Razaghi v. Razaghi Development Company, LLC, No. 2:2018cv01622 - Document 150 (D. Nev. 2020)
Court Description: ORDER granting in part and denying in part 123 Motion to Dismiss; ORDER denying 129 Motion for Partial Summary Judgment; ORDER granting in part and denying in part 138 Motion for Partial Summary Judgment; Amended Complaint deadline: 21 days from date of this order. Signed by Judge Gloria M. Navarro on 9/30/2020. (Copies have been distributed pursuant to the NEF - JM)
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Razaghi v. Razaghi Development Company, LLC Doc. 150 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 KORY RAZAGHI; ATTENTUS LLC, 4 Plaintiffs, 5 vs. 6 7 8 RAZAGHI DEVELOPMENT COMPANY, LLC; AHMAD RAZAGHI; MANUEL MORGAN, Defendants. 9 ) ) ) ) ) ) ) ) ) ) Case No.: 2:18-cv-01622-GMN-DJA ORDER Pending before the Court is the Motion to Dismiss the Third Amended Complaint, (ECF 10 11 No. 123), filed by Defendants Ahmad Razaghi (“Ahmad”) and Razaghi Development 12 Company, LLC (“RDC”), (collectively, “Defendants”). Plaintiffs Attentus LLC (“Attentus”) 13 and Kory Razaghi (“Kory”), (collectively, “Plaintiffs”), filed a Response, (ECF No. 124), and 14 Defendants filed a Reply, (ECF No. 128). Also pending before the Court is Plaintiffs’ Motion for Partial Summary Judgement, 15 16 (ECF No. 129). Defendants filed a Response, (ECF No. 137), and Plaintiffs filed a Reply, 17 (ECF No. 145). 18 Also pending before the Court is Defendants’ Cross-Motion for Partial Summary 19 Judgment, (ECF No. 138). Plaintiffs filed a Response, (ECF No. 147), and Defendants filed a 20 Reply, (ECF No. 149). For the reasons discussed below the Court GRANTS in part and DENIES in part the 21 22 Motion to Dismiss. The Court DENIES Plaintiffs’ Motion for Partial Summary Judgment. 23 The Court GRANTS in part and DENIES in part Defendants’ Cross-Motion for Partial 24 Summary Judgment. 25 // Page 1 of 30 Dockets.Justia.com 1 2 I. BACKGROUND This case arises from Defendants’ alleged breach of the Settlement Agreement that the 3 parties executed to terminate their state court litigation, which concerned the parties’ healthcare 4 management and consulting ventures. Plaintiffs allege that Kory and Ahmad formed Attentus 5 in 2006. (Third Am. Compl. (“TAC”) ¶ 8, ECF No. 122). Attentus then joined with Defendant 6 Manuel Morgan (“Morgan”) to form M. Morgan & Associates, LLC (“MMA”). (Id. ¶ 9). 7 MMA subsequently executed a contract with Navajo Health Foundation-Sage Memorial 8 Hospital (“Sage”), (the “Sage Contract”) in February of 2007. Under the Sage Contract, Sage 9 allegedly agreed to pay MMA several hundred thousand dollars per year over a period of three 10 11 years to develop, finance, and build a new hospital for Sage in Ganado, Arizona. (Id. ¶¶ 10–12). As MMA and Sage’s relationship matured, the Sage Contract went through a series of 12 amendments. MMA and Sage first amended the Sage Contract by executing the “Management 13 Addendum” in March of 2007. (Id. ¶ 13). The Management Addendum allegedly engaged 14 MMA to provide “management services” to Sage’s existing hospital in exchange for $900,000 15 per year, paid in addition to the compensation provided under the original Sage Contract. (Id. 16 ¶¶ 14–15). 17 MMA and Sage next amended the Sage Contract in March of 2009 under the “Second 18 Addendum.” (Id. ¶ 16). The Second Addendum allegedly extended the term of the 19 Management Addendum through the end of September of 2013, altered compensation terms, 20 and appointed Ahmad as CEO of Sage’s hospital. (Id. ¶ 17). In 2010, just before disputes over 21 the Sage Contract arose, Kory and Ahamad executed an Operating Agreement for Attentus (the 22 “Attentus Operating Agreement”). (Id. ¶¶ 18, 20). Under the Attentus Operating Agreement, 23 Kory and Ahmad allegedly became entitled to equal revenues received for healthcare 24 consulting services, provider group and physician services, and “all related services” paid under 25 the Sage Contract and its amendments. (Id. ¶ 19). Page 2 of 30 When disputes over the Sage Contract surfaced in 2010, Ahmad allegedly formed a 1 2 single-member LLC, Razaghi Healthcare LLC (“RH”)1, and did not disclose the existence of 3 the entity to Kory until January of 2013. (Id. ¶¶ 20–24). In March of 2011, Ahmad and the 4 chairperson of the Sage Board of Directors allegedly executed a “CEO Services Contract” 5 between Sage and RH. (Id. ¶ 25). Under the CEO Services Contract, Ahmad would continue to 6 serve as CEO of Sage until February 28, 2015, and the agreement backdated the 7 commencement of all CEO services performed under the Contract to November 10, 2010. (Id. 8 ¶¶ 25–27). Kory alleges he was unaware of the CEO Services Contract until just before the 9 execution of the Settlement Agreement. (Id. ¶ 28). On April 21, 2011, Kory filed a civil suit in Nevada state court against Ahmad, Morgan, 10 11 RDC, and other related entities. (Id. ¶ 29). On May 6, 2011, Morgan and Ahmad formed a 12 limited liability company, Morgan Razaghi Healthcare (“MRH”), for the purpose of eventually 13 assuming the obligations of the Sage Contract once the Sage Contract could be assigned from 14 MMA. (Id. ¶ 30). The parties settled the state court litigation on January 11, 2013, executing 15 the Settlement Agreement that Plaintiffs now allege Defendants breached. (See id. ¶ 31); 16 (Settlement Agreement, Ex. 6 to Pls.’ Mot. Summ. J. (“MSJ”), ECF No. 130-5).2 There are two 17 classes of payments Kory alleges he has not been paid in breach of the Settlement Agreement— 18 19 20 21 22 23 24 25 Plaintiffs allege that there are “Razaghi Healthcare LLCs” formed in Nevada and Arizona. (See Am. Compl. ¶ 31 n.1). The Court uses RH to refer to the companies collectively because neither party alleges that the distinct identities of the companies is material. 1 2 Plaintiffs attempt to incorporate the Settlement Agreement by reference as an Exhibit to the TAC, (See TAC ¶ 31 n.2) (“The Settlement Agreement is attached to this Complaint as Exhibit 1”), but they have not filed any exhibits to the TAC. However, Plaintiffs previously filed the Settlement Agreement under seal. (See Settlement Agreement, Ex. A to Mot. Leave File Under Seal, ECF No. 28-1); Plaintiffs again filed a Settlement Agreement, containing identical terms as the previously filed Settlement Agreement, pursuant to a Stipulated Protective Order. (See Settlement Agreement, Ex. 6 to Pls.’ Mot. Summ. J., ECF No. 130-5). Defendants do not dispute the authenticity of the Settlement Agreement. (See Defs.’ Resp. to Pls.’ Mot. Summ J., Statement of Undisputed Facts ¶ 14, ECF No. 137) (incorporating Plaintiffs’ Exhibit by reference). Therefore, when discussing the Settlement Agreement, the Court relies upon Exhibit 6 to Plaintiffs’ Motion for Partial Summary Judgment. The Court may also rely on the Settlement Agreement when considering the Motion to Dismiss. See Fed. R. Evid. 201; Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Page 3 of 30 1 “management fees” and “Bonus Payments.” (See Compl. ¶ 71); (Settlement Agreement ¶¶ 1.7, 2 1.9). 3 A. Management Fees 4 The Settlement Agreement provides that Kory shall be paid one-sixth of all 5 “management fees” received by MMA, MRH, or their successors or assigns under the Sage 6 Contract. (Compl. ¶ 32); (Settlement Agreement ¶ 1.7). Paragraph 1.7 of the Settlement 7 Agreement also provides, “[i]t is the intent of the parties that if [MMA], AHMAD or 8 [MORGAN] or any of their owned or controlled entities executes a contract with SAGE that 9 includes substantially the same services as are included in the currently existing contract and its 10 extensions, KORY will be entitled to share in the payments received in this Agreement.” 11 (Settlement Agreement ¶ 1.7). The provision also expressly extends to extensions or newly 12 executed “management contracts” that provide management fees to any entities that Ahmad 13 and Morgan hold interests in. (Id.). 