Texas Star Turbines v. Turbine Power Technology LLC

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Texaz Star Turbines Incorporated, No. CV-20-08071-PCT-SMB 10 Plaintiff, ORDER 11 v. 12 Ted McIntyre, et al., 13 Defendants. [14] 15 Pending before the Court is Turbine Powered Technology, LLC and Ted McIntyre’s 16 Motion to Dismiss First Amended Complaint (Doc. 13) to which a response (Doc. 16) and 17 a reply (Doc. 17) have been filed. The Court has reviewed the pleadings and relevant case 18 law and now issues this ruling. 19 I. BACKGROUND 20 Plaintiff Texaz Star Turbines, Inc. (“Plaintiff”) is an Arizona corporation suing the 21 Defendants, Ted McIntyre and Turbine Powered Technology, LLC (“TPT”), for breach of 22 a contract. (Doc. 1-2 at 43.) Plaintiff was incorporated in Arizona on September 9, 2015.1 [23] 24 1 The Defendants have attached certain documents from the Texas Secretary of State and the Arizona Corporation Commission to their motion. The Court takes judicial notice of [25] these documents. Normally when a complaint is challenged under Rule 12(b)(6), “[r]eview 26 is limited to the complaint.” Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993). However, courts may “consider…matters of judicial notice….” United States v. [27] Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “A court may take judicial notice of matters of 28 public record.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). 1 (Doc. 13-1 at 12-14.) The CEO, sole shareholder, and sole director of Plaintiff is one Robert 2 L. Robertson. (Id. at 13.) Robert L. Robertson is also listed as the last president, director, 3 and registered agent of the currently defunct Texas corporation Texas Star Turbines, Inc. 4 (“Texas Inc.”) (Id. at 8.) Texas Inc. was incorporated in 1994 and remained in existence 5 until it was terminated via tax forfeiture in 1998, seventeen years before Plaintiff was 6 incorporated. (Id. at 2.) 7 Plaintiff filed its original complaint on October 14, 2019 in Arizona’s Navajo 8 County Superior Court and filed its First Amended Complaint (FAC) in that same Court 9 on March 3, 2020. (Docs 1-1 at 11, 1-2 at 42). Plaintiff’s FAC alleges that “on or about 10 July 31, 2013, the parties entered into a written purchase agreement for the sale of… [a 11 Conex Container, Lot of T53 engine parts, Lot of T53 engine tooling, 7ea engine rollover 12 stands, Lot of T53 engine parts carts, 8ea T53-L-13 engines…” (Doc. 1-2 at 43-44.) While 13 this allegation seems to state that “the parties” to this litigation entered the purchase 14 agreement, other allegations of the FAC state that Plaintiff was only assigned a beneficial 15 interest in the agreement “subsequent to [its] execution.” (Id. at 43.) The FAC never alludes 16 to who assigned Plaintiff a beneficial interest. (Id. at 42-46.) 17 An agreement is attached to the FAC and appears to be between the Texas Inc. and 18 TPT, a Louisiana company. (Id. at 52-53.) The agreement, a bill of sale, was signed in 19 July 2013 and contains a list of inventories allegedly sold to TPT. (Id.) The FAC alleges 20 that pursuant to “the purchase agreement” the Defendants were required to pay 21 $800,000.00 for the equipment, with an initial payment of $150,000.00 and additional 22 monthly payments of $50,000.00 with the last payment due on October 1, 2014. (Id. at 44.) 23 Plaintiff alleges that Defendants have failed to pay the final $450,000.00 owing on the 24 agreement, and as such, Plaintiff brings this suit for breach of contract. (Id.) 25 Along with TPT, Plaintiff has sued Ted McIntyre (“Mr. McIntyre”) for its breach 26 of contract claim. (Id. at 42-45.) Plaintiff does not explain who Mr. McIntyre is in its FAC, 27 but TPT’s motion states that Mr. McIntyre is the Chief Executive Officer of TPT. The 28 FAC alleges that “[Mr.] McIntyre is currently in possession of some or all of the equipment 1 transferred to TPT as part of the agreement.” (Id. at 43.) 2 Defendants have filed a motion (Doc. 13) seeking to dismiss the FAC for the 3 following reasons: (1) failure to state a claim for which relief can be granted pursuant to 4 Federal Rule of Civil Procedure 12(b)(6); (2) lack of subject matter jurisdiction pursuant 5 to Federal Rule of Civil Procedure 12(b)(1); (3) the action is time barred pursuant to A.R.S. 6 § 12-543; and (4) Mr. McIntyre may not be sued in his individual capacity. 