United States District Court, D. Arizona
Honorable Rosemary Marquez, United States District Judge.
before the Court are Defendant Weed, Inc.'s Motion to
Dismiss (Doc. 13) and Motion to Amend (Doc. 33) and Plaintiff
William Martin's Motion to Dismiss (Doc. 20). The Motions
are suitable for determination without oral argument.
Standard of Review
complaint must include a “short and plain statement . .
. showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). While Rule 8 does not require in-depth
factual allegations, it does require more than
“labels[, ]” “conclusions, ” or
“a formulaic recitation of the elements of a cause of
action.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (internal quotation marks omitted). There must be
sufficient “factual content [to] allow the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.
under Rule 12(b)(6) may be “based on the lack of a
cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.”
Balistreri v. Pacifica Police Dep't, 901 F.2d
696, 699 (9th Cir. 1990). When reviewing a motion to dismiss
pursuant to Rule 12(b)(6), a court takes “all factual
allegations set forth in the complaint . . . as true and
construed in the light most favorable to plaintiffs.”
Lee v. City of L.A., 250 F.3d 668, 679 (9th Cir.
2001) (internal quotation marks omitted). However, only
well-pleaded facts are given a presumption of truth.
Iqbal, 556 U.S. at 679. Conclusory allegations-that
is, allegations that “simply recite the elements of a
cause of action” without supplying underlying facts to
support those elements-are not “entitled to the
presumption of truth.” Starr v. Baca, 652 F.3d
1202, 1216 (9th Cir. 2011).
complaint falls short of meeting the necessary pleading
standards, a district court should dismiss with leave to
amend unless the deficiencies of a pleading “could not
possibly be cured by the allegation of other facts.”
Lacey v. Maricopa Cnty., 693 F.3d 896, 926 (9th Cir.
2012) (“We have adopted a generous standard for
granting leave to amend from a dismissal for failure to state
a claim . . . .”). Failing to give leave to amend when
a plaintiff could include additional facts to cure a
complaint's deficiencies is an abuse of discretion.
AE ex rel. Hernandez v. County of Tulare, 666 F.3d
631, 636 (9th Cir. 2012).
Defendant's Motion to Dismiss
First Amended Complaint
First Amended Complaint (“FAC”) contains the
following allegations pertaining to Defendant Weed, Inc. On
or around October 1, 2014, Plaintiff and Defendant entered
into a Consulting Agreement (“Agreement”) under
which Plaintiff was to be available to consult with
Defendant's officers and directors on specified projects
until September 30, 2015. (Doc. 29, ¶ 9.) As
compensation for Plaintiff's services under the
Agreement, Defendant was to issue Plaintiff 1, 200, 000
shares of common stock in Weed, Inc. (Id. ¶
10.) The shares were to be transferred in two issuances: the
first issuance of 500, 000 shares within 30 days of execution
of the Agreement and the second issuance of 700, 000 shares
within 30 days of April 1, 2015. (Id.) Plaintiff was
issued the initial 500, 000 shares. (Id. ¶ 11.)
performed consulting services under the Agreement for the
full term of the Agreement. (Id. ¶ 12.) Despite
demand made in December 2017, Defendant has failed and
refused to issue Plaintiff the additional 700, 000 shares of
common stock. (Id. ¶ 14.) The shares were
originally valued at $0.05 per share, but were worth $10.52
per share as of the filing of the Complaint. (Id.
¶ 13.) Plaintiff alleges, among other claims, claims for
breach of the covenant of good faith and fair dealing and
Breach of the Covenant of Good Faith and Fair
argues that Plaintiff's claim for breach of the covenant
of good faith and fair dealing (“bad-faith
claim”) is barred by the statute of limitations. As a
threshold matter, the parties dispute whether a 2-year or
6-year limitations period applies. Defendant cites an Arizona
case in which a 2-year limitations period was applied to a
bad-faith claim arising out of an insurance contract. See
Taylor v. State Farm Mut. Auto. Ins. Co., 893 P.2d 39
(Ariz.Ct.App. 1994), vacated on other grounds, 913
P.2d 1092 (Ariz. 1996). Defendant concedes it found no case
in which a court applied a 2-year limitations period outside
the insurance context, but argues there is no reason to
believe a different limitations period should apply.
