Opinion
3:22-cv-01481-SB
04-04-2023
GREGORY G. DROBOT, an individual, Plaintiff, v. GROWTH COMMERCIAL CAPITAL, INC., an Oregon corporation, and BEN LOONEY, an individual, Defendants.
FINDINGS AND RECOMMENDATION
HON. STACIE F. BECKERMAN, UNITED STATES MAGISTRATE JUDGE
Gregory Drobot (“Drobot”) filed this action against Growth Commercial Capital, Inc. (“GCC”) and Ben Looney (“Looney”) (together, “Defendants”), alleging a claim for breach of a Business Term Loan Agreement dated June 24, 2021 (the “June Agreement”). Defendants filed a motion to dismiss Drobot's complaint under Federal Rule of Civil Procedure (“Rule”) 12(b)(1) for lack of subject matter jurisdiction, and under Rule 12(b)(7) for failure to join a party required under Rule 19.
“Following stylistic amendments enacted in 2007, [Rule] 19 no longer refers to ‘indispensable' parties, but instead uses the term ‘required party.'” Alto v. Black, 738 F.3d 1111, 1118 n.6 (9th Cir. 2013). The Court “do[es] so as well.” Id.
The parties have not consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636. For the reasons explained below, the Court recommends that the district judge deny Defendants' motion to dismiss.
This Background is limited to the factual and jurisdictional allegations in the complaint, and terms of the June Agreement referenced therein and attached thereto. (Compl.; id. Ex. A.) As explained below, however, the Court also considers the parties' declarations to resolve Defendants' motion, and does not attach a presumption of truthfulness to Drobot's jurisdictional allegations. See United States v. Pangang Grp. Co., Ltd., 6 F.4th 946, 954 (9th Cir. 2021) (“If the defendant makes a factual challenge, the defendant may introduce testimony, affidavits, or other evidence to dispute the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction. In this posture, no presumptive truthfulness attaches to plaintiff's allegations.”) (simplified).
Drobot alleges that he is a resident of Kirkland, Washington, and thus is a citizen of Washington. (Compl. ¶ 6, ECF No. 1.) Looney is a resident of Oregon City, Oregon, and citizen of Oregon. (Id. ¶ 5.) GCC is an Oregon corporation with a principal place of business in Oregon City, Oregon. (Id. ¶ 4.)
On June 24, 2021, Drobot and Defendants executed the June Agreement, under which Defendants borrowed $150,000 from Drobot. (Id. ¶ 9; id. Ex. A at 1-2.) The June Agreement, which Defendants “prepared and drafted,” referred to Drobot as the lender located at a Bandon, Oregon address, and Looney and GCC together as the borrower located at an Oregon City, Oregon address. (Id. ¶ 9; id. Ex. A at 1.) In exchange for the loan, Defendants promised to pay Drobot $225,000 on or before July 31, 2021. (Id. ¶ 10; id. Ex. A at 1.)
The June Agreement also provided that Defendants were entitled to “two, [two]-week options to extend the loan term” but they would “accrue an additional $25,000 fee per extension, to be paid back at loan maturity.” (Id. Ex. A at 1; id. ¶ 10.) Thus, “[i]f extension number one [was] utilized, $250,000 [would] be due August 15th, 2021,” and “[i]f extension number two [was also] utilized, $275,000 [would] be due August 31st, 2021.” (Id. Ex. A at 1.)
The June Agreement further provided that Drobot was entitled to late fees if Defendants defaulted on their repayment obligations. (Id. Ex. A at 1; id. ¶ 14.) Specifically, and as relevant here, if Defendants properly exercised their right to both two-week extensions and failed to pay Drobot $275,000 on or before August 31, 2021, Defendants would “accrue a 2% compounding late fee, per week.” (Id. Ex. A at 1; id. ¶¶ 12-14.) The June Agreement provided that the first late fee for “2% of the total loan balance” would be assessed on September 1, 2021, and additional fees would be assessed “every Monday [thereafter] until the balance [was] paid back . . . in full.” (Id. Ex. A at 1.)
The June Agreement provided that the loan was “unsecured.” (Id. Ex. A at 1.) Drobot, however, “reserve[d] the right to file a lien[] against [GCC] and any of the personal guarantor's personal or business assets, . . . includ[ing] a residential development located at 23000 and 23010, West Linn, OR 97068, if full payment [was] not repaid within the term of the loan.” (Id.)
Defendants exercised their right to both extensions of the loan term but failed to pay Drobot $275,000 on or before August 31, 2021. (Id. ¶¶ 12-14.) Drobot began assessing late fees on September 1, 2021. (Id. ¶ 14.) The following year, on September 12, 2022, and after Drobot “made repeated demands” for repayment in full and Drobot's counsel “made a final demand for repayment,” Defendants' counsel “notified [Drobot] that [Defendants] do not intend to make any additional payments for amounts still owing to [Drobot] under the terms of the [June] Agreement.” (Id. ¶¶ 15-17.)
