Body Jewelz Inc v. Valley Forge Insurance Company et al

Filing 34

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS 9 by Judge Otis D. Wright, II. The Court DENIES Defendant's motion to dismiss as to Plaintiff's breach of contract claim, GRANTS Defendant's motion a s to Plaintiff's fraud and negligent misrepresentation claims with leave to amend and GRANTS Defendant's motion as to Plaintiff's claims for negligence without leave to amend 9 . Plaintiff has thirty days to amend the complaint. (lom)

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O 1 2 3 4 5 6 7 United States District Court Central District of California 8 9 10 11 Case № 2:17-cv-00140-ODW (PLA) BODY JEWELZ, INC., Plaintiff, 12 v. 13 ORDER GRANTING IN PART AND 14 VALLEY FORGE INSURANCE DENYING IN PART DEFENDANT’S 15 COMPANY; CNA FINANCIAL MOTION TO DISMISS [9] 16 CORPORATION; CNA EQUIPMENT 17 BREAKDOWN RISK CONTROL; 18 GODADDY, INC.; and DOES 1 through 19 100, 20 Defendants. 21 I. INTRODUCTION 22 This lawsuit stems from the “crash” of Plaintiff Body Jewelz Inc.’s website. 23 Before the Court is Defendant GoDaddy Inc.’s (“GoDaddy”) Federal Rule of Civil 24 Procedure 12(b)(6) motion to dismiss. (ECF No. 9.) The Court GRANTS IN PART 25 and DENIES IN PART GoDaddy’s motion to dismiss. 26 27 28 II. FACTUAL BACKGROUND Plaintiff owns a business in Los Angeles. (Compl. ¶ 1, ECF No. 1-1.) GoDaddy is an Arizona-based provider of “online services and website monitoring for 1 individuals and businesses.” (Id. ¶ 3; Not. of Removal ¶ 9, ECF No. 1.) Plaintiff 2 entered into a “written and implied contract” with GoDaddy to “manage, administer, 3 and monitor Plaintiff’s website.” (Compl. ¶ 40.) On August 4, 2015, Plaintiff’s 4 website “crashed.” (Id. ¶ 6.) Plaintiff “lost thousands of dollars in online orders and 5 had to rebuild its website” as a result of the “crash.” (Id.) On October 7, 2016, 6 Plaintiff filed this lawsuit alleging four claims against GoDaddy: (1) breach of 7 contract; (2) fraud in the performance; (3) negligent misrepresentation; and (4) 8 negligence.1 (Id. ¶¶ 39–55.) On January 6, 2017, GoDaddy removed the case to 9 federal court. (ECF No. 1.) GoDaddy filed this Rule 12(b)(6) motion to dismiss on 10 January 13, 2017.2 (ECF No. 9.) The motion is now fully briefed and ready for 11 decision.3 (ECF Nos. 20–21.) 12 III. LEGAL STANDARD 13 A court may dismiss a complaint pursuant to Federal Rule of Civil Procedure 14 12(b)(6) for lack of a cognizable legal theory or insufficient facts pleaded to support 15 an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 16 696, 699 (9th Cir. 1988). To survive a motion to dismiss, a complaint need only 17 satisfy the minimal notice pleading requirements of Rule 8(a)(2)—a short and plain 18 statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The 19 20 21 22 23 24 25 26 27 28 1 Plaintiff has separately alleged claims for breach of the implied covenant of good faith and fair dealing and breach of contract against Defendants Valley Forge Insurance Company, CNA Financial Corporation, and CNA Equipment Breakdown Risk Control for their denial of insurance coverage after the “crash.” (Compl. ¶¶ 15–38.) 2 Plaintiff alleges GoDaddy failed to meet and confer before filing the pending motion. (Opp’n 2–3, ECF No. 20); see also C.D. Cal. L.R. 7-3. GoDaddy alleges that it already met and conferred with Plaintiff regarding this motion when it was filed as a demurrer in state court. (Reply 13–14, ECF No. 21.) Regardless of what happened, the Court will not invoke its discretion to dismiss this case on account of GoDaddy’s failure to meet and confer because Plaintiff has not alleged any resulting prejudice. See Reed v. Sandstone Properties, L.P., No. CV 12-05021 MMM VBKX, 2013 WL 1344912, at *6 (C.D. Cal. Apr. 2, 2013) (denying request to dismiss for failure to comply with Rule 7-3 where plaintiff suffered no resulting prejudice). 3 After considering the papers filed in connection with the motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 7-15. 2 1 factual “allegations must be enough to raise a right to relief above the speculative 2 level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the complaint 3 must “contain sufficient factual matter, accepted as true, to state a claim to relief that 4 is plausible on its face.” 5 quotation marks omitted). Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal 6 The determination of whether a complaint satisfies the plausibility standard is a 7 “context-specific task that requires the reviewing court to draw on its judicial 8 experience and common sense.” Id. at 679. A court is generally limited to the 9 pleadings and must construe all “factual allegations set forth in the complaint . . . as 10 true and . . . in the light most favorable” to the plaintiff. Lee v. City of Los Angeles, 11 250 F.3d 668, 688 (9th Cir. 2001) (internal quotation marks omitted). But a court 12 need not blindly accept conclusory allegations, unwarranted deductions of fact, and 13 unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th 14 Cir. 2001). 15 Fraud-based claims are subject to the heightened Rule 9(b) pleading standard. 16 Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances 17 constituting fraud.” Fed. R. Civ. P. 9(b). The allegations “must set forth more than 18 the neutral facts necessary to identify the transaction. The plaintiff must set forth 19 what is false or misleading about a statement, and why it is false.” Vess v. Ciba-Geigy 20 Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotation marks omitted). 21 In essence, the defendant must be able to prepare an adequate answer to the 22 allegations of fraud. Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007). 23 Although conclusory allegations of the circumstances constituting the alleged fraud 24 are insufficient, see Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th 25 Cir. 1989), a party is not required to plead with specificity the alleged wrongdoer’s 26 state of mind, see Concha v. London, 62 F.3d 1493, 1503 (9th Cir. 1995). 27 28 IV. DISCUSSION /// 3 1 A. Judicial Notice 2 Courts considering a Rule 12(b)(6) motion to dismiss are generally limited to 3 information contained in the complaint. Lee, 250 F.3d at 688. When courts take into 4 account additional information, they run the risk of converting the motion into one for 5 summary judgment. Fed. R. Civ. P. 12(d). However, there are two instances in which 6 courts are allowed to take into account information outside of the complaint without 7 converting the motion into one for summary judgment: judicial notice and 8 incorporation 9 SACV150865AGJCGX, 2016 WL 5859000, at *3 (C.D. Cal. Sept. 30, 2016) (citing 10 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)). Judicial notice allows 11 courts to consider a fact that is not subject to reasonable dispute because it is generally 12 known within the territory or can be determined from sources of unquestionable 13 accuracy. Fed. R. Evid. 201. Incorporation by reference allows a court to consider 14 documents that are physically attached to the complaint or those which are (1) 15 referenced in the complaint, (2) central to the plaintiff’s claim, and (3) of 16 unquestioned authenticity by either party. See Hsu, 2016 WL 5859000, at *4 (citing 17 Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006)). by reference. See Hsu v. Puma Biotech., Inc., No. 18 GoDaddy asks the Court to consider two documents extrinsic to the complaint 19 in adjudicating its motion to dismiss: a Hosting Agreement and a Universal Terms of 20 Service Agreement.4 (RJN, Exs. 1–2, ECF No. 10.) GoDaddy alleges that “all 21 customers who purchase [its] hosting services,” must agree to the Hosting 22 Agreement’s terms before receiving such services. (Mot. 8, ECF No. 9.) Thus, it 23 argues that the Hosting Agreement is the “written” contract referenced in Plaintiff’s 24 complaint (or at least part of the “written” contract) and that Plaintiff should be bound 25 by its terms. (Reply 4.) 26 27 28 4 The Hosting Agreement expressly incorporates the Universal Terms of Service Agreement. (See RJN, Ex. 2 at 1.) 4 The Court will not consider the agreements in connection with this motion to 1 2 dismiss. First, the Court cannot take judicial notice of facts contained in the 3 agreements because those facts are not generally known within the territory or derived 4 from sources of unquestionable accuracy. Cf. Shahar v. Bowers, 120 F.3d 211, 214 5 (11th Cir. 1997) (“[T]he kinds of things about which courts ordinarily take judicial 6 notice are (1) scientific facts: for instance, when does the sun rise or set; (2) matters of 7 geography: for instance, what are the boundaries of a state; or (3) matters of political 8 history: for instance, who was president in 1958.”) 