Red Equipment Pte Limited v. BSE Tech LLC et al

Filing 33

ORDER Red Equipment's motion 26 to dismiss Counts III and IV of BSE's counterclaim is granted. Counts III and IV of BSE's counterclaim are dismissed with prejudice. Red Equipment's request for attorney's fees is denied as premature. The issue of attorney's fees will be taken up when this case is fully resolved. Signed by Judge H Russel Holland on 6/6/2014.(KMG)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

RED EQUIPMENT PTE LTD., a Singapore
private limited company,

)
)
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Plaintiff/counterdefendant,
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)
vs.
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BSE TECH, LLC, a Delaware limited liability )
company; and BOSTON SEMI-EQUIPMENT, )
LLC, a Delaware limited liability company,
)
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Defendants/counterclaimants.
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__________________________________________)
BSE TECH, LLC, a Delaware limited liability )
company; and BOSTON SEMI-EQUIPMENT, )
LLC, a Delware limited liability company,
)
)
Third-party plaintiffs,
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)
vs.
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LONE STAR LITHOGRAPHY, LLC, a Texas )
limited liability company, and OBIE ROOKER, )
)
Third-party defendants.
)
__________________________________________)

No. 2:13-cv-1003-HRH

ORDER
Motion to Dismiss

Counterdefendant moves1 to dismiss Counts III and IV of the counterclaim. This
motion is opposed.2 Oral argument was requested but is not deemed necessary.

1

Docket No. 26.

2

Docket No. 27.
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Background
Plaintiff/counterdefendant is Red Equipment Pte Ltd. Defendants/counterclaimants
are BSE Tech, LLC and Boston Semi-Equipment, LLC (referred to herein collectively as “BSE”).
Red Equipment “is in the business of ... deinstalling certain used semiconductor
equipment” and selling “shipping kits for certain used semiconductor equipment.”3 BSE is
in the business of selling and leasing “used and refurbished semiconductor equipment (‘tools’)
in the United States and abroad.”4
BSE alleges that “[i]n or about January 2013,” BSE and Red Equipment “entered into
an agreement through purchase orders and statements of work whereby [Red Equipment]
was responsible for de-installing certain of the tools manufactured by Nikon ..., and for
providing and affixing specialized shipping kits for the Nikon Tools ... in preparation for their
extraction from” a fabrication plant in Japan “and subsequent shipping to customers....”5 BSE

3

Complaint and Demand for Jury Trial at 2, ¶ 8, Docket No. 1. BSE contends that
because this is a Rule 12(b)(6) motion to dismiss some of its counterclaims, the court can only
consider its First Amended Answer, Counterclaim, and Third Party Complaint and cannot
consider other pleadings, filings, or submissions in the record. This contention is incorrect.
The court can consider other pleadings in this case when deciding the instant motion to
dismiss and any other filings or submissions it has considered would fall within one of the
exceptions to the rule that the court cannot “‘consider any material beyond the pleadings in
ruling on a Rule 12(b)(6) motion.’” United States v. Corinthian Colleges, 655 F.3d 984, 998-99
(9th Cir. 2011) (quoting Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001)).
4

First Amended Answer, Counterclaim, and Third-Party Complaint of Boston Semi
Equipment, LLC and BSE Tech, LLC at 22, ¶ 12, Docket No. 25.
5

Id. at 23, ¶ 16.
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alleges that some of the tools were shipped to California, where upon arrival, it was
discovered that some of them “had sustained substantial damage.”6 BSE alleges that they “are
evaluating, and have been evaluating, the scope of such damage.”7 BSE further alleges that
as part of the evaluation, some of the Nikon Tools that were still in Japan were de-crated and
inspected and “a number of deficiencies” were uncovered.8
Red Equipment contends that it is not responsible for any damage to the Nikon Tools
and on May 14, 2013, Red Equipment commenced this action, in which it asserts a breach of
contract claim against BSE, claiming that BSE owes it $463,804.50 for the work that Red
Equipment performed under the parties’ agreement.9 BSE has counterclaimed, asserting
claims for breach of contract, breach of the implied covenant of good faith and fair dealing,
gross negligence, and negligence against Red Equipment.10 BSE’s gross negligence and
negligence claims are based on allegations that Red Equipment “had a duty ... to abide by the
promises, contracts, statements, and the standard of care in the tool de-installation and

6

Id. at 24, ¶ 20.

7

Id.

8

Id. at ¶ 23.

9

Complaint and Demand for Jury Trial at 17, ¶ 145, Docket No. 1.

