Or. JV v. Advance Inv. Corp.

1

OREGON JV LLC, a New York limited liability company, Plaintiff, v. v. MENACHEM SILBER, Third-Party Defendant.

ADVANCED INVESTMENT CORP d/b/a AIC, an Oregon limited liability company; AUSTIN L. WALKER, an individual; JOSEPH RUSSI, an individual; ANTHONY J. FAVREAU and CYNTHIA L. FAVREAU, Trustees of the Favreau Family Trust; JOHN P. RUDE and CHRISTINE ANN SULLIVAN, individuals; DW&S, LLC, an Oregon limited liability company; CLS INVESTMENTS, LLC, an Oregon limited liability company; JOANNA NASSET and STEVEN NASSET, Trustees of the J&S Enterprises; CHARLES D. EVERARD, ADA M. EVERARD, DONNA No. 3:22-cv-00337-HZ OPINION & ORDER J. SWANSON, and DIANE M. DUYCK, individuals; ROBBIN DENISE FREEDMAN, Trustee of the Robbin Denise Freedman Revocable Living Trust; SCHULTZ REAL ESTATE INVESTMENTS, LLC, an Oregon limited liability company, ROBERT EDISON SILVIS and MICHAEL J. SILVIS, Trustees for the Silvis Family Revocable Trust, ROBERT BAYMAN and DELORES BAYMAN, individuals; EUGENE W. GRAMZOW, Trustee for the Eugene W. Gramzow Revocable Trust; JOHN V.K. FEARING and SUSAN L. BAKER, Co-Trustees of the Baker Fearing Trust; EMILY R. COLLINS, NEIL L. WARNE, CHRISTY WARNE, MARK ALLEN DITGEN, LINDA CAROL DITGEN, STEPHEN F. DUFFY, AMY S. LA GRANDER, MARGIE NEMCIK-CRUZ, JONNY B. WATSON, REX B. BALLENGER, BONNIE L. BALLENGER, MICHAEL A. WELT, ROBERT A. ZOLLER, DIANA GREENE, individuals; RH VENTURES, LLC, an Oregon limited liability company; ERVIN WOOD, an individual; J&D OR PROPERTIES, LLC, an Oregon limited liability company; MATTHEW DAVID FREEDMAN, Trustee of the Matthew David Freedman Revocable Trust; CARL M. DUTLI, Trustee of the CMD Retirement Trust; MARGARET J. BROWN OLSON, Trustee of the Margaret J. Brown Trust; JOHN M. COMPTON, BETTY COMPTON, KURT D. CONNELL, ERIN RONNIE CONNELL, individuals; CRAIG ALACANO, CYNTHIA L. ALACANO, Co-Trustees of the Craig and Cynthia Alacano Joint Trust; VIC MITCHELL, ANDREW STRICKLAND, JOSEPH RUSSI, individuals. Defendants,

No. 3:22-cv-00337-HZ

United States District Court, D. Oregon

August 22, 2023

Joseph M. Mabe Keith A. Pitt Slinde Nelson Daniel H. Roseman Hinman Howard & Kattell, LLP Paul T. Sheppard Hinman Howard & Kattell, LLP Attorneys for Plaintiff and Third-Party Defendant

Keith D. Ropp Christopher W. Peterman P.O. Attorneys for Defendant Russi

OPINION & ORDER

Marco A. Hernández, United States District Judge

Plaintiff Oregon JV LLC brings this action against Defendants Advanced Investment Corp (d/b/a “AIC”), Austin Walker-an AIC employee, Joseph Russi, and fifty-one individual “Defendant Lenders.”^[1] AIC managed a pool of construction loans to Defendant Russi, each of which was funded by a distinct Defendant Lender. Plaintiff's assumption of those loans form the basis of its claims. Plaintiff brings claims for fraud, unjust enrichment negligent misrepresentation, and rescission of contract. Defendant Russi filed an Amended Answer to Plaintiff's Second Amended Complaint, in which he asserts counterclaims as well as third-party claims against Third-Party Defendant Menachem Silber.^[2] Defendant Russi also asserts a third-party claim against Toprock Funding, LLC, who is currently not a party to this case.^[3] Plaintiff and Third-Party Defendant Silber move to dismiss all claims brought by Defendant Russi under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6). For the reasons explained below, the Court grants in part and denies in part Plaintiff and Third-Party Defendant's motion.