14 The Settlement Agreement also includes relevant disclaimers of Kory’s rights that may 15 bear on his claim to receive a portion of management fees paid under the CEO Services 16 Contract. First, ¶ 1.7 of the Settlement Agreement provides that “nothing” in ¶ 1.7 applies to 17 “the contract for AHMAD to serve as CEO of SAGE.” (Settlement Agreement ¶ 1.7). 18 Additionally, Kory disclaimed all rights to payments made under “any contract pursuant to 19 which AHMAD serves as chief executive officer of SAGE.” (Id. ¶ 1.8). 20 Plaintiffs allege that Defendants deprived Kory of the benefits of the Settlement 21 Agreement in bad faith. (TAC ¶ 48). In substance, Plaintiffs contend that Ahmad influenced 22 the Sage Board of Directors to refrain from extending the Sage Contract and instead amend the 23 CEO Services Contract to include payments for the same services. (Id. ¶¶ 48–56, 58, 60–62). 24 As a result, Plaintiffs claim that the scope of the payments disclaimed exceeded the intent of the 25 parties when executing the Settlement Agreement. (Id. ¶¶ 57, 59, 72, 80–81). Page 4 of 30 1 B. Bonus Payment 2 Plaintiffs allege through various contract and tort claims that Defendants breached their 3 obligation to disclose and pay Plaintiffs a portion of the $1,842,549.97 bonus payment (the 4 “Bonus Payment”) that Sage paid to RH in September of 2012. (Id. ¶ 36). Under the 5 Settlement Agreement, Kory is entitled to one-sixth of all Bonus Payments MRH or its 6 successors or assigns receives under the Sage Contract. (Id. ¶ 32); (Settlement Agreement 7 ¶ 1.9). However, the Settlement Agreement also provides a release that waives all the parties’ 8 known or unknown claims that predate the execution of the Settlement Agreement and are 9 connected with the state-court action. (Settlement Agreement ¶ 2.1). Plaintiffs allege that 10 because the Bonus Payment was given for progress made in managing Sage from 2007–2012, 11 while the Sage Contract remained in effect, Kory should have received a portion of the Bonus 12 Payment. (TAC ¶¶ 10, 19, 38–40, 43). Plaintiffs now assert claims for: (1) Breach of the Settlement Agreement; (2) Breach of 13 14 the Duty of Good Faith and Fair Dealing (Settlement Agreement); (3) Breach of the Duty of 15 Good Faith and Fair Dealing (Attentus Operating Agreement); (4) Breach of Fiduciary Duty; 16 (5) Unjust Enrichment; (6) Conversion; (7) Intentional Interference with Contractual Relations; 17 (8) Accounting; (9) Civil Conspiracy; (10) Alter Ego; and (11) Successor Liability. (See id. 18 ¶¶ 64–147). Defendants move to dismiss the TAC. (See Mot. Dismiss, ECF No. 123). The 19 parties also move for summary judgment regarding Plaintiffs’ entitlement to management fees 20 paid under the CEO Services Contract after Ahmad resigned as CEO of Sage’s hospital3 in 21 February of 2013. (See Cross-Mots. Summ. J., ECF Nos. 129, 138). 22 23 24 25 3 Plaintiffs allege that they are entitled to management fees paid under the CEO Services Contract after Ahmad resigned as CEO of Sage because the Settlement Agreement’s disclaimers only apply when Ahmad served as CEO. (Pls.’ MSJ 20:19–24:19, ECF No. 129). Plaintiffs further allege that Ahmad testified in a deposition that he resigned as CEO of Sage on September 26, 2013. (Ahmad Decl. ¶ 5, Ex. 12 to Pls.’ MSJ, ECF No. 131-12). Defendants dispute Plaintiffs’ interpretation of the relevant disclaimers’ scope. (Defs.’ MSJ 14:23–19:25, ECF No. 138). Defendants also argue that even if the Court accepts Plaintiffs’ interpretation, Kory was not entitled to any management fees paid under the CEO Services Contract because Ahmad continued to serve as corporate Page 5 of 30 1 II. LEGAL STANDARD 2 A. 12(b)(6) 3 Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action 4 that fails to state a claim upon which relief can be granted. See N. Star Int’l v. Ariz. Corp. 5 Comm’n, 720 F.3d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 6 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not 7 give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. 8 See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the 9 complaint is sufficient to state a claim, the Court will take all material allegations as true and 10 construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 11 F.2d 896, 898 (9th Cir. 1986). 12 The Court, however, is not required to accept as true allegations that are merely 13 conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden 14 State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action 15 with conclusory allegations is not sufficient; a plaintiff must plead facts showing that a 16 violation is plausible, not just possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing 17 Twombly, 550 U.S. at 555). 18 19 20 21 22 23 “Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion … However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citations omitted). Similarly, “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on 24 25 CEO of Sage through 2018, and he resigned only from the position of hospital CEO in September 2013. (Id. 19:26–23:18). The Court addresses these arguments in its summary judgment discussion. Page 6 of 30 1 a Rule 12(b)(6) motion to dismiss” without converting the motion to dismiss into a motion for 2 summary judgement. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Under Federal Rule 3 of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay 4 Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court considers 5 materials outside of the pleadings, the motion to dismiss is converted into a motion for 6 summary judgement. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th 7 Cir. 2001). 8 9 10 11 12 If the court grants a motion to dismiss for failure to state a claim, leave to amend should be granted unless it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). Pursuant to Rule 15(a), the court should “freely” give leave to amend “when justice so requires,” and in the absence of a reason such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue 13 prejudice to the opposing party by virtue of allowance of the amendment, futility of the 14 amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962). 15 B. Summary Judgment 16 The Federal Rules of Civil Procedure provide for summary adjudication when the 17 pleadings, depositions, answers to interrogatories, and admissions on file, together with the 18 19 affidavits, if any, show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Material facts are those that 20 may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 21 A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to 22 return a verdict for the nonmoving party. Id. “Summary judgment is inappropriate if 23 reasonable jurors, drawing all inferences in favor of the nonmoving party, could return a verdict 24 in the nonmoving party’s favor.” Diaz v. Eagle Produce Ltd. P’ship, 521 F.3d 1201, 1207 (9th 25 Cir. 2008) (citing United States v. Shumway, 199 F.3d 1093, 1103–04 (9th Cir. 1999)). A Page 7 of 30 1 principal purpose of summary judgment is “to isolate and dispose of factually unsupported 2 claims.” Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). 3 In determining summary judgment, a court applies a burden-shifting analysis. “When 4 the party moving for summary judgment would bear the burden of proof at trial, it must come 5 forward with evidence which would entitle it to a directed verdict if the evidence went 6 uncontroverted at trial. In such a case, the moving party has the initial burden of establishing 7 the absence of a genuine issue of fact on each issue material to its case.” C.A.R. Transp. 