both elements.

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Plaintiff also argues that Defendants have not alleged a lack of legal remedy under

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the fifth element, and that Defendants have an adequate legal remedy in their breach of

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contract claim. Doc. 25 at 5. But Defendants can plead alternative legal theories, Fed. R.

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Civ. P. 8(a)(3), and need not include the words “in the alternative,” Arnold & Assocs.,

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Inc. v. Misys Healthcare Sys., 275 F. Supp. 2d 1013, 1029 (D. Ariz. 2003). Further,

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“[t]he mere existence of a contract governing the dispute does not automatically

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invalidate an unjust enrichment alternative theory of recovery. A theory of unjust

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enrichment is unavailable only to a plaintiff if that plaintiff has already received the

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benefit of [his] contractual bargain.” Adelman v. Christy, 90 F. Supp. 2d 1034, 1045 (D.

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Ariz. 2000).

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C.

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Plaintiff argues that Defendants fail to allege sufficient facts to establish a

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fiduciary relationship between Defendants and Plaintiff as an element of their breach of

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implied covenant claim. Doc. 25 at 5. But under Arizona law, every contract “implies a

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covenant of good faith and fair dealing.” Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz.

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1986). The implied covenant “prohibits a party from doing anything to prevent other

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parties to the contract from receiving the benefits and entitlements of the agreement. The

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duty arises by operation of law but exists by virtue of a contractual relationship.” Wells

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Fargo Bank v. Arizona Laborers, 38 P.3d 12, 29 (Ariz. 2002).

Breach of Implied Covenant.

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A plaintiff may sue for breach of the implied covenant in contract or tort.

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Rawlings, 726 P.2d at 574. To bring a tortious breach of implied covenant claim, the

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parties must have a “special relationship . . . arising from elements of public interest,

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adhesion, and fiduciary responsibility.” Wells Fargo, 38 P.3d at 29 (quoting Burkons v.

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Ticor Title Ins. Co. of California, 813 P.2d 710, 721 (Ariz. 1991)). If a plaintiff pursues

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recovery only in contract, however, he need not establish the special relationship required

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for a tort claim. Wells Fargo, 38 P.3d at 29.

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Plaintiff’s attack on the sufficiency of Defendants’ alleged “special relationship”

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seems to assume that Defendants seek recovery in tort. Doc. 25 at 5-6; Doc. 20 at 12.

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But Defendants may assert breach of the implied covenant in contract.

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Defendants do refer to the parties’ relationship as a “special relationship” (Doc. 20, ¶ 28),

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Defendants simply allege that an implied covenant arose from Plaintiff’s employment (id.

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at 12). Defendants allege that Plaintiff breached the covenant by failing to follow camp

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pricing policies and procedures, specifically by offering unauthorized discounts to inflate

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his camp revenues and increase his commissions. Id. If those allegations are true, they

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may well constitute breach of the implied covenant to fulfill his employment contract

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fairly and in good faith.

Although

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Defendants may later argue that Plaintiff’s relationship with them rose to the level

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of a special relationship, allowing them to recover in tort. Under Arizona law, an

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employee owes his employer a fiduciary duty. McCallister Co. v. Kastella, 825 P.2d 980,

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982 (Ariz. Ct. App. 1992) (citing Mallamo v. Hartman, 219 P.2d 1039, 1041 (Ariz. 1950)

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(“in Arizona, an employee/agent owes his or her employer/principal a fiduciary duty.”)).

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A special relationship may arise from fiduciary responsibility. Wells Fargo, 38 P.3d at

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29. The Court need not determine now whether Defendants can establish a special

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relationship for purposes of tort damages. Defendants allege that Plaintiff breached the

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implied covenant, and that his breach deprived them of the benefits of the bargain. These

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factual allegations, if true, are sufficient to sustain Defendants’ claim for breach of

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implied covenant.

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Relying on the memorandum decision in Harris v. Superior Court of Arizona ex

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rel. Cty. of Maricopa, 278 Fed. Appx. 719, 721 (9th Cir. 2008), Plaintiff argues that

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tortious bad faith claims cannot arise out of employment contracts (Doc 25 at 2). The

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Court disagrees. Harris upheld summary judgment for defendant employers, stating that

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“defendants did not breach the covenant of good faith and fair dealing because Harris was

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terminated for ‘good cause.’” Harris, 278 Fed. Appx. at 721. Harris cites Arizona cases

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for the proposition that an employer does not breach the implied covenant by terminating

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an employee for good cause or no cause, whether the employee is an at-will employee or

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employed by contract, unless a public policy is violated. Id. (citing Wagenseller v.

