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Dos Beaches, LLC and Melinda M. v. Mail Boxes Etc.

May 23, 2012


The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge


Dos Beaches has filed an amended complaint containing a single claim alleging that Mail Boxes Etc., franchisor of a UPS Store operated by Dos Beaches, breached the covenant of good faith and fair dealing in their contractual relationship. Now pending is MBE's motion to dismiss.

I. Legal Standards

The relevant law hasn't changed since the Court last dismissed Dos Beaches' complaint. The Court will restate it here.

A. Motion to Dismiss

A 12(b)(6) motion to dismiss for failure to state a claim challenges the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering such a motion, the Court accepts all allegations of material fact as true and construes them in the light most favorable to Dos Beaches. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). To defeat a 12(b)(6) motion, a complaint's factual allegations needn't be detailed; they must simply be sufficient to "raise a right to relief above the speculative level . . . ." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, "some threshold of plausibility must be crossed at the outset" before a case can go forward. Id. at 558 (internal quotations omitted). 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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "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.

While the Court must draw all reasonable inferences in Dos Beaches' favor, it need not "necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotations omitted). In fact, the Court does not need to accept any legal conclusions as true. Iqbal, 129 S.Ct. at 1949. A complaint does not suffice "if it tenders naked assertions devoid of further factual enhancement." Id. (internal quotations omitted). Nor does it suffice if it contains a merely formulaic recitation of the elements of a cause of action. Bell Atl. Corp., 550 U.S. at 555.

B. Covenant of Good Faith and Fair Dealing

The covenant of good faith and fair dealing, "implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made." Guz v. Bechtel Nat. Inc., 24 Cal.4th 317, 349 (2000). The covenant finds particular application-although it is not limited to-"situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith." Carma Developers, Inc. v. Marathon Development California, Inc., 2 Cal.4th 342, 372 (1992); see also Locke v. Warner Bros., Inc., 57 Cal.App.4th 354, 363 (Cal. Ct. App. 1997). There are two important points to be made about the scope of the covenant.

First, there's no prerequisite that the underlying contract be breached in order for the covenant of good faith and fair dealing to be breached. "Were it otherwise, the covenant would have no practical meaning, for any breach thereof would necessarily involve breach of some other term of the contract." Carma, 2 Cal.4th at 373.

Second, the covenant of good faith and fair dealing is still tethered to the underlying contract, and cannot impose duties that aren't contemplated by it. "It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract." Id. The covenant "cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement." Guz, 24 Cal.4th at 349. See also Carma, 2 Cal.4th at 374 ("We are aware of no reported case in which a court has held the covenant of good faith may be read to prohibit a party from doing that which is expressly permitted by agreement. On the contrary, as a general matter, implied terms should never be read to vary express terms."); Los Angeles Equestrian Ctr., Inc. v. City of Los Angeles, 17 Cal.App.4th 432, 447 (Cal. Ct. App. 1993) ("If there exists a contractual relationship between the parties . . . the implied covenant is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract.").

The covenant, in other words, "is designed to effectuate the intentions and reasonable expectations of parties reflected by mutual promises within the contract." Nein v. HostPro, Inc., 174 Cal.App.4th 833, 852 (Cal. Ct. App. 2009). It's not limited to the express duties in the contract, but it's not the functional equivalent of an addendum or rider to the contract, either.

II. Discussion

Dos Beaches points to seven things MBE allegedly did in breach of the covenant of good faith and fair dealing. Any one, individually, could give rise to a claim, and so the Court will address them individually.

A. Location of Dos Beaches' Franchise

The first grievance of Dos Beaches giving rise to its claim is that MBE determined the location of Dos Beaches' UPS Store Franchise and misrepresented how profitable the franchise would ...

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