Drobot filed the present action on October 3, 2022. Defendants' motion to dismiss followed.
DISCUSSION
Defendants move to dismiss Drobot's complaint under Rule 12(b)(1) for lack of subject matter jurisdiction and under Rule 12(b)(7) for failure to join a required party under Rule 19. (Defs.' Mot. Dismiss (“Defs.' Mot.”) at 1, 4, 9, ECF No. 4.) The Court first addresses Defendants' Rule 12(b)(1) motion, which presents a threshold question regarding whether Drobot's complaint appropriately invokes this Court's diversity jurisdiction under 28 U.S.C. § 1332(a)(1).
I. SUBJECT MATTER JURISDICTION
A. Applicable Law
“Rule 12(b)(1) jurisdictional attacks can be either facial or factual.” San Diego Cnty.Credit Union v. Citizens Equity First Credit Union, 60 F.4th 481, 497 (9th Cir. 2023) (quoting White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000)). “If the defendant makes a factual challenge, ‘the defendant may introduce testimony, affidavits, or other evidence to dispute the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.'” Pangang, 6 F.4th at 954 (quoting Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012)). When a defendant makes a factual attack on subject matter jurisdiction, “no presumptive truthfulness attaches to plaintiff's allegation,” id. (quoting Terenkian, 694 F.3d at 1131), and “the plaintiff bears the burden of proving by a preponderance of the evidence that each of the requirements for subject-matter jurisdiction has been met.” San Diego Cnty. Credit, 60 F.4th at 497 (quoting Leitev. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014)).
B. Analysis
Defendants make a factual challenge to Drobot's “claim to Washington citizenship” (Defs.' Mot. at 5), and submit declarations and exhibits to dispute the truth of Drobot's claim. (See Decl. Ben Looney Supp. Defs.' Mot. Dismiss (“Looney Decl.”) ¶¶ 1-4 & Exs. 1-2, ECF No. 5; Decl. Daniel DiCicco Supp. Defs.' Mot. Dismiss (“DiCicco Decl.”) ¶¶ 1-3 & Exs. 1-7, ECF No. 6; Cover Sheet Ex. 3 Decl. Benjamin Looney (“Looney Decl. Ex. 3”) at 1-3, ECF No. 7; Suppl. Decl. Ben Looney Supp. Defs.' Mot. Dismiss (“Suppl. Looney Decl.”) ¶¶ 1-4 & Exs. 1-2, ECF No. 12.) Drobot likewise submits evidence in response to Defendants' motion and in support of his claim that at all material times, he was (and continues to be) a citizen of Washington. (See Decl. Gregory Drobot Supp. Pl.'s Resp. Opp'n Mot. Dismiss (“Drobot Decl.”) ¶¶ 1-20 & Exs. 1-7, ECF No. 10.)
There is no dispute that Defendants are Oregon citizens, that the amount in controversy exceeds $75,000, that Defendants' Rule 12(b)(1) motion and factual attack on subject matter jurisdiction concerns only whether Drobot is a Washington citizen, and that no presumptive truthfulness attaches to Drobot's alleged state citizenship. The relevant question, then, is whether Drobot has satisfied his burden of proving by a preponderance of the evidence that he is a Washington citizen. SeeSan Diego Cnty. Credit, 60 F.4th at 497 (“If the factual basis for jurisdiction is disputed, the plaintiff bears the burden of proving by a preponderance of the evidence that each of the requirements for subject-matter jurisdiction has been met.”) (simplified); 28 U.S.C. § 1332(a)(1) (conferring jurisdiction on district courts where the plaintiff alleges that the parties are completely diverse and the amount in controversy exceeds $75,000); NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 611 (9th Cir. 2016) (“The party seeking to invoke the district court's diversity jurisdiction always bears the burden of both pleading and proving diversity jurisdiction.”).
As explained below, the Court concludes that Drobot has carried his burden of proving by a preponderance of the evidence that he is a Washington citizen. The Court therefore recommends that the district judge deny Defendants' motion to dismiss pursuant to Rule 12(b)(1).
“[F]or diversity of citizenship, ‘a person is domiciled in a location where he or she has established a fixed habitation or abode in a particular place, and [intends] to remain there permanently or indefinitely[.]'” Chambers v. Knight, No. 20-56141, 2021 WL 4811360, at *1 (9th Cir. Oct. 15, 2021) (quoting Lew v. Moss, 797 F.2d 747, 749-50 (9th Cir. 1986)). In Lew, the Ninth Circuit addressed “factors for determining an individual's domicile.” Id. (citing Lew, 797 F.2d at 749-50). The Ninth Circuit explained that although “no single factor [is] controlling,” Lew, 797 F.2d at 750, these factors are relevant to a court's determination of an individual's domicile: (1) current residence, (2) location of spouse and family, (3) location of real and personal property, (4) place of employment or business, (5) payment of taxes, (6) location of bank and brokerage accounts, (7) automobile registration and driver's license, (8) voting registration and practices, and (9) membership in unions and other organizations. Id. (citations omitted).
