Fresno Rock Taco, LLC v. Nat'l Sur. Corp.
| Decision Date | 24 May 2012 |
| Docket Number | CASE NO. CV F 11-0845 LJO BAM |
| Court | U.S. District Court — Eastern District of California |
| Parties | FRESNO ROCK TACO, LLC, et al., Plaintiffs, v. NATIONAL SURETY CORPORATION, Defendant. |
ORDER ON DEFENDANT'S MOTION FOR
JUDGMENT ON PLEADINGS
(Doc. 34.)
Defendant National Surety Corporation ("NSC") seeks dismissal under F.R.Civ.P. 12(c) of plaintiffs Fresno Rock Taco, LLC ("Fresno Rock") and Zone Sports Center, LLC's ("Zone Sports'") insurance and bad faith claims in that Zone Sports lacks capacity to sue as a suspended corporation and representations in a bankruptcy proceeding judicially estop Fresno Rock and Zones Sports' (collectively "plaintiffs'") claims. Plaintiffs respond that Zone Sports' good corporate standing has been restored and that they filed no bankruptcy to invoke judicial estoppel. Pursuant to Local Rule 230(g), this Court VACATES the May 30, 2012 hearing in that it has considered on the record NSC's F.R.Civ.P. 12(c) motion for judgment on the pleadings. For the reasons discussed below, this Court DENIES NSC's F.R.Civ.P. 12(c) motion for judgment on the pleadings.
Plaintiffs are each California limited liability companies. Zone Sports is a real estate developer and owns a Fresno commercial real estate project ("property"). Fresno Rock operated a restaurant/night club as a property lessee. NSC issued an unspecified insurance policy to plaintiffs. NSC argues that plaintiffs' insurance claim under the policy for theft and lost business income attempts to defraud bankruptcy creditors to invoke judicial estoppel to bar the FAC's claims for breach of insurance contract and bad faith. NSC took the position that as a suspended corporation, Zone Sports lacks capacity to sue and that plaintiffs' counsel is subject to criminal penalty for purporting to exercise Zone Sports' power to sue. Plaintiffs respond that restoration of Zone Sports' good standing permits it to proceed with this action and that plaintiffs are not subject to judicial estoppel as non-parties to the bankruptcy at issue.
Plaintiffs claim that on an unspecified date in early 2009, audio/visual equipment was stolen from Fresno Rock's restaurant/night club. On February 15, 2009, plaintiffs submitted a $139,172.28 claim to NSC. On March 30, 2009, for lost business income, Fresno Rock submitted a $2,578,000 policy limits claim, and Zone Sports submitted a $6.1 million policy-limits claim. On February 4, 2010, NSC denied plaintiffs' claims based on what it characterizes as "material misrepresentations" as to alleged theft of the audio/visual equipment. The denials give rise to the FAC's breach of insurance contract and bad faith claims against NSC to the effect that NSC wrongly denied the claims and failed to investigate them.
NSC claims that plaintiffs are wholly owned by Milton Barbis ("Mr. Barbis"). Plaintiffs deny such claim. Zone Sports' articles of organization filed with the California Secretary of State on February 21, 2001 indicate that Zone Sports is managed by one manager, an executive who operates it. Plaintiffs note that Mr. Barbis is not a Zone Sports member, that is, an owner. Plaintiffs explain that Zone Sports "has one manager but it is not a single member limited liability company which means [Zone Sports]cannot be wholly owned by Barbis."
Plaintiffs note that Fresno Rock has one member, Mr. Barbis, but has six investors.
On October 30, 2009, Mr. Barbis filed a chapter 7 bankruptcy. NSC notes that the Mr. Barbis' bankruptcy petition values plaintiffs at $0.00 and fails to disclose plaintiffs' contingent claims against NSC. NSC further notes that Mr. Barbis failed to amend his bankruptcy petition to disclose his claims against NSC.
As discussed below, NSC contends that plaintiffs' FAC claims are legally barred to warrant judgment on the pleadings in NSC's favor.
F.R.Civ.P. 12(c) permits a party to seek judgment on the pleadings "[a]fter the pleadings are closed - but early enough not to delay trial." "A motion for judgment on the pleadings should be granted where it appears the moving party is entitled to judgment as a matter of law." Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003). A "judgment on the pleadings is appropriate when, even if all allegations in the complaint are true, the moving party is entitled to judgment as a matter of law." Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993).
"A judgment on the pleadings is a decision on the merits." 3550 Stevens Creek Associates v. Barclays Bank of California, 915 F.2d 1355, 1356 (9th Cir. 1990), cert. denied, 500 U.S. 917, 111 S.Ct. 2014 (1991). A F.R.Civ.P. 12(c) motion "is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts." Herbert Abstract Co. v. Touchstone Props., Ltd., 914 F.2d 74, 76 (5th Cir. 1990) (per curiam). "[T]he central issue is whether, in light most favorable to the plaintiff, the complaint states a valid claim for relief." Hughes v. Tobacco Inst., Inc., 278 F.3d 417, 420 (5th Cir. 2001).
