Stellar J Corporation v. Unison Solutions, Inc. et al

Filing 130

ORDER denying 121 Defendant Unison Solutions' Motion to Dismiss for Failure to State a Claim; Plaintiff is to file an Amended Complaint to allege specifics within 21 days of this Order. Signed by Judge Ronald B. Leighton.(DN)

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HONORABLE RONALD B. LEIGHTON

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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STELLAR J CORPORATION, a Texas
corporation,

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Plaintiff,

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v.
ARGONAUT INSURANCE COMPANY,
an Illinois corporation,

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Defendant.
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and
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UNISON SOLUTIONS, INC., an Iowa
corporation,
Defendant and Third-Party Plaintiff,
v.
TRAVELERS CASUALTY AND
SURETY COMPANY OF AMERICA;
XCHANGER, INC., a Minnesota
corporation; and RHODE BROTHERS,
INC., a Wisconsin corporation,
Third-Party Defendants.

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ORDER DENYING DEFENDANT’S MOTION TO
DISMISS - 1

CASE NO. 3:12-cv-05982 RBL
ORDER DENYING DEFENDANT’S
MOTION TO DISMISS

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THIS MATTER is before the Court on Defendant Unison Solutions’ Motion to Dismiss

2 Stellar J’s fraud claim. Stellar J’s Second Amended Complaint alleges that Unison concealed the
3 defective nature of its “SulfrStrip” sulfur removal technology which was installed at the Klickitat
4 Public Utility District No. 1 (KPUD) jobsite. Stellar J claims that it relied on Unison’s expertise
5 in sulfur removal technology to its detriment, as it had to spend millions of dollars replacing the
6 SulfrStrip. Unison moves to dismiss the fraud claim pursuant to Rules 9(b) and 12(b)(6) arguing
7 that Stellar J has failed to plead facts with requisite particularity.
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I.

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Background

In 2008, KPUD hired Applied Filter Technology (AFT) to construct landfill gas cleaning

10 and compression equipment at the H.W. Hill Landfill. The objective was to draw methane from
11 the landfill, compress the gas, filter out impurities, and convert it to useable energy. AFT
12 assigned the agreement to Stellar J, when it could not obtain the required bonding. Unison was
13 the subcontractor responsible for the bulk of the work involving the cleaning and compression
14 equipment. As part of the package, Unison and AFT cooperatively designed and manufactured
15 the SulfrStrip system1 which was supposed to use a chemical process to remove sulfur
16 particulates from the landfill gases. The SulfrStrip did not operate properly, and Stellar J
17 temporarily replaced it with a media-based (as opposed to a chemical-based) sulfur removal
18 system in order to keep the project on schedule. Stellar J claims it spent at least $2.6 million
19 replacing the faulty system.
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During discovery, Stellar J learned that Unison and AFT had previously designed and

21 manufactured another SulfrStrip system for the “City Brewery” project in LaCrosse, WI. The
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The extent of Unison’s role in designing and manufacturing the SulfrStrip is still in dispute.

ORDER DENYING DEFENDANT’S MOTION TO
DISMISS - 2

1 SulfrStrip system did not work on that project, either, and it too had to be replaced with a media2 based sulfur removal system.
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Stellar J’s Second Amended Complaint alleges that Unison was aware that SulfrStrip was

4 unreliable and knew that it would impose additional costs on Stellar J. Stellar J further claims
5 that Unison affirmatively represented its SulfrStrip system would perform the required functions,
6 or alternatively, that Unison failed to disclose SulfStrip’s defects where it had a duty to do so.
7 Stellar J claims that it relied on Unison’s representations or omissions, leading to $2,644,307.21
8 in damages when SulfrStrip had to be replaced.
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Unison seeks dismissal of this claim because it fails to state with particularity the specific

10 circumstances of the alleged fraud as required by Rule 9(b). Stellar J responds by asserting that
11 Unison engaged in fraudulent “concealment” rather than commission, so only Unison could
12 possess the knowledge of the circumstances constituting fraud. In its response to the Motion to
13 Dismiss, Stellar J points to a number of emails between Unison personnel revealing concerns
14 about the functionality of the SulfrStrip system, and its failures at City Brewery. These were not
15 referenced in the Complaint. Stellar J requests leave to amend its Complaint if the Court finds
16 that it has failed to plead sufficient facts with particularity.
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II.