The parties agree as to the relevancy of these factors. (See Pl.'s Resp. Opp'n Defs.' Mot. Dismiss (“Pl.'s Resp.”) at 5-6, ECF No. 9, quoting Lew; Defs.' Reply Pl.'s Opp'n Mot. Dismiss (“Defs.' Reply”) at 5-6, ECF No. 11, citing the same factors). The parties did not submit evidence specifically addressing factors (8) and (9). As such, the Court's analysis focuses on factors (1) through (7). On balance, these factors demonstrate that Drobot is domiciled in Washington.
Drobot declares under penalty of perjury that he has been a resident of Washington since 2016, he intends to remain in Washington “indefinitely,” and he currently resides at his “home located at 11250 108th Ave NE, in Kirkland, Washington, [along] with [his] wife and child.” (Drobot Decl. ¶ 2.) Drobot also declares that he and his wife-the latter of whom is a full-time employee at Microsoft's campus in Redmond, Washington, and currently pregnant with a child the Drobots “expect to raise” in Washington-own the home at the aforementioned Kirkland address. (Id. ¶¶ 3-4.) In support, Drobot submits a copy of he and his wife's “most recent monthly mortgage statement,” which identifies their home located at the Kirkland address. (Id. ¶ 3; see also id. Ex. 1 at 1, noting that on August 26, 2022, Drobot and his wife received a “Mortgage Statement” for the Kirkland property from Citadel Services Corporation) (bold omitted).
Defendants do not dispute that Drobot's wife resides in Washington, nor address Drobot's claim that his child resides in Washington, his wife works full-time in Washington, and the Drobots expect to raise their second child in Washington with the rest of their family. (See Defs.' Reply at 5-6.) Defendants do, however, dispute Drobot's assertion that he resides is Kirkland, Washington, as opposed to Bandon, Oregon. (See id. at 6.) Defendants emphasize, among other things, that during their “many years” friendship and business dealings, Drobot provided Looney with a copy of his Oregon driver's license. (See Defs.' Reply at 5-6; Looney Decl. ¶ 4; id. Ex. 3 at 2-3; Suppl. Looney Decl. ¶ 1.) Drobot's Oregon driver's license lists his address as the same Bandon address that Looney cited when he drafted the June Agreement. (See Looney Decl. Ex. 3 at 2; Compl. Ex. A at 1; id. ¶ 9; Drobot Decl. ¶¶ 12-13.) Drobot's Oregon driver's license sets forth issuance and expiration dates of October 1, 2019 and March 22, 2022, respectively. (Looney Decl. Ex. 3 at 2.)
Drobot declares that his father owns the townhome located at the Bandon address, he “typically travel[s] to Oregon on business for approximately one week, every other month,” and he “often stay[s] at [the] townhome owned by [his] father” when he does so. (Drobot Decl. ¶ 10.) Drobot identifies the townhome address “as one were [he] can be reached and mail can be sent in connection with all of his Oregon business entities.” (Id. ¶ 10.)
Drobot also declares that he was a resident of Oregon “[p]rior to 2016,” and that he currently serves as the president of, and draws a salary from, FRC, Inc. (“FRC”), which is headquartered in Bandon. (Id. ¶¶ 6-7.) Drobot founded FRC when he resided in Oregon, but FRC sends Drobot's paychecks to his home address in Kirkland, and Drobot deposits his paychecks in “a bank account located in Washington state.” (Id. ¶ 7; id. Ex. 2 at 1; DiCicco Decl. Ex. 2 at 1-2.) Although he lives in Washington, a “state [that] does not have a personal income tax,” Lo v. United States, No. 2:17-cv-01202-TL, 2023 WL 2014331, at *23 (W.D. Wash. Feb. 15, 2023) (citation omitted), Drobot “pay[s] Oregon state income tax on a yearly basis” because he “earn[s] income . . . from FRC,” and FRC was “required to obtain a Washington State Business License in order to pay [Drobot his] salary as an out of state employee.” (Drobot Decl. ¶¶ 8-9; id. Exs. 3-4.)
Defendants have submitted publicly available business registration filings for Drobot's business entities, including FRC, a cheese manufacturing and retail business based out of Bandon, with a registration date of December 28, 2015. (DiCicco Decl. ¶¶ 1-4; id. Exs. 2-7.) FRC's amended annual report dated December 20, 2021 lists Drobot as the president with a post office (“P.O.”) box address in Bandon. (Id. Ex. 2 at 1.) Some of Drobot's business entities, such as Rock Face, LLC (“Rock Face”), list the P.O. box or Drobot's father's townhome in Bandon as their mailing address, and the latter as the location of their primary place of business and address of their registered agent (Drobot), member (Drobot), and/or manager (Drobot). (See id. Exs. 3, 57.)
