AmeriPOD, LLC v. davisREED Construction, Inc. et al

Filing 75

ORDER denying Counter-Defendant AmeriPOD's 64 Motion to Dismiss davisREED's Counter-Claims. Court declines to strike Plaintiff's response from the record as they are a party to the action. Signed by Judge Marilyn L. Huff on 4/11/2019. (jah)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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STEVEN MITNICK, Assignee for the
Benefit of Creditors,
Plaintiff,

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v.
DAVISREED CONSTRUCTION, INC.,
a California Corporation,

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ORDER DENYING COUNTERDEFENDANT’S MOTION TO
DISMISS
[Doc. No. 64]

Defendant.
__________________________________
DAVISREED CONSTRUCTION, INC.,
a California Corporation,

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Case No.: 3:17-cv-00747-H-WVG

Counterclaimant,
v.

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AMERIPOD, LLC, a New Jersey limited
liability company,
Counter-Defendant.

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On February 25, 2019, Counter-Defendant AmeriPOD, LLC (“AmeriPOD”) filed a

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motion to dismiss Defendant and Counterclaimant davisREED Construction, Inc.’s
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(“davisREED”) counter-claims. (Doc. No. 64-1.) On March 25, 2019, davisREED filed

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an opposition and assignee Steven Mitnick (“Plaintiff”) filed a response. (Doc. Nos. 68,

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69.) On March 29, 2019, AmeriPOD filed a reply. (Doc. No. 71.) For the following

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reasons, the Court denies AmeriPOD’s motion to dismiss davisREED’s counter-claims.

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Background

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On April 13, 2017, AmeriPOD filed suit against davisREED. (Doc. No. 1.) On May

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22, 2017, davisREED filed counter-claims against AmeriPOD. (Doc. No. 10.) On

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February 11, 2019, the Court granted a joint motion to substitute as Plaintiff assignee

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Steven Mitnick (“Plaintiff”) into the action in the place of AmeriPOD. (Doc. No. 63.) On

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March 13, 2019, the Court granted a joint motion to apply davisREED’s prior answer to

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the complaint. (Doc. No. 67.)

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Plaintiff brings claims for breach of contract, recovery on open book account,

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account stated, reasonable value, violation of California Business and Professions Code

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§ 7108.5, and violation of California Civil Code § 8818. (Doc. No. 1.) Plaintiff asserts

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that davisREED contracted AmeriPOD to provide prefabricated modular bathroom pod

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units for davisREED’s construction project. (Id. ¶ 2.) According to Plaintiff, AmeriPOD

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completed its obligations under the contract, yet davisREED failed to pay in excess of

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$783,527.48 owed to AmeriPOD under the contract. (Id. ¶¶ 12, 35.) davisREED filed

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counterclaims against AmeriPOD for: breach of contract; promissory estoppel; negligence;

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breach of warranty; intentional interference with contract; unfair competition pursuant to

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California Business and Professions Code §§ 17200 et seq.; quantum meruit; express

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defense and indemnity; equitable indemnity; contribution and apportionment; and

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declaratory relief. (Doc. No. 10 at 19–27.)

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Discussion
I.

Legal Standards

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A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal

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sufficiency of the pleadings and allows a court to dismiss a complaint if the plaintiff has

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failed to state a claim upon which relief can be granted. See Conservation Force v. Salazar,
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646 F.3d 1240, 1241 (9th Cir. 2011). The Federal Rule of Civil Procedure 8(a)(2)’s

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plausibility standard governs Plaintiff’s claims. The Supreme Court has explained Rule

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8(a)(2) as follows:
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a short
and plain statement of the claim showing that the pleader is entitled to relief.
As the Court held in [Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)],
the pleading standard Rule 8 announces does not require detailed factual
allegations, but it demands more than an unadorned, the-defendantunlawfully-harmed-me accusation. A pleading that offers labels and
conclusions or a formulaic recitation of the elements of a cause of action will
not do. Nor does a complaint suffice if it tenders naked assertions devoid of
further factual enhancement.

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Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009) (citations, quotation marks, and brackets

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omitted).

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In reviewing a Rule 12(b)(6) motion to dismiss, “[a] claim has facial plausibility

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

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inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

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“Factual allegations must be enough to raise a right to relief above the speculative level.”

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Twombly, 550 U.S. at 555 (citation omitted). In addition, a court need not accept legal

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conclusions as true. Iqbal, 556 U.S. at 678. Further, it is improper for a court to assume

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that the plaintiff “can prove facts which it has not alleged or that the defendants have

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violated the . . . laws in ways that have not been alleged.” Assoc. Gen. Contractors of Cal.,

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Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). Finally, a court may

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consider documents incorporated into the complaint by reference and items that are proper

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subjects of judicial notice. See Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th

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Cir. 2010).

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If the court dismisses a complaint for failure to state a claim, it must then determine

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whether to grant leave to amend. See Doe v. United States, 58 F.3d 494, 497 (9th Cir.

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1995). “A district court may deny a plaintiff leave to amend if it determines that allegation

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of other facts consistent with the challenged pleading could not possibly cure the

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deficiency, or if the plaintiff had several opportunities to amend its complaint and

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repeatedly failed to cure deficiencies.” Telesaurus VPC, LLC v. Power, 623 F.3d 998,
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1003 (9th Cir. 2010) (internal quotation marks and citations omitted).

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II.

Analysis

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AmeriPOD argues that it is not the real party in interest and thus cannot be sued

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pursuant to Rule 17 and that it does not have standing to be sued. (Doc. No. 64-1.)

