United States of America for the use and benefit of Rai Industrials Fabricators, LLC v. Federal Insurance Company et al
Filing
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***DISREGARD THIS ORDER SEE ECF 68 FOR AMENDED ORDER*** ORDER granting 30 Motion to Dismiss with leave to amend; granting 43 Motion to Dismiss with leave to amend; setting case management conference. Signed by Judge Edward J. Davila on 08/25/2017.(ejdlc3, COURT STAFF) (Filed on 8/25/2017) Modified text on 8/25/2017 (amkS, COURT STAFF).
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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RAI INDUSTRIAL FABRICATORS, LLC,
et al.,
Plaintiffs,
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United States District Court
Northern District of California
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Case No. 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S
MOTION TO DISMISS AGATE’S
SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO
AMEND; GRANTING CONCEPT
STEEL’S MOTION TO DISMISS WITH
LEAVE TO AMEND; SETTING CASE
MANAGEMENT CONFERENCE
v.
FEDERAL INSURANCE COMPANY,
SAUER, INC., and CONCEPT STEEL,
INC.,
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Re: Dkt. Nos. 30, 43
Defendants.
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SAUER, INC.
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Counter-Claimant,
v.
RAI INDUSTRIAL FABRICATORS, LLC,
and AGATE STEEL, INC.,
Counter-Defendants.
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I. INTRODUCTION
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This lawsuit arises out of the construction of the Operational Readiness Training Complex
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at Fort Hunter Liggett, United States Army Combat Support Training Center, located in Monterey
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County, California (“Project”). The Army Corp of Engineers awarded a contract to Sauer, Inc.
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(“Sauer”) to design and build the Project. Pending before the Court are two motions to dismiss.
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Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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First, Sauer moves to dismiss the claims of the subcontractor responsible for steel erection work,
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Agate Steel, Inc. (“Agate”), for delay and disruption and negligent misrepresentation. Second, the
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subcontractor for steel stairs, Concept Steel, Inc. (“Concept Steel”), moves to dismiss the claims
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of the primary steel contractor RAI Industrial Fabricators (“RAI”), or in the alternative to stay the
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case pending resolution of RAI’s claims against Sauer.
II. BACKGROUND
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Sauer is the designer and builder of the Project. Federal Insurance Company (“Federal”)
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issued a payment bond to Sauer. In November of 2014, Sauer issued a purchase order to RAI to
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furnish the structural and miscellaneous steel materials for the Project (“RAI PO”). RAI in turn
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issued a purchase order to Concept Steel to provide certain steel labor, equipment and materials
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United States District Court
Northern District of California
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for the Project, including prefabricated steel stairs (“Concept PO”). RAI alleges that Sauer is
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liable for breach of contract and unjust enrichment because Sauer failed to pay for the materials
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RAI provided. RAI also asserts a Miller Act claim against Sauer and Federal seeking payment the
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materials RAI provided.
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Further, RAI asserts a breach of contract claim and equitable indemnity claim against
Concept Steel, based on the following:
45. Sauer has alleged that there were certain deficiencies with the
stairs—specifically the allegedly insufficient level of prefabrication
of the steel stairs.
46. RAI disputes that there are any deficiencies in its work, but to
the extent there are deficiencies with the steel stairs, it would be a
breach of contract by Concept [Steel] as any deficiencies in the
stairs would have been a result of Concept [Steel’s] work.
47. Sauer has withheld the principal balance of the RAI PO . .
because of this claim.
48. To the extent the Court finds Sauer’s claim concerning the stairs
meritorious, Concept [Steel] will have breached the Concept [Steel]
PO for which it will be commensurately liable to RAI.
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*
*
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In the event it is determined that RAI is liable to Sauer for the
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Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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claims of Sauer relating to the staircase, RAI will be entitled to be
fully or partially indemnified and held harmless by Concept [Steel]
for any settlement or judgment rendered against RAI. . . .
