United States District Court, D. Oregon, Portland Division
ROBERT J. CLAUS, and SUSAN L. CLAUS Plaintiffs,
COLUMBIA STATE BANK, Defendant.
OPINION AND ORDER
V. ACOSTA UNITED STATES MAGISTRATE JUDGE.
Robert James Claus and Susan Claus (collectively, the
"Clauses") seek money damages from their former
lender, Defendant Columbia State Bank ("Columbia"),
for allegedly misrepresenting the capitalization and
creditworthiness of Signature Home Builders ("SHB")
and for breaching parties' construction loan contract.
Before the court are Columbia's Motion to Dismiss and the
Clauses' Motion to Accept the Amended Complaint. (Def.
Mot. to Dismiss Pl. First Am. Compl, ECF No. 73 ("Def.
Mot."); Mot. to Accept the Am. Compl, ECF No.
the mid-1980s, the Clauses have engaged with Columbia and its
predecessor organizations in "a continuous and extensive
banking relationship" as "private banking
customers." (Am. Compl, ECF No. 73 ("Am.
Compl") ¶ 4.) Due to concerns over costs related to
their declining health, the Clauses undertook a development
project as an investment that could pay for medical and other
expenses. (Id. ¶¶ 7, 8.)
2011, the Clauses sought a loan from West Coast Bank
("West"), a predecessor to Columbia, to develop
eight lots in their "McFall subdivision."
(Id. ¶ 8.) As part of the loan process, West
required the Clauses to sell their Oregon ranch property
before issuing the loan, and the Clauses were subject to
"an exhaustive review of [their] real estate portfolio
and financial situation." (Id. ¶¶ 11,
12.) As alleged by the Clauses, West was aware of the
Clauses' ongoing health issues and "voluntarily
committed to administering the financial management of the
building process." (Id., ¶ 9.)
Specifically, West promised it "would monitor the
progress of the construction and see that the contractor,
subcontractors, and suppliers" were paid, and for doing
so, the "Clauses paid $18, 000 to [West's successor,
] Columbia[, ] for administrating and processing the line of
credit over the life of the project, with such administration
to include builder oversight, disbursement of funds, and
contract approval." (Am. Compl ¶¶ 9, 24.)
Moreover, West went so far as to create the initial plan for
the McFall subdivision. (Id., ¶ 10.) In April
2013, while the Clauses were still securing the loan from
West, Columbia purchased West and continued the Clauses'
appraisal process. (Id. ¶¶ 13, 15.)
October 2013, Columbia issued the loan, in the amount of
$900, 000, secured by a deed of trust on the property. (Decl.
of Stanley Cruse, ECF No. 15 ("Cruse Decl"), Ex. 3
at 1.) Among other restrictions, the Loan Agreement specified
that only two lots could be built at a time. (Id.
¶ 23.) The Clauses allege Columbia orally promised to
assume responsibility for "obtaining the invoices and
proof of payment" to SHB and all subcontractors, and its
disbursement system, AccuDraw, to oversee the project,
disbursement of funds, and contract approval. (Am. Compl.
¶ 24.) But, the terms of the Construction Loan Agreement
did not reflect Columbia's promised involvement. (Cruse
Decl., Ex. 1.) Instead the Loan Agreement indicated that the
Clauses were responsible for managing the project and
submitting contractors, plans, builder contracts, and
requests for the money disbursements. (Id. at 3.)
The Loan Agreement, however, did provide that at its option
Columbia could "directly pay the General Contractor . .
. sums due . . . [and the Clauses] appoint [Columbia] as the
attorney-in-fact to make such payments." (Cruse Decl.,
Ex 1 at 3.) Moreover, the Loan Agreement indicates it was
fully integrated at the time of signing and amendments could
be submitted only in writing with parties' consent.
(Id. at 7.) The Loan Agreement required that
Columbia would have "approved a list of all contractors
employed," but no provision of the Loan Agreement
provides a selection procedure for a general contractor.
(Id. at 2.) Under the Loan Agreement, a creditor or
forfeiture proceeding would constitute an event of default
unless "there is a good faith dispute" as to the
"validity or reasonableness of the claim which is the
basis of the . . . proceeding." (Cruse Decl., Ex. 1 at
6.) Additionally, the Loan Agreement contained a maturity
acceleration provision in the event the Clauses defaulted.
