Kenneth Eisen and Associates LTD v. Coxcom Incorporated et al, No. 2:2018cv02120 - Document 37 (D. Ariz. 2019)
Court Description: ORDER granting in part and denying in part 16 Defendant's Motion to Dismiss. Count 3, for unjust enrichment, and Count 4, for conversion, are dismissed with prejudice, but the Court denies Defendant's Motion as to Count 2, for negligence, and for attorney's fees under A.R.S. § 12-341.01. Signed by Judge John J Tuchi on 2/19/19. (EJA)
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Kenneth Eisen and Associates LTD v. Coxcom Incorporated et al 1 Doc. 37 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Kenneth Eisen & Associates, Ltd. Plaintiff, 10 11 v. 12 CoxCom, Inc., et al 13 No. CV-18-02120-PHX-JJT ORDER Defendant. 14 15 At issue is Defendant CoxCom LLC’s (d/b/a Cox Communications) Motion to 16 Dismiss (Doc. 16, Mot.), to which Plaintiff Kenneth Eisen & Associates, Ltd. filed a 17 Response (Doc. 21, Resp.), and Defendant filed a Reply (Doc. 24, Reply). The Court 18 resolves the Motion without oral argument. See LRCiv 7.2(f). For the reasons that follow, 19 the Court grants in part and denies in part Defendant’s Motion. 20 I. BACKGROUND 21 Plaintiff alleges the following facts in the Complaint.1 (Doc. 1-1 at 5-25, Compl.) 22 In 2001, Plaintiff entered into an Accounts Receivable Purchase Agreement with 23 Defendant. (Compl. ¶ 6.) As part of the Purchase Agreement, Plaintiff bought 8,889 24 accounts of cable, telephone, and internet customers whose service Defendant had recently 25 disconnected and who owed money and/or the return of equipment. (Compl. ¶ 7.) Under 26 1 27 28 In the Complaint, Plaintiff mistakenly names CoxCom, Inc., instead of CoxCom LLC, as Defendant. Plaintiff also names Defendants John Does I-V; Jane Does I-V; White Corporations I-V; Black Partnerships I-V; and Blue Limited Liability Companies I-V, and seeks to reserve the right to amend the Complaint when the true names of such Defendants are ascertained. Dockets.Justia.com 1 the terms of the Purchase Agreement, Defendant was required to forward any payments it 2 received on the purchased accounts to Plaintiff. (Compl. ¶ 8, Ex. A.) The Purchase 3 Agreement further provided that Defendant would pay Plaintiff $12.50 for each piece of 4 previously unreturned equipment that was subsequently received by Defendant. (Compl. 5 ¶ 9, Ex. A.) The Purchase Agreement stated that Defendant’s policy would be not to 6 reconnect any customer who had an unpaid balance or unreturned equipment but to refer 7 any such customers to Plaintiff before reconnecting services. (Compl. ¶ 12, Ex. A.) 8 Defendant also agreed to set up, maintain and share records with Plaintiff regarding 9 account balances and returned equipment. (Compl. ¶ 14, Ex. A.) 10 Plaintiff performed collection services on the accounts from 2001 until 2016, when 11 Defendant unilaterally terminated the Purchase Agreement and cut off Plaintiff’s access to 12 account records. (Compl. ¶¶ 16-20.) Prior to losing access to account records, Plaintiff 13 noticed instances where Defendant had received payments or equipment or had 14 reconnected customers with unpaid balances, which Plaintiff alleges violated the Purchase 15 Agreement. (Compl. ¶¶ 21, 22, 25.) In the Complaint, Plaintiff raises claims for breach of 16 contract, negligence, unjust enrichment, and conversion against Defendant. (Compl. ¶¶ 39- 17 97.) Defendant now moves to dismiss Plaintiff’s negligence, unjust enrichment, and 18 conversion claims for failure to state a claim. 19 II. LEGAL STANDARD 20 Federal Rule of Civil Procedure 12(b)(6) is designed to “test[] the legal sufficiency 21 of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When analyzing a 22 complaint for failure to state a claim for relief under Rule 12(b)(6), the well-pled factual 23 allegations are taken as true and construed in the light most favorable to the nonmoving 24 party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). Legal conclusions couched 25 as factual allegations are not entitled to the assumption of truth, Ashcroft v. Iqbal, 556 U.S. 26 662, 680 (2009), and therefore are insufficient to defeat a motion to dismiss for failure to 27 state a claim, In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). On a Rule 28 12(b)(6) motion, Federal Rule of Civil Procedure 8(a) governs and requires that, to avoid -2- 1 dismissal of a claim, Plaintiff must allege “enough facts to state a claim to relief that is 2 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 3 III. ANALYSIS 4 A. 5 Defendant first argues that Arizona’s economic loss doctrine warrants dismissal of 6 Plaintiff’s tort claims for negligence and conversion. Arizona’s economic loss doctrine is 7 a “common law rule limiting a contracting party to contractual remedies for the recovery 8 of economic losses unaccompanied by physical injury to persons or other property.” 