Robert L. Citroen, Law Corporation v. Micron Optics, Inc.

Filing 29

ORDER denying ECF No. 13 Motion to Dismiss Counterclaim. Signed by Judge Robert C. Jones on 2/17/2017. (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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______________________________________
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ROBERT L. CITROEN, LAW CORP.,
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Plaintiff,
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vs.
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MICRON OPTICS, INC.,
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Defendant.
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3:16-cv-00570-RCJ-WGC
ORDER

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This case arises out of the alleged breach of an assigned settlement agreement. Pending

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before the Court is a Motion to Dismiss Counterclaim (ECF No. 13).

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I.

FACTS AND PROCEDURAL HISTORY

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A.

Facts Alleged in the Complaint

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On April 1, 2014, Plaintiff Robert L. Citroen, Law Corp. (“RLC”) entered into an

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agreement (“the Agreement”) with Defendant Micron Optics, Inc. (“Micron”). (Compl. ¶ 10,

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ECF No. 1-1, at 4). Under the Agreement, Micron was to pay RLC $12,500 per quarter for ten

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years. (Id. ¶ 12). Micron made seven payments from July 1, 2014 to January 1, 2016 but failed

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to make the April 1, 2016 payment or any payment thereafter. (Id. ¶ 13).

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B.

Facts Alleged in the Counterclaim

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Citroen’s Business Interests

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Counterdefendant Robert L. Citroen was a member of Micron’s board of directors since

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sometime prior to 2000 until November 4, 2011. (See Answer & Countercl. ¶ 12, ECF No. 5). In

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or around 2004, Micron Optics International A.G. (“MOIAG”) was formed as a Liberian entity

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to resell Micron’s products in Asia. (Id. ¶ 14). MOIAG’s stock was held equally by Karlsson &

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Bergkvist (Schweiz) A.B. (“K&B”) and Metallikon A.G. until 2014. (Id.). K&B is a Swiss

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entity controlled by Andrei Csipkes and owned by Csipkes’s mother, and Metallikon is a

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Liberian entity owned or controlled by Citroen. (Id. ¶¶ 15–16). Csipkes was Micron’s Chief

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Oprating Officer from 2000 to 2015. (Id. ¶ 19). Citroen failed to disclose his interest in

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Metallikon or Csipkes’s interest in K&B to Micron’s officers, directors, or shareholders. (Id.

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¶ 17). MOIAG profited from its relation with Micron and distributed those profits to its

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shareholders Metallikon and K&B. (Id. ¶ 18). As owner or controller of Metallikon, a

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shareholder of MOIAG, Citroen profited when MOIAG did while also serving as a director of

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Micron as well as its legal counsel. (Id.). In 2007, Citroen and Csipkes formed Technica, S.A. to

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manufacture optical products and components for Micron in China, and Technica’s stock was

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held equally by Metallikon and K&B until 2014. (Id. ¶ 20). Citroen failed to disclose his or

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Csipkes’s interests in Technica to Micron’s officers, directors, or shareholders. (Id. ¶ 21).

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Technica profited from its relation with Micron and distributed those profits to its shareholders

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Metallikon and K&B. (Id. ¶ 21). As owner or controller of Metallikon, a shareholder of

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Technica, Citroen profited when Technica did while also serving as a director of Micron as well

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as its legal counsel. (Id.). Metallikon and K&B transferred their interests in Technica to other

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entities in July 2014. (Id. ¶ 20).

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2.

Citroen’s Federal Convictions

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Citroen was a member of the State Bar of California from 1978 until he voluntarily

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resigned in 2008 two months before pleading guilty to federal crimes related to passport fraud.

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(Id. ¶¶ 9, 22–26). Citroen failed to disclose his convictions to Micron’s officers, directors, or

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shareholders and continued to provide legal advice to Micron and to charge it for those services,

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totaling $132,233.70. (Id. ¶¶ 25–29).

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3.

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On or about April 1, 2014 Micron entered into the Agreement with Metallikon and K&B

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The Agreement

under which those entities would sell their MOIAG stock to Micron for $100,000. (Id. ¶ 32).

