Spitzmesser v. Tate Snyder Kimsey Architects, Ltd.

RANDALL L. SPITZMESSER, Plaintiff,

v. TATE SNYDER KIMSEY ARCHITECTS, LTD., a Nevada Domestic Professional Corporation;ROE BUSINESS ENTITIES I-X; DOE INDIVIDUALS I-X , Defendants.

Case No. 2:10-cv-01700-KJD-LRL

UNITED STATES DISTRICT COURT DISTRICT OF NEVADA

Dated: June 27, 2011

ORDER

Presently before the Court is Plaintiff's Motion to Amend Complaint and Add Party (#29). Defendant filed a Response in opposition (#30) to which Plaintiff replied (#32). Also before the Court is Defendant's Motion to Dismiss, or in the Alternative for Partial Summary Judgment (#4). Plaintiff filed a Response in opposition (#8) to which Defendant replied (#11).

I. Procedural History

On August 25, 2010, Randall L. Spitzmesser ("Spitzmesser") filed the present Complaint (#1-1) in the District Court of Clark County Nevada against his former employer, Tate Snyder Kimsey Architects, LTD. ("Tate Snyder"), asserting eight (8) causes of action: (i) Breach of Contract; (ii) Breach of Implied Covenant of Goof Faith and Fair Dealing; (iii) Defamation Per Se;(iv) False Light Invasion of Privacy; (v) Retaliatory Discharge in Violation of Public Policy; (vi) Unjust Enrichment; (vii) Injunctive Relief; (viii) Retaliatory Discharge in Violation of the Fair Labor and Standards Act ("FLSA"). On September 30, 2010, Plaintiff's case was removed to the United States District Court District of Nevada pursuant to 28 U.S.C. § 1331.

On October 6, 2010, Defendant Tate Snyder filed the present Motion to Dismiss or in the Alternative for Partial Summary Judgment (#4) asserting that Plaintiff has not adequately plead his third, fourth, fifth, and eighth claims. Plaintiff subsequently filed his Motion to Amend Complaint and Add Party (#29). The proposed amended complaint adds a ninth cause of action for breach of fiduciary duty, edits the fifth cause of action, retaliatory discharge in violation of public policy, to include statutory violations, and adds Tate Snyder's majority shareholder James Windom Kimsey as a party defendant. (#29, Exhibit 1). Plaintiff's claims arose out of his termination from Tate Snyder after he expressed opposition to allegedly being forced to contribute to Senator Harry Reid's reelection campaign and after he complained to the majority shareholder that he believed the firm was violating FLSA.

II. Plaintiff's Motion to Amend Complaint and Add Party

Plaintiff seeks leave to amend by adding an additional claim for Breach of Fiduciary Duty, making changes to the fifth claim for Retaliatory Discharge in Violation of Public Policy, and adding James Windom Kimsey ("Kimsey") as a party defendant. (#29). Generally, the standard for granting leave to amend under Fed.R.Civ.P. 15 is, as the Ninth Circuit explained,

A district court "shall grant leave to amend freely 'when justice so requires.' " Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (en banc) (quoting Fed.R.Civ.P. 15(a)). We have stated that "this policy is to be applied with extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990); see also Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir.1999) (noting that inferences should be drawn "in favor of granting the motion"). In determining whether leave to amend is appropriate, the district court considers "the presence of any of four factors: bad faith, undue delay, prejudice to the opposing party, and/or futility." Griggs, 170 F.3d at 880. Owens v. Kaiser Foundation Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001) (emphasis added).

Defendant argues that the Motion to Amend should be denied because the proposed amendments fail to state claims upon which relief may be granted and therefore are futile. (#30).

A. Breach of Fiduciary Duty (Proposed Added Claim ix)

Plaintiff asserts that as a minority shareholder of a small closely held corporation, Defendant Tate Snyder and proposed added defendant/controlling majority shareholder, Kimsey (collectively "Defendants"), owed him a fiduciary duty of good faith and loyalty. Defendants allegedly breached that duty by terminating Plaintiff's employment with "malice, fraud, and oppression with the intent to thwart and frustrate Plaintiff's reasonable expectations with respect to the return he expected to receive on his investment in [Tate Snyder]." (#29, Exhibit 1). Defendant asserts that this claim is futile because there is no fiduciary duty owed to Plaintiff as a shareholder.