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Scottsdale Mem’l Hosp., 710 P.2d 1025, 1041 (1985); Nelson v. Phoenix Resort Corp.,

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888 P.2d 1375, 1385 (Ariz. Ct. App. 1994)). Defendants’ claim is based on Plaintiff’s

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alleged non-performance and failure to comply with the terms of his employment; Harris

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and the cases it cites would govern if Plaintiff claimed that Defendants breached the

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implied covenant by terminating his employment. Harris is inapposite to Defendants’

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claim.

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D.

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Plaintiff argues that Defendants’ counterclaim does not allege facts to establish a

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Breach of Fiduciary Duty.

fiduciary relationship between Plaintiff and Defendants. The Court disagrees.

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As discussed above, Arizona provides that an employee owes a fiduciary duty to

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his employer. McCallister, 825 P.2d at 982. Defendants allege that Plaintiff owed

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fiduciary duties to AAG, as well as duties of loyalty and good faith. Doc. 20, ¶¶ 31-35.

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Specifically, Defendants argue these duties included the duty “to follow AAG’s rules and

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procedures” and “to not interfere with AAG’s existing and potential business

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relationships.”

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discounts to AAG clients to inflate his own revenue numbers, and that Plaintiff was

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aware of the former employee’s fraudulent manipulation of AAG’s financial systems to

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inflate Plaintiff’s commissions. Id., ¶¶ 10-11, 31-35. Defendants assert that by engaging

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in these activities, Plaintiff breached his duties to Defendants. Id., ¶ 35. If Plaintiff was

Id., ¶ 33.

Defendants allege that Plaintiff extended unauthorized

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aware of another employee’s fraudulent scheme to inflate his commissions, and if

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Plaintiff extended unauthorized discounts to inflate his own revenue numbers, the Court

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reasonably can infer that Plaintiff breached his fiduciary duties of good faith and loyalty

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to Defendants.

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E.

Conversion.

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Plaintiff argues that Defendants’ amended counterclaim fails to allege facts that, if

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true, would state a cause of action for conversion. Plaintiff argues that Defendants state

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only legal conclusions, and that Plaintiff’s alleged misappropriation of assets is an

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insufficient basis for a claim of conversion under Arizona law. Doc. 25 at 7.

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Conversion is “an act of wrongful dominion or control over personal property in

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denial of or inconsistent with the rights of another.” Case Corp. v. Gehrke, 91 P.3d 362,

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365 (Ariz. Ct. App. 2004) (quoting Sears Consumer Fin. Corp. v. Thunderbird Prods.,

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802 P.2d 1032, 1034 (Ariz. Ct. App. 1990)). “While a conversion claim cannot be

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maintained to collect on a debt that could be satisfied by money generally, money can be

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the subject of a conversion claim if the money ‘can be described, identified or segregated,

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and an obligation to treat it in a specific manner is established.’” Id. (quoting Autoville,

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Inc. v. Friedman, 510 P.2d 400, 403 (Ariz. Ct. App. 1973) (citations omitted)).

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Defendants allege that Plaintiff misappropriated assets by “offering discounted

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rates to FBU camp attendees in violation of AAG policies and [that] Plaintiff was

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involved in an inflated revenue scheme that created false revenues for commission

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purposes for the Plaintiff.” Doc. 20, ¶¶ 37-39. Depriving Defendants of their revenue is

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not tantamount to Plaintiff’s collecting of a debt. Defendants’ allegations, if true, would

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show that Plaintiff exercised wrongful control over their revenue.

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Arizona law instructs that money can be the subject of conversion if it “can be

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described, identified or segregated, and an obligation to treat it in a specific manner is

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established.” Autoville Inc., 510 P.2d at 403. Defendants will be required to satisfy this

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requirement to the extent their conversion claim is based on money. For purposes of

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Plaintiff’s motion, however, Defendants have pled a sufficient claim.

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IT IS ORDERED that Plaintiff’s motion to dismiss (Doc. 25) is denied.

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Dated this 30th day of January, 2017.

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