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Martin v. Weed Inc.

United States District Court, D. Arizona

May 30, 2018

William Martin, Plaintiff,
v.
Weed Incorporated, et al., Defendants.

          ORDER

          Honorable Rosemary Marquez, United States District Judge.

         Pending 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.

         I. Standard of Review

         A 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.

         Dismissal 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).

         If a 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).

         II. Defendant's Motion to Dismiss[1]

         A. First Amended Complaint

         The 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.)

         Plaintiff 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 conversion.

         B. Breach of the Covenant of Good Faith and Fair Dealing

         Defendant 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.

         The 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).

         Defendant 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 limitations.

         The 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 unreasonable.

         Therefore, 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.

         C. ...


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