Haller v. Advanced Industrial Computer Incorporated, No. 2:2013cv02398 - Document 60 (D. Ariz. 2014)
Court Description: ORDER denying 38 Motion to Dismiss Counts/Claims. Signed by Judge David G Campbell on 8/15/2014.(DGC, nvo)
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Seth Haller, et al., No. CV-13-02398-PHX-DGC Plaintiffs, 10 11 v. 12 ORDER Advanced Industrial Computer Incorporated, et al., 13 Defendants. 14 15 Defendant Advanced Industrial Computer, Inc. (“AIC”) has filed a motion to 16 dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. 38. The motion is 17 fully briefed. The Court will deny the motion.1 18 I. Background. 19 According to the second amended complaint, Plaintiff Seth Haller, a white man, 20 was hired by AIC as the Director of Business Management of the Platform Solutions 21 Group (“PSG”), one of AIC’s three divisions. Doc. 31, ¶¶ 7, 15. As part of his 22 compensation package, Haller was able to buy investment shares of T-Win Systems, Inc. 23 (T-Win), AIC’s parent company. Id., ¶ 7. In addition, Haller would be entitled to a 24 certain number of bonus shares based on the number of investment shares he purchased. 25 Id. Haller purchased 45,000 investment shares, which entitled him to 30,000 bonus 26 shares. Id., ¶ 19. After beginning his employment with AIC, Haller was emailed by 27 1 28 The request for oral argument is denied because the issues have been fully briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 Sherman Tang, the vice president of PSG, about the bonus shares. Id., ¶ 20. Haller 2 signed a Stock Purchase Agreement (“Agreement”) for the bonus shares, which provided 3 that if Haller’s group contributed at least $5 in Taiwanese Dollars to earnings per share of 4 AIC stock in 2010, Haller could keep the bonus shares. Id., ¶¶ 21-24. The Agreement 5 was also signed by Michael Liang, the president of both AIC and T-Win. Id., ¶ 23. 6 Haller believed that he would be able to sell his investment shares and bonus 7 shares after two events occurred: first, T-Win’s stock had to have been traded as “penny 8 stocks” in Taiwan for four consecutive quarters; second, the stock had to be listed on the 9 Taiwanese national exchange. Id., ¶ 24. Once both events occurred, Haller would be free 10 to sell all of his investment shares and 25% of his bonus shares. Id. From then on, Haller 11 would be entitled to sell 25% of his bonus shares each year. Id. 12 During Haller’s employment at AIC, he received an additional 5,000 bonus shares 13 of T-Win stock, but never signed an agreement for the additional shares. Id., ¶ 33. In 14 addition, Haller’s group successfully contributed at least $5 in Taiwanese Dollars in 15 earning per share of AIC stock in 2010. Id., ¶ 35. 16 In 2010, AIC employees began referring to Haller as “head gweilo,” a Cantonese 17 ethnic slur meaning “ghost man.” Id., ¶¶ 36-38. Haller complained about the slurs to 18 Tang but never saw any corrective action take place. Id., ¶¶ 39-40. 19 Eventually, Liang directed Tang to terminate Haller because Liang could not 20 understand Haller due to Liang’s poor English skills. Id., ¶ 41. Haller later learned that 21 AIC was in the process of hiring an employee of Asian descent to take over Haller’s 22 former clients. Id., ¶ 42. After being terminated, Haller received his 45,000 investment 23 shares, but never received his 30,000 bonus shares or the 5,000 additional bonus shares. 24 Id., ¶ 46. 25 Plaintiffs brought this action pursuant to the Arizona Civil Rights Act and Title 26 VII of the Civil Rights Act of 1964 alleging discrimination on the basis of race, breach of 27 contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and 28 failure to pay wages pursuant to A.R.S. § 23-355. -2- 1 II. Legal Standard. 2 When analyzing a complaint for failure to state a claim under Rule 12(b)(6), the 3 well-pled factual allegations are taken as true and construed in the light most favorable to 4 the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). Legal 5 conclusions couched as factual allegations are not entitled to the assumption of truth, 6 Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and therefore are insufficient to defeat a 7 motion to dismiss for failure to state a claim, In re Cutera Sec. Litig., 610 F.3d 1103, 8 1108 (9th Cir. 2010). To avoid a Rule 12(b)(6) dismissal, the complaint must plead 9 enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. 