New Hampshire Electrical Cooperative, Inc. v. Elster Solutions, LLC et al
ORDER denying 11 Motion to Dismiss for Failure to State a Claim. So Ordered by Judge Paul J. Barbadoro. Answer Follow Up on 7/20/2017. (vln)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
New Hampshire Electrical
Civil No. 16-cv-440-PB
Opinion No. 2017 DNH 131
Elster Solutions, LLC, et al.
MEMORANDUM AND ORDER
This case arises from a contract in which Elster Solutions,
LLC (“Elster”) agreed to provide goods, software, and services
to the New Hampshire Electrical Cooperative, Inc.
(“Cooperative”) to establish an integrated metering system for
the Cooperative’s 83,000 electric customers.
alleges that “smart” meters delivered and installed by Elster,
which are an essential component of the metering system, began
to fail at an unacceptably high rate.
According to the
Cooperative, these meter failures are the result of a
manufacturing defect that Elster either knew about or should
have discovered before the contract went into effect.
claims that Elster concealed the defect and misrepresented the
rate at which its meters fail during contract negotiations.
The Cooperative’s allegations provide the basis for a
complaint asserting that Elster and its parent, Honeywell
International, Inc., are liable for breach of contract,
intentional and negligent misrepresentation, breach of warranty,
unjust enrichment, breach of the duty of good faith and fair
dealing, and breach of New Hampshire’s Consumer Protection Act.
Elster and Honeywell have attacked the complaint in a motion to
dismiss for failure to state a claim.
The Cooperative’s contract with Elster obligates Elster to
provide “certain goods, software and services as determined
herein to provide an Advanced Metering Infrastructure (AMI)
system (the ‘system’) for electric meters purchased by NHEC.”1
Doc. No. 13-4 at 2.
Among other things, the contract obligates
Elster to supply smart meters for each of the Cooperative’s
See Doc. No. 1 ¶ 5–6, 10.
The smart meters
are designed to provide information to the Cooperative
concerning each customer’s electric usage and inform the
Cooperative of any power outages.
Unlike traditional electric
meters, smart meters are designed to report usage and outage
information to the Cooperative via radio frequency.
I cannot offer an authoritative interpretation of the contract
or even determine whether the contract is ambiguous at this
stage of the proceedings because the parties have supplied me
with only selected excerpts of the contract. Instead, I only
determine whether the complaint states viable claims for relief
if what the complaint says about the contract is true.
meter operates as a link in a chain with other smart meters.
Information from one meter is reported to a nearby meter, which
in turn adds its own information and reports the collected data
up the chain to the next meter.
The aggregated data is
eventually forwarded to a “gate keeper” unit that transmits the
data directly to the Cooperative.
A failure of one meter in a
chain thus can prevent the Cooperative from receiving
information from all downstream meters. See id. ¶ 7–9.
The contract contains a warranty that “equipment shall be
delivered free of defects in material and workmanship and that
services shall be performed in a good and workmanlike manner.”
Doc. No. 12-1 at 7.
If Elster breaches this warranty, it must,
at its option, either “(i) repair or replace the nonconforming
portion of the equipment or re-perform the nonconforming
services or (ii) refund the portion of the price applicable to
the nonconforming portion of equipment or services.”
contract also states that “THE REMEDIES STATED HEREIN CONSTITUTE
PURCHASER’S EXCLUSIVE REMEDIES AND VENDOR’S ENTIRE LIABILTY FOR
BREACH OF WARRANTY.”
All 83,000 meters delivered and installed under the
contract contain a manufacturing defect. See Doc. No. 1 ¶ 17,
Elster first notified the Cooperative of the defect on
March 16, 2012, after approximately 50,000 of the 83,000 meters
called for by the contract had been installed.
Id. ¶ 14.
notice was followed by two bulletins providing additional
information concerning the defect.
Id. ¶ 15.
has stated that the defect is present in only the approximately
54,000 of the Cooperative’s meters that were manufactured
between December 2009 and March 2012, see id. ¶ 16, a company
representative informed the Cooperative that all of its 83,000
meters contained the defect, which the representative explained
was an improperly sized computer chip, see id. ¶ 17.