8 Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citations omitted). In 9 contrast, when the nonmoving party bears the burden of proving the claim or defense, the 10 moving party can meet its burden in two ways: (1) by presenting evidence to negate an 11 essential element of the nonmoving party’s case; or (2) by demonstrating that the nonmoving 12 party failed to make a showing sufficient to establish an element essential to that party’s case 13 on which that party will bear the burden of proof at trial. Celotex Corp., 477 U.S. at 323–24. If 14 the moving party fails to meet its initial burden, summary judgment must be denied and the 15 court need not consider the nonmoving party’s evidence. Adickes v. S.H. Kress & Co., 398 U.S. 16 144, 159–60 (1970). 17 If the moving party satisfies its initial burden, the burden then shifts to the opposing 18 party to establish that a genuine issue of material fact exists. Matsushita Elec. Indus. Co. v. 19 Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, 20 the opposing party need not establish a material issue of fact conclusively in its favor. It is 21 sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the 22 parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors 23 Ass’n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid 24 summary judgment by relying solely on conclusory allegations that are unsupported by factual 25 data. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposition must go Page 8 of 30 1 beyond the assertions and allegations of the pleadings and set forth specific facts by producing 2 competent evidence that shows a genuine issue for trial. Celotex Corp., 477 U.S. at 324. 3 At summary judgment, a court’s function is not to weigh the evidence and determine the 4 truth but to determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249. The 5 evidence of the nonmovant is “to be believed, and all justifiable inferences are to be drawn in 6 his favor.” Id. at 255. But if the evidence of the nonmoving party is merely colorable or is not 7 significantly probative, summary judgment may be granted. Id. at 249–50. 8 III. 9 10 DISCUSSION The Court’s below discussion first addresses the parties’ cross-motions for partial summary judgment before addressing Defendants’ Motion to Dismiss. 11 A. 12 Plaintiffs move for partial summary judgment on their entitlement to “management fees” 13 under the Settlement Agreement that Sage paid to RDC during fiscal year 2014 (“FY14”). (See 14 Pls.’ MSJ 1:17–20, ECF No. 129). Plaintiffs essentially argue that: (a) the Settlement 15 Agreement requires Defendants to pay Kory one-sixth of the management fees that Defendants 16 received from Sage; (b) management fees were previously paid under the Sage Contract as 17 amended; but (c) the Sage Contract was allowed to expire, and the management fees paid 18 thereunder were incorporated into the CEO Services Contract, entitling Kory to the same. (Id. 19 2:16–3:8). Plaintiffs only move for partial summary judgment as to their right to management 20 fees paid under the CEO Services Contract in FY14 because any disclaimers of Kory’s rights to 21 proceeds of the CEO Services Contract became ineffective once Ahmad allegedly resigned as 22 CEO of Sage. (Id. 3:9–13, 23:24–28:19). 23 Cross-Motions for Partial Summary Judgment Plaintiffs’ Motion for Partial Summary Judgment therefore requests that the Court hold 24 Defendants breached the Settlement Agreement by failing to pay Kory one-sixth of the 25 $1,861,782.29 Defendants allegedly received for “management services” under the CEO Page 9 of 30 1 Services Contract in FY14. (Id. 2:26–3:8, 3:14–20). In the alternative, Plaintiffs seek the same 2 for Defendants’ alleged breach of the implied covenant of good faith and fair dealing. (Id. 3 3:21–28). Defendants argue that Plaintiffs have no rights to the alleged management fees paid 4 pursuant to the CEO Services Contract because the Settlement Agreement disclaims Plaintiffs’ 5 rights to any such payment. (Defs.’ MSJ 2:6–11, ECF No. 138). Defendants also argue that 6 even if the Settlement Agreement’s disclaimers are only effective when Ahmad serves as CEO 7 of Sage, the disclaimers remained effective in FY14 because Ahmad continued to serve as 8 corporate CEO of Sage, and he had only resigned the primarily-administrative role of hospital 9 CEO. (Id. 19:26–23:18). The Court’s below discussion first considers Plaintiffs’ breach of 10 contract claim. 11 i. Breach of Contract 12 The primary issue for the Court regarding Plaintiffs’ breach of contract claim is whether 13 Kory disclaimed rights to all proceeds of the CEO Services Contract, even if the CEO Services 14 Contract provides compensation for management services. The starting point for the 15 interpretation of any contract is the plain language of the contract. McDaniel v. Sierra Health 16 and Life Ins. Co., 53 P.3d 904 (Nev. 2002). When a contract contains clear and unequivocal 17 provisions, those provisions shall be construed to their usual and ordinary meaning. Dickenson 18 v. Nevada, 877 P.2d 1059, 1061 (Nev. 1994). Then, using the plain language of the contract, 19 the court shall effectuate the intent of the parties, which may be determined in light of the 20 surrounding circumstances. See NGA # 2 Ltd. Liab. Co. v. Rains, 946 P.2d 163 (Nev. 1997); see 21 also Burrows v. Progressive Casualty Ins., 820 P.2d 748, 749 (Nev. 1991). Contractual 22 construction is a question of law “suitable for determination by summary judgment.” Ellison v. 23 Cal. State Auto. Ass’n, 797 P.2d 975, 977 (Nev. 1990). 24 25 Plaintiffs argue that because Ahmad allegedly resigned as CEO of Sage in February of 2014, there is no contract for Ahmad to serve as CEO of Sage after that date. (Pls.’ MSJ 23:25– Page 10 of 30 1 28:19). Defendants respond that the Settlement Agreement unambiguously disclaims Kory’s 2 interest in the CEO Services Contract. (Defs.’ MSJ 14:25–19:25). Defendants further argue 3 that even if the Court accepts Plaintiffs’ proffered interpretation, the CEO exceptions in the 4 Settlement Agreement remain applicable in FY14 because Ahmad resigned only as CEO of the 5 hospital but remained CEO of the Sage Corporation. (Id. 19:26–23:18). 6 The Court begins its analysis by reviewing the language of the contract at issue. The 7 relevant portion of the Settlement Agreement contains two paragraphs encompassing four 8 material agreements between the parties. Paragraph 1.7 provides three of the relevant 9 agreements: two related to the management fees Kory must receive under the Settlement 10 Agreement and one exception. Paragraph 1.8 provides another exception to Kory’s right to 11 management fees. The Court provides the relevant quotations below. 12 Under ¶ 1.7, Defendants “will pay to KORY one-sixth (16.67%) of: (1) all management 13 fees . . . that are paid by SAGE pursuant to the SAGE CONTRACT or any extensions or 14 renewals thereof . . . .” (Settlement Agreement, Ex. 6 to Pls.’ MSJ, ECF No. 130-5). Paragraph 15 1.7 also describes the intended scope of Kory’s right to receive one-sixth of all management 16 fees. It explains, “It is the intent of the parties that if [Defendants] or any of their owned or 17 controlled entities executes a contract with SAGE that includes substantially the same services 18 as are included in the currently existing contract and its extensions, KORY will be entitled to 19 share in the payments received as part of this Agreement . . . .” (Id.). 20 The stated intent, however, is subject to exceptions under which Kory has no rights to 21 receive any management fees. The agreement provides, “This paragraph [1.7] shall not apply 22 to the contract for AHMAD to serve as CEO of SAGE.” (Id.). Paragraph 1.8 includes a similar 23 disclaimer that states, “Nothing in this AGREEMENT shall affect or give KORY any rights 24 with respect to any contract pursuant to which AHMAD serves as the chief executive officer of 25 Sage.” (Id.). Page 11 of 30 1 For the most part, the effect of the agreements is straightforward. It is beyond dispute 2 that Kory has the right to receive one-sixth of all management fees paid under the Sage 3 Contract. (Id. ¶ 1.7). It is also beyond dispute that Kory has equal rights to management fees in 4 future contracts when the management fees are substantially the same as those in the Sage 5 Contract, unless an exception applies. (Id.). However, the meaning of the exceptions requires 6 greater analysis. 