Complete Distribution Services, Inc. v. All States Transport, LLC

Filing 76

OPINION and ORDER - As supplemented in this opinion, the Court ADOPTS IN PART the Findings and Recommendation, Dkt. 65 , except for Parts IV.D and IV.E. CDS's motion to dismiss AST's counterclaim for negligence and to strike certa in affirmative defenses (Dkt. 46 ) is GRANTED IN PART and DENIED IN PART. AST's counterclaim for negligence is DISMISSED. AST's affirmative defenses of negligence and fault of others are STRICKEN. CDS's fourth claim for relief is DISMISSED. Signed on 3/25/2015 by Judge Michael H. Simon. (mja)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

COMPLETE DISTRIBUTION SERVICES,
INC.,

Case No. 3:13-cv-00800-SI
OPINION AND ORDER

Plaintiff,
v.
ALL STATES TRANSPORT, LLC,
Defendant.
John A. Anderson and Keven M. Anderson, ANDERSON & YAMADA, P.C., 9755 SW Barnes
Road, Suite 675, Portland, OR 97225. Of Attorneys for Plaintiff.
Flavio A. Ortiz and Martin M. Rall, LACHENMEIER ENLOE RALL & ORTIZ, 9600 SW
Capitol Highway, Suite 200, Portland, OR 97219. Of Attorneys for Defendant.
Michael H. Simon, District Judge.
United States Magistrate Judge Dennis J. Hubel issued a Findings and Recommendation
(“F&R”) in this case on November 11, 2014.1 Dkt. 65. Judge Hubel recommended that Plaintiff
Complete Distribution Services, Inc.’s (“CDS”) motion to dismiss certain counterclaims and
motion to strike certain affirmative defenses (Dkt. 46) be granted in part. Specifically, Judge
1

While this Court’s review of Judge Hubel’s F&R was pending, this case was transferred
to the undersigned judge for all purposes.
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Hubel recommended that Defendant All States Transport, LLC’s (“AST”) counterclaim for
negligence be dismissed; that AST’s affirmative defenses of negligence, “fault of others,” breach
of contract, and lack of subject-matter jurisdiction be struck; and that AST’s affirmative defenses
of failure to perform a condition precedent and preemption of contractual indemnity not be
struck.
Under the Federal Magistrates Act (“Act”), the Court may “accept, reject, or modify, in
whole or in part, the findings or recommendations made by the magistrate.” 28 U.S.C.
§ 636(b)(1)(C). If a party files objections to a magistrate’s findings and recommendations, “the
court shall make a de novo determination of those portions of the report or specified proposed
findings or recommendations to which objection is made.” Id.; Fed. R. Civ. P. 72(b)(3). For
those portions of a magistrate’s findings and recommendations to which neither party has
objected, the Act does not prescribe any standard of review. See Thomas v. Arn, 474 U.S. 140,
152 (1985) (“There is no indication that Congress, in enacting [the Act], intended to require a
district judge to review a magistrate’s report to which no objections are filed.”). Nor, however,
does the Act “preclude further review by the district judge[] sua sponte . . . under a de novo or
any other standard.” Thomas, 474 U.S. at 154. Indeed, the Advisory Committee Notes to Fed. R.
Civ. P. 72(b) recommend that “[w]hen no timely objection is filed,” the Court review the
magistrate’s recommendations for “clear error on the face of the record.”
AST timely filed an objection, Dkt. 67, to which CDS responded. Dkt. 68. AST objected
to the portions of Judge Hubel’s F&R regarding negligence, breach of contract, and subjectmatter jurisdiction. The Court reviews the remainder of the F&R, to which no party has objected,
for clear error on the face of the record. As no such error is apparent, the Court adopts the