As the rollout progressed, meters began to fail.
frequently lost usage data or falsely reported power outages.
total of 5,500 meters have failed so far, sometimes at a rate of
40 meters per week.
This represents a failure rate in excess of
Further, because the Cooperative was receiving so many
false reports of power outages, it could no longer use the
system’s power outage reporting feature.
Cooperative demanded that Elster replace all of the defective
meters immediately, Elster maintained that it was entitled to
replace meters one at a time as they failed.
During the negotiations that led to the contract, Elster
told the Cooperative that “Elster’s meters, Gatekeepers and
repeaters have a failure rate of less than 0.3%.
calculated by dividing the number of failed units by the number
of units shipped.”
Id. ¶ 12.
It also represented that its
meters have a typical lifespan of twenty years.
Considering these representations together, the Cooperative
reasonably expected that only approximately 250 meters were
likely to fail during the first twenty years in which the system
was in operation.
The Cooperative alleges that Elster knew
or should have known when it entered into the contract that its
smart meters included a manufacturing defect and that meters
containing the defect were failing at a substantially higher
rate than Elster had claimed during the contract negotiation
See id. ¶ 62, 67–69.
Nevertheless, Elster concealed
the manufacturing defect from the Cooperative and affirmatively
misrepresented the meters’ expected failure rate and lifespan.
See id. ¶ 63, 67–69.
STANDARD of REVIEW
To survive a Rule 12(b)(6) motion, a plaintiff must allege
sufficient facts to “state a claim to relief that is plausible
on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
A claim is facially plausible if it provides “factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
plausibility standard “asks for more than a sheer possibility
that a defendant has acted unlawfully,” id., but “simply calls
for enough fact to raise a reasonable expectation that discovery
will reveal evidence” of wrongdoing.
Twombly, 550 U.S. at 556.
I employ a two-step approach in deciding a Rule 12(b)(6)
See Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12
(1st Cir. 2011).
First, I screen the complaint for statements
that “merely offer legal conclusions couched as fact or
threadbare recitals of the elements of a cause of action.”
(citations, internal punctuation, and alterations omitted).
then accept as true all non-conclusory factual allegations and
the reasonable inferences drawn therefrom, and determine whether
the claim is plausible.
Elster challenges the Cooperative’s contract claim by
arguing that the contract only requires it to repair, replace,
or refund the cost of a meter when it fails, a duty Elster
claims it has fulfilled.
It challenges the misrepresentation
claims by contending both that the Cooperative has failed to
plead its claims with the particularity required by Rule 9(b)
and that the claims seek only nonrecoverable economic losses.
It then challenges the remaining claims on other grounds that
are specific to each claim.
Breach of Contract
The Cooperative alleges that Elster breached its express
contractual warranty to provide meters that are free of material
To support this assertion, it claims that all of the
83,000 meters it acquired from Elster contain a manufacturing
defect, that the meters have been failing at such an
unacceptably high rate that it is unable to operate certain
features of the integrated metering system it contracted with
Elster to provide, and that Elster has failed to address the
problem in the manner required by the contract.
in response that even if all of its meters contain a
manufacturing defect, its only obligation under the contract is
to repair, replace, or refund the cost of a defective meter when
Because it has agreed to fulfill this obligation
whenever a meter fails, Elster argues, the Cooperative has
failed to plead a viable breach of contract claim.
I am not persuaded by Elster’s argument.
Elster agreed to
provide meters that are capable of performing certain essential
All of the 83,000 meters provided under the contract
allegedly contain a manufacturing defect that causes the meters
to fail at an unacceptably high rate.
The excessive failure
rate makes it impossible for the Cooperative to use any of its
meters to perform one or more of their contracted-for functions.
Under these circumstances, Elster cannot fulfill its contractual
obligations to the Cooperative merely by replacing meters when
they cease to function.
Accordingly, I deny Elster’s motion to
dismiss the Cooperative’s contract claim.
Elster argues that the Cooperative’s claims for intentional
misrepresentation, negligent misrepresentation, breach of the
covenant of good faith and fair dealing, and violation of the
New Hampshire Consumer Protection Act (the “CPA”) fail to
satisfy the heightened pleading standard required by Rule 9(b)
for fraud claims.