7 The relevant exceptions provide that Kory has no rights to management fees paid under: 8 (a) “the contract for AHMAD to serve as CEO of SAGE;” and (b) “any contract pursuant to 9 which AHMAD serves as the chief executive officer of SAGE.” (Id. ¶¶ 1.7–1.8). The 10 exceptions are unequivocal. If either of the two exceptions apply, then Defendants are not in 11 breach of the Settlement Agreement by withholding any management fees paid under the CEO 12 Services Contract in FY14. Consequently, the Court next construes the meaning of the 13 exceptions. 14 The exception in ¶ 1.7, by using a definite article, refers to a specific contract in 15 existence at the time of the Settlement Agreement’s execution: “the contract for AHMAD to 16 serve as CEO of SAGE.” (Settlement Agreement ¶ 1.7); see Cochise Consultancy, Inc. v. 17 United States ex. Rel. Hunt, 139 S. Ct. 1507, 1514 (2019) (“‘the use of the definite article . . . 18 indicates that there is generally only one’ person covered.”) (quoting Rumsfeld v. Padilla, 542 19 U.S. 426, 434 (2004); see also Kaady v. Mid-Continent Cas. Co., 790 F.3d 995, 998 (9th Cir. 20 2014) (“Use of the definite article ‘particularizes the subject which it precedes’ . . . .”) (quoting 21 Gale v. First Franklin Loan Servs., 701 F.3d 1240, 1246 (9th Cir. 2012)). By contrast, the 22 exception in ¶ 1.8, by employing the adjective “any,” reaches all present and future contracts 23 under which Ahmad “serves” as the CEO of Sage. (Settlement Agreement ¶ 1.8); Merriam- 24 Webster, “any,” available at https://www.merriam-webster.com/dictionary/any (defining “any” 25 to mean “one or some indiscriminately of whatever kind.”). Paragraph 1.8 also differs from Page 12 of 30 1 ¶ 1.7 in that ¶ 1.8 disclaims all of Kory’s rights created by the Settlement Agreement, whereas 2 ¶ 1.7 only disclaims Kory’s rights that ¶ 1.7 of the Settlement Agreement creates. 3 Therefore, the Court construes the ¶ 1.7 exception to disclaim Kory’s rights to payment 4 under the particular contract for Ahmad to serve as CEO of Sage that existed at the time of the 5 execution of the Settlement Agreement.4 The Court finds that the ¶ 1.7 exception applies to 6 “the contract” as long as the contract remains in effect, even if Ahmad ceases to serve as CEO, 7 because the Settlement Agreement identifies the contract by its creation of the obligation for 8 Ahmad to serve as CEO of Sage (it is “the contract for” Ahmad to serve as CEO of Sage), 9 rather than Ahmad’s performance under the contract. Put differently, a contract can be “the 10 contract for AHMAD to serve as CEO of SAGE” even if Ahmad does not fulfill his obligation 11 to serve as CEO.5 In contrast, the ¶ 1.8 exception refers to all present and future contracts under which 12 13 Ahmad “serves” as CEO of Sage. Unlike the ¶ 1.7 exception, the scope of the ¶ 1.8 exception 14 excludes any such contracts once Ahmad ceases to perform as CEO of Sage thereunder because 15 the exception’s scope is circumscribed by the time while “Ahmad serves as the chief executive 16 officer of SAGE.” Hence, if a contract directs Ahmad to serve as CEO of Sage, but Ahmad 17 does not serve as CEO of Sage as directed under the contract, then the hypothetical contract is 18 not one “pursuant to which Ahmad serves as the chief executive officer of SAGE.” 19 20 21 The Court rejects Plaintiffs’ argument that the term only disclaims an interest to payments Ahmad received as CEO, as opposed to the contract creating the CEO payment obligation; the position is foreclosed by ¶ 1.7’s unambiguous references to “the contract” rather than a particular payment or provision. (See Pls.’ MSJ 22:1–12). 4 22 23 The Court’s conclusion is buttressed by its goal to interpret all contracts to avoid rendering any particular provision superfluous. United States ex rel. K & R Ltd. v. Mass. Hous. Fin. Agency, 456 F. Supp. 2d 46, 59 (D.C. Cir. 2006) (“The Court strives to give each term of a contract independent meaning, so that no word or clause is rendered nugatory.”). If the Court applies Plaintiffs’ proffered interpretation for the exceptions to apply only when Ahmad serves as CEO, then there is no circumstance the Court can imagine where the disclaimer of ¶ 1.7 would apply, but ¶ 1.8 would not. 5 24 25 Page 13 of 30 1 Given that the Court finds “the contract for AHMAD to serve as CEO of Sage” refers to 2 a particular contract, the Court next identifies the contract. The CEO Services Contract, which 3 RH and Sage executed prior to the Settlement Agreement, appoints RH “to perform the duties 4 and responsibilities of the position of Chief Executive Officer” of Sage. (CEO Services 5 Contract ¶ C, Ex. 5 to Pls.’ MSJ, ECF No. 130-4). The same provision of the Contract then 6 commands that RH “will dedicate the services of Ahmad R. Razaghi as its sole member to 7 [Sage] . . . .” (Id.). Likewise, the First Amendment6 to the CEO Services Contract, which the 8 parties executed after the Settlement Agreement but prior to FY14 states that “RH will initially 9 dedicate the services of Ahmad R. Razaghi . . . as its Chief Executive Officer . . . .). (First Am. 10 to the CEO Services Contract, Ex. 10 to Pls.’ MSJ, ECF No. 130-9). Thus, the Court concludes 11 that “the contract for AHMAD to serve as CEO of SAGE” is the CEO Services Contract. Furthermore, even though the parties dispute whether Ahmad continued to serve as CEO 12 13 in FY14, the dispute is not material because Ahmad’s continued performance is irrelevant to 14 the applicability of the disclaimer in ¶ 1.7 of the Settlement Agreement. Hence, Kory has no 15 rights to any management payments made under the CEO Services Contract. Therefore, the Court finds that Defendants are not in breach of the Settlement 16 17 Agreement even if Sage and Defendants amended the CEO Services Contract to include 18 payment for management services previously provided under the Sage Contract. Accordingly, 19 with respect to Plaintiffs’ claim for breach of the Settlement Agreement, the Court denies 20 Plaintiffs’ Motion for Partial Summary Judgment and grants Defendants’ Cross-Motion for 21 Partial Summary Judgment. The Court next considers Plaintiffs’ claim that Defendants 22 breached the implied covenant of good faith and fair dealing by retaining all management fees 23 24 6 25 The CEO Services Contract as amended by the First Amendment was the operative CEO Services Contract in FY14 because the First Amendment extended the contract term through 2025, and the Contract was not amended further until 2018. (See First Amendment to the CEO Services Contract, Ex. 10 to Pls.’ MSJ); (Second Amendment to the CEO Services Contract, Ex. E to Defs.’ MSJ, ECF No. 138-6). Page 14 of 30 1 previously paid under the Sage Contract by allegedly encouraging the Board not to renew the 2 Sage Contract and instead furnish the same payments under amendments to the CEO Services 3 Contract. 4 ii. Implied Covenant of Good Faith and Fair Dealing 5 In the alternative to breach of contract, Plaintiffs argue that Defendants breached the 6 Settlement Agreement’s implied covenant of good faith and fair dealing by diverting funds 7 previously paid under the Sage Contract that Kory expected to receive under the Settlement 8 Agreement into the CEO Services Contract, under which Kory disclaimed rights to payment. 9 (See Pls.’ MSJ 24:20–26:13). Defendants respond that Plaintiffs’ claim fails as a matter of law 10 because it is contradicted by the express terms of the Settlement Agreement. (Defs.’ MSJ 11 23:21–24:17). Defendants alternatively argue that they did not breach their duty to Plaintiffs 12 because the management fees provided under the CEO Services Contract were never similar to 13 management fees provided under the Sage Contract. (Id. 24:18–26:23). 