9 Second, the Court cannot invoke the incorporation by reference doctrine 10 because Plaintiff explicitly “questions the authenticity of these documents.” (Opp’n 11 6.) While Plaintiff does not offer clear reasons for questioning “the authenticity of the 12 documents,” the Court is wary of considering these generic5 agreements, which 13 obviously do not constitute the entire final contract6 between the parties. (RJN Ex. 1– 14 2); see also Precision Orthopedic Implants Inc. v. Limacorporate S.P.A., No. 15 216CV02945ODWPLA, 2016 WL 7378878, at *3–4 (C.D. Cal. Dec. 20, 2016) 16 (denying request for incorporation by reference where it was clear that the contract 17 submitted was not the entire final contract between the parties).7 In sum, neither 18 judicial notice nor incorporation by reference is appropriate in this case and the Court 19 will not consider the agreements in connection with this motion. 20 B. Claims 21 1. Breach of Contract 22 23 24 25 26 27 28 5 The agreements do not contain any information specific to Plaintiff. (See RJN, Exs. 1–2.) The agreements do not contain any of the financial terms that govern the parties’ relationship. 7 Courts have considered user agreements in connection with motions to dismiss. However, the circumstances in those cases are distinct from the circumstances here. See Noll v. eBay, Inc., 282 F.R.D. 462, 463 n.1 (N.D. Cal. 2012) (considering a user agreement where there was “no dispute” as to the agreement’s authenticity); see also Mehmet v. Paypal, Inc., No. C-08-01961 RMW, 2008 WL 3495541, at *3 (N.D. Cal. Aug. 12, 2008) (considering a user agreement where the complaint referenced a “Paypal User Agreement” and “relie[d] on it in support of its factual allegations”). 6 5 1 A cause of action for breach of contract requires proof of four elements: (1) 2 existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) 3 defendant’s breach; and (4) damages to plaintiff as a result of the breach. See Zamora 4 v. Solar, No. 2:16-CV-01260-ODW-KS, 2016 WL 3512439, at *3 (C.D. Cal. June 27, 5 2016) (citing CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008)). 6 Plaintiff alleges the existence of a contract. (Compl. ¶ 40.) In this contract, 7 Plaintiff paid “money to GoDaddy” and GoDaddy “manage[ed], administer[ed,] and 8 monitor[ed] Plaintiff’s website and online services.” 9 GoDaddy breached this contract when it failed to “manage and monitor” Plaintiff’s 10 website and failed to perform “preventative management” that presumably would 11 have kept Plaintiff’s website from crashing. (Id. ¶ 41.) Plaintiff also alleges that it 12 performed under the contract and that “GoDaddy’s conduct” was the proximate cause 13 of “thousands of dollars” in damages it suffered from the “crash.” (Id. ¶¶ 42–43.) 14 Though Plaintiff could have been more specific about exactly how GoDaddy’s 15 conduct caused the breach, the Court finds that these allegations are sufficient under 16 Rule 8(a)’s “short and plain statement” standard. Accordingly, the Court DENIES 17 Defendant’s motion to dismiss as to Plaintiff’s breach of contract claim. 18 (Id.) Plaintiff alleges that 2. Fraud and Negligent Misrepresentation 19 A cause of action for fraud requires proof of five elements: (1) 20 misrepresentation; (2) knowledge of the statement’s falsity; (3) intent to induce 21 reliance; (4) justifiable reliance; and (5) resulting damage. Hunter v. Up-Right, Inc., 6 22 Cal. 4th 1174, 1184 (1993); Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). 23 The elements of a negligent misrepresentation claim are similar: (1) misrepresentation 24 of a past or existing material fact; (2) without reasonable grounds for believing it to be 25 true; (3) with intent to induce another’s reliance on the fact misrepresented; (4) 26 ignorance of the truth and justifiable reliance by the party to whom the 27 misrepresentation was directed; and (5) damages. Fox v. Pollack, 181 Cal. App. 3d 28 954, 962 (1986). 6 1 The alleged misrepresentations in this case stem from statements GoDaddy’s 2 technicians made after the “crash” on August 4, 2015. (Compl. ¶ 45.) Apparently on 3 December 17, 2015, and January 8, 2016, Defendant’s technicians told persons 4 working on Plaintiff’s behalf that they “did not know what caused Plaintiff’s website 5 to crash.” (Id.) Plaintiff alleges that these statements were untrue, implying that 6 GoDaddy knew the cause of the “crash.” (Id. ¶ 47.) 7 As GoDaddy points out, Plaintiff’s fraud-based claims are fatally flawed. 8 (Reply 12–13.) To begin, Plaintiff has not adequately pleaded reliance. The alleged 9 misrepresentations seemingly occurred after Plaintiff suffered the alleged damages. 10 (Compl. ¶ 6, 45.) For there to be reliance, the opposite is required: misrepresentations 11 followed by some resulting damage. Reliance is not possible on the facts alleged. 