Martin v. Weed Inc.

          ORDER

          Honorable Rosemary Marquez United States District Judge

         Pending before the Court are Cross-Motions for Summary Judgment, both of which are fully briefed. (Docs. 56, 75, 80, 82.) The Court heard oral argument on October 15, 2019, and took the matter under advisement. (Doc. 104.) For the reasons that follow, both Motions will be granted in part and denied in part.

         I. Factual and Procedural History

         On January 19, 2018, Plaintiff William Martin filed this action against Defendant Weed, Incorporated (“WEED”). (Doc. 1.) Plaintiff alleged that he entered into a contract with WEED, which WEED breached by failing to issue Plaintiff 700, 000 shares of WEED stock. (Id. at 2-3.)^[1] Based on the foregoing allegations, Plaintiff brought four claims: two for breach of contract, one for breach of the covenant of good faith and fair dealing, and one for conversion. (Id. at 3-5.)

         On March 27, 2018, Plaintiff filed the operative First Amended Complaint, alleging the same four claims against WEED. (Doc. 29 at 4-7.) In addition, Plaintiff added several defendants: Glenn Martin, President and CEO of WEED; Nicole Breen, Secretary and Treasurer of WEED; Ryan Breen, Vice President and Social Media Officer of WEED; and GEM Management Group, LLC. (Id. at 2.) Plaintiff brings a fifth claim against all Defendants for violation of Ariz. Rev. Stat. § 44-1004, alleging that WEED transferred stock shares to the other Defendants for the purpose of defrauding Plaintiff as a creditor. (Id. at 7-8.)^[2]

         On May 31, 2018, WEED filed its operative Second Amended Counterclaim. (Doc. 50.) WEED alleges two counterclaims against Plaintiff: one for fraudulent misrepresentation and concealment, and one for breach of contract. (Id. at 6-9.) The counterclaim for breach of contract rests on the allegation that Plaintiff did not perform any services under the parties' contract. (Id. at 8-9.) The fraud counterclaim arises from WEED's decision to hire Michael Ryan, a longtime friend of Plaintiff. (See Id. at 6-7.) WEED alleges that it hired Ryan based on the recommendation of Plaintiff, and that Plaintiff made such recommendation without disclosing that he was indebted to Ryan and intended for WEED to satisfy that debt by issuing stock shares to Ryan. (Id. at 7-8.) WEED further alleges that Plaintiff told Ryan that contractual performance would not be required, and that Ryan indeed did not perform. (Id. at 8.)

         Both Plaintiff and WEED filed Motions to Dismiss. (Docs. 13, 20.) The Court granted WEED's Motion to Dismiss, finding Plaintiff's claims for conversion and breach of the covenant of good faith and fair dealing barred by the statute of limitations. (Doc. 49 at 13-14.) The Court partially granted Plaintiff's Motion to Dismiss, finding that WEED had stated a counterclaim for fraud based on misrepresentation and/or concealment, but not fraudulent nondisclosure. (Id. at 14.)

         Thus, Plaintiff has three claims pending: two for breach of contract, and one for fraudulent transfer in violation of Ariz. Rev. Stat. § 44-1004. WEED has two counterclaims pending: one for fraud based on misrepresentation and/or concealment, and one for breach of contract. All claims are challenged on summary judgment.

         II. Legal Standard

         Summary judgment is proper “if the movant shows 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). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is genuine if the evidence is such that a reasonable trier of fact could resolve the dispute in favor of the nonmoving party. Id. In evaluating a motion for summary judgment, the court must “draw all reasonable inferences from the evidence” in favor of the non-movant. O'Connor v. Boeing N. Am., Inc., 311 F.3d 1139, 1150 (9th Cir. 2002). A reasonable inference is one which is supported by “significant probative evidence” rather than “threadbare conclusory statements.” Barnes v. Arden Mayfair, Inc., 759 F.2d 676, 680-81 (9th Cir. 1985) (internal quotation marks omitted). If “the evidence yields conflicting inferences [regarding material facts], summary judgment is improper, and the action must proceed to trial.” O'Connor, 311 F.3d at 1150.

         The party moving for summary judgment bears the initial burden of identifying those portions of the record, together with affidavits, if any, that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant meets this burden, the burden shifts to the nonmovant to “come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks and emphasis omitted); see also Fed. R. Civ. P. 56(c)(1).

         III. Contract Claims

         A. Background^[3]

         In October 2014, Plaintiff and WEED entered into a Consulting Agreement for Plaintiff to provide consulting services to WEED. (DSOF ¶ 5.) The Consulting Agreement provides that Plaintiff would be compensated with 1.2 million shares of WEED stock, to be issued in two installments. (DSOF ¶ 6; Doc. 76-1 at 2, 9.) WEED issued the first installment of 500, 000 shares to Plaintiff. (DSOF ¶ 6; Doc. 81-4 at 8.) Per the Consulting Agreement, the second installment of 700, 000 shares would “become, due and payable . .. within 30 days on April 1st. 2015 . . . .” (Doc. 76-1 at 9.)

         On April 1, 2015, Plaintiff exchanged emails with Glenn Martin, who signed the Consulting Agreement on behalf of WEED. (Doc. 57-2 at 74-77.) In the first email, Plaintiff sets forth a proposed “50/50 joint venture” and concludes: “I'm happy to work with you, but not for you.” (Id. at 77.) The response email from Glenn Martin states, among other things:

So far now we will go our separate ways in business. We will always stay friends I PRAY !! You said we were even with the 500k shares and thats good. If I had to put out another 700k for only getting 1/2 of $27, 500 would of been upsetting.

(Id. at 74.) WEED never issued Plaintiff the second installment of 700, 000 shares. (See DSOF ¶ 8.)

         Plaintiff brings two claims for breach of contract based on WEED's refusal to issue the remaining 700, 000 shares. WEED denies these claims, contending that the Consulting Agreement was terminated before the shares became payable. WEED brings a counterclaim for breach of contract, asserting that Plaintiff breached by never performing any consulting services. Plaintiff denies this claim, arguing that the evidence shows both that he performed and that WEED is the breaching party.

         B. The Consulting Agreement

         The Consulting Agreement is governed by Arizona law. (Doc. 76-1 at 6.) Under Arizona law, contracts are interpreted so as to “ascertain and enforce the parties' intent.” ELM Ret. Ctr., LP v. Callaway, 246 P.3d 938, 941 (Ariz. App. 2010). To determine what the parties intended, the Court must “first consider the plain meaning of the words in the context of the contract as a whole.” Grosvenor Holdings, L.C. v. Figueroa, 218 P.3d 1045, 1050 (Ariz. App. 2009). If the contract is unambiguous, “its interpretation is a question of law for the court.” Callaway, 246 P.3d at 942.

         The Compensation Provision provides in relevant part:

The balance of 700, 000 (seven hundred thousand) shares due on contract shall become, due and payable as described above, within 30 days on April 1st. 2015 and shall be issued within 30 days of its due date.

(Doc. 76-1 at 9.) The parties agree on the meaning of this provision: On April 1, 2015, the 700, 000 shares would become due to Plaintiff as compensation, and WEED would be required to issue the shares to Plaintiff no later than May 1, 2015 (thirty days after ...