PAGE 2 – OPINION AND ORDER

remainder of the F&R. The Court reviews de novo the portions of the F&R to which AST
objects.
BACKGROUND
AST is an interstate motor carrier registered with the Federal Motor Carrier Safety
Administration.2 CDS is a registered freight broker; it acts as a liaison between carriers and
shippers3 to arrange for transportation. 49 U.S.C. § 13102(2). In December 2012, CDS arranged
for AST to transport two shipments of vitamins and nutritional supplements for Pacific
Nutritional, Inc. (“PNI”) from Vancouver, Washington, to two separate locations in Florida. On
December 7, 2012, AST picked up the shipments. Without informing CDS or PNI, AST
combined the two shipments into one trailer for transportation. The next day, December 8, 2012,
AST’s truck was involved in an accident on Interstate 84 in eastern Oregon, causing loss and
damage to PNI’s cargo.
The Carmack Amendment to the Interstate Commerce Act governs all claims between
motor carriers and shippers concerning “delay, loss, failure to deliver and damage to property.”
White v. Mayflower Transit, L.L.C., 543 F.3d 581, 584 (9th Cir. 2008); see § 14706. PNI filed a
claim with CDS for $169,844.47 in loss and damage to its shipments, which CDS forwarded to
AST and AST’s insurer. Then, in exchange for an assignment of PNI’s claims, CDS paid PNI the
full amount.
On May 13, 2013, standing in the shoes of PNI under the Carmack Amendment, CDS
filed suit against AST for freight loss and damage. CDS also brought claims for indemnity and

2

Under federal law regulating the trucking industry, an entity that “provid[es] motor
vehicle transportation for compensation” is a “motor carrier.” 49 U.S.C. § 13102(14).
3

A “shipper” is an entity that “owns the goods being transported.” 49 U.S.C.
§ 13102(13).
PAGE 3 – OPINION AND ORDER

setoff under its contracts with AST. On January 23, 2014, CDS amended its complaint to add an
additional contract claim, alleging 89 other occasions on which AST had combined shipments in
violation of its agreements with CDS. On February 10, 2014, AST filed its answer, including
certain affirmative defenses and counterclaims. On February 24, CDS moved to dismiss AST’s
counterclaim for negligence under Federal Rule of Civil Procedure 12(b)(6) and to strike some of
AST’s affirmative defenses under Rule 12(f).
STANDARDS
A. Motion to Dismiss for Failure to State a Claim
A motion to dismiss for failure to state a claim may be granted only when the pleading
states no cognizable legal theory or contains insufficient factual allegations to support a claim for
relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In
evaluating the sufficiency of a pleading’s factual allegations, the court must draw all reasonable
inferences in favor of the non-moving party and accept all well-pleaded material facts as true.
Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012); Daniels-Hall v. Nat’l
Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). Legal conclusions couched as factual
allegations, however, are not entitled to that presumption of truth. Ashcroft v. Iqbal, 556 U.S.
662, 678-79 (2009). The plaintiff “may not simply recite the elements of a cause of action, but
must [provide] sufficient allegations of underlying facts to give fair notice and to enable the
opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
Furthermore, the underlying factual allegations must “plausibly suggest an entitlement to relief.”
Baca, 652 F.3d at 1216 (emphasis added). “A claim has facial plausibility when the pleaded
factual content allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Iqbal, 556 U.S. at 663 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544,
556 (2007)).
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B. Motion to Strike
A court may strike an affirmative defense under Federal Rule of Procedure 12(f) if it
presents an “insufficient defense or any redundant, immaterial, impertinent, or scandalous
matter.” Fed. R. Civ. P. 12(f). “Immaterial” matter in a pleading is content that “‘has no essential
or important relationship to the claim for relief or the defenses being pleaded.’” Fantasy, Inc. v.
Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (quoting 5 Charles A. Wright & Arthur R. Miller,
Federal Practice & Procedure § 1382 (2d ed. 1990)), rev’d on other grounds, 510 U.S. 517
(1994). “Impertinent” matter is that which “do[es] not pertain, and [is] not necessary, to the
issues in question.” Id. A pleading is legally insufficient “only if it clearly lacks merit under any
set of facts the defendant might allege.” Polk v. Legal Recovery Law Offices, 291 F.R.D. 485,
489 (S.D. Cal. 2013) (quotation marks omitted).
The purpose of a motion to strike is to avoid spending time and money litigating spurious
issues. Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010). The disposition
of a motion to strike is within the discretion of the district court, but such motions “are
disfavored and infrequently granted.” Legal Aid Servs. of Or. v. Legal Servs. Corp., 561 F. Supp.
2d 1187, 1189 (D. Or. 2008); see also Fed. Sav. & Loan Ins. Corp. v. Gemini Mgmt., 921 F.2d
241, 244 (9th Cir. 1990) (disposition of a motion to strike is within the district court’s
discretion); Capella Photonics, Inc. v. Cisco Sys., Inc., --- F. Supp. 3d ----, 2014 WL 8097683, at
*4 (N.D. Cal. 2014) (“Motions to strike are regarded with disfavor because of the limited
importance of pleadings in federal practice and because they are often used solely to delay
proceedings.” (quotation marks and alteration omitted)). A Rule 12(f) motion will not “be
granted if there is a substantial question of fact or a mixed question of law and fact that cannot be
resolved, even if it is possible to determine the issue by drawing inferences from acts and

