Barrio et al v. Gisa Investments LLC et al

Filing 32

ORDER granting in part 20 Defendants' Motion to Dismiss. Plaintiffs' claims for fraud and negligent misrepresentation, their claim arising out of the ACFA, and their claim for aiding and abetting are dismissed pursuant to Rule 12 (b)(6) . ORDERED that Defendant Gisa Investments, LLC is dismissed. ORDERED that Defendants' Motion (Doc. 20 ) is denied without prejudice to the extent that they request attorneys' fees. FURTHER ORDERED that the Clerk of Court shall enter judgment accordingly as to Defendant Gisa Investments, LLC and terminate them from this action. Signed by Judge Steven P Logan on 10/14/20. (EJA)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8

Gabriel Barrio, et al.,

9
10

Plaintiffs,
vs.

11
12

Gisa Investments LLC, et al.,
Defendants.

13
14

)
)
)
)
)
)
)
)
)
)
)
)

No. CV-20-00991-PHX-SPL
ORDER

15

Before the Court is Defendants’ Motion to Dismiss (Doc. 20) filed pursuant to

16

Federal Rule of Civil Procedure (“Rule”) 12(b)(6). The Motion is fully briefed and ready

17

for consideration. (Docs. 20, 23, 28) For the following reasons, the Motion will be granted

18

in part.

19

I.

BACKGROUND

20

This case arises out of an agreement between Plaintiff Gabriel Barrio, a resident of

21

Washington, and Defendant Tophat U.S., LLC (“Tophat”), a car importing and

22

refurbishing company located in Arizona. (Doc. 18 at ¶¶2–4) Mr. Barrio and a Tophat

23

representative signed an agreement on April 5, 2016, stating that Tophat would custom-

24

build a Land Rover Defender 110 for Mr. Barrio, and that Mr. Barrio would pay $120,000

25

for the vehicle, with a $36,000 deposit. (Doc. 20-1) The agreement included the

26

specifications to which the vehicle would be built. (Doc. 20-1) It also included a warranty

27

for materials incorporated into the car and a one-year unlimited mileage warranty on the

28

engine and transmission. (Doc. 20-1)

1

Plaintiffs first brought this cause of action on May 21, 2020 against Tophat and

2

Defendant Gisa Investments, LLC (“Gisa”). (Doc. 1) Plaintiffs filed a First Amended

3

Complaint (“FAC”) on July 17, 2020, (Doc. 18) asserting the following claims: (1) a

4

violation of the Arizona Consumer Fraud Act (“ACFA”), (2) common law fraud, (3) breach

5

of implied warranty, (4) additional breach of warranty claims under the Magnuson-Moss

6

Warranty Act (“MMWA”), (5) breach of contract, (6) aiding and abetting, (7) negligent

7

misrepresentation, and (8) rescission. Plaintiffs assert the vehicle was not built to their

8

satisfaction nor did it satisfy the terms of the agreement. (Doc. 18 at ¶¶18–19, 27)

9

Defendants filed a Motion to Dismiss on August 7, 2020 for failure to state a claim

10

under Rule 12(b)(6). (Doc. 20) Defendants seek to dismiss the claims for (1) common law

11

fraud, (2) negligent misrepresentation, (3) violation of the ACFA, and (4) aiding and

12

abetting. (Doc. 20 at 2) Defendants also seek to dismiss all claims against Gisa because

13

Gisa was not party to the contract giving rise to the claims. (Doc. 20 at 2) The Court will

14

now consider the Motion.
II.

15

LEGAL STANDARDS

16

To survive a motion to dismiss, a complaint must contain “a short and plain

17

statement of the claim showing that the pleader is entitled to relief” so that the defendant

18

is given fair notice of the claim and the grounds upon which it rests. Bell Atl. Corp. v.

19

Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). A court may dismiss

20

a complaint for failure to state a claim under Rule 12(b)(6) for two reasons: (1) lack of a

21

cognizable legal theory, or (2) insufficient facts alleged under a cognizable legal theory.

22

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When deciding a

23

motion to dismiss, all allegations of material fact in the complaint are taken as true and

24

construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d

25

1063, 1067 (9th Cir. 2009).
III.

26

The Court will address each cause of action individually.

