United States District Court, D. Arizona
Kenneth Eisen & Associates, Ltd. Plaintiff,
v.
CoxCom, Inc., et al Defendant.
ORDER
HONORABLE JOHN J. TUCHI UNITED STATES DISTRICT JUDGE
At
issue is Defendant CoxCom LLC's (d/b/a Cox
Communications) Motion to Dismiss (Doc. 16, Mot.), to which
Plaintiff Kenneth Eisen & Associates, Ltd. filed a
Response (Doc. 21, Resp.), and Defendant filed a Reply (Doc.
24, Reply). The Court resolves the Motion without oral
argument. See LRCiv 7.2(f). For the reasons that
follow, the Court grants in part and denies in part
Defendant's Motion.
I.
BACKGROUND
Plaintiff
alleges the following facts in the Complaint.[1] (Doc. 1-1 at
5-25, Compl.) In 2001, Plaintiff entered into an Accounts
Receivable Purchase Agreement with Defendant. (Compl. ¶
6.) As part of the Purchase Agreement, Plaintiff bought 8,
889 accounts of cable, telephone, and internet customers
whose service Defendant had recently disconnected and who
owed money and/or the return of equipment. (Compl. ¶ 7.)
Under the terms of the Purchase Agreement, Defendant was
required to forward any payments it received on the purchased
accounts to Plaintiff. (Compl. ¶ 8, Ex. A.) The Purchase
Agreement further provided that Defendant would pay Plaintiff
$12.50 for each piece of previously unreturned equipment that
was subsequently received by Defendant. (Compl. ¶ 9, Ex.
A.) The Purchase Agreement stated that Defendant's policy
would be not to reconnect any customer who had an unpaid
balance or unreturned equipment but to refer any such
customers to Plaintiff before reconnecting services. (Compl.
¶ 12, Ex. A.) Defendant also agreed to set up, maintain
and share records with Plaintiff regarding account balances
and returned equipment. (Compl. ¶ 14, Ex. A.)
Plaintiff
performed collection services on the accounts from 2001 until
2016, when Defendant unilaterally terminated the Purchase
Agreement and cut off Plaintiff's access to account
records. (Compl. ¶¶ 16-20.) Prior to losing access
to account records, Plaintiff noticed instances where
Defendant had received payments or equipment or had
reconnected customers with unpaid balances, which Plaintiff
alleges violated the Purchase Agreement. (Compl. ¶¶
21, 22, 25.) In the Complaint, Plaintiff raises claims for
breach of contract, negligence, unjust enrichment, and
conversion against Defendant. (Compl. ¶¶ 39-97.)
Defendant now moves to dismiss Plaintiff's negligence,
unjust enrichment, and conversion claims for failure to state
a claim.
II.
LEGAL STANDARD
Federal
Rule of Civil Procedure 12(b)(6) is designed to “test[]
the legal sufficiency of a claim.” Navarro v.
Block, 250 F.3d 729, 732 (9th Cir. 2001). When analyzing
a complaint for failure to state a claim for relief under
Rule 12(b)(6), the well-pled factual allegations are taken as
true and construed in the light most favorable to the
nonmoving party. Cousins v. Lockyer, 568 F.3d 1063,
1067 (9th Cir. 2009). Legal conclusions couched as factual
allegations are not entitled to the assumption of truth,
Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and
therefore are insufficient to defeat a motion to dismiss for
failure to state a claim, In re Cutera Sec. Litig.,
610 F.3d 1103, 1108 (9th Cir. 2010). On a Rule 12(b)(6)
motion, Federal Rule of Civil Procedure 8(a) governs and
requires that, to avoid dismissal of a claim, Plaintiff must
allege “enough facts to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007).
III.
ANALYSIS
A.
Arizona's Economic Loss Doctrine
Defendant
first argues that Arizona's economic loss doctrine
warrants dismissal of Plaintiff's tort claims for
negligence and conversion. Arizona's economic loss
doctrine is 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.” Flagstaff Affordable Hous. Ltd.
P'ship v. Design Alliance, Inc., 223 P.3d 664, 667
(Ariz. 2010). The rule's purpose is “to encourage
private ordering of economic relationships and to uphold the
expectations of the parties by limiting a plaintiff to
contractual remedies for the loss of the benefits of the
bargain.” Firetrace USA, LLC v. Jesclard, 800
F.Supp.2d 1042, 1050 (D. Ariz. 2010).
The
economic loss doctrine does not bar all tort claims that seek
only economic damages. Id. Arizona courts typically
apply the economic loss doctrine in the contexts of product
liability or construction defect cases. See
Flagstaff, 223 P.3d at 667. In cases where courts have
applied the rule outside these contexts, the parties had
detailed contracts allocating risk of loss and specifying
remedies. See, e.g., Cook v. Orkin Exterminating Co.,
Inc., 258 P.3d 149 (Ariz.Ct.App. 2011); Sherman v.
Premier Garage Sys., LLC, No. CV-10-0269-PHX-MHM, 2010
WL 3023320, at *4 (D. Ariz. July 30, 2010). While the Court
recognizes that the scope of the economic loss rule is not
crystal clear, little support exists for the argument that
Arizona courts intend to apply the rule outside the contexts
they have already identified. In addition, the Ninth Circuit
Court of Appeals has observed that, in cases applying the
rule “outside the product liability context, the
[economic loss] doctrine has produced difficulty and
confusion.” Giles v. Gen. Motors Acceptance
Corp., 494 F.3d 865, 874 (9th Cir. 2007).
Federal
courts are not free to expand the existing scope of state law
without clear guidance from the state's highest court.
See Clemens v. DaimlerChrysler Corp., 534 F.3d 1017,
1024 (9th Cir. 2008). This is neither a product liability nor
a construction defect case. Furthermore, the contract here
does not contain a calculated allocation of risk or choice of
remedies by the parties. Defendant argues that the economic
loss doctrine has not only been extended by Arizona courts
beyond product liability and construction defect cases, but
that the doctrine applies whenever a tort “claim stems
from the alleged failure to perform promises under the
parties' contract and . . . the harm alleged in tort is
the same harm alleged in the contract.” (Reply at 5.)
The Court does not find support for Defendant's broad
interpretation of the scope of the economic loss doctrine in
Arizona.
The
applicable case law provides that, in applying the economic
loss doctrine, courts must consider the “underlying
contract and tort policies” with respect to the
particular setting in which the contract was formed.
Flagstaff, 223 P.3d at 669. In Flagstaff,
the Arizona Supreme Court found that the “contract law
policy of upholding the expectations of the parties”
was particularly strong in the context of
construction-related contracts because they “often are
negotiated between the parties on a project-specific basis
and have detailed provisions allocating risk of loss and
specifying remedies.” Id. Contrary to
Defendant's contention, application of the economic loss
doctrine depends less on whether tort claims would be
duplicative and more on whether allowing tort claims would
subvert the parties' allocation of risk and choice of
remedies as evidenced by a detailed contract. Arizona courts
have not expressed an intent to apply the economic loss
doctrine where no detailed contractual provisions exist.
Nevertheless,
Defendant argues that courts have extended the doctrine to
cover the Purchase Agreement at issue here. Defendant relies
on FTC Solar Capital XIX, LLC v. Folium Energy
Development, LLC-a 2017 decision in this District where
the economic loss doctrine was applied to bar tort claims
arising from a purchase-sale agreement. No.
CV-15-00875-PHX-DJH, 2017 WL ...