Wells Fargo Bank, N.A. v. Klosterman
Filing
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ORDER GRANTING THE KLOSTERMAN DEFENDANTS SECOND MOTION TO DISMISS THE FIRST AMENDED COMPLAINT re 18 Motion to Dismiss. Signed by JUDGE ALAN C. KAY on 11/15/2017. The Court GRANTS the Klosterman Defendants' Second Motion to Dismiss, ECF No. 18 . The Court dismisses Counts 1 and 2 as to the Klosterman Defendants in the FAC WITHOUT PREJUDICE.Plaintiff must file an amended complaint within thirty days of the entry of this Order or else judgment will be entered against it. Any amended complaint must correct the deficiencies noted in this Order or Plaintiff's claims may be dismissed with prejudice. (eps, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
WELLS FARGO BANK, N.A.,
Plaintiff,
vs.
MARIANNE KLOSTERMAN;
KLAUS P. KLOSTERMAN;
GALAXY AQUATICS, INC.; JOHN
DOES 1-10; JANE DOES 1-10;
DOE CORPORATIONS 1-10; DOE
PARTNERSHIPS 1-10; DOE
ASSOCIATIONS 1-10; DOE
GOVERNMENTAL UNITS 1-10; and
DOE ENTITIES 1-10,
Defendants.
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Civ. No. 17-00347 ACK-KSC
ORDER GRANTING THE KLOSTERMAN DEFENDANT’S SECOND MOTION TO
DISMISS THE FIRST AMENDED COMPLAINT
For the reasons set forth below, the Court GRANTS the
Klosterman Defendants’ Second Motion to Dismiss, ECF No. 18.
The Court dismisses Counts 1 and 2 as to the Klosterman
Defendants in the FAC WITHOUT PREJUDICE.
FACTUAL BACKGROUND
On approximately July 11, 2003, Defendants Marianne
Klosterman and Klaus P. Klosterman (“Klosterman Defendants”), on
behalf of Galaxy Aquatics, Inc. (“Galaxy” and together with the
Klosterman Defendants, “Defendants”), applied for a business
loan line of credit (the “Application”) with Wells Fargo Bank,
N.A. (“Wells Fargo” or “Plaintiff”).
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First Amended Complaint
(“FAC”) ¶ 8.
Within the Application, there was a section
entitled “Agreement and Personal Guarantee” in which the
Klosterman Defendants agreed to “jointly and severally
unconditionally guarantee and promise to pay [Wells Fargo] all
indebtedness of [Galaxy] at any time arising under or relating
to any credit requested through this application, as well as any
extensions, increases or renewals of that indebtedness.”
Id. ¶¶
10-11.
Wells Fargo tendered performance according to the
Application by advancing funds to Galaxy.
Id. ¶ 13.
On
approximately November 4, 2013, Galaxy defaulted by failing to
make the required payment due under its business line of credit
account.
Id. ¶ 14.
On approximately August 14, 2014, Wells Fargo made
separate demands of Galaxy and each of the Klosterman Defendants
to make full payment of the amount due under the business line
of credit account.
Id. ¶ 17.
have failed to pay such sums.
due is $75,679.34.
Despite these demands, Defendants
Id. ¶ 18.
Currently, the amount
Id. ¶ 16.
PROCEDURAL BACKGROUND
On July 20, 2017, Plaintiff filed its Complaint
against Defendants alleging claims for breach of contract and
quantum meruit.
ECF No. 1.
On August 16, 2017, the Klosterman
Defendants filed a Motion to Dismiss for Failure to State a
2
Claim.
ECF No. 14.
On September 6, 2017, in response to the
Motion to Dismiss, Plaintiff filed the FAC, which also alleges
claims for breach of contract and quantum meruit.
ECF No. 16.
On September 20, 2017, the Klosterman Defendants filed
a Second Motion to Dismiss for Failure to State a Claim Against
Defendants Marianne and Klaus P. Klosterman (“Motion”).
18.
ECF No.
On October 6, 2017, Plaintiff filed an Opposition to the
Motion.
ECF No. 21.