7 II. LEGAL STANDARD 8 A. Subject Matter Jurisdiction 9 Under Federal Rule of Civil Procedure 12(b)(1), a party may move to dismiss a 10 claim for lack of subject-matter jurisdiction. “Federal courts are courts of limited 11 jurisdiction” and may only hear cases as authorized by the Constitution or Congress. 12 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A court has subject13 matter jurisdiction over claims that “aris[e] under the Constitution, laws, or treaties of the 14 United States” and over “civil actions where the matter in controversy exceeds the sum or 15 value of $75,000, exclusive of interest and costs, and is between” diverse parties. 28 U.S.C. 16 §§ 1331, 1332. Because our jurisdiction is limited, it is to be presumed that a cause lies 17 outside of it, and the burden of establishing jurisdiction is on the party asserting it. 18 Kokkonen, 511 U.S. at 377 . 19 “A Rule 12(b)(1) jurisdictional attack may be facial or factual.” Safe Air for 20 Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A facial attack “asserts that the 21 allegations contained in a complaint are insufficient on their face to invoke federal 22 jurisdiction.” Id. In a facial attack, the court “accept[s] the plaintiff’s allegations as true” 23 and “determines whether the allegations are sufficient as a legal matter to invoke the court’s 24 jurisdiction,” “drawing all reasonable inferences in the plaintiff’s favor.” Leite v. Crane 25 Co., 749 F.3d 1117, 1121 (9th Cir. 2014). “A ‘factual’ attack, by contrast, contests the truth 26 of the plaintiff's factual allegations, usually by introducing evidence outside the pleadings.” [27] Id. In a facial attack, our inquiry is confined to the allegations in the complaint, while a 28 factual attack permits the court to look beyond the complaint. Savage v. Glendale Union 1 High Sch., 343 F.3d 1036 , 1039 n.2 (9th Cir. 2004). 2 The party asserting jurisdiction bears the burden of proof. Indus. Tectonics, Inc. v. 3 Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). When the plaintiff does not meet the 4 burden of showing the court has subject-matter jurisdiction, the Court must dismiss the 5 action. Fed. R. Civ. P. 12(h)(3). “Because subject-matter jurisdiction involves a court’s 6 power to hear a case, it can never be forfeited or waived.” United States v. Cotton, 535 U.S. 7 625, 630 (2002). 8 B. Failure to State a Claim 9 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet 10 the requirements of Rule 8(a)(2). Rule 8(a)(2) requires a “short and plain statement of the 11 claim showing that the pleader is entitled to relief,” so that the defendant has “fair notice 12 of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, [13] 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Dismissal 14 under Rule 12(b)(6) “can be based on the lack of a cognizable legal theory or the absence 15 of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police 16 Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). A complaint that sets forth a cognizable legal 17 theory will survive a motion to dismiss if it contains sufficient factual matter, which, if 18 accepted as true, states a claim to relief that is “plausible on its face.” Ashcroft v. Iqbal, [19] 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570 ). Facial plausibility exists if 20 the pleader sets forth “factual content that allows the court to draw the reasonable inference 21 that the defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the 22 elements of a cause of action, supported by mere conclusory statements, do not suffice.” [23] Id. Plausibility does not equal “probability,” but requires “more than a sheer possibility 24 that a defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are ‘merely 25 consistent’ with a defendant’s liability, it ‘stops short of the line between possibility and 26 plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557 ). 