Grueter v. Witherspoon Brajcich McPhee PLLC

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AARON GRUETER; MARK POREMAN; ALLAN LIGI; KENNETH CASCARELLA; ANDREW POKLADOWSKI; INWOOD CAPITAL PARTNERS LLC; SANDRA MCALLISTER; THOMAS DOBRON; LESLIE SCHULTZ; MICHAEL PESICK; and THOMAS BENNETT, Plaintiffs, v. WITHERSPOON BRAJCICH MCPHEE PLLC; and PETER EDWIN MOYE, Defendants.

No. 2:23-CV-0227-TOR

United States District Court, E.D. Washington

January 22, 2024

ORDER DENYING DEFENDANTS' MOTION TO DISMISS

THOMAS O. RICE UNITED STATES DISTRICT JUDGE

BEFORE THE COURT is Defendants' Motion to Dismiss (ECF No. 15). The matter was submitted for consideration without oral argument. The Court has reviewed the record and files herein and is fully informed. For the reasons discussed below Defendants' Motion to Dismiss (ECF No. 15) is DENIED.

BACKGROUND

This case arises out of a failed transaction for medical equipment and the subsequent disappearance of Plaintiffs' $1 million investment. The issue before the Court is whether to grant Defendants' motion to dismiss based on Plaintiffs' alleged lack of standing and failure to join indispensable parties.

H-Source Distribution-U.S., Inc. is a Washington e-commerce medical supply distribution company. ECF No. 2 at 4, ¶ 25. In August 2021, H-Source contracted with CCG Trading, Inc., a Wyoming corporation, for the sale by CCG to H-Source of 6 million boxes of nitrile examination gloves. Id. at ¶ 27. In October 2021, the parties contracted to revoke the first supply agreement and to execute a second, revised supply agreement. Id. at 5, ¶ 31. Under the second, revised agreement, the parties agreed that they would complete a trial sale and purchase before performing their full contractual obligations. Id. H-Source committed to deposit $1 million into an escrow account as contract security for the trial transaction. Id.

Pursuant to their revised supply agreement, H-Source and CCG also signed an “Escrow Agreement.” Id. at 6 ¶¶ 33-34. Other signatories to the Escrow Agreement were Nouam Financial Consultants Private Limited and Emerio Banque Limited. See ECF No. 2-1 at 2, 10. The agreement named Nouam Financial, an India corporation, as CCG's “finance partner.” Id. at 2 ¶ B. CCG explained that Nouam Financial would assist with its payments to the manufacturer of the gloves, while the capital from H-Source would remain in escrow. ECF No. 2-2 at 2 (“H-Source funds in escrow serve only as contract security . . . and are not encumbered or monetized in any way.”). The fourth party, Emerio Banque, a United Kingdom corporation, was designated as the escrow agent. ECF No. 2-1 at 2, ¶ D.

To fulfill its obligations, H-Source identified Plaintiffs in this action as potential investors who were willing to pool their assets and fund the $1 million trial transaction. ECF No. 2 at 5, ¶ 29; 7, ¶ 40. On October 15, 2021, executives from H-Source and two of the Plaintiff-investors^[1] met with Defendant Peter Moye, a partner at Defendant Witherspoon Brajcich McPhee PLLC (“WBM”), a Washington law firm representing H-Source in the transaction with CCG. Id. at 4, ¶ 26; 5, ¶ 30. Defendant Moye assured Plaintiffs that their investment would be safe in escrow and that there would be no deduction from the account without his signature. Id. at 5, ¶ 30; see also ECF No. 2-1 at 11 (authorizing Defendants to initiate and approve transactions for the escrow account); 2-2 at 2 (“[Y]our corporate counsel has signatory control for the release of funds pursuant to the agreements.”)

The Escrow Agreement itself did not outline how or where H-Source should deposit the $1 million security fee. See ECF Nos. 2 at 6, ¶35(a); see also generally 2-1. On October 19, 2021, CCG directed H-Source to wire the money to an account named “Atari Interactive Inc.” at JP Morgan Chase Bank. ECF No. 2-2 at 3. The bank account address was Tampa, Florida. Id. On October 26, 2021, in response to H-Source's CEO apparently expressing concern as to whether the account name “Atari Interactive” was correct, CCG assured him that it was and that the account belonged to Nouam Financial. ECF No. 2-2 at 2. Defendant Moye was copied on the e-mail. Id.

On October 27, 2021, after receiving CCG's email assurances, Plaintiffs wired their individual contributions to the Atari Interactive account. ECF No. 2 at 8, ¶ 45. The same day, Emerio Banque allegedly e-mailed Nouam Financial to ask that it cooperate with Plaintiffs to cancel their wire transactions. ECF No. 2-3 at 23. Emerio Banque explained that Atari Interactive was a “NASDAQ listed company” and that therefore its SEC reporting and disclosure requirements proscribed it from accepting funds from individuals that had not entered a sales and purchase agreement with Atari. Id. In reality, as Defendants belatedly uncovered, Atari Interactive is a separate entity from Nouam Financial and not a NASDAQ listed company. ECF No. 2 at 12, ¶ 71. Further, Atari reportedly claims that it knew nothing of the transactions between CCG and Nouam Financial. Id. at 14, ¶¶ 75-76.