On October 16, 2017, the Klosterman
Defendants filed a Reply.
ECF No. 25.1
The Court held a hearing
on the Motion on October 30, 2017.
STANDARD
Federal Rule of Civil Procedure 12(b)(6) authorizes
the Court to dismiss a complaint that fails “to state a claim
upon which relief can be granted.”
Fed. R. Civ. P. 12(b)(6).
Rule 12(b)(6) is read in conjunction with Rule 8(a), which
requires only “a short and plain statement of the claim showing
that the pleader is entitled to relief.”
8(a)(2).
Fed. R. Civ. P.
The Court may dismiss a complaint either because it
lacks a cognizable legal theory or because it lacks sufficient
factual allegations to support a cognizable legal theory.
Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.
1
On October 9, 2017, Plaintiff filed a Motion for Entry of
Default against Galaxy. ECF No. 22. On October 10, 2017, the
Clerk entered default against Galaxy. ECF No. 23.
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1988).
In resolving a Rule 12(b)(6) motion, the Court must
construe the complaint in the light most favorable to the
plaintiff and accept all well-pleaded factual allegations as
true.
Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783
(9th Cir. 2012).
The complaint “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
“The plausibility standard . . . asks for more than a
sheer possibility that a defendant has acted unlawfully.”
Id.
“Where a complaint pleads facts that are ‘merely consistent
with’ a defendant’s liability, it ‘stops short of the line
between possibility and plausibility of entitlement to relief.’”
Id. (quoting Twombly, 550 U.S. at 557).
When the Court dismisses a complaint pursuant to Rule
12(b)(6) it should grant leave to amend unless the pleading
cannot be cured by new factual allegations.
OSU Student All. v.
Ray, 699 F.3d 1053, 1079 (9th Cir. 2012).
DISCUSSION
I.
Whether the FAC Alleges a Plausible Breach of Contract
Claim Against the Klosterman Defendants
Defendant argues that Plaintiff’s FAC fails to state a
claim against the Klosterman Defendants because it fails to
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allege the terms of the agreement between Plaintiff and Galaxy
that were breached.
To analyze this issue, the Court must first determine
which state’s substantive law applies.
In a diversity case, a
federal court ordinarily applies the choice of law rules of the
state in which it sits.
Allied World Surplus Lines Ins. Co. v.
Hawaii Med. Serv. Ass’n, Civ. No. 17-00156 HG-RLP, 2017 WL
4286306, at *4 (D. Haw. Sept. 27, 2017).
Hawaii courts resolve
conflict of law issues by deciding which state has the strongest
interest in seeing its law applied to a particular case.
v. Lewis, 69 Haw. 497, 499, 748 P.2d 1362, 1365 (1988).
Lewis
The
Hawaii Supreme Court discussed its choice of law jurisprudence
in Mikelson v. United Serv. Auto. Ass’n, 107 Haw. 192, 111 P.3d
601 (2005).
The Mikelson court stated:
This court has moved away from the
traditional and rigid conflict-of-laws rules
in favor of the modern trend towards a more
flexible approach looking to the state with
the most significant relationship to the
parties and subject matter. This flexible
approach places primary emphasis on deciding
which state would have the strongest
interest in seeing its laws applied to the
particular case. Hence, this court has said
that the interests of the states and
applicable public policy reasons should
determine whether Hawaii law or another
state’s law should apply. The preferred
analysis . . . would be an assessment of the
interests and policy factors involved with a
purpose of arriving at a desirable result in
each situation.
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107 Haw. at 198, 111 P.3d at 607 (internal citations, brackets,
and quotation marks omitted).
Although the allegations in the FAC are sparse on this
issue, the Court finds that Texas law applies for the purposes
of this Order.
The FAC states that Wells Fargo is a citizen of
South Dakota and the Klostermans are citizens of Hawaii.
1, 2.
FAC ¶¶
However, Galaxy is a Texas corporation and its last
principal place of business was in Texas.
Id. ¶ 4.
The
Klostermans listed Texas addresses for themselves and Galaxy on
the Application.
Id., Ex. 1.
The bills for the line of credit
and collection notices were sent to Galaxy’s address in Texas.