14 A contractual breach of the covenant of good faith and fair dealing arises “where the 15 terms of a contract are literally complied with but one party to the contract deliberately 16 countervenes the intention and spirit of the contract.” Hilton Hotels Corp. v. Butch Lewis 17 Prods., Inc., 808 P.2d 919, 923 (Nev. 1991). This cause of action stands in contrast to one for 18 breach of contract because of its requirement for literal compliance with the terms of the 19 contract. See Kennedy v. Carriage Cemetery Services, Inc., 727 F. Supp. 2d 925, 931 (D. Nev. 20 2010). Consequently, allegations that a defendant violated the actual terms of a contract are 21 incongruent with this cause of action and insufficient to maintain a claim. See id. 22 Defendants argue that the Plaintiffs cannot state a claim as a matter of law because the 23 allegations contradict the express language of the Settlement Agreement, effectively increasing 24 Defendants’ legal duties under the contract in contravention of Nevada law. (Defs.’ MSJ 25 23:21–24:17). However, contrary to Defendants assertions, Plaintiffs are not attempting to add Page 15 of 30 1 to Defendants’ duties under the agreement. Rather, Plaintiffs are seeking to enforce the terms 2 of the Settlement Agreement as the parties expressly stated they intended the terms would be 3 performed despite Defendants’ literal compliance with the Settlement Agreement. (See 4 Settlement Agreement ¶ 1.7). Given that Plaintiffs have shown: (a) Kory was entitled to 5 receive management fees under the Settlement Agreement; (b) the parties to the Settlement 6 Agreement expressly incorporated their intent that Kory would have rights to management 7 payments made under the Sage Agreement or future contracts; but (c) the contracts referenced 8 in the Settlement Agreement were terminated and amended to bar Kory from receiving his 9 expected benefit of the bargain, the CEO Services Contract’s disclaimer itself does not bar 10 Plaintiffs’ ability to recover under a theory of breach of the duty of good faith and fair dealing. The core of the parties’ dispute concerns whether the management fees paid under the 11 12 Sage Contract were, in fact, “morphed” into the CEO Services Contract. Specifically, the 13 dispute hinges on whether ¶ 5.B of the original CEO Services Contract is equivalent to ¶ 5.B in 14 the First Amendment to the CEO Services Contract.7 (See Pls.’ MSJ, Statement of Undisputed 15 Facts ¶ 22.b). Paragraph 5.B of the CEO Services Contract, entitled “Performance Bonus,” 16 provides that, “Based upon [RH]’s past performance of CEO functions for the Corporation 17 pursuant to the prior Management Services Agreement with [MMA], and in consideration for 18 [RH]’s continued service, [Sage] agrees to pay [RDC] a one-time performance bonus of 19 $25,000.00 within 20 days of execution of this Contract . . . . The Board shall perform a 20 performance evaluation of [RDC] at the annual Board meeting each year to determine an 21 annual performance bonus.” (CEO Services Contract ¶ 5.B, Ex. 5 to Pls.’ MSJ). Under ¶ 5.B of 22 the First Amendment to the CEO Services Contract, entitled “Incentive Fee,” the Sage Board 23 24 25 7 Plaintiffs also argue that Defendants integrated management fees into the CEO Services Contract by removing the cap on RH’s earnings as CEO, but they provide no evidence in support of that theory outside of the contrasting contracts’ text. (See Pls.’ MSJ 25:27–26:6). The Court cannot discern the alleged management fees received as salary on top of fees allegedly remitted under ¶ 5.B of the First Amendment to the CEO Services Contract. Page 16 of 30 1 “shall perform a performance evaluation of RH at the annual Board meeting each year and 2 determine an annual incentive fee.” (First Am. to the CEO Services Contract ¶ 5.B, Ex. 10 to 3 Pls.’ MSJ). The provision also provides a formula to determine the incentive fee. RH was to 4 receive an incentive fee “if the Board determines that RH’s performance [was] at least 5 satisfactory.” (Id.). The incentive fee was to be calculated by subtracting the amount RH billed 6 to the Board from “the fair market value of the professional services provided by RH during 7 that year, including industry standard management fees.” (Id.). For comparison, under the Sage 8 Contract, MMA was to receive a flat rate for management services, $900,000 per year, with 5% 9 increases semi-annually. (See Sage Contract Second Management Addendum ¶ 2, Ex. 4 to Pls.’ 10 11 MSJ, ECF No. 130-5). Plaintiffs contend that Ahmad influenced the Sage Board of Directors to allow the Sage 12 Contract and associated Management Addenda to expire and instead incorporate the 13 management services from the Sage Contract into the CEO Services Contract. (TAC ¶¶ 18–22, 14 27); (See CEO Services Contract, Ex. 7 to Pls.’ MSJ, ECF No. 130-6); (First Am. to the CEO 15 Service Contract, Ex. 10 to Pls.’ MSJ, ECF No. 130-9); (Board Resolution, Ex. 9 to Pls.’ MSJ, 16 ECF No. 130-8). Plaintiffs offer a variety of evidence in support of their position that the Sage 17 Contract and CEO Services Contract as amended included payments for management services. 18 Plaintiffs first direct the Court to the face of the First Amendment to the CEO Services 19 Contract, which calculates the “incentive fee” by reference to “management services” that RH 20 provides. (See First Amendment to CEO Services Agreement, Ex. 10 to Pls.’ MSJ, ECF No. 21 130-9). Plaintiffs also highlight that Defendants themselves referred to the First Amendment to 22 the CEO Services Contract as “an extension for management services” in a letter between 23 Ahmad and Alva Tom of the Navajo Area Indian Health Service (“IHS”) (See IHS Letter, Ex. 24 11 to Pls.’ MSJ, ECF No. 131-11). Internal records also refer to payments made under the 25 CEO Services Contract as management payments or management fees, including records from Page 17 of 30 1 one of Defendants’ consultants and references in an internal audit. (See HAI Report and 2 Invoices, Exs. 13–21 to Pls.’ MSJ, ECF Nos. 130-10, 131-13–131-21); (S. Robert Bailey Aff. 3 and Audit Reports, Exs. 26–27 to Pls.’ MSJ, ECF Nos. 132-3–132-4). Finally, Defendants 4 appear to have used the same internal billing code—01.3801.6125—to refer to management 5 fees paid under the Sage Contract and the First Amendment to the CEO Services Contract. 6 (Compare MRS Invoice from November 2011 at 2565, Ex. 25 to Pls.’, ECF No. 132-2) (RDC 7 Invoice 1175 from March 2014 at 2914, Ex. 17 to Pls.’ MSJ, ECF No. 131-17) (both using 8 code to describe “management”). 9 Defendants respond that the terms of the CEO Services Contract show that Kory 10 knowingly disclaimed payment to some management fees because the CEO Services Contract 11 creates obligations involving the management of Sage in several provisions. (See CEO Services 12 Contract, Ex. 5 to Pls.’ MSJ) (directing RH to “oversee the supervision and effective 13 management of the day-to-day business operations of [Sage].”); (providing the Performance 14 Bonus “[b]ased upon [RH’s] past performance of CEO functions for the Corporation pursuant 15 to the prior Management Services Agreement . . . .”). Defendants also argue that ¶ 5.B, 16 “Performance Bonus,” in the original CEO Services Contract and ¶ 5.B, “Incentive Fee,” in the 17 First Amendment to the CEO Services Contract are different names for the same payment. (See 18 Ahmad Decl. ¶ 25, Ex. F to Defs.’ MSJ, ECF No. 138-7). Defendants explain that the First 19 Amendment’s formula’s reference to “management fees” was added on advice from Sage’s 20 auditors to ensure that Sage would be in compliance with IRS regulations on tax-exempt 21 organization, but Defendants maintain that the management fees referenced are not for the 22 same management services provided under the Sage Contract. (Id.). 