27
28

DISCUSSION

///
2

1

A. Fraud

2

Common law fraud is a tort claim. See CIT Fin. LLC v. Treon, Aguirre, Newman &

3

Norris PA, No. CV-14-00800-PHX-JAT, 2016 WL 6610604, at *5 (D. Ariz. Nov. 9, 2016).

4

Sometimes, tort claims arising out of breach of contract actions are barred by the Economic

5

Loss Rule (“ELR”). The ELR “limits a contracting party to contractual remedies for the

6

recovery of economic losses unaccompanied by physical injury to persons or other

7

property.” Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1050 (D. Ariz. 2010)

8

citing Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 223 Ariz. 320 (2010).

9

Here, Defendants allege that a number of Plaintiffs’ claims are barred under the ELR,

10

though Plaintiffs argue it does not apply in this case. (Doc. 20 at 4; Doc. 23 at 5–6)

11

Plaintiffs argue that the ELR 1) does not apply to fraud and misrepresentation claims, and

12

2) does not apply to non-economic harm such as emotional damages, the travel time to buy

13

the vehicle and repair it, and their inability to obtain insurance for the vehicle. (Doc. 23 at

14

6, 8–9)

15

Plaintiffs rely on old case law for the proposition that the ELR does not apply to

16

fraud and misrepresentation claims; more recently this Court and Arizona state courts have

17

found it does apply in that context. See, e.g., CIT Fin. LLC, 2016 WL 6610604, at *5 (fraud

18

and negligent misrepresentation claims dismissed because ELR applies when a contract

19

governs); Del Mar Land Partners, LLC v. Stanley Consultants, Inc., No. CV-11-8013-

20

PCT-PGR, 2012 WL 1019066, at *2 (D. Ariz. Mar. 26, 2012) (fraud claim dismissed

21

because ELR applies); Sherman v. PremierGarage Sys., LLC, No. CV 10-0269-PHX-

22

MHM, 2010 WL 3023320, at *4 (D. Ariz. July 30, 2010) (ELR applies to fraud, intentional

23

misrepresentation, and negligent misrepresentation claims); Cook v. Orkin Exterminating

24

Co., 227 Ariz. 331, 335 (Ariz. Ct. App. 2011) (fraud, negligence and misrepresentation

25

claims are barred by ELR unless contract otherwise provides). Another case this Court

26

finds compelling is Van Go LLC v. Potts, No. CV-16-00054-PHX-JJT, 2016 WL 4974968

27

(D. Ariz. June 7, 2016). In that case, this Court declined to apply the ELR to a fraud claim

28

involving a car sale, however, the sale of the car was under much different circumstances.
3

1

Id. at *4. There, the vehicle at issue was sold at auction, without negotiation or discussion

2

between the buyer and seller. Id. The buyer later alleged the vehicle’s history and certificate

3

of authenticity were falsified, bringing, among others, a fraud claim. Id. at *1–2. The Court

4

determined that the auction setting made the ELR inapplicable. Id. at *4. The parties in

5

Van Go did not “bargain, define remedies, or plan for contingencies like in other contract

6

negotiations.” Id. This Court noted, citing Firetrace, that the purpose of the ELR is to

7

“encourage private ordering of economic relationships and to uphold the expectations of

8

the parties by limiting a plaintiff to contractual remedies for the loss of the benefits of the

9

bargain.” Id. citing 800 F.Supp 2d at 1050. In the instant case, the parties bargained over

10

the price of the vehicle, then signed a contract that defined remedies, listed warranties, and

11

planned for contingencies. (Doc. 18 at ¶¶9, 28–30; Doc. 20-1 at 2–4) In a situation where

12

there is a contract providing remedies, it makes sense for a court to hold the parties to that

13

contract. Therefore, the ELR does bar Plaintiffs’ fraud claims to the extent that their harm

14

is economic.

15

As to Plaintiffs’ alleged noneconomic damages, Plaintiffs did not assert their

16

inability to find insurance for the vehicle until their Response. (Doc. 23 at 9) As such, it

17

will not be considered. See Andasola v. Capital One Bank NA, No. CV 12-02467-PHX-

18

JAT, 2013 WL 1149663, at *4 (D. Ariz. Mar. 19, 2013) (Court would not consider new

19

allegations asserted in plaintiff’s response to a motion to dismiss, except to consider

20

granting leave to amend). Furthermore, time spent obtaining the vehicle and repairing it is

21

not separable from the economic harms. Finally, the emotional harms asserted in the FAC

22

are not cognizable damages. The damages recoverable in a fraud case are usually “limited

23

to the actual pecuniary loss sustained.” Arce-Mendez v. Eagle Produce P’ship Inc., No. CV

24

05-3857-PHX-JAT, 2008 WL 659812, at *3 (D. Ariz. Mar. 6, 2008). When plaintiff’s

25

interests are “purely economic” there is no recovery for emotional distress. Morrow v.

