Kenneth Eisen and Associates Ltd. v. CoxCom Inc.

          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 ...