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RHN Inc. v. CNA National Warranty Corp.

United States District Court, D. Arizona

September 12, 2019

RHN Incorporated, Plaintiff,
CNA National Warranty Corporation, et al., Defendants.



         Pending before the Court is Defendant CNA National Warranty Corporation's Motion to Dismiss. (Doc. 8.) For the following reasons, the Court grants the motion in part and denies the motion in part.


         This case is brought by Plaintiff RHN, Inc. (“RHN”), which owns and operates automobile dealerships. In 2017, Defendant CNA National Warranty Corporation (“CNA”) contacted RHN regarding a proposed business arrangement. The proposal called for RHN to sell automobile warranties, frequently referred to as “vehicle service contracts” (“VSCs”), to the consumers at its auto dealerships. RHN would collect a commission on each VSC sold, and remit the premiums collected on each sale to CNA. CNA would allegedly deposit the premiums into an investment account of RHN's choosing, and the parties would share the profits earned from the invested funds. As part of the arrangement, CNA agreed to give RHN an advance payment of $5 million. To repay CNA for the advance, RHN agreed to remit the amounts due to RHN as commissions for selling VSCs- $267.00 for each VSC sold-back to CNA for four years. RHN allegedly agreed to sell a minimum of 390 VSCs per quarter. On December 29, 2017, the parties executed a written agreement (“Override Agreement”) setting forth the terms of the advance payment, its repayment, and the allegedly agreed upon VSC quota. The alleged agreement to share the profits from the invested proceeds (“Profit-Sharing Agreement”) was never memorialized into a written contract.

         CNA made the advance payment to RHN on January 2, 2018, and RHN allegedly began performing under the Override Agreement. CNA, however, did not place the proceeds from the VSC sales into the account designated by RHN for the purpose of the alleged Profit-Sharing Agreement. Instead, CNA deposited the proceeds into a different account and kept all profits earned on the invested funds for itself. CNA refused to provide RHN with any information regarding the alleged profit-sharing account. RHN also made repeated requests for reports regarding the amounts collected by CNA as repayment on the advance; however, CNA did not respond to RHN's demands. Despite its ignored demands, RHN continued to sell VSCs pursuant to the Override Agreement.

         RHN allegedly reached out to CNA in mid-2018 to modify the VSC quota. RHN claims “market forces in the automobile industry changed so as to make the parties' initial quarterly sales target of at least 390 VSCs impracticable.” (Doc. 1-3 at 10.) CNA allegedly agreed to reduce the quota to 220 VSCs per quarter. This modification was not reduced to writing. CNA continued to ignore RHN's repeated requests for information regarding the profit-sharing account and the status of RHN's repayment on the advance.

         Plaintiff filed this action in April 2019 asserting seven claims: (1) breach of contract; (2) breach of fiduciary duty; (3) breach of the implied covenant of good faith and fair dealing; (4) unjust enrichment; (5) a request for declaratory relief regarding the enforceability of the VSC quota modification; (6) a request for an equitable accounting; and (7) a request for injunctive relief directing CNA to place all proceeds from VSC sales into the agreed upon account. CNA moves to dismiss all seven claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.


         I. Legal Standard

         Federal Rule of Civil Procedure 8(a)(2) requires a plaintiff to set forth a “short and plain statement of the claim showing that the [plaintiff] is entitled to relief.” Fed. R. Civ. Pro. 8(a)(2). The scope of review on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is generally limited to the contents of the complaint. However, “[a] court may consider evidence on which the complaint ‘necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). “The Court may treat such a document as ‘part of the complaint.'” Id. (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

         To survive dismissal for failure to state a claim, a complaint must contain more than a “formulaic recitation of the elements of a cause of action”; it must contain factual allegations sufficient to “raise the right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While “a complaint need not contain detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief that is plausible on its face.'” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir.2008) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). The plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 555) (internal citations omitted).

         When analyzing a complaint for failure to state a claim, “[a]ll allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). In addition, the Court must assume that all general allegations “embrace whatever specific facts might be necessary to support them.” Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). However, legal conclusions couched as factual allegations are not given a presumption of truthfulness, and “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).

         II. Analysis

         A. Claims One, ...

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