Sonju Industrial, Inc. et al v. Precise Solutions Corporation

Filing 19

ORDER granting in part and denying in part 4 Motion to Dismiss. Plaintiff SI Defense is dismissed as to Counts I-IV without prejudice and Count III is dismissed without prejudice. Defendant's motion to dismiss Counts V-X is denied. Signed by Chief Judge Dana L. Christensen on 4/4/2014. (dle)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
SONJU INDUSTRIAL, INC. and SI
DEFENSE, INC.,

CV 14–02–M–DLC

Plaintiffs,

ORDER

vs.
PRECISE SOLUTIONS
CORPORATION d/b/a EUROTECH
ELITE,
Defendant.

Defendant Precise Solutions Corporation, d/b/a Eurotech Elite, moves to
dismiss Counts III and V-X of Plaintiff’s complaint. Defendant also seeks
dismissal of Plaintiff SI Defense, Inc. because it was not a party to the contract in
dispute or a third-party beneficiary. Plaintiffs Sonju Industrial, Inc. and SI
Defense respond that under Montana law, their tort claims survive and SI Defense
is a third-party beneficiary to the contract. Defendant’s motion will be granted as
to SI Defense regarding Counts I-IV and denied as to dismissal of Plaintiffs’ tort
claims.
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I. Background
Sonju Industrial and SI Defense are Montana corporations and Eurotech is a
Michigan corporation with its principal place of business in Florida. A minimum
of $98,866 is at stake, so diversity jurisdiction exists pursuant to 28 U.S.C. § 1332.
Sonju Industrial is an aerospace manufacturer that manufactures parts for the
military, commercial aviation, firearms, medical, oil and gas, and semiconductor
industries. Sonju Industrial developed sister corporation SI Defense in 2008 to
produce rifles and related accessories and components. Sonju Industrial
contracted with Eurotech to buy a Model B44SY2 Trofeo 11-Axis Universal
Turning/Milling Center (“machine”) on February 6, 2013. The machine was
intended to assist in production of .223 and .308 caliber bolts and bolt
components. The contract was governed by Eurotech’s standard terms and
conditions, an express warranty, and a guarantee. Sonju agreed to pay $494,033
for the machine with 20% down, 50% upon delivery, and 30% upon completion of
“turnkey.”
The parties agree that there were delays in the delivery and set-up of the
machine and that the machine was never “turnkey” as contractually agreed upon.
The parties also agree that Plaintiff SI Defense is not a named party to the
contract, but Plaintiffs contend that it is a third-party beneficiary because both
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parties understood that the agreement was to benefit SI Defense.
Sonju made a down payment of $98,866, but did not make the second or
third payments. After two Eurotech engineers failed to get the machine running,
Sonju formally rejected the machine by letter and email, arranging to have
Eurotech remove the machine from Sonju’s facility. Plaintiffs contend that
Eurotech issued them a refund check once the machine was on the moving truck
and out of Plaintiffs’ facility at 4:00 p.m. on October 25, 2013. Eurotech then sent
Sonju an email at 4:19 p.m. that same day, stating that the refund check was for
the wrong amount, so it was going to cancel the check and send a new check by
October 29, 2013. However, instead of sending a corrected check, Eurotech sent
Sonju an invoice for $77,681.01 on October 29, 2013.
Plaintiffs filed their complaint in Flathead County on November 21, 2013,
alleging the following: Count I Breach of Contract; Count II Breach of Express
Warranty; Count III Third-Party Beneficiary Breach of Contract; Count IV Breach
of Implied Covenant of Good Faith and Fair Dealing; Count V Negligent
Misrepresentation; Count VI Constructive Fraud; Count VII Actual Fraud; Count
VIII1 Negligence; Count IX Tortious Interference with Contractual or Business
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Plaintiffs’ complaint lists two Count VIIs and no Count IX, but the Court
has corrected the error and refers to the second Count VII (Negligence) as Count
VIII and Count VIII (Tortious Interference) as Count IX.
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Relations; and Count X Punitive Damages. Defendant removed the action to this
Court on January 3, 2014, and moved to dismiss various counts of the complaint
and SI Defense as a party on January 10, 2014.
II. Standard of Review
To survive a motion to dismiss for failure to state a claim, a complaint must
allege sufficient facts “to state a claim for relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Commonly known as notice
pleading, the standard for pleadings set by the Federal Rules dictates that, in order
to be entitled to the presumption of truth, “a complaint . . . may not simply recite
the elements of a cause of action, but must contain sufficient allegations of
underlying facts to give fair notice to enable the opposing party to defend
effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). Courts generally
