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Red Equipment Pte Ltd. v. Bse Tech, LLC

United States District Court, D. Arizona

June 6, 2014

RED EQUIPMENT PTE LTD., a Singapore private limited company, Plaintiff/counterdefendant,
v.
BSE TECH, LLC, a Delaware limited liability company; and BOSTON SEMI-EQUIPMENT, LLC, a Delaware limited liability company, Defendants/counterclaimants. BSE TECH, LLC, a Delaware limited liability company; and BOSTON SEMI-EQUIPMENT, LLC, a Delware limited liability company, Third-party plaintiffs,
v.
LONE STAR LITHOGRAPHY, LLC, a Texas limited liability company, and OBIE ROOKER, Third-party defendants.

ORDER Motion to Dismiss

H. RUSSEL HOLLAND, District Judge.

Counterdefendant moves[1] to dismiss Counts III and IV of the counterclaim. This motion is opposed.[2] Oral argument was requested but is not deemed necessary. Background

Plaintiff/counterdefendant is Red Equipment Pte Ltd. Defendants/counterclaimants are BSE Tech, LLC and Boston Semi-Equipment, LLC (referred to herein collectively as "BSE").

Red Equipment "is in the business of... deinstalling certain used semiconductor equipment" and selling "shipping kits for certain used semiconductor equipment."[3] BSE is in the business of selling and leasing "used and refurbished semiconductor equipment (tools') in the United States and abroad."[4]

BSE alleges that "[i]n or about January 2013, " BSE and Red Equipment "entered into an agreement through purchase orders and statements of work whereby [Red Equipment] was responsible for de-installing certain of the tools manufactured by Nikon..., and for providing and affixing specialized shipping kits for the Nikon Tools... in preparation for their extraction from" a fabrication plant in Japan "and subsequent shipping to customers...."[5] BSE alleges that some of the tools were shipped to California, where upon arrival, it was discovered that some of them "had sustained substantial damage."[6] BSE alleges that they "are evaluating, and have been evaluating, the scope of such damage."[7] BSE further alleges that as part of the evaluation, some of the Nikon Tools that were still in Japan were de-crated and inspected and "a number of deficiencies" were uncovered.[8]

Red Equipment contends that it is not responsible for any damage to the Nikon Tools and on May 14, 2013, Red Equipment commenced this action, in which it asserts a breach of contract claim against BSE, claiming that BSE owes it $463, 804.50 for the work that Red Equipment performed under the parties' agreement.[9] BSE has counterclaimed, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, gross negligence, and negligence against Red Equipment.[10] BSE's gross negligence and negligence claims are based on allegations that Red Equipment "had a duty... to abide by the promises, contracts, statements, and the standard of care in the tool de-installation and shipping kit industry, in [its] dealings with [BSE], and in the business dealings and obligations between and among the parties."[11] BSE alleges that as a result of Red Equipment's gross negligence and negligence, BSE has suffered "general, special, and consequential damages, including, but not limited to loss of revenues, profits, benefits, business opportunities and reputation, and other damages, injuries, and losses, to their detriment."[12] In its prayer for relief, BSE requests its "actual losses sustained... as a result of" Red Equipment's "breaches and tortious conduct", "the losses suffered... as a result of the lost economic opportunity caused by" Red Equipment's "violations of law", declaratory relief, and injunctive relief.[13]

Pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, Red Equipment now moves to dismiss BSE's gross negligence and negligence claims, arguing that these claims are barred by the economic loss doctrine.

Discussion

"Rule 12(b)(6) authorizes courts to dismiss a complaint for failure to state a claim upon which relief can be granted.'" In re Rigel Pharmaceuticals, Inc. Securities Litig. , 697 F.3d 869, 875 (9th Cir. 2012) (quoting Fed.R.Civ.P. 12(b)(6)). "To avoid dismissal, the complaint must provide more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" Id . (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)). "[A] plaintiff must allege sufficient factual matter... to state a claim to relief that is plausible on its face.'" OSU Student Alliance v. Ray , 699 F.3d 1053, 1061 (9th Cir. 2012) (quoting Pinnacle Armor, Inc. v. United States , 648 F.3d 708, 721 (9th Cir. 2011)). "In evaluating a Rule 12(b)(6) motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the light most favorable to the plaintiff." Adams v. U.S. Forest Srvc. , 671 F.3d 1138, 1142-43 (9th Cir. 2012).

"The economic loss doctrine' bars plaintiffs, in certain circumstances, from recovering economic damages in tort." Flagstaff Affordable Housing Ltd. Partnership v. Design Alliance, Inc. , 223 P.3d 664, 665 (Ariz. 2010). This doctrine "refer[s] to a common law rule limiting a contracting party to contractual remedies for the recovery of economic losses unaccompanied by physical injury to persons or other property." Id. at 667. "Economic loss, '... refers to pecuniary or commercial damage, including any decreased value or repair costs for a product or property that is itself the subject of a contract between the plaintiff and defendant, and consequential damages such as lost profits." Id.

Red Equipment argues that BSE's tort claims are barred by the economic loss doctrine and relies on Cook v. Orkin Exterminating Co. , 258 P.3d 149 (Ariz.Ct.App. 2011), in support. There, Orkin treated the Cooks' homes for termites numerous times over a period of approximately twenty years pursuant to a contract between Orkin and the insurer of the construction company that built the Cooks' home. Id. at 150-51. The Cooks claimed that each time Orkin treated their home, Orkin "promised the treatment would be effective...." Id. at 151. The Cooks finally brought suit against Orkin "alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of warranty, breach of fiduciary duty, negligence, negligent and intentional misrepresentation, and fraud." Id . The Cooks' negligence claim was based on "Orkin's [alleged] failure to properly treat their home for termites" and their misrepresentation and fraud claims were based on allegations that Orkin "misled them regarding its ability to rid their home of termites and promised that it would repair any damage to their home and furnishings resulting from new termite activity, thereby inducing them to enter the Agreement, which they otherwise would not have done." Id. at 152. The trial court held that the Cooks' tort claims were barred by the economic loss rule. Id. at 151. The court of appeals agreed, explaining:

We consider the relevant contract and tort law policies and determine the ELR applies in this case and limits the Cooks' claims to those in contract. As in Flagstaff II, the contract law policy of upholding the parties' expectations favor[s] limiting the Cooks' claims to those in contract and, where there has been no injury besides that to the subject property, there is no strong policy reason to impose tort liability. Accordingly, we apply the ELR and hold that the Cooks are limited to their contractual remedies for purely economic loss from Orkin's alleged failure to adequately perform its promises under the Agreement. Because the Cooks are seeking remedies for purely economic loss from Orkin's alleged failure to adequately perform its promises under the Agreement, the ELR bars their tort claims.

Id. at 153 (internal citations and footnotes omitted).

BSE first argues that the economic loss doctrine does not apply here because this is not a construction defect or products liability case. The Arizona Supreme Court has only applied the economic loss doctrine in products liability and construction defect cases. See Flagstaff Affordable Housing , 223 P.3d at 665 ("This Court has previously applied the [economic loss] doctrine only to products liability claims. Today we apply the doctrine in a construction defect case and hold that a property owner is limited to its contractual remedies when an architect's negligent design causes economic loss but no physical injury to persons or other property."); see also, Evans v. Singer , 518 F.Supp.2d 1134, 1142 (D. Ariz. 2007) (" It ...


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