For claims “where the core allegations effectively charge
fraud,” the heightened pleading requirements of Rule 9(b) apply.
See N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale,
567 F.3d 8, 15 (1st Cir. 2009).
Rule 9(b) provides that “a
party must state with particularity the circumstances
constituting fraud or mistake.”
Fed. R. Civ. P. 9(b).
plaintiff satisfies Rule 9(b) by alleging “the who, what, where,
and when of the allegedly false or fraudulent representation.”
Rodi v. S. New England Sch. of Law, 389 F.3d 5, 15 (1st Cir.
2004) (quoting Alternative Sys. Concepts, Inc. v. Synopsys,
Inc., 374 F.3d 23, 29 (1st Cir. 2004)).
A plaintiff may allege
knowledge or scienter “generally,” but must still allege facts
that meet the plausibility standard of Rule 8(a).
See Fed. R.
Civ. P. 9(b) and 8(a); Iqbal, 556 U.S. at 686–87.2
The First Circuit has required plaintiffs to support a scienter
claim with “specific facts that make it reasonable to believe
The Cooperative has satisfied these pleading requirements
with respect to the four misrepresentation claims challenged by
The Cooperative has identified the contents of the core
misrepresentations underlying the four claims: that Elster’s
meters had a failure rate of .3% and a lifespan of twenty years.
See Doc. No. 1 ¶ 63 (fraud), 67–68 (negligent
misrepresentation), 45–46 (implied covenant), 76, 80 (CPA); see
also Doc. No. 13-1 at 13.
The Cooperative has likewise
specified that the misrepresentations occurred during the
“request for proposal” process preceding the February 2011
contract and are contained in Elster’s response to the
Cooperative’s request for proposal, see Doc. No. 1 ¶ 12; see
also Pl.’s Ex. 1 at E-9 (offered Jan. 25, 2017) (failure rate),
and in the parties’ contract itself, Pl.’s Ex. 3 at 190 (offered
Jan. 25, 2017) (failure rate).
See Doc. No. 13-1 at 13.
Although the Cooperative did not identify the individual who
made the misrepresentations in its complaint, it later placed in
the docket what appears to be the cover letter to Elster’s
response to the Cooperative’s request for proposal.
The cover letter is signed by a senior vice president
that defendant knew that a statement was materially false or
misleading.” Cardinale, 567 F.3d at 13 (quoting Greenstone v.
Cambex Corp., 975 F.2d 22, 25 (1st Cir. 1992)). I construe the
rule in Cardinale to be consistent with Iqbal. Cf. Orion
Seafood Int’l, Inc. v. Supreme Grp. B.V., 2012 DNH 146, 5.
of Elster and identifies another employee as the “point of
contact” for the response.
Id. at 2.
adequately describe Elster’s alleged misrepresentations.
The Cooperative has also alleged sufficient facts to allow
a reasonable inference of scienter.
Under New Hampshire law,
fraud requires a “representation . . . made with knowledge of
its falsity or with conscious indifference to its truth” and the
intention to cause reliance.
Tessier v. Rockefeller, 162 N.H.
324, 332 (2011) (quoting Patch v. Arsenault, 139 N.H. 313, 319
Negligent misrepresentation requires a failure “to
exercise reasonable care to verify the truth of [a
Wyle v. Lees, 162 N.H. 406, 413 (2011).
Similarly, “the implied good faith obligations of a contracting
party are tantamount to the traditional duties of care to
refrain from misrepresentation and to correct subsequently
discovered error . . . .”
Centronics Corp. v. Genicom Corp.,
132 N.H. 133, 139 (1989).
To prove a violation of the relevant
CPA provisions in this case, the Cooperative can satisfy the
statute’s scienter requirement by alleging that Elster “made
representations, knowing [it] lacked sufficient knowledge to
Cf. Beer v. Bennett, 160 N.H. 166, 171
Because the Cooperative has alleged facts allowing, at a
minimum, a reasonable inference of Elster’s conscious
indifference at the time of contract formation, the mental
states required for all four misrepresentation claims have been
Relying on a bulletin Elster sent to its
customers, the Cooperative alleged that the manufacturing
process related to the improperly sized computer chip began in
December 2009, preceding the contract by over a year.