10 Twombly, 550 U.S. 544, 570 (2007). This plausibility standard “is not akin to a 11 ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant 12 has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). 13 “[W]here the well-pleaded facts do not permit the court to infer more than the mere 14 possibility of misconduct, the complaint has alleged – but it has not ‘show[n]’ – ‘that the 15 pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). 16 III. Analysis. 17 A. Count Three: Breach of Contract. 18 “For a plaintiff to bring a breach of contract action against a defendant, the 19 plaintiff and defendant must have a contractual relationship.” Brown v. Kinross Gold 20 U.S.A., Inc., 531 F. Supp. 2d 1234, 1240 (D. Nev. 2008). It therefore “is axiomatic that 21 non-parties cannot be held liable for breach of contract[.]” Herbal Care Sys., Inc. v. 22 Plaza, No. CV-06-2698-PHX-ROS, 2009 WL 692338, at *2 (D. Ariz. Mar. 17, 2009). 23 On April 7, 2014, the Court granted Defendant’s motion for judgment on the 24 pleadings with respect to Plaintiffs’ breach of contract claim. Doc. 29 at 4-5. In so 25 ruling, the Court found that AIC was not a party to the Agreement and rejected Plaintiffs’ 26 assertion that AIC was an alter ego or an agent of T-Win and vice versa. Id. Plaintiffs 27 acknowledge in their filings that the Agreement is between T-Win and Haller. They have 28 alleged additional facts and assert the alter ego and agency theories anew. -3- 1 “A basic tenant of American corporate law is that the corporation and its 2 shareholders are distinct entities.” Dole Food Co. v. Patrickson, 538 U.S. 468, 474 3 (2003) (citations omitted). 4 subsidiaries. See id. The veil separating a corporate parent and its subsidiary may be 5 pierced in some circumstances, but the doctrine of veil piercing is the “rare exception,” 6 applied in the case of fraud or certain other exceptional circumstances. Id. at 475. In 7 general, a parent corporation may be directly involved in the activities of its subsidiaries 8 without incurring liability so long as that involvement is “consistent with the parent’s 9 investor status.” This basic tenant applies to corporate parents and their United States v. Bestfoods, 524 U.S. 51, 69 (1998). Appropriate 10 parental involvement includes “monitoring of the subsidiary’s performance, supervision 11 of the subsidiary’s finance and capital budget decisions, and articulation of general 12 policies and procedures[.]” Id. Nonetheless, “if the parent and subsidiary are not really 13 separate entities, or one acts as an agent of the other,” the corporate veil may be pierced. 14 Doe v. Unocal Corp., 248 F.3d 915, 926 (9th Cir. 2001) (quoting El-Fadl v. Cent. Bank 15 of Jordan, 75 F.3d 668, 676 (D.C. Cir. 1996)). 16 1. Alter Ego. 17 To satisfy the alter ego exception, the plaintiff must make out a two-part prima 18 facie case: first, the plaintiff must show that there is such unity of interest and ownership 19 that the separate personalities of the two entities no longer exist, and second, the plaintiff 20 must show that failure to disregard the entities’ separate identities would result in fraud or 21 injustice. Unocal, 248 F.3d at 926 (citing Dietel v. Day, 492 P.2d 455, 457 (Ariz. Ct. 22 App. 1972)). Unity of control is shown when a parent exercises “substantially total 23 control over the management and activities” of its subsidiary. Gatecliff v. Great Republic 24 Life Ins. Co., 821 P.2d 725, 728 (Ariz. 1991); see also Unocal, 248 F.3d at 926 (“The 25 first prong of this test has alternately been stated as requiring a showing that the parent 26 controls the subsidiary to such a degree as to render the latter the mere instrumentality of 27 the former.”). A plaintiff may establish that a parent has substantially total control by 28 showing, among other things, stock ownership by the parent, common officers or -4- 1 directors, financing of the subsidiary by the parent, payment of salaries and other 2 expenses of subsidiary by the parent, failure of subsidiary to maintain formalities of 3 separate corporate existence, similarity of logo, and plaintiff’s lack of knowledge of the 4 subsidiary’s separate corporate existence. Gatecliff, 821 P.2d at 728. 