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statements that are not disputed.” 5C Charles A. Wright, et al., Federal Practice & Procedure
§ 1381 (3d ed. 2014).
DISCUSSION
AST objects to the portions of the F&R striking its negligence defense and dismissing its
negligence counterclaim; striking its breach-of-contract defense; and striking its subject-matter
jurisdiction defense. The Court addresses each issue in turn.
A. Negligence
AST alleged that CDS was negligent both as an affirmative defense and as a
counterclaim. On AST’s theory, CDS had a duty to inform AST of the value of the cargo it was
contracting to transport; by failing to do so, AST contends, CDS is liable for the resulting loss.
Judge Hubel, reasoning that CDS had no such duty, struck the defense and dismissed the
counterclaim.
AST now objects that Judge Hubel based his decision on inapposite authority: the cases
cited in the F&R, AST argues, stand only for the proposition that brokers have no duty to hire a
carrier with sufficient insurance coverage to cover the cargo. See KLS Air Express, Inc. v.
Cheetah Transp. LLC, 2007 WL 2428294, at *6 (E.D. Cal. 2007); Chubb Grp. of Ins. Cos. v.
H.A. Transp. Sys., Inc., 243 F. Supp. 2d 1064, 1072 (C.D. Cal. 2002). AST maintains that it
advances a different, narrower proposition: that brokers have a duty merely to inform carriers of
the value of the cargo. AST argues that imposing such a duty on brokers would permit carriers to
make informed decisions about obtaining supplemental coverage, declining a load, or limiting
their exposure to high-value loads in some other way; and, moreover, that brokers routinely
perform this duty as a matter of industry practice.
The Court adopts the reasoning and the conclusion of the F&R. As Judge Hubel
recognized, KLS Air and Chubb Group may not be direct precedent in this case, but they are
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relevant and persuasive for the proposition that the duties imposed on brokers are limited and
few. See KLS Air Express, 2007 WL 2428294, at *5 (“In general, courts have held that a broker’s
duty to a shipper is limited to arranging for transportation with a reputable carrier.”). And
although AST is not a shipper but a carrier, AST too “cites no caselaw establishing or
recognizing” the duty it seeks to impose on the broker. See Chubb Grp., 243 F. Supp. 2d at 1072.
Nor are AST’s reasons for imposing such a duty persuasive: A carrier seeking to limit its liability
may ascertain the value of a load itself, either by asking the broker or by asking the shipper
directly. If a carrier accepts a load without so doing, it may not later shift to the broker the
responsibility for an underinsured loss.
For these reasons, the Court declines to impose on brokers a duty to inform carriers of the
value of a load. See AIG Europe Ltd. v. Gen. Sys., Inc., 2013 WL 6654382, at *3 n.7 (D. Md.
2013). AST’s negligence defense thus clearly lacks merit and must be struck; similarly, its
negligence counterclaim does not plausibly suggest an entitlement to relief and must be
dismissed.4

