Claus v. Columbia State Bank, Case No. 3:16-cv-01509-JR

ROBERT JAMES CLAUS and SUSAN LYNNE CLAUS, Plaintiffs, v. COLUMBIA STATE BANK, Defendant.

Case No. 3:16-cv-01509-JR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

March 11, 2020

OPINION AND ORDER

Russo, Magistrate Judge:

Plaintiffs Robert and Susan Claus bring this action against defendant Columbia State Bank ("Columbia"). Columbia now moves to dismiss two of plaintiffs' claims pursuant to Fed. R. Civ. P. 12(b)(6). In addition, Columbia requests judicial notice of the documents memorializing the loan made from Columbia to the Clauses (collectively "the Construction Loan Agreement") and a red-lined version of the Second Amended Complaint ("SAC"). All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with Fed. R. Civ. P. 73 and 28 U.S.C. § 636(c). On February 25, 2020, the Court held oral argument. For the reasons stated below, Columbia's motion is granted in part and denied in part.

BACKGROUND

Since the mid-1980s, the Clauses have engaged with Columbia and its predecessor organization in "a continuous and extensive banking relationship" as "private banking customers." SAC ¶ 4 (doc. 103). 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. at ¶ 7. In late 2011, the Clauses sought a loan from West Coast Bank ("West"), a predecessor to Columbia, to develop eight lots on one of their properties in Sherwood, Oregon ("McFall subdivision"). Id. West was aware of the Clauses' ongoing health issues and "told the Clauses that it would act as their agent in administering the financial aspects of the building process." Id. at ¶¶ 9-10. In April 2013, while the Clauses were still securing the loan from West, Columbia purchased West. Id. at ¶ 12. In October 2013, Columbia issued the loan, in the amount of $900,000, secured by a deed of trust on the McFall Subdivision. Cruse Decl. Ex. 3, at 1 (doc. 15).

Columbia reiterated it would continue to administer the building process and act as an agent for the Clauses by monitoring the construction project, approving contracts, and ensuring that the contractor, subcontractors, and suppliers were properly paid, but the terms of the Construction Loan Agreement do not reflect Columbia's promised involvement. SAC ¶¶ 14, 25 (doc. 103); Cruse Decl. Ex. 1 (doc. 15). Instead, the Construction Loan Agreement reveals that the Clauses were responsible for managing the project and submitting to Columbia contractors, plans, builder contracts, and requests for money disbursements. Cruse Decl. Ex. 1, at 3 (doc. 15). Moreover, the Construction Loan Agreement indicates it was fully integrated at the time of signing. Id. at 7.

When time came to engage a general contractor, Columbia "mandated" Signature Homebuilders, LLC ("SHB") fill the role because SHB was a "turnkey builder," though it was not the Clauses' preferred choice. SAC ¶ 16 (doc. 103). Columbia made various representations aboutSHB's credit and capitalization, indicating there were no "red flags." Id. at ¶¶ 17, 20. Columbia also represented "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. SHB, however, was not a full-service builder, but rather "hire[d] out all the physical work to subcontractors." Id. at ¶ 26. Furthermore, each of SHB's members was either "in or had recently emerged from Chapter 7 bankruptcy proceedings," and one SHB member had a criminal record and was not listed as a contractor licensee with the Oregon Construction Contractors Board. Id. at ¶ 19.

The Clauses would not have chosen to proceed with SHB had they known of its precarious financial position, but Columbia refused to disclose the documentation of its review of SHB on confidentiality grounds. Id. at ¶ 18. Thereafter, Columbia purportedly failed to diligently administer the project in a variety of ways, including making disbursements to SHB over assertions by the Clauses that SHB had committed a forgery to begin construction on Lot Four. Id. at ¶¶ 28-30. In June 2014, SHB left Lots Three, Four, and Five unfinished in the McFall subdivision. Id. at ¶ 31.

Through July and August 2014, various suppliers and subcontractors filed liens against the properties at the subdivision. Id. at ¶ 32. Columbia ultimately filed its own liens on Lots Four and Five but was still named as a defendant in the foreclosure proceedings brought by other subcontractors. Id. at ¶ 35. Amidst a variety of disputes and failed negotiations regarding the liens, the Clauses proceeded to use the remaining funds, combined with a private loan, to complete the unfinished homes on Lots Four and Five. Id. at ¶ 41.

