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Cornelis v. B&J Smith Associates LLC

United States District Court, D. Arizona

May 8, 2014

Terrance Cornelis, et al., Plaintiffs,
B&J Smith Associates LLC, et al., Defendants.


BRIDGET S. BADE, Magistrate Judge.

Defendants B&J Smith Associates, Limited Partnership, B&J Smith Investments, Inc., an Arizona Corporation, Barry M. Smith, Julia P. Smith, and Lynette B. Walbom (Defendants) have filed a motion to dismiss the second amended complaint. (Doc. 34.) Plaintiffs Terrance and Yvonne Cornelis (Plaintiffs) oppose the motion. (Doc. 36.) For the reasons below, the Court grants Defendants' motion and dismisses this action.[1]

I. Background

On April 1, 2013, Plaintiffs filed their original complaint alleging violations of the Federal Trade Commission Act, common law fraud, violations of the Small Business Franchise Act, fraud in violation of the Arizona Consumer Fraud Act, a violation of the Uniform Fraudulent Transfer Act, and asserting a claim for "Declaratory Judgment." (Doc. 1.) On May 15, 2013, Defendants filed a motion to dismiss for failure to state a claim. (Doc. 10.) In response, Plaintiffs filed a first amended complaint and the Court denied Defendants' motion as moot. (Doc. 18.)

On July 13, 2013, Defendants filed a motion to dismiss the first amended complaint for failure to state a claim. (Doc. 19.) Plaintiffs then attempted to file another amended complaint. The Court ordered the Clerk of Court to strike that complaint because Plaintiffs had not complied with Federal Rule of Civil Procedure 15(a)(2). (Docs. 22-23.) On August 9, 2013, Plaintiffs filed a motion for leave to file a second amended complaint. (Doc. 26.) The Court granted, in part, and denied, in part, Plaintiffs' motion to amend, and denied Defendants' motion to dismiss the first amended complaint as moot. (Doc. 31.) On February 18, 2014, Plaintiffs filed a second amended complaint. (Doc. 32.)

II. Second Amended Complaint

The second amended complaint includes one count for breach of written contract (labeled Count I) and a section entitled "Alter Ego." (Doc. 32.) Plaintiffs' allegations in Count I arise from a restaurant franchise agreement (the Franchise Agreement) that they entered into with Eatza Pizza, Inc. (Eatza Pizza) on October 24, 2006.[2] (Doc. 32 at ¶ 13.) Plaintiffs assert that Eatza Pizza made misrepresentations in "the Franchise Offering Circular, " including claims that Eatza Pizza (1) had developed a successful business plan, (2) had developed a distinctive restaurant design and food items, and (3) that its "restaurant system featured the highest standards of management training, supervision, merchandising, and quality food products." ( Id. at ¶¶ 29-30.) The Franchise Offering Circular allegedly induced Plaintiffs to pay $55, 000.00 in franchise fees, lease business space, and prepare to open an Eatza Pizza restaurant. ( Id. at ¶ 31.) Plaintiffs allegedly invested a total of $1, 100, 000.00. ( Id. )

Plaintiffs assert that, pursuant to an asset purchase agreement dated March 2007, (Asset Purchase Agreement), B&J Smith Associates, LLC (B&J Smith Associates) and B&J Smith Investments, Inc. (B&J Smith Investments) sold Eatza Pizza to International Franchise Associates, Inc. (IFA). (Doc. 32 at ¶ 3.) Plaintiffs further allege that IFA filed for bankruptcy on August 4, 2008 and, thus, "IFA was an undercapitalized shell corporation formed to avoid its or [Eatza Pizza's] contractual obligations." ( Id. at ¶¶ 3, 21.)

Plaintiffs allege that Eatza Pizza, and "subsequently IFA, " did not provide them with training, support, or a viable business plan to help them develop a profitable restaurant and committed "other acts of bad faith." ( Id. at ¶ 32.) Plaintiffs allege that because of Eatza Pizza's failure to comply with its franchisor obligations, they were forced to cease operating their Eatza Pizza restaurant. ( Id. at ¶ 33.) Plaintiffs claim that they were not aware of the Asset Purchase Agreement until "[s]ometime [in] June 2008, " when another Eatza Pizza franchise owner sent them a copy of that agreement. ( Id. at ¶¶ 9, 19.)

Plaintiffs also allege that B&J Smith Associates and B&J Smith Investments owned Eatza Pizza. ( Id. at ¶ 3.) They further allege that Lynette Walbom (Walbom), Barry M. Smith (Barry Smith), and Julia P. Smith (Julia Smith) were corporate officers of B&J Smith Associates and B&J Smith Investments ( Id. at ¶ 2), and that Walbom and Barry Smith "were in complete and daily control of the direction and operation of Eatza Pizza, Inc." ( Id. at 41.)