BACKGROUND

Defendant AIC, a construction lender, originated and managed dozens of construction loans to Defendant Russi for the purpose of constructing homes on various real estate parcels in Oregon. Second Am. Compl. (“SAC”) ¶¶ 44, 46. Russi held title to the various properties. SAC ¶ 46. Each loan at issue in this case was funded by a distinct individual Defendant Lender. SAC ¶ 49. In late 2019 construction work slowed because of the large number of projects and a poor labor market. Russi First Am. Ans (“FAA”) ¶ 144. Construction was further hampered in 2020 due to the COVID-19 pandemic. FAA ¶ 145. Around March 2020, Russi began to borrow money from Toprock Funding, LLC (“Toprock”), a company co-owned by Third-Party Defendant Menachem Silber. FAA ¶ 146; SAC ¶ 64. The loans from Toprock carried high interest rates up to 72% and encumbered Russi's entire portfolio. FAA ¶ 146. Russi filed for Chapter 7 bankruptcy in the summer of 2020. FAA ¶ 147. Russi alleges that in the fall of 2020, Silber promised to help him get out of bankruptcy by taking over the loans from Defendant Lenders and buying Russi's properties through Toprock. FAA ¶ 148. In December 2020, Russi executed a “Sale Agreement” with Toprock. FAA, Ex. 1. The Sale Agreement provided that in consideration for the transfer of Russi's properties, Toprock would pay Russi $250,000 up-front, followed by a gradual payment of $350,000 as the properties sold. FAA ¶¶ 149, 152. Under the Sale Agreement, Toprock would also pay Russi 5% of profits it made on the sale of all homes built by Toprock on a particular 38-acre parcel and pay Russi's mother $35,000. FAA ¶ 152. Toprock failed to make these payments. FAA ¶ 153.

In March 2020, Third-Party Defendant Silber formed Plaintiff Oregon JV LLC as an Oregon limited liability company. Defs. AIC, Walker, and Defendant Lenders' First Am. Ans. (“AIC FAA”) ¶ 167. Oregon JV LLC then obtained title to Russi's properties and assumed all of Defendant Lenders' loans on the properties. AIC FAA ¶¶ 168, 169; SAC ¶¶ 63, 64. Silber executed the assumption agreements on behalf of Plaintiff Oregon JV LLC. AIC FAA ¶ 169. Defendant Lenders, AIC, and Walker bring counterclaims and third-party claims against Plaintiff Oregon JV LLC and Third-Party Defendant Silber based on breach of the assumption agreements. AIC FAA ¶¶ 180-241. Defendant Russi's counterclaims and third-party claims relate to the Sale Agreement with Toprock but not the assumption agreements. FAA ¶¶ 160-182. Plaintiff and Third-Party Defendant Silber move to dismiss all of Defendant Russi's claims.

STANDARDS

I. Rule 12(b)(6) - Failure to State a Claim

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When evaluating the sufficiency of a complaint's factual allegations, the court must accept all material facts alleged in the complaint as true and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). A motion to dismiss under Rule 12(b)(6) will be granted if a plaintiff alleges the “grounds” of his “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)[.]” Id. (citations and footnote omitted).

To survive a motion to dismiss, a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). A plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. In other words, a complaint must state a plausible claim for relief and contain “well-pleaded facts” that “permit the court to infer more than the mere possibility of misconduct[.]” Id. at 679.

II. Rule 12(b)(2) - Personal Jurisdiction

Under Federal Rule of Civil Procedure 12(b)(2), a defendant may move for dismissal on the grounds that the court lacks personal jurisdiction. The plaintiff has the burden of showing personal jurisdiction. Will Co. v. Lee, 47 F.4th 917, 921 (9th Cir. 2022) (citing Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004)).

When the Defendant's motion is based on written materials rather than an evidentiary hearing . . . we only inquire into whether [the plaintiff's] pleadings and affidavits make a prima facie showing of personal jurisdiction. Uncontroverted allegations in the complaint must be taken as true, and conflicts between parties over statements contained in affidavits must be resolved in the plaintiff's favor.

Will, 47 F.4th at 921 (internal quotation marks and citation omitted).

In a diversity case, the federal court looks to the law of the state in which it sits to determine whether it has personal jurisdiction over a non-resident defendant. W. Helicopters, Inc. v. Rogerson Aircraft Corp., 715 F.Supp. 1486, 1489 (D. Or. 1989); see also Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008) (“When no federal statute governs personal jurisdiction, the district court applies the law of the forum state.”).

Oregon Rule of Civil Procedure 4 governs personal jurisdiction in Oregon courts. Oregon's long-arm statute confers jurisdiction to the extent permitted by due process under the United States Constitution. Gray & Co. v. Firstenberg Mach. Co., Inc., 913 F.2d 758, 760 (9th Cir. 1990) (citing Or. R. Civ. P. 4(L)); Oregon ex rel Hydraulic Servocontrols Corp. v. Dale, 294 Or. 381, 657 P.2d 211 (1982)). Thus, the court may proceed directly to the federal due process analysis. See Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003) (when state long-arm statute reaches as far as the Due Process Clause, the court need only analyze whether the exercise of jurisdiction complies with due process); see also Millennium Enters., Inc. v. Millennium Music, LP, 33 F.Supp.2d 907, 909 (D. Or. 1999) (noting that because ...