5 To support their alter ego theory Plaintiffs allege the following facts: Liang is the 6 president of both entities, AIC is a wholly owned subsidiary of T-Win, T-Win controls 7 AIC’s hiring and firing decisions, T-Win sets delivery times and product pricing for AIC, 8 T-Win controls AIC’s product procurement and product manufacturing, T-Win and AIC 9 share a unity of interest and ownership, failure to regard T-Win and AIC as alter egos 10 would result in fraud or injustice against Haller, and T-Win is an alter ego of AIC and 11 AIC is an alter ego of T-Win. Doc. 31, ¶¶ 8-14, 23. 12 Plaintiffs have pled sufficient facts to survive a motion to dismiss their alter ego 13 claim. Alter ego determinations are highly fact-based. See Legacy Wireless Servs., Inc. 14 v. Human Capital, L.L.C., 314 F. Supp. 2d 1045 (D. Or. 2004). Plaintiffs allege total 15 stock ownership by the parent corporation, common corporate officers, and the parent’s 16 substantial control of the subsidiary’s business. Plaintiffs also allege that the president of 17 both corporations was personally involved in and signed the stock acquisition agreement. 18 Whether Plaintiffs can adduce sufficient evidence to support their alter ego claim must be 19 addressed at summary judgment and, if necessary, trial, but the Court concludes that they 20 have pled sufficient facts to move beyond the pleading stage. 21 2. Agency. 22 Arizona courts generally follow the Restatement of Agency. Fidelity & Deposit 23 Co. of Md. v. Bondwriter of Sw., Inc., 263 P.3d 633, 639 (Ariz. Ct. App. 2011). The 24 Restatement defines “agency” as “a consensual and fiduciary relationship” that “creates a 25 [fiduciary] duty upon the agent to act in good faith and according to the terms of the 26 agency agreement.” Maricopa P’ships, Inc. v. Petyak, 790 P.2d 279, 281 (Ariz. Ct. 27 Appeals 1989); see Restatement (Third) of Agency § 1.01 (2006) (“Agency is the 28 fiduciary relationship that arises when one person (a ‘principal’) manifests assent to -5- 1 another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to 2 the principal’s control, and the agent manifests assent or otherwise consents so to act.”). 3 In the setting of a corporate parent and subsidiary, the agency test is satisfied by a 4 showing that the subsidiary functions as the parent corporation’s representative in that it 5 performs services that are sufficiently important to the foreign corporation that if it did 6 not have a representative to perform them, the corporation’s own officials would 7 undertake to perform substantially similar services.” Unocal, 248 F.3d at 928 (internal 8 quotation marks and citation omitted). 9 Plaintiffs allege that T-Win acted with AIC’s consent when it entered into the 10 Agreement as part of Haller’s recruitment package with AIC, T-Win acted on AIC’s 11 behalf when it entered into the Agreement to secure Haller’s employment with AIC, T- 12 Win was subject to the control and direction because AIC determined the number of 13 bonus shares to which Haller was entitled, T-Win had authority from AIC to enter into 14 the Agreement, and T-Win acted as AIC’s agent in consummating the Agreement with 15 Haller. Doc. 31, ¶¶ 27-31. These alleged facts adequately plead agency. 3. 16 Statute of Limitations. 17 AIC asserts that Count three is barred by a one-year statute of limitations. Doc. 38 18 at 8. “A statute-of-limitations defense, if apparent from the face of the complaint, may be 19 properly raised in a motion to dismiss.” Seven Arts Filmed Entm’t Ltd. v. Content Media 20 Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013) (internal quotation marks and citation 21 omitted). 22 The parties agree that the Agreement is an “employment agreement,” Redhair v. 23 Kinerk, Beal, Schmidt, Dyer & Sethi, P.C., 183 P.3d 544, 547 (Ariz. Ct. App. 2008), 24 subject to a one year limitations period, A.R.S. § 12-541(3). Docs. 38 at 9, 47 at 6. The 25 parties do not agree on when the limitations period began to run. 26 “A cause of action on a written contract accrues at the time of breach.” Angus 27 Med. Co. v. Digital Equip. Corp., 840 P.2d 1024, 1027 (Ariz. Ct. App. 1992) (citation 28 omitted). AIC argues that the Agreement was breached (if at all) “sometime in 2011, -6- 1 shortly after Haller’s entitlement to the shares could be determined.” Doc. 38 at 10. 