In 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. Id. at ¶ 42. Construction on Lots Four andFive was completed in April 2015. Id. That same month, Columbia acquired through assignment a lien filed by Macadam Floor & Design ("Macadam Lien") that was "invalid on its face." Id. at ¶¶ 32, 44. Columbia knew there was a pending sale on Lot Five and allegedly acquired this lien deliberately to "kill the sale and disrupt settlement negotiations between the Clauses and the other lien holders." Id. at ¶ 44. Columbia then drew funds from the line of credit it provided for the construction to "pay off" the lien, including the attorney fees the bank incurred in acquiring it. Id.

The Clauses were able to resolve the lien issues in June 2015, although on less favorable terms than those "within reach" prior to Columbia's acquisition of the Macadam Lien. Id. at ¶ 45. In June, July, and December 2015, the Clauses sold the homes on Lots Four, Five, and Three, respectively. Id. The remaining liens were paid off with the proceeds from those sales, despite being less than what the Clauses would have received if Columbia had not threatened to accelerate foreclosure proceedings at the time of the sales and pursued creditor remedies in an "adversarial" manner. Id. at ¶¶ 45-46.

The Clauses' counsel filed a complaint against Columbia in Washington County Circuit Court on June 22, 2016, alleging fraud, negligence, and breach of contract. Claus v. Columbia State Bank, 2018 WL 1832871, at *2 (D. Or. Apr. 17, 2018) ("Claus I"). On July 26, 2016, Columbia removed plaintiffs' case to this Court based on diversity jurisdiction.

On April 17, 2018, Judge Acosta granted Columbia's first motion to dismiss with leave to amend all claims. Id. at *16. The Clauses filed their First Amended Complaint ("FAC") pro se on September 17, 2018, which reasserted the breach of contract and fraud claims, in addition to alleging three new claims: negligent misrepresentation, contractual breach of the obligation of good faith and fair dealing, and promissory estoppel. FAC ¶¶ 46-55 (doc. 73). Columbia filed a second motion to dismiss, which the Court granted. Claus v. Columbia State Bank, 2019 WL5624754, at *25 (D. Or. Oct. 30, 2019) ("Claus II"). Leave to amend was provided but solely in regard to plaintiffs' claims for negligent misrepresentation, fraud, and contractual breach of the obligation of good faith and fair dealing; all other claims were dismissed with prejudice. Id. Specifically, the Court found plaintiffs' claim for contractual breach of the obligation of good faith and fair dealing deficient because plaintiffs failed to provide facts supporting the inference that Columbia either used an improper method of foreclosure or caused the Clauses to default intentionally and in bad faith. Id. Additionally, plaintiffs' fraud claim was not viable because plaintiffs failed to provide facts supporting the inference that Columbia intentionally and knowingly misrepresented SHB's qualifications, and that the Clauses' justifiably relied on Columbia's representations. Id. Plaintiffs filed their SAC on December 16, 2019.

STANDARD OF REVIEW

Where the plaintiff "fails to state a claim upon which relief can be granted," the court must dismiss the action. Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, the complaint must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). For the purposes of the motion to dismiss, the complaint is construed in the light most favorable to the plaintiff, and the allegations are taken as true. Rosen v. Walters, 719 F.2d 1422, 1424 (9th Cir. 1983). Regardless, bare assertions that amount to nothing more than a "formulaic recitation of the elements" of a claim "are conclusory and not entitled to be assumed true." Ashcroft v. Iqbal, 556 U.S. 662, 680-81 (2009). Rather, to state a plausible claim for relief, the complaint "must contain sufficient allegations of underlying facts" to support its legal conclusions. Starr v. Bacca, 652 F.3d 1202, 1216 (9th Cir. 2011).

DISCUSSION

I. Preliminary Matter

Columbia moves for judicial notice of the Construction Loan Agreement, arguing it is incorporated into the SAC by reference. Def.'s Mot. Dismiss 2 (doc. 106). Normally, a court may not consider any materials beyond the pleadings when deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). A court can consider a document not included in the pleadings "if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim." United States. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

Though only expressly referenced a few times in the SAC, the Construction Loan Agreement is the bedrock of the transaction from which this case arises. See, e.g., SAC ¶¶ 22-23, 38 (doc. 103). Accordingly, the Construction Loan Agreement forms the basis of the SAC, such that ...