No. 1 ¶ 18; Doc. No. 12-3.
A customer notified Elster of issues
with the meters in “late 2011.”
See Doc. No. 12-3.
the reasonable inference that Elster would have been closely
involved in the design and manufacture of its meters, the facts
as alleged plausibly suggest that Elster was at least
consciously indifferent to the existence of the improperly sized
chips (and by extension the failure rate and lifespan of the
meters) as of February 2011 and made misrepresentations with the
intent to induce the Cooperative to contract.3
Cooperative’s claims for (1) fraud, (2) negligent
misrepresentation, (3) breach of the covenant of good faith and
Elster also argues that the Cooperative cannot base its claims
on Elster’s customer bulletins because those bulletins qualify
as subsequent remedial measures that will be inadmissible at
trial pursuant to Fed. R. Evid. 407. I decline to consider
Elster’s argument at this stage of the proceedings because
Elster provides no support for its conclusory assertion that a
court may dismiss a claim pursuant to Fed. R. Civ. P. 12(b)(6)
simply because evidence cited in support of the claim may be
inadmissible at trial.
fair dealing, and (4) violation of the CPA do not fail on Rule
The Economic Loss Doctrine
Elster also argues that the economic loss doctrine
precludes the Cooperative’s fraud and negligent
“The economic loss doctrine is a
‘judicially-created remedies principle that operates generally
to preclude contracting parties from pursuing tort recovery for
purely economic or commercial losses associated with the
Wyle v. Lees, 162 N.H. 406, 410 (2011)
(quoting Plourde Sand & Gravel v. JGI Eastern, 154 N.H. 791, 794
In the context of products liability, “[e]conomic
losses encompass both damage to the defective product itself and
the diminution in value of the product because it is inferior in
Kelleher v. Marvin Lumber & Cedar Co., 152 N.H. 813,
Put another way, economic loss includes “loss[es]
resulting from the failure of the product to perform to the
level expected by the buyer and is commonly measured by the cost
of repairing or replacing the product.”
See Lempke v. Dagenais,
130 N.H. 782, 792 (1988).
Elster argues that the Cooperative’s misrepresentation
claims are barred by the economic loss doctrine because the
relief the Cooperative seeks on those claims is limited to the
value of the allegedly defective meters and other associated
economic costs that the Cooperative has incurred or will incur
in the future.
Even if I accept Elster’s characterization of
the Cooperative’s damages claim for purposes of analysis, I am
unpersuaded by its argument because the Cooperative’s
misrepresentation claims fall within a well-recognized exception
that allows for the recovery of economic losses that result from
misrepresentations made to induce a contract.
The New Hampshire Supreme Court recognized this exception
in Wyle, 162 N.H. at 411–12.
There, the plaintiff purchased an
apartment building in reliance on the seller’s false
representation that past modifications to the building had been
made with all required permits.
Id. at 409, 412.
the plaintiff’s claim for economic losses, the court
distinguished misrepresentations made to induce a contract,
which are exempt from the economic loss doctrine, from claims
based on a breach of a promise to perform the contract itself,
which are not.
See id. at 411–12.
The court concluded that the
defendant’s representation — that he had obtained all required
permits when modifying the building that was the subject of the
contract — was not governed by the economic loss doctrine
because the representation was made to induce the contract and
was unrelated to the performance of the contract itself.
id. at 412; cf. Schaefer v. IndyMac Mortg. Servs., 731 F.3d 98,
109 (1st Cir. 2013) (“We read Wyle as holding that the negligent
misrepresentation exception reaches only those representations
that precede the formation of the contract or that relate to a
transaction other than the one that constitutes the subject of
Applying Wyle to the facts of the present case, I conclude
that the Cooperative’s misrepresentation claims fall within the
Elster contends otherwise because the
representations at issue here concern the subject matter of, or
the performance expected under, the contract, but it does not
explain how its position can be squared with Wyle.
present case, as in Wyle, the alleged misrepresentation occurred
during the negotiation of the contract and the claims are not a
mere repackaging of a breach of contract claim.
although the misrepresentations at issue in this case concerned
the product that Elster was proposing to sell, that was also the
case in Wyle.