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The Agreement also represented the settlement of a purported debt owed by MOIAG to S.A. des

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Establissements Karoly (“SADEK”) for various services. (Id. ¶ 33). Under the Agreement,

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Micron would assume a settled amount of $500,000 in debt to SADEK, payable in quarterly

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installments of $12,500. (Id.). The same day, SADEK assigned its interest in the Agreement to

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RLC, acknowledging that RLC, as SADEK’s subcontractor, had provided the most vital services

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to MOIAG. (Id. ¶ 34). “In other words, the purported obligation and debt owed by MOIAG

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(operated by Csipkes and Citroen) to SADEK, which supposedly resulted from services

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performed by [RLC], was passed along as a debt and obligation to Micron.” (Id. ¶ 35). Citroen

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failed to disclose his and RLC’s interests in the Agreement to Micron’s directors or shareholders.

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(Id. ¶¶ 36–37). Micron made seven quarterly payments under the Agreement but stopped

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making payments after March 2016 when it discovered Citroen’s 2008 resignation from the State

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Bar of California, his federal convictions, and his control, ownership, and/or financial interests in

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Metallikon, MOIAG, and Technica, none of which he had previously disclosed. (Id. ¶¶ 39–41).

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C.

Procedural History and the Present Motion

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RLC sued Micron in state court for breach of contract, unjust enrichment, conversion,

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anticipatory breach, and misrepresentation. Micron removed, answered, and filed counterclaims

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against RLC for breach of contract, contractual and tortious breach of the implied covenant of

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good faith and fair dealing, unjust enrichment, breach of fiduciary duty, fraud in the inducement,

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and constructive fraud. Micron also listed counterclaims against Robert L. Citroen in his

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personal capacity for tortious breach of the implied covenant of good faith and fair dealing,

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unjust enrichment, breach of fiduciary duty, fraud in the inducement, constructive fraud, and

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aiding and abetting fraud. RLC answered the Counterclaim and has asked the Court to dismiss

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the counterclaims brought against Citroen in his personal capacity.

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II.

LEGAL STANDARDS

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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of

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what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47

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(1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action

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that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule

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12(b)(6) tests the complaint’s sufficiency. See N. Star Int’l v. Ariz. Corp. Comm’n, 720

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F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for

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failure to state a claim, dismissal is appropriate only when the complaint does not give the

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defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is

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sufficient to state a claim, the court will take all material allegations as true and construe them in

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the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th

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Cir. 1986). The court, however, is not required to accept as true allegations that are merely

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conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden

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State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

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A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a

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plaintiff must plead facts pertaining to his own case making a violation “plausible,” not just

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“possible.” Ashcroft v. Iqbal, 556 U.S. 662, 677–79 (2009) (citing Twombly, 550 U.S. at 556)

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(“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to

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draw the reasonable inference that the defendant is liable for the misconduct alleged.”). That is,

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under the modern interpretation of Rule 8(a), a plaintiff must not only specify or imply a

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cognizable legal theory (Conley review), he must also allege the facts of his case so that the court

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can determine whether he has any basis for relief under the legal theory he has specified or

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implied, assuming the facts are as he alleges (Twombly-Iqbal review). Put differently, Conley

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only required a plaintiff to identify a major premise (a legal theory) and conclude liability

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therefrom, but Twombly-Iqbal requires a plaintiff additionally to allege minor premises (facts of

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the plaintiff’s case) such that the syllogism showing liability is complete and that liability

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necessarily, not only possibly, follows (assuming the allegations of fact are true).

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“Generally, a district court may not consider any material beyond the pleadings in ruling

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on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the

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complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner

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& Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citation omitted). Similarly, “documents

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whose contents are alleged in a complaint and whose authenticity no party questions, but which

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are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6)

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motion to dismiss” without converting the motion to dismiss into a motion for summary

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judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Moreover, under Federal Rule

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of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay

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Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court

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considers materials outside of the pleadings, the motion to dismiss is converted into a motion for

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summary judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.

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2001).

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III.