Guidance on fiduciary duties owed to minority shareholders who are also employees in closely held corporations under Nevada law can be found in a Fifth Circuit case which, based on Texas choice of law principles, made a prediction on how the Nevada Supreme Court would rule on this issue. Hollis v. Hill, 232 F.3d 460 (5th Cir. 2000). The Hollis court held:

". . . shareholders do not enjoy fiduciary-rooted entitlements to their jobs. Such a result would clearly interfere with the doctrine of employment-at-will. Rather, the courts have limited relief to instances in which the shareholder has been harmed as a shareholder. The fiduciary duty in the close corporation context, as in the context of public corporations, appropriately is viewed as a protection of the shareholder's investment." Hollis, 232 F.3d at 470-471.

The court further held that it must evaluate the precise nature of the shareholder's investment to determine if the shareholder was harmed as a shareholder and not just as an employee. Id. In Hollis, the court found that the minority shareholder/employee was harmed as a shareholder by the majority shareholder, and thus owed a fiduciary duty, when:

". . . the value of his investment was tied directly to his employment. The benefits he received from his investment were distributed in the form of salary and certain perquisites; the firm never declared a dividend and paid no salary to its directors. Hill totally deprived Hollis of those benefits by terminating his employment and salary, closing the Florida office, and cutting him off from company benefits." Hollis, 232 F.3d at 471.

The policy behind adopting these fiduciary duties in closely held corporations is that minority shareholders "who disagree with the direction or governance of the close corporation must rely on contractual or statutory remedies, which are often nonexistent, impractical, or inadequate. . . [and] [b]y adopting this broader fiduciary obligation for close corporation shareholders, alternative remedies exist for oppressed shareholders, such as an equitable claim for dissolution or a claim for breach of fiduciary duty." McLaughlin v. Shenk, 220 P.3d 146 (Utah 2009).

Here, Plaintiff was a minority shareholder and an employee. He asserts that, like the plaintiff in Hollis, the value of his investment was directly tied to his employment, he received benefits from his investment in the form of salary, and Defendants deprived him of those benefits by terminating his employment. See id. Consequently, he claims that Defendants harmed him as a shareholder which was a breach of their fiduciary duty.

Plaintiff has clearly and sufficiently pled that he was a shareholder who was owed a fiduciary duty and that the duty was breached. The fact that some of Plaintiff's claims are rooted in his status as an employee is irrelevant. See Hollis, 232 F.3d at 471. Therefore, the addition of this cause of action is not futile. Accordingly, Plaintiff's motion to add breach of fiduciary duty as a ninth claim and to add James Windom Kimsey as a defendant is granted.

B. Retaliatory Discharge In Violation of Public Policy (Proposed Amended Claim v)

Plaintiff alleges that Defendant threatened him with his job if he did not contribute one thousand dollars ($1,000) to Senator Harry Reid's reelection campaign. Plaintiff could not afford such a substantial contribution and was unsure whether he supported Senator Reid. Plaintiff asserts that Defendant then gave him the money to contribute by overcompensating him one thousand dollars ($1,000) for a monthly expense report. In his proposed Amended Complaint (#29, Exhibit 1), Plaintiff asserts that this claim is based on NRS 613.040 which states:

It shall be unlawful for any person, firm or corporation doing business or employing labor in the State of Nevada to make any rule or regulation prohibiting or preventing any employee from engaging in politics or becoming a candidate for any public office in this state.

Defendant argues that this amendment is futile because Plaintiff alleges he was forced to participate in politics, not that he was prevented from participating, and thus NRS 613.040 does not apply. When the words of a statute have a definite and ordinary meaning, the courts should not look beyond the plain language of the statute. Harris Assoc. v. Clark County School Dist., 119 Nev. 638 (2003). The plain language of NRS 613.040 is that an employer cannot prevent or prohibit an employee from engaging in politics. The statute says nothing about requiring participation and therefore does not apply to the alleged facts. Therefore, this amendment to the Complaint would be futile. Accordingly, Plaintiff's Motion to Amend claim (v) is denied.

II. Defendant's Motion to Dismiss or in the Alternative for Partial Summary Judgment

A. Alternative Request for Partial Summary Judgment

The local rule for motions for summary judgment reads:

LR 56-1. MOTIONS FOR SUMMARY JUDGMENT.

Motions for summary judgment and responses thereto shall include a concise statement setting forth each fact material to the disposition of the motion which the party claims is or is not genuinely in issue, citing the particular portions of any pleading, affidavit, deposition, interrogatory, answer, admission, or other evidence upon which the party relies.

Plaintiff has not provided a LR 56-1 statement and therefore the alternative request for summary judgement will be disregarded.

A. Standard for Motion to Dismiss

Pursuant to Fed. R. Civ. P. 12(b)(6), a court may dismiss a plaintiff's complaint for "failure to state a claim...