27 In ruling on a Rule 12(b)(6) motion to dismiss, the well-pled factual allegations are 28 taken as true and construed in the light most favorable to the nonmoving party. Cousins v. 1 Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, legal conclusions couched as 2 factual allegations are not given a presumption of truthfulness, and “conclusory allegations 3 of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto 4 v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). A court ordinarily may not consider evidence 5 outside the pleadings in ruling on a Rule 12(b)(6) motion to dismiss. See United States v. 6 Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). “A court may, however, consider materials— 7 documents attached to the complaint, documents incorporated by reference in the 8 complaint, or matters of judicial notice—without converting the motion to dismiss into a 9 motion for summary judgment.” Id. at 908 . 10 III. DISCUSSION 11 A. Breach of Contract 12 Defendants first argue that Plaintiff has failed to state a claim for breach of contract 13 because no valid contract exists. Defendants allege no valid contract exists between the 14 parties because at the time of the alleged agreement was entered, Texas Inc. was not a legal 15 entity and so lacked capacity to contract. 16 Under Texas law, a corporation that fails to pay its taxes can have its charter 17 forfeited under the Texas tax code. Cohen Acquistion Corp. v. EEPB, P.C., No. 14-1418 00330-CV, 2015 Tex. App. LEXIS 5058 (Tex. App. May 19, 2015); see also Tex. Tax 19 Code Ann. §§ 171.302, 171.309. After such forfeiture occurs, the corporation is deemed a 20 “terminated filing entity.” Cohen Acquisition Corp. 2015 Tex. App. LEXIS 5058 , at *4 21 Once the forfeiture occurs and the corporation becomes a terminated filing entity, it ceases 22 to exist for most purposes. Id.; see also Kirby v. Coastal Sales Ass'n, Inc., 82 F. Supp. 2d 23 193, 197 (S.D.N.Y. 2000) (noting that dissolved corporations generally lack capacity to 24 contract). A terminated filing entity continues in existence until the third anniversary of the 25 effective date of termination, but only for very limited purposes. Tex. Bus. Orgs. Code § 26 11.356 (“the terminated filing entity continues…only for purposes of prosecuting or 27 defending…an action…permitting the survival of an existing claim…holding title to and 28 liquidating property…applying or distributing property…and settling affairs”). 1 Defendants attached documents showing that Texas Inc. was incorporated on or 2 around January 10, 1994 in Texas and Robert Robertson was its president. (Doc. 13-1 at 3 2-4.) Texas Inc. legal status was forfeited in 1998 for failure to pay taxes. (Id.) Texas Inc. 4 was never reinstated as a legal entity.2 The FAC alleges, and the attached bill of sale 5 evidences, that Texas Inc. entered into the contract with TPT in July of 2013 despite having 6 no legal existence. Additionally, Plaintiff was not incorporated until September 2015. 7 Under Texas law, after forfeiture of its charter in 1998, Texas Inc. would have continued 8 to exist only for the limited purpose of taking actions necessary to winddown its operations. 9 Tex. Bus. Orgs. Code § 11.356. Even this limited existence would have only lasted an 10 additional three years, with total termination of Texas Inc. occurring in 2001. Id. Thus, it 11 appears that the contract, entered 15 years after Texas Inc. was terminated, is not valid. 12 Since the original contract entered by Texas Inc. was not valid, then Plaintiff cannot 13 assert a cause of action for its breach. Even if Plaintiff was assigned the rights to the 14 contract, an assignee of a cause of action “stands in the shoes of the assignor and may assert 15 those rights that the assignor could assert.” Electrostim Med. Servs. v. Health Care Serv. 16 Corp., 614 Fed. Appx. 731, 741 (5th Cir. 2017) (quoting First-Citizens Bank & Trust Co. 17 v. Greater Austin Area Telecomms. Network, 318 S.W.3d 560, 566 (Tex. App.—Austin 18 2010, no pet.)); see also, M&T Bank v. SFR Invs. Pool 1, LLC, 963 F.3d 854 , 858 (9th Cir. 19 2020). If Texas Inc. had no capacity to contract, then it could not sue for that contract’s 20 breach. As assignee, the Plaintiff’s rights are similarly limited. Plaintiff provides no 21 authority to the contrary. Defendants’ motion will be granted. 