Opinion
No. C 03-5746 PJH.
August 24, 2004
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIMS
Before this court is plaintiff Travelers' motion to dismiss the amended counterclaims filed by defendants (collectively, "Amoroso"). Having carefully read the parties' papers and considered the relevant legal authority, the court hereby GRANTS IN PART and DENIES IN PART the motion for the reasons that follow.
The case is stayed as to Dennis and Gerda Amoroso in their individual capacities due to their bankruptcy filing.
The court finds this motion appropriate for decision without oral argument as permitted by Civil L.R. 7-1(b) and Fed.R.Civ.P. 78. See also Lake at Las Vegas Investors Group, Inc. v. Pacific Malibu Dev. Corp., 933 F.2d 724, 729 (9th Cir. 1991) (holding that the court's consideration of the moving and opposition papers is deemed an adequate substitute for a formal hearing), cert. denied, 503 U.S. 920 (1992). Accordingly, the August 25, 2004 hearing date is hereby VACATED.
BACKGROUND
Amoroso claims that Travelers, in its capacity as a surety on Amoroso's construction projects, verbally promised Amoroso in December 2003 that it would use $3 million paid to it by Amoroso to pay Amoroso's subcontractors, suppliers, and other overhead expenses so Amoroso could stay in business, and to issue stop notice release bonds so Amoroso could continue working. Amended Counterclaims ¶¶ 10-13. Amoroso alleges that Travelers' subsequent failure to do so caused Amoroso's subcontractors and suppliers to issue stop notices. Id. ¶ 14-16. In addition, Travelers issued hold funds letters to the owners of the Amoroso projects that directed them not to pay Amoroso. Id. ¶ 17-19. Amoroso claims that as a result of these actions, it has been forced to stop working on a number of projects and is now in default. These allegations are almost identical to those previously pled in the first counterclaims.Amoroso previously claimed that Travelers had engaged in breach of oral contract, breach of written contract, bad faith and breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation, and tortious interference with contract. Travelers moved to dismiss. The court granted the motion to dismiss on the two breach of contract claims without leave to amend, but granted the motion to dismiss with leave to amend on all the other claims. See May 27, 2004 Order.
Amoroso now restates its original factual allegations, and now asserts the following causes of action: breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation, and tortious interference with contract.
DISCUSSION
A. Legal Standards
1. Motion to Dismiss
A court should dismiss a claim under Fed.R.Civ.P. 12(b)(6) for failure to state a claim only where it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle the plaintiff to relief. See, e.g., Broam v. Brogan, 320 F.3d 1023, 1033 (9th Cir. 2003) (citations omitted). In evaluating a motion to dismiss, all allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. See, e.g., Burgert v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000) (citations omitted).
In ruling on a motion to dismiss, the court may rely on documents presented as part of the complaint, or documents upon which judicial notice may be taken. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001); Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994).
2. Motion for More Definite Statement
Under Fed.R.Civ.P. 12(e), a party may move for a more definite statement if the pleading to which the party must respond "is so vague or ambiguous that [the] party cannot reasonably be required to frame a responsive pleading." Motions for more definite statements are disfavored in light of the liberal pleading standards of Rule 8, and should not be granted unless the moving party "literally cannot frame a responsive pleading." Bureerong v. Uvawas, 922 F.Supp. 1450, 1461 (C.D. Cal. 1996).
3. Motion to Strike
A motion to strike is brought under Fed.R.Civ.P. 12(f), and may be used to remove insufficient defenses as well as "redundant, immaterial, impertinent, or scandalous matter" that might otherwise prejudice a party. See also, e.g., Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994). Like motions for more definite statement, motions to strike are disfavored in light of the liberal pleading standards of Rule 8 and because they are usually filed solely for delaying tactics. See, e.g., Bureerong, 922 F.Supp. at 1478; Colaprico v. Sun Microsystems, Inc., 758 F.Supp. 1335, 1339 (N.D. Cal. 1991). However, a motion to strike may be granted if the party can show that the statements at issue would prejudice the moving party, or that striking the statements would streamline the case for subsequent litigation and trial. Fogerty, 984 F.2d at 1528.
B. Implied Covenant of Good Faith and Fair Dealing
It is still unclear in the amended counterclaims which underlying contracts are at issue in Amoroso's claim for breach of implied covenant. The court will thus examine this claim under both the written contract and the alleged verbal contracts.
a. Verbal Contracts
To state a claim for a breach of the implied covenant of good faith and fair dealing, Amoroso must first demonstrate the existence of a valid contract. Racine Laramie, Ltd., Inc. v. Department of Parks and Rec., 11 Cal.App. 4th 1026, 1031-32 (1992) ("There is no obligation to deal fairly or in good faith absent an existing contract"). Here, as the court previously found, the verbal contracts cannot be considered valid contracts in light of the written agreement's integration clause. Indemnity Agreement ¶ 15 (Complaint Exh. A, requiring that all changes concerning the subject matter of the indemnity agreement, including Travelers' use of Amoroso's funds, be in writing); see also May 27, 2004 Order at 3-4 (Amoroso's alleged verbal agreements not valid contracts). Therefore, there can be no claim for breach of implied covenant based on the verbal contracts because those verbal contracts cannot be considered valid contracts in which any implied rights can be found.
