-BLM Sam Kohl Enterprises, Inc. v. The Boc Group, Inc. et al, No. 3:2011cv00299 - Document 18 (S.D. Cal. 2011)
Court Description: ORDER granting in part and denying in part 10 Motion to Dismiss Plaintiff's First Amended Complaint by Defendants The BOC Group, Inc. and Linde North America, Inc. The Court grants Plaintiff's request for leave to amend the Complaint. Plaintiff may file an amended Complaint consistent with this Order within 20 days of entry of the Order. Signed by Judge Dana M. Sabraw on 8/1/11. (lao)
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-BLM Sam Kohl Enterprises, Inc. v. The Boc Group, Inc. et al Doc. 18 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SAM KOHLI ENTERPRISES, INC., a California Corporation, CASE NO. 11CV299 DMS (BLM) 12 ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED COMPLAINT BY DEFENDANTS THE BOC GROUP, INC. AND LINDE NORTH AMERICA, INC. Plaintiff, 13 vs. 14 15 16 THE BOC GROUP, INC., a member of the Linde Group; LINDE NORTH AMERICA, INC., a Delaware Corporation; and DOES 1 through 10, 17 Defendants. 18 Pending before the Court is a motion to dismiss Plaintiff’s First Amended Complaint (“FAC”) 19 brought by Defendants the BOC Group, Inc., a member of the Linde Group (“BOC”), and Linde North 20 America, Inc. (“Linde”). For the following reasons, Defendants’ motion to dismiss is granted in part 21 and denied in part. 22 I. 23 BACKGROUND 24 This action arises from an agreement between two corporations with diversity of citizenship. 25 On December 3, 2007, Plaintiff Sam Kohli Enterprises, a corporation incorporated under the laws of 26 the State of California, entered into a Unified Service Agreement (“the Contract”) with Defendant 27 BOC. In the Contract, Plaintiff agreed to “become the ‘employer of record’ for BOC’s workers and 28 to manage and assume risk for all aspects of employment taxes, including workers’ compensation -1- 11cv299 Dockets.Justia.com 1 insurance.” (FAC ¶ 7.) BOC, an industrial supply company incorporated under the laws of the State 2 of Delaware, agreed to “pay a set rate for each worker Plaintiff supplied,” where “[t]he rate for each 3 worker varied according to the worker[’]s classification [as] . . . professional, clerical, light industrial, 4 or industrial.” (Mot. to Dismiss at 6.) A Master Rate and Services Schedule fixed the rate for each of 5 the pertinent classifications. (FAC, Ex. A at 5.) 6 On December 3, 2010, Plaintiff filed a Complaint with the Superior Court for the State of 7 California. (Doc. 1, App. A.) On February 11, 2011, Defendant Linde removed the action to federal 8 court on the basis of diversity jurisdiction. On March 21, 2011, the parties filed a joint motion for 9 leave to allow Plaintiff to file a FAC, which the Court granted. (Docs. 6-8.) 10 In the FAC, Plaintiff alleges that BOC is a wholly-owned subsidiary of Linde and that Linde 11 owned and controlled BOC during “all relevant times.” (FAC ¶ 3.) Plaintiff pleads four claims for 12 relief as to BOC alone: (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, 13 (3) promissory estoppel, and (4) unjust enrichment. Additionally, Plaintiff pleads a fifth claim of fraud 14 against both BOC and Linde. On April 11, 2011, Defendants filed a motion to dismiss each of the 15 claims in the FAC. (Doc. 10.) Plaintiff filed an opposition, Defendants filed a reply, and Plaintiff filed 16 a motion for leave to file a sur-reply, which the Court granted. (Docs. 11, 12, 14, 16, 17.) The Court 17 further granted Defendants’ request to file a sur-reply in response. (Doc. 15.) 18 II. 19 LEGAL STANDARD 20 A party may move to dismiss a claim under Rule 12(b)(6) if the claimant fails to state a claim 21 upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The Federal Rules require a pleading to 22 include a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. 