Doral Money, Inc. v. HNC Props., LLC

• Decision Date: 09 July 2014
• Docket Number: 3:14-CV-00545-BR
• Court: U.S. District Court — District of Oregon
• Parties: DORAL MONEY, INC., d/b/a DORAL HEALTHCARE FINANCE, a Delaware corporation, Plaintiff, v. HNC PROPERTIES, LLC, a Minnesota limited liability company, Defendant.

DORAL MONEY, INC., d/b/a DORAL HEALTHCARE FINANCE, a Delaware corporation, Plaintiff, v. HNC PROPERTIES, LLC, a Minnesota limited liability company, Defendant.

3:14-CV-00545-BR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

Dated: July 9, 2014

OPINION AND ORDER

ANNA M. HELTON

DAVID ARDEN ANDERSON

Schwabe Williamson & Wyatt, PC

Attorneys for Plaintiff

LESLIE S. JOHNSON

CHRISTOPHER H. KENT

Kent & Johnson, LLP

TREVOR R. WALSTEN

DANIELLE K. NELLIS

Walsten & Te Slaa, P.A.

Attorneys for Defendant

BROWN, Judge.

This matter comes before the Court on Plaintiff's Motion (#15) to Dismiss Counterclaims and Plaintiff's Request (#21) for Judicial Notice. For the reasons that follow, the Court GRANTS Plaintiff's Motion to Dismiss Counterclaims and DENIES Plaintiff's Request for Judicial Notice.

BACKGROUND

The following facts are taken from Plaintiff's Complaint and Defendant's Answer:

On April 30, 2012, Plaintiff Doral Money, Inc., entered into a Loan and Security Agreement with Crystal Care Home Health Services, Inc.; Crystal Care PCA, Inc.; and Premier Healthcare Services, Inc. (referred to collectively as Borrowers).¹ Under the Loan and Security Agreement Plaintiff provided Borrowers with"certain credit facilities . . . in the amount of $2,500,000." Compl. at ¶ 1; Answer at ¶ 59. Pursuant to the Loan Plaintiff agreed to extend to Borrowers a revolving line of credit up to 2,500,000

provided, among other things, [that] Borrower[s were] in compliance with the terms of the Loan Agreement, including . . . maintaining a specified net worth as calculated in accordance with the Loan Agreement (the "Net Worth Covenant"), and maintaining [their] "borrowing base," as calculated in accordance with the Loan Agreement (the "Borrowing Base"), such that the aggregate outstanding principal balance under the Loan agreement [sic] would not exceed the Borrowing Base.

Answer at ¶ 59.

Also on April 30, 2012, Plaintiff, Defendant, and Borrowers executed a Landlord Subordination Agreement in which Defendant agreed, among other things, that if Borrowers defaulted on the Loan Agreement, Defendant would "(a) subordinate [Defendant's] right to payments from Borrower[s] to [Plaintiff's] right to payments under the Loan Agreement; (b) hold in trust all payments received from Borrower[s]; and (3) [ sic] promptly pay to [Plaintiff] any payments received from Borrower[s]." Compl. at ¶ 6.

"During the term of the Loan agreement" Plaintiff hired Breslin, Young and Slaughter, LLC (BY&S) to perform

certain auditing and accounting services, including, but not limited to, asset based examination and accounting functions, auditing Borrower[s'] financial reports and statements,auditing Borrower[s'] assets, accounts receivable and equipment, advising Borrower[s] concerning financial, management and accounting issues to assist [Plaintiff] in making evaluations and decisions regarding the Loan Agreement, and providing other related services (collectively the "Debt/Equity Evaluation").

Answer at ¶ 61.

On May 2, 2013, Defendant entered into a Promissory Note (Loan 4A) with Borrowers to lend them the funds "necessary to cure monetary defaults in the Loan Agreement." Answer at ¶ 63. Defendant alleges in its Answer that it entered into the Promissory Note "in reliance on" the Debt/Equity Evaluation conducted by BY&S.

According to Plaintiff, Borrowers have been in breach of the Loan Agreement since August 2013 "for a multitude of reasons, including . . . failure to pay [Plaintiff] amounts owed when due." Compl. at ¶ 8. Plaintiff alleges Borrowers have made rent payments to Defendant "since August 2013." In its Answer, however, Defendant denies Borrowers made any rent payments to Defendant after February 2014.

On September 11, 2013, Defendant made a loan (Loan 5) to Borrowers in the amount of $30,000 "in reliance on [the] Debt/Equity Evaluation" to provide Borrowers with the funds "necessary to file for reorganization under the United States Bankruptcy Code." Answer at ¶ 64.

