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Cort Business Services Corporation v. Eleven23 Marketing, LLC

United States District Court, D. Nevada

February 22, 2017

CORT BUSINESS SERVICES CORPORATION, Plaintiff,
v.
ELEVEN23 MARKETING, LLC, et al., Defendants.

          ORDER

          Gloria M. Navarro, Chief Judge United States District Judge

         Pending before the Court is the Motion to Dismiss, (ECF No. 33), [1] filed by Defendants Eleven23 Marketing, LLC (“Eleven23”) and Armen Gharabegian (“Gharabegian”) (collectively “Defendants”). Plaintiff CORT Business Services Corporation (“CORT”) filed a Response, (ECF No. 36), and Defendants filed a Reply, (ECF No. 38). For the reasons discussed below, the Court GRANTS Defendants' Motions to Dismiss.[2]

         I. BACKGROUND

         This case arises out of Defendants' alleged breach of a Master Supply Agreement (“MSA”) with CORT. Gharabegian owns and operates Eleven23 and Lounge22, LLC (“Lounge 22”), both furniture design and manufacturing companies. (Compl. ¶ 5, ECF No. 1). Gharabegian resides in Los Angeles County, California, and Eleven23 has its principle place of business in Los Angeles County, California. (Id. ¶¶ 2, 5). CORT asserts that it is a Delaware corporation in the business of furniture and accessory rentals, a large part of which is in the trade show and events industry in Las Vegas, Nevada. (Id. ¶¶ 1, 11).

         In September 2009, Lounge22 filed for Chapter 11 bankruptcy. (See Ex. A to Mot. to Dismiss (“MTD”) at 12, ECF No. 33-1). Following this bankruptcy, CORT and Gharabegian, on behalf of Lounge22, entered into an Asset Purchase Agreement (“APA”) under which CORT would purchase certain products and furnishings from Lounge22. (Id.). The APA contained a choice of law clause which stated the APA would be governed by laws of California. (Id. at 39). Shortly thereafter, Gharabegian created Eleven23 as Lounge22's successor entity. (Compl. ¶ 24)

         In August 2010, CORT and Eleven23 entered into the MSA, under which Eleven23 would design and manufacture furniture for CORT, and CORT would license the Lounge22 trademark. (See Ex. 1 to Compl. (“MSA”), ECF No. 1-1). The MSA contains a forum selection clause, requiring the MSA to be governed by laws of Nevada and adjudicated by a state or federal court located in Nevada. (Id. § 25). CORT alleges that pursuant to the MSA, it placed “several purchase orders in October 2014 for thousands of pieces in the Naples furniture collection.” (Compl. ¶ 59). CORT alleges that it received the furniture late, “did not receive all of the ordered pieces, ” and the pieces it did receive “were defective because the quality of the vinyl was of a much lower standard than the parties had agreed upon.” (Id. ¶¶ 65-67). In particular, “[t]he quality was so poor that the fabric would not withstand multiple rentals by CORT's customers, i.e., could not fulfill their intended purpose.” (Id. ¶ 67).

         After discussions failed to resolve this and other disagreements related to the MSA, both parties initiated separate lawsuits. First, Eleven23 and Gharabegian filed an action in Los Angeles County Superior Court, asserting breach of the MSA as well as trademark infringement claims for CORT's use of the Lounge22 trademark. See Compl., Eleven23 Mktg., LLC v. CORT Bus. Servs. Corp., No. 2:16-cv-01308 (D. Nev. Jan. 8, 2016). That case was removed to the Central District of California. (Id.). Shortly thereafter, CORT filed the instant case in this Court asserting various claims under the MSA. (See Compl.). In the instant Motion, Defendants seek to dismiss CORT's Complaint for failure to state a claim, or in the alternative, to transfer the case to the Central District of California. (See MTD, ECF No. 33). After the Motion was fully briefed, the Central District of California transferred the first case to this district to be consolidated with this case. See Order, Eleven23 Mktg., LLC v. CORT Bus. Servs. Corp., No. 2:16-cv-01308 (D. Nev. June 10, 2016).

         II. LEGAL STANDARD

         Rule 12(b)(6) of the Federal Rules of Civil Procedure mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. See North Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is sufficient to state a claim, the Court will take all material allegations as true and construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).

         The Court, however, is not required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a plaintiff must plead facts showing that a violation is plausible, not just possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555) (emphasis added). In order to survive a motion to dismiss, a complaint must allege “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         “Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion . . . . However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citations omitted). Similarly, “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss” without converting the motion to dismiss into a motion for summary judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Under Federal Rule of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court considers materials outside of the pleadings, the motion to dismiss is converted into a motion for summary judgment. See Fed. R. Civ. P. 12(d); Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir. 2001).

         If the court grants a motion to dismiss, it must then decide whether to grant leave to amend. Pursuant to Rule 15(a), the court should “freely” give leave to amend “when justice so requires, ” and in the absence of a reason such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear that the deficiencies of the complaint cannot be cured by amendment. See DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

         III. DISCUSSION

         CORT's Complaint asserts the following claims: (1) alter ego/piercing the corporate veil; (2) specific enforcement of the MSA; (3) breach of the MSA; and (4) breach of warranty. (Compl. ¶¶ 92-128). In the instant Motion, Defendants seek to dismiss CORT's Complaint for failure to state a claim, or in the alternative, to transfer the case ...


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