Id., Ex. 3.
The Court, therefore, finds that based on the facts
alleged in the FAC and the attached exhibits, Texas has the
greatest interest in this case.2
For Wells Fargo to recover on its breach of the
guaranty contract against the Klostermans, it must prove: “(1)
the existence and ownership of the guaranty contract, (2) the
terms of the underlying contract by the holder, (3) the
occurrence of the conditions upon which liability is based, and
(4) the failure or refusal to perform the promise by the
guarantor.”
Gold’s Gym Franchising LLC v. Brewer, 400 S.W.3d
156, 160 (Tex. App. 2013) (internal quotation marks and citation
2
The Court also notes that the parties discuss Texas law in
their briefs.
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omitted).3
The FAC plausibly alleges the first and fourth
elements of a breach of guaranty claim.
Plaintiff attaches the
guaranty contract to its FAC and discusses the relevant terms—
the Klosterman Defendants agreed to “jointly and severally
unconditionally guarantee and promise to pay [Wells Fargo] all
indebtedness of [Galaxy] at any time arising under or relating
to any credit requested through this application, as well as any
extensions, increases or renewals of that indebtedness.”
11.
FAC ¶
The FAC alleges that despite Wells Fargo’s demands to make
3
At the hearing, Plaintiff cited to 84 Lumber Co., L.P. v.
Powers, 393 S.W.3d 299 (Tex. App. 2012) and stated that
Plaintiff did not need to allege the terms of the underlying
contract by the holder to plausibly allege a breach of guarantee
claim under Texas law. The Court does not find Plaintiff’s
reference to 84 Lumber Co. persuasive. 84 Lumber Co. contains
one sentence in dicta that the corporate president’s signature
to a guaranty contract on a credit application created both
corporate liability and individual liability for the debt of the
corporation. 393 S.W.3d at 306. However, whether the credit
application itself constituted the underlying terms of the
contract was not at issue in the case, rather the defendant
claimed that there was some ambiguity with regard to whether the
corporation’s president signed the application just as a
corporate officer. Furthermore, at the hearing, Plaintiff’s
counsel could not confirm that the Application here consisted of
both the underlying contract and the guaranty contract.
In addition, 84 Lumber Co. cites to Austin Harwoods, Inc.
v. Vanden Berghe, 917 S.W.2d 320 (Tex. App. 1995) in the
aforementioned discussion. The Court also finds Austin Harwoods
distinguishable because the agreement contained in the credit
application contained a clause stating, “We fully understand
your credit terms and agree to the proper payment in
consideration of extended credit.” Id. at 323. The agreement
in the Application in this case does not contain this or a
similar clause.
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full payment of the amount secured by the business line of
credit, Defendants have failed to pay such sums.
Id. ¶¶ 17-18.
The statements for the business line of credit attached to the
FAC show the amount Galaxy owed to Wells Fargo and the interest
rate.
Id., Ex. 3.
The Court finds the issue of whether Plaintiff has
adequately alleged the second and third requirements to be a
closer call.
The Klosterman Defendants argue that Plaintiff has
failed to properly allege a breach of the business line of
credit agreement because Plaintiff has failed to allege any
contractual provisions, much less any provisions that were
breached.
The Klosterman Defendants accurately assert that
breach of the business line of credit agreement is required to
trigger the Plaintiff’s claim related to the guaranty.
Although Plaintiff alleges that on or about November
4, 2013, Galaxy defaulted by failing to make required payments
it owed to Wells Fargo under its business line of credit,
Plaintiff fails to discuss the specific contractual provision
that Galaxy violated.
Id. ¶ 14.
“To allege a breach of
contract claim, the complaint must, at a minimum, cite the
contractual provision allegedly violated.”
Flynn v. Marriott
Ownership Resorts, Inc., 165 F. Supp. 3d 955, 980 (D. Haw.
2016).
Courts in this District follow a strict pleading
standard on this issue.
See Schwartz v. Bank of Am., N.A., Civ.