12 Plaintiff’s misrepresentation claims also suffer from a related causation 13 problem; the alleged misrepresentations were not the cause of Plaintiff’s damages, the 14 “crash” and GoDaddy’s alleged failure to “manage, administer[,] and monitor 15 Plaintiff’s website” were. (See Reply 13.) Because Plaintiff has failed to allege the 16 necessary elements for negligent misrepresentation and fraud, the Court GRANTS 17 Defendant’s motion to dismiss as to those claims. These dismissals are with leave to 18 amend. See Balistreri, 901 F.2d at 701 (explaining the Ninth Circuit’s lenient leave to 19 amend policy). 20 3. Negligence 21 A cause of action for negligence requires proof of duty, breach, causation, and 22 damages. Merrill v. Navegar, Inc., 26 Cal. 4th 465, 477 (2001). Plaintiff alleges that 23 GoDaddy had a duty to “manage, administer, and monitor Plaintiff’s website and 24 online transactions” and that GoDaddy breached its duty by “failing to manage and 25 monitor Plaintiff’s website.” (Compl. ¶¶ 40–41.) Plaintiff also alleges causation and 26 damages. (Id. ¶¶ 41–43.) Thus, Plaintiff has alleged the elements of negligence. 27 28 7 1 Nevertheless, the Court finds that the economic loss rule bars Plaintiff’s 2 negligence claim. The economic loss rule holds that economic losses are recoverable 3 “in contract alone.” Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988 4 (2004). The practical effect of this rule is that claims for negligence involving only 5 economic loss are generally dismissed in favor of breach of contract claims. Tasion 6 Commc’ns, Inc. v. Ubiquiti Networks, Inc., No. C-13-1803 EMC, 2013 WL 4530470, 7 at *9 (N.D. Cal. Aug. 26, 2013) (cumulating cases where tort claims, including 8 negligence, were dismissed on the basis of the economic loss rule). 9 Plaintiff has alleged only economic loss in connection with its negligence 10 claim. (Compl. ¶ 55 (“Plaintiff suffered an economic loss, in an amount exceeding 11 $500,000.”).) Therefore, Plaintiff’s negligence claim must be dismissed in favor of its 12 breach of contract claim unless an exception to the economic loss rule applies. 13 Exceptions to the economic loss rule include cases involving (1) a personal 14 injury, (2) physical damage to property, (3) a “special relationship,” or (4) some other 15 common law exception to the rule. See Kalitta Air, L.L.C. v. Cent. Texas Airborne 16 Sys., Inc., 315 F. App’x 603, 605 (9th Cir. 2008) (citing J’Aire Corp. v. Gregory, 24 17 Cal. 3d 799 (1979)). Plaintiff does not allege that this case implicates a personal 18 injury, physical damage to property, or other common law exception. (Opp’n 10–13.) 19 Plaintiff’s sole argument appears to be that it has a “special relationship” with 20 GoDaddy.8 Plaintiff cites J’Aire v. Gregory, 24 Cal. 3d 799 (1979) to support its claim that 21 22 a “special relationship” exists between it and GoDaddy. J’Aire involved a 23 plaintiff/restaurant owner who was attempting to sue his landlord’s contractor for 24 “loss of business and loss of profits” based on the contractor’s failure to timely 25 complete certain renovations of the building the plaintiff leased. 24 Cal. 3d at 802. 26 The California Supreme Court found that in order for the plaintiff to recover economic 27 28 8 Plaintiff does not mention the “special relationship” exception by name, but references J’Aire in its opposition. (Opp’n 11.) This suggests that it is arguing for the special relationship exception. 8 1 damages in tort, it was required to prove a “special relationship with the contractor.” 2 Id. at 804. The court invoked a six-factor test derived from Biakanja v. Irving, 49 Cal. 3 2d 647, 650 (1958) to determine whether the plaintiff had done so. Id. The six factors 4 are “(1) the extent to which the transaction was intended to affect the plaintiff, (2) the 5 foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff 6 suffered injury, (4) the closeness of the connection between the defendant’s conduct 7 and the injury suffered, (5) the moral blame attached to the defendant’s conduct and 8 (6) the policy of preventing future harm.” Id. Balancing the factors, the court found 9 that the plaintiff had a special relationship with the contractor and could recover 10 economic damages from the contractor in tort. Id. at 804–805. 11 However, the Court finds that the special relationship exception is not 12 applicable here where, unlike in J’Aire, Plaintiff and Defendant are in privity of 13 contract.9 Other courts in this district have taken the same position. Dep’t of Water & 14 Power of City of Los Angeles v. ABB Power T & D Co., 902 F. Supp. 1178, 1188 15 (C.D. Cal. 1995) (“The Court concludes that California Supreme Court cases are 16 clear: the six-factor test should be applied only when parties are not in privity.”); 17 Elsayed v. Maserati N. Am., Inc., No. SACV1600918CJCDFMX, 2016 WL 6091109, 18 at *10 (C.D. Cal. Oct. 18, 2016) (“The Court refuses to extend the special relationship 19 exception to encompass direct [contractual] relationships.”). 