United States District Court, E.D. California
ORDER DENYING DEFENDANTS' MOTION TO DISMISS DOC.
action was filed by plaintiff on March 16, 2016, stating
causes of action sounding in California state law for breach
of contract, fraud, negligent misrepresentation, unfair
competition, and violation of the False Claims Act. (Doc. No.
1.) Jurisdiction is based on diversity pursuant to 28 U.S.C.
§ 1332. (Doc. No. 1 at 2.) On April 12, 2016, defendants
filed a motion to dismiss pursuant to Rule 12(b)(6) as to
plaintiff's negligent misrepresentation claim only. (Doc.
No. 6.) The motion asserts plaintiff may not state a cause of
action sounding in tort, because the suit here is governed by
the California Uniform Commercial Code and plaintiff is
therefore limited only to recovery in contract. (Doc. No. 6.)
Defendants argue that even if this is not the case,
plaintiff's recovery under a tort theory of negligent
misrepresentation is barred by application of the economic
loss rule. (Doc. No. 6 at 13-17.) Plaintiff filed an
opposition to this partial motion to dismiss on May 23, 2016.
(Doc. No. 7.) Oral argument on the matter was heard on June
7, 2016. (Doc. No. 10.) Attorney Peter Lindborg appeared on
behalf of plaintiff, and attorney Kristian Moriarty appeared
on behalf of defendants.
purpose of a motion to dismiss pursuant to Rule 12(b)(6) is
to test the legal sufficiency of the complaint. N. Star
Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581
(9th Cir. 1983). "Dismissal can be based on the lack of
a cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory." Balistreri
v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th
Cir. 1990). A plaintiff is required to allege "enough
facts to state a claim to relief that is plausible on its
face." Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). "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).
determining whether a complaint states a claim on which
relief may be granted, the court accepts as true the
allegations in the complaint and construes the allegations in
the light most favorable to the plaintiff. Hishon v. King
& Spalding, 467 U.S. 69, 73 (1984); Love v. United
States, 915 F.2d 1242, 1245 (9th Cir. 1989). However,
the court need not assume the truth of legal conclusions cast
in the form of factual allegations. United States ex rel.
Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir.
1986). While Rule 8(a) does not require detailed factual
allegations, "it demands more than an unadorned, the
Iqbal, 556 U.S. at 678. A pleading is insufficient
if it offers mere "labels and conclusions" or
"a formulaic recitation of the elements of a cause of
action." Twombly, 550 U.S. at 555. See also
Iqbal, 556 U.S. at 676 ("Threadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements, do not suffice."). Moreover, it is
inappropriate to assume that the plaintiff "can prove
facts which it has not alleged or that the defendants have
violated the . . . laws in ways that have not been
alleged." Associated Gen. Contractors of Cal., Inc.
v. Cal. State Council of Carpenters, 459 U.S. 519, 526
ruling on such a motion, the court is permitted to consider
material which is properly submitted as part of the
complaint, documents that are not physically attached to the
complaint if their authenticity is not contested and the
plaintiff's complaint necessarily relies on them, and
matters of public record. Lee v. City of Los
Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
facts recited here are taken from the allegations of the
complaint which are accepted as true for purposes of
resolving the pending motion. See Hishon, 467 U.S.
at 73. Plaintiff began investigating the purchase of a
synthetic turf athletic field for its campus at Bret Harte
High School in 2008, following a bond measure passed by local
voters. (Doc. No. 1 at ¶ 9.) Defendants' marketing
materials made numerous representations about the durability
and long life of their synthetic turf fields. (Doc. No. 1 at
¶ 11.) Plaintiff, acting on these representations,
entered a contract with defendants agreeing to pay
approximately $592, 000 in exchange for defendants furnishing
and installing an artificial turf field. (Doc. No. 1 at
¶ 13.) Installation was completed in October 2009 and
plaintiff was given an eight year manufacturer's warranty
on the field. (Doc. No. 1 at ¶ 15.) In addition to the
representations made in their marketing materials, defendants
represented to plaintiff in the contract that the field was
free from defects. (Doc. No. 1 at ¶ 16.)
March 1, 2011, defendants filed an action in federal court in
Georgia against the manufacturer of the material used to make
their synthetic turf fields, accusing the manufacturer of
producing fiber that was less durable and more likely to
degrade under certain conditions than represented. (Doc. No.
1 at ¶ 18.) Defendants complaint filed in that action
alleged that, in 2009, before the contract was entered into
with plaintiff, defendants had received complaints from
numerous customers about these same turf fields, reporting
the fibers in the turf were "splitting and
shedding" during routine use. (Doc. No. 1 at ¶ 19.)
In fact, defendants were aware of similar problems with their
products starting as early as 2006. (Doc. No. 1 at ¶
20.) Further, defendants' CEO testified in the Georgia
action that he believed the fields were defective and the
company was in the process of installing forty-one new fields
without telling customers the fields were defective. (Doc.
No. 1 at ¶ 21.)
2014, plaintiff noticed its turf field was failing. (Doc. No.
1 at ¶ 24.) Plaintiff reported the failure to
defendants, who refused to replace the field at no cost to
plaintiff. (Doc. No. 1 at ¶ 25.) Plaintiff filed this
lawsuit on March 16, 2016, alleging causes of action for
breach of contract, fraud, negligent misrepresentation,
unfair competition, and violation of California's False
Claims Act. (Doc. No. 1.)
seek dismissal here only of plaintiff's claim for
negligent misrepresentation. Defendants argue plaintiff may
not bring a separate cause of action for negligent
misrepresentation here for two reasons: (1) because it is a
merchant and this claim falls under the California Uniform
Commercial Code, plaintiff is prohibited from alleging tort
claims sounding in negligence about the same subject matter
as its breach of contract claim; and (2) because any claim of
negligent misrepresentation in this case is barred by the
economic loss rule. As discussed below, the court concludes
that the first argument is actually subsumed by the second,
despite defense counsel's protestations to the contrary.
California law, negligent misrepresentation is "a
separate and distinct tort" from negligence, and is
"a species of the tort of deceit." Bily v.
Arthur Young & Co., 3 Cal.4th 370, 407 (1992). "The
elements of fraud, which gives rise to the tort action for
deceit, are: (a) misrepresentation (false representation,
concealment, or nondisclosure); (b) knowledge of falsity (or
‘scienter'); (c) intent to defraud, i.e., to induce
reliance; (d) justifiable reliance; and (e) resulting damage.
The tort of negligent misrepresentation does not require
scienter or intent to defraud." Small v. Fritz Cos.,
Inc., 30 Cal.4th 167, 173 (2003) (internal quotations
and citations omitted). Negligent misrepresentation is defined
by the Civil Code as a form of deceit. Mirkin v.
Wasserman, 5 Cal.4th 1082, 1089 n.2 (1993) (citations
Applicability of the California ...