Additionally, the record demonstrates that before filing this action on October 3, 2022, Drobot was involved in a California state court action and filed a declaration regarding his current residence. (See id. ¶¶ 19-20; id. Exs. 6-7.) In that declaration dated November 8, 2021, and consistent with his representations here, Drobot declared under penalty of perjury that he lived with his wife and child at the Kirkland address, he had been a resident of “Washington since 2016” and “intend[ed] to remain [there] indefinitely,” and he occasionally travels to Oregon for business. (Id. Ex. 6 at 1; see also id. ¶¶ 19-20; id. Exs. 6-7, reflecting that on January 25, 2019, Drobot executed a quitclaim deed transferring his rights to property in Coos Bay, Oregon to Rock Face).
The Court finds that Drobot has carried his burden of proving by a preponderance of the evidence that he is a Washington citizen. Consistent with the evidence above and discussion below, the weight of the evidence supports that Drobot currently resides in Washington. Factor (1) (Drobot's current residence) and factor (2) (the location of Drobot's spouse and family) support that Drobot is a Washington citizen. Defendants do not dispute factor (2). As to factors (3) through (5), the record reflects that Drobot earns income from FRC and thus pays Oregon state income tax. The record, however, also shows that FRC sends Drobot's personal paychecks to his Kirkland address and obtained a Washington license to pay Drobot as an out of state employee. Defendants do not address these facts. (See Defs.' Reply at 6.)
Further, although Defendants acknowledge that Drobot owns a home in Washington and executed a quitclaim deed transferring his rights to property in Coos Bay, Oregon to his limited liability company (“LLC”), Rock Face (see id., noting the Kirkland property and citing Drobot Decl. Ex. 7), Defendants do not address whether this deed undermines their suggestion that Drobot personally owns “real property holdings” in Oregon. (See id., relying only on Drobot Decl. Ex. 7 in support); see also White v. Simpson, 915 P.2d 1004, 1009 (Or. Ct. App. 1996) (“A quitclaim deed transfers whatever legal and equitable interests the grantor may hold in the property involved.”).
While Drobot and some of Drobot's businesses use a Bandon P.O. box address or his father's townhome address, this appears consistent with Drobot's claims that he previously resided in Oregon, travels to Oregon every other month for business, and often stays and receives business mail at his father's townhome, but otherwise resides with his family in Kirkland. Also notable is that in the California action before filing this suit and about four months after signing the June Agreement, Drobot made identical claims (under penalty of perjury) as to his Washington residency.
On balance, factors (3) through (5)-the location of real and personal property, place of employment or business, and payment of taxes-support the Court's finding that Drobot has carried his burden of demonstrating by a preponderance of the evidence that he is a Washington citizen. Factor (6)-the location of bank and brokerage accounts-also supports such a finding, as the record reflects only that Drobot deposits his personal paychecks into a bank account located in Washington.
Factor (7)-driver's license and automobile registration-does not favor Drobot. The record reflects only that Drobot had an Oregon driver's license between October 1, 2019 and March 22, 2022. It is not clear why Drobot may have renewed an Oregon driver's license in October 2019, several years after moving to Washington. The record does not address whether Drobot obtained a Washington driver's license before or after March 2022, or whether his vehicles are registered in Washington.
The relevant factors support that Drobot's domicile is Washington, and the Court finds that Drobot has carried his burden of proving by a preponderance of the evidence that he is a Washington citizen. The Court therefore recommends that the district judge deny Defendants' Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction.
II. JOINDER
Defendants also move to dismiss Drobot's complaint under Rule 12(b)(7) for failure to join Rock Face as a required party. (Defs.' Mot. at 3-4, 9-12.) As explained below, the Court finds that Rock Face is not a required party.
A. Applicable Law
“Failure to join a party that is required under [Rule] 19 is a defense that may result in dismissal under [Rule] 12(b)(7).” Klamath Irrigation Dist. v. U.S. Bureau of Reclamation, 48 F.4th 934, 943 (9th Cir. 2022). In reviewing a motion to dismiss under Rule 12(b)(7), courts in this circuit “engage in a three-part inquiry.” Id.; see also Salt River Project Agric. Improvement& Power Dist. v. Lee, 672 F.3d 1176, 1178-79 (9th Cir. 2012) (same). First, the court “examine[s] whether the absent party must be joined under Rule 19(a).” Klamath, 48 F.4th at 943. Second, the court “determine[s] whether joinder of that party is feasible.” Id. Third, “if joinder is infeasible, [the court] must ‘determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.'” Id. (quoting FED. R. CIV. P. 19(b)).
