Mililani Group, Inc. v. O'Reilly Automotive, Inc.

Filing 16

ORDER signed by Judge John A. Mendez on 11/26/2012 ORDERING that Defendants' 12 Motion to Dismiss is GRANTED WITH LEAVE TO AMEND. Plaintiff's Amended Complaint must be filed within twenty (20) days from the date of this Order. If Plaint iff elects not to file an Amended Complaint, the case will proceed on the First Amended Complaint on only the breach of contract claim against CSK. Defendants must file their response to Plaintiff's Amended Complaint within twenty (20) days from the date any Amended Complaint is filed. (Zignago, K.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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MILILANI GROUP, INC.,

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2:12-cv-00891 JAM-CKD

Plaintiff,

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No.

v.
O’REILLY AUTOMOTIVE, INC.,
and CSK AUTO, INC.

ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS WITH LEAVE TO
AMEND

Defendants.

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This matter is before the Court on Defendants O’Reilly

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Automotive, Inc. (“O’Reilly”), and CSK Auto, Inc.’s (“CSK”)

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(collectively “Defendants”) Motion to Dismiss (Doc. #12).

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Plaintiff Mililani Group, Inc. (“Plaintiff”) opposes the motion

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(Doc. #13).1

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granted.

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For the following reasons, Defendants’ motion is

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled
for November 7, 2012.
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I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

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Plaintiff filed its First Amended Complaint (“FAC”), the

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operative complaint in this case, on May 21, 2012 (Doc. #7).

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Plaintiff alleges two causes of action against Defendants, the

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first for breach of contract and the second for waste.

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On or about August 29, 1988, CSK entered into a written

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lease agreement for warehouse and office space in Dixon,

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California (the “Property”).

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30, 2011.

CSK vacated the Property on April

Plaintiff alleges that CSK breached the lease by

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failing to maintain insurance, maintain the Property, and return

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the Property to the condition required by the lease.

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further alleges that CSK’s failure to maintain and repair the

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Property constitutes waste.

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Plaintiff

Moreover, Plaintiff alleges that CSK merged with O’Reilly

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on July 11, 2008, and that since the merger the day-to-day

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decisions regarding the Property were made by O’Reilly.

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II. OPINION

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A.

Legal Standard

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A party may move to dismiss an action for failure to state

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a claim upon which relief can be granted pursuant to Federal

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Rule of Civil Procedure 12(b)(6).

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dismiss, the court must accept the allegations in the complaint

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as true and draw all reasonable inferences in favor of the

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plaintiff.

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overruled on other grounds by Davis v. Scherer, 468 U.S. 183

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(1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).

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are mere “legal conclusions,” however, are not entitled to the

In considering a motion to

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),

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Assertions that

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assumption of truth.

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(2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

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(2007)).

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plead “enough facts to state a claim to relief that is plausible

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on its face.”

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appropriate where the plaintiff fails to state a claim

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supportable by a cognizable legal theory.

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Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).

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Ashcroft v. Iqbal, 556 U.S. 662, 678

To survive a motion to dismiss, a plaintiff needs to

Twombly, 550 U.S. at 570.

Dismissal is

Balistreri v.

Upon granting a motion to dismiss for failure to state a

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claim, the court has discretion to allow leave to amend the

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complaint pursuant to Federal Rule of Civil Procedure 15(a).

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“Dismissal with prejudice and without leave to amend is not

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appropriate unless it is clear . . . that the complaint could

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not be saved by amendment.”

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Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).

Eminence Capital, L.L.C. v. Aspeon,

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B.

Judicial Notice

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Defendants request judicial notice of three documents:

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(1) a printout from the Arizona Corporation Commission website

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stating that CSK is an Arizona Corporation in good standing;

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(2) a printout from the Missouri Secretary of State website

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stating that O’Reilly is a Missouri Corporation in good

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standing; and (3) portions of the Securities and Exchange

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Commission, Form 10-K, filed by O’Reilly in 2011.