4

The Court requested supplemental briefing from the parties on whether AST’s
counterclaim is also barred by Oregon’s economic-loss doctrine, which provides that “one
ordinarily is not liable for negligently causing a stranger’s purely economic loss without injuring
his person or property.” Hale v. Groce, 304 Or. 281, 284 (1987). To recover in negligence for a
purely economic loss, a plaintiff must show a “special relationship or [some other] status that
imposed a duty on the defendant beyond the common-law negligence standard.” Harris v.
Suniga, 344 Or. 301, 308 (2008). “Such a duty arises only in attorney–client, architect–client,
agent–principal, and similar relationships where the professional owes a duty of care to further
the economic interests of the ‘client.’” Roberts v. Fearey, 162 Or. App. 546, 549-50 (1999).
Here, CDS is undisputedly a freight broker, and a freight broker is defined under federal
law as “a person . . . that as a principal or agent sells, offers for sale, negotiates for, or holds
itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for,
transportation by motor carrier for compensation.” 49 U.S.C. § 13102 (emphasis added). The
statute is unclear whether brokers act as agents for carriers, shippers, or both. The Court
accordingly declines to decide whether the economic-loss doctrine would bar AST’s
counterclaim and resolves the issue on the grounds stated above.
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B. Breach of Contract
AST argues that CDS also had a contract duty, pursuant to an implied contractual term or
the implied duty of good faith and fair dealing, to inform AST of the value of the load it was
contracting to carry. AST alleges that CDS breached this duty, thereby excusing any alleged
breach of contract by AST. The F&R recommended that this defense be struck for the same
reason as the negligence defense. But whether a duty exists in contract is independent of whether
the same duty exists in tort.
Oregon law provides that “every contract contains an implied duty of good faith and fair
dealing.” Arnett v. Bank of Am., N.A., 874 F. Supp. 2d 1021, 1033 (D. Or. 2012) (citing Klamath
Off-Project Water Users, Inc. v. Pacificorp, 237 Or. App. 434, 445 (2010)). The implied duty
“does not operate in a vacuum, [but rather] focuses on the agreed common purpose and the
justified expectations of the parties, both of which are intimately related to the parties’
manifestation of their purposes and expectations in the express provisions of the contract.”
Klamath Off-Project, 237 Or. App. at 445 (quotation marks and alteration omitted). The implied
duty of good faith can incorporate a duty to conform to industry standards and practices when
performing contract obligations, if that is what the parties to the contract reasonably expected.
See Iron Horse Eng’g Co. v. Nw. Rubber Extruders, Inc., 193 Or. App. 402, 420-21 (2004). At
the same time, “the duty of good faith cannot serve to contradict an express contractual term.”
Uptown Heights Assocs. Ltd. P’ship v. Seafirst Corp., 320 Or. 638, 645 (1995) (en banc).
Here, AST alleges that as a matter of industry practice, brokers routinely inform carriers
of the value of loads they are carrying. Moreover, AST alleges that its course of dealing with
CDS supports such a duty because CDS maintained the relationship with the shipper and limited
AST’s contact with the shipper. Cf. Iron Horse, 193 Or. App. at 421 (reading industry practices
into a contract because of the parties’ course of dealing). CDS argues that the express terms of
PAGE 8 – OPINION AND ORDER

