Clayton v. Automated Gaming Technologies, Inc.

Filing 142

ORDER signed by Judge John A. Mendez on 8/11/2014. Court is GRANTING, without leave to amend, plaintiff's 113 Motion to Dismiss to Dismiss Second Cause of Action for fraud in Second Amended Counterclaim. (Marciel, M)

1
2
3
4
5
6
7
8
9

UNITED STATES DISTRICT COURT

10

EASTERN DISTRICT OF CALIFORNIA

11
12

KEITH R. CLAYTON,

13
14
15
16

No.

2:13-cv-00907-JAM-EFB

Plaintiff,
v.

ORDER GRANTING PLAINTIFF
AND COUNTER DEFENDANT’S
MOTION TO DISMISS

AUTOMATED GAMING TECHNOLOGIES,
INC., a Nevada corporation, JOHN
R. PRATHER, and ROBERT MAGNANTI,

17

Defendants.

18
19
20

AUTOMATED GAMING TECHNOLOGIES,
INC., a Nevada corporation,
Counter-Claimant,

21
22
23
24

v.
KEITH R. CLAYTON, and DOES 1
through 10, inclusive,
Counter-Defendants.

25
26
27

This matter is before the Court on Plaintiff and CounterDefendant Keith Clayton’s (“Plaintiff”) Motion to Dismiss (Doc.

28
1

1

#113) Defendant and Counter-Claimant Automated Gaming

2

Technologies, Inc.’s (“AGT”) Second Amended Counterclaim (Doc.

3

#110) (“SAC”).

4

filed a reply (Doc. #124).

5

Plaintiff’s motion is GRANTED.

AGT opposes the motion (Doc. #123).

Plaintiff

For the reasons set forth below,

6
7

I.

PROCEDURAL BACKGROUND AND FACTUAL ALLEGATIONS

8

The factual allegations underlying the parties’ respective

9

claims are well known to all litigants and will not be repeated

10

in detail here.

11

counterclaims arise out of a series of negotiations between the

12

parties regarding two iterations of an employment agreement, an

13

alleged sales contract regarding software allegedly produced by

14

Plaintiff, and the ensuing employment relationship between the

15

parties.

16

In summary, Plaintiff’s suit and AGT’s

AGT’s original counterclaim (Doc. #34), filed on July 30,

17

2013, alleged four claims against Plaintiff.

18

the first three claims (Doc. #59): breach of contract, breach of

19

duty of loyalty, and negligence, with leave to amend.

20

dismissed the final claim of negligent interference with economic

21

relations with prejudice.

The Court dismissed

The Court

22

AGT filed the First Amended Counterclaim (Doc. #69) on

23

January 6, 2014, alleging claims for breach of contract, fraud,

24

and breach of fiduciary duties.

25

action for fraud with leave to amend, dismissed the claim for

26

breach of contract with prejudice, and denied the motion to

27

dismiss the claim for breach of fiduciary duties (Doc. #106).

28

The Court dismissed the cause of

AGT filed the SAC on May 8, 2014.
2

It states two causes of

1

action against Plaintiff: (1) breach of fiduciary duties and

2

(2) fraud.

3

claim.

The present motion seeks dismissal of the fraud

4
5
6

II.

OPINION

As the Court held in an earlier order (Doc. #59), the claims

7

emanating from the employment relationship between the parties

8

are governed by Nevada state law because of the Nevada choice of

9

law provision in the Employment Agreement and the contract’s

10

substantial relationship to Nevada.

11

elements of fraud are: (1) a false representation made by the

12

defendant; (2) defendant’s knowledge or belief that the

13

representation is false (or is insufficient basis for making the

14

representation); (3) defendant’s intention to induce the

15

plaintiff to act or to refrain from acting in reliance upon the

16

misrepresentation; (4) plaintiff’s justifiable reliance upon the

17

misrepresentation; and (5) damage to the plaintiff resulting from

18

such reliance.

19

(Nev. 1992).

20

A.

21

Plaintiff first argues that the “no reliance” clause found

According to Nevada law, the

Bulbman Inc. v. Nevada Bell, 825 P.2d 588, 592

No-Reliance Clause

22

in the original Employment Agreement between the parties negates

23

the element of justifiable reliance.

24
25
26
27
28

In a section entitled “Contract Terms are Exclusive,” the
relevant text of the Employment Agreement reads:
The parties agree that neither of them has made any
representations with respect to the subject matter of
this agreement or any representations inducing the
execution and deliver hereof except such
representations as are specifically set forth herein.
3

1
2
3
4
5
6

Each party acknowledges that each party has relied on
his or its own judgment in entering into this
agreement. The parties further acknowledge that any
statements or representations that may have heretofore
been made by either of them to the other are void and
of no effect and that neither of them has relied
thereon in connection with his or its dealings with the
other.
SAC, Exh. A at p. 17.