b. Indemnity Agreement
Amoroso also appears to claim that Travelers has breached the covenant of good faith inherent in the written indemnity agreement by allegedly failing to earmark the $3 million Amoroso paid Travelers for the purposes Amoroso requested. However, the indemnity agreement plainly states that Travelers has the exclusive right to settle all outstanding claims against Amoroso, that Travelers has the exclusive right to provide or refuse to provide requested bonds, and that Amoroso is required to deposit collateral upon Travelers' demand Indemnity Agreement ¶¶ 4-6, 8;see also May 27, 2004 Order at 3-4. The doctrine of the implied covenant of good faith and fair dealing cannot be used to create implicit rights that contradict the express terms of the agreement. Carma Developers (Cal.), Inc. v. Marathon Development Cal., 2 Cal.4th 342, 374 (1992) ("We are aware of no reported case in which a court has held the covenant of good faith may be read to prohibit a party from doing that which is expressly permitted by an agreement"); see also, e.g., Schneider v. TRW, Inc., 938 F.2d 986, 991 (9th Cir. 1991) (no breach of implied covenant in firing at-will employee after nine months because express terms of at-will employment permitted firing without showing of good cause, even though employee claimed an oral contract guaranteeing her a year's employment existed).
Therefore, because Travelers had the express right to demand the $3 million collateral paid by Amoroso and the express right to use those funds in its discretion, Amoroso cannot state a claim for a breach of the covenant of good faith based on the indemnity agreement. The breach of implied covenant claim is thus DISMISSED.
C. Bad Faith
In its papers, Amoroso claims that its breach of implied covenant claim also states a claim for bad faith. However, the tort of bad faith breach of implied covenant does not exist against a surety under California law and policy. Cates, 21 Cal.4th at 43-61 (distinguishing tort claims for bad faith breach of implied covenant in insurance context from breach of implied covenant in surety claims). The bad faith claim is thus DISMISSED.
D. Fraud and Negligent Misrepresentation
As previously stated, Fed.R.Civ.P. 9(b) requires parties alleging fraud or negligent misrepresentation to state the circumstances of the fraud "with particularity." May 27, 2004 Order at 5, citing In re GlenFed Sec. Litig., 42 F.3d 1541, 1547-49 (9th Cir. 1994) (noting that facts "such as the time, date, place, and content of the alleged fraudulent representation, how or why the representation was false or misleading, and in some cases, the identity of the person engaged in the fraud" should be pled, and that the original counterclaims failed to allege the identity of the parties speaking on behalf of Travelers or provide information concerning Travelers' alleged state of mind at the time the statements were made).
Amoroso here now alleges the identities of the Travelers employees who allegedly made the promises at issue, an approximate date when the comments were made, and alleges that Travelers made those statements knowing at the time that they did not intend to follow through. Amoroso also has pled facts that can be construed as alleging that Amoroso subjectively believed that because Travelers had the discretion to direct the funds however it saw fit, it would do as Amoroso had requested, which is sufficient to show justifiable reliance on its part. Resolving all factual matters in favor of Amoroso, this is sufficient detail under Rule 9(b) to survive a motion to dismiss, and the fraud claim thus may proceed.
Amoroso thus has provided sufficient detail under Rule 9(b) to state a claim for negligent misrepresentation as well. In addition, Amoroso has adequately pled that when Travelers allegedly promised future action, it had no intention to actually perform at the time the promise was made, which states a claim for negligent misrepresentation. Tarmann v. State Farm Mutual Auto. Ins. Co., 2 Cal.App. 4th 153, 159 (1991).
E. Tortious Interference with Contract
Amoroso claims that Travelers tortiously interfered with Amoroso's contracts with its construction clients by refusing to apply the $3 million as Amoroso had requested, which forced Amoroso to shut down. However, a tortious interference claim may only be stated against a "third-party stranger" to the contract, "so that an entity with a direct interest or involvement in that relationship is not usually liable for harm caused by pursuit of its interests." Marin Tug Barge, Inc. v. Westport Petroleum, Inc., 271 F.3d 825, 832 (9th Cir. 2001) (citations omitted, emphasis in original); see also, e.g., Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 514 (1991) (tortious interference claims designed for "protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship"). Here, Travelers as the surety to Amoroso's projects has a direct interest in the fulfillment of the contracts between Amoroso and its construction clients and thus cannot be considered a stranger to the contract. The claim for tortious interference against Travelers is DISMISSED.
F. Motion For More Definite Statement and Motion to Strike.
Finally, Travelers' motion for more definite statement and motion to strike is DENIED. The amended counterclaims as currently pled provide sufficient information for Travelers to prepare a response, and because the alleged verbal promises to Amoroso concerning how the $3 million would be spent are a necessary component to Amoroso's fraud claim, they cannot be considered immaterial under Rule 12(f).
G. Conclusion
Travelers' motion to dismiss is GRANTED IN PART and DENIED IN PART.
The counterclaims for breach of the implied duty of good faith and fair dealing, bad faith, and tortious interference with contract are DISMISSED. Furthermore, it is apparent that Amoroso will not be able to cure those defects in subsequent pleadings, so the claims are dismissed without leave to amend. See, e.g., Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1298 (9th Cir. 1998).
However, Amoroso has properly stated claims for fraud and negligent misrepresentation, and those claims may proceed. Travelers shall file an answer to those claims within twenty days of the filing of this order.
This order fully adjudicates the matter listed at no. 164 on the clerk's docket for this case.