SCI Collaboration, LLC v. Sports Car Int'l, LLC, Case No. 3:20-cv-170-AC
| Decision Date | 05 November 2020 |
| Docket Number | Case No. 3:20-cv-170-AC |
| Parties | SCI COLLABORATION, LLC, a Florida limited liability company, NIKKI BUZZETTA, and KEN LUNA, Plaintiffs, v. SPORTS CAR INTERNATIONAL, LLC, an Oregon limited liability company, and JOHN MICHIAL SHUMATE, Defendants. |
| Court | U.S. District Court — District of Oregon |
Brian T. Kiolbasa, LANE POWELL PC, 601 SW Second Avenue, Suite 2100, Portland, Oregon 97204. Of Attorneys for Plaintiffs.
Anna Sortun, TONKON TORP LLP, 888 SW Fifth Avenue, Suite 1600 Portland, OR 97204. Of Attorneys for Defendants.
In this lawsuit, Plaintiffs SCI Collaboration, LLC (SCIC), Nikki Buzzetta, and Ken Luna allege a single claim of breach of contract against Defendants Sports Car International, LLC (SCI) and its member John Shumate. Although SCI answered Plaintiffs' Complaint, Shumate moved to dismiss, arguing that Plaintiffs failed to state a claim that Shumate personally can be held liable for breach of contract. United States Magistrate Judge John V. Acosta issued Findings and Recommendations (F&R) on Shumate's motion, recommending that the Court deny the motion or, alternatively, grant the motion and give Plaintiffs leave to amend. Shumate filed timely objections. For the reasons stated below, the Court adopts in part Judge Acosta's F&R, grants Shumate's motion to dismiss, and allows leave to amend.
On March 22, 2019, SCIC, through its members Buzzetta and Luna (collectively, Plaintiffs), entered into a "Joint Collaboration Agreement" (Collaboration Agreement) with Defendants SCI and Shumate. Under the Collaboration Agreement, SCIC provided SCI with $1 million to support SCI's international business deals. Soon after, SCIC expressed concerns that SCI was misusing the funds. In July 2019, SCI repaid $250,000 of SCIC's original $1 million, but the dispute among the parties continued.
Effective December 30, 2019, SCIC, Buzzetta, and Luna entered into a "Termination and Release Agreement" (Release Agreement) with SCI and Shumate. In the Release Agreement, the parties agreed that the Collaboration Agreement "is hereby terminated." In addition, SCI agreed to pay $750,000 to SCIC within 15 business days. The Release Agreement also provided reciprocal mutual releases, as follows: SCIC, Buzzetta, and Luna (referred to in the Release Agreement as the "Group B Parties") releases SCI and Shumate (referred to in the Release Agreement as the "Group A Parties") from any and all claims and potential claims, and SCI and Shumate release SCIC, Buzzetta, and Luna from any and all claims and potential claims.
The "Payment" provision in the Release Agreement reads:
Payment. In consideration of the releases below, the termination of the Agreement above, and other valuable considerations, the sufficiency of which is hereby confessed and agreed to, SCI shall pay $750,000 to SCIC within fifteen business days after this Agreement is executed, according to the payment instructions attached as Exhibit A.
ECF 1 at 5. Neither SCI nor Shumate, however, paid the agreed-upon $750,000, leading Plaintiffs to file this lawsuit.
In their Complaint, Plaintiffs allege a single claim of breach of contract against both SCI and Shumate. Plaintiffs contend that Defendants violated the Release Agreement by failing to pay the agreed-upon $750,000. In his motion to dismiss, Shumate argues that the Release Agreement only obligates SCI to make that payment, not him. Shumate contends that his only personal obligation was to release any and all claims and potential claims that he may have against SCIC, Buzzetta, and Luna, which he has done.
Judge Acosta recommended that the Court deny Shumate's motion to dismiss or, alternatively, give Plaintiffs leave to amend their Complaint. Judge Acosta explained that the intent of the parties is the dispositive consideration, and he found that it was reasonable to infer that Shumate signed the Release Agreement in his personal capacity to protect both himself and SCI from claims and potential claims from Plaintiffs and promised that $750,000 would be paid to Plaintiffs as consideration. Judge Acosta added that it was plausible that the parties intended jointly and severally to bind both SCI and Shumate to the payment obligation because the Release Agreement was signed by Shumate both as SCI's member and in his individual capacity.