7

According to Nevada law, “a fraudulent inducement claim

8

fails as a matter of law where it directly contradicts the terms

9

of an express written contract.”

Soffer v. Five Mile Capital

10

Partners, LLC, 2:12-CV-1407 JCM GWF, 2013 WL 638832, at *9 (D.

11

Nev. 2013); see also Rd. & Highway Builders, LLC v. N. Nev.

12

Rebar, Inc., 284 P.3d 377, 378 (Nev. 2012).

13

directly contrary to the language of the integrated contract.

14

AGT’s claim is

The cause of action for fraud relies on representations made

15

by Plaintiff before the contract was formed, specifically

16

alleging that those representations led AGT to enter into the

17

agreement.

18

contradict the allegations in support of this claim, in that

19

AGT agreed that any representations made previously were “void

20

and of no effect” and that it would not rely on them specifically

21

“in connection with . . . its dealings with” Plaintiff.

22

therefore promised not to rely on Plaintiff’s representations

23

concerning the parties’ employment relationship, yet alleges in

24

its SAC that it did in fact rely on Plaintiff’s representations.

25

This “necessarily implies that, to the extent it did rely on

26

[Plaintiff], [AGT’s] reliance was not justifiable.”

27

West v. Valley Nat. Bank of Arizona, 41 F.3d 471, 477-78 (9th

28

Cir. 1994).

The terms of the contract, however, explicitly

4

AGT

Bank of the

1

AGT argues that the existence of this clause does not

2

preclude its fraud claim, pointing to Nevada cases that allowed a

3

party to present evidence of fraud regardless of an integration

4

clause.

5

Both parties make note that there is no controlling Nevada

6

authority that specifically addresses the preclusive effect of a

7

“no reliance” clause on a claim for fraudulent inducement.

8

However, when claims directly contradict terms considered and

9

explicitly addressed in a contract, the law will not allow a

See Blanchard v. Blanchard, 108 Nev. 908, 912 (1992).

10

party to attempt to prove fraudulent inducement.

11

Highway Builders, 284 P.3d at 380-81.

12

contract was the employment relationship between the parties.

13

The contract exhibits a very clear agreement as to what the

14

parties were to rely upon in entering into that relationship.

15

See Rd. &

The subject of the

AGT’s alleged reliance is particularly questionable here,

16

given that AGT was a sophisticated party to the contract, the

17

party extending the offer to Plaintiff (in an agreement printed

18

on AGT letterhead), and was the party that presumably drafted the

19

contract.

20

v. Google Inc., 05:11-CV-1263-JF, 2011 WL 3501403, at *8-9 (N.D.

21

Cal. 2011); Insitu Inc. v. Kent, 388 F. App'x 745, 746 (9th Cir.

22

2010) (finding the plaintiff could not show reasonable reliance

23

given the “no reliance” clause and that he was “a sophisticated

24

businessman, was represented by counsel, had an adversarial

25

relationship with the company, and was allowed twenty-one days to

26

consider whether to sign the Agreement”).

27
28

See Rd. & Highway Builders, 284 P.3d at 380-81; Woods

AGT contends that even if the no reliance clause is
enforced, its claim for fraud also encompasses the
5

1

misrepresentations made by Plaintiff inducing AGT to enter into

2

the alleged software sales contract.

3

an affirmative claim for fraudulent inducement of an agreement it

4

alleges does not exist.

5

However, AGT cannot bring

See SAC ¶ 51.

As AGT has not sufficiently pled justifiable reliance, a

6

necessary element of its fraud cause of action, the Court GRANTS

7

Plaintiff’s Motion to Dismiss.

8

numerous iterations of AGT’s counterclaim that amendment would

9

cure the defects identified above.

10

It does not appear from the

As such, the Motion to

Dismiss is granted without leave to amend.

11

B.

Remaining Arguments

12

Plaintiff further argues AGT’s claim for fraud should be

13

dismissed because the SAC fails to meet the relevant pleading

14

standards and is barred by the economic loss doctrine.

15

also argues that if the Court does find the claim viable, it does

16

not in any event state facts sufficient to support the specific

17

demand for punitive damages.

18

based on application of the “no reliance” clause, the remaining

19

arguments need not be addressed.

Plaintiff

As the Court has granted the motion

20
III.

21
22

ORDER

For the reasons set forth above, the Court GRANTS WITHOUT

23

LEAVE TO AMEND Plaintiff’s Motion to Dismiss the Second Cause of

24

Action for fraud in the Second Amended Counterclaim.

25

IT IS SO ORDERED.

26

Dated: August 11, 2014

27
28
6