(Id. at 6.)
Clauses allege, Columbia made representations about the
Clauses' prior relationship with Columbia's
predecessor and about SHB. With respect to the relationship
between the Clauses and Columbia, officials at Columbia, who
were also former employees at West, assured the Clauses the
same services previously provided by West still could be
expected through Columbia. (Am. Compl. ¶ 14.)
Specifically, Columbia officials told the Clauses it was the
"same community bank with a different name," and
"nothing had changed with respect to the relationship
between the bank and the Clauses." (Id.
¶¶ 14, 15.) However, the Clauses do not allege any
assurances were made relating to any specific prior promise.
Notably, a predecessor to Columbia, Commercial Bank,
performed services for the Clauses that were outside the
scope of a normal banking relationship between the 1980s
through 1995, such as "property inspections, loan
budgeting, project management and investment advice."
(Am. Compl. ¶ 5.)
"mandated" SHB serve as the general contractor on
the project, though it was not the Clauses' preferred
general contractor, because SHB was a "turnkey
builder." (Id. ¶ 16.) Kelly White
("White"), a senior loan officer at Columbia, and
Juan Mendoza ("Mendoza"), another loan officer at
Columbia, allegedly made various misrepresentations about
SHB's credit and capitalization. (Id. ¶
White and Mendoza made five representations regarding SHB
between June and October 2013. (Id. ¶ 17.)
First, White assured the Clauses "Columbia's
commercial loan department had conducted an extensive review
of SHB and its three members, as well as its projects,
business history, and creditworthiness." (Id.
¶ 17.) Second, White assured the Clauses there were no
issues regarding SHB that "would constitute 'red
flags.'" (Id. ¶ 17.) Third, both White
and Mendoza represented that Columbia had "thoroughly
checked out SHB with the Oregon Secretary of State's
office," and confirmed SHB "was appropriately
licensed and bonded with the State of Oregon" and with
the Oregon Construction Contractors Board ("CCB").
(Id. ¶ 17.) Fourth, White asserted "SHB
and its three principals had good credit" and had no
outstanding judgments or liens against SHB. (Id.
¶ 17.) Lastly, both White and Mendoza represented that
"SHB was a full-service builder, meaning that it was
licensed and had the employees necessary to complete all the
work on a home without having to hire subcontractors."
(Id. ¶ 17.) SHB, however, was not a
full-service builder, but rather a
"broker-builder," which meant the principals
borrowed money from the company "to hire out all the
physical work to subcontractors." (Id. ¶
of the representations made by Mendoza and White, the Clauses
relied on the evaluation of SHB's creditworthiness and
capitalization. (Am. Compl. ¶ 18.) However, when such
representations were made, SHB's members was either
"in or had recently emerged from Chapter 7 bankruptcy
proceedings," and the SHB member assigned to supervise
the development project was not listed as a member on the
contractor's license with CCB. (Id. ¶ 19.)
Furthermore, White and Mendoza made the representations
notwithstanding various negative financial documents from
SHB, such as a December 31, 2012 balance sheet that reported
a deficit equity of $62, 041 and that did not reconcile with
an S corporation tax form filed with IRS. (Id.
¶ 20.) The Clauses allege they would not have chosen to
proceed with SHB had they known of its precarious financial
position, but Columbia claimed its evaluation of SHB was a
trade secret or confidential when the Clauses requested it
for review. (Id. ¶¶ 18, 21.)
the sale of the Clauses' ranch had not yet closed and the
loan was not yet ready, White nevertheless advised the
Clauses to proceed with development of Lot 6. (Id.
¶ 25.) As a result of various delays on part of SHB and
SHB's lack of payment for necessary building permits, the
Clauses paid more in permit fees and interest payments than
if SHB had met its contractual obligations. (Id.
the Clauses allege Columbia failed to diligently administer
the project, as promised, in the following ways: (1) Columbia
made disbursements without first ensuring SHB provided
adequate supporting documentation, (2) failed to get lien
releases from SHB, (3) allowed SHB to list and sell Lot 6 at
less than fair market value and without an agreement made by
the Clauses, and (4) did not intervene when SHB commenced the
development process on Lot 3, despite the Loan Agreement
requiring no more than two houses could be developed at a
time. (Id. ¶¶ 27, 28, 29.)
