Coto Settlement v. Eisenberg

• Decision Date: 29 January 2010
• Docket Number: No. 08-35966.,08-35966.
• Parties: COTO SETTLEMENT, Plaintiff-Appellant, v. Ian EISENBERG and Olympic Telecommunications, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

593 F.3d 1031

COTO SETTLEMENT, Plaintiff-Appellant, v. Ian EISENBERG and Olympic Telecommunications, Inc., Defendants-Appellees.

No. 08-35966.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 14, 2009.

Filed January 29, 2010.

Ernst Leonard, Friedman & Feiger, L.L.P., Dallas, TX, and Jeremy Robert Larson, Foster Pepper & Shefelman, Seattle, WA, for the appellant.

Derek A. Newman and Derek Linke, Newman & Newman, Attorneys at Law, Seattle, WA, for the appellees.

Appeal from the United States District Court for the Western District of Washington, Ricardo S. Martinez, District Judge, Presiding. D.C. No. 08-cv-00125-RSM.

Before: RICHARD D. CUDAHY,^* Senior Circuit Judge, JOHNNIE B. RAWLINSON and CONSUELO M. CALLAHAN, Circuit Judges.

CUDAHY, Circuit Judge:

The question presented here is whether the district court erred in dismissing the claims of Coto Settlement (Coto) as barred by the statute of limitations. Coto claims that it is entitled to part of $1.4 million refunded by the Federal Trade Commission (FTC) following a judgment against Coto, Ian Eisenberg and other entities. Eisenberg and Olympic Telecommunications, Inc. (Olympic), owned by Eisenberg, contend that, if Coto had a claim for conversion of those funds, it accrued in 2000, and is therefore time-barred. Coto maintains instead that its claims did not accrue until 2007, when the FTC announced that it would refund the sum to Eisenberg and Olympic. Coto characterizes the dispute in 2000 as one regarding the proper management of the funds rather than their ownership but, for the following reasons, we disagree. We note at the outset that the basis for this conclusion requires reliance on documents and arguments not adequately discussed by the parties in briefing or at oral argument. In the interests of justice, however, we will raise and discuss these arguments on our own. However, it is not the task of courts to make cases for the parties, and we find the presentation of this case unsatisfactory in the extreme.

I

A

Our appellate jurisdiction rests on 28 U.S.C. § 1291 and the action below arose in diversity, 28 U.S.C. § 1332. The case was filed in King County Superior Court, where the court granted a temporary restraining order in favor of Coto, requiring the defendants to deposit certain contested funds into the registry of the Superior Court. Before the hearing on a preliminary injunction, the matter was removed, improperly under the forum defendant rule. Coto, however, failed to timely object to removal, and we retain jurisdiction. See Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 942 (9th Cir.2006) (holding that improper removal is a waivable defect). Later, upon motion, the district court dismissed Coto's claims.

B

We review de novo a district court's disposition of a motion to dismiss pursuant to Rule 12(b)(6). A complaint may survive a motion to dismiss if, taking all well-pleaded factual allegations as true, it contains "enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "[W]e do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Paulsen v. CNF, Inc., 559 F.3d 1061, 1071 (9th Cir.2009) (citing Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of the U.S., 497 F.3d 972, 975 (9th Cir.2007)).

C

Christopher L. Hebard, Coto's beneficiary, and Eisenberg, who has some interest in French Dreams Investments, N.V (French Dreams), created Electronic Publishing Ventures, LLC (EPV) in 1998. EPV, a Delaware holding company, owned several entities that offered internet services, and Hebard and Eisenberg shared general supervisory and over-sight responsibilities for the EPV entities. The EPV entities charged their clients through telephone billings and used Olympic to process the billing data and to collect payments from the telephone companies. In the summer of 2000, Hebard and Eisenberg shut down the programs because of a dispute. Also that summer, Eisenberg announced that Olympic, which is owned or controlled by him, would increase its reserve level to 100% of the funds billed by the EPV entities. As of December 2000, according to allegations in the Complaint, Olympic held approximately $5 million in reserves, purportedly for the EPV entities. In contrast, however, a Billing Services Agreement between Olympic and the EPV entities specifies that, before Olympic remits funds received from the EPV entities' customers to the EPV entities, Olympic subtracts funds for a "bad debt reserve" and for "chargeback reserves", used to cover certain charges for customers who do not pay their bills and for customers whose charges Olympic has chosen to forgive. Olympic remits the "net funds," or the payments received from the telephone companies less these reserves and other fees and taxes. The Billing Agreement clarifies that, for the bad debt reserves, if the telephone company discovers that it has any overage allocated to the bad debt reserves, Olympic will remit that amount to the customer. Olympic, however, is responsible for the chargeback reserves and may adjust them in its sole discretion. The Billing Agreement notes that the chargeback reserves are merely an estimate that does not "in any way limit Olympic's rights to recourse, reimbursement and set-off against [the EPV entities] ... for all sums due by [the EPV entities] to Olympic under this Agreement, including without limitation the actual chargeback, unbillable and returns activity for [the EPV entities] aggregate call records." In 2000, Hebard strongly objected to Olympic's decision to increase the reserves to 100%, but Olympic declined to refund any of this amount.

