864 F.2d 635 (9th Cir. 1988), 87-3931, Sparling v. Hoffman Const. Co., Inc.

Docket Nº:87-3931, 87-4436.
Citation:864 F.2d 635
Party Name:RICO Bus.Disp.Guide 7095 Michael J. SPARLING; Jean Sparling; Active Erectors & Installers, Inc., Plaintiffs-Appellants, v. HOFFMAN CONSTRUCTION COMPANY, INC.; Industrial Indemnity Company of the Northwest, Defendants-Appellees.
Case Date:December 21, 1988
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 635

864 F.2d 635 (9th Cir. 1988)

RICO Bus.Disp.Guide 7095

Michael J. SPARLING; Jean Sparling; Active Erectors &

Installers, Inc., Plaintiffs-Appellants,

v.

HOFFMAN CONSTRUCTION COMPANY, INC.; Industrial Indemnity

Company of the Northwest, Defendants-Appellees.

Nos. 87-3931, 87-4436.

United States Court of Appeals, Ninth Circuit

December 21, 1988

Argued and Submitted Nov. 3, 1988.

Page 636

Edward D. Campbell, Seattle, Wash., for plaintiffs-appellants.

Richard S. Twiss, Joseph E. Bringman, Seattle, Wash., for defendants-appellees.

Appeal from the United States District Court for the District of Alaska.

Before NELSON, BOOCHEVER and BRUNETTI, Circuit Judges.

BOOCHEVER, Circuit Judge:

Michael and Jean Sparling are the sole shareholders of Active Erectors & Installers, Inc. (Active). The Sparlings and Active appeal from the dismissal of their complaint. They contend that for various reasons Active's claims should not have been dismissed; that the change of venue from Washington to Alaska was improper; that the complaint adequately alleged a claim for fraud; that the Sparlings' claims were not derivative of Active's; and that the award of attorney's fees under Alaska law was improper. We affirm.

PROCEDURAL BACKGROUND

On December 6, 1984 the Sparlings and Active filed suit in U.S. District Court in Washington against Hoffman Construction Co. and Industrial Indemnity Co. of the Northwest. The controversy arose out of a construction contract between Active, a subcontractor, and Hoffman, the general contractor, for the construction of a high school in Homer, Alaska. Active provided payment and performance bonds to Hoffman on which Industrial was the surety. Federal jurisdiction was based on diversity of citizenship.

This complaint was captioned "Complaint to Cancel Bond and for Damages." The appellants later claimed that the gist of the four causes of action in this complaint was that Hoffman fraudulently induced Active to enter this contract and give the bonds, and tortiously interfered with known business relations of the Sparlings. This is not apparent from the complaint.

Hoffman moved for a more definite statement, to stay proceedings until the matter was arbitrated, and to transfer the action to Alaska. The plaintiffs filed a motion to amend the complaint (even though they could have amended their complaint without leave of the court) and lodged their proposed amended complaint. This complaint would have added RICO claims by Active and the Sparlings.

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Without having ruled on the motion to amend, the district judge in Washington dismissed all of Active's claims because the contract between Active and Hoffman required such claims to be submitted to arbitration.

The judge also granted Hoffman's motion to transfer the case to Alaska pursuant to 28 U.S.C. section 1404(a). The plaintiffs' subsequent motion for reconsideration was denied.

Hoffman moved the district court in Alaska for a 12(b)(6) dismissal or for summary judgment on the Sparlings' claims. At the hearing on this motion on June 2, 1986, Judge Fitzgerald informed the Sparlings' counsel that the complaint was being dismissed for failure to plead fraud with particularity. The judge informed the Sparlings' counsel of an additional defect in the complaint. He granted the Sparlings twenty days to amend the complaint. He warned that the Sparlings were "going to run out of opportunities to replead this." Referring to the proposed amended complaint, the judge said "I have looked at the amended complaint, and this is going to be the last time out." The next day the order was filed requiring the Sparlings to serve and file an amended complaint within twenty days.

Instead of complying with this order, twenty-seven days later the Sparlings filed a notice of appeal to the Ninth Circuit. This appeal was voluntarily dismissed on September 22, 1986.

On July 15, 1986, Hoffman moved to dismiss with prejudice all claims because of the Sparlings' failure to comply with the order to amend the complaint. In response the Sparlings argued that the district judge's ruling at the June second hearing was unclear, and that they did not know whether the court was granting them leave to amend and whether the court found the proposed amended complaint defective. By an order filed December 19, 1986, the judge denied Hoffman's motion to dismiss and granted the Sparlings twenty days to amend their complaint.

On January 7, 1987 the Sparlings filed an amended complaint identical to the proposed amended complaint which the judge found defective in June, 1986. This complaint contained allegations on the first four causes of action nearly identical to the original complaint which was dismissed, and not in any respect revised to correct the deficiencies mentioned by the judge.

On January 30, 1987 Hoffman again moved to dismiss the complaint because the Sparlings had failed to comply with the order that they amend their complaint to plead fraud with particularity, and because the Sparlings had no standing to assert the corporation's RICO claim. After a hearing, Judge Kleinfeld dismissed the first four claims with prejudice because the Sparlings had not corrected the deficiencies despite "plenty of opportunity for discovery...

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