Expedite, Inc. v. Plus, Bags, Cars & Serv, LLC et al

Filing 77

OPINION and ORDER - For the reasons stated, Plus's motion 67 to dismiss pursuant to Rule 12(b)(6) is DENIED. IT IS SO ORDERED. DATED this 18th day of April, 2013, by United States Magistrate Judge John V. Acosta. (peg)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

Civ. No. 11-329-AC

EXPEDITE, INC.,

OPINION AND
ORDER

Plaintiff,

PLUS, BAGS, CARS & SERV, LLC, a
Florida Corporation,
Defendant,

ACOSTA, Magistrate Judge:
Introduction

Defendant Plus, Bags, Cars & Serv, LLC ("Plus") moves for dismissal of the Third
Amended Complaint of Plaintiff Expedite, Inc. ("Expedite") pursuant to Federal Rules of Civil
Procedure ("Rules") 12(b)(6) and 9(b). Previously, Expedite brought federal antitrust claims
against Plus for violation of the Sherman Antitrust Act and the Clayton Act, and state law claims

OPINION AND ORDER

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for intentional interference with economic relations and fraud. 1 These claims were dismissed in
the Findings and Recommendation ("F&R") issued by this court and adopted by District Judge
Marco Hernandez on December 19, 2011. 2 Expedite was, however, granted leave to plead its
fraud claim with greater specificity, and in the interests of judicial economy and convenience,
this court chose to exercise supplemental jurisdiction over that remaining claim.

Expedite

subsequently filed a Second Amended Complaint for fraud. This court found Expedite's Second
Amended Complaint failed to sufficiently state the elements of reliance and injury and Plus's
Rule 12(b)(6) motion was granted. However, Expedite was again granted leave to plead its fraud
claim with greater specificity because this comt found that Expedite could potentially allege
viable theories of fraud by omission and active concealment, as well as cognizable theories of
reliance.
Expedite subsequently filed the Third Amended Complaint from which this motion
arises. Because Expedite's Third Amended Complaint sufficiently states a plausible fraud claim,
Plus's Rule 12(b)(6) motion is DENIED.
Background

The alleged facts are taken as true from the Third Amended Complaint. Since 2000,
Expedite, an Oregon corporation, has operated a baggage claim and delivery service at Pmtland
International Airport ("PDX").

(Third Am. Compl.

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4, 7 .)

Expedite takes lost baggage

recovered by customer airlines and, for a fee, delivers the baggage to its respective owners in
Oregon and Washington. !d.

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7. As a service vendor, Expedite's only contractual relationship

is with the airlines themselves. Id However, these vendor contracts are not directly solicited by

1

2

The Original Complaint was amended to remove Alaska Airlines as a party.
Since that ruling, all patties have consented to jurisdiction by magistrate judge.

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the airlines; rather, the airlines utilize sourcing agents to solicit, obtain, and process vendors'
bids, ultimately recommending to the airline which bid to accept. Id

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10.

Several airlines at PDX used Diversified Services International ("DSI") as their sourcing
agent. !d. In January 2009, Tracy Hoffman, DSI's "Strategic Sourcing Specialist," provided
Expedite and other baggage vendors with an outline of the bidding process. !d.

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11. First,

Expedite was to submit a bid to DSI. DSI then would forward that bid to the individual airline's
corporate office. The airline then would notify DSI with which vendor they wished to contract.

!d. Hoffman assured Expedite that all vendors competing for luggage delivery contracts at PDX
would be using the same criteria. Id
On June 1, 2009, DSI was purchased by Plus, a Florida corporation with multiple
subsidiaries. !d.

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12. On June 19, Bags and Cars, Inc. ("Bags"), one of Plus's subsidiaries,

absorbed all DSI's assets, and another Plus subsidiary, Home Serv Delivery LLC ("Home Serv")
took over DSI's role as sourcing agent for baggage delivery vendors. !d.

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12-13. On July 10,

2009, Home Serv informed Expedite via e-mail that it was instituting a new "program" for the
bidding process that added new criteria that potential vendors must meet. In a subsequent email, Home Serv invited Expedite to bid on a delivery contract with United Airlines. !d.

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14-15.

Over the following months, in conjunction with the new "program," Expedite sent Home Serv a
substantial amount of infotmation detailing Expedite's delivery rates, corporate structure, and
business practices. Home Serv requested this information through both a Vender Information
Form ("Form") and as part of Expedite's unsuccessful November 2009 bid for a contract with
Delta Airlines. ld.

