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Bret Harte Union High School District v. Fieldturf USA, Inc.

United States District Court, E.D. California

June 27, 2016



         This 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.

         I. Legal Standards

         The 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).

         In 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 defendant-unlawfully-harmed-me accusation." 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 (1983).

         In 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).

         II. Facts

         All 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.)

         On 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.)

         In 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.)

         III. Analysis

         Defendants 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.

         a. Negligent Misrepresentation

         Under 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).[1] 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 omitted).

         b. Applicability of the California ...

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