Sunfarms, LLC v. Eurus Energy Am. Corp.

SUNFARMS, LLC, et al., Plaintiffs, v. EURUS ENERGY AMERICA CORPORATION, et al., Defendants.

No. 3:18-cv-58-L-AGS

United States District Court, S.D. California

March 31, 2022

ORDER ON THE PARTIES' MOTIONS (ECFS 83, 90, 102 115, 120, AND 129).

Hon M. James Lorenz, United States District Judge.

Pending before the Court is Defendant Eurus Energy America Corporation's (“Eurus”) motion for judgment on the pleadings, motion for summary judgment, and motion for leave to amend; Defendant Toyota Tsusho America, Inc.'s (“TTA”) motion for summary judgment and motion to strike; and Plaintiffs Mitch Dmohowski and Sunfarms LLC's (“Plaintiffs”) motion for summary judgment. The Court decides the matters on the papers submitted without oral argument. Civ. L. R. 7.1.

Background

Eurus develops and operates renewable energy projects. In 2012 Plaintiffs entered into a consulting services agreement (“CSA”) with Eurus related to projects in Hawaii the Waianae Solar Project (“Waianae”) and the Palehua Wind & Solar Project (“Palehua”). The CSA included a non-compete clause. Eurus had the option to terminate the CSA without cause. Plaintiffs were paid fifteen thousand dollars per month and were entitled to other periodic payments if certain conditions or achievements were met. The CSA required Eurus to cause EE Waianae Solar Project LLC (“Project Company”) - which owned and operated the Waianae project - to enter into a royalty agreement with Plaintiffs, entitling them to a percentage of gross revenue from the power sales. Eurus terminated the CSA in February 2017. Plaintiffs assert several claims against Eurus related to the periodic payments, royalty agreement, and non-compete clause.

TTA, Eurus's sister corporation, made an investment in the Project Company. TTA was not a party to the CSA. Plaintiffs seek to hold them liable for Eurus's conduct.

Eurus's Motion for Judgment on the Pleadings (ECF 90)

“After the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). The Court “must accept all factual allegations in the complaint as true and construe them in the light most favorable to the non-moving party.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). Judgment on the pleadings is proper if, taking all of plaintiff's allegations in its pleadings as true, the defendant is entitled to judgment as a matter of law. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990) (“judgment on the pleadings is proper when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law.”)

Eurus moves to dismiss Plaintiffs' claims for injunctive and declaratory relief. Eurus also argues Plaintiffs are not entitled to punitive damages or an attorneys' fees award.

Plaintiffs structured their request for injunctive and declaratory relief as an independent cause of action that relates to the CSA's non-compete clause. (ECF 51 at ¶¶ 106, 109-113, and 117-118). Specifically, Plaintiffs seek an injunction against enforcement of the non-compete clause and a declaration that the clause is void as an illegal restraint of trade. Id. Per the CSA, the clause expired sometime in 2018.

Based on the expiration, Eurus contends the matter is now moot. In response, Plaintiffs raise arguments that are unrelated to the non-compete clause. But the allegations under the claim only relate to that clause. The injunction requested under the prayer for relief section likewise only seeks “an injunction prohibiting enforcement of” the non-compete clause.

There is nothing for the Court to enjoin because the clause is no longer in effect. And there is no chance it will be resurrected (Eurus and Plaintiffs would need to sign a new agreement for that to happen). The request for injunctive relief is thus moot. McQuillion v. Schwarzenegger, 369 F.3d 1091, 1095 (9th Cir. 2004) (“a case becomes moot when the issues presented are no longer live or the parties lack a legally cognizable interest in the outcome.”) (internal quotation marks and citations omitted).

Plaintiffs also argue there is a live controversy as to their request for declaratory relief because they will rely on the Court's declaration to pursue damages for lost profits. However, there are no allegations about lost profits under the “declaratory relief” claim. Regardless, Plaintiffs cannot pursue damages for lost profits under that equitable claim (and the other three claims relate to Eurus breaching, not enforcing, the CSA). Any remedy must be tied to a cause of action. Pursuing some civil cause of action for lost profits would resolve any dispute as to whether the non-compete clause was illegal or void. Plaintiffs do not need a separate declaration from this Court. Although Plaintiffs contend the enforcement of the clause was a “business tort, ” such as “intentional or negligent interference with prospective economic advantage, ” those causes of actions are not in the operative complaint.