23 R. Civ. P. 8(a)(2). The Supreme Court, however, recently established a more stringent standard of 24 review for pleadings in the context of 12(b)(6) motions to dismiss. See Ashcroft v. Iqbal, ___ U.S. 25 ___, 129 S. Ct. 1937 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). To survive a motion 26 to dismiss under this new standard, “a complaint must contain sufficient factual matter, accepted as 27 true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 129 S. Ct. at 1949 (quoting 28 Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content -2- 11cv299 1 that allows the court to draw the reasonable inference that the defendant is liable for the misconduct 2 alleged.” Id. (citing Twombly, 550 U.S. at 556). “Determining whether a complaint states a plausible 3 claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its 4 judicial experience and common sense.” Id. at 1950 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d 5 Cir. 2007)). The reviewing court must therefore “identify the allegations in the complaint that are not 6 entitled to the assumption of truth” and evaluate “the factual allegations in [the] complaint to 7 determine if they plausibly suggest an entitlement to relief.” Id. at 1951. 8 III. 9 DISCUSSION 10 In their motion to dismiss, Defendants argue (1) Plaintiff fails to demonstrate that BOC 11 breached the Contract, (2) Plaintiff fails to demonstrate it suffered actual harm, (3) Plaintiff’s claim 12 of a breach of the covenant of good faith and fair dealing fails because it is dependant upon the breach 13 of contract claim, (4) Plaintiff’s claim of unjust enrichment fails because it cannot be raised as an 14 independent claim for relief, and (5) Plaintiff’s second, third, fourth, and fifth claims each fail because 15 they lack particularized factual allegations and because they are based on the breach of contract claim. 16 Additionally, Defendants argue that an indemnification clause in the contract insulates them from 17 liability for each of Plaintiff’s claims. 18 A. Indemnification Clause 19 As an initial matter, Defendants argue that an indemnification clause in the contract invalidates 20 all of Plaintiff’s claims. The indemnification clause states, “[Plaintiff] shall indemnify [BOC] for any 21 damages including attorney fees, arising in connection with [BOC’s] or a Worker’s negligence, 22 recklessness, or intentional misconduct.” (FAC, Ex. A at 3.) In its sur-reply, Plaintiff cites California 23 law stating, “[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from 24 responsibility for his own fraud, or willful injury to the person or property of another, or violation of 25 law, whether willful or negligent, are against the policy of the law.” Cal. Civ. Code § 1668. 26 “However, the word ‘wilful’ as used . . . may be said to connote an act done with malevolence, as 27 distinguished from an act motivated by good intentions but founded in negligence.” Davidson v. 28 Welch, 75 Cal. Rptr. 676, 685 (Cal. Ct. App. 1969) (referencing Insurance Code § 533, but indicating -3- 11cv299 1 similar considerations apply to California Civil Code § 1668). Therefore, in light of § 1668, an 2 indemnification clause may exempt a party from liability for claims that require mere ordinary 3 negligence, but not for claims involving fraud, willful injury, or willful or negligent violation of the 4 law. See Werner v. Knoll, 201 P.2d 45, 46-47 (Cal. Ct. App. 1948) (“Contracts seeking to relieve 5 individuals from the results of their own ordinary negligence are not invalid as against the policy of 6 the law.”). Accordingly, the indemnification clause at issue here cannot protect Defendants from 7 liability for claims requiring more than mere negligence. 