2014, SHB left Lots 3, 4, and 5 unfinished in the McFall
subdivision. (Am. Compl. ¶ 30.) Though White attempted
to find a new general contractor, Columbia could not secure a
replacement because it refused to supply a list of
subcontractors and suppliers used by SHB to the replacing
contractor. (Id. ¶¶ 30, 31.)
2014, Columbia notified the Clauses that Parr Lumber, a
supplier for SHB, issued a notice of lien against Lots 1, 2,
3, 4, 5, 8, and 9 for supplies delivered and not paid for.
(Id. ¶ 32.) Over the following months, other
suppliers and subcontractors filed liens against the
properties. (Id. ¶ 32.) Because of oversights
and errors, a default judgment and a writ of garnishment
entered against the Clauses on August 22, 2014, in the
Circuit Court of the State of Oregon for the County of
Gilliam. (Id. ¶¶ 33, 34.) Columbia
ultimately filed its own liens on Lots 4 and 5, but Columbia
was still named as a defendant in the foreclosure proceedings
brought by other subcontractors in September of 2014.
(Id. ¶ 36.) Although the Clauses allege they
timely informed Columbia of the proceedings, the Clauses do
not allege that Columbia received written notice of the
October 2014, the CCB provided the Clauses with copies of
paid and unpaid invoices from SHB's suppliers and
subcontractors, which showed "Columbia incorrectly
allocated funds" when disbursing payments to SHB, and
that "SHB had kept more than $85, 000 by failing to pay
its suppliers and subcontractors." (Am. Compl. ¶
37.) That same month, White informed the Clauses there was a
"strong possibility" the liens and default
judgments could be resolved if the remaining liens could be
paid or dismissed. (Am. Compl. ¶ 38.) However, the
Clauses' loan file was transferred to a different
Columbia official in November 2014, and Columbia rejected the
Clauses' offer to pay $150, 000 to satisfy the valid
liens. (Id. ¶ 39.)
the liens and forfeiture proceedings were allegedly disputed
in good faith, Columbia froze the Clauses' line of credit
and did not request the Clauses provide a surety bond.
(Id., ¶ 39; Cruse Decl, Ex. 3 at 2.)
Consequently, the Clauses used the remaining funds, combined
with a private loan, to complete the unfinished homes on Lots
4 and 5. (Am. Compl. ¶ 41.)
March 2015, the Clauses, Columbia, and various lienholders
agreed to use the proceeds from the sale of Lot Four to pay
off the remaining liens. (Am. Compl., ¶ 43.) The
proceeds of selling Lot 4 allowed the Clauses to pay off the
participating lienholders, and they were able to post a
"bond in the amount of $203, 558 to remove SHB's
liens on Lots 4 and 5." (Id. ¶ 43.) The
Clauses allege they suffered significant economic harm as a
result of Columbia's pursuit of the foreclosure
proceedings. (Id. ¶48.)
Clauses filed suit against Columbia in the Circuit Court of
the State of Oregon for the County of Washington on June 22,
2016. (Notice of Removal, ECF No. 1.) On July 26, 2016,
Columbia removed the case to federal court on the basis of
diversity jurisdiction, 28 U.S.C. § 1332. (Id.)
On April 17, 2018, the court granted Columbia's first
motion to dismiss with leave to amend the claim. (Op. and
Order, ECF No. 65 ("Op. and Order") at 33.) The
Clauses filed their amended complaint on September 17, 2018,
which included three new claims: negligent misrepresentation,
breach of the obligation of good faith and fair dealing, and
promissory estoppel, in addition to the original claims of
breach of contract and fraud. (Am. Compl. at 12-14,
Subsequently, the Clauses moved the court to accept the
amended complaint. (Mot. to Accept First Am. Compl., ECF No.
of Columbia's Motion to Dismiss, Columbia moves the court
to consider materials outside of the pleadings in support of
their motion. In general, material outside the pleadings may
not be considered in ruling on a motion to dismiss unless the
motion is treated as one for summary judgment, and the
parties are "given reasonable opportunity to present all
materials made pertinent to such motion by Rule 56."
