956 F.2d 1168 (9th Cir. 1992), 89-56218, Shuler v. Walter E. Heller Western Inc.

Docket Nº:89-56218, 89-56272.
Citation:956 F.2d 1168
Party Name:Harry SHULER, Suzanne Shuler, New H.S. Industries, Inc., a California corporation, and California Design Group, Inc., a California corporation dba Paragon West Knitting Mills, Inc., Plaintiffs/Appellants, v. WALTER E. HELLER WESTERN INC., a California corporation, and Does 1-10, Inclusive, Defendants/Appellees.
Case Date:March 03, 1992
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1168

956 F.2d 1168 (9th Cir. 1992)

Harry SHULER, Suzanne Shuler, New H.S. Industries, Inc., a California corporation, and California Design Group, Inc., a California corporation dba Paragon West Knitting Mills, Inc., Plaintiffs/Appellants,

v.

WALTER E. HELLER WESTERN INC., a California corporation, and Does 1-10, Inclusive, Defendants/Appellees.

Nos. 89-56218, 89-56272.

United States Court of Appeals, Ninth Circuit

March 3, 1992

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA9 Rule 36-3 regarding use of unpublished opinions)

Argued and Submitted Oct. 9, 1991.

Appeal from the United States District Court For the Central District of California, CV-88-7169 TJH (Kx); Terry J. Hatter, District Judge, Presiding.

C.D.Cal.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Before FLETCHER, D.W. NELSON and BRUNETTI, Circuit Judges.

MEMORANDUM [*]

OVERVIEW

Appellant California Design Group, Inc. ("Cal Design") and its sole shareholders Harry and Suzanne Shuler and New H.S. Industries, Inc. ("the Shulers" and "New H.S.") entered into what is known as a "factoring agreement" with appellee Heller Western, Inc. ("Heller"). Under this agreement, Cal Design sold its rights to receive future payments from its customers ("accounts receivable") to Heller, who agreed to collect those payments and assume the credit risk of accounts it had pre-approved ("approved accounts"). For assuming this risk, Heller took a percentage of the total receivables. After Heller refused to pay on a $1.3 million account it had approved, the Shulers (and later Cal Design) brought this action for breach of contract, breach of third-party beneficiary contract, fraud, tortious breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and intentional infliction of emotional distress. The district court granted Heller's motion to dismiss in its entirety, and this appeal followed.

For the reasons that follow, we reverse the dismissal of Cal Design's breach of contract and fraud claims, and the Shulers' fraud claim. We affirm the dismissal of the remaining claims.

STANDARD OF REVIEW

The validity of a dismissal of a complaint pursuant to Fed.R.Civ.P. 12(b)(6) is a question of law and is reviewed de novo. Kruso v. Int'l Tel. & Tel., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 110 S.Ct. 3217 (1990). In reviewing a dismissal, the factual allegations of the plaintiff's complaint are taken as true and construed in the light most favorable to the nonmoving party. Baker v. McNeil Island, 859 F.2d 124, 127 (9th Cir.1988). 1

If an allegation is really a legal conclusion, and is merely cast as a factual allegation, however, it will not be presumed true. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.), cert. denied, 454 U.S. 1031 (1981). Under California law the interpretation of a contract is a question of law. Parsons v. Bristol Development, 402 P.2d 839, 842 (Cal.1965).

Finally, the district court's decision may be affirmed on any grounds, whether or not the district court relied on those grounds. Kruso, 872 F.2d at 1421.

DISCUSSION

A. Jurisdiction

Jurisdiction is predicated on diversity of citizenship. 28 U.S.C. § 1332. While both Cal Design and Heller were California corporations when the contract was signed, Heller was merged into another firm in 1985. Thereafter, and when the complaint was filed, it was a Delaware corporation with its principal place of business in Illinois.

B. Timely Filing

Heller contends that the motion for reconsideration (which tolls the time for filing a notice of appeal) was untimely because it was not filed until 11 days after entry of judgment, on August 15. The motion was served on Heller on August 14, ten days after the judgment was entered (August 4). Fed.R.Civ.P. 59(b) requires only that such a motion be served within 10 days of the entry of judgment. Thus, the motion was timely.

C. Standing

Heller challenges the standing of New H.S. and the Shulers to bring their claims for fraud, tortious breach of contract, breach of the implied covenant, and breach of fiduciary duty. The general rule in both California and federal court is that a shareholder cannot bring a suit alleging personal injury resulting from a wrong to the corporation. Shell Petroleum N.V. v. Graves, 709 F.2d 593, 595 (9th Cir.), cert. denied, 464 U.S. 1012 (1983); Sutter v. General Petroleum Corp., 170 P.2d 898, 901 (Cal.1946). Any suit by a shareholder must allege direct and individual injury to the plaintiff, and not merely to the corporation. Id.

The Complaint nowhere asserts any direct, personal injury to New H.S. New H.S. has been injured only because it "lost its investment in Cal Design." E.R. 9, at ¶ 21. Appellants do not allege that Heller was in a special relationship with New H.S., or that Heller ever made misrepresentations directly to New H.S. As a result, under the rules noted above, New H.S. lacks standing to bring any of the claims asserted here. The district court was therefore correct in dismissing its claims.

The Shulers also lack standing to bring their claims for tortious breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty. Each of these claims requires a "special relationship" between the Shulers and Heller. Even if that relationship exists between Cal Design and Heller, it does not exist with the Shulers. The Shulers' only direct connection with Heller is that they agreed personally to guarantee Cal Design's obligations to Heller. It is well-established that "any harm to [plaintiffs] due to their status as guarantors of the bonds given by the corporation is also derivative of the harm to the corporation. Thus, this status does not give [plaintiffs] standing." Sparling v. Hoffman Constr. Co., 864 F.2d 635, 640-41 (9th Cir.1988); accord Sherman v. British Leyland Motors, 601 F.2d 429, 439 (9th Cir.1979) (plaintiff's status as guarantor did not confer standing; applying California law).

By contrast, the Shulers do allege in the Complaint that Heller made fraudulent representations to them directly, thus causing them personally to guarantee Cal Design's obligations to Heller. The Shulers have standing to sue for fraudulent representations made directly to them by Heller, and which...

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