23 The Court finds that there is a genuine dispute of material fact regarding whether 24 Defendants subsumed management payments that were originally paid under the Sage Contract 25 into the CEO Services Contract. As a preliminary matter, the Court notes it is difficult to Page 18 of 30 1 disentangle what payments for which specific management services Kory retains rights to 2 under the Settlement Agreement. Plaintiffs are not entitled to all management fees paid under 3 the CEO Services Contract. By the Settlement Agreement’s own terms, the parties only 4 expressed their intent that Kory continues to receive management fees similar to those paid 5 under the Sage Contract. (See Settlement Agreement ¶ 1.7). Plaintiffs knew or should have 6 known that Kory disclaimed the right to payment for some management services when 7 disclaiming rights in the CEO Services Contract. Not only does the CEO Services Contract 8 itself discuss payment for RH’s management of Sage, but CEO services necessarily encompass 9 management services. A CEO, after all, is the highest-level manager of an organization. 10 However, given that the Sage Contract does not denote the particular management 11 services it furnished payment for—instead providing a flat rate for management services—the 12 Court is not in a position to assess whether the First Amendment to the CEO Services Contract 13 includes payment for management services like those bargained for in the Sage Contract but 14 not encompassed within the original CEO Services Contract. The Court finds that Plaintiffs’ 15 evidence is sufficient to persuade a jury that the First Amendment to the CEO Services 16 Contract paid Defendants management fees previously provided under the Sage Contract. 17 Likewise, Defendants’ affidavit of Ahmad indicates that the CEO Services Contract did not 18 include any management fees paid under the Sage Contract, and Defendants therefore have not 19 contravened the stated intent of ¶ 1.7 of the Settlement Agreement. Accordingly, the Court 20 denies both parties’ Motions for Summary Judgment as to Plaintiffs’ implied covenant of good 21 faith and fair dealing claim. The Court now turns to Defendants’ Motion to Dismiss the Third 22 Amended Complaint. 23 B. 24 Defendants move to dismiss all of Plaintiffs’ claims to relief in the TAC. The Court’s 25 Motion to Dismiss below discussion addresses the sufficiency of each of the claims alleged. Page 19 of 30 1 i. Breach of Settlement Agreement 2 A Court may appropriately consider the terms of a contract at the motion to dismiss 3 stage when the contract is referenced in the complaint and its terms are not in dispute. See 4 Branch, 14 F.3d at 454. Here, the Court has already concluded in its preceding discussion that 5 Plaintiffs cannot state a plausible claim that Defendants breached the Settlement Agreement by 6 failing to pay Plaintiffs any management fees Sage remitted under the CEO Services Contract. 7 Accordingly, the Court grants dismissal of Plaintiffs’ breach of contract claim with prejudice. 8 9 10 ii. Breach of Duty of Good Faith and Fair Dealing a. Settlement Agreement In Nevada, an implied covenant of good faith and fair dealing exists in every contract, 11 Consol. Generator-Nevada, Inc. v. Cummins Engine Co., Inc., 971 P.2d 1251, 1256 (Nev. 12 1998), and a plaintiff may assert a claim for its breach if the defendant deliberately contravenes 13 the intention and spirit of the agreement, Morris v. Bank Am. Nev., 886 P.2d 454 (Nev. 1994). 14 To state a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff 15 must allege: (1) plaintiffs and defendants were parties to an agreement; (2) defendants owed a 16 duty of good faith to plaintiffs; (3) defendants breached that duty by performing in a manner 17 that was unfaithful to the purpose of the contract; and (4) plaintiff’s justified expectations were 18 denied. Perry v. Jordan, 900 P.2d 335, 338 (Nev. 1995). 19 Plaintiff has alleged sufficient facts to state a claim for breach of the implied covenant of 20 good faith and fair dealing. The TAC alleges that (1) Plaintiffs and Defendants were parties to 21 the Settlement Agreement; (2) Defendants owed a duty of good faith to Plaintiffs under the 22 agreement; (3) Defendants performed in a manner unfaithful to the expressly stated intent of 23 the Settlement Agreement by modifying the Sage Contract and the CEO Services Contract 24 referenced in the agreement; (4) which interfered with Plaintiffs’ justified expectations that 25 Page 20 of 30 1 they would continue to receive a portion of the management fees paid by Sage. (See TAC 2 ¶¶ 31–32, 48–63, 79–84). The Court therefore denies dismissal of the claim. 3 However, as explained in the summary judgment discussion, the Court’s holding is 4 limited only to management fees paid under amendments to the CEO Services Contract—but 5 not the CEO Services Contract as it existed at the time the parties entered the Settlement 6 Agreement—because Plaintiffs disclaimed all rights to payment under the original CEO 7 Services Contract. Accordingly, to the extent Plaintiffs seek management fees paid under the 8 amended CEO Services Contract, the Court denies the Motion to Dismiss. To the extent 9 Plaintiffs seek management fees under the original CEO Services Contract, the Court dismisses 10 11 12 Plaintiffs’ claim with prejudice. b. Attentus Operating Agreement Plaintiffs allege that Ahmad breach his duty of good faith and fair dealing under the 13 Attentus Operating Agreement by concealing the approximately $1.8 million Bonus Payment 14 from Kory and failing to remit any portion of the payment to Kory. (TAC ¶¶ 85–98, ECF No. 15 122). Defendants argue that the Court should dismiss the claim because: (1) it is barred by the 16 Release in the Settlement Agreement; (2) the allegations support a claim for breach of contract, 17 which is incongruous with a good faith and fair dealing claim; and (3) Plaintiffs have failed to 18 allege the purpose of the Operating Agreement or how the Defendants performed in a manner 19 contrary to that purpose. (Mot. Dismiss (“MTD”) 10:3–11:7, ECF No. 123). 20 The Court first addresses the release provision of the Settlement Agreement, which 21 would bar Plaintiffs’ claims to the Bonus Payment if the Court concludes that the release is 22 enforceable. Under ¶ 2.1 of the Settlement Agreement, the parties agreed that “[e]xcept for the 23 obligations created by the terms and conditions of this Agreement, the Parties . . . hereby 24 release and discharge each other party . . . from any and all actions, cause of action, suits, debts, 25 dues, sums of money, . . . and liabilities whatsoever, known or unknown . . . arising out of or in Page 21 of 30 1 connection with the ACTION, through and including the date of this AGREEMENT . . . .” 2 (Settlement Agreement ¶ 2.1). 3 Plaintiffs allege that Ahmad concealed the Bonus Payment from Sage prior to the 4 execution of the Settlement Agreement. (See TAC ¶¶ 36–46). The Bonus Payment relates to 5 the subject matter of the action referenced in the Settlement Agreement because the Settlement 6 Agreement arose from a dispute over Kory’s rights to payment from Sage to MMA and RH. 7 (See id. ¶¶ 29–31); (see also Settlement Agreement, Preliminary Statement ¶ B). Thus, the 8 terms of the release, if enforceable, would relieve Ahmad of any duty to pay Kory a portion of 9 the Bonus Payment. 10 However, the Court finds that although the release may bar Plaintiffs’ claims to the 11 Bonus Payment, dismissal is inappropriate. The Court may only grant a motion to dismiss a 12 claim on the basis of an affirmative defense if, from the facts alleged in the complaint, there is 13 no dispute that the affirmative defense would bar the claim. See Asarco, LLC v. Union Pac. 14 R.R. Co., 765 F.3d 999, 1004 (9th Cir. 2014) (explaining that the court should not grant a 15 motion to dismiss on the basis of an affirmative defense if “from the allegations of the 16 complaint as well as any judicially noticeable materials, an asserted defense raises disputed 17 issues of fact.”). With respect to contract releases, a release may be voidable if it was procured 18 without the disclosure of all relevant facts. See Las Vegas Ins. Adjusters v. Page, 492 P.2d 616, 19 616 (Nev. 1972). Here, Plaintiffs allege facts indicating that Ahmad fraudulently concealed the 20 Bonus Payment in an attempt to avoid remitting a portion of the payment to Kory. (See TAC ¶¶ 21 36–43). Accordingly, the Court finds that the facts alleged in the TAC raise a dispute regarding 22 the release’s enforceability, and the Court therefore cannot grant dismissal based on the terms 23 of the Release. 