10

BSE also asserts gross negligence and negligence claims against Obie Rooker and Lone
Star Lithography. Rooker is alleged to be “the Director of Operations” for Red Equipment and
Lone Star is alleged to be “an entity owned and/or operated by” Rooker. First Amended
Answer, Counterclaim and Third-party Complaint of Boston Semi Equipment, LLC and BSE
Tech, LLC at 21, ¶¶ 7-8, Docket No. 25.
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shipping kit industry, in [its] dealings with [BSE], and in the business dealings and obligations
between and among the parties.”11 BSE alleges that as a result of Red Equipment’s gross
negligence and negligence, BSE has suffered “general, special, and consequential damages,
including, but not limited to loss of revenues, profits, benefits, business opportunities and
reputation, and other damages, injuries, and losses, to their detriment.”12 In its prayer for
relief, BSE requests its “actual losses sustained ... as a result of” Red Equipment’s “breaches
and tortious conduct”, “the losses suffered ... as a result of the lost economic opportunity
caused by” Red Equipment’s “violations of law”, declaratory relief, and injunctive relief.13
Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, Red Equipment now moves
to dismiss BSE’s gross negligence and negligence claims, arguing that these claims are barred
by the economic loss doctrine.
Discussion
“Rule 12(b)(6) authorizes courts to dismiss a complaint for ‘failure to state a claim upon
which relief can be granted.’” In re Rigel Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869,
875 (9th Cir. 2012) (quoting Fed. R. Civ. P. 12(b)(6)). “To avoid dismissal, the complaint must
provide ‘more than labels and conclusions, and a formulaic recitation of the elements of a

11

First Amended Answer, Counterclaim and Third-party Complaint of Boston Semi
Equipment, LLC and BSE Tech, LLC at 27-28, ¶¶ 40 & 46, Docket No. 25.
12

Id. at 28-29, ¶¶ 44 & 50.

13

Id. at 29-30.
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cause of action will not do.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
“[A] plaintiff must ‘allege sufficient factual matter ... to state a claim to relief that is plausible
on its face.’” OSU Student Alliance v. Ray, 699 F.3d 1053, 1061 (9th Cir. 2012) (quoting
Pinnacle Armor, Inc. v. United States, 648 F.3d 708, 721 (9th Cir. 2011)). “In evaluating a Rule
12(b)(6) motion, the court accepts the complaint’s well-pleaded factual allegations as true and
draws all reasonable inferences in the light most favorable to the plaintiff.” Adams v. U.S.
Forest Srvc., 671 F.3d 1138, 1142-43 (9th Cir. 2012).
“The ‘economic loss doctrine’ bars plaintiffs, in certain circumstances, from recovering
economic damages in tort.” Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance,
Inc., 223 P.3d 664, 665 (Ariz. 2010). This doctrine “refer[s] to a common law rule limiting a
contracting party to contractual remedies for the recovery of economic losses unaccompanied
by physical injury to persons or other property.” Id. at 667. “‘Economic loss,’ ... refers to
pecuniary or commercial damage, including any decreased value or repair costs for a product
or property that is itself the subject of a contract between the plaintiff and defendant, and
consequential damages such as lost profits.” Id.
Red Equipment argues that BSE’s tort claims are barred by the economic loss doctrine
and relies on Cook v. Orkin Exterminating Co., 258 P.3d 149 (Ariz. Ct. App. 2011), in support.
There, Orkin treated the Cooks’ homes for termites numerous times over a period of
approximately twenty years pursuant to a contract between Orkin and the insurer of the
construction company that built the Cooks’ home. Id. at 150-51. The Cooks claimed that each
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time Orkin treated their home, Orkin “promised the treatment would be effective....” Id. at
151. The Cooks finally brought suit against Orkin “alleging claims for breach of contract,
breach of the implied covenant of good faith and fair dealing, breach of warranty, breach of
fiduciary duty, negligence, negligent and intentional misrepresentation, and fraud.” Id. The
Cooks’ negligence claim was based on “Orkin’s [alleged] failure to properly treat their home
for termites” and their misrepresentation and fraud claims were based on allegations that
Orkin “misled them regarding its ability to rid their home of termites and promised that it
would repair any damage to their home and furnishings resulting from new termite activity,
thereby inducing them to enter the Agreement, which they otherwise would not have done.”
Id. at 152. The trial court held that the Cooks’ tort claims were barred by the economic loss
rule. Id. at 151. The court of appeals agreed, explaining:
We consider the relevant contract and tort law policies and
determine the ELR applies in this case and limits the Cooks’
claims to those in contract. As in Flagstaff II, the contract law
policy of upholding the parties’ expectations favor[s] limiting the
Cooks’ claims to those in contract and, where there has been no
injury besides that to the subject property, there is no strong
policy reason to impose tort liability. Accordingly, we apply the
ELR and hold that the Cooks are limited to their contractual
remedies for purely economic loss from Orkin’s alleged failure to
adequately perform its promises under the Agreement. Because
the Cooks are seeking remedies for purely economic loss from
Orkin’s alleged failure to adequately perform its promises under
the Agreement, the ELR bars their tort claims.
Id. at 153 (internal citations and footnotes omitted).