Jacobson v. AEG Capital Corp., 50 F.3d 1493, 1496
(9th Cir. 1995). There are two exceptions to this rule.
First, a court may consider "material which is properly
submitted to the court as part of the complaint," and
second, under Federal Rule of Evidence ("FRE") 201,
the court may take judicial notice of "matters of public
record." Lee v. Cty of Los Angeles, 240 F.3d
754, 774 (9th Cir. 2001, overruled on other grounds by
Galbraith v. Cty of Santa Clara, 307 F.3d 1119, 1125-26
(9th Cir. 2002). A document is not considered
"outside" the complaint if the complaint
specifically refers to the document, its authenticity is not
questioned, and the plaintiffs complaint necessarily relies
on it. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th
Cir. 2007) (per curiam).
materials Columbia has submitted in support of its motion are
properly before the court. The Loan Agreement and the
accompanying documents are not outside of the pleadings
because the Clauses' complaint specifically refers to and
necessarily relies on them, and neither party challenges
their authenticity. Accordingly, the court finds that the
Loan Agreement and accompanying documents are not outside the
complaint, Columbia's motion should be treated as a
motion to dismiss rather than for summary judgment.
Motion to Dismiss for Failure to State a Claim
Rule of Civil Procedure ("Rule") 8 requires that
complaints in federal court consist of "a short and
plain statement of the claim showing that the pleader is
entitled to relief[.]" FED. R. CIV. P. 8(a)(2).
Pleadings need not contain detailed factual allegations, but
"labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do[.]"
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007). However, a claim "may proceed even if it strikes
a savvy judge that actual proof of [necessary] facts is
improbable," and the plaintiff is unlikely to succeed on
the merits. Id. at 556.
a plaintiff need not allege detailed facts, a motion to
dismiss under Rule 12(b)(6) will be granted if the pleading
fails to provide "enough facts to state a claim to
relief that is plausible on its face." Twombly,
550 U.S. 554, 570 (2007). A claim rises above the speculative
level "when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged."
Ashcroft v. Iqbal, 556 U.S. 662 (2009). The court is
required to "assume the veracity" of all
well-pleaded factual allegations and draw all
"reasonable inferences in favor of the nonmoving
party." Holden v. Hagopian, 978 F.2d 1115, 1118
(9th Cir. 1992). Thus, "for a complaint to survive a
motion to dismiss, the non-conclusory 'factual
content,' and reasonable inferences from that content,
must be plausibly suggestive of a claim entitling the
plaintiff to relief." Moss v. United States Secret
Serv., 572 F.3d 962, 969 (9th Cir. 2009) (citation
pro se pleadings must be "liberally
construed." Allen v. Gold Country Casino, 464
F.3d 1044, 1048 (9th Cir. 2006). Before dismissing a pro
se litigant's complaint, the court must give the
pro se litigant leave to amend his complaint unless
it is "absolutely clear that the deficiencies of the
complaint cannot be cured by amendment." Weilburg v.
Shapiro, 488 F.3d 1202, 1205 (9th Cir. 2007).
the Clauses' original complaint was drafted by an
attorney who has since withdrawn from the case. Thereafter,
they filed their motion to accept first amended complaint
pro se, However, the "amended complaint was
prepared mostly by attorneys that Plaintiffs had hired for
the limited purpose." (Mem. in Supp. of Pl. Mot. to
Accept First Am. Compl., ECF No. 78 ("Mem. in
Supp.") at 1.) Nonetheless, the court will construe the
Clauses' motions liberally.
Leave to Amend - Fed.R.Civ.P. 15(a)(2)
15(a) provides that leave to amend "shall be freely
given when justice so requires." Segal v. Rogue
Pictures, 544 Fed.Appx. 769, 770 (9th Cir. 2013)
(citation omitted); Fed.R.Civ.P. 15. The court may, however,
deny leave to amend upon consideration of several factors
"such as undue delay, bad faith or dilatory motive on
the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the
opposing party by virtue of allowance of the amendment, [or]
futility of amendment." Eminence Capital, LLC v.
Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003)
(citing Foman v. Davis, 371 U.S. 178 (1962)).
court has taken Columbia's Motion to Dismiss and the
Clauses' Motion to Accept First Amended Complaint under
advisement together, and thus will discuss each in turn. With
Columbia's Motion to Dismiss, the court will discuss the
amended claims of fraud and breach of contract. Next, the
court will discuss the newly asserted claims of negligent
misrepresentation, breach of the obligation of good faith and
fair dealing, and promissory estoppel.
establish a claim for fraud under Oregon law, a plaintiff
must show: (1) the defendant made a material representation
that was false; (2) the defendant knew that the
representation was false; (3) the defendant intended the
plaintiff to rely on the misrepresentation; (4) the plaintiff
justifiably relied on the misrepresentation; and (5) the
plaintiff was damaged as a result of that reliance.
Horton v. Nelson, 252 Or.App. 611, 616 (2012)
(citing Strawn v. Farmers Ins. Co., 350 Or. 336,
352, adh'd to on recons., 350 Or. 521, 256
(2011), cert, den., 565 U.S. 1177 (2012)); see
also Knepper v. Brown, 345 Or. 320, 329 (2008) (noting
that more recent Oregon cases use the abbreviated
five-element list as opposed to the older nine-element list,
and that historical references to proximate cause are
subsumed in the last element of the abbreviated list). A
plaintiff must establish each element of fraud by clear and
convincing evidence. Riley Hill Gen. Contractor, Inc. v.
Tandy Corp., 303 Or. 390, 392 (1987) (en banc).
following elements are in dispute: (1) that the Clauses'
reliance was justified; (2) that Columbia knew its
representation - that "SHB was a reputable builder that
had strong credit and adequate capitalization" - was
false; and (3) that Columbia intended to induce the Clauses
with the alleged misrepresentation.
Clauses argue their reliance on Columbia's representation
regarding SHB's credit and capitalization was justified
because of their "longstanding relationship" with
Columbia and its predecessors, because Columbia went beyond
the typical lender-borrower relationship by overseeing
certain financial aspects of the project, and because
Columbia's evaluation of their own credit was extensive.
(Pl. Resp. at 15.) The Clauses also allege reliance was
justified, in part, because Columbia was aware of the
Clauses' health status and promised to financially
administer the project. (Id. at 14.) In response,
Columbia argues the fiduciary duties the Clauses reference
have long since ceased, and the conclusory statements made by
the Clauses do not support any justifiable reliance on behalf
of the Clauses. (Def. Reply 14.)
reliance is justified requires consideration of the totality
of the parties' circumstances and conduct, which includes
whether the party claiming reliance took reasonable
precautions to safeguard his or her own interests."
Masood v. Safeco Ins. Co. of Oregon, 275 Or.App.
315, 332, 365 P.3d 540 (2015) (citation omitted) (internal
quotations omitted). Finding justifiable reliance therefore
"hinges on the extent to which the plaintiff had a duty
to investigate the truth of the statement." Murphy
v. Allstate Ins. Co., 251 Or.App. 316, 324 (2012).
Oregon law has focused on two criteria to make this
determination: first, the ability of a party to obtain
information, i. e. the "difficulty that a
plaintiff would encounter in conducting an independent
investigation of the truthfulness of the statement;" and
second, the relative sophistication of the parties - that is,
"whether the parties are equally capable of evaluating
certain facts about the statements." Id. at
325. Furthermore, parties can be equally sophisticated when
the parties have prior experience with the particular subject
matter, even if the respective experiences vary. See
Id. at 317-19, 326 (finding that a jury could conclude
that the parties were equally sophisticated when plaintiff, a
long-time construction worker, relied on statements by
defendant-claims adjuster that permits were not needed to
complete restoration work).
though Columbia refused to disclose documentation related its
evaluation of SHB, the Clauses do not allege they would have
encountered difficulty in obtaining the public information
regarding SHB or that they tried to obtain such information
at all. Moreover, the longstanding history of the parties,
and their multiple successful dealings in the past, suggest
the relative sophistication of the parties is near equal with
respect to development projects and selecting contractors. In
other words, both parties could equally evaluate certain
facts and make informed decisions based on those facts. For
example, the Clauses assert that had they known about the
financial status of the general contractor, they would have
opted to partner with their preferred dealer. This assertion
suggests the Clauses are equally capable of evaluating
certain facts about Columbia's statements regarding SHB.