CCG forwarded the e-mail from Emerio Banque to Defendant Moye and asked that the transactions from the individual investors be promptly cancelled. ECF No. 2-3 at 2. Defendants duly cancelled the pending wire transactions and represented that they would have the Plaintiff-investors send the money to H-Source and then send the funding directly from H-Source to CCG to avoid future complications. ECF No. 2-4 at 2-3. The full $1 million was returned to Plaintiffs. ECF No. 2 at 8.

In early to mid-November, CCG sent H-Source updated wire instructions. ECF No. 2 at 9. This time, CCG directed H-Source to wire the funds to the account “Atari AlphaVerse CBI” at JP Morgan Chase Bank. ECF No. 2-5 at 2. The bank address listed was a New York one. Id. The document was also conspicuously dated “October 19, 2021” (as the first set of wire instructions was), despite the fact that the e-mail was sent in November, after the initial wire transfer failed. Id. Defendants did not question these inconsistencies when reviewing the correspondence. See ECF No. 2 at 13, ¶ 73. Only later did Defendants discover that the Atari AlphaVerse account was actually owned by a French corporation which was not a party to the transaction. ECF No. 2 at 13, ¶ 74.

Per Defendant Moye's suggestion, Plaintiffs placed their money in a trust account maintained by Defendant WBM. Id. at 8-9, ¶¶ 49-52. Defendants did not inform Plaintiffs that their money would be sent to a different account this time. ECF No. 2 at 9, ¶¶ 51-52. On November 18 and 24, 2021, WBM sent the $1 million to the Atari AlphaVerse CBI in two separate transactions on H-Source's behalf. ECF No. 2 at 9, ¶¶ 52-53.

The trial order went unfulfilled by CCG. ECF No. 2 at 9, ¶ 55. Defendants sought a return of the investment, as they were entitled to under the terms of the revised agreement. Id. Predictably, despite Defendants' undertakings to recover the money, the capital was never returned to H-Source or Plaintiffs. Id.; see also id. at 2, ¶ 7.

Plaintiffs sued Defendants in the Eastern District of Washington, bringing claims for negligence, legal malpractice, breach of fiduciary duty, and breach of oral contract. See ECF No. 2 at 10-19. Although Plaintiffs do not believe Defendants were part of the scheme to misappropriate their investment, they maintain that Defendants overlooked a variety of “red flags” which should have prompted a due diligence investigation and alerted them to the fact that the proposed transaction was illegitimate. See generally id. Plaintiffs further aver that they relied on Defendants' apparent transactional expertise as well as Defendant Moye's representations that their investment would be secure in the WBM client trust account and that money could not be withdrawn from the escrow account without his express authorization. See, e.g., ECF No. 2 at 10, ¶ 61. The amended complaint seeks $1 million in damages and attorney's fees and costs, plus interest. Id. at 20.

DISCUSSION

Defendants move to dismiss Plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 12(b)(7), alleging that (1) Plaintiffs lack Article III standing and (2) Plaintiffs failed to join other indispensable parties (namely, H-Source CCG, Nouam Financial and Emerio Banque). The Court respectfully disagrees and will allow the action to proceed against Defendants WBM and Moye without the abovementioned absentees.

I. Motion to Dismiss Standard

Defendants move to dismiss the complaint under Rules 12(b)(6) and 12(b)(7). ECF Nos. 15 at 1, 10; 18 at 2; see Fed.R.Civ.P. 12(b) (“[A] party may assert the following defenses by motion . . . (6) failure to state a claim upon which relief can be granted; and (7) failure to join a party under Rule 19.”).

As a threshold issue, the Court finds that Defendants' claim for lack of standing should have been brought under Rule 12(b)(1) rather than Rule 12(b)(6). See Fed.R.Civ.P. 12(b)(1) (allowing motions to dismiss for lack of subject-matter jurisdiction); see also Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011) (“Though lack of statutory standing requires dismissal for failure to state a claim, lack of Article III standing requires dismissal for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).”) (emphasis in original); see also, e.g., G.G. by and through A.G. v. Meneses, 638 F.Supp.3d 1231, 1239 (W.D. Wash. 2022) (reviewing motion to dismiss for lack of standing under Rule 12(b)(1) and motion to dismiss for alleged violations of the Fourteenth Amendment, ADA, and WLAD separately under Rule 12(b)(6)). The Court will therefore review the requirements of Rules 12(b)(1) and 12(b)(7) before turning to the parties' standing and joinder contentions.

A. Rule 12(b)(1)

A jurisdictional challenge brought under Rule 12(b)(1) may present as either...