Overall, there is no live controversy as to the validity of the non-compete clause because it is no longer in effect. There are no rights or obligations to declare under an expired clause. The clause does not presently impact Plaintiffs, nor is it reasonably expected to do so in the future. The Court's declaration that the expired clause is void would not provide any relief.^[1] See, e.g., Center for Biological Diversity v. Lohn, 511 F.3d 960, 964 (2007) (“where . . . both injunctive and declaratory relief are sought but the request for injunctive relief is rendered moot, the case is not moot if declaratory relief would nevertheless provide meaningful relief.”); see also Clark v. City of Lakewood, 259 F.3d 996, 1006 (9th Cir. 2001) (“a determination that a plaintiff has standing to seek damages does not ensure that the plaintiff can also seek injunctive or declaratory relief.”); Leu v. Int'l Boundary Comm'n, 605 F.3d 693, 694 (9th Cir. 2010). The request for injunctive and declaratory relief is thus subject to dismissal. For these reasons, the Court GRANTS the motion as to the equitable claims.

Plaintiffs request leave to amend. The Court should freely give leave to amend when justice so requires. Fed.R.Civ.P. 15(a). Here, the deficiencies related to the above causes of action (remedies) cannot be cured. Plaintiffs, in the TAC, sought an injunction prohibiting the enforcement of the non-compete clause. They also sought a declaration that the clause was void as an illegal restraint of trade. The clause is now expired per the CSA. There is no threat of enforcement or likelihood of recurrence. There are no factual allegations that would cure the above deficiencies. The Court therefore declines to grant Plaintiffs leave to amend.

To pursue damages for lost profits resulting from any enforcement of the non-compete clause, Plaintiffs must assert a cause of action that entitles them to that recovery. Plaintiffs cannot transform their request for equitable remedies into a cause of action for civil damages. See Wong v. Jing, 189 Cal.App.4th 1354, 1360 n.2 (2010) (injunctive relief is an equitable remedy and not an independent cause of action). If Plaintiffs wanted to pursue new claims, like intentional interference with prospective economic advantage, they would need to seek leave to amend the scheduling order (the deadline to amend the pleadings was February 14, 2020). Plaintiffs would have to show “good cause.”

Fed. R. Civ. P. 16. The main consideration under that standard is the “diligence of the party seeking the amendment.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992). There is no dispute Plaintiffs had the ability to assert the claims raised in their opposition before the amendment deadline. Therefore, to the extent Plaintiffs seek leave to amend the scheduling order to add new claims or allegations, their request is denied. Id.

The remaining arguments raised in the motion for judgment on the pleadings relate to Plaintiffs' request for punitive damages and attorneys' fees. The Court will address those arguments after it decides the parties' summary judgment motions.

Eurus's Motion for Leave to File Counterclaim (ECF 115)

Eurus seeks leave to assert a counterclaim against Plaintiffs for defamation. Eurus contends Plaintiffs made defamatory statements about Eurus's counsel, including allegations that they engaged in a kickback scheme and sought to needlessly increase their fees in this action. That alleged conduct occurred after the deadline to amend. Eurus could therefore not seek leave prior to then. See Fed. R. Civ. P. 16; Johnson, 975 F.2d at 608. Even so, Eurus waited a significant period after receipt of the alleged defamatory statements to seek leave to assert the counterclaim. In addition, the allegations are unrelated to the operative claims.^[2] Moreover, discovery would need to be reopened. That would significantly delay the resolution in this action. For these reasons, the Court denies the motion. See Fed. R. Civ. P. 15; Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003); Solomon v. North Am. Life & Cas. Ins. Co., 151 F.3d 1132, 1138-39 (9th Cir. 2002); Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002); Jackson v. Bank of Haw., 902 F.2d 1385, 1387-89 (9th Cir. 1990); Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999). Eurus may pursue the defamation claims against Plaintiffs in a separate action.^[3]

Plaintiffs and Eurus's Cross-Motions for Summary Judgment (ECFs 102 and 120)

Eurus moves for summary judgment on the...