Somersault Snack Co, LLC v. Baptista Bakery, Inc.

          ORDER ON DEFENDANT'S MOTION TO DISMISS RE: DKT. NO. 16

          Donna M. Ryu United States Magistrate Judge

         Plaintiff Somersault Snack Co, LLC (“Somersault”) filed this action on June 5, 2019, alleging a breach of contract claim against Defendant Baptista Bakery, Inc. (“Baptista”). [Docket No. 1.] Baptista now moves to dismiss Somersault's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). [Docket Nos. 16 (“Mot.”), 20 (“Reply”).] Somersault timely opposed. [Docket No. 19 (“Opp.”).] The court held a hearing on September 17, 2019.

         Having considered the parties' submissions and oral arguments, the court grants in part and denies in part the motion to dismiss.

         I. BACKGROUND

         The following facts come from the complaint. Somersault sells all-natural snacks in numerous states, including California. Compl. ¶ 8. It entered into a contract with Baptista, effective January 1, 2015, which provided that Baptista would be the sole manufacturer of Somersault's products. Id. ¶ 9; Id., Ex. A (“Agreement”). In summer 2017, Baptista allegedly informed Somersault that it was going to raise the price of manufacturing Somersault's products by more than 70%. Id. ¶ 14. Somersault contested the price hike, arguing that Baptista could not raise its prices without a cost justification until December 2018. Id. ¶ 15. According to Somersault, Baptista responded that it was going to terminate the Agreement. Id. ¶ 16. Baptista also allegedly began producing defective products that did not conform with the specifications agreed to by the parties. Id. ¶ 17. Such defects included products that had packaging that was not completely sealed or were overcooked, undercooked, or moldy. Id.

         Somersault claims that it repeatedly informed Baptista of the product defects. Compl. ¶ 19. It also “requested an opportunity to inspect the manufacturing of Somersault's products during product runs, ” but Baptista allegedly did not allow Somersault to attend the product runs. Id. ¶¶ 19-20. Despite the poor quality of the products, Somersault did not stop selling the products because Baptista was its exclusive manufacturer and “having no products in the marketplace for several weeks would have been disastrous to Somersault's sales and business.” Id. ¶ 23. According to Somersault, Baptista's defective products are “worth less than non-defective products would have been, ” resulting in damage to Somersault's brand and loss of customers. Id. ¶¶ 25-26.

         Somersault brings a breach of contract claim based on the implied covenant of good faith and fair dealing. Compl. ¶¶ 29-34. Baptista moves to dismiss the complaint on the basis that Somersault failed to adequately plead its claim. Jurisdiction is based on the diversity of the parties. Id. at ¶¶ 2-3.

         II. LEGAL STANDARD FOR RULE 12(B)(6) MOTIONS

         A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When reviewing a motion to dismiss for failure to state a claim, the court must “accept as true all of the factual allegations contained in the complaint, ” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam) (citation omitted), and may dismiss a claim “only where there is no cognizable legal theory” or there is an absence of “sufficient factual matter to state a facially plausible claim to relief.” Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)) (quotation marks omitted). A claim has facial plausibility when a plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). In other words, the facts alleged must demonstrate “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).

         As a general rule, a court may not consider “any material beyond the pleadings” when ruling on a Rule 12(b)(6) motion. Lee, 250 F.3d at 688 (citation and quotation marks omitted). However, “a court may take judicial notice of ‘matters of public record, '” id. at 689 (citing Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)), and may also consider “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, ” without converting a motion to dismiss under Rule 12(b)(6) into a motion for summary judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith, 307 F.3d at 1125-26. The court need not accept as true allegations that contradict facts which may be judicially noticed. See Mullis v. U.S. Bankr. Court, 828 F.2d 1385, 1388 (9th Cir. 1987).

         III. ANALYSIS

         The Agreement designates Delaware law as controlling. See Agreement § 22. A federal court sitting in diversity applies the choice of law rules of the forum in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). “Under California conflict of law rules, the parties may agree to what law controls, unless the choice is contrary to a fundamental interest of a state with a materially greater interest.” Rennick v. O.P.T.I.O.N. Care, Inc., 77 F.3d 309, 313 (9th Cir. 1996). Neither party disputes that the Agreement's choice-of-law provision applies here. Accordingly, Somersault's breach of contract claim is governed by Delaware law.

         In Delaware, the elements for a breach of contract claims are (1) “the existence of the contract, whether express or implied”; (2) “the breach of an obligation imposed by that contract”; and (3) “the resultant damage to the plaintiff.” Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 354, 389 (3d Cir. 2016) (quoting VLIW Tech., LLC v. Hewlett Packard Co., 84 A.2d 606, 612 (Del. 2003)). Under Delaware law, “the proper interpretation of language in a contract is a question of law.” Ross v. Thomas, 728 F.Supp.2d 274, 281 (S.D.N.Y. 2010) (quoting Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006)) (applying Delaware law). “Clear and unambiguous language found in a contract is to be given its ordinary and usual meaning.” Anderson v. Wachovia Mortg. Corp., 497 F.Supp.2d 572, 581 (D. Del. 2007) (further quotations and citations omitted).

         Baptista challenges Somersault's complaint on two bases: (1) that Somersault has not adequately pleaded that Baptista breached an obligation imposed by the Agreement and (2) that ...