Discussion

Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable legal

19 theory or absence of sufficient facts alleged under a cognizable legal theory. Balistreri v.
20 Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff’s complaint must allege
21 facts to state a claim for relief that is plausible on its face. See Ashcroft v. Iqbal, 129 S.Ct. 1937,
22 1949 (2009). A claim has “facial plausibility” when the party seeking relief “pleads factual
23 content that allows the court to draw the reasonable inference that the defendant is liable for the
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ORDER DENYING DEFENDANT’S MOTION TO
DISMISS - 3

1 misconduct alleged.” Id. Although the Court must accept as true the Complaint’s well-pled
2 facts, conclusory allegations of law and unwarranted inferences will not defeat an otherwise
3 proper [Rule 12(b)(6)] motion. Vasquez v. L. A. County, 487 F.3d 1246, 1249 (9th Cir. 2007);
4 Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “[A] plaintiff’s obligation
5 to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,
6 and a formulaic recitation of the elements of a cause of action will not do. Factual allegations
7 must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly,
8 550 U.S. 544, 555 (2007) (citations and footnote omitted). This requires a plaintiff to plead
9 “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 129 S.Ct. at
10 1949 (citing Twombly).
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Additionally, a party alleging fraud must “state with particularity the circumstances

12 constituting fraud,” but “[m]alice, intent, knowledge, and other conditions of a person’s mind
13 may be alleged generally.” Fed.R.Civ.P. 9(b). To comply with Rule 9(b), allegations of fraud
14 must state “the who, what, when, where, and how” of the misconduct charged. Cafasso v.
15 General Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011). This heightened pleading
16 standard ensures that defendants have adequate notice of the alleged misconduct so that they can
17 defend against the charge and are not left to simply deny that they have done anything wrong.
18 Kerns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2008). “A pleading is sufficient under
19 Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an
20 adequate answer from the allegations.” Neubronner v. Milken, 6 F.3d 666, 671-72 (9th Cir.
21 1993) (citing Gottreich v. San Francisco Inv. Corp., 552 F.2d 866, 866 (9th Cir. 1977)) (internal
22 quotations omitted).
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ORDER DENYING DEFENDANT’S MOTION TO
DISMISS - 4

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On a 12(b)(6) motion, “a district court should grant leave to amend even if no request to

2 amend the pleading was made, unless it determines that the pleading could not possibly be cured
3 by the allegation of other facts.” Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242,
4 247 (9th Cir. 1990). However, where the facts are not in dispute, and the sole issue is whether
5 there is liability as a matter of substantive law, the court may deny leave to amend. Albrecht v.
6 Lund, 845 F.2d 193, 195–96 (9th Cir. 1988).
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Though Stellar J’s amended Complaint fails to specify the “who, what, when, where, and

8 how” of the alleged fraud, it has the material to easily remedy the deficiencies. A potentially
9 viable claim should not be dismissed entirely for failing to meet the pleading requirements of
10 Rule 9(b), when an amended pleading could easily remedy the Defendant’s objections without
11 prejudice.
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Unison’s Motion to Dismiss is DENIED. Stellar J should amend its Complaint to allege

13 the specifics of its fraud claim within 21 days of this Order.
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IT IS SO ORDERED

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Dated this 23rd day of July, 2014.

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A

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RONALD B. LEIGHTON
UNITED STATES DISTRICT JUDGE

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ORDER DENYING DEFENDANT’S MOTION TO
DISMISS - 5