In conducting this three-party inquiry, the court “must accept all factual allegations in the complaint as true and draw inferences in favor of the non-moving party.” 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1359 (3d ed. Apr. 2022 update). The court, however, may also consider evidence outside of the pleadings. Id.; see also Backcountry Against Dumps v. U.S. Bureau of Indian Affs., No. 20-cv-2343, 2021 WL 3611049, at *3 (S.D. Cal. Aug. 6, 2021) (making the same observations before overruling evidentiary objections), aff'd, No. 21-55869, 2022 WL 15523095, at *1-2 (9th Cir. Oct. 27, 2022); Potter v.Blue Shield of Cal. Life & Health Ins. Co., No. 14-0837, 2014 WL 6910498, at *4 (C.D. Cal. Nov. 26, 2014) (“[T]o determine whether Rule 19 requires the joinder of additional parties, the court may consider evidence outside of the pleadings.” (citing McShan v. Sherrill, 283 F.2d 462, 464 (9th Cir. 1960))).
“[C]ases make it clear that the burden is on the party moving under Rule 12(b)(7) to show the nature of the unprotected interests of the absent individuals or organizations and the possibility of injury to them or that the parties before the court will be disadvantaged by their absence.” Wright & Miller, supra, § 1359. To meet this burden, a party may need to “present affidavits of persons having knowledge of these interests as well as other relevant extra-pleading evidence.” Id.
B. Analysis
The Ninth Circuit has explained that joinder of a party (here, Rock Face) is required under Rule 19 if:
(1) the court cannot accord ‘complete relief among existing parties' in the [party's] absence, or (2) proceeding with the suit in its absence will ‘impair or impede' the [party's] ability to protect a claimed legal interest relating to the subject of the action, or ‘leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.'Alto, 738 F.3d at 1126 (quoting FED. R. CIV. P. 19(a)(1)(A)-(B) and Shermoen v. United States, 982 F.2d 1312, 1317 (9th Cir. 1992)). The Court only proceeds to the second part of the inquiry (whether joinder is feasible) if it finds that Rock Face is a required party. Seeid. (“Only if we determine that the [absent party] is a required party do we proceed to the second Rule 19 inquiry: whether joinder is feasible[.]”).
Defendants argue that joinder of Rock Face is required under Rule 19 because the Court cannot accord “complete relief” to the parties in Rock Face's absence, and because proceeding in Rock Face's absence would leave GCC subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations in a separate lawsuit. (Defs.' Mot. at 9-11.) The Court disagrees.
Before resolving the first part of the inquiry, the Court must address the evidence Defendants submit in support of their Rule 12(b)(7) motion, and the parties' related assertions. In support of their Rule 12(b)(7) motion, Defendants rely primarily on Looney's initial and supplemental declarations and supporting exhibits. (See Defs.' Mot. at 9-12; Defs.' Reply at 6-8.)
Looney's filings reflect that on July 11, 2021, about two and a half weeks after the parties executed the June Agreement, Rock Face, an LLC whose sole owner and member is Drobot, and Defendants executed a similar Business Term Loan Agreement (the “Rock Face Agreement”).Looney Decl. ¶ 1; id. Ex. 2 at 1-2; Drobot Decl. ¶¶ 16-17; DiCicco Decl. Ex. 3 at 1.) The Rock Face Agreement is nearly identical to the June Agreement. (See Compl. ¶ 9; id. Ex. A at 1-2; cf. Looney Decl. Ex. 2 at 1-2.) Similar to the June Agreement, the Rock Face Agreement refers to Rock Face as the lender located at Drobot and Rock Face's Bandon P.O. box, and Defendants together as the borrower located at the Oregon City address discussed above, and reflects that Defendants borrowed $220,000 from Rock Face and, in exchange, promised to pay Rock Face $220,000 by July 14, 2021, and an additional $110,000 by August 15, 2021. (Looney Decl. Ex. 2 at 1; see also DiCicco Decl. Ex. 3 at 1.)
Defendants argue that “Rock Face and . . . Defendants are all from Oregon,” that “joining Rock Face . . . to this action would destroy diversity jurisdiction,” and that Drobot failed to join Rock Face “because doing so would deprive this Court of subject matter jurisdiction.” (Defs.' Mot. at 9; Defs.' Reply at 4, 8) (bold omitted). An LLC such as Rock Face is “a citizen of every state of which its owners/members are citizens, not the state in which it was formed or does business.” New Gen, 840 F.3d at 613 (simplified). Thus, even if Drobot, a Washington citizen and Rock Face's sole owner and member, joined Rock Face as a co-plaintiff (cf. Defs.' Mot. at 10, arguing that it is an open question whether “Drobot intends to bring a second action” based on the Rock Face Agreement), the Court would still have subject matter jurisdiction under § 1332(a). See Jiang v. NBC Universal Media, LLC, No. 21-17029, 2023 WL 2585655, at *1 (9th Cir. Mar. 17, 2023) (holding that the district court erred in concluding that there was not “complete diversity between the parties,” and explaining that an LLC is a citizen of every state of which its owners/members are citizens and thus the district court erred in finding that the parties were “both residents of California”); see also Wells Fargo Bank, N.A. v. Kaveh, 743 Fed.Appx. 112, 113 (9th Cir. 2018) (“Because the amount in controversy exceeded $75,000, and all plaintiffs were diverse from all defendants, the court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a).”).
