United States District Court, N.D. California
ORDER ON DEFENDANT'S MOTION TO DISMISS RE: DKT.
M. Ryu United States Magistrate Judge
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.
considered the parties' submissions and oral arguments,
the court grants in part and denies in part the motion to
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.
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.
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.
LEGAL STANDARD FOR RULE 12(B)(6) MOTIONS
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)).
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.
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, 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).
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