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BSE first argues that the economic loss doctrine does not apply here because this is not
a construction defect or products liability case. The Arizona Supreme Court has only applied
the economic loss doctrine in products liability and construction defect cases. See Flagstaff
Affordable Housing, 223 P.3d at 665 (“This Court has previously applied the [economic loss]
doctrine only to products liability claims. Today we apply the doctrine in a construction
defect case and hold that a property owner is limited to its contractual remedies when an
architect’s negligent design causes economic loss but no physical injury to persons or other
property.”); see also, Evans v. Singer, 518 F. Supp. 2d 1134, 1142 (D. Ariz. 2007) (“ It appears
that no reported Arizona state appellate court decision has ever applied, or even discussed,
the economic loss rule outside of the areas of products liability or construction defects.”).
BSE argues that Cook is not to the contrary. Although Red Equipment contends that
Cook involved a services contract, BSE contends that it was a construction defect case because
the reason the Cooks’ home had termites was “[d]uring construction, [the builder] used dirt
that had not been treated for termites to backfill around the basement of the home.” Cook,
258 P.3d at 150. BSE argues that the Arizona Court of Appeals applied the economic loss
doctrine in the Cook case because the contract at issue had been specifically negotiated and
had detailed provisions allocating losses and remedies. BSE seems to be implying that the
same is not true here, or that at least the court cannot make such a determination on a motion
to dismiss.

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BSE also argues that Cook does not apply here because there the court was deciding
a motion for summary judgment and here the court is deciding a Rule 12(b)(6) motion. BSE
contends that this difference is significant because when there is a question as to whether the
economic loss doctrine applies, the “case must be examined to determine whether the facts
preponderate in favor of the application of tort law or commercial law exclusively or a
combination of the two.” Salt River Project Agr. Imp. and Power Dist. v. Westinghouse Elec.
Corp., 694 P.2d 198, 210 (Ariz. 1984), abrogated on other grounds by, Phelps v. Firebird
Raceway, Inc., 111 P.3d 1003 (Ariz. 2005). “Where economic loss, in the form of repair costs,
diminished value, or lost profits, is the plaintiff’s only loss, the policies of the law generally
will be best served by leaving the parties to their commercial remedies. Where economic loss
is accompanied by physical damage to person or other property, however, the parties’
interests generally will be realized best by the imposition of strict tort liability.” Id. at 209. To
determine whether tort claims can co-exist with contract claims, the court considers “1) the
nature of the product defect, 2) the manner in which the loss occurred, and 3) the type(s) of
loss or damage that resulted.” Id. at 210.
Defendants urge this court to follow Evans, 518 F. Supp. 2d at 1145, in which the court
declined to extend the economic loss doctrine to “the contractual agreement between a real
estate agent and her client....” The Evans plaintiffs alleged that the seller of a self-storage
facility and her real estate agent were negligent based on numerous misrepresentations made
during the plaintiffs’ purchase of the facility. Id. at 1136. The Realty defendants argued that
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the “[p]laintiffs [were] not entitled to recover under the law of negligence because [the
p]aintiffs ... experienced purely economic losses, and, the Realty Defendants argue[d], in such
a situation the economic loss rule precludes recovery in tort and restricts [the p]laintiffs to
contract remedies.” Id. The court “approache[d] th[e] question” of whether the economic loss
doctrine barred the plaintiffs’ negligence claims “by observing that Arizona courts have never
viewed the economic loss rule broadly, instead they have limited its application to two distinct
contexts.” Id. at 1145. The court concluded that “[w]hile both parties have made reasonable
arguments based upon the somewhat contradictory case law, this Court cannot expand state
law based on what amounts to merely a somewhat persuasive argument.... [T]he Court is
unconvinced that, given these circumstances, the Arizona high court would greatly expand
the purview of the rule beyond the two distinct areas” of products liability and construction
defects. Id. at 1147. “Therefore, faced with a line of state precedent encompassing two
decades of limited application, the Court adopts Arizona’s narrow view of the economic loss
rule, and finds that [the p]laintiffs have stated a claim for negligence against the Realty
Defendants.” Id.
As Red Equipment is quick to point out, Evans was decided before Cook. Thus, while
Evans correctly stated that no Arizona published decision had extended the economic loss
doctrine beyond products liability and construction defect cases, that is no longer true. The
Cook case applied the doctrine to a contract “for services....” Cook, 258 P.3d at 150 (emphasis
added). Like the Cooks, BSE has alleged that Red Equipment was negligent in performing its
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contractual promises and BSE has not alleged any personal injury or damage to property other
than the alleged damage to the equipment that was to be de-installed and shipped. Like the
Cooks, BSE is seeking compensation “for purely economic loss” stemming from an “alleged
failure to adequately perform ... promises under” the parties’ agreement. Id. at 153. The Cook
court held that such claims were barred by the economic loss doctrine and thus, BSE’s tort
claims are barred by the economic loss doctrine. BSE’s tort claims have nothing to do with
“the safety of persons and property” which is what tort law is designed to promote, but rather
involve “the parties’ expectations” which is what contract law is designed to promote. Id.
(citing Salt River Project Agric., 694 P.2d at 205–07).
Conclusion
Red Equipment’s motion to dismiss14 Counts III and IV of BSE’s counterclaimis granted.
Counts III and IV of BSE’s counterclaim are dismissed with prejudice. Red Equipment’s
request for attorney’s fees is denied as premature. The issue of attorney’s fees will be taken
up when this case is fully resolved.
DATED at Anchorage, Alaska, this 6th day of June, 2014.
/s/ H. Russel Holland
United States District Judge

14

Docket No. 26.
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