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No. 12-00525 KSC, 2013 WL 12132070, at *4 (D. Haw. Jan. 7, 2013)
(stating that defendants are not required to connect the dots
through inference or search through the Complaint’s multiple
exhibits to determine what provision Plaintiffs assert is
violated); Gaspar v. Bank of Am., N.A., No. CIV 10-00323
JMS/BMK, 2010 WL 4226466, at *3 (D. Haw. Oct. 18, 2010) (stating
that to allege a plausible breach of contract claim the
complaint must include “particularized allegations” regarding
the contractual provision allegedly violated).
The FAC does not allege any provisions in the
underlying agreement related to the business line of credit.
The FAC does not clearly state that the agreement contained in
the loan application or the Application itself constitutes the
terms of the business line of credit.4
In addition, the FAC
alleges that in the agreement section of the Application, it
states, “I acknowledge that (i) this application is subject to
final approval of the Applicant and its owners, and that (ii)
4
The Court notes that Plaintiff’s definition of the
Business Line of Credit Agreement in the FAC is unclear.
Plaintiff defines the application for a business loan line of
credit as the Business Line of Credit Agreement. See FAC ¶ 8.
However, the agreement featured in the application for the
business line of credit is related to the terms of the
application and the guarantee and does not have material terms
regarding the line of credit, such as its amount and interest
rate. In addition, as discussed herein, at the hearing,
Plaintiff could not confirm that the Application constituted the
agreement related to the business line of credit.
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additional information (i.e. financial statements and/or tax
returns) may be required in order for the Bank to make a final
credit decision.”
FAC ¶ 10.
This allegation indicates that
there may be an additional agreement related to the business
line of credit.
At the hearing, Plaintiff also could not point
the court to the terms of the underlying agreement related to
the line of credit.
Accordingly, the Court grants the
Klosterman Defendants’ Motion in regard to the breach of
contract claim and dismisses this claim without prejudice.
If,
in fact, it is Plaintiff’s position that the Application
constitutes both the business line of credit agreement between
Wells Fargo and Galaxy and the guaranty agreement between Wells
Fargo and the Klostermans, which might be correct but has not
been sufficiently alleged, the Court directs Plaintiff’s counsel
to attach an affidavit to its amended complaint from a pertinent
representative of Wells Fargo supporting and explaining that
position.
II.
Whether Plaintiff Fails to State a Claim Because its
Allegations Reveal a Statute of Frauds Affirmative
Defense
Plaintiffs ordinarily need not “plead on the subject
of an anticipated affirmative defense.”
United States v.
McGee, 993 F.2d 184, 187 (9th Cir. 1993).
When an affirmative
defense is obvious on the face of a complaint, however, a
defendant can raise that defense in a motion to dismiss.
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Rivera
v. Peri & Sons Farms, Inc., 735 F.3d 892, 902 (9th Cir. 2013).
The Klosterman Defendants argue that a statute of
frauds affirmative defense is obvious on the face of the FAC
because Plaintiff fails to attach a written copy of an agreement
for the business line of credit and does not even allege that it
exists.
Motion at 5.
The Court disagrees.
This affirmative defense is not obvious on the face of
the FAC.
Plaintiff is not required to attach a copy of the
writing on which its claim for relief is based.
See Richards
Indus. Park, LP v. FDIC, 572 F. App’x 499, 502-03 (9th Cir.
2014) (“‘The provision for incorporation of exhibits in Rule
10(c) is permissive only, and there is no requirement that the
pleader attach a copy of the writing on which his claim for
relief or defense is based.’” (quoting 5A Charles Alan Wright,
Miller & Kane, Federal Practice and Procedure § 1327 (3d ed.
2004)); Regents of the Univ. of California v. Aisen, Case No.
15-cv-1766-BEN (BLM), 2016 WL 1428072, at *7 (S.D. Cal. Apr. 12,
2016) (“The contract described in the claims does not have to be
attached as an exhibit to the Cross-Complaint.”).
Defendants
will have the opportunity to prove this affirmative defense
during the course of the litigation.
In addition, federal pleading rules do not require a
plaintiff to anticipate and plead facts in its complaint to
avoid potential affirmative defenses.
