United States District Court, S.D. California
THE SHERWIN-WILLIAMS COMPANY, f/k/a SHERWIN-WILLIAMS AUTOMOTIVE FINISHES CORP., Plaintiff/Counter-Defendant,
JJT, INC., d/b/a JOHN'S COLLISION CENTER, and JOHN TYCZKI, an individual, Defendant/Counter-Claimants.
ORDER ON MOTION TO DISMISS DEFENDANTS' COUNTERCLAIMS
LARRY ALAN BURNS, District Judge.
Plaintiff Sherwin-Williams makes paints and coatings for cars. Defendant John's Collision Center is a body shop. In May, 2011, the parties entered into a supply agreement. John's agreed to buy all of its paints and coatings from Sherwin-Williams until the net amount of its purchases equaled $250, 000, and in return Sherwin-Williams agreed sell its products to John's at a discount and to advance John's $40, 000. Defendant John Tyczki, the owner of John's, personally guaranteed the supply agreement.
In early 2013, John's stopped buying all of its paints and coatings from Sherwin-Williams, and on February 28, 2013 it sent Sherwin-Williams a letter saying it would no longer exclusively buy Sherwin-Williams products. Later, in April, 2013, John's returned the $40, 000 advance.
That led to this case. Sherwin-Williams filed a complaint asserting breach of contract claims against John's and Tyczki, and they filed counterclaims for breach of contract, breach of implied warranties of merchantability and fitness, concealment and fraud, intentional misrepresentation, negligent misrepresentation, breach of covenant of good faith and fair dealing, and unjust enrichment. The crux of the counterclaims is that Sherwin-Williams's products were no good. John's also takes the position that it was entitled to terminate the supply agreement early provided it returned the $40, 000 advance.
Now before the Court is Sherwin-Williams's motion to dismiss all counterclaims but the first, for breach of contract. As Sherwin-Williams sees it, this is a straightforward contract dispute that John's is complicating needlessly with counterclaims that add nothing of legal substance.
I. Legal Standard
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). The Court must accept all factual allegations as true and construe them in the light most favorable to John's. Cedars-Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). To defeat Sherwin-Williams's motion to dismiss, the factual allegations of John's needn't be detailed, but they must be sufficient to "raise a right to relief above the speculative level...." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, "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 a way that is favorable to John's, 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, 556 U.S. at 678. 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. Twombly, 550 U.S. at 555.
The Court will address the counterclaims in the order that John's asserts them.
A. Breach of Implied Warranties of Merchantability and Fitness
Sherwin-Williams argues that the claims for breach of implied warranties must fail because these warranties were explicitly waived in the supply agreement. This is what the supply agreement says:
WARRANTIES. Customer will be entitled to participate in any product warranty program offered by Sherwin-Williams for which Customer qualifies. EXCEPT AS PROVIDED IN A WARRANTY PROGRAM REFERRED TO IN THE PRECEDING SENTENCE IN WHICH CUSTOMER IS PARTICIPATING, SHERWIN-WILLIAMS DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL SHERWIN-WILLIAMS BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.
Regardless of whether the Court applies Ohio or California law here, that's a valid waiver of warranties substantively and stylistically, and John's doesn't appear to argue otherwise. See Ohio Rev. Code Ann. § 1302.29(B); Cal. Com. Code § 2316. It argues, instead, that the first sentence of the provision somehow saves its claim. All the first sentence says, however, is that John's is entitled to participate in any warranty program offered by Sherwin-Williams for which it qualifies. It doesn't, by itself, actually effectuate any ...