8 Furthermore, “the law does not look with favor upon attempts to avoid liability or secure 9 exemption for one’s own negligence, and such provisions are strictly construed against the person 10 relying upon them.” Basin Oil Co. v. Baash-Ross Tool Co., 271 P.2d 122, 131 (Cal. Ct. App. 1954) 11 (citations omitted). The indemnification clause in question is the third and final bullet under a heading 12 excluding Plaintiff and workers from all rights to BOC’s benefit plans. The first and second bullets 13 address third party claims alleging violation of Title 7, the civil rights act, or sexual harassment. So 14 situated, the indemnification clause is not sufficiently explicit to support Defendants’ claim of 15 entitlement to indemnification for the conduct alleged by Plaintiff at this stage. Viotti v. Giomi, 41 16 Cal. Rptr. 345, 350 (Cal. Ct. App. 1964) (“Seemingly broad language will not be isolated from its 17 context and will be read with due regard to the maxim of strict construction.”) (citing Sproul v. Cuddy, 18 280 P.2d 158, 164 (Cal. Ct. App. 1955)). 19 B. Breach of Written Contract 20 To state a claim for breach of contract, a plaintiff must allege (1) the existence of a contract, 21 (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damages as 22 a result of the breach. CDF Firefighters v. Maldonado, 70 Cal. Rptr. 3d 667, 679 (Cal. Ct. App. 23 2008). BOC argues Plaintiff’s claim for breach of contract should be dismissed because Plaintiff has 24 failed to demonstrate a breach or actual injury resulting from the alleged breach. Plaintiff bases the 25 breach of contract claim against BOC on BOC’s alleged intentional provision of inaccurate job 26 descriptoins of workers. (FAC ¶ 17.) BOC argues that, per the terms of the Contract, Plaintiff was 27 in fact responsible for classifying the workers. 28 // -4- 11cv299 1 1. 2 Plaintiff alleges that BOC had a contractual duty to provide Plaintiff with an accurate job 3 description for each employee in order to allow Plaintiff to properly classify each employee. Further, 4 BOC had a duty to pay Plaintiff a specified rate for each worker Plaintiff supplied, depending on the 5 worker’s classification as professional, clerical, light industrial, or industrial. Rates for each 6 classification were delineated in Plaintiff’s Master Rate and Services Schedule. (FAC, Ex. A at 6.) 7 Plaintiff alleges “BOC deliberately . . . provided inaccurate job descriptions so that it could avoid 8 paying higher rates[,]” in violation of the Contract. (FAC ¶ 12.) Defendant BOC’s Breach 9 BOC claims no breach of contract occurred because Plaintiff was solely responsible for 10 classifying employees. On BOC’s theory, Plaintiff could not have “assumed the risks for all aspects 11 of insuring [BOC’s] workers,” as stated in the Contract, “without also assuming responsibility for 12 determining each worker’s classification after the job description was ‘pre-approved’ by Plaintiff.” 13 (Mot. to Dismiss at 5.) In construing a contract, the Court should “avoid an interpretation that will 14 make the contract unusual, extraordinary, harsh, unjust or inequitable, or which would result in 15 absurdity.” Hertzka & Knowles v. Salter, 86 Cal. Rptr. 23 (Cal. Ct. App. 1970)(quotations and 16 citations omitted); see also Sample v. Fresno Flume & Irrigation Co., 61 P. 1085, 1086 (Cal. 1900) 17 (holding that under California Civil Code § 3542, “a contract should receive a reasonable 18 interpretation”); Shean v. Weeks, 169 P. 231, 232 (Cal. 1917) (holding that under California Civil Code 19 § 1644, the words of a contract are to be understood in their ordinary meaning). 20 Accepting Plaintiff’s factual assertions as true, Plaintiff has stated a plausible claim for relief 21 for breach of contract. Taken in their ordinary sense, the words of the Contract describe a process 22 dependant on BOC’s provision of accurate job descriptions to Plaintiff. (FAC, Ex. A at 1 (“[A] 23 worker . . . is identified by [BOC] and placed on to [Plaintiff’s] payroll . . . based on Job Requisitions 24 that [BOC] provides.”), 3 (“[Plaintiff] reserves the right to not hire a Candidate if the job description 25 has not been pre-approved by [Plaintiff].”), 1 (“Plaintiff will extend 30 days notice prior to terminating 26 this agreement, unless [BOC] intentionally mis-represents a job description.”).) Despite BOC’s correct 27 assertion that ambiguities in a contract are construed against the drafter, see Oceanside 84, Ltd. v. 28 Fidelity Federal Bank, 66 Cal. Rptr. 2d 487 (Cal. Ct. App. 1997), Plaintiff has alleged sufficient facts -5- 11cv299 1 to support a plausible claim for breach of contract based upon BOC’s alleged provision of inaccurate 2 job descriptions for workers.1 3 2. 