Honeywell International Inc. v. Forged Metals Inc.

          ORDER

          JAMES A. TEILBORG SENIOR UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Defendant Forged Metals Incorporated's (“Forged Metals”) Motion to Dismiss two of Plaintiff Honeywell International Incorporated's (“Honeywell”) claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. (Doc. 13). On September 9, 2019, Honeywell filed its Response to Forged Metals' Motion to Dismiss. (Doc. 18). On September 16, 2019, Forged Metals replied. (Doc. 19). The Court now rules on the Motion.^[1]

         I.FACTUAL BACKGROUND

         The following facts are either undisputed or recounted in the light most favorable to the non-moving party. See Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). In 2014, Honeywell ordered forgings from Forged Metals for a “T55” test compressor. (Doc. 1 at 1-2). Honeywell alleges that it provided Forged Metals with engineering drawings that instructed it to apply a particular heat treatment to the forgings. (Id. at 2). According to Honeywell, Forged Metals later asserted that it created the forgings in accordance with the drawings. (Id.). On June 9, 2017, Honeywell tested the compressor with the forgings supplied by Forged Metals. (Id. at 3). In the process, Honeywell claims the growth compressor rig failed and damaged the attached equipment. (Id.). Honeywell asserts that Forged Metals caused this failure because it did not adequately strengthen the forgings with the appropriate heat treatment as instructed by Honeywell's drawings. (Id.). Honeywell now seeks damages and alleges breach of contract, breach of express warranty, breach of implied warranty, and, at issue here, two tort claims: one for “falsely certif[ying] that the forgings complied with Honeywell's specifications” and the other for “negligen[ce] in misreading the specifications provided by Honeywell . . . [and for] providing forgings that were not appropriate for their intended use.” (Id. at 3-6). Forged Metals moves to dismiss those claims under the economic loss doctrine or, alternatively, it moves to dismiss the negligent misrepresentation claim for failure to state a plausible cause of action. (Doc. 13 at 1).

         II. LEGAL STANDARD

         A defendant may move to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Dismissal for failure to state a claim “is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory.” Davidson v. Kimberly-Clark Corp., 889 F.3d 956, 965 (9th Cir.), cert. denied, 139 S.Ct. 640 (2018). “[T]o survive a motion to dismiss, a complaint must 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) (citation omitted). All facts are read in the light most favorable to the non-moving party. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000).

         III.ANALYSIS

         A. Choice of Law Dispute

         The parties debate whether the General Purchase Order Provision that requires New York law to govern “[t]he construction, interpretation and performance” of the agreement and “all transactions” under the agreement, (Doc. 19-1 at 21 (§ 30.1)), also applies to Honeywell's tort claims. Forged Metals argues that this choice of law provision applies to Honeywell's tort claims because these claims “depend on interpretation of the parties' contract.” (Doc. 13 at 7). Honeywell responds that resolution of its tort claims does not depend on “interpretation of a traditional contract, ” and thus the choice of law provision does not apply. (Doc. 18 at 2-3).

         “Claims arising in tort are not ordinarily controlled by a contractual choice of law provision . . . [but] are decided according to the law of the forum state.” Winsor v. Glasswerks PHX, L.L.C., 63 P.3d 1040, 1043 ¶ 9 (Ariz.Ct.App. 2003) (quoting Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992)); see also Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002) (“When a federal court sits in diversity, it must look to the forum state's choice of law rules to determine the controlling substantive law.”). However, under Arizona law, “contractual choice of law provisions may apply to tort claims [when] . . . ‘resolution of th[ose] claims relates to interpretation of the contract.'” Winsor, 63 P.3d at 1044 ¶ 10 (quoting Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 (9th Cir. 1988)). In such a case, the tort claims cannot “be adjudicated without analyzing whether the parties were in compliance with the contract.” Id. (quoting Manetti-Farrow, Inc., 858 F.2d at 514).

         Honeywell's tort claims rely on contract interpretation, and thus, New York law applies pursuant to the parties' contract. Honeywell states in its Complaint that “[t]he purchase orders for the forgings incorporate [the] General Purchase Order Provisions (‘GPOPs') by reference.” (Doc. 1 at 2). And the General Purchase Order Provisions explicitly define a purchase order as “an order issued by Honeywell for the purchase of Goods, together with the specifications, drawings, terms and conditions, or other documents referred to, attached to, or incorporated by reference on the face of [the] Purchase Order.” (Doc. 19-1 at 2 (§ 1) (emphasis added)). Moreover, Honeywell alleges that “[e]ach purchase order incorporated the drawing for that forging.” (Doc. 1 at 4). In fact, this allegation is the basis of its breach of contract cause of action. (See id.). Based on Honeywell's allegations, solely for purposes of deciding Forged Metals' Motion to Dismiss (Doc. 13), the Court concludes that certain specifications relating to heat treatment were incorporated into the parties' contract.

         Consequently, the allegations in the Complaint indicate that the basis of Honeywell's tort claims depends on contract interpretation. Honeywell alleges, for purposes of its negligent misrepresentation tort claim, that “Forged Metals falsely certified that the forgings complied with Honeywell's specifications.” (Doc. 1 at 6). Honeywell alleges, for purposes of its negligence tort claim, that “Forged Metals was negligent in misreading the specifications provided by Honeywell.” (Id.). Thus, based on Honeywell's allegations, its tort claims cannot be resolved without deciphering what the contract's specifications required of Forged Metals. In fact, it appears Honeywell does not dispute that the drawings and specifications were incorporated into the parties' contract, but rather Honeywell claims that interpretation of what the drawings and specifications require is not “traditional” contract interpretation, and thus the contract's choice of law provision does not apply. (Doc. 18 at 2-3). Honeywell cites no authority for this assertion, and the Court is not aware of any Arizona law that draws a distinction based on the traditionality of the required contract interpretation. Because Honeywell's tort claims cannot “be adjudicated without analyzing whether the parties were in compliance with the contract, ” the Court will enforce the parties' choice of law provision, which requires the Court to apply New York law. See Winsor, 63 P.3d at 1044 ¶ 10 (citation omitted).

         B. Economic Loss Doctrine

         The Court must next decide whether, under New York law, Honeywell seeks recovery in tort for economic harms already fully recoverable by contract. Forged Metals argues that Honeywell's tort claims are barred by the economic loss doctrine because Honeywell's tort claims are based on a ...