Plaintiff argues that his bad-faith claim sounds in contract
rather than tort, and thus the 6-year limitations period for
breach-of-contract claims should apply.
Court finds that a 2-year limitations period applies.
Plaintiff correctly points out that Arizona case law
recognizes a distinction between bad-faith claims sounding in
tort and bad-faith claims sounding in contract. See Wells
Fargo Bank v. Ariz. Laborers, Teamsters & Cement
Masons, 38 P.3d 12, 29 (Ariz. 2002) (en banc)
(explaining that a “special relationship” between
the parties is required for bad-faith claims sounding in
tort, but not for bad-faith claims sounding in contract).
However, Plaintiff cites no authority showing that
distinction bears on the statute of limitations. The few
cases available all apply a 2-year limitations period
regardless of the context. See Taylor, 913 P.2d at
1094 (applying 2-year limitations period to bad-faith claim
arising out of insurance contract); Serrano v.
Serrano, No. 1 CA-CV 10-0649, 2012 WL 75639, at *6
(Ariz.Ct.App. Jan. 10, 2012) (applying 2-year limitations
period to bad-faith claim arising out of partnership
agreement to operate a restaurant); Stockwell v.
Myers, No. CV-13-00782-PHX-ROS, 2014 WL 12729574, at
*1-3 (D. Ariz. Mar. 24, 2014) (applying 2-year limitations
period to bad-faith claim arising out of business venture to
buy and sell real estate).
contends that Plaintiff's bad-faith claim accrued in
September 2015 at the latest, when the Agreement would have
terminated pursuant to its terms. Plaintiff disagrees,
arguing that he did not discover his claim until December
2017, when his demand for the shares was refused. Taking the
FAC's allegations as true and drawing all reasonable
inferences in favor of Plaintiff, the Court concludes that
Plaintiff's bad-faith claim accrued in September 2015 at
the latest and that it is barred by the statute of
discovery rule-under which a claim “does not accrue
until the plaintiff knows or, in the exercise of reasonable
diligence, should know the facts underlying the
[claim]”-applies to contract claims. Gust,
Rosenfeld & Henderson v. Prudential Ins. Co. of Am.,
898 P.2d 964, 966 (Ariz. 1995) (en banc). Simply stated,
neither Plaintiff's alleged injury nor its cause was
difficult to detect. Plaintiff asserts entitlement to 700,
000 shares of stock that, pursuant to the Agreement, were
payable no later than May 1, 2015. A reasonable
person would have discovered the facts underlying the claim
(i.e., that Defendant was refusing to transfer the shares)
when he or she did not receive the shares by that deadline.
Cf. HSL Linda Gardens Properties, Ltd. v. Freeman,
859 P.2d 1339, 1340-41 (Ariz.Ct.App. 1993) (applying
discovery rule where plaintiff had no reason to know of
defendant's breach of land-purchase contract until
plaintiff tried to sell the land 7 years later). Assuming for
the sake of argument that a reasonable person would not have
discovered the claim by non-receipt of the shares,
non-receipt by the deadline would have prompted a reasonable
person to diligently investigate, and even the most cursory
investigation would have revealed the facts underlying the
claim. Giving Plaintiff the benefit that waiting until
September 2015 to investigate was reasonable, his claim must
fail. Plaintiff waited more than 2 years after the
termination date to make inquiries, which is objectively
Plaintiff's claim accrued in September 2015 at the
latest, when the Agreement would have terminated on its own
and a reasonable person would have discovered the facts
underlying the claim. Under the 2-year limitations period
applicable to his bad-faith claim, Plaintiff was required to
file suit no later than September 2017. Plaintiff filed suit
on January 19, 2018; it is therefore apparent from the face
of the FAC that his claim is barred. See Jablon v. Dean
Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980)
(“If the running of the statute is apparent on the face
of the complaint, the defense may be raised by a motion to
dismiss.” (citations omitted)). Because the statute of
limitations is absolute, amendment would be futile. See
Deutsch v. Turner Corp., 324 F.3d 692, 718 n.20 (9th
Cir. 2003) (amendment is futile if the claim will be barred
by the statute of limitations). Consequently, the bad-faith
claim will be dismissed with prejudice.