4 Plaintiff alleges BOC’s provision of inaccurate job descriptions for employees resulted in 5 underpayment to Plaintiff in accordance with the Master Rates and Services Table attached to the 6 FAC. (FAC ¶ 17.) For example, Plaintiff argues, “when [BOC] provided an inaccurate job description 7 of ‘professional’ rather than ‘industrial’ for a worker, [Plaintiff] suffered injury because it charged 8 [BOC] a lower rate (15.75%) than [BOC was] obligated to pay (24.75%).” (Opp’n at 6.) Such an 9 assertion, accepted as true, provides sufficient factual matter for a facially plausible claim as to 10 Damages damages. 11 BOC argues that, according to Plaintiff’s original Complaint, Plaintiff suffered no actual 12 damages due to BOC’s alleged breach. BOC states that even if BOC provided inaccurate job 13 descriptions for employees to avoid higher rates for high-risk workers, any decrease in payments made 14 to Plaintiff was offset by an equivalent decrease in costs paid by Plaintiff to Workmans’ Compensation 15 Insurance, leaving no damages against Plaintiff. (Mot. to Dismiss at 7.) BOC argues the Court should 16 disregard factual allegations in the FAC which contradict those in a prior Complaint. (Reply at 1.) 17 However, the Ninth Circuit has recently held that even inconsistent pleadings may not be stricken 18 unless the Court finds that they were made in bad faith. PAE Gov’t Servs. v. MPRI, Inc., 514 F.3d 856, 19 859 (9th Cir. 2007). 20 22 There is nothing in the Federal Rules of Civil Procedure to prevent a party from filing successive pleadings that make inconsistent or even contradictory allegations. Unless there is a showing that the party acted in bad faith—a showing that can only be made after the party is given an opportunity to respond under the procedures of Rule 11—inconsistent allegations are simply not a basis for striking the pleading. 23 Id. at 860; see also Rhodes v. Robinson, 621 F.3d 1002, 1005 (9th Cir. 2010) (“The amended 24 complaint supercedes the original, the latter being treated thereafter as non-existent.”). Under the 25 reasoning set forth in PAE Government Services, the Court accepts the factual matter of the FAC as 21 26 27 28 1 Plaintiff also aleges BOC “reversed payment of invoices paid to [Plaintiff] by BOC via procurement card.” (FAC ¶ 14.) However, Plaintiff fails to state any additional factual allegations in support of this claim. Accordingly, to the extent Plaintiff relies on this as a second basis for its breach of contract claim, the claim is dismissed. -6- 11cv299 1 true and finds Plaintiff has alleged a plausible claim as to the damages element of the breach of 2 contract claim. Plaintiff therefore states a facially plausible claim for breach of contract and the Court 3 denies BOC’s motion to dismiss this claim. 4 C. Fraud 5 Plaintiff states a claim for fraud as to both BOC and Linde. To recover for common law fraud 6 under California law, a plaintiff must demonstrate: (1) misrepresentation of a material fact, (2) with 7 knowledge of its falsity, (3) with intent to defraud, (4) plaintiff’s justifiable reliance on the 8 misrepresentation, and (5) resulting damage. Lazar v. Super. Ct., 12 Cal.4th 631, 638 (1996). Fraud 9 claims are subject to the heightened pleading standards of Federal Rule of Civil Procedure 9(b). 