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Chowchilla Elementary School District v. Ikon

February 22, 2011

CHOWCHILLA ELEMENTARY SCHOOL DISTRICT,
PLAINTIFF,
v.
IKON OFFICE SOLUTIONS, INC., AN OHIO CORPORATION DEFENDANT.
MEMORANDUM DECISION AND ORDER RE PLAINTIFF'S MOTION TO DISMISS DEFENDANT'S COUNTERCLAIM AND THIRD-PARTY DEFENDANT'S MOTION TO DISMISS DEFENDANT'S COUNTERCLAIM (DOC. 12, 15) IKON OFFICE SOLUTIONS, INC., AN OHIO CORPORATION THIRD PARTY PLAINTIFF, V. RAY A MORGAN COMPANY, A CALIFORNIA CORPORATION, AND TIMONTY KENT, AN INDIVIDUAL THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

I. INTRODUCTION

On August 3, 2010, Chowchilla Elementary School District ("Plaintiff") filed a complaint against IKON Office Solutions, Inc. ("Defendant") in the Superior Court of California, County of Madera, seeking a declaration that Plaintiff‟s contract with Defendant is legally void. Doc. 1, Ex. 3. Defendant removed the action to federal court on September 3, 2010. Doc. 1.

On September 10, 2010, Defendant filed an answer, affirmative defenses, and counterclaim for breach of contract against Plaintiff (Doc. 8) and third party complaint against Ray

A Morgan Company ("RMC") and Timothy Kent (together, "Third Party Defendants") (Doc. 9). The third party complaint asserts eleven claims for relief: (1) intentional interference with contractual relations, (2) violation of the Lanham Act, (3) misappropriation of trade secrets, (4) interference with actual and prospective business relations, (5) breach of duty of loyalty, (6) negligent interference with contractual relations, (7) fraud, (8) unfair competition, (9) breach of contract, (10) corporate disparagement, and (11) conspiracy.

Before the court are Plaintiff‟s motion to dismiss Defendant‟s counterclaim for breach of contract (Doc. 12) and Third Party Defendants‟ motion to dismiss claims from Defendant‟s third party complaint (Doc. 15). Defendant opposes both motions (Docs. 19, 20).

II. BACKGROUND

In 2004, Plaintiff entered into a written agreement to lease copiers from Defendant. The parties entered into subsequent amendments to the agreement, including an amendment effective January 21, 2009 ("2009 CESD Lease") (the agreement with all amendments, "CESD Agreement").

The CESD Agreement incorporates by reference the terms of a contract between Defendant and Los Angeles County. Plaintiff alleges that Defendant represented that its contract with Los Angeles County had been properly publicly bid and could be "piggybacked" with the CESD Agreement under California Public Contract Code § 20118. Defendant alleges that it guaranteed a 20% price discount to Los Angeles County*fn1 , which was part of a public bid process and included in its contracts with Los Angeles County. Plaintiff proceeded with the 2009 CESD Lease without soliciting bids publicly.

On July 1, 2009, Plaintiff sent Defendant a letter requesting a copy of Defendant‟s contract with Los Angeles County. In response to Plaintiff‟s request, Defendant provided

(1) a letter from Defendant to the County of Los Angeles ("CLA") dated September 16, 2004 ("2004 CLA Letter") (Doc. 8, Ex. B at

1); (2) Defendant‟s 2004 Invitation to Bid submitted to Los Angeles County ("2004 CLA Lease") (Doc. 8, Ex. B); and (3) Defendant‟s 2008 Term Contract Award with Los Angeles County ("2008 CLA Contract") (Doc. 8, Ex. C). Plaintiff requested additional documentation to substantiate Defendant‟s claim that its contract with Los Angeles County could be "piggybacked" with the CESD Agreement. Plaintiff alleges that Defendant never provided additional documentation. Plaintiff concluded that the CESD Agreement violated California Public Contract Code § 20118, and sent Defendant a letter terminating the CESD Agreement as of September 22, 2009.