26

Temple, No. CV190202TUCJASBGM, 2020 WL 1065868, at *4 (D. Ariz. Mar. 5, 2020)

27

(internal citations omitted). This Court considers mental or emotional damages for fraud

28

“special damages.” Arce-Mendez, 2008 WL 659812, at *3. Plaintiffs alleging special
4

1

damages must plead them with specificity under Rule 9(g). Id. Plaintiffs mentioned “stress,

2

humiliation, and frustration,” in their FAC but only very briefly in their general allegations

3

section. (Doc. 18 at ¶31) They did not plead with specificity, as is required to support a

4

claim

5

219CV07496ODWMRWX, 2020 WL 1853308, at *6 (C.D. Cal. Apr. 10, 2020) (The court

6

dismissed claims for emotional harm and distress when plaintiff did not claim specifically

7

any genuine injury. “[V]ague and conclusory allegations regarding damages are

8

insufficient to survive a motion to dismiss.”). To the extent Plaintiffs elaborate on their

9

emotional distress in their responsive briefing, alleging “more emotional stress and fears

10

relating to dangerous conditions,” (Doc. 23 at 3) it is (1) too late to make further allegations

11

that should have been included in the FAC and (2) these allegations are still not specific

12

enough to pass Rule 9(g) muster. Therefore, Plaintiffs’ fraud claim is dismissed in its

13

entirety.

for

emotional

damage.

Holly

v.

Alta

Newport

Hosp.,

Inc.,

No.

14

B. Negligent misrepresentation

15

To the extent Plaintiffs assert negligent misrepresentation claims, the ELR rule

16

applies. See supra III.A for analysis. See also Sherman, 2010 WL 3023320 at *4.

17

Furthermore, Plaintiffs again failed to plead their non-economic damages with the

18

specificity required by Rule 9(g), for the same reasons listed above. Thus, the negligent

19

misrepresentation claim is dismissed in its entirety.

20

C. Violation of the ACFA

21

Private actions under the ACFA have a statute of limitations of one year under

22

A.R.S. § 12-541(5). The statute of limitations begins to run when the consumer discovers

23

or “with reasonable diligence should have discovered both the ‘who’ and the ‘what’ of her

24

claim.” Cheatham v. ADT Corp., 161 F. Supp. 3d 815, 826 (D. Ariz. 2016) (internal

25

quotations omitted). Specifically, it begins when the consumer knows “whose products

26

were involved and that the products were not performing as expected.” Id. (internal

27

quotations omitted). As Defendants argue and Plaintiffs write in their own First Amended

28

Complaint, Plaintiffs knew within one day of possessing the Range Rover that it was not
5

1

performing as promised in the agreement. (Doc. 20 at 12, Doc. 18 at ¶16) Plaintiffs received

2

the Land Rover from Defendant Tophat on June 22, 2018. (Doc. 20 at 12) Therefore, the

3

statute of limitations on the ACFA claim would have run on June 22, 2019. This case was

4

brought on May 21, 2020. Thus, the ACFA claim is time-barred.

5

D. Aiding and abetting

6

Aiding and abetting is a derivative claim. Merritt v. Arizona, 425 F. Supp. 3d 1201,

7

1233 (D. Ariz. 2019) (internal citations omitted) (“aiding and abetting is a derivative tort

8

for which a plaintiff may recover only if he establishes an independent primary tort”). It

9

requires three elements: “(1) the primary tortfeasor must commit a tort that causes injury

10

to the plaintiff; (2) the defendant must know the primary tortfeasor’s conduct constitutes a

11

breach of duty; and (3) the defendant must substantially assist or encourage the primary

12

tortfeasor in the achievement of the breach.” Id. When the underlying tort that serves as the

13

basis for the aiding and abetting claim fails, the claim of aiding and abetting that tort also

14

fails. Id. Therefore, since the tort claims (fraud, negligent misrepresentation, ACFA claim)

15

upon which the aiding and abetting claim is based have failed, the aiding and abetting claim

16

also fails.