Conversely, the terms of the Loan Agreement - that Columbia
would need to approve the general contractor - suggests
Columbia is familiar with development projects enough to
evaluate a general contractor.
the poor health of one party, which could adversely affect
both the difficulty of conducting an independent
investigation of a statement's veracity and the
evaluation of material facts, must be taken into account.
See Soursby v. Hawkins, 307 Or. 79, 87 (1988)
(stating that a real estate purchaser may rely on
representations if "discovering the truth would be
unreasonably difficult"). The facts alleged in the
Amended Complaint do not indicate the Clauses' health or
mental state was affected such that their duty to investigate
was somehow diminished. On the contrary, the fact the Clauses
were able to contract with another contractor and finish the
development without Columbia's assessment of a general
contractor demonstrates the Clauses were able to act on their
duty to protect their own interests without Columbia's
evaluation. This undercuts their argument that their reliance
on Columbia's representations was justified. Moreover, if
true, the promise to provide financial oversight of the
project did not alter the Clauses' duty to investigate,
as the promise of financial oversight does not explain how
the reliance on the selection of SHB was justified.
Additionally, merely concluding reliance was justified
because a longstanding relationship exists does not address
whether a party's duty to investigate was satisfied.
the extensiveness of their own credit check has no bearing on
the reasonableness of their reliance on Columbia's
representations. That the Clauses' credit check was
extensive in no way relieves them of their own duty to
investigate Columbia's assertions regarding the credit of
a third party whom they ultimately hired. Additionally, and
as discussed infra, assuming responsibility of the
financial oversight of the project does not change the nature
of the typical lender-borrower or lender-developer
relationship. See Bennett v. Farmers Ins. Co. of
Oregon, 332 Or. 138, 161 (2001) (reasoning that a
heightened duty is imposed when the relationship, "by
its nature, allows one party to exercise judgment on the
other party's behalf). Accordingly, because factual
support of the Clauses' duty to investigate is lacking,
the allegations with respect to the Clauses' justified
reliance are not plausible.
Knowledge of Falsity
argues that the Clauses have failed to allege facts showing
Columbia knew its representation was false, and though the
Clauses allege facts that support the falsity of
Columbia's representation, the Clauses fail to allege
facts showing Columbia knew of this information. (Def. Mot.
at 20.) The Clauses argue Columbia's representations -
that Columbia conducted an "extensive review" of
SHB and that Columbia went through SHB's information with
a "fine-tooth comb" similar to the review of the
Clauses' finances - support Columbia's knowledge of
the falsity of their representation that SHB had strong
credit and was adequately capitalized. (Pl. Resp. at 14-15;
Am. Compl. ¶¶ 17, 18.) Furthermore, the Clauses
argue that "[d]eficit equity, indebtedness, negative
gross profit, and negative expenses are not consistent with
strong credit and adequate capitalization," and that it
is reasonable to infer that Columbia knew that SHB was
"a mere shell and not a full-service contractor."
(PL Resp. at 16.)
the Amended Complaint alleges that Columbia would have known
the falsity of their assertions based on a 2012 balance sheet
reporting notes receivable and loans receivable by the owners
in the amount of $120, 478 and $141, 533, respectively, and a
deficit equity of $62, 041; a negative gross profit and
negative expenses report; and that SHB's members were
"in or had recently emerged from Chapter [seven]
bankruptcy proceedings." (Am. Compl. ¶¶ 19,
20.) Further, the Clauses allege Columbia's agents
represented to the Clauses that SHB was a "full-service
builder," meaning that it was "licensed and had the
employees necessary to complete all the work on a home
without having to hire subcontractors;" that
"Columbia's commercial loan department had conducted
an extensive review of SHB and its three members, as well as
projects, business history, and creditworthiness;" and
that SHB had strong credit and adequate capitalization. (Am.
Compl. ¶¶ 17, 18, 19.)
the substantive elements of a state law fraud claim are
determined by state law, those elements still must be pleaded
"with particularity." Fed.R.Civ.P. 9(b); Vess
v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1103 (9th Cir.