limit their considerations to the allegations in the complaint. Twombly, 550 U.S.
at 555-559. Those allegations are accepted as true and viewed in a light most
favorable to the plaintiff. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th
Cir. 2008).
When “matters outside the pleadings are presented to and not excluded by
the court, the motion shall be treated as one for summary judgment and disposed
of as provided in Rule 56, and all parties shall be given reasonable opportunity to
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present all material made pertinent to such a motion by Rule 56.” Lee v. City of
Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). However, a court may consider
material properly submitted as part of the complaint without converting the motion
to one for summary judgment. United States v. Corinthian Colleges, 655 F.3d
984, 999 (9th Cir. 2011). The Court may also consider “unattached evidence on
which the complaint ‘necessarily relies’ if: (1) the complaint refers to the
document; (2) the document is central to the plaintiff's claim; and (3) no party
questions the authenticity of the document.” Id.
III. Discussion
A. Third Party Beneficiary
Defendant argues SI Defense should be dismissed from the complaint
because it was not a third party beneficiary to the contract. The parties agree that
Florida law applies to the contract claims, Counts I-IV of the complaint. The
parties disagree on what evidence the Court may consider in determining whether
SI Defense is a third party beneficiary.
“If the intent of the contracting parties is not clear from the contract, the
Court may consider extrinsic evidence of the parties’ intent. Such evidence must
establish that the parties to the contract actually and expressly intended to benefit
the third party; it is not sufficient to show only that one of the contracting parties
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unilaterally intended some benefit to the third party.” Rebman v. Follett Higher
Educ. Group, Inc., 248 F.R.D. 624, 631 (M.D. Fla. 2008). The intent of the parties
“is the key to determining whether a third party is an intended (i.e. donee or
creditor) or only an incidental beneficiary.” Id. at 630. Intent is generally specific
and clearly expressed in the contract granting the third party contractual rights. Id.
However, a third party need not necessarily be named in the contract to infer
intent. Steadfast Ins. Co. v. Corporate Protection Sec. Group, Inc., 554 F. Supp.
2d 1335, 1338 (S.D. Fla. 2008). If a third party not named in the contract is a
member of the limited class intended to benefit from the contract, the third party
may be a legal beneficiary.
When the precontract dealings and the allegations in the complaint show
that the breach of contract deprives a third party of the benefit of the contract, the
third party has a valid cause of action as an intended third party beneficiary.
Warren v. Monahan Beaches Jewelry Center, Inc., 548 So. 2d 870, 872 (Fla. App.
1989). In Warren, a woman who received an engagement ring that turned out to
be a cubic zirconia stone instead of a diamond was held to be a third party
beneficiary of the contract between her fiancée and the jewelry store because the
salesperson knew the ring was for her and she brought the ring into the store after
she received it. Id. Thus, the Florida Appellate Court held that the district court
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improperly granted the jewelry store’s motion to dismiss the fiancée because she
was an intended third party beneficiary of the contract. Id.
Similarly, when “the precontract dealings, the contract itself, and the
subsequent dealings between the parties show that the clear intent and purpose of
the contract was to directly and substantially benefit” the third party, it is an
intended beneficiary to the contract. Goodell v. K.T. Enterprises, Ltd., 394 So. 2d
1087, 1089 (Fla. App. 1981). In Goodell, the contract indicated that the
beneficiary and contracting party decided that the contracting party should take
title, and also shipped the conveyor unit at issue to the beneficiary. Id. These
facts were sufficient to support third party beneficiary status.
Here, Plaintiffs’ complaint does not specifically mention SI Defense in
Counts I or II. In Count III, Plaintiffs allege “Plaintiff SI Defense was an intended
third-party beneficiary of the contracts entered into between Sonju Industrial and
Eurotech because the parties knew and intended the equipment and parts it was to
manufacture to benefit SI Defense.” (Doc. 7 at 9.) Plaintiffs also allege in Count
III that Defendant’s breach of the written and oral agreements damaged SI
defense. Both parties agree that SI Defense is not a party to the contract and is not
specifically named as a third party beneficiary in the contract.
Plaintiffs argue that emails between its employee and Eurotech’s as well as
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the identifying information on the proprietary prints on which Eurotech based its