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See Perry v. Merit Sys.
Prot. Bd., 137 S. Ct. 1975, 1986 n.9 (2017) (“In civil
litigation, a release is an affirmative defense to a plaintiff’s
claim for relief, not something the plaintiff must anticipate
and negate in her pleading.”); Unique Functional Prod., Inc. v.
JCA Corp., No. 9-CV-265-JM-MDD, 2012 WL 1416201, at *2 (S.D.
Cal. Apr. 23, 2012) (noting that Plaintiff is not required to
plead around anticipated affirmative defenses).
Plaintiff,
therefore, was not required to plead that the business line of
credit agreement was in writing.
The Court denies the
Klosterman Defendants’ Motion on this basis.
III. Whether Plaintiff has Pled a Plausible Quantum Meruit
Claim Against the Klosterman Defendants
Quantum meruit is an equitable remedy that does not
arise out of contract but is independent of it.
Shamoun &
Norman, LLP v. Hill, 483 S.W.3d 767, 781 (Tex. App. 2016).
Generally, a party may recover under quantum meruit only where
there is no express contract covering the services or materials
furnished.
Id.
To recover under quantum meruit, Plaintiff must
establish: “(1) the valuable services rendered or materials
furnished, (2) to the person sought to be charged, (3) which
services or materials were accepted, used, and enjoyed by that
person, (4) under such circumstances as reasonably notified the
person sought to be charged that plaintiff was expecting to be
paid.”
Id.
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The Court finds that the FAC fails to allege a
plausible quantum meruit claim against the Klosterman
Defendants.
The quantum meruit claim consistently alleges that
there was an express contract.
See, e.g., FAC ¶ 24 (“Pursuant
to the Business Line of Credit Agreement, Wells Fargo tendered
$75,679.34 to Galaxy as guaranteed by the Klostermans.”
(emphasis added)); id. ¶ 25 (“By the terms of the Business Line
of Credit Agreement, Defendants were reasonably notified that
Wells Fargo intended to be compensated for its services.”
(emphasis added)); id. ¶ 26 (“Defendants materially breached
their obligations under the Business Line of Credit Agreement by
virtue of, among other things, failing to pay the amounts due
and owing under the Business Line of Credit Agreement.”
(emphasis added)).
These allegations render the quantum meruit
claim implausible as to the Klosterman Defendants because
Plaintiff can only recover under a quantum meruit claim if there
is no express contract.
Furthermore, although the FAC alleges that the
Klosterman Defendants guaranteed the business line of credit to
Galaxy, Plaintiff has not alleged that any money was loaned or
furnished to the Klostermans directly or that the Klostermans
accepted, used, and enjoyed any of the money outside their
capacity as owners of Galaxy.
Rather, the FAC alleges that
money was tendered to Galaxy.
Id. ¶ 24.
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Moreover, outside the
discussion of the guaranty contract, the FAC does not make any
allegations that would allow the Klostermans to be personally
liable for money loaned to Galaxy, such as through a veilpiercing theory.
Accordingly, the Court finds that Count 2 of
the FAC fails to state a plausible claim as to the Klosterman
Defendants.
The Court grants the Klosterman Defendants’ motion
to dismiss Count 2 and dismisses this claim without prejudice.
CONCLUSION
For the reasons set forth below, the Court GRANTS the
Klosterman Defendants’ Second Motion to Dismiss, ECF No. 18.
The Court dismisses Counts 1 and 2 as to the Klosterman
Defendants in the FAC WITHOUT PREJUDICE.
Plaintiff must file an amended complaint within thirty
days of the entry of this Order or else judgment will be entered
against it.
Any amended complaint must correct the deficiencies
noted in this Order or Plaintiff’s claims may be dismissed with
prejudice.
IT IS SO ORDERED
Date: Honolulu, Hawaii, November 15, 2017
________________________________
Alan C. Kay
Sr. United States District Judge
Wells Fargo Bank, N.A. v. Klosterman, Civ. No. 17-00347 ACK-KSC, Order
Granting the Klosterman Defendants Second Motion to Dismiss the First Amended
Complaint
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