Courts dismiss complaints under F.R.Civ.P. 12(c) for either of two reasons: "(1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal theory." Gutierrez v. RWD Technologies, Inc., 279 F.Supp.2d 1223, 1224 (E.D. Cal. 2003). The standards for deciding F.R.Civ.P. 12(b)(6) and F.R.Civ.P. 12(c) motions are the same. Great Plains Trust v. Morgan Stanley Dean Witter, 313 F.3d 305, 313, n. 8 (5th Cir. 2002). "A Rule 12(c) motion challenges the legal sufficiency of theopposing party's pleadings and operates in much the same manner as a motion to dismiss under Rule 12(b)(6)." Morgan v. County of Yolo, 436 F.Supp.2d 1152, 1154-1155 (E.D. Cal. 2006).
"When considering a motion for judgment on the pleadings, this court may consider facts that 'are contained in materials of which the court may take judicial notice.'" Heliotrope General, Inc. v. Ford Motor Co., 189 F.3d 971, 981, n. 18 (9th Cir. 1999) (citation omitted). A motion for judgment on the pleadings may be granted if, after assessing the complaint and matters for which judicial notice is proper, it appears "beyond doubt that the [non-moving party] cannot prove any facts that would support his claim for relief." Morgan v. County of Yolo, 436 F.Supp.2d 1152, 1155 (E.D. Cal. 2006), aff'd,277 F. Appx. 734 (9th Cir. 2008).
A fact subject to judicial notice is not subject to reasonable dispute because it "(1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot be reasonably questioned." F.R.Evid. 201(b). A "court may take judicial notice of 'matters of public record.'" Lee v. City of Los Angeles, 250 F.3d 669, 689, (9th Cir. 2001). Such a fact is "conclusive" and "precludes either party from introducing evidence to disprove that fact." Metropolitan Creditors' Trust v. Pricewaterhousecoopers, LLP, 463 F.Supp.2d 1193, 1197 (E.D. Wash. 2006).
With these standards in mind, this Court turns to NSC's challenges to the FAC's claims.
NSC has challenged Zone Sports ability to pursue claims as a suspended corporation.
For a corporation, capacity to sue is determined "by the law under which it was organized." F.R.Civ.P. 17(b)(2). NSC explains that California law governs Zone Sports' capacity to sue since it is organized under California law.
Under California Revenue and Tax Code section 23301 ("section 23301"), a California corporation's powers, rights and privileges may be suspended upon failure to pay taxes. NSC points to California Secretary of State records to the effect that on November 1, 2011, Zone Sports' powers, privileges and rights were suspended for failure to pay taxes.
Plaintiffs acknowledge that Zone Sports was suspended from November 1, 2011 to May 9, 2012 for "a small tax arrearage that had inadvertently been unpaid." Plaintiffs explain that after Zone Sportspaid the outstanding tax, the California Franchise Tax Board issued a May 9, 2012 certificate of revivor, retroactive to January 1, 2012.
In Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc., 136 Cal.App.4th 212, 217-218, 39 Cal.Rptr.3d 33 (2006), the California Court of Appeal addressed section 23301 and the effect of a certificate of revivor:
The suspension of the corporate powers, rights, and privileges means a suspended corporation cannot sue or defend a lawsuit while its taxes remain unpaid. . . . Once a suspended corporation pays its taxes and obtains a certificate of revivor, however, the corporation may be allowed to carry on the litigation. . . . Its revivor will validate most otherwise invalid prior proceedings in the case. The underlying purpose of this statute is to induce the corporation to pay its taxes. (Citations omitted.)
Plaintiffs contend that Zone Sports' "suspension has been cured and it now enjoys status as an LLC in good standing." Plaintiffs continue that "prior invalid conduct and/or proceeding which took place during the suspension has been validated."
Zone Sports was suspended for six months when this action was pending. However, Zone Sports has paid outstanding taxes and received a certificate of revivor to permit it to proceed in this action, which NSC concedes in its reply papers. Section 23301's purpose has been fulfilled with Zone Sports' payment of taxes. The brief suspension fails to deprive Zone Sports of its capacity to sue.
NSC also claims that plaintiffs' counsel Richard Hamlish ("Mr. Hamlish") is guilty of a misdemeanor for exercising rights and powers of a corporation suspended under section 23301. See Cal. Rev. & Tax Code, § 19719(a) (...
To continue reading
Request your trial