engineering of the machine show both parties intended the machine and its use to
benefit SI Defense. Defendant responds that the emails should not be considered
under Rule 12(b)(6), but even if they are, they do not demonstrate the parties’
intent for SI Defense to have third party beneficiary status. The Ninth Circuit
standard of review applies to a 12(b)(6) motion even in diversity cases. That
standard permits the Court to consider the complaint and attachments to the
complaint. Corinthian Colleges, 655 F.3d at 999. It also allows for consideration
of unattached evidence on which the complaint necessarily relies if the complaint
refers to the document, the document is central to the plaintiff's claim, and
authenticity is not in question. Id. Here, the emails to which Plaintiffs’ refer are
not mentioned in the complaint, and thus will not be considered in deciding
Defendant’s motion to dismiss. However, attachments A-J to Plaintiffs’ complaint
will be considered.
The allegations in the complaint regarding Defendant’s knowledge that SI
Defense was the intended beneficiary to the contract are conclusory and do not
suffice to state a claim in and of themselves. Merely stating that both parties knew
and intended SI Defense to be the third party beneficiary to the contract does not
make it so. Some factual support is necessary, even at this stage in the
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proceedings. Twombly, 550 U.S. at 555-56. The only factual allegation showing
Eurotech knew SI Defense was involved relates to the parties’ post-contractual
dealings and is found within Sonju’s letter rejecting the machine: “Sonju Industrial
also mentioned the consequential damages it suffered as a result of Eurotech’s
failure to provide the equipment to specifications, including the loss of hundreds
of thousands of dollars in contracts for both Sonju Industrial and SI Defense,
irreparable damage to Plaintiffs’ reputation and revenue . . . .” (Docs. 7 at 6; 7-8.)
This evidence is not particularly supportive of Plaintiffs’ third party beneficiary
argument because the rejection letter was sent to Defendant several months after
the contract was entered into, thus shedding scant light on the parties’ contractual
intent.
Because neither Plaintiffs’ complaint nor the contract or supporting
documents sufficiently allege a third party beneficiary claim as to SI Defense, it
will be dismissed as to Counts I-IV, and Count III will be dismissed in its entirety.
However, this dismissal will be without prejudice with leave to amend the
complaint if Plaintiffs believe further factual allegations exist to support its third
party beneficiary status.
B. Tort Claims
Defendant next seeks dismissal of Plaintiffs’ tort claims (Counts V-X) for
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various reasons. The parties disagree as to which state’s law applies to these
claims, so the Court must first resolve this issue prior to reaching the merits.
1. Florida v. Montana Law
Tort claims generally are not controlled by a contractual choice of law
provision. Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407
(9th Cir. 1992). “Rather, they are decided according to the law of the forum
state.” Id. Despite this, Defendant argues Florida contract law bars Plaintiffs’ tort
claims because it requires that a tort be factually independent of a breach of
contract claim. Alternatively, Defendant contends Montana law also requires tort
claims be factually distinguishable from alleged breaches of contract.
Montana law applies. Plaintiffs’ tort claims are factually distinguishable
from their breach of contract claims. Specifically, Plaintiffs’ tort claims include
extra-contractual facts such as Defendant’s promises to repair the failed
equipment, to remove the equipment free of charge, alleged misrepresentations
regarding Defendant’s competency to install and repair the equipment, and
Defendant’s cancelling of a refund check within minutes of the machine being
loaded on a truck and away from the Plaintiffs’ facility and replacement of the
refund check with a nearly $80,000 invoice. These facts, taken as true and viewed
in a light most favorable to Plaintiffs, provide independent support for Plaintiffs’
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tort claims.
Montana law permits several different causes of action based on the same
injury. Corporate Air v. Edwards Jet Center, 190 P.3d 1111, 1124 (Mont. 2008).
“In common contract actions, tort-type damages are not available for breach of the
implied covenant of good faith and fair dealing. They are, however, available for
traditional contract-related torts such as fraud, fraudulent inducement, and tortious
interference with a contract.” Id. (citing Story v. City of Bozeman, 791 P.2d 767,
776 (Mont. 1990). The facts outlined above, particularly regarding the refund
check, provide an independent basis for Counts V-VIII and these claims will not
be dismissed on this basis.
2. Fraud Claim
Plaintiffs’ fraud claims also survive Defendant’s motion to dismiss.