Like the June Agreement, the Rock Face Agreement provided that (1) the loan was unsecured but Rock Face reserved the right to file a lien “against [GCC] and any of the personal guarantor's personal or business assets,” including the previously identified residential development located in West Linn, and (2) if Defendants failed to pay Rock Face $330,000 by August 15, 2021, Defendants would “accrue a 2% compounding late fee[] per week,” and the first late fee for “2% of the total loan balance” would be assessed on August 16, 2021. (See id.) Unlike the June Agreement, the Rock Face Agreement did not include options to extend the loan term. (See id.)
Drobot alleges (and the Court must accept as true, see Wright & Miller, supra, § 1359) that Defendants exercised their two options under the June Agreement to extend their repayment obligations. (Compl. ¶¶ 10-12; id. Ex. A at 1; see also Looney Decl. ¶¶ 1-4; Suppl. Looney Decl. ¶¶ 1-4, failing to address or dispute Drobot's allegations regarding the options to extend). Drobot alleges that pursuant to the June Agreement, Defendants owed but failed to repay Drobot $275,000 (i.e., the initial repayment amount of $225,000, plus two additional fees of $25,000, or a combined $50,000, for exercising the extensions) by August 31, 2021, leading the first weekly assessment of a two percent late fee on September 1, 2021. (Compl. ¶¶ 14-17; id. Ex. A at 1.)
The primary deadlines under the June Agreement were (1) August 31, 2021, Defendants' deadline to pay Drobot $275,000, and (2) September 1, 2021, the day Drobot could begin assessing late fees. By contrast, the Rock Face Agreement required that Defendants satisfy their repayment obligations on a more expedited basis, and did not include an option to extend the loan term. (See Looney Decl. Ex. 2 at 1.) Specifically, the Rock Face Agreement provided that in exchange for a loan of $220,000, Defendants promised to pay Rock Face $220,000 by July 14, 2021, and an additional $110,000 by August 15, 2021. (Id.) If Rock Face did not receive the total balance owed of $330,000 by August 15, 2021, Rock Face could begin assessing late fees on August 16, 2021. (Id.)
Looney asserts that he made five payments to Drobot in 2021 totaling $420,000: (1) $120,000 on July 15, 2021; (2) $100,000 on July 16, 2021; (3) $100,000 on September 2, 2021; (4) $50,000 on September 3, 2021; and (5) $50,000 on September 7, 2021. (See id. ¶ 4.) Based on their terms, Drobot (personally or on Rock Face's behalf) was entitled to receive $330,000 by August 15, 2021 under the Rock Face Agreement and $275,000 by August 31, 2021 under the June Agreement, or a combined total of $605,000, before the assessment of any late fees.
Looney's supplemental declaration includes scrivener's errors, insofar as it lists 2022 instead of 2021 as the year of each of these payments. (See Suppl. Looney Decl. ¶ 4; cf. Looney Decl. ¶ 3, asserting that Looney “returned 100%” of Drobot's and Rock Face's funds “by September 7, 2021”; Suppl. Looney Decl. Ex. 2 at 1-3, discussing and relying on payments in 2021).
Looney, however, claims that he made the five payments totaling $420,000 with “the expectation that they would fully satisfy any financial obligation to . . . Drobot[.]” (Id. ¶ 4; cf. Looney Decl. ¶ 2, asserting that GCC “returned 100%” of Drobot's and Rock Face's “funds by September 7, 2021”; Suppl. Looney Decl. ¶ 3, stating that after the “entire investment was lost,” Looney “personally returned the entirety of . . . Drobot's investment to him plus $50,000,” i.e., the initial loan amounts of $220,000 and $150,000, plus an additional $50,000). Looney claims that the June Agreement and Rock Face Agreement stem from a “joint venture” that Drobot and Looney undertook to loan money to an individual named Mike Gianni (“Gianni”), “as part of a real estate development project.” (Looney Decl. ¶ 1; Suppl. Looney Decl. ¶¶ 2-3.)
In support of his claims, Looney submits text messages that he and Drobot exchanged regarding, among other things, the June Agreement, and Rock Face Agreement, and Gianni. (Suppl. Looney Decl. Exs. 1-2.) The most recent messages provided reflect that Drobot told Looney that the “two loan agreements [were] different,” he only signed the Rock Face Agreement because Looney “agreed to give the princip[al] back [as soon as possible],” and he considered the Rock Face Agreement “paid . . . in full” as of early September 2021 but believed Defendants had not repaid the total amount owed under the June Agreement. (Id. Ex. 2 at 2-3.) Drobot added that he was “getting very nervous,” and Looney responded that it “f[ell] on [him].” (Id. at 2.)