10 Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1141 (C.D. Cal. 2003). Rule 9(b) requires 11 a party alleging fraud or mistake to “state with particularity the circumstances constituting fraud or 12 mistake” and is applied by a federal court to both federal law and state law claims. Vess v. Ciba-Geigy 13 Corp. USA, 317 F.3d 1097, 1102-03 (9th Cir. 2003). A pleading will be “‘sufficient under Rule 9(b) 14 if it identifies the circumstances of the alleged fraud so that the defendant can prepare an adequate 15 answer.’” Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995) (quoting Kaplan v. Rose, 49 F.3d 16 1363, 1370 (9th Cir. 1994)). The same is true for allegations of fraudulent conduct. Vess, 317 F.3d 17 at 1103-04. In other words, fraud allegations must be accompanied by “the who, what, when, where, 18 and how” of the misconduct charged. Id. at 1106 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th 19 Cir. 1997)). 20 Defendants argue Plaintiff’s fraud claim contains only “boilerplate and conclusory allegations.” 21 (Mot. to Dismiss at 8.) Defendants reason that Plaintiff’s assertions that BOC “purposefully provided 22 inaccurate job descriptions in order to underpay [Plaintiff] for workers [Plaintiff] was providing 23 [BOC],” are far too vague to provide Defendants adequate notice under the law. (Mot. to Dismiss at 24 8.) The Court agrees. Plaintiff alleges BOC entered into the Contract on December 3, 2007, and that 25 Plaintiff first became aware of the alleged inaccurate job descriptions “in or about July 2010.” (FAC 26 ¶ 12.) Plaintiff also provides examples of the types of inaccurate job descriptions provided by BOC: 27 “For example, BOC mis-classified workers as ‘professional,’ ‘clerical,’ and/or ‘light industrial’ when 28 it knew the workers were in fact performing services that would have required them to be classified -7- 11cv299 1 as construction workers and/or in other high-risk jobs.” (Id.) However, these allegations are not 2 sufficiently particular to support a plausible claim for fraud. Accordingly, Defendants’ motion to 3 dismiss Plaintiff’s claim for fraud is granted. 4 D. Breach of Good Faith and Fair Dealing 5 As stated above, to state a claim for breach of contract, Plaintiff must show the existence of 6 a contract, plaintiff’s performance or excuse for nonperformance, defendant’s breach, and damages 7 as a result of the breach. CDF Firefighters, 70 Cal. Rptr. 3d. at 679. “A claim for breach of the 8 implied covenant of good faith and fair dealing requires the same elements, except that instead of 9 showing that defendant breached a contractual duty, the plaintiff must show, in essence, that defendant 10 deprived the plaintiff of a benefit conferred by the contract in violation of the parties’ expectations at 11 the time of contracting.” Boland, Inc. v. Rolf C. Hagen (USA) Corp., 685 F. Supp. 2d 1094, 1101 12 (E.D. Cal. 2010). 13 BOC argues that Plaintiff’s claim for a breach of the duty of good faith and fair dealing is 14 insufficient because it merely duplicates Plaintiff’s claim for breach of contract. “If allegations do not 15 go beyond the statement of mere contractual breach, rely on the same alleged acts, simply seek the 16 same damages or other relief already claimed in a companion contract cause of action, they may be 17 disregarded as ‘superfluous’ as no additional claim is actually stated.” (See Mot. to Dismiss at 10 18 (citing Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 272 Cal. Rptr. 387, 393 (Cal. Ct. App. 1990)).) 19 While Careau certainly states that a “‘breach of the implied covenant of good faith and fair dealing 20 involves something beyond breach of the contractual duty itself,’” the additional element it requires 21 is merely bad faith on the part of the accused. Careau, 272 Cal. Rptr. at 399 (quoting Congleton v. 22 Nat’l. Union Fire Ins. Co., 234 Cal. Rptr. 218 (1987)). 23 Thus, allegations which assert such a claim must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. 24 25 26 27 Id. at 399-400 (emphasis added). 