Third Party Defendant RMC has been Defendant‟s competitor

since 1998, and Third Party Defendant Kent was a former major account representative for Defendant. Defendant alleges that Third Party Defendants made misrepresentations to Plaintiff regarding the legality of the CESD Agreement under California Public Contract Code § 20118: the terms and/or status of Defendant‟s contract with Los Angeles County; that Defendant had unilaterally and improperly altered the terms of its prior leases; and that Defendant had deceived Plaintiff concerning the terms, negotiation and legality of the 2009 CESD Lease. Third Party Defendant Kent resigned employment with Defendant on or about February 18, 2009 and allegedly commenced employment immediately with Third Party Defendant RMC.

III. LEGAL STANDARD

To survive a Rule 12(b)(6) 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, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955 (2007)). A complaint does not need detailed factual allegations, but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.

In deciding a motion to dismiss, the court should assume the veracity of "well-pleaded factual allegations," but is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 127 S.Ct. at 1950. "Labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. "‟Naked assertion[s]‟ devoid of "further factual enhancement‟" are also insufficient. Iqbal, 127 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557). Instead, the complaint must contain enough facts to state a claim to relief that is "plausible on its face." Twombly, 550 U.S. at 570.

A claim has facial plausibility when the complaint‟s factual content allows the court to draw the reasonable inference that the defendant is liable for the alleged misconduct. Iqbal, 127

S.Ct. at 1949. "The plausibility standard is not akin to a "probability requirement,‟ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556). "A well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and "that a recovery is very remote and unlikely.‟" Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683 (1974)).

The Ninth Circuit summarizes the governing standard as follows: "In sum, for a complaint to survive a motion to dismiss, the non-conclusory "factual content‟ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009)(quotations omitted).

If a district court considers evidence outside the pleadings, a Rule 12(b)(6) motion to dismiss must be converted to a Rule 56 motion for summary judgment, and the nonmoving party must be given an opportunity to respond. U.S. v. Ritchie, 342

F.3d 903, 907 (9th Cir. 2003). "A court may, however, consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice-without converting the motion to dismiss into a motion for summary judgment." Id. at 908.

IV. DISCUSSION

A.PLAINTIFF'S MOTION TO DISMISS

Plaintiff moves to dismiss Defendant‟s counterclaim for breach of contract. The standard elements of a claim for breach of contract are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damage to plaintiff therefrom. E.g., Abdelhamid v. Fire Ins. Exch., 182 Cal.App.4th 990, 999, 106 Cal.Rptr.3d 26 (2010). Plaintiff contends that Defendant‟s counterclaim fails as a matter of law because the counterclaim lacks the first element of a breach of contract claim: the existence of a contract.

California Public Contracts Code § 20111(a) provides in pertinent part:

The governing board of any school district, in accordance with any requirement established by that governing board pursuant to subdivision (a) of Section 2000, shall let any contracts involving an expenditure of more than fifty thousand dollars ($50,000) for any of the following:

(1) The purchase of equipment, materials, or supplies to be furnished, sold, or leased to the district.

(2) Services, except construction services. . . .

The contract shall be let to the lowest responsible bidder who shall give security as the board requires, or else reject all bids.

Cal. Pub. Con. Code § 20111. California Public Contracts Code contains exceptions to the public bidding requirement, including the exception in Section 20118:

Notwithstanding Sections 20111 and 20112, the governing board of any school district, without advertising for bids, if the board has determined it to be in the best interests of the district, may authorize by contract, lease, requisition, or purchase order, any public corporation or agency, including any county, city, town, or district, to lease data-processing equipment, purchase materials, supplies, equipment, automotive vehicles, tractors, and other personal property for the district in the manner in which the public corporation or agency is authorized by law to make the leases or purchases from a vendor. Upon receipt of the personal property, if the property complies with the specifications set forth in the contract, lease, requisition or purchase order, the school district may draw a warrant in favor of the public corporation or agency for the amount of the approved invoice, including the reasonable costs to the public corporation or agency for the amount of the approved invoice, including the reasonable costs to the public corporation or agency for furnishing the services incidental to the lease or purchase of the personal property, or the school district may make payment directly to the vendor. Alternatively, if there is an existing contract between a public corporation or agency and a vendor for the lease or purchase of the personal property, a school district may authorize the lease or purchase of personal property directly from the vendor by contract, lease, requisition, or purchase order and make payment to the vendor under the same terms that are available to the public corporation or agency under the contract.

Cal. Pub. Con. Code ยง 20118. There are no federal cases or citable state cases interpreting California ...


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