The messages also reflect that Looney told Drobot that he was “not trying to sell” him on the June Agreement but wanted to “assure” him that he was “positive enough” about a party involved that he was “willing to personally guarantee the loan with [Drobot]” and “act as [Drobot's] insurance.” (Id. Ex. 1 at 1-6.) One day after Drobot wired $150,000, Looney also told Drobot that “[r]egardless of what happens with [the underlying deal], [Drobot would] get paid.” (Id. at 4-8.)
Relatedly, and contrary to Looney's assertions, Drobot maintains that he “never agreed to enter into any type of joint business venture with . . . Looney and/or GCC and ha[s] never executed any type of written agreement memorializing such a venture.” (Drobot Decl. ¶ 15.) Drobot also emphasizes that the June Agreement does not reference Rock Face or any other business entity that Drobot owns, and neither the June Agreement nor the Rock Face Agreement reference “any type of joint business venture, [or] the ‘business purpose' for the loan[.]” (Id. ¶¶ 14, 17.)
With this background in mind, the Court turns to Defendants' arguments that the Court cannot accord “complete relief” in Rock Face's absence, and that proceeding in Rock Face's absence would expose GCC to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations in a second lawsuit. (Defs.' Mot. at 9-11.)
“Complete relief ‘is concerned with consummate rather than partial or hollow relief as to those already parties, and with precluding multiple lawsuits on the same cause of action.'” Alto, 738 F.3d at 1126 (quoting Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 879 (9th Cir. 2004)). As the Ninth Circuit has explained, to be considered “‘complete,' relief must be ‘meaningful relief as between the parties.'” id. (quoting Disabled Rights, 375 F.3d at 879).
Defendants dispute Drobot's allegation that they breached the June Agreement, and suggest that the payments they made satisfy their obligations under both the June Agreement and Rock Face Agreement. (See Looney Decl. ¶¶ 2-3; Suppl. Looney Decl. ¶¶ 3-4.) Drobot acknowledges that as of early September 2021, Defendants repaid Rock Face “in full” and thus Rock Face “considers the matter closed at this time” and “has no plans to pursue any legal remedies against [D]efendants” under the Rock Face Agreement. (Id. ¶ 18.)
Drobot does not explain what he considers to be full payment under the Rock Face Agreement or whether the parties stipulated to a reduced payment amount or waiver of late fees, and qualifies his statement that Rock Face considers its matter closed with the phrase “at this time.” This is significant because Drobot's text messages to Looney suggest that he (1) may not have received what he deemed full payment until after the August 16, 2021 late fee deadline, (2) may have agreed to a “split . . . with someone else” of the $110,000 payment contemplated in the Rock Face Agreement, even though he did not “know about [any need to do so until] after the fact,” (3) suggested that the receipt of $270,000 may have been more than what was owed under the Rock Face Agreement, and (4) suggested that excess payment amounts may have been applied to the June Agreement. (See Suppl. Looney Decl. Ex. 2 at 2, “I will forward an[] email I sen[t] you on 9/8 where I state that you gave me a $50k payment which paid loan #2 in full, and was actually $20,200 more than what you owed me for loan #2, and I said it could be applied to loan #1. So all I have been paid by you is the $220k princip[al] and another $50k on 9/3. $270 total.”; see also id. at 3, suggesting that shortly thereafter, Drobot confirmed receipt of up to $300,000 but could not “get into” a First Community Credit Union account to confirm receipt of a $120,000 payment).
Assuming Defendants breached the June Agreement as Drobot alleges, the evaluation of Drobot's claimed damages of “not less than $790,579,70 as of October 3, 2022” (Compl. at 4) will depend on whether and the extent to which Rock Face and Defendants agreed to the reduction of any payment amount or waiver of late fees contemplated under the Rock Face Agreement, or application of any excess payments to the June Agreement's outstanding loan balance, because the damages calculus appears to turn on the outstanding loan balance and the amount of any late fees, which are defined as “2% of the total loan balance.” (Id. Ex. A at 1; cf. Looney Decl. Ex. 2 at 2, discussing these issues, including potential excess payment amounts that may apply to the June Agreement).
Despite these issues and the relevance of the discussions and agreements related to the Rock Face Agreement, the Court finds that it can accord meaningful relief between Drobot and Defendants, and that proceeding in Rock Face's absence would not leave GCC or Looney subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations in a second lawsuit.
