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Bethany Village Centre, LLC v. Petco Animal Supplies Stores, Inc.

United States District Court, D. Oregon

May 30, 2019

BETHANY VILLAGE CENTRE, LLC, Plaintiff,
v.
PETCO ANIMAL SUPPLIES STORES, INC., Defendant.

          OPINION AND ORDER

          STACIE F. BECKERMAN, UNITED STATES MAGISTRATE JUDGE

         Plaintiff Bethany Village Centre, LLC (“Bethany Village”) filed this action against defendant Petco Animal Supplies Stores, Inc. (“Petco”), alleging breach of contract and seeking a declaratory judgment on the parties' rights and obligations under a ten-year commercial lease. (ECF No. 1.) Bethany Village now moves for leave to amend its original complaint to add a claim for breach of the implied covenant of good faith and fair dealing. (ECF No. 20.) For the following reasons, the Court denies Bethany Village's motion for leave to amend.

         BACKGROUND

         Bethany Village and Petco entered into a ten-year commercial lease in January 2013. (Compl. ¶ 3.) Section 11 of the lease provided that “the Shopping Center is and will remain substantially retail in character and, further, no part of same shall be used as an auditorium, meeting hall, school or other place of public assembly[.]” (Compl. ¶ 5.) On or about February 16, 2018, Petco gave notice to Bethany Village that it was in default under the terms of the lease because it allowed a “preschool/childcare center” to operate at the shopping center. (Compl. ¶ 5.) In March 2018, Petco terminated the lease, effective June 24, 2018, due to Bethany Village's alleged breach of Section 11. (Compl. ¶ 7.)

         In its proposed amended complaint, Bethany Village alleges that the addition of the preschool to the shopping center was not a “legitimate” or Petco's “true” reason for terminating the lease. (First Am. Compl. ¶ 24.) Rather, on information and belief, Bethany Village alleges that Petco's true reason for terminating the lease was the financial performance of the store. (First Am. Compl. ¶ 27.)

         ANALYSIS

         I. STANDARD OF REVIEW

         “Whether to grant leave to amend is committed to the sound discretion of the district court.” United Bhd. of Carpenters & Joiners of Am. v. Bldg. & Constr. Trades Dep't, AFL-CIO, 770 F.3d 834, 845 (9th Cir. 2014). The Ninth Circuit has emphasized that “[t]he standard for granting leave to amend is generous, ” United States v. Corinthian Colls., 655 F.3d 984, 995 (9th Cir. 2011) (citation omitted), because the purpose of Rule 15(a) is “to facilitate decision on the merits, rather than on the pleadings or technicalities.” Novak v. United States, 795 F.3d 1012, 1020 (9th Cir. 2015) (citation omitted). Courts generally consider five factors: “bad faith, undue delay, prejudice to the opposing party, futility of the amendment, and whether the plaintiff has previously amended the complaint.” Corinthian Colls., 655 F.3d at 995. However, “[f]utility of amendment can, by itself, justify the denial of a motion for leave to amend.” Gonzalez v. Planned Parenthood of L.A., 759 F.3d 1112, 1114, 1116 (9th Cir. 2014) (citing Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995)). Petco does not oppose Bethany Village's proposed amendment on the grounds of delay, prejudice, bad faith, or prior amendment. Thus, leave to amend turns on whether the proposed amendment would be futile. See Corinthian Colls., 655 F.3d at 995 (making the same observation).