17

E. Punitive damages

18

Because the Court dismissed the tort claims under the economic loss rule, it follows

19

that this case is now based in contract law. It is well-established under Arizona law that

20

punitive damages are not available in contract cases. See Jones v. Gen. Motors Corp., No.

21

CV-08-2099-PHX-GMS, 2009 WL 648613, at *2 (D. Ariz. Mar. 11, 2009). Therefore, to

22

the extent Plaintiffs assert punitive damages, they are not available to them.1

23
24

F. Claims against Gisa
Gisa is not a party to the contract signed by Mr. Barrio. (Doc. 21-1) Plaintiffs allege in

25
1

26
27
28

The Court notes that while the MMWA allows punitive damages where the
governing state law allows, Arizona does not allow punitive damages because they are
unavailable in breach of warranty claims. “In Arizona, the law of which forms the basis of
Plaintiff’s non-federal claims, punitive damages are not ordinarily available as a remedy in
breach of warranty actions because such actions are contract claims.” Jones 2009 WL
648613, at *2.
6

1

their FAC that Gisa is an agent of Tophat and that an employee of Gisa acted as an agent

2

of Tophat. (Doc. 18 at ¶¶1, 5) Defendants accept this allegation as true. (Doc. 20 at 6, Doc.

3

28 at 5–6) Principles of agency law dictate that when the ELR bars tort recovery against a

4

contracting party, it also bars tort recovery against an agent of that party. See Gilbert

5

Unified Sch. Dist. No. 41 v. CrossPointe, LLC, No. CV 11-00510-PHX-NVW, 2012 WL

6

1564660, at *4 (D. Ariz. May 2, 2012) (explaining that when the ELR bars tort recovery

7

against a corporation based on a contract it also bars tort recovery against an officer of that

8

corporation). Furthermore, when a principal enters a contract, that contract may dictate the

9

actions of an agent, but it does not create liability for the agent under the contract. Sayles

10

v. Knight Transportation Co. Inc., No. CV-16-04235-PHX-JAT, 2017 WL 3051144, at *2

11

(D. Ariz. Mar. 16, 2017) (agents of parties to the contract may not be held liable for breach

12

of contract because they are not themselves parties to the contract). Under these principles,

13

the tort claims that are barred against Tophat must also be barred against Gisa, because the

14

alleged tortious conduct of both parties was governed by the contract. Furthermore, while

15

Gisa may have been bound by the contract Tophat signed to undertake certain actions on

16

behalf of Tophat, Gisa is not liable on the contract as a mere agent because no

17

representatives of Gisa signed the contract. There is no contractual privity. This means

18

Gisa is not liable for the breach of contract, rescission, or breach of warranty claims.

19

Therefore, there are no cognizable claims against Gisa.

20

IV.

21

The claims for fraud and negligent representation are barred by the ELR. The statute of

22

limitations has long run on the ACFA claim. The claim for aiding and abetting is barred as

23

a derivative claim. The remaining claims against Gisa may not proceed, because mere

24

status as an agent of Tophat does not make Gisa a party to the contract.

25

CONCLUSION

Accordingly,

26

IT IS ORDERED that Defendants’ Motion to Dismiss (Doc. 20) is granted in part

27

and Plaintiffs’ claims for fraud and negligent misrepresentation, their claim arising out of

28

the ACFA, and their claim for aiding and abetting are dismissed pursuant to Rule 12(b)(6).
7

1

IT IS FURTHER ORDERED that Defendant Gisa Investments, LLC is dismissed.

2

IT IS FURTHER ORDERED that Defendants’ Motion (Doc. 20) is denied

3

without prejudice to the extent that they request attorneys’ fees.2

4

IT IS FURTHER ORDERED that the Clerk of Court shall enter judgment

5

accordingly as to Defendant Gisa Investments, LLC and terminate them from this action.

6

Dated this 14th day of October, 2020.

7
8
Honorable Steven P. Logan
United States District Judge

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Tophat’s request for attorneys’ fees pursuant to A.R.S. § 12-341.01 is premature.
They are not yet the “successful party” in an action “arising out of a contract” because all
contractual claims in the case remain. Defense counsel may file a separate motion for
attorneys’ fees as to Gisa, but should be sure to include the basis for the fees requested.
2

27
28

8