the contracts under which it and AST operated contradict an implied duty to inform AST of the
value of the cargo beforehand, but fails to identify a term disclaiming or contradicting such a
duty. Instead, CDS supplies several terms indicating that AST expressly accepted full liability
for all loss and damage to cargo. But the bar for striking an affirmative defense is high—a
pleading must “clearly lack[] merit under any set of facts the defendant might allege.” Polk, 291
F.R.D. at 489 (quotation marks omitted). Therefore, that showing is insufficient for CDS to
prevail on its motion to strike this defense. The resolution of this defense must await summary
judgment or trial.
C. Subject-Matter Jurisdiction
District courts have supplemental jurisdiction over state-law claims that “form part of the
same case or controversy” as a claim within the court’s original jurisdiction. 28 U.S.C.
§ 1367(a). Two claims form part of the same case or controversy when they share a “common
nucleus of operative fact” or are “factually interdependent.” See Bahrampour v. Lampert, 356
F.3d 969, 978 (9th Cir. 2004) (quotation marks omitted); K.C. ex rel. Erica C. v. Torlakson, 762
F.3d 963, 966 (9th Cir. 2014). A court may decline to exercise the supplemental jurisdiction
provided by § 1367(a) under certain circumstances enumerated in § 1367(c). In so doing,
however, the court must analyze whether declining supplemental jurisdiction “most sensibly
accommodat[es] the values of economy, convenience, fairness and comity.” Bahrampour, 356
F.3d at 978 (quotation marks and alteration omitted).
No party has filed a Rule 12(b)(1) motion to dismiss for lack of subject-matter
jurisdiction. In its answer to CDS’s amended complaint, however, AST asserted that the Court
lacked supplemental jurisdiction over CDS’s contract claims. CDS moved to strike that assertion.
In the ensuing briefing, the parties fully litigated the issue of the Court’s supplemental
jurisdiction. Accordingly, the Court addresses the issue as though such a motion had been filed.
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Cf. Fed. R. Civ. P. 12(h)(3) (permitting the district court to dismiss for lack of subject-matter
jurisdiction “at any time”).
CDS’s Carmack Amendment claim, which relates to the loss and damage to PNI’s cargo
on December 8, 2012, “aris[es] under” federal law and therefore falls within this Court’s original
federal-question jurisdiction. See 28 U.S.C. § 1331. CDS’s second and third claims arise from
the contracts pursuant to which AST was transporting that cargo. The latter claims concern the
same events as the Carmack Amendment claim, and their resolution will involve much of the
same evidence and witnesses. Those claims are therefore factually interdependent with the
Carmack Amendment claim and fall within the Court’s supplemental jurisdiction under
§ 1367(a).
CDS’s fourth claim, also for breach of contract, alleges 89 other instances in which AST
combined multiple loads in alleged violation of its contract obligations. CDS argues that because
this claim involves conduct similar to that alleged in its first two contract claims, it will involve
similar witnesses and evidence and that the Court therefore has supplemental jurisdiction. But
the Court may exercise supplemental jurisdiction only over a claim that is “[sufficiently] related
to claims in the action within [the Court’s] original jurisdiction.” § 1367(a) (emphasis added).
CDS’s first two contract claims are within the Court’s supplemental jurisdiction, not its original
jurisdiction.
The only claim in this action over which the Court has original jurisdiction is the
Carmack Amendment claim. That claim, however, is a strict-liability claim; whether or not AST
combined loads is irrelevant. See Mo. Pac. R. Co. v. Elmore & Stahl, 377 U.S. 134, 138 (1964)
(“[T]he shipper establishes his prima facie case when he shows delivery in good condition,
arrival in damaged condition, and the amount of damages.”). Moreover, the Carmack

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Amendment claim belongs to the shipper; CDS merely stands in the shipper’s shoes by
assignment. Its contracts with AST are therefore also not relevant to that claim. There is
therefore no common nucleus of operative fact between the loss and damage to this shipment and
alleged contract breaches relating to other shipments. Accordingly, CDS’s fourth claim does not
fall within the Court’s supplemental jurisdiction.
CONCLUSION
As supplemented in this opinion, the Court ADOPTS IN PART the Findings and
Recommendation, Dkt. 65, except for Parts IV.D and IV.E. CDS’s motion to dismiss AST’s
counterclaim for negligence and to strike certain affirmative defenses (Dkt. 46) is GRANTED IN
PART and DENIED IN PART. AST’s counterclaim for negligence is DISMISSED. AST’s
affirmative defenses of negligence and fault of others are STRICKEN. CDS’s fourth claim for
relief is DISMISSED.
IT IS SO ORDERED.
DATED this 25th day of March, 2015.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge

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