28 // -8- 11cv299 1 As noted above, Plaintiff states a facially plausible claim of breach of contract. Additionally, 2 Plaintiff alleges BOC acted in bad faith when BOC “deliberately . . . provided inaccurate job 3 descriptions so that it could avoid paying higher rates[.]” (FAC ¶ 12.) Accepted as true, Plaintiff’s 4 allegations provide a sufficient basis for a facially plausible claim of breach of the duty of good faith 5 and fair dealing. Therefore the Court denies BOC’s motion to dismiss this claim. 6 E. Promissory Estoppel 7 To state a claim for promissory estoppel, a plaintiff must allege (1) the defendant made a clear 8 unambiguous promise to the plaintiff, (2) the defendant had reason to believe that the plaintiff would 9 rely on the promise, (3) the plaintiff did rely on the promise, (4) and foreseeable damages resulted to 10 the plaintiff. See Morrison v. Home Sav. & Loan Ass’n., 346 P.2d 917, 920 (Cal. Ct. App. 1959) 11 (citing Drennan v. Star Paving Co., 51 Cal. 2d 409, 413 (1958)). The purpose of promissory estoppel 12 is “to make a promise binding, under certain circumstances, without consideration in the usual sense 13 of something bargained for and given in exchange.” Youngman v. Nevada Irrigation Dist., 70 Cal. 2d 14 240, 249 (1969). 15 BOC argues the claim of promissory estoppel is redundant of the breach of contract claim and 16 Plaintiff could not have relied on BOC’s job descriptions because Plaintiff assumed all risk for 17 employee classifications. Promissory estoppel is a claim for relief independent from a breach of 18 contract claim. To the extent that Plaintiff’s claims for promissory estoppel and breach of contract are 19 in conflict, the federal rules allow a plaintiff to plead inconsistent claims in a complaint. See 20 Molsbergen v. United States, 757 F.2d 1016, 1019 (9th Cir. 1985) (holding that the federal rules give 21 freedom to plead inconsistent claims). Plaintiff argues that BOC made a promise to provide accurate 22 job descriptions; that BOC had reason to believe Plaintiff would rely on that promise because Plaintiff 23 could not otherwise correctly classify the workers; that Plaintiff did rely on the promise by classifying 24 workers according to BOC’s provided job descriptions; and that Plaintiff suffered foreseeable damages 25 by accepting lower payments than it was owed. (Opp’n at 6.) Accepting Plaintiff’s factual assertions 26 as true, Plaintiff states a plausible claim for promissory estoppel. Accordingly, the Court denies 27 BOC’s motion to dismiss Plaintiff’s promissory estoppel claim. 28 // -9- 11cv299 1 F. Unjust Enrichment 2 Unjust enrichment is not itself an independent claim for relief. McKell v. Washington Mut., 3 Inc., 49 Cal. Rptr. 3d 227, 254 (Cal. Ct. App. 2006). The Court therefore construes Plaintiff’s 4 purported claim for unjust enrichment as an attempt to plead a claim for relief giving rise to a right of 5 restitution. A party is required to make restitution “if he or she is unjustly enriched at the expense of 6 another. A person is enriched if the person receives a benefit at another’s expense.” McBride v. 7 Boughton, 20 Cal. Rptr. 3d 115, 122 (Cal. Ct. App. 2004) (citing First Nationwide Sav. v. Perry, 15 8 Cal. Rptr. 2d 173 (1992)). Plaintiff here makes adequate factual allegations to state a facially plausible 9 claim to a right of restitution to the value of services provided to BOC for which Plaintiff was not paid 10 in accordance with the Contract. Therefore, the Court denies BOC’s motion to dismiss this claim. 11 IV. 12 CONCLUSION 13 For the foregoing reasons, the Defendants’ motion to dismiss is granted in part and denied in 14 part. The Court grants Plaintiff’s request for leave to amend the Complaint. Plaintiff may file an 15 amended Complaint consistent with this Order within 20 days of entry of the Order. 16 17 IT IS SO ORDERED. DATED: August 1, 2011 18 19 20 HON. DANA M. SABRAW United States District Judge 21 22 23 24 25 26 27 28 - 10 - 11cv299
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