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AmeriPOD contends that it is not the real party in interest given the Court’s previous ruling,

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and it argues that public record documentation assigns AmeriPOD’s liabilities to Plaintiff.

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(Id. at 12–13, 19–24.) AmeriPOD also argues that davisREED has previously admitted

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that AmeriPOD does not have standing to participate in this case and that davisREED is

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judicially estopped from arguing that AmeriPOD can be sued. (Id. at 13–19.) davisREED

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argues that AmeriPOD merely assigned its claim against davisREED to Plaintiff, but not

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its liability, and thus davisREED may pursue its claim against AmeriPOD. (Doc. No. 69

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at 5–7.) The Court agrees with davisREED.

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Rule 17 is not applicable at this stage in the case. Rule 17 requires that “[a]n action

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. . . be prosecuted in the name of the real party in interest.” Fed. R. Civ. P. 17. This rule

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controls if the interest is transferred prior to the suit. See Hilbrands v. Far E. Trading Co.,

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509 F.2d 1321, 1323 (9th Cir. 1975). When the proper real party in interest changes after

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the case begins, Rule 25(c) controls. Id. Rule 25(c) provides that “[i]f an interest is

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transferred, the action may be continued by or against the original party unless the court,

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on motion, orders the transferee to be substituted in the action or joined with the original

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party.” Fed. R. Civ. P. 25(c). “This rule gives the court a generous discretion in connection

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with the continuance of actions where there has been a transfer of an interest.” Hyatt Chalet

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Motels, Inc. v. Salem Bldg. & Const. Trades Council, 298 F. Supp. 699, 704 (D. Or. 1968)

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(citing Sun-Maid Raisin Grow. of Cal. v. California Pack. Corp., 273 F.2d 282, 284 (9th

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Cir. 1959)).

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Here, davisREED may maintain its counter-claims against AmeriPOD. Pursuant to

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the undisputed deed of assignment for the benefit of creditors, AmeriPOD assigned to

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Steven Mitnick all of AmeriPOD’s “goods and chattels, bonds, notes, books of account,

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contracts, rights, and credits . . . whatsoever and wheresoever.” (See Doc. No. 64-3 at 21.)
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The assignment occurred after AmeriPOD brought this case. (See Doc. Nos. 1; 64-3 at

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21.) Because AmeriPOD was the proper real party in interest when the case began, Rule

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25(c) controls. Thus, Rule 17 is not applicable. Any substitution would be permissive, not

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required under Rule 25(c). See Fed. R. Civ. P. 25(c).

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Moreover, the assignment for the benefit of creditors does not transfer AmeriPOD’s

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liability to the assignee. (See Doc. No. 64-3 at 21-22.) In fact, the assignment for the

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benefit of creditors says nothing about transferring liability to the assignee. (See id.)

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Instead, AmeriPOD argues that the corporate resolution authorizing a corporate official to

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assign AmeriPOD’s assets and liabilities constitutes an assignment of both the assets and

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liabilities to the assignee. (See Doc. No. 64-1 at 16–17.) However, this corporate

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resolution merely authorizes the official to take action with respect to AmeriPOD’s assets

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and liabilities. (See Doc. No. 64-3 at 24.) Under these circumstances, AmeriPOD’s

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argument that as a result of the assignment for the benefit of creditors it lacks standing to

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be sued and that it is not the real party in interest is without merit.

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This result is borne out in the New Jersey statute controlling such receiverships.

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According to the assignment for the benefit of creditors, AmeriPOD entered into the

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receivership in New Jersey. (See Doc. No. 64-3 at 21–22.) Assuming New Jersey law

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applies, the assignee’s role is to arrange the debtor’s assets to be distributed to creditors.

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See N.J.S.A. 2A:19-1, 19-13, 19-14. AmeriPOD notes that, under New Jersey law, an

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assignee “may compromise, settle and compound all claims, disputes and litigations of the

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assignor[.]” N.J.S.A. 2A: 19-13. (Doc. No. 71 at 12.) However, this provision does not

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require that the assignee assume the debtor’s the liabilities, it simply specifies the

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assignee’s authority over the assignor’s claims, disputes, and litigation.

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AmeriPOD’s remaining arguments are unpersuasive. First, the Court’s previous

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order addressed only AmeriPOD’s capacity to sue davisREED, and thus does not bear on

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AmeriPOD’s potential liability. (See Doc. No. 58.) Second, AmeriPOD argues that

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davisREED is judicially estopped from arguing that AmeriPOD can be sued because

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davisREED has allegedly previously argued otherwise. (See Doc. No. 64-1 at 13–19.)
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However, issues concerning standing are not subject to waiver and must be considered by

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the Court. See United States v. Hays, 515 U.S. 737, 742 (1995) (“The federal courts are

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under an independent obligation to examine their own jurisdiction[.]”). Moreover,

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davisREED’s previous arguments pertained to AmeriPOD’s capacity to sue davisREED,

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rather than davisREED’s capacity to sue AmeriPOD. (See Doc. No. 56.) In this context,

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the Court concludes that davisREED’s arguments should not be judicially estopped.

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Conclusion

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Accordingly, the Court denies AmeriPOD’s motion to dismiss davisREED’s

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counter-claims and, exercising its discretion, the Court declines to strike Plaintiff’s

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response from the record as they are a party to the action.
IT IS SO ORDERED.
DATED: April 11, 2019

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MARILYN L. HUFF, District Judge
UNITED STATES DISTRICT COURT

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3:17-cv-00747-H-WVG