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ANALYSIS
RLC argues that a counterclaim may only be asserted against a party to a complaint. It

appears to be correct based on a cursory reading of the rules, see Fed. R. Civ. P. 13(a)(1), (b),

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and relevant commentary, see 6 Charles Alan Wright et al., Federal Practice & Procedure § 1404

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& n.3, at 15–16 (collecting cases) (“The general rule appears to be that in an action brought in a

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representative capacity, defendant cannot assert a counterclaim against plaintiff in plaintiff’s

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individual capacity because it would not be a counterclaim against an ‘opposing party.’”). The

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rules specifically provide that a non-plaintiff counterdefendant should be joined via Rules 19 or

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20. See Fed. R. Civ. P. 13(h) (“Rules 19 and 20 govern the addition of a person as a party to a

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counterclaim or crossclaim.”). Micron responds that Citroen has been properly joined as a

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necessary party under Rule 19 because he is subject to service of process, his joinder does not

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deprive the Court of subject matter jurisdiction, and in Citroen’s absence the Court cannot accord

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complete relief among RLC and Micron, see Fed. R. Civ. P. 19(a)(1)(A), or that he is properly

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joined permissively under Rule 20(a)(2).

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A.

Rule 19

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The Court agrees that Citroen is subject to service in this District and that his joinder will

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not destroy diversity (it does not appear disputed that RLC and Citroen are both Nevada citizens

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and that Micron is a Georgia citizen). The Court disagrees that Citroen is a necessary party,

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however. Micron does not argue why it believes the Court cannot afford complete relief as

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between RLC and Micron without Citroen’s joinder as a counterdefendant except to argue that

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its claims against Citroen are compulsory counterclaims. But that is simply not true. It may

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have been true if Citroen had joined in the Complaint as a plaintiff. But he didn’t, and it is

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circular for a defendant to argue that a non-party is a necessary party under Rule 19 by virtue of

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the fact that a claim the defendant has against the non-party would be a compulsory counterclaim

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under Rule 13 if the non-party had joined the complaint as a plaintiff. Compulsory

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counterclaims need only be—indeed, as already noted, like permissive counterclaims, they may

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only be—brought against an existing plaintiff. See Fed. R. Civ. P. 13(a)(1), (b). Before any

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claim Micron may have against Citroen might be assessed as compulsory, it must first be against

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an existing party. Micron has no compulsory counterclaims against Citroen unless and until he is

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joined as a plaintiff. He has not chosen to join the Complaint permissively under Rule 20(a)(1),

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and Micron has proffered no reason why he need be joined under Rule 19. Nor does Citroen’s

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alleged position as Micron’s former counsel and a former officer or director of Micron mean that

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his joinder is necessary for relief between RLC and Micron. It simply means that his testimony

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will likely be important.

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B.

Rule 20

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Defendants may be permissively joined under Rule 20(a)(2) so long as relief is sought

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against them jointly, severally, or in the alternative with respect to or arising out of the same

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transaction or occurrence or series thereof or if any question of law or fact common to all

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defendants will arise. See Fed. R. Civ. P. 20(a)(2)(A)–(B). This test is easily satisfied here. RLC

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replies that Rule 20(a)(2) governs only the joinder of multiple defendants via complaint, not the

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joinder via counterclaim of additional parties as counterdefendants if those parties are not

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already plaintiffs. But relevant commentary is to the contrary. See 6 Charles Alan Wright et al.

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§ 1434, at 311–13 § n.5 (“[The 1966 revision of Rule 13(h) made] it clear that if a

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counterclaim . . . has been properly asserted, then any person whose joinder in the original action

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would have been proper under Rule 20 . . . may be added as a party to the counterclaim . . . .”)

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(collecting cases).

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C.

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Finally, RLC argues that Micron is equitably estopped to deny its obligation to RLC due

Waiver

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to its assumption of the Agreement. See United Bhd. of Carpenters Local No. 1780 v. Dahnke,

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714 P.2d 177, 178–79 (Nev. 1986) (“[E]quitable estoppel operates to prevent the assertion of

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legal rights that in equity and good conscience should be unavailable because of a party’s

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conduct.”). The Court will not dismiss the Counterclaim based on equitable estoppel. Equitable

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estoppel is an affirmative defense, see Idaho Res., Inc. v. Freeport-McMoran Gold Co., 874 P.2d

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742, 743 (Nev. 1994), and facts showing the defense do not appear on the face of the

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Counterclaim.
CONCLUSION

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IT IS HEREBY ORDERED that the Motion to Dismiss Counterclaim (ECF No. 13) is
DENIED.
IT IS SO ORDERED.
DATED: This 17th day of February, 2017.
Dated this 10th day of January, 2017.

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_____________________________________
ROBERT C. JONES
United States District Judge

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