Under the Federal Magistrates Act ("Act"), the Court may "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1). If a party files a timely objection to a magistrate judge's findings and recommendations, "the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id.; Fed. R. Civ. P. 72(b)(3).
For those portions of a magistrate judge's findings and recommendations to which neither party has objected, the Act does not prescribe any standard of review. See Thomas v. Arn, 474 U.S. 140, 152 (1985) (); United States. v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc) (). Although in the absence of objections no review is required, the Act "does not preclude further review by the district judge[] sua sponte . . . under a de novo or any other standard." Thomas, 474 U.S. at 154. Indeed, the Advisory Committee Notes to Fed. R. Civ. P. 72(b) recommend that "[w]hen no timely objection is filed," the Court review the magistrate judge's recommendations for "clear error on the face of the record."
Two issues are currently before the Court. The first is whether the Release Agreement unambiguously excludes Shumate from any personal liability for making the $750,000 payment. The second is whether, if the Court grants Shumate's motion to dismiss, the Court should allow Plaintiffs leave to amend, notwithstanding Shumate's assertion of futility.
Shumate asks the Court to dismiss Plaintiffs' claim against him. He argues that the Release Agreement unambiguously shows that he was not personally obligated to pay the agreed-upon $750,000. Accordingly, Shumate argues, Plaintiffs have no breach of contract claim against him personally. Plaintiffs respond that Shumate should not be dismissed because the contract evinces the parties' intent to make Shumate and SCI jointly and severally liable for the $750,000 payment obligation. Because the Release Agreement refers to "Group A Parties," a defined term that includes Shumate and SCI, in some provisions, while the payment provisiononly lists SCI as obligated to make the $750,000 payment, the payment provision unambiguously excludes Shumate from personal liability for that payment.
A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). When evaluating the sufficiency of a complaint's factual allegations, the Court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). The Court may look to exhibits attached to the pleadings in evaluating the sufficiency of a complaint because exhibits to a pleading are part of the pleading for all purposes. Fed. R. Civ. P. 10(c). The Court need not accept as true allegations in the complaint that are contradicted by the text of exhibits attached to the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.), am. on denial of reh'g, 275 F.3d 1187 (9th Cir. 2001).
Oregon law requires the Court to interpret a contract to give effect to the parties' agreed-upon intentions. See, e.g., Connall v. Felton, 225 Or. App. 266, 272 (2009). Oregon courts have established a three-step process for interpreting contracts. See Yogman v. Parrott, 325 Or. 358, 361 (1997); Ross Dress For Less, Inc. v. Makarios-Or., LLC, 210 F. Supp. 3d 1259, 1263 (D. Or. 2016). First, the Court must determine whether the relevant contractual provision is ambiguous. See Apeldyn Corp. v. Eidos, LLC, 943 F. Supp. 2d 1145, 1149 (D. Or. 2013) (citing McKay's Mkt. of Coos Bay, Inc. v. Pickett, 212 Or. App. 7, 12 (2007)). "In considering whether a contractual provision is ambiguous, a court is limited to considering only the plain meaning ofthe words used by the parties in their contract and any extrinsic evidence showing the circumstances under which the contract was made." Id. (citing Batzer Constr., Inc. v. Boyer, 204 Or. App. 309, 314 (2006)). A contractual provision that can, "in context, reasonably be given more than one plausible interpretation," is ambiguous. Williams v. RJ Reynolds Tobacco Co., 351 Or. 368, 379 (2011). The Court must, "if possible, construe the contract so as to give effect to all of its provisions." Id. If the provision at issue is unambiguous, the analysis ends, and a court must apply the contractual term to the facts of the case. Ross Dress For Less, 210 F. Supp. 3d at 1263.
When a contractual provision is ambiguous, however, the Court proceeds to the second step in the Yogman analysis. Yogman, 325 Or at 363. "At the second step, the trier of fact examines extrinsic evidence of the contracting parties' intent and construes the disputed contractual provision consistent with that intent, if such a resolution can be determined." Ross Dress For...
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