Defendant argues Plaintiffs’ negligent misrepresentation, constructive fraud, and
actual fraud claims fail because the complaint does not allege any representation
of a past or existing fact.
Rule 9(b) requires a party to state with particularity the circumstances
constituting fraud or mistake. Fed. R. Civ. P. 9(b). Rule 9(b) requires a plaintiff to
allege “the who, what, when, where, and how” of the fraudulent conduct. Cooper
v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). The particularity requirement of
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Rule 9(b) applies to state-law causes of action. Vess v. Ciba-Geigy Corp. USA,
317 F.3d 1097, 1103 (9th Cir. 2003). When invoking a district court's jurisdiction
under 28 U.S.C. § 1332, a plaintiff must plead the state law elements of a fraud
claim. See 389 Orange Street Partners v. Arnold, 179 F.3d 656, 663 n.2 (9th Cir.
1999) (citing Moore v. Brewster, 96 F.3d 1240, 1245-46 (9th Cir. 1996)).
Actual fraud can consist of a party to the contract making a promise without
any intention of performing it. Mont. Code. Ann. § 28-2-405(4); Dodds v. Gibson
Products Co. of Western Montana, 593 P.2d 1022, 1025-26 (Mont. 1979).
Constructive fraud consists of “any breach of duty that, without an actually
fraudulent intent, gains an advantage to the person in fault or anyone claiming
under the person in fault by misleading another person to that person's prejudice or
to the prejudice of anyone claiming under that person; or any act or omission that
the law especially declares to be fraudulent, without respect to actual fraud.”
Mont. Code Ann. § 28-2-406. Negligent misrepresentation consists of the
following elements:
a) the defendant made a representation as to a past or existing material fact;
b) the representation must have been untrue;
c) regardless of its actual belief, the defendant must have made the
representation without any reasonable ground for believing it to be true;
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d) the representation must have been made with the intent to induce the
plaintiff to rely on it;
e) the plaintiff must have been unaware of the falsity of the representation;
it must have acted in reliance upon the truth of the representation and it
must have been justified in relying upon the representation;
f) the plaintiff, as a result of its reliance, must sustain damage.
Harpole v. Powell County Title Co., 309 P.3d 34, 38 (Mont. 2013).
Plaintiffs’ allegations regarding the cancelled refund check satisfy the
requirements for actual fraud, constructive fraud, and negligent misrepresentation
when taken as true and viewed in a light most favorable to them. The timing of
the removal of the machine, the cancellation of the check, and the mailing of the
invoice support Plaintiffs’ allegations regarding intent. Even though Defendant is
correct that Plaintiffs’ specific allegations under Counts V-VII discuss Eurotech’s
representations regarding its competency, the allegations regarding the cancelled
check are also within the complaint and the Court may consider them. Although
Twombly requires some specificity in pleading that is more than labels and
conclusions, it does not require complaints to be a model of organization and to
plead those specific facts with precise accuracy as to each count. Thus, the Court
finds that the allegations in the complaint suffice and Counts V-VII will not be
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dismissed.
3. Negligence Claim
Liability in tort may coexist with contractual liability in certain
circumstances. Draggin’ y Cattle Co., Inc. v. Addink, 312 P.3d 451, 458-59
(Mont. 2013); Billings Clinic v. Peat Marwick Main & Co., 797 P.2d 899, 908-09
(Mont. 1990).
There is in truth sometimes a thin distinction drawn between whether an
action is grounded in tort or a contract. Generally, the test of distinction
seems to be that if the claim is based on a breach of specific terms of the
contract without any reference to the legal duties implied by law upon the
relationship created thereby, the action is in contract; whereas, if there is a
contract for services which places the parties in such relation to each other
that in an attempt to perform the promised service, a duty imposed by law as
a result of the contractual relationship is breached, then the gravamen of the
action is the breach of the legal duty rather than a breach of the contract, and
so is a tort.
Billings Clinic, 797 P.2d at 908. In Billings Clinic, the Court found that “scissors
more sharp than we command are required to pare away the contract implications
from the tort claim” and held that the plaintiff’s claims existed mutually in
contract and tort. Id. at 909. Montana also permits a negligence action for
economic loss without direct privity of contract. Jim’s Excavating Service, Inc. v.
HKM Associates, 878 P.2d 248, 253-55 (Mont. 1994). Defendant argues these
Montana cases do not support Plaintiffs’ negligence claim here because they deal

