United States District Court, D. Oregon, Medford Division
OPINION & ORDER
MICHAEL MCSHANE UNITED STATES DISTRICT JUDGE.
matter comes before the Court on a Motion to Dismiss filed by
Defendant Bruce Addington and Defendant Cornerstone
Industrial Minerals Corporation (collectively,
“Cornerstone Defendants”). ECF No. 80.
Cornerstone Defendants also urge the Court to decline the
exercise of supplemental jurisdiction over Plaintiffs'
state law claims. Finally, Cornerstone Defendants move to
strike certain factual allegations from the Third Amended
Complaint. For the reasons discussed below, the motions are
following factual summary is taken from the Third Amended
Complaint (“TAC”). ECF No. 66.
LRY, LLC (“LRY”) is an Oregon limited liability
company with its principal place of business in Lakeview,
Oregon. LRY operated a local railroad line connecting
Lakeview, Oregon and Perez, California. As part of its
operations, LRY leased approximately 55 miles of railway
track from Defendant Lake County, Oregon (“the
County”). A further section of track in Northern
California was leased from Union Pacific Railroad Company.
The leased section located in Oregon was known as the
Lakeview Branch and the agreement between LRY and the County
was memorialized in the Lake County Lease and Operating
Agreement (the “Lease”), which was signed by LRY
and the County on November 3, 2010. During the negotiation
and drafting of the Lease, LRY was represented by attorney
John D. Heffner (“Heffner”) and his associates.
Surface Transportation Board (“STB”) is a federal
agency with regulatory authority over railroads. The STB
granted LRY an exemption to operate the Lakeview Branch
pursuant to the Lease. Heffner also represented LRY in
seeking STB approval.
Lakeview Branch was generally in poor condition and there
were a number of disputes between LRY and the County over the
cost of necessary repairs. The State of Oregon offered grants
through a program called ConnectOregon, which would
help to defray the cost of those repairs. LRY, with the
assistance of the County, applied for and received four
ConnectOregon grants totaling more than $2 million
for the improvement of the Lakeview Branch. In order to
qualify for the ConnectOregon grants, LRY and the
County agreed to extend the period of the Lease through
December 31, 2035.
ConnectOregon grants were provided with a
requirement that the recipient pay a percentage of matching
funds for the project. The County has provided the matching
funds for two of the four grants, but LRY was required to pay
$140, 000 to match funds for one of the remaining grants. In
addition to those funds, Plaintiff FR, LLC (“FR”)
has loaned more than $500, 000 to LRY to finance additional
repairs, with the expectation that it would recoup the loaned
funds over the life of the Lease.
served a number of industrial clients in Lake County,
including Defendant Cornerstone Industrial Minerals
Corporation (“Cornerstone”), which operates a
perlite mine. Defendant Bruce Addington
(“Addington”) is the owner and president of
Cornerstone. Cornerstone Defendants were unsatisfied with
LRY's rates and other aspects of LRY's service.
2016, LRY secured contractual rights to handle traffic for a
new industrial client, Red Rock Biofuels. The Red Rock
contract was expected to return annual profits of $400, 000
for LRY. In November 2016, the County sent a letter to LRY
demanding a copy of LRY's contract with Red Rock
2016 through early 2017, Cornerstone Defendants and the
County retained a consulting firm to carry out an inspection
of the Lakeview Branch and LRY's operations, without
LRY's involvement. Also in late 2016, Cornerstone
Defendants retained Heffner as their attorney. As discussed
above, Heffner had previously represented LRY and was
responsible for the negotiation and drafting of the Lease
between LRY and the County. In January 2017, Heffner, acting
on behalf of Cornerstone Defendants, corresponded with the
County's attorney concerning interpretation of the Lease
and how an ambiguity in the Lease could be used to LRY's
detriment. In April 2017, Heffner contacted the County's
attorney several more times on behalf of Cornerstone
Defendants. These emails communicated Cornerstone
Defendants' dissatisfaction with LRY's operations and
advised the County on how to most efficiently proceed with
terminating the Lease.
did not inform LRY that he was now representing a party
adverse to LRY's interests, nor did Heffner seek informed
written consent from LRY.
April 12, 2017, the County sent LRY a letter terminating the
Lease without cause, effective April 30, 2017. At the time of
the termination, LRY had invested a considerable sum in
ballast and railroad ties for use in upgrading and repairing
the Lakeview Branch. These materials, and all other LRY
property, had to be relocated at a cost of more than $150,
000. Additionally, federal regulations require that
interstate railroads operate continually. In order to prevent
a stoppage of interstate commerce, LRY was forced to continue
operating the Lakeview Branch at its expense until a new
carrier was approved by the STB.
after the termination of the Lease, Heffner, again acting on
behalf of Cornerstone Defendants, advised the County's
attorney that the County “has the ability to provide
service in its own right so it could subcontract to Bruce
[Addington] as of May 1, . That might simplify
things.” On June 22, 2017, Goose Lake Railway
(“Goose Lake”) submitted a proposal to take over
operating the Lakeview Branch from LRY. Goose Lake is owned
by Addington and non-party Toby Van Altvorst. Addington is
also the president of Goose Lake. On July 27, 2017, Addington
wrote to the County to urge the County to move more quickly
in finding a replacement for LRY, saying “Please hurry!
This is painful.” The County ultimately did select
Goose Lake as LRY's successor in operating the Lakeview
Branch. LRY alleges that the County and Cornerstone
Defendants will benefit from FR and LRY's investments in
the Lakeview Branch, as well as in taking over the Red Rock
complaint must contain a “short and plain statement of
the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a). A court may grant a motion
to dismiss for failure to state a claim only when there is no
cognizable legal theory to support the stated claim, or when
the complaint does not allege enough facts to support a
facially plausible claim for relief. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). In considering
whether the complaint is sufficient, the court will take as
true all material factual allegations and construe them in
the light most favorable to the plaintiff. NL Indus.,
Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). The
court must draw all reasonable inferences from the factual
allegations in the plaintiff's favor. Newcal Indus.
v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th
Cir. 2008). The court need not credit legal conclusions or
“threadbare recitals of the elements of a cause of
action.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Twombly, 550 U.S. at 555).
respect to Cornerstone Defendants, Plaintiffs assert Oregon
state law claims for unjust enrichment; tortious interference
with business relationships or expectations; tortious
interference with contracts; tortious interference with
economic relations; and intentional interference with
prospective economic advantage. Cornerstone Defendants move to
dismiss for failure to state a claim. Cornerstone Defendants
also urge the Court to decline the exercise of supplemental
jurisdiction over the state law claims. Finally, Cornerstone
Defendants move to strike Plaintiffs' allegations
concerning the actions of Heffner, who served as attorney to
both LRY and Cornerstone Defendants.
Failure to State a Claim
The “Interference” Claims
bring a battery of “interference” claims against
Cornerstone Defendants for their role in the termination of
the Lease. In terms of necessary ...