2003). Knowledge of falsity can be proven by alleging facts
that establish the speaker's knowledge of falsity of the
representation or the ignorance of its truth. Burgdorf v.
Weston, 259 Or.App. 755, 771 (2013).
member filing for bankruptcy does not mean the LLC is equally
affected. See ORS 63.265(1)-(2)(a); see also
Smith v. Cent. Point Pawn, LLC, 296 Or.App. 341, 347,
438 P.3d 436, 440 (2019) (holding that the summary judgment
record contained sufficient evidence to create a triable
issue whether the debt incurred by an LLC member also bound
the LLC to the same debt); see also In re Woodfleld,
602 B.R. 747, 753 (Bankr. D. Or. 2019) (stating that
"Oregon law creates a process of dissociation when a LLC
member files a bankruptcy petition ... [and] if a member of a
multi-member LLC files a bankruptcy petition, that member
ceases to be an LLC member, but retains the right to receive
and retain ... the distributions ... and allocations of
profits and losses to which the [member] would be
entitled") (citation omitted) (internal quotations
omitted). Further, a member filing for bankruptcy does not
mean that the LLC has dissolved. ORS 63.249(2). But, an LLC can
be dissolved when the LLC has no members. ORS 63.621(4).
Additionally, the assignment of a membership interest can be
in whole or in part, and the assignor of the interest
"ceases to be a member with respect to the interest
assigned." ORS 63.249 (1), (2), (5).
Clauses have not alleged facts to support that SHB, rather
than one of its members, was in or recently emerged from
bankruptcy proceedings, which could plausibly and negatively
affect SHB's credit. At most, the fact that SHB's
members filed bankruptcy would inform Columbia only that
there was an assignee to part of an interest of the bankrupt
member, not that the LLC's financial condition was
affected. Moreover, there is no factual support to plausibly
infer that the bankruptcy proceedings of the three members
had a negative effect on SHB's credit or that the
proceedings dissolved the LLC. Though possible that all three
members were in bankruptcy proceedings at the same time,
effectively leaving the LLC without members and causing its
dissolution, the facts alleged do not support the
plausibility that the LLC was dissolved at the time Columbia
made the representations of SHB's creditworthiness and
capitalization. Absent such factual allegations, SHB's
members filing for bankruptcy does not support that Columbia
knew or was ignorant of any bankruptcy proceedings affecting
SHB. It is equally possible that SHB's creditworthiness
was still in good standing despite the members'
bankruptcy proceedings, or that the LLC had at least one
member when Columbia made its representations about SHB's
financial condition. Consequently, the Clauses have failed to
allege facts supporting the falsity of Columbia's
representation of SHB's creditworthiness at the time of
the representation or Columbia's knowledge of such
taking the allegation that Columbia reviewed 2012 financial
forms and that SHB was not a "full-service builder"
as true, there is not enough factual support that Columbia
knew SHB was not adequately capitalized. The capital
contributions by the members of an LLC can be either cash,
property, services rendered or a promissory note or other
obligation to contribute cash, property, or render services.
ORS 63.175. When analyzing whether a coiporation was
adequately capitalized, Oregon courts have emphasized that
"a corporation must have sufficient capital to cover its
reasonably anticipated liabilities, measured by the nature
and magnitude of its undertaking, the risks attendant to the
particular enterprise and normal operating costs associated
with its business." Klokke Corp. v. Classic
Exposition, Inc., 139 Or.App. 399, 405, 912 P.2d 929,
932-33 (1996). Also, "[b]ecause loans to the
corporation do not increase the worth of the corporation or
the assets available to conduct its business, they are not
part of its capitalization." Id. Lastly,
"[t]he sufficiency of capital is determined at the time
a corporation is formed and in the beginning of its
operation." Stirling-Wanner v. Pocket Novels,
Inc., 129 Or.App. 337, 341 (1994).
the 2012 financial statements, the Clauses do not allege that
Columbia reviewed only the 2012 financial statements, but
they allege that in light of the 2012 financial statements,
Columbia knew that SHB's credit and capitalization was
not in good standing. A single year's balance sheet would
not be able to show what contributions an LLC member made at
the formation of the LLC, and the reference to loans
receivable does not "increase the worth" of SHB or
affect the assets available to conduct SHB's business.
Thus, the member ...