2 Plaintiffs argue that because no pay-out period is specified in the Agreement, the breach 3 did not occur until either October 24, 2012, when Haller received his original investment 4 shares and was put on notice of AIC’s refusal to tender the bonus shares, or 5 November 27, 2013, the first time Haller could have sold his bonus shares. Doc. 47 at 7. 6 The Court cannot determine at this stage when Plaintiffs’ breach of employment 7 contract claim accrued. AIC asserts without reference to the Agreement or any other 8 authority that its obligation to provide the stock arose sometime in 2011. Doc. 38 at 10. 9 The Agreement does not appear to support AIC’s assertion – it does not specify a time at 10 which Haller would be entitled to the bonus shares. AIC has not shown that the claim 11 should be dismissed as time-barred. 12 B. Count Four: Unjust Enrichment. 13 “Unjust enrichment occurs when one party has and retains money or benefits that 14 in justice and equity belong to another.” Trustmark Ins. Co. v. Bank One, Ariz., NA, 48 15 P.3d 485, 491 (Ariz. Ct. App. 2002) (citation omitted). To establish a claim for unjust 16 enrichment, Plaintiffs must allege impoverishment on their part, enrichment to AIC, a 17 connection between the two, an absence of justification, and the lack of a legal remedy. 18 See id. Arizona follows the Restatement of Restitution, which provides that “[a] person 19 who has conferred a benefit upon another as the performance of a contract with a third 20 person is not entitled to restitution from the other merely because of the failure of 21 performance by the third person.” See Advance Leasing & Crane Co., Inc. v. Del E. 22 Webb Corp., 573 P.2d 525, 526-27 (Ariz. Ct. App. 1977). 23 Defendants’ briefing appears to assume that the Court would reject Plaintiffs’ alter 24 ego and agency theories of liability. Defendants argue that Plaintiffs’ unjust enrichment 25 claim fails because Plaintiffs have alleged no facts showing AIC had an obligation to 26 perform under the Agreement or that AIC was able, as a non-party to the Agreement, to 27 take any action that could frustrate Haller’s rights under the Agreement. Doc. 51 at 8. 28 The Court concludes above, however, that Plaintiffs have pled adequate facts to support -7- 1 their alter ego and agency theories of liability. If discovery reveals that T-Win and AIC 2 are actually the same entity or that T-Win is AIC’s agent, then AIC could have been 3 capable of wrongfully interfering with Haller’s rights under the Agreement. The Court 4 cannot conclude at this stage that AIC was unable to take action that could frustrate 5 Haller’s rights under the Agreement. The Court will not dismiss Count four. 6 C. Count Five and Six. 7 AIC argues that it cannot be liable to Plaintiffs for beach of the covenant of good 8 faith and fair dealing or for failure to pay wages under A.R.S. § 23-355 because it is not a 9 party to the Agreement. Doc. 38 at 7. For the reasons stated above, the Court concludes 10 that Plaintiffs have successfully pled alter ego and agency theories that could make AIC 11 liable for breach of the Agreement. By extension, Plaintiffs may also be able to recover 12 against AIC for breach of the covenant of good faith and fair dealing and for failure to 13 pay wages under A.R.S. § 23-355. 14 AIC also argues that Counts five and six are barred by the one-year statute of 15 limitations in A.R.S. § 12-541(3). Doc. 38 at 8-9. Because the Court cannot determine 16 when Defendants’ alleged breach of the employment contract occurred, it cannot 17 conclude at this time when the implied covenant was breached or when compensation 18 was wrongly denied. 19 D. Attorneys’ Fees. 20 AIC has requested an award of attorneys’ fees pursuant to A.R.S. § 12-341.01(A). 21 Doc. 38 at 10. Because AIC’s motion to dismiss has been denied, it is not a prevailing 22 party entitled to attorneys’ fees under the statute. 23 IT IS ORDERED that Defendant’s motion to dismiss (Doc. 38) is denied. 24 Dated this 15th day of August, 2014. 25 26 27 28 -8-
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