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with professionals–in the accounting and construction fields–who are governed by
different standards.
Although Plaintiffs’ claims in this case sound more clearly in contract than
in tort, they have alleged enough facts to support a negligence claim. The
Montana cases in which the Court has permitted coexistent contract and tort
claims are not so far afield from the facts here to warrant dismissal. Further,
Montana law allows negligence actions by parties not in direct privity of contract
with the defendant, allowing Plaintiff SI Defense a potential avenue for recovery if
it is unable to establish third party beneficiary status. Plaintiffs have alleged that
Eurotech owed them a duty to provide the equipment to specifications and to
remedy its defective work on the equipment; that it breached its duties by failing
to provide an adequate machine or remedy its inadequacies; and that Plaintiffs
suffered damages because of the breach. As in Billings Clinic, it is not appropriate
here, particularly at this stage in the proceedings, to attempt to sever Plaintiffs’
contract and tort claims.
4. Tortious Interference
To state a tortious interference claim, Plaintiffs must prove the Defendant’s
acts: “1) were intentional and willful; 2) were calculated to cause damage to the
plaintiff in his or her business; 3) were done with the unlawful purpose of causing
15

damage or loss, without right or justifiable cause on the part of the actor; and 4)
that actual damages and loss resulted.” Emmerson v. Walker, 236 P.3d 598, 603
(Mont. 2010). The factors considered to evaluate the propriety of a defendant’s
actions include: the nature of the conduct, motive, the interests of the parties, the
social interests in protecting the freedom of action and the concomitant contractual
interests, the proximity of the conduct to the interference, and the relations
between the parties. Id.
Defendant contends Plaintiffs’ tortious interference claim fails because they
cannot prove Defendant intended to disrupt the business relations between them.
Defendant further argues Plaintiffs should not be permitted to allege both that SI
Defense was a known third party beneficiary and was a stranger to the Plaintiffs’
business relations, the latter of which it contends is a required element of tortious
interference.
Plaintiffs’ claims regarding third party beneficiary and tortious interference
are not inherently contradictory. Defendant reads the language from the cases
regarding the interfering party being a “stranger” to the contract too literally. In
Emmerson, the interfering party was intimately familiar with the contract between
the plaintiff and defendant–his knowledge permitted him to effectively interfere
with it. Plaintiffs allege that Defendant’s actions of misrepresenting its ability to
16

provide satisfactory equipment, or to fix the deficiencies in the equipment, were
calculated to cause damage to Plaintiffs’ business relations with each other and
various third parties. These allegations are adequate to state a claim under
Montana’s definition of tortious interference, and Defendant’s motion will be
denied as such.
5. Punitives
Because Plaintiffs’ tort claims survive, so does their request for punitive
damages. Daniels v. Dean, 833 P.2d 1078, 1084 (Mont. 1992).
IV. Conclusion
Defendant’s motion to dismiss will be granted in part and denied in part.
The request to dismiss SI Defense as a party to Counts I-IV and to dismiss Count
III altogether will be granted because Plaintiffs’ allegations regarding the third
party beneficiary claim are not supported by sufficient facts and are more akin to
the legal conclusions couched as facts disallowed by Twombly. Defendant’s
motion to dismiss Plaintiffs’ tort claims will be denied for the reasons set forth
herein.
IT IS ORDERED that Defendant’s motion to dismiss (Doc. 4) is
GRANTED IN PART and DENIED IN PART. Plaintiff SI Defense is dismissed
as to Counts I-IV without prejudice and Count III is dismissed without prejudice.
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Defendant’s motion to dismiss Counts V-X is DENIED.
DATED this 4th day of April, 2014.

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