According to Defendant, Borrowers at some point allowedPlaintiff to liquidate some of Borrowers' assets, including accounts receivable, "to maximize the return to [Plaintiff] on the assets that supported the Loan Agreement." Answer at ¶ 81. "In the process of liquidating the purported accounts receivable, Plaintiff realized that the accounts receivable values had been over inflated." Answer at ¶ 82.

"In August or September 2013" Plaintiff advised Defendant that Borrowers' accounts receivable "had been materially overstated for more than one year in the Borrowing Base certificates and financial statements." Answer at ¶ 83.

On January 28, 2014, Plaintiff sent a letter to Defendant in which Plaintiff demanded under the terms of the Subordination Agreement that Defendant "forward to [Plaintiff] . . . amounts received from [Borrowers] for rent payments since August 2013 [as well as] . . . any rent payments received from [Borrowers] in the future until [Plaintiff] notifies [Defendant] that [Borrowers'] obligations to [Plaintiff] have been paid in full." Compl., Ex. 2 at 2.

Defendant did not send Plaintiff the rent payments from Borrowers as Plaintiff demanded.

On March 3, 2014, Plaintiff filed a complaint in Multnomah County Circuit Court alleging claims against Defendant for breach of contract, breach of the covenant of good faith and fair dealing, and specific performance. Defendant removed the matterto this Court on April 2, 2014, on the basis of diversity jurisdiction.

On April 9, 2014, Defendant filed an Answer, Affirmative Defenses, and Counterclaims in which Defendant asserted 23 Affirmative Defenses and four Counterclaims against Plaintiff for breach of duty of care, negligent misrepresentation, fraudulent misrepresentation, and promissory estoppel.

On May 2, 2014, Plaintiff filed a Motion to Dismiss Counterclaims.

On June 5, 2014, Plaintiff filed a Request for Judicial Notice.

The Court took Plaintiff's Motion and Request under advisement on June 5, 2014.

PLAINTIFF'S MOTION (#15) TO DISMISS COUNTERCLAIMS

Plaintiff moves to dismiss Defendant's Counterclaims on the grounds that (1) there is not any special relationship between Plaintiff and Defendant, (2) Defendant failed to plead the right to rely, and (3) promissory estoppel is an affirmative defense rather than a counterclaim.²

I. Standards

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." [Bell Atlantic v. Twombly, 550 U.S. 554,] 570, 127 S. Ct. 1955. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556. . . . The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. 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. at 557, 127 S. Ct. 1955 (brackets omitted).

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). See also Bell Atlantic, 550 U.S. at 555-56. The court must accept as true the allegations in the complaint and construe them in favor of the plaintiff. Din v. Kerry, 718 F.3d 856, 859 (9^th Cir. 2013).

The pleading standard under Federal Rule of Civil Procedure 8 "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). See also Fed. R. Civ. P. 8(a)(2). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (citing Twombly, 550 U.S. at 555). A complaint also does not suffice if it tenders "naked assertion[s]" devoid of "further factual enhancement." Id. at 557.

"In ruling on a 12(b)(6) motion, a court may generallyconsider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Akhtar v. Mesa, 698 F.3d 1202, 1212 (9^th Cir. 2012)(citation omitted). A court, however, "may consider a writing referenced in a complaint but not explicitly incorporated therein if the complaint relies on the document and its authenticity is unquestioned." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9^th Cir. 2007)(citation omitted).

II. Oregon Law Applies

Defendant states in its Response that Plaintiff has not made a "showing that Oregon law applies to the tort claims." Resp. at 13. Defendant asserts Plaintiff "also has failed to demonstrate there is no conflict among Minnesota and Oregon law" and "Minnesota precedent does not rely on, and may be distinct from, Oregon law." Resp. at 14 (emphasis added).

"When a federal court sits in diversity to hear state law claims, the conflicts laws of the forum state - here [Oregon] — are used to determine which state's substantive law applies." CRS Recovery, Inc. v. Laxton, 600 F.3d 1138, 1141 (9^th Cir. 2010) (citing 389 Orange St. Partners v. Arnold, 179 F.3d 656, 661 (9^th Cir. 1999)). Under Oregon conflict-of-law rules, the Court must determine as a threshold issue whether there is a material difference between Oregon substantive law and the law of the other forum. CACV of Colorado, LLC v. Stevens, 248 Or. App. 624,641 (2012)(citation omitted). "If there is a material difference, the Court must determine whether both states have substantial interests in having their laws applied." United States ex rel. TBH & Assoc., LLC v. Wilson Const. Co., 965 F. Supp. 2d 1215, 1219 (D. Or. 2013)(citing Pulido v. United States Parcel Serv. Gen. Servs. Co., 31 F. Supp. 2d 809, 813 (D. Or. 1998)). Finally, if "both states have substantial interests, the Oregon Supreme Court has adopted the 'most significant relationship' approach of the Restatement (Second) Conflict of Laws." Id. (...