Regardless of Rock Face's absence in this litigation, the Court can assess whether Defendants breached the June Agreement and, if so, whether Drobot suffered any damages, because Drobot is the named plaintiff here, the sole owner and member of Rock Face, the only person who is necessary to address Drobot's and Rock Face's potentially relevant agreements and discussions with Defendants regarding the June Agreement and Rock Face Agreement, and effectively the only person who will be impacted by any favorable or unfavorable rulings related thereto. Accordingly, the Court can accord complete and meaningful relief between Drobot and Defendants. See Alto, 738 F.3d at 1127 (finding that complete relief was available based on the “causes of action that [we]re before” the court, as opposed to the ones that were “not presently before” it); see also Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 1983) (discerning “no reason” why the nonparty's absence precluded meaningful relief as between the parties, explaining that “[a] nonparty to a commercial contract ordinarily is not a necessary party to an adjudication of rights under the contract,” and noting that the plaintiff was “not seeking to set aside or enjoin performance under any contract between [the defendant] and the [nonparty]”).
Additionally, there is not a substantial risk that GCC or Looney will be subject to or incur double, multiple, or otherwise inconsistent obligations in a second suit. This appears to be Defendants' primary concern. (See Defs.' Reply at 8; Defs.' Mot. at 10-11, arguing that GCC seeks a declaration that the $420,000 was intended to be applied in a way to avoid penalties and fees, which impacts Rock Face's rights, and asserting that judgment rendered in Rock Face's absence “would only partially resolve the matter of accounting” and “not be adequate”).
Several courts have held that a party “does not face the ‘substantial risk of incurring double, multiple, or otherwise inconsistent obligations,' . . . [when] ‘principles of issue [or claim] preclusion would likely bar [the nonparty] from relitigating the issue against [the defendant].'” LRN Corp. v. Markel Ins. Co., No. 20 cv-08431, 2021 WL 3727062, at *4 (S.D.N.Y. Aug. 23, 2021) (quoting Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 134 (2d Cir. 2013)); Bingham v. Rynkewicz, No. 16-cv-06829, 2019 WL 275826, at *3 (W.D.N.Y. Jan. 22, 2019) (holding that the defendant was “not at risk of incurring inconsistent obligations” because “[t]he doctrine of res judicata would protect [the] [d]efendant from being named . . . in any subsequent lawsuit regarding the events alleged,” and noting that “[r]es judicata bars litigation of any claim for relief that was available in a prior suit between the same parties or their privies”) (simplified).
For example, in Williams-Sonoma Direct, Inc. v. Arhaus, LLC, 304 F.R.D. 520, 526-35 (W.D. Tenn. 2015), the court addressed a diversity action and held that there was no substantial risk of incurring multiple or otherwise inconsistent obligations. id. at 534-35. In so holding, the court explained that any judgment was “likely to have preclusive effect against” the absent parent company because the plaintiffs were “wholly owned subsidiaries of the absent party” and had “such a close corporate relationship with the parent corporation” that it “would be highly likely that any judgment . . . would have preclusive effect against” the parent company. id. at 535.
Similarly here, there is not a significant risk that GCC or Looney will incur inconsistent obligations in a second suit or need to defend against a second suit. Any rulings and judgment in this case should have preclusive effect against Rock Face given that Drobot is Rock Face's sole owner and member and the person who represented himself and Rock Face at all relevant times, controls this litigation and would control Rock Face's case, made all of the relevant decisions, including any that impacted both his and Rock Face's rights under the agreements, and has a full and fair opportunity to litigate any disputed issues and assert any claim related to his and Rock Face's interests. See generally Nelson v. Emerald People's Util. Dist., 862 P.2d 1293, 1296-97 (Or. 1993) (explaining that issue preclusion turns on five requirements, namely, whether the issue in the two proceedings is identical, the issue was litigated and essential to a final decision on the merits, the party sought to be precluded had a full and fair opportunity to be heard on the issue, the party sought to be precluded was a party or in privity with a party to the prior proceeding, and the prior proceeding was the type of proceeding to which Oregon courts give preclusive effect); see also Chung v. Vistana Vacation Ownership, Inc., No. 21-15936, 2022 WL 2315449, at *1 (9th Cir. June 28, 2022) (noting that “the preclusive effect of judgments in diversity cases is determined by the preclusion rules of the state in which the rendering court sits” (citing Taylor v. Sturgell, 553 U.S. 880, 891 & n.4 (2008))).
For these reasons, the Court concludes that Defendants have failed to meet their burden of demonstrating that Rock Face is a required party under Rule 19 (i.e., the first step in the compulsory joinder analysis). Having resolved the Rule 19 question at step one, the Court does not proceed to the remaining steps and recommends that the district judge deny Defendants' Rule 12(b)(7) motion. See Alto, 738 F.3d at 1126-29 (resolving the compulsory joinder analysis “at step one”).
CONCLUSION
For the reasons stated, the Court recommends that the district judge DENY Defendants' motion to dismiss (ECF No. 4).
SCHEDULING ORDER
The Court will refer its Findings and Recommendation to a district judge. Objections, if any, are due within fourteen (14) days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen (14) days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.