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Judicial Notice attached to Defendants’ Motion to Dismiss, Doc.

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#12, at 1-2.

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downloaded from a public agency’s official website, are subject

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to judicial notice.

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Emergency Mgmt. Agency, 812 F. Supp. 2d 1089, 1093 (E.D. Cal.

Request for

Public records, including public records

Coal. for a Sustainable Delta v. Fed.

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2011).

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only “to prove their existence and content, but not for the

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truth of the matters asserted therein.”

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for a Sustainable Delta v. McCamman, 725 F. Supp. 2d 1162, 1183–

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84 (E.D. Cal. 2010)).

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notice of the three documents limited to their existence and

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content.

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C.

However, public records are subject to judicial notice

Id. (quoting Coalition

Therefore, the Court grants judicial

Discussion
1.

Alter Ego Liability

Defendants move to dismiss all claims against O’Reilly,

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contending that Plaintiff has failed to allege sufficient facts

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to establish alter ego liability.

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not required to allege its claims in detail under the Federal

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Rules of Civil Procedure.

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Plaintiff argues that it is

The parties agree that because O’Reilly did not sign the

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lease or occupy the property, Plaintiff can only sustain a claim

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against O’Reilly through alter ego liability.

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apply the law of the forum state in determining whether to pierce

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the corporate veil.

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2003) (citations omitted).

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veil may be pierced when the corporation is the alter ego of a

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controlling shareholder.

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83 Cal.App.4th 523 (2000).

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unity of interest and ownership between the corporation and its

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equitable owner that the separate personalities of the

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corporation and the shareholder do not in reality exist” and

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(2) “an inequitable result if the acts in question are treated as

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those of the corporation alone.”

Federal courts

SEC v. Hickey, 322 F.3d 1123, 1128 (9th Cir.
Under California law, the corporate

Sonora Diamond Corp. v. Superior Court,
Alter ego liability requires (1) “a

Id. at 538.
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To pursue this

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theory of liability, a plaintiff must allege the elements of the

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doctrine and conclusory allegations are insufficient.

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E.F. Hutton & Co., Inc., 566 F.Supp.636, 647 (C.D. Cal. 1983).

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a. Unity of Interest

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Hokama v.

For the unity of interest element, courts consider several
factors, including

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inadequate capitalization, commingling of funds and
other assets of the two entities, the holding out by
one entity that it is liable for the debts of the
other, identical equitable ownership in the two
entities, use of the same offices and employees, use
of one as a mere conduit for the affairs of the other,
disregard of corporate formalities, lack of
segregation of corporate records, and identical
directors and officers.

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Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc., 99 Cal.App.4th

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228, 245 (2002).

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factors, but it fails to provide sufficient facts to support its

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allegations.

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CSK and O’Reilly merged, “CSK has operated at the will and whim

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of O’Reilly, it has no separate corporate office, it has no

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management employees, day to day decisions regarding the

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Premises, described below were made by O’Reilly employees.”

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¶ 7.

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in CSK’s name to such an extent that any individuality or

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separateness of CSK and O’Reilly no longer exists.

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These general allegations are too broad and insufficient to show

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a unity of interest and ownership. See Wehlage v. EmpRes

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Healthcare, Inc., 791 F.Supp.2d 774, 782-83 (N.D. Cal. 2011)

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(dismissing claims based on alter ego liability because the broad

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allegations were “not sufficient to show a unity of interest and

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ownership”).

Here, Plaintiff has alleged several of these

For example, Plaintiff generally alleges that since

FAC

Plaintiff also alleges that O’Reilly carried out business

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Id. ¶ 8.

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Defendants argue that the claims against O’Reilly fail

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substantively because O’Reilly is “three steps removed” from CSK

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in the corporate structure and O’Reilly is not CSK’s parent

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company according to the judicially noticed documents.

