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Rindlisbacher v. Steinway & Sons Incorp.

United States District Court, D. Arizona

May 1, 2019

Kevin H Rindlisbacher, et al., Plaintiffs,
v.
Steinway & Sons Incorporated, Defendant.

          ORDER

          Honorable John J. Tuchi, United States District Judge.

         At issue is Defendant Steinway, Inc.'s Motion to Dismiss Plaintiffs' Second Amended Complaint (Doc. 26, MTD 1), to which Plaintiffs Kevin and Jami Rindlisbacher filed a Response (Doc. 34, Resp. 1) and Defendant filed a Reply (Doc. 36, Reply 1). Also at issue is Defendant's Motion to Dismiss Plaintiff's breach of contract claim (Doc. 52, MTD 2), to which Plaintiffs filed a Response (Doc. 58, Resp. 2) and Defendant filed a Reply (Doc. 60, Reply 2). The Court has reviewed the parties' briefs and finds this matter appropriate for decision without oral argument. See LRCiv 7.2(f). For the reasons set forth below, the Court denies in part and grants in part Defendant's Motions to Dismiss.

         I. BACKGROUND

         In the Third Amended Complaint (Doc. 23, TAC), the operative Complaint, [1]Plaintiffs allege the following facts. Plaintiffs have been in the retail piano business for 35 years. (TAC ¶ 32.) In 2002, Plaintiffs approached Defendant's Western District Sales Manager, Mr. Snyder, to inquire about becoming a Steinway & Sons (“Steinway”) dealer in Tucson, Arizona. (TAC ¶ 34.) Instead, in October 2006, Plaintiffs became Defendant's Spokane, Washington dealer with the alleged advisement, counseling, and assistance of Mr. Snyder. (TAC ¶¶ 38-40.) From 2007 until July 2017, Plaintiffs operated the Spokane dealership and exceeded the cumulative annual sales performance goals that the parties agreed to by about 25% for all pianos and 89% for upright pianos. (TAC ¶ 43.)

         At Defendant's September 2010 dealer conference in Chicago, Plaintiffs learned that Defendant needed a dealer in the Phoenix market. (TAC ¶ 20.) Plaintiffs met with Mr. Snyder in Scottsdale to see the area and discuss becoming Defendant's Phoenix market dealer. (TAC ¶ 43.) During that meeting, Mr. Snyder allegedly communicated “that the Phoenix Market was capable of selling 75 Steinway & Sons grand pianos per year” but that “45 Steinway & Sons pianos per year was a reasonable number for sales in the Phoenix Market.” (TAC ¶¶ 56-57.)

         Later, at Mr. Snyder's suggestion, Plaintiff visited Defendant's store in Hollywood, California because Mr. Snyder told them that the Phoenix store followed the Hollywood store's “recipe.” (TAC ¶ 56.) After visiting the Hollywood store, Plaintiffs expressed concerns to Mr. Snyder about the demographic differences between Hollywood, Phoenix and Spokane; particularly, Plaintiffs noted the disparate average household incomes of each location. (TAC ¶¶ 60, 62.) Nonetheless, on November 23, 2010 Mr. Synder emailed Plaintiffs the Phoenix Dealer Agreement, which included the annual sales performance goals Defendant found reasonable for Maricopa County. (TAC ¶¶ 64-66.) Mr. Snyder explained that Defendant would not change its Dealer Agreement. (TAC ¶ 68.) Plaintiffs signed and returned the documents to Mr. Snyder.

         On March 1, 2014, Plaintiffs leased a Scottsdale storefront at Defendant's instruction, despite Plaintiffs' concerns about “the small size, high cost per square foot, and seven-year term of the Scottsdale Fashion Square.” (TAC ¶ 70.) Plaintiffs allege that they renovated as Defendant requested, participated in Defendant's training and educational programs, implemented the techniques that had been successful in the Spokane market, and regularly communicated with Mr. Snyder. (TAC ¶¶ 56-57.) However, from December 2010 through July 2017, Plaintiffs' unit sales of Steinway grand pianos were about 30% of the cumulative reasonable annual sales performance goals established by the Dealer Agreement. (TAC ¶ 80.)

         During the time that Plaintiffs operated the Phoenix dealership, they attended a national Steinway Dealer Meeting, where they spoke with the previous Phoenix dealer, Mr. Eric Schwartz. (TAC ¶ 109.) Mr. Schwartz told Plaintiffs that between 2005 and 2010, the Phoenix dealership sold about ten to fifteen grand pianos per year-nowhere near the estimate that Defendant had provided to Mr. Schwartz at the outset of their relationship. (TAC ¶ 112.)

         After continued poor sales, Defendant terminated Plaintiffs' Phoenix Market Dealership on March 21, 2017, effective July 1, 2017. (TAC ¶ 91.) Plaintiffs now allege nondisclosure or constructive fraud (Count One), fraudulent representations and omissions (Count Two), and breach of contract (Count Three). Defendant filed two Motions to Dismiss-one in response to Counts One and Two (Doc. 26, MTD 1) and a later one in response to Count Three (Doc. 52, MTD 2). The Court will evaluate both Motions in this Order.

         II. LEGAL STANDARD

         When analyzing a complaint for failure to state a claim for relief under Federal Rule of Civil Procedure 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).

         A dismissal under Rule 12(b)(6) for failure to state a claim can be based on either (1) the lack of a cognizable legal theory or (2) insufficient facts to support a cognizable legal claim. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). “While a complaint attacked by a Rule 12(b)(6) motion does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (citations omitted). The complaint must thus contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that ‘recovery is very remote and unlikely.'” Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         III. Analysis

         The Court will first address Counts One and Two-Plaintiffs' fraud claims-and Defendant's first Motion to Dismiss. Defendant argues the following: 1) Plaintiffs' fraud claims are time-barred; 2) the Economic Loss Doctrine applies to limit available relief to that agreed upon in the Dealer Agreement; and 3) Plaintiffs fail to state a claim for fraud because the parties did not have a confidential relationship and there was no false representation of material fact.

         A. Fraud Claims (Counts One and Two) 1. Statute of Limitations

         Defendant first argues that Plaintiffs' fraud claims are time-barred under Arizona law. (MTD 1 at 8-11.) The Arizona statute of limitations period for fraud is three years from accrual. A.R.S. § 12-543. In Arizona, a cause of action for fraud accrues “when the defrauded party discovers or with reasonable diligence could have discovered the fraud.” Mister Donut of America, Inc. v. Harris, 723 P.2d 670, 672 (Ariz. 1986). “As such, it may begin to run before a person has actual knowledge of the fraud or even all the underlying details of the alleged fraud.” Id. (quoting Coronado Development Corp. v. Superior Court, 678 P.2d 535, 537 (Ariz.Ct.App. 1984)). Ordinarily, “[w]hen discovery occurs and a cause of action accrues are . . . questions of fact for the jury.” Doe v. Roe, 955 P.2d 951, 961 (Ariz. 1998). But courts may dismiss a complaint “[i]f the running of the statute is apparent on the face of the complaint.” Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1045 (9th Cir. 2011) (quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980)).

         Here, the running of the statute of limitations period is not apparent from the face of the Complaint. Defendant argues that Plaintiffs' claim accrued in 2010, when they “could have learned about actual historical market sales and business prospects . . . had they exercised any sort of reasonable due diligence, including obtaining sales numbers from the prior Steinway dealer in Phoenix.” (MTD 1 at 9.)[2] Failing that, Defendant argues that, at some point between 2011 and 2014, Plaintiffs “had knowledge of facts that would make ...


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