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20, 25.

According to the Third Amended Complaint, unbeknownst to Expedite, Bags was itself a
baggage delivery vendor, using information obtained by its sister company, Home Serv, to

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underbid its competitors and ultimately win the disputed contracts. Jd. p. 16-18. Plus, therefore,
was ultimately controlling both ends of the bidding process, and utilizing that control to
eliminate Expedite and other delivery vendors from both prospective and previously held
baggage delivery contracts. In November 2010, Tracy Hoffman- previously of DSI but now
employed by Home Serv - sent Expedite a letter stating Expedite had been removed as Alaska
Airlines' baggage delivery vendor and an "altemative supplier" had been selected. Id.

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31-32.

Ostensibly, this change was made due to cost, service levels, track record, and regional presence,
though Expedite had met or exceeded all these criteria. Jd.

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32-33. In reality, the unidentified

"alternative supplier" was actually Bags. Thus, Expedite alleges, one Plus subsidiary selected
another Plus subsidiary for contract under demonstrably false pretenses. Id.

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32.

Legal Standard

In a Rule 12(b)(6) motion to dismiss, the scope of the court's review is generally limited
to the complaint itself. Daniels-Hall v. Nat'/ Educ. Ass'n, 629 F.3d 992 (9th Cir. 2010). The
court must construe all well-pleaded factual allegations in the light most favorable to the
plaintiff, and draw all reasonable inferences in the plaintiffs favor. Id. at 998. However, the
Supreme Court's decision in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ("Twombly") has
changed the pleading standard required by Rule 12(b)( 6). Twombly establishes that mere notice
pleading no longer is sufficient to state a viable claim:
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiffs obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.

Id. at 555 (brackets omitted).
In Ashcroft v. Iqbal, 556 U.S. (2009), the Supreme Court clarified Twombly, with two
specific principles to guide evaluation of a complaint's legal sufficiency. First, courts need not
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accept any of the complaint's legal conclusions - though they remain bound to accept as true all
the complaint's asserted facts. Id. at 678. Second, the facts contained in the complaint must
suppott a "plausible" claim for relief. Id. at 679. Defining "plausible" has proved challenging
for courts, but in general, "plausibility" is not so high a standard as "probability," though it is
more than mere "possibility." Id. at 678. Detetmining plausibility is a context-specific task that
requires the reviewing court to draw on judicial experience and common sense. Id. at 678, 679.
As the Ninth Circuit reiterated in Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009), a
claim is plausible "when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged" (quoting Iqbal, 556
U.S. at 678). "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual
content and reasonable inference from that content, must be plausibly suggestive of a claim
entitling the plaintiff to relief." Id.
Rule 12(b)(6) is not the only rule under which Plus seeks to dismiss Expedite's claim.
Rule 9(b) requires plaintiffs whose claims are based in fraud to "state with particularity the
circumstances constituting fraud." Kearns v. Ford 1vfotor Co., 576 F.3d 1120, 1124 (9th Cir.
2009). When an entire complaint is grounded in fraud but not pleaded with particularity, the
court should dismiss that complaint. See e.g., Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097,
1107 (9th Cir. 2003). The level of particularity required by Rule 9(b) is similar to that of a
newspaper story: "the who, what when, where and how of the misconduct charged." Id. at 1106.
Pleading with an adequate level of particularity also requires the plaintiff to identify both what
content in the alleged misrepresentations is false and why that conduct is false. ld. at 1107
(quoting In re G/enFed, Inc. Sec. Litig. 42 F.3d 1541, 1548 (9th Cir. 1994) (en bane), superseded
on other grounds by 15 U.S.C. § 78u-4).