22 B. Mr. McIntyre’s Liability as an Officer 23 Defendants also move to dismiss Mr. McIntyre as a defendant because if any 24 contract alleged exists, it is between Plaintiff and TPT. Defendants assert that Mr. McIntyre 25 is the Chief Executive Officer of TPT and would have only entered into any agreement as 26 an agent of TPT, not in his personal capacity. Defendants claim, and Plaintiff does not [27] 28 2 Plaintiff does not dispute the evidence from the Texas Secretary of State attached to Defendants’ Motion. 1 contest, that Mr. McIntyre’s personal liability as an officer for contracts entered on behalf 2 of TPT is governed by Arizona law. (Doc. 13 at 6.) Under Arizona law, “[u]nless otherwise 3 agreed, a person making or purporting to make a contract with another as agent for a 4 disclosed principal does not become a party to the contract.” Cahn v. Fisher, 167 Ariz. 219 , 5 221 (App. 1990); see also Five Points Hotel P'ship v. Pinsonneault, 835 F.Supp.2d 753 , 6 759 (D. Ariz. 2011) (noting a corporation is separate legal entity). 7 Plaintiff has pled no facts sufficient to state a claim for breach of contract against 8 Mr. McIntyre. As basis for his suit, Plaintiff merely alleges that Mr. McIntyre is in 9 possession of some of the equipment transferred pursuant to its agreement with TPT. 10 However, that fact even taken as true provides no basis for suing Mr. McIntyre for breach 11 of a contract to which he is not a party. While Plaintiff asserts that it intends to proceed on 12 a theory that TPT is an “alter ego” of Mr. McIntyre, it has not alleged adequate facts to 13 state a claim to that effect. Plaintiff merely alleges that Mr. McIntyre has physical 14 possession of some of the items and is therefore liable.3 While there may be some equitable 15 claim against him if that is in fact true, it cannot be based on a contract for which was not 16 a party. 17 C. Oral Contract 18 Defendants make two additional arguments based on the assumption that Plaintiff 19 will argue the existence of an oral contract. Defendants argue that Texaz Inc. lacks standing 20 because any oral contract would be between Robert Robertson and TPT. Defendants further 21 argue that if Plaintiff is seeking to allege an oral contract the claim is time-barred because 22 Arizona’s statute of limitations for suit on an oral contract is 3 years. 23 The Court need not and will not address either of these arguments. The FAC alleges 24 a written contract, attaches the written contract, and has not alleged any alternate theory. 25 Plaintiff does not respond to these arguments other than to say that it cannot properly 26 respond. Plaintiff made no attempt to adopt a theory of an oral contract and so the Court [27] 28 3 Mr. McIntyre denies having any equipment in his possession but for ruling on the MTD, the Court takes the facts in the FAC as true. will not engage in a hypothetical argument. 2 D. Leave to Amend 3 Even where a Plaintiff's complaint fails to state a claim, Rule 15 of the Federal Rules of Civil Procedure provides that the Court “should freely give leave [to amend] when 5 || justice so requires.” Fed. R. Civ. P. 15(a)(2). When dismissing for failure to state a claim, 6|| “a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation 8 || of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (quoting Doe v. United 9|| States, 58 F.3d 494, 497 (9th Cir. 1995)); see also Carrico v. City & County of San 10|| Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011) (“It is properly denied, however, if 11 || amendment would be futile.”). 12 In the present case the Court believes there are alternative theories of relief or 13} additional allegations that could cure the deficiencies in the pleading. So, the Court will 14]| grant Plaintiff leave to amend its complaint. Within sixty (60) days from the date of entry || of this Order, Plaintiff may submit an Amended Complaint. Plaintiff must clearly designate 16]| on the face of the document that it is the “Second Amended Complaint.” The Amended 17 || Complaint must be retyped or rewritten in its entirety and may not incorporate any part of 18 || the original Complaint by reference. 19 IV. CONCLUSION 20 Accordingly, 21 IT IS ORDERED that Defendants’ Motion to Dismiss First Amended Complaint || (Doc. 13) is granted and Plaintiff's First Amended Complaint is dismissed with leave to 23 || amend within sixty (60) days of the date of this order. 24 Dated this 8th day of February, 2021. [25] 26 a . ~P 27 SO 28 Gnvted States District ude. -8-