In October 2000, the FTC filed an action against the EPV entities, Eisenberg, French Dreams, Hebard and Coto (the FTC defendants), who were found to have mailed deceptive offers to provide internet services.¹ During the FTC action, the EPV entities were all dissolved and their charters revoked by November 2005.² In March 2004, the FTC found the defendants liable in the amount of $17 million subject to a refund of any money not needed for consumer redress. Hebard tendered $80,000, Olympic $2,152,694, and Eisenberg, $629,513.85, all deposited into the registry of the court in the FTC action in June 2006. The FTC determined that the actual liability was less than the sums tendered by the parties. In 2007, therefore, responding to a motion by Eisenberg and Olympic, the FTC announced that it would refund $1.4 million to them. Coto sent a demand letter in October 2007 to Eisenberg and Olympic asking whether any of the funds tendered by Olympic were property of the former EPV entities and requesting an accounting of the use and disposition of all reserve funds. Eisenberg and Olympic did not respond. The judge in the FTC action held that determining the ownership of the refunded amounts was outside the scope of his jurisdiction and, therefore, as far as the FTC court was concerned, the funds belonged to Eisenberg and Olympic, and, in any event, the funds were no longer within that court's possession or control.

Coto responded by filing this action. It asserted three claims for relief: breach of fiduciary duty, money had and received (an action incidental to unjust enrichment, Davenport v. Washington Educ. Ass'n, 147 Wash.App. 704, 197 P.3d 686, 698-99 (2008)) and conversion. In addition, Coto sought the imposition of a constructive trust (a form of equitable relief, Venwest Yachts, Inc. v. Schweickert, 142 Wash.App. 886, 176 P.3d 577, 582 n. 5 (2008)), an accounting (another equitable remedy, Saletic v. Stamnes, 51 Wash.2d 696, 698, 321 P.2d 547 (Wash.1958)), as well as declaratory and injunctive relief.

The district court dismissed Coto's Amended Complaint and denied its motion for a preliminary injunction on the pleadings as time-barred because the court held that Coto's claims for relief arose in the summer of 2000 when Hebard objected to Eisenberg and Olympic's decision to raise the reserve requirement to 100%. The district court rejected Coto's efforts to cast Olympic's decision to require reserves of 100% as a well-intentioned management decision to accumulate reserves to pay an eventual FTC judgment that would be released back to the EPV entities if the reserve level was set too high. The district court noted that the FTC did not file its suit until the fall of 2000, months after the reserve requirement was increased. Because we find that Olympic's actions in raising the reserve requirement gave rise to Coto's claims in 2000, and therefore that the statute of limitations began to run at that time, we affirm.

II

Coto argues that it has standing to assert its claims against Appellees because it is a shareholder asserting the claims of the now-dissolved EPV entities. Coto contends that it is a basic tenet of corporate jurisprudence that the property rights of a corporation pass to the shareholders after dissolution. Although Appellees do not reject this standing argument and the district court did not address it in its order, it is jurisdictional, Coto raised it in its opening brief and we consider it here. See, e.g., Jacobs v. Clark County Sch. Dist., 526 F.3d 419, 437-38 (9th Cir. 2008). The test for standing appears in the familiar language of Lujan v. Defenders of Wildlife, requiring a party to show three things:

First, [it] must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of.... Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

504 U.S. 555, 560-61, ...