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Rule 9(b) does not necessarily dictate what elements of fraud must be pleaded- only how
they are pled. Kearns, 567 F.3d at 1125 (quoting Vess, 317 FJd at 1103). When, as here, a statelaw fraud claim is brought in federal court, the relevant state law fraud definition applies. ld To
state a claim for fraud under Oregon law, a plaintiff must show the following:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its
falsity or ignorance of its truth; (5) his intent that it should be acted on by the person and
in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his
reliance on its truth; (8) his right to rely thereon; (9) and his consequent and proximate
InJury.
Wieber v. FedEx Ground Package Sys., Inc. 231 Or. App. 469,480 (2009) (quoting Conzelmann
v. N W.P. &D. Prod Co., 190 Or. 332, 350 (1950)).
Discussion

I. Pleading Requirements

In its Order dismissing the Second Amended Complaint (the "most recent order"), the
court found three fatal defects that were the cause for granting dismissal: (1) lack of pmticularity
regarding the Vendor Infmmation Form, (2) lack of reliance, and (3) lack of causative nexus to
the alleged injury. In its Third Amended Complaint, as in the Second Amended Complaint,
Expedite claims Plus made fraudulent misrepresentations on three specific occasions: first, in its
July 10, 2009, e-mails identifying Home Serv as DSI's successor company, announcing the
institution of a new "program" for handling bids, and inviting Expedite to bid on a contract with
United Airlines; 3 second, in the "Vendor Information Form," and third; in the November 9, 2009,
e-mail. The distinguishing feature between the Second Amended Complaint and the Third
Amended Complaint are four additional paragraphs.

The court must examine whether the

addition of these four paragraphs to the complaint pleads a plausible claim for fraud.

3

Third Am. Compl.

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13-16

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The first new paragraph in the Third Amended Complaint alleges that after the Vendor
Infotmation Form was sent to Expedite, filled out, and returned to Plus:
Defendant, through Home Serv Delivery LLC, sent the Vendor Infmmation Form
to plaintiff via email from a Michelle Hughey, Sourcing Specialist, dated Friday,
July 10, 2009, telling plaintiff there was a deadline to return the completed fmm
by 3:00 p.m. on the next Wednesday, July 15, 2009. Plaintiff then filled out the
fotm between Friday July lOth and Monday July 13th, and submitted the
completed Vendor Information Form back to defendant, via an e-mail to Ms.
Hughey, on Tuesday, July 14, 2009 by sending it to "Home Serv Delivery, LLC at
33 Grandview Parkway, Suite 111, Traverse City, MI 49684; facsimile 866-6991183."
(Third Am. Compl.

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23.)

Plus concedes with the addition of paragraph 23, Expedite remedies the first defect and
has now sufficiently pleaded a theory of fraud. However, Plus argues that the other two defects
cited in the most recent order, the eighth and ninth elements of fraud, reliance and proximate
injury, are not addressed. Therefore, we will examine whether reliance and proximate injury
were addressed with these four additional paragraphs.
A. Reliance
A plaintiff alleging a fraud claim must plead reliance. Wieber v. FedExGround Package
Sys., Inc., 231 Or. App. 469, 480 (2009). In its most recent order, the court found that the causal

connection between reliance and injury was tenuous at best. There are three documents that
outline Expedite's cause of action, the July 10, 2009 e-mail, the vendor infotmation form, and
the November 4, 2009 e-mail. Based on these three documents, Expedite's alleges, had the
bidding process with Plus been fair, Expedite would have been awarded contracts with United
and Delta Airlines. However, the coutt found this was not sufficient to allege reliance. The court
dismissed the claim with leave to amend to permit Expedite to address the deficiencies in its
pleading of reliance and injury.

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In its Third Amended Complaint, Expedite adequately pleads reliance. Under Wieber v.

FedExGround Package, "[d]irect evidence of reliance in support not required; a plaintiff may
prevail on a showing that a reasonable inference of reliance can be drawn from the facts in
evidence. Wieber, 231 Or.App. at 482 (2009) (citing Strawn v. Farmers Ins. Col. 228 Or. App.
454, 470 n. 9, rev. allowed, 347 Or. 258 (2009).) Expedite now claims if it had known of the
"true nature of the bidding process," it would have neither submitted bids nor would it have
submitted the Vendor Information Form to Home Serv or any other intermediary service. (Third
Am. Campi.

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46-47).

In the second of the new paragraphs in the Third Amended Complaint, Paragraph 24, the
plaintiff alleges:
In essence, the filled out Vendor Form provided a literal "road map" as to exactly
how to run plaintiffs business and how to compete with plaintiff using its
business information. That infotmation was therefore highly valuable to plaintiff.
Defendant's attaimnent of the information and its illicit use of the infotmation
thus constituted a direct and significant business loss to plaintiff.
(Third Am. Campi.

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24.)