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RAI Complaint, ¶¶45-47, 50. RAI also seeks a judicial determination of the respective rights and
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duties of RAI and Concept Steel with respect to Sauer. In addition, RAI asserts claims for
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account stated and goods and services rendered against Sauer.1
In a Counterclaim against RAI, Sauer alleges that RAI breached the RAI PO by failing to
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furnish materials in accordance with the requirements of the plans and specifications for the
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Project and failing to furnish materials pursuant to Sauer’s construction schedule. Sauer further
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alleges that because of RAI’s breach, Sauer incurred additional costs, including payment and delay
and disruption claims from Agate, with whom Sauer subcontracted for the structural and
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United States District Court
Northern District of California
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miscellaneous steel erection work at the Project (“Agate Subcontract”). Sauer asserts claims for
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express indemnity and equitable indemnity to recover from RAI any amount it becomes liable to
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pay on Agate’s claims.
Further, Sauer asserts a breach of contract claim against Agate for allegedly failing to:
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perform its work in accordance with the plans and specifications for the Project; coordinate with
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Sauer’s subcontractors and material suppliers; perform work pursuant to Sauer’s construction
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schedule; and to properly and timely notify Sauer of alleged errors with the steel materials
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furnished for the Project. Sauer also asserts claims for express and equitable indemnity against
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Agate to recover any amount incurred to defend against and/or pay for subcontractor claims and
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owner claims.
Agate, in turn, asserts counterclaims against Sauer. Agate alleges that in the course of
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erecting the structural and miscellaneous steel furnished by Sauer, Agate discovered deficiencies
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and errors in the fabrication of certain steel members and gave Sauer timely notice of such
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deficiencies. Agate alleges that hundreds of the steel components that Sauer provided to Agate
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Sauer and Federal filed an Answer to RAI’s complaint.
Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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onsite were incompatible with Sauer’s erection drawing and the field conditions. Sauer allegedly
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directed Agate to perform remedial work and to produce daily ticket items to document Agate’s
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extra work and right to additional compensation. More specifically, Agate alleges that the
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structural drawings failed to depict the correct magnitude and location of the steel stud clips
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required for the Project, and as a result, Agate was required to install approximately 4,000 more
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clips than was included in its bid and subcontract price. Further, Agate alleges that in accordance
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with the drawings and Project specifications, Sauer was required, but failed, to provide pre-
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assembled stairs, landings, and hand rails in the largest shippable size. According to Agate, Sauer
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directed Agate to field assemble and install the stairs and landings, which required additional labor
not included in Agate’s Subcontract. Based on the foregoing, Agate asserts claims for breach of
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United States District Court
Northern District of California
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written contract for extra work and breach of written contract for delay and disruption against
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Sauer. Agate also asserts claims for open book account against Sauer and unnamed defendants, as
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well as a claim for negligent misrepresentation against Sauer for allegedly misrepresenting the
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scope of work for the Project. In addition, Agate asserts a cross-claim against FIC and Sauer for
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enforcement of a Miller Act Payment Bond, and another cross-claim against RAI for negligent
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fabrication of steel and third party tort of another.
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III. STANDARDS
Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed if it fails to
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state a claim upon which relief can be granted. In deciding whether to grant a motion to dismiss,
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the court generally Amay not consider any material beyond the pleadings.@ Hal Roach Studios,
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Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). In considering a motion
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pursuant to Rule 12(b)(6), the court must accept as true all Awell-pleaded factual allegations.@
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Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1950 (2009). The court must also construe the
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alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242,
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1245 (9th Cir. 1988). A[T]o survive a motion to dismiss, a complaint must contain sufficient
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factual matter, accepted as true, >to state a claim to relief that is plausible on its face.=@ Iqbal, 556
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Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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U.S. at 678 (internal citations omitted); see also Fed.R.Civ.P. 8(a).