III. Subject Matter Jurisdiction

The second amended complaint alleges state law violations and invokes this Court's diversity jurisdiction pursuant to 28 U.S.C. § 1332. District courts have diversity jurisdiction over civil actions when there is complete diversity between the parties and the amount in controversy exceeds $75, 000. See 28 U.S.C. § 1332(a). For purposes of determining diversity jurisdiction, an individual person is deemed a citizen of the state in which he is domiciled. Lew v. Moss, 797 F.2d 747, 749 (9th Cir. 1986). A corporation is deemed a citizen of every state in which it has been incorporated and of the state in which it has its principal place of business. See 28 U.S.C. § 1332(c)(1); Hertz Corp. v. Friend, 559 U.S. 77, 80-81 (2010) (a complaint must allege both the corporation's state of incorporation and location of the principal place of business, which is its "nerve center."). Partnerships and limited liability companies (LLC) are citizens of every state in which their owners or members are citizens. See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). At the pleading stage, a party seeking to invoke diversity jurisdiction should affirmatively allege, but need not prove, the actual citizenship of the parties. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001) ("[I]n a diversity action, the plaintiff must state all parties' citizenships such that the existence of complete diversity can be confirmed.") (citation omitted).

Here, Plaintiffs have filed the second amended complaint from a North Carolina address and allege that they are "citizens residing in" North Carolina.[3] (Doc. 32.) Plaintiffs also allege that B&J Smith Investments, identified by Plaintiffs and Defendants as a corporation, is an Arizona corporation with its principal place of business in Arizona. (Doc. 32 at ¶2.) Plaintiffs further allege that "B&J Smith Investments, LLC" is an "Arizona corporation." ( Id. ) However, Defendants identify that entity as a limited partnership and the Court assumes that Defendants' designation of B&J Smith Associates as a limited partnership is correct. A complaint "must expressly identify each member of any limited partnership, and/or limited liability companies, along with each member's citizenship. Such jurisdictional allegations are necessary for [the] Court to conclude whether diversity jurisdiction is satisfied." Liberty Propane, LP v. Feheley, 2006 WL 2553396, at *1 n.1 (D. Ariz. Aug. 29, 2006).

The second amended complaint does not identify each member of B&J Smith Associates and does not identify each member's citizenship. The second amended complaint also fails to allege the citizenship of individual Defendants Barry Smith, Julia Smith, and Walbom. Accordingly, Plaintiffs have failed to satisfy the minimum diversity requirements of § 1332(a)(1). Although Plaintiffs could possibly cure these defects, the Court will not give Plaintiffs an opportunity to file another amended complaint because even if the jurisdictional defects were cured, their claims against Defendants are subject to dismissal for the additional reasons set forth below.

IV. Rule 12(b)(6) - Dismissal for Failure to State a Claim

The Federal Rules of Civil Procedure require "a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to give the defendant fair notice of what the... claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also Fed.R.Civ.P. 8(a)(2). Thus, dismissal for insufficiency of a complaint is proper if the complaint fails to state a claim on its face. Lucas v. Bechtel Corp., 633 F.2d 757, 759 (9th Cir. 1980); see also Fed.R.Civ.P. 12(b)(6). Although a complaint "does not need detailed factual allegations, a plaintiff's obligation to provide the grounds' of his entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citations omitted).

A Rule 12(b)(6) dismissal for failure to state a claim can be based on either (1) the lack of a cognizable legal claim, or (2) insufficient facts to support a cognizable legal claim. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). When considering a motion to dismiss, the court takes all allegations of material fact as true and construes them in the light most favorable to the non-moving party. Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). "[F]or a complaint to survive a motion to dismiss, the non-conclusory factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009)). In other words, the complaint must contain enough factual content "to raise a reasonable expectation that discovery will reveal evidence" of the claim. Twombly, 550 U.S. at 556.

V. Plaintiffs' Claims

Plaintiffs identify "Count I" of the second amended complaint as asserting a claim for breach of contract, but they allege several theories of recovery within that count, including: (1) violations of the Federal Trade Commission Act (FTCA), 15 U.S.C. § 45(a)(1) (Doc. 32 at ¶¶ 41, 45); (2) common law fraud, fraudulent misrepresentation, and a violation of the Arizona Consumer Fraud Act (Doc. 32 at ¶¶ 42, 43, 44, 47); and (3) breach of contract (the Franchise Agreement). (Doc. 32 at ¶¶ 12, 46.) The second amended complaint further alleges that, although Defendants ...

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