Thus, Wyle cannot be distinguished on this basis.
Accordingly, the Cooperative’s misrepresentation claims are not
barred by the economic loss doctrine.4
I emphasize that the Cooperative does not merely allege a
misrepresentation on Elster’s part, but a misrepresentation that
induced the Cooperative to contract. See Doc. No. 1 ¶ 63–64,
71–72. The complaint adequately alleges inducement, but it
remains open to Elster to challenge the factual basis for
inducement after discovery.
Elster also launches targeted attacks at the Cooperative’s
CPA, good faith and fair dealing, and unjust enrichment claims.
The Cooperative identified misrepresentations about meter
quality as the core allegations underlying its CPA claim.
Doc. No. 1 ¶ 76–77; Doc. No. 13-1 at 20–21.
Elster seeks to
defeat this claim by arguing that Elster’s dealings with the
Cooperative are exempt from the CPA’s coverage.5
The CPA prohibits “any unfair method of competition or any
unfair or deceptive act or practice in the conduct of any trade
N.H. Rev. Stat. Ann. § 358-A:2.
this broad prohibition, the statute goes on to list specific
examples of unlawful conduct, including “[r]epresenting that
goods or services are of a particular standard, quality, or
grade . . . if they are another.”
§ 358-A:2 (VII).
Cooperative cites this specific provision as a basis for its CPA
Elster also argues that “an ordinary breach of contract claim”
cannot be the basis for a CPA claim. See Doc. No. 12 at 22.
This argument fails in the present circumstances. Cf. Beer, 160
N.H. at 171 (where unlawful conduct involved party who “made
representations, knowing [it] lacked sufficient knowledge to
substantiate them,” conduct was not mere breach of contract).
The CPA exempts from its coverage “[t]rade or commerce that
is subject to the jurisdiction of . . . the public utilities
§ 358–A:3 (I).
“[T]o determine when offering for
sale or distributing a service is ‘subject to the jurisdiction
of’ the PUC, [courts] examine the statutes that define the PUC's
powers and authority.”
Rainville v. Lakes Region Water Co., 163
N.H. 271, 275 (2012).
Elster claims that its sale of meters to the Cooperative is
an exempt transaction because the PUC has the statutory power to
generally supervise “all public utilities” and has promulgated
regulations related to recording outages, responding to outages,
and “the inspection and calibration of meters.”
Doc. No. 12 at
The Cooperative replies that it is not a public utility
and that the limited requirements imposed on it do not concern
“the accuracy of meters, outages, or any other aspect of the
transaction between” the parties.
Doc. No. 13-1 at 18.
The “trade or commerce” implicated in this case is the sale
of meters and related services.
Neither party has singled out a
statute or regulation specifically giving the PUC jurisdiction
over the sale of meters.
So, although the PUC regulates the
Cooperative to some extent, the PUC does not regulate every
aspect of the Cooperative’s operation.
Moreover, even if the
PUC regulated the Cooperative’s use of meters, its regulation of
a product in one respect does not imply that every transaction
involving the product is exempt from the CPA.
See State v.
Empire Auto. Grp., Inc., 163 N.H. 144, 145–146 (2011) (where
state body regulated sale of cars under installment contracts,
car dealer’s fraudulent placement of inspection stickers on cars
sold under installment contracts did not occur in regulated
trade or commerce); Elmo v. Callahan, 2012 DNH 144, 25–26 (where
attorney represented clients in a regulated sale of securities,
the practice of law constituted the relevant trade or commerce
for CPA purposes).
Elster’s argument that a different result is required by
the New Hampshire Supreme Court’s opinion in Rainville is a
There, a public water utility made an allegedly
fraudulent representation about water quality.
See 163 N.H. at
The court determined that the PUC had jurisdiction over
the provision of water, and the unlawful conduct related to that
trade or commerce.
Elster correctly notes that the
court focused on whether the PUC had jurisdiction over the
relevant trade or commerce, not over the unlawful act.
No. 12 at 21.
Here, as noted above, the parties have not
singled out a specific statutory basis for the PUC’s
jurisdiction over the sale of meters.