In its third new paragraph, Expedite claims it would have contacted the airlines directly,
informed the airlines about the rigged process and "directly bargained" with the airlines:
Had plaintiff known the true nature of the bidding process, plaintiff would have
not used any intermediary at all, but in July of 2009 would have gone directly to
United Airlines, Alaska Airlines and Delta Airlines, as well as other airline
companies at PDX, informed them about the misrepresentations and the rigged
bidding process, and directly bargained with those airlines themselves, without
utilizing any "go-between," in order to obtain written vendor contracts directly
with those companies. Plaintiff could have conducted its normal business and not
have lost service contracts, but instead have readily obtained written vendor
contracts as required directly with United Airlines, Alaska Airlines, and Delta
Airlines, as well as other airline companies at PDX.
(Third Am.

Camp.~

46.)

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Plus argues Expedite's attempt at addressing the reliance issue, by alleging it would have
gone directly to the airlines had it known about the rigged bidding process, lacks plausibility.
The comi disagrees. While Expedite itself states there is a well-established bidding process,
using third-person intermediaries, between the baggage delivery companies and the airlines, this
bidding process changed in 2009 when Home Serv took over the bidding process from DSI.
From 2000 to 2009, Expedite had been the main baggage claim and delivery service company
used by many airlines at PDX. Only after Home Serv took over the bidding process did Expedite
lose its bids for contracts with different airlines. Until that time, the bid process appeared to
Expedite to have been fairly and impartially administered. It is plausible that Expedite would
have directly contacted the airlines if it had leamed that Plus, as Expedite alleges, had rigged the
bidding process to ensure that its own subsidiary won the bid. At that point, the airlines could
have negotiated with Expedite directly or ordered the process repeated to ensure its fairness.
B. Injury
The final element that Expedite must plead is the element of "proximate injury."
Proximate injmy is defined as "Damage to the plaintiff, resulting from [the plaintiffs] reliance
[on defendant's representation]." Knepper v. Brown, 345 Or. 320, 329 (2008) (quoting Riley Hill
General Contractor v. Tandy Corp., 303 Or. 390, 405 (1987) (emphasis added)). In Knepper,

the Oregon Supreme Comi found "proximate cause or proximate injury" equivalent to
"reasonable foreseeability." !d. at 329-330. The court explained, "Courts have noted that, when
an intentional toti is involved, the range of legal causation can be quite broad. 'For an intended
injury the law is astute to discover even very remote causation."' !d. at 330 (quoting W. Page
Keeton, Prosser and Keeton on Torts§ 43,293 n.6 (5th ed. 1984) (citation omitted)).

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In Knepper, the plaintiff was injured in an allegedly negligent liposuction procedure. The
plaintiff not only sued the dermatologist, who perfmmed the liposuction and who claimed to be a
board-certified plastic surgeon when he was not, but also sued Dex Yellow Pages for fraud for
misrepresenting the de1matologist's qualifications. Id at 331. The plaintiff argued she relied on
the Dex Yellow Pages' posting for the de1matologist which stated he was a board-certified
plastic surgeon. Id It would have been reasonably foreseeable had she known the dermatologist
was not a board-certified plastic surgeon as was advertised, she would not have gotten
liposuction from him. Id. Her proximate injury from Dex Yellow Pages' fraud was a result of
Dex' s misrepresentation of the dermatologist's qualifications. Id.
Similarly, here, Expedite relied on Home Serv to fairly administer the bidding process.
Like the Dex Yellow Pages' posting in Knepper that held out the de1matologist as a boardcertified plastic surgeon, Home Serv held out in its communications that the bidding process
would be fair. Home Serv represented that it would choose the baggage delivery service based
on cost, service levels, track record, and regional presence - all criteria Expedite had met or
exceeded. (Third Am. Compl. '1[32-33.) It is reasonably foreseeable that Expedite, had it known
of the rigged bidding process, would have notified the airlines of the irregularities it alleges here
and attempted to negotiate directly with the airlines. Plus argues Expedite's damages are
speculative, but under Oregon law Expedite has properly pleaded proximate injury. Expedite
lost the opportunity to compete for contracts it had historically won in fairly administered
competitive processes and thus lost the revenue from those contracts.
In conclusion, the court finds Expedite's allegations are sufficient to adequately plead
reliance and injury.

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Conclusion

For the forgoing reasons, Plus's motion to dismiss pursuant to Rule 12(b)(6) (#67) is
DENIED.
IT IS SO ORDERED
DATED this 18th day of April, 2013.

JOHNV. AC6STA

Unit·~ States Magistrate Judge

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