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Defendants’ argument does not eliminate all potential alter ego

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liability.

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company, in California, the alter ego doctrine may apply between

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a parent and a subsidiary or, under the single enterprise rule,

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between sister and affiliated companies.

However,

Even though O’Reilly may not be CSK’s parent

Id. at 783.

Here, the

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companies are affiliated and therefore, alter ego liability

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under these circumstances is still possible if properly alleged.

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b. Inequitable result
With respect to the inequitable result element of

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Plaintiff’s alter ego theory, Plaintiff must allege bad faith

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conduct by Defendants.

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Cal.App.4th 1205, 1213 (1992).

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to merely show that a creditor will remain unsatisfied if the

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corporate veil is not pierced.”

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Oakland Meat Co., 210 Cal.App.2d 825, 842 (1962).

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Plaintiff has not alleged any wrongdoing by either O’Reilly or

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CSK that may amount to bad faith.

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faith, the alter ego doctrine cannot be invoked.

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Mid-Century Ins. Co. v. Gardner, 9
Moreover, “it is not sufficient

Associated Vendors, Inc. v.
Here,

Without allegations of bad

Accordingly, the Court finds that Plaintiff has not alleged

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either element of alter ego liability and therefore, all claims

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against O’Reilly must be dismissed.

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amend, however, because Plaintiff may be able to allege the unity

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of interest element in greater detail and allege sufficient facts

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to establish bad faith conduct by the Defendants.
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The Court grants leave to

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Waste Claim

Defendants also contend that the waste claim should be

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dismissed independently because Plaintiff has failed to plead

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facts to establish a permanent or substantial depreciation in

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the Property’s market value.

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have to allege permanent damage to the Property because in

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federal court, only a plain and simple statement of the claim is

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Plaintiff argues that it does not

required.

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Waste is defined as an unlawful act or omission of duty on

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the part of a tenant, resulting in permanent injury to the

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property.

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Cal.App.4th 128, 149 (1998) disapproved on other grounds by

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Vandenberg v. Superior Court, 21 Cal.4th 815, 982 P.2d 229

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(1999) (citation omitted).

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value of real property has to be permanently diminished.

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v. Cap Concrete, Inc., 133 Cal.App.3d 769, 775 (1982).

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“waste does not embrace a breach of covenant to repair, whether

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the damage is caused by ordinary wear and tear or an act of

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God.”

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Old Republic Ins. Co. v. Superior Court, 66

To constitute waste, the market
Smith
However,

Krone v. Goff, 53 Cal.App.3d 191, 195 (1975).
Here, Plaintiff has alleged that Defendants failed to

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maintain and repair the Property and that it has expended, at

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least, one million dollars to repair and return the Property to

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its original condition.

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that the Property has been permanently damaged or that the

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market value of the Property has been permanently diminished,

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which is required to establish a claim even in federal court.

Plaintiff, however, does not allege

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See In re Am. Principals Holdings, Inc. Sec. Litig., No. 653,

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1987 WL 39746, at *15 (S.D. Cal. July 9, 1987) (dismissing

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plaintiff’s waste claim because the plaintiff failed to allege

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permanent damage to the property).

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Because this claim may be saved by further amendment, the

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Court grants Defendants’ motion to dismiss but with leave to

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amend.

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III. ORDER

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For the reasons set forth above, Defendants’ Motion to

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Dismiss is GRANTED WITH LEAVE TO AMEND.

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Complaint must be filed within twenty (20) days from the date of

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this Order.

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Complaint, the case will proceed on the First Amended Complaint

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on only the breach of contract claim against CSK. Defendants

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must file their response to Plaintiff’s Amended Complaint within

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twenty (20) days from the date any Amended Complaint is filed.

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Plaintiff’s Amended

If Plaintiff elects not to file an Amended

IT IS SO ORDERED.
Dated: November 26, 2012

____________________________
JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE

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