Accordingly, I decline to
dismiss the Cooperative’s CPA claim on this basis.
Implied Covenant of Good Faith and Fair Dealing Claim
The Cooperative alleged a breach of the implied covenant of
good faith and fair dealing based on: (1) Elster’s
misrepresentations or omissions during negotiation of the
contract; (2) Elster’s refusal to repair or replace all meters
with an improperly sized chip; and (3) Elster’s refusal to
reimburse the Cooperative for the costs of removing failed
meters and installing replacements.
See Doc. No. 1 ¶ 45–48.
have already rejected Elster’s challenge to the Cooperative’s
good faith and fair dealing claim to the extent that it is based
on misrepresentations during contract negotiations.
consider Eisner’s argument that the good faith and fair dealing
claim must also be dismissed to the extent that it alleges that
Elster is liable because it abused discretion granted to it
under the contract.
Under New Hampshire law, the implied covenant of good faith
and fair dealing takes different forms.
“The various implied
good-faith obligations fall into three general categories, the
first dealing with conduct in contract formation; the second
addressing termination of at-will employment contracts; and the
third dealing with the limitation of discretion in contractual
Great Lakes Aircraft Co. v. City of Claremont,
135 N.H. 270, 293 (1992).
Elster’s argument implicates only the
third category of obligations.
“The New Hampshire Supreme Court has explained that
contractual discretion can be exercised in a way that violates
the duty of good faith and fair dealing only if ‘a promise [is]
subject to such a degree of discretion that its practical
benefit could seemingly be withheld.’”
Co. v. Pan Am Railways, Inc., 2011 DNH 206, 11 (quoting
Centronics Corp. v. Genicom Corp., 132 N.H. 133, 144 (1989)
Discretion exists where “a legal directive or
contract term is indeterminate because it fails to identify a
single specific action that is legally permitted, prohibited, or
required under the circumstances.”
Id. (quoting Steven J.
Burton & Eric G. Andersen, Contractual Good Faith, § 188.8.131.52 at
The contract between Elster and the Cooperative does not
give Elster the discretion to refrain from replacing, repairing,
or refunding meters, or the discretion to pay or not pay costs
associated with replacement.
Instead, the contract specifies
that when certain conditions obtain, Elster “shall” replace,
repair, or refund.
Doc. No. 12-1 at 7.
Indeed, although the
Cooperative maintains that Elster has discretion, it twice
states that the contract actually requires Elster to shoulder
the costs of replacement.
13-1 at 14–15.
See Doc. No. 25 at 83–84; Doc. No.
Accordingly, Elster is correct in claiming that
the Cooperative cannot base its good faith and fair dealing
claim on an alleged abuse of discretion granted to it under the
Unjust Enrichment Claim
At oral argument, the Cooperative explained that it was
asserting its unjust enrichment claim as an alternative basis
for recovery in the event the contract fails.
See Doc. No. 25
Although it is true that an unjust enrichment claim
ordinarily cannot be used to supplement the relief that a party
is entitled to under a contract, Axenics, Inc. v. Turner Const.
Co., 164 N.H. 659, 669 (2013), the Cooperative is entitled to
plead that Elster is liable under alternative theories, see Fed.
R. Civ. P. 8(d) (“A party may state as many separate claims or
defenses as it has, regardless of consistency.”); Limone v.
United States, 579 F.3d 79, 93 (1st Cir. 2009).6
deny Elster’s motion to dismiss the Cooperative’s unjust
For the reasons explained above, I deny Elster’s motion to
dismiss (Doc. No. 11), except insofar as I have narrowed the
Elster also attacks the Cooperative’s breach of implied
warranty claims. Because I have not ruled on the enforceability
of the contract’s express disclaimer of the implied warranty,
the implied warranty claim survives.
Cooperative’s claims based on unjust enrichment and the implied
covenant of good faith and fair dealing.
United States District Judge
July 5, 2017
Derek D. Lick, Esq.
Edward M. Kaplan, Esq.
Christopher P. Fitzgerald, Esq.
Gary T. Lombardo, Esq.
Peter M. Durney, Esq.
Stephen A. Fennell, Esq.
Steven J. Barber, Esq.
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