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Gillard v. FEC Logging USA LLC

United States District Court, D. Arizona

June 26, 2018

Martin Gillard, et al., Plaintiffs,
FEC Logging USA LLC, Defendant.



         Before the Court is a motion to dismiss filed on behalf of Defendant FEC Logging USA Holdings, LLC (“FEC Logging”).[1] (Doc. 39.) The motion is fully briefed and neither party requested oral argument. (Docs. 46, 49.) For the following reasons, FEC Logging's motion is granted in part.

         I. Background

         On May 4, 2017, Plaintiffs filed a complaint in this action, raising Fair Labor Standards Act (FLSA), Arizona Wage Act (AWA), and common law breach of contract claims. (Doc. 1) On July 20, 2017, Plaintiffs filed their First Amended Complaint (“FAC”), which made the same allegations, but modified the named defendants. Notably, the FAC added FEC Logging as a defendant. (Doc. 20 ¶ 13.)

         As a general matter, the allegations in the FAC arise out of an employment dispute. In February 2013, Plaintiff Martin Gillard entered into an agreement to serve as Chief Technology Officer for Good Earth Power International Limited (“GEP Int'l”). (Doc. 20 ¶ 16.) At some point thereafter, Gillard's contract with GEP Int'l was assumed by GEPAZ. (¶ 19.) In November 2013, Plaintiff Darren Gurner was retained to serve as Managing Director of GEPAZ. (¶ 22.) Gillard and Gurner (“Plaintiffs”) both worked for GEPAZ until they were terminated in December 2016. (¶¶ 21, 27.) During their period of employment, Plaintiffs neither received the full value of their respective salaries nor compensation for their equity stake in GEPAZ. (¶¶ 30, 38, 40.)

         As a result, Plaintiffs brought suit against GEPAZ. Plaintiffs sought to extend GEPAZ's liability to FEC Logging under the theory of successor liability. Under Plaintiff's theory, because FEC Logging replaced ZR FEC as the lone Member of GEPAZ in March 2017, it thereby assumed any liabilities of its predecessor in interest.[2](Doc. 20 ¶ 13.)

         FEC Logging has moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the amended complaint for failure to state a claim upon which relief may be granted.

         II. Legal Standard

         When analyzing a complaint for failure to state a claim to relief under Rule 12(b)(6), the well-pled factual allegations are taken as true and construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). Legal conclusions couched as factual allegations are not entitled to the assumption of truth, Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009), and therefore are insufficient to defeat a motion to dismiss for failure to state a claim, In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). Nor is the court required to accept as true “allegations that contradict matters properly subject to judicial notice, ” or that merely are “unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

         To avoid dismissal, the complaint must plead sufficient facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This plausibility standard “is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557.)

         III. Discussion

         FEC Logging's argument as to why Plaintiff's FLSA claim fails is twofold. First, it contends that the FAC alleges no factual or statutory basis for concluding that FEC Logging is a successor in interest of any of GEPAZ's prior members. Second, even if successor liability could be inferred, the FAC also fails to allege a basis for holding the predecessor members of GEPAZ liable. Similarly, FEC Logging contends that the AWA and common law claims fail because there are insufficient allegations to find FEC Logging is a successor in interest.

         A. FLSA Claim

         i. Successor Liability

         Under the general successor liability rule, “when a corporation sells or transfers its principal assets to a successor corporation, the latter will not be liable for the debts and liabilities of the former.” Winsor v. Glasswerks PHX, LLC, 63 P.3d 1040, 1045 (Ariz.Ct.App. 2003) (citing A.R. Teeters & Assocs., Inc. v. Eastman Kodak Co., 836 P.2d 1034, 1039 (Ariz.Ct.App. 1992)). There are, however, four exceptions to this rule: (1) the successor expressly or impliedly agrees to assume liabilities; (2) the transaction is a de facto consolidation or merger; (3) the successor is a mere continuation of the seller; or (4) the transfer of assets was entered for the purpose of fraudulently escaping liability. Id.

         Notably, courts apply different rules for determining successor liability when a ...

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