24 25 However, the Court finds that dismissal of the claim is appropriate because the allegations more aptly state a breach of contract theory, which is inconsistent with breach of the Page 22 of 30 1 duty of good faith and fair dealing. Plaintiffs allege that Ahmad breached the Attentus 2 Operating Agreement’s terms by failing to remit to Kory “an equal share of all net revenue 3 received from management services under the Sage Contract, healthcare consulting services, 4 healthcare provider group and physician services, and ‘all other related services.’”. (TAC ¶¶ 5 18–19, 89–90, 92–93). However, a good faith and fair dealing claim requires that the defendant 6 literally comply with the terms of the contract. See Kennedy., 727 F. Supp. 2d at 931. Here, 7 given that the TAC alleges facts that would support a claim to breach of contract, but Plaintiffs 8 could state a viable claim after amendment, the Court dismisses the claim without prejudice. iii. 9 Breach of Fiduciary Duty 10 Plaintiffs argue that Ahmad breached his fiduciary duty to Kory by “willfully concealing 11 the existence of the Bonus Payment and refusing to pay Kory his share of the Bonus Payment.” 12 (TAC ¶¶ 99–104). Defendant seeks dismissal of the claim, arguing that the Plaintiffs do not 13 adequately allege the existence of a fiduciary relationship, and the claim is time barred. (MTD 14 11:18–12). 15 “A breach of fiduciary duty claim seeks damages for injuries that result from the tortious 16 conduct of one who owes a duty to another by virtue of the fiduciary relationship.” Stalk v. 17 Mushkin, 199 P.3d 838, 843 (Nev. 2009). A “fiduciary relation exists between two persons 18 when one of them is under a duty to act for or to give advice for the benefit of another upon 19 matters within the scope of the relation.” Id. Moreover, fiduciary relationships arise where the 20 parties do not deal on equal terms and there is special trust and confidence placed in the 21 superior party. Hoopes v. Hammargren, 725 P.2d 238, 242 (Nev. 1986). To prevail on a breach 22 of fiduciary duty claim, the plaintiff must establish: “(1) the existence of a fiduciary duty; (2) 23 breach of that duty; and (3) the breach proximately caused the damages.” Klein v. Freedom 24 Strategic Partners, LLC, 595 F. Supp. 2d 1152, 1162 (D. Nev. 2009). 25 Page 23 of 30 The Nevada Supreme Court has held that fiduciary duties arise as a matter of law in 1 2 certain categories of relationships, including insurers and their insured, Powers v. United Servs. 3 Auto. Ass’n, 979 P.2d 1286, 1288 (Nev. 1999); attorney and client, Cook v. Cook, 912 P.2d 4 264, 266 (Nev. 1996), spouses, id.; fiancés, Fick v. Fick, 851 P.2d 445, 449–50 (Nev. 1993); 5 and corporate officers or directors and a corporation, Leavitt v. Leisure Sports Inc., 734 P.2d 6 1221, 1224 (Nev. 1987). In relationships falling outside these categories, Nevada law 7 recognizes a duty owed in “confidential relationships,” where “one party gains the confidence 8 of the other and purports to act or advise with the other’s interests in mind.” Perry v. Jordan, 9 900 P.2d 335, 338 (Nev. 1995) (per curiam) (internal quotation marks and citation omitted). Here, Plaintiffs have alleged that Ahmad breached a fiduciary duty to disclose the Bonus 10 11 Payment to Kory, causing Plaintiffs damages. (TAC ¶¶ 99–104). However, the Court must 12 dismiss the claim because Plaintiffs have not alleged sufficient facts to demonstrate that Ahmad 13 owed Kory a fiduciary duty. The brothers’ relationship does not fall into any of the per se 14 fiduciary relationships recognized by the Nevada Supreme Court. Nor do Plaintiffs allege facts 15 indicating that Kory placed a special confidence in Ahmad, obligating Ahmad to act in Kory’s 16 best interest. Plaintiffs’ conclusorily assertion that a fiduciary relationship existed is 17 insufficient to sustain the claim. Thus, the Court grants dismissal of the claim without 18 prejudice.8 iv. 19 Unjust Enrichment Plaintiffs plead their claims for unjust enrichment in the alternative, “In the event the 20 21 Court finds that no written contract” requires the payments described in the Settlement 22 Agreement. (Compl. ¶¶ 109–110). Defendants argue that the claim should be dismissed 23 because it seeks payments allegedly required by contract. (MTD 17:24–18:12). 24 25 For the same reasons discussed regarding the enforceability of the Settlement Agreement’s release, the Court finds dismissal on the statute of limitations inappropriate at this stage of the proceedings because the limitations period may be tolled under the discovery rule. See NRS § 11.190. 8 Page 24 of 30 1 As explained in the summary judgment discussion, the Settlement Agreement provided 2 Kory rights to payments made under the Sage Contract and similar agreements, but the relevant 3 question is whether Defendants’ literal compliance with the Settlement Agreement violated 4 their duty of good faith and fair dealing. Accordingly, because there is a written contract 5 creating the obligations Plaintiffs now seek to enforce, the Court dismisses the claim with 6 prejudice as to the management fees. See LeasePartners Corp. v. Robert L. Brooks Trust Dated 7 Nov. 12, 1975,942 P.2d 182, 187 (Nev. 1997) (“An action based on a theory of unjust 8 enrichment is not available when there is an express, written contract, because no agreement 9 can be implied when there is an express agreement.”). The Court dismisses without prejudice 10 Plaintiffs’ claim to the Bonus Payment because it remains uncertain whether the alleged right to 11 payment derives from the terms of a contract. 12 13 v. Conversion Plaintiffs’ conversion claim alleges that Defendants converted the management fees 14 owed under the Settlement Agreement and the Bonus Payment. (See TAC. ¶ 115). Defendants 15 argue that Plaintiffs must state a claim to an identifiable sum of money, and the claims are 16 foreclosed by the economic loss doctrine. (MTD 12:15–13:7). 17 Although Plaintiffs argue that the claim is permissible because it is pled in the 18 alternative to breach of contract, Plaintiffs’ only alleged rights to one-sixths of the at-issue 19 payments or a portion of the Bonus Payment arise because of the Settlement Agreement or 20 other contract. Accordingly, to the extent Plaintiffs rely on contractual theories of recovery, the 21 claim is foreclosed by the economic loss doctrine as a matter of law. Kenny v. Trade Show 22 Fabrications W., Inc., No. 2:15-cv-410-JCM-VCF, 2016 WL 697110, at *5 (D. Nev. Feb. 18, 23 2016) (“Absent direction to the contrary from Nevada state courts, a claim for conversion 24 rooted in defendants’ failure to make payment pursuant to contract between the parties 25 contravenes the purpose of the economic loss doctrine, and is therefore barred.”). The Court Page 25 of 30 1 therefore dismisses the claim with prejudice with respect to management fees. The Court 2 dismisses the claim without prejudice with respect to the Bonus Payment because it is uncertain 3 whether Plaintiffs’ alleged right to the payment derives from the terms of a contract. vi. 4 Intentional Interference with Contract Plaintiffs assert that Ahmad intentionally interfered with the MMA Operating 5 6 Agreement by failing to remit the Bonus Payment to MMA. (TAC ¶¶ 120–128). Defendants 7 argue that the claim fails as a matter of law because a party cannot be liable for intentionally 8 interfering with its own contract, and Plaintiffs have not sufficiently alleged the elements of the 9 claim under Nevada law. (MTD 13:10–28). 