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Great Earth Chemical, LLC v. Diversity Suppliers, LLC

United States District Court, D. Oregon

March 24, 2014

GREAT EARTH CHEMICAL, LLC, an inactive Oregon-based limited liability company; GREAT EARTH CHEMICAL, a wholly-owned subsidiary; NORTH AMERICAN WORLD TRADE GROUP, INC., an Oregon corporation; CLIFF CHULOS; VERN ADEN; AND STEVE ALLISON, individuals, Plaintiffs,
v.
DIVERSITY SUPPLIERS, LLC an Illinois limited liability company doing business as Great Earth Chemical, LLC, Defendant.

Nicholas J. Slinde, Phillip J. Nelson, Slinde & Nelson, LLC, Portland, OR, Attorneys for Plaintiffs.

Chad M. Colton, Markowitz Herbold Glade & Mehlhaf, PC, Portland, OR, Dean C. Eyler, Nicholas H. Callahan, Minneapolis, MN, Attorneys for Defendant.

OPINION & ORDER

MARCO A. HERNANDEZ, District Judge.

This action arises out of a dispute over whether Plaintiffs or Defendant are rightfully entitled to the proceeds of a class action settlement (the "Settlement Fund"), the distribution of which a federal court in the Eastern District of New York is overseeing. Both Plaintiffs and Defendant believe they own the right to a portion of the Settlement Fund, and consequently both filed a claim to that fund with the New York court. Compl. ¶ 9. Whether Plaintiffs or Defendant are entitled to the Settlement Fund turns on an interpretation of two asset purchase agreements, both of which are governed by Oregon law. The first agreement transferred some of Plaintiffs' assets to a third party, Ruth Yien. Id . ¶ 6. The second agreement transferred those same assets from Ruth Yien to Defendant. Id . ¶ 7. The parties dispute whether the right to the Settlement Fund was included in the transferred assets.

Plaintiffs bring two claims for relief against Defendant. The first claim seeks a declaratory judgment that Plaintiffs, not Defendant, are entitled to the Settlement Fund. The second claim alleges that Defendant intentionally interfered with Plaintiffs' prospective economic advantage-their right to the Settlement Fund-when Defendant filed its claim to the Settlement Fund.

Defendant moves to dismiss, arguing that Plaintiffs' declaratory judgment claim should be dismissed because the issue of whether Plaintiffs or Defendant are entitled to the Settlement Fund is already being litigated in New York. Additionally, Defendant argues that pursuant to Federal Rule of Civil Procedure 12(b)(6), Plaintiffs' tort claim must be dismissed because it fails to state a claim. In a separate motion, Defendant moves to stay discovery [13].

I granted Defendant's motion to dismiss at the conclusion of a hearing on these issues on February 26, 2013; I am issuing this Opinion & Order to explain why I did so. Plaintiffs' declaratory judgment claim is dismissed in order to promote judicial economy. Plaintiffs' tort claim is dismissed because Plaintiffs fail to sufficiently plead an economic relationship and improper means or improper purpose. They also fail to allege that Defendant acted intentionally. Because I dismiss both of Plaintiffs' claims, Defendant's motion to stay discovery is denied as moot.

STANDARDS

I. Declaratory Judgment

The Declaratory Judgment Act authorizes district courts to declare the rights and other legal relations of cases of "actual controversy within [their] jurisdiction, " and grants the court discretion to entertain a suit for declaratory relief:

In a case of actual controversy within its jurisdiction... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a).

The authority granted under this section is permissive, not mandatory. Gov't Emps. Ins. Co. v. Dizol , 133 F.3d 1220, 1223 (9th Cir. 1998) (en banc). However, the district court must determine on the record whether it should exercise its discretion, guided by the factors identified in Brillhart v. Excess Insurance Co. of America , 316 U.S. 491 (1942), and its progeny. Id. at 1223, 1225 (Brillhart factors "remain the philosophic touchstone for the district court.").

The factors are: (1) avoiding needless determinations of state law issues; (2) discouraging litigants from filing declaratory actions as a means of forum shopping; and (3) avoiding duplicative litigation. Id. at 1225. In addition, other considerations may be relevant: (1) whether the declaratory action will settle all aspects of the controversy; (2) whether the declaratory action will serve a useful purpose in clarifying the legal relations at issue; (3) whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a "res judicata" advantage; (4) whether the use of a declaratory action will result in entanglement between the federal and state court systems; (5) the convenience of the parties; and (6) the availability and relative convenience of other remedies. Id. at 1225 n.5.

II. Motion to Dismiss

A motion to dismiss under Rule 12(b)(6) tests the sufficiency of the claims. Navarro v. Block , 250 F.3d 729, 732 (9th Cir. 2001). "All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party." Am. Family Ass'n, Inc. v. City & Cnty. of S.F. , 277 F.3d 1114, 1120 (9th Cir. 2002). However, the court need not accept conclusory allegations as truthful. Warren v. Fox Family Worldwide, Inc. , 328 F.3d 1136, 1139 (9th Cir. 2003) ("[W]e are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint, and we do not ...


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