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Unique Functional Products, Inc., A v. Jca Corporation

August 3, 2011

UNIQUE FUNCTIONAL PRODUCTS, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
v.
JCA CORPORATION, A WASHINGTON CORPORATION; AND DOES 1 THROUGH 25, DOC. NO. 87 INCLUSIVE, DEFENDANTS.
JCA CORPORATION, A WASHINGTON CORPORATION, COUNTER-CLAIMANT,
v.
UNIQUE FUNCTIONAL PRODUCTS, INC., ET AL., COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

Plaintiff Unique Functional Products, Inc. ("UFP") brought the instant suit against Defendant JCA Corporation ("JCA") and its individual co-owners, Hun Choe and Chun Choe (together, the "Choes"), based on UFP's purchase of certain allegedly faulty boat trailer components from JCA and a related settlement agreement between the parties. Specifically, UFP's second amended complaint states seven causes of action: (1) breach of contract, (2) breach of covenant of good faith and fair dealing, (3) declaratory relief, (4) breach of express warranty, (5) breach of implied warranty, (6) conversion and constructive trust, and (7) fraud. (Doc. No. 86, hereafter "SAC.") All causes of action are alleged against JCA, while the Choes are named as defendants to UFP's fraud claim only. (Id.)

JCA and the Choes (collectively, "Defendants") now move to dismiss the fraud cause of action as well as any requests for punitive damages. (Doc. No. 87.) Pursuant to CivLR 7.1(d)(1), the court determines this matter is appropriate for resolution without oral argument. For the reasons set forth below, the court hereby GRANTS the motion to dismiss.

I. BACKGROUND

UFP is a San Diego--based company engaged in the manufacture and supply of parts for boat trailers. (SAC ¶ 3.) JCA is a supplier of trailer components based in the State of Washington. (Doc. No. 3 pp. 10-29, ¶ 3.) The two companies have conducted business with one another since November 1998, when UFP began purchasing boat trailer parts from JCA. (Id. ¶ 11.) The facts relevant to the instant motion are set forth below.

In 2001, UFP began purchasing certain parts known as torsion cartridges from JCA. (SAC ¶ 11.) UFP would incorporate these torsion cartridges into boat trailer axle assemblies, which it then sold to boat trailer manufacturers as well as members of the general public. (Id.) The quality and fitness of the cartridges for their intended use were expressly warranted by JCA. (Id.)

According to UFP, sometime after it began purchasing the parts from JCA, the torsion cartridges began to malfunction, causing UFP's axle assemblies to fail and prompting several of UFP's customers to file warranty and cost claims with the company. (Id.) In April of 2002, UFP contacted JCA and Hun Choe to discuss the damages UFP had incurred as a result of the faulty torsion cartridges. (Id. ¶ 46.) In particular, UFP claimed that one of its major customers, Mastercraft Boats, had terminated its business relationship with UFP after the failure of a substantial number of the torsion cartridges it had purchased from UFP. (Id.) UFP and JCA subsequently engaged in a dialogue over the next few months in an attempt to settle their dispute. (Id. ¶¶ 46-47.) According to UFP, the Choes met with UFP's representatives on several occasions during this time and "wrote numerous e-mails and memorandums [sic] encouraging UFP to agree to a settlement with JCA." (Id. ¶ 47.) Finally, on or around July 17, 2003, UFP entered into an agreement with JCA (the "Agreement") whereby JCA would pay UFP $1,790,000 in order to settle UFP's past warranty claims as well as to compensate UFP for its lost business. (Id. ¶¶ 14, 48.) In exchange, UFP agreed not to pursue institution of a recall on the torsion cartridges. (Id. ¶ 50.) The Agreement permitted JCA to delay payment of the $1.79 million settlement so that it could seek reimbursement from Hung-A, the company that originally manufactured the cartridges. (Id. ¶ 48.) UFP claims that, "based on JCA's and the Choe's [sic] written and verbal commitments," its understanding of the Agreement was that JCA would eventually pay the entire settlement amount, regardless of whether it was able to recover any money from Hung-A. (Id. ¶ 49.) Hun Choe signed the Agreement on JCA's behalf in his capacity as President. (Id. ¶ 48.)

UFP filed suit in state court on January 12, 2009, demanding payment of the full settlement amount along with damages related to other alleged wrongs committed by Defendants. (Doc. No. 1.) On February 12, 2009, JCA removed the action to this court, citing diversity jurisdiction under 28 U.S.C. § 1332. (Id. at p.2.)

On or around August 16-18, 2010, UFP took the depositions of both Hun Choe and Chun Choe, who testified as the persons most knowledgeable with regard to JCA's operations. (SAC ¶ 62.) According to UFP, the Choes both gave testimony to the effect that JCA had never intended to honor the unequivocal promise to pay the settlement amount embodied in the Agreement. (Id.) Rather, the Choes stated that JCA had either (1) never intended to pay the settlement amount at all; (2) intended to pay the settlement amount only if it obtained recovery from Hung-A; or (3) intended to exercise its discretion as to whether and how much to pay, even if it recovered from Hung-A. (Id.) Based on this testimony, UFP subsequently filed its first amended complaint ("FAC") to add the Choes as individual defendants along with a new cause of action for fraud. (See Doc. No. 40.)

JCA and the Choes subsequently moved, inter alia, to dismiss the FAC's fraud cause of action as inadequately pled under FED. R. CIV. P. 9(b). (Doc. No. 65.) That portion of the motion was granted by the court with leave to amend (Doc. No. 85), and UFP filed its SAC on May 16, 2011. Defendants now once again bring a motion to dismiss the fraud claim, and also request that all requests for punitive damages be stricken from the SAC. (Doc. No. 87.)

The motion is opposed by UFP. (Doc. No. 88.)

II. LEGAL STANDARD

A motion to dismiss under FED. R. CIV. P. 12(b)(6) challenges the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). In evaluating the motion, the court must construe the pleadings in the light most favorable to the non-moving party, accepting as true all material allegations in the complaint and any reasonable inferences drawn therefrom. See, e.g., Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). While Rule 12(b)(6) dismissal is proper only in "extraordinary" cases, United States v. Redwood City, 640

F.2d 963, 966 (9th Cir. 1981), the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court should grant 12(b)(6) relief only if the complaint lacks either a "cognizable legal theory" or facts sufficient to support a ...


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