         The “proper test to be applied when determining the legal sufficiency of a proposed amendment is identical to the one used when considering the sufficiency of a pleading challenged under Rule 12(b)(6).” Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (citation omitted); Gandhi v. Sitara Capital Mgmt., LLC, 721 F.3d 865, 869 (7th Cir. 2013) (“District courts may refuse to entertain a proposed amendment on futility grounds when the new pleading would not survive a motion to dismiss.”). To survive a Rule 12(b)(6) “motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         II. DISCUSSION

         Petco opposes on futility grounds adding Bethany Village's proposed claim for breach of the implied covenant of good faith and fair dealing, arguing that the implied duty of good faith in the performance of a contract cannot “‘contradict an express contractual term or otherwise provide a remedy for an unpleasantly motivated act that is expressly permitted by the contract.'” (Def.'s Opp'n at 7 (quoting Zygar v. Johnson, 169 Or.App. 638, 645 (2000); see also Def.'s Supp. Resp. at 3, 6.) Petco argues that it could not have breached the implied duty by exercising its express contractual right to terminate the lease when Bethany Village violated Section 11. (Def.'s Opp'n at 8-9). Bethany Village responds that the lease did not allow Petco to terminate because Section 11 refers to a “school” and the preschool at issue is not a “school.” (Pl.'s Reply at 2.) Bethany Village argues that because the terms of the lease did not allow Petco to terminate, Petco's ulterior motive for terminating supports a claim for breach of the implied covenant of good faith and fair dealing. (Pl.'s Reply at 2.)

         Oregon “law imposes a duty of good faith and fair dealing in the performance and enforcement of every contract.” Hampton Tree Farms, Inc. v. Jewett, 320 Or. 599, 615 (1995) (citations omitted). This duty “serves to protect the objectively reasonable contractual expectations of the parties.” Stevens v. Foren, 154 Or.App. 52, 58 (1998) (citations omitted). Petco is correct that under Oregon law, the duty of good faith “cannot contradict an express contractual term, ” and cannot “provide a remedy for an unpleasantly motivated act that is permitted expressly by contract.” Zygar, 169 Or.App. at 645 (citing Stevens, 154 Or.App. at 58); see also Or. Univ. Sys. v. Or. Pub. Emps. Union, Local 503, 185 Or.App. 506, 511 (2012) (noting that the duty of good faith and fair dealing “may be implied as to a disputed issue only if the parties have not agreed to an express term that governs that issue”); U.S. Nat'l Bank of Or. v. Boge, 311 Or. 550, 567 (1991) (“[T]he obligation of good faith does not vary the substantive terms of the bargain[.]”) (en banc).

         Thus, under Oregon law, if the lease allowed Petco to terminate when Bethany Village added a preschool to the shopping center (and if Petco did not waive its right to terminate), Petco will prevail on the breach of contract claim even if its termination of the lease was unpleasantly motivated (e.g., for financial or any other reason). If the lease so allowed, Petco would also necessarily prevail on Bethany Village's proposed bad faith claim. See Marshall v. Wells Capital Mgmt., Inc., No. 07-309-HU, 2007 WL 4565164, at *9 (D. Or. Dec. 19, 2007) (“Conduct consistent with the terms of the contract cannot serve as the basis of a claim of violation of the duty of good faith.”).

         On the flip side, if Bethany Village prevails on its breach of contract claim because the lease did not allow Petco to terminate, Bethany Village's proposed claim that Petco breached in bad faith is superfluous. SeeN. Clackamas Cnty Water Com'n v. Siemens Water Tech. Corp., No. 3:13-cv-01441-ST, 2014 WL 197811, at *9 (D. Or. Jan. 14, 2014) (applying Oregon law and dismissing bad faith claim as “superfluous” where “the contract [] contains express provisions governing all aspects of the alleged breach”); see alsoDoyle v. Mastercard Int'l Inc., 700 Fed.Appx. 22, 24 (2d Cir. 2017) (applying New York law and affirming dismissal of bad faith claim as “duplicative of the claim for breach of contract”); Pierry, Inc. v. Thirty-One Gifts, LLC, No. 17-cv-03074-MEJ, 2017 WL 4236934, at *5 (N.D. Cal. Sept. 25, 2017) (applying California law and dismissing bad faith claim because it relied on the same facts as the breach of contract claim and was therefore “redundant”); Stonebrae, L.P. v. Toll Bros., Inc., No. C-08-0221 EMC, 2010 WL 114010, at *7 (N.D. Cal. Jan. 7, 2010) (“Because [the plaintiff's] claim for breach of the implied ...


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