10 To state a claim for intentional interference with contract under Nevada law, a Plaintiff 11 must allege: (1) the existence of “a valid and existing contract; (2) the defendant’s knowledge 12 of the contract; (3) intentional acts intended or designed to disrupt the contractual relationship; 13 (4) actual disruption of the contract; and (5) resulting damage.” J.J. Industries, LLC v. Bennett, 14 71 P.3d 1264, 1267 (Nev. 2003). The Court finds that Plaintiffs have adequately alleged the claim, and they are not barred 15 16 from asserting the claim as a matter of law. Plaintiffs have alleged: (1) the MMA Operating 17 Agreement was a valid contract that obliged MMA to remit a portion of the Bonus Payment to 18 Kory; (2) Ahmad knew of the contract; (3) Ahmad intentionally directed Sage to pay the Bonus 19 Payment to RH instead of MMA to avoid payment to Kory; (4) disrupting Kory’s rights under 20 the MMA operating agreement; (5) causing Plaintiffs’ damages. (TAC ¶¶ 120–128). Plaintiffs 21 allege that Attentus was a party to MMA, but Ahmad was not. (Id. ¶¶ 8–9, 123). The allegation 22 is sufficient to show that Ahmad was not a party to the MMA Operating Agreement because a 23 limited liability company is a distinct legal entity from its members. Cf. C.H.A. Venture v. G.C. 24 Wallace Consulting Engineers, Inc., 794 P.2d 707, 709 (Nev. 1990). 25 // Page 26 of 30 1 2 vii. Accounting Plaintiffs argue that Defendants owe Plaintiffs an accounting for all payments made by 3 Sage to Defendants and any entities owned or controlled by Defendants. (TAC ¶¶ 129–134). 4 Defendants seek dismissal of the claim because of the absence of a fiduciary relationship 5 between the parties. (MTD 14:1–25). 6 To state a plausible claim to an accounting, there must be a fiduciary relationship 7 between the parties. McNamara v. Voltage Pay Inc., No. 2:15-cv-02177-JAD-GWF, 2017 U.S. 8 Dist. LEXIS 137558, 2017 WL 3709057, at *4 (D. Nev. Aug. 28, 2017). As the Court 9 addressed previously, Plaintiffs have not alleged sufficient facts to show the presence of a 10 fiduciary relationship. Accordingly, the Court grants dismissal of Plaintiffs’ accounting claim 11 without prejudice. 12 13 viii. Civil Conspiracy Plaintiffs assert a claim to civil conspiracy, arguing that Defendants conspired together 14 to harm Plaintiffs. (TAC ¶¶ 135–142). Defendants argue that the claim should be dismissed 15 because it is not alleged with particularity. (MTD 14:26–15:23). 16 A claim for civil conspiracy sounding in fraud must be alleged with specificity. See 17 Diamond Resorts Int’l, Inc. v. Reed Hein & Assocs., LLC, No. 2:17-cv-03007-APG-VCF, 2019 18 U.S. Dist. LEXIS 205358, 2019 WL 6310717, at *7 (D. Nev. Nov. 25, 2019). The parties 19 dispute whether Plaintiff has sufficiently alleged a conspiracy. (See MTD 14:27–15:23); (MTD 20 Resp. 20:22–21:17). Plaintiffs contend that asserting the Defendants “conspired together” to 21 harm Plaintiffs, while incorporating the previous allegations by reference, is sufficient. (MTD 22 Resp. 20:22–21:17). The Court disagrees. Here, Plaintiffs allege the ultimate outcome of the 23 alleged conspiracy—Plaintiffs’ being deprived the benefit of their bargain with Defendants— 24 but Plaintiffs fail to allege any facts regarding the agreement between Defendants, their plan to 25 allegedly defraud Plaintiffs, or the like. (See id.) (showing that Plaintiffs have alleged only the Page 27 of 30 1 participants, damages, and timing of the conspiracy); (see also TAC ¶¶ 135–139). 2 Accordingly, the Court dismisses without prejudice Plaintiffs’ Civil Conspiracy claim. 3 4 ix. Alter Ego To state a claim for alter ego liability, a plaintiff must allege: (1) the corporation is 5 influenced and governed by the person asserted to be the alter ego; (2) there is such unity of 6 interest and ownership that one is inseparable from the other; and (3) the facts are such that 7 adherence to the corporate fiction of a separate entity would, under the circumstances, sanction 8 fraud or promote injustice. See Nev. Rev. Stat. § 78.747; see also Polaris Indus. Corp. v. 9 Kaplan, 747 P.2d 884, 886 (1987). Conclusory allegations of alter ego status are insufficient to 10 state a claim to relief. Donovan v. Flamingo Palms Villas, LLC, No. 2:08-cv-01675-RCJ-RJJ, 11 2009 U.S. Dist. LEXIS 150421, 2009 WL10693913, at *6 (D. Nev. June 23, 2009) 12 Here, Plaintiffs sufficiently establish alter ego liability by alleging that RDC is solely 13 owned by Ahmad, Ahmad and RDC intermingle funds, and failure to recognize alter ego 14 liability would therefore cause injustice. (TAC ¶¶ 144–145). Accordingly, the Court denies 15 dismissal of Plaintiffs’ alter ego liability claim. 16 17 x. Successor Liability Plaintiffs argue that all business entity Defendants share uniformity with their officers, 18 supporting a claim to successor liability. (TAC ¶¶ 146–147). Defendants respond that the 19 allegation is insufficiently pleaded because it does not identify any entities who are 20 predecessors to the liability alleged. (MTD 17:11–24). 21 To state a claim for successor liability, a plaintiff must at minimum allege the entities 22 who share the liability succeeded to. See S.E.C. v. v. Inteligentry, Ltd., No. 2:13-cv-00344- 23 RFB-NJK, 2015 WL 1470498, at *15 (D. Nev. Mar. 31, 2015). Here, Plaintiffs do not even 24 allege the entities who are predecessors or successors to the liability at issue, instead lumping 25 Page 28 of 30 1 together all Defendants. (TAC ¶ 147). The Court therefore dismisses the claim without 2 prejudice. xi. 3 Punitive Damages Plaintiffs do not allege an independent claim to punitive damages; rather, the TAC seeks 4 5 punitive damages in Plaintiffs’ fiduciary duty and civil conspiracy claims, and it lists punitive 6 damages in the relief sought at the conclusion of the TAC. (TAC ¶¶ 102, 141, 20:16). Here, 7 because the Court has dismissed Plaintiffs’ claims for punitive damages, the Court need not 8 address whether the Court should dismiss Plaintiffs’ generalized request for punitive damages 9 as Defendants urge. (See MTD 22:11–23:11). The Court next addresses whether Plaintiffs 10 should be given leave to amend the claims dismissed without prejudice. 11 C. Leave to Amend 12 For all claims the Court has dismissed without prejudice, the Court provides Plaintiffs 13 leave to amend. Defendants argue that amendment would be futile because Defendants have 14 now filed four Complaints in this action. (MTD 18:19–19:9). However, Plaintiffs have not yet 15 had the benefit of a court order identifying the deficiencies of the Complaints because each 16 Amended Complaint has been filed based on Plaintiffs’ request for leave to amend, which 17 Defendants have consented to on each occasion. (See Stipulations to Amend, Non-Oppositions 18 to Mots. Amend, ECF Nos. 47, 63, 119). Plaintiffs may file an Amended Complaint within 19 twenty-one (21) days from entry of this Order. Failure to file an Amended Complaint by the 20 deadline provided will result in dismissal of the unamended claims with prejudice. 21 // 22 // 23 // 24 // 25 // Page 29 of 30 1 2 3 4 5 6 7 IV. CONCLUSION IT IS HEREBY ORDERED that Defendants’ Motion to Dismiss, (ECF No. 123), is GRANTED in part and DENIED in part. IT IS FURTHER ORDERED that Plaintiffs’ Motion for Partial Summary Judgment, (ECF No. 129), is DENIED. IT IS FURTHER ORDERED that Defendants’ Cross-Motion for Partial Summary Judgment, (ECF No. 138), is GRANTED in part and DENIED in part 8 IT IS FURTHER ORDERED that Plaintiffs may file an Amended Complaint within 9 twenty-one (21) days from entry of this Order. If no Amended Complaint is filed, the parties 10 11 shall have an additional thirty (30) days to file a Joint Proposed Pretrial Order. Dated this 30 __ day of September, 2020. 12 13 14 15 ___________________________________ Gloria M. Navarro, District Judge UNITED STATES DISTRICT COURT 16 17 18 19 20 21 22 23 24 25 Page 30 of 30
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