IV. SAUER’S MOTION TO DISMISS
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Sauer moves to dismiss Agate’s second counterclaim for delay and disruption on the
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grounds that the Agate Subcontract contains a “no damage for delay clause.” Agate acknowledges
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that the Subcontract contains such a provision, but contends that the provision only bars damages
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claims based on work delays, disruption or interference “solely as a result of the acts or omissions
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of Sauer,” and not delays caused by RAI, Concept Steel and others. Further, Agate cites to
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another provision in the Agate Subcontract allowing Agate to recover for delay or disruption
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damages awarded to Sauer based on delays beyond Sauer’s control. These allegations, however,
are not in Agate’s counterclaim. Accordingly, Sauer’s motion to dismiss that claim is granted
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United States District Court
Northern District of California
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with leave to amend to allow Agate an opportunity to clarify the factual basis of its claim.2
Sauer moves to dismiss Agate’s fourth counterclaim for negligent misrepresentation on the
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grounds that Agate has failed to plead fraud with particularity as required by Rule 9(b),
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Fed.R.Civ.P. In its opposition to the motion to dismiss, Agate does not refute Sauer, but instead
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sets forth two pages of facts to “supplement” its allegations. Opposition at 14-15. On a motion to
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dismiss, however, the Courts’ review is limited to the well-pled facts stated in the complaint. As
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currently pled, Agate’s negligent misrepresentation fails to set forth sufficient facts to satisfy Rule
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9(b), and accordingly Sauer’s motion to dismiss the claim is granted with leave to amend.
V. CONCEPT STEEL’S MOTION TO DISMISS OR STAY
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Concept Steel moves to dismiss RAI’s claim for equitable indemnity asserting, among
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other things, that the claim fails as a matter of law because RAI has not alleged an underlying tort.
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Concept Steel also contends that RAI’s claims are not ripe. Concept Steel essentially contends
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that RAI’s claims are contingent upon the outcome of a dispute between RAI and Sauer, which
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had not yet materialized into a lawsuit at the time RAI sued Concept Steel.
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The Court finds it unnecessary to reach the parties’ remaining arguments with respect to the
delay and disruption claim until Agate clarifies the basis of its claim.
Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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In its current state, RAI’s equitable indemnity claim lacks the requisite allegations of an
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underlying tort, and accordingly is subject to dismissal on that basis. In its opposition, however,
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RAI clarifies that it seeks equitable indemnity based upon contract. See e.g., West v. Superior
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Court, 27 Cal.App.4th 1625 (1994). Accordingly, RAI is granted leave to amend to assert a claim
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for implied contractual indemnity.
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With respect to Concept Steel’s ripeness argument, RAI has alleged that Sauer is currently
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withholding money from RAI allegedly due to deficiencies in Concept Steel’s labor and materials.
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More importantly, Sauer is now a party to the instant lawsuit and has asserted counterclaims
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against RAI, including a breach of contract claim which provides a basis for RAI’s claims against
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Concept Steel. Therefore, the Court rejects Concept Steel’s ripeness argument.
VI. CONCLUSION
United States District Court
Northern District of California
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For the reasons set forth above, Sauer’s motion to dismiss Agate’s second and fourth
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counterclaims is granted with leave to amend. Concept Steel’s motion to dismiss is granted with
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leave to amend. Agate and RAI shall file and serve amended pleadings no later than September
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25, 2017. Concept Steel’s motion to stay is denied without prejudice to renew the motion, if
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appropriate, after RAI amends its counterclaims.
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The Court will conduct a case management conference on October 13, 2017 at 10:00 a.m.
The parties shall file an updated joint case management statement no later than October 3, 2017.
IT IS SO ORDERED.
Dated: August 25, 2017
______________________________________
EDWARD J. DAVILA
United States District Judge
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Case No.: 5:16-cv-03674-EJD
ORDER GRANTING SAUER’S MOTION TO DISMISS AGATE’S SECOND AND FOURTH
COUNTERCLAIMS WITH LEAVE TO AMEND; GRANTING CONCEPT STEEL’S MOTION
TO DISMISS WITH LEAVE TO AMEND; SETTING CASE MANAGEMENT CONFERENCE
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