20 Even the most cursory review of J’Aire’s six-factor test reveals that it was not 21 intended for application to parties in privity. See Elsayed, 2016 WL 6091109, at *10. 22 If the J’Aire test was applied in such cases, essentially all of the parties’ relationships 23 would be deemed “special.” Id. (“The first, second, and fourth J’Aire factors would 24 almost always find a special relationship between directly-contracting parties: the 25 26 27 28 9 In both J’Aire and its predecessor Biakanja, the plaintiff was not in privity of contract with the defendant. See J’Aire, 24 Cal. 3d at 802–804; Biakanja, 49 Cal. 2d at 651; see also R Power Biofuels, LLC v. Chemex LLC, No. 16-CV-00716-LHK, 2016 WL 6663002, at *5 (N.D. Cal. Nov. 11, 2016) (“By their terms, J'aire and Biakanja only apply where the parties are not in direct contractual privity.”) 9 1 transaction would always be intended to affect the plaintiff, the harm would nearly 2 always be foreseeable, and the connection between the defendant’s conduct and the 3 injury would always be close.” (emphasis in original)). This outcome would be 4 entirely at odds with the “special relationship” exception’s characterization as a 5 “narrow” or “limited” exception. Id.; Zamora v. Shell Oil Co., 55 Cal. App. 4th 204, 6 211 (1997). 7 Beyond these considerations, public policy also favors broad imposition of the 8 economic loss rule. Allowing parties to essentially recover for breach of contract in 9 tort undermines the “predictability” that parties seek when they enter into a contract. 10 Foley v. Interactive Data Corp., 47 Cal. 3d 654, 683 (1988) (“[P]redictability about 11 the cost of contractual relationships plays an important role in our commercial 12 system.”); Dep’t of Water & Power, 902 F. Supp. at 1189 (“There is simply no 13 justification for extending potential tort liability under the six-factor test to 14 commercial parties that have negotiated their own contractual obligations.”). When 15 parties are unable to fully ascertain the potential liabilities associated with a proposed 16 business transaction, they are less likely to enter into that transaction. Erlich v. 17 Menezes, 21 Cal. 4th 543, 554 (1999) (suggesting that tort duties are meant to “aid 18 rather than discourage commerce.”) (quoting Freeman & Mills, Inc. v. Belcher Oil 19 Co., 11 Cal. 4th 85, 106 (1995)). For all of these reasons, the Court GRANTS 20 Defendant’s motion to dismiss as to Plaintiff’s negligence claim.10 As Plaintiff’s 21 10 22 23 24 25 26 27 28 The Court notes that Plaintiff cites North American Chemical v. Superior Court, 59 Cal. App. 4th 764 (1997), a California Court of Appeals case extending the “special relationship” exception to a plaintiff in a contract with a defendant for the provision of services. (Opp’n 11.) However, the Court is not bound to follow this decision because the California Supreme Court has yet to rule on the issue. See, e.g., R Power Biofuels, LLC v. Chemex LLC, 2016 WL 6663002, at *5 (“[T]he California Supreme Court has not addressed the issue of J’Aire’s application where the parties are in privity of contract.”); Gen. Motors Corp. v. Doupnik, 1 F.3d 862, 865 n.4 (9th Cir. 1993) (finding that while California Appellate Court decisions may provide guidance, federal courts sitting in diversity are only bound to follow decisions of the California Supreme Court). With the California Supreme Court having only found special relationships in the “third party” cases, and based on the analysis above, the Court finds the California Supreme Court will ultimately determine that parties in arms-length services contracts are not subject to the special relationship exception. Simply put, these relationships are not special. 10 1 negligence claim is barred by the economic loss rule, the dismissal is without leave to 2 amend. 3 V. CONCLUSION 4 The Court DENIES Defendant’s motion to dismiss as to Plaintiff’s breach of 5 contract claim, GRANTS Defendant’s motion as to Plaintiff’s fraud and negligent 6 misrepresentation claims with leave to amend and GRANTS Defendant’s motion as to 7 Plaintiff’s claims for negligence without leave to amend. (ECF No. 9.) Plaintiff has 8 thirty days to amend the complaint. 9 10 IT IS SO ORDERED. 11 March 14, 2017 12 13 14 15 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 11

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