9 Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 223 P.3d 664, 667 (Ariz. 10 2010). The rule’s purpose is “to encourage private ordering of economic relationships and 11 to uphold the expectations of the parties by limiting a plaintiff to contractual remedies for 12 the loss of the benefits of the bargain.” Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 13 1042, 1050 (D. Ariz. 2010). Arizona’s Economic Loss Doctrine 14 The economic loss doctrine does not bar all tort claims that seek only economic 15 damages. Id. Arizona courts typically apply the economic loss doctrine in the contexts of 16 product liability or construction defect cases. See Flagstaff, 223 P.3d at 667. In cases where 17 courts have applied the rule outside these contexts, the parties had detailed contracts 18 allocating risk of loss and specifying remedies. See, e.g., Cook v. Orkin Exterminating Co., 19 Inc., 258 P.3d 149 (Ariz. Ct. App. 2011); Sherman v. Premier Garage Sys., LLC, No. CV- 20 10-0269-PHX-MHM, 2010 WL 3023320, at *4 (D. Ariz. July 30, 2010). While the Court 21 recognizes that the scope of the economic loss rule is not crystal clear, little support exists 22 for the argument that Arizona courts intend to apply the rule outside the contexts they have 23 already identified. In addition, the Ninth Circuit Court of Appeals has observed that, in 24 cases applying the rule “outside the product liability context, the [economic loss] doctrine 25 has produced difficulty and confusion.” Giles v. Gen. Motors Acceptance Corp., 494 F.3d 26 865, 874 (9th Cir. 2007). 27 Federal courts are not free to expand the existing scope of state law without clear 28 guidance from the state’s highest court. See Clemens v. DaimlerChrysler Corp., 534 F.3d -3- 1 1017, 1024 (9th Cir. 2008). This is neither a product liability nor a construction defect case. 2 Furthermore, the contract here does not contain a calculated allocation of risk or choice of 3 remedies by the parties. Defendant argues that the economic loss doctrine has not only been 4 extended by Arizona courts beyond product liability and construction defect cases, but that 5 the doctrine applies whenever a tort “claim stems from the alleged failure to perform 6 promises under the parties’ contract and . . . the harm alleged in tort is the same harm 7 alleged in the contract.” (Reply at 5.) The Court does not find support for Defendant’s 8 broad interpretation of the scope of the economic loss doctrine in Arizona. 9 The applicable case law provides that, in applying the economic loss doctrine, courts 10 must consider the “underlying contract and tort policies” with respect to the particular 11 setting in which the contract was formed. Flagstaff, 223 P.3d at 669. In Flagstaff, the 12 Arizona Supreme Court found that the “contract law policy of upholding the expectations 13 of the parties” was particularly strong in the context of construction-related contracts 14 because they “often are negotiated between the parties on a project-specific basis and have 15 detailed provisions allocating risk of loss and specifying remedies.” Id. Contrary to 16 Defendant’s contention, application of the economic loss doctrine depends less on whether 17 tort claims would be duplicative and more on whether allowing tort claims would subvert 18 the parties’ allocation of risk and choice of remedies as evidenced by a detailed contract. 19 Arizona courts have not expressed an intent to apply the economic loss doctrine where no 20 detailed contractual provisions exist. 21 Nevertheless, Defendant argues that courts have extended the doctrine to cover the 22 Purchase Agreement at issue here. Defendant relies on FTC Solar Capital XIX, LLC v. 23 Folium Energy Development, LLC—a 2017 decision in this District where the economic 24 loss doctrine was applied to bar tort claims arising from a purchase-sale agreement. 25 No. CV-15-00875-PHX-DJH, 2017 WL 3841490 (D. Ariz. Mar. 16, 2017). However, that 26 case does not persuade the Court to apply the doctrine here. 27 Unlike construction-related contracts such as the one at issue in Flagstaff, purchase 28 agreements do not, by their very nature, suggest that the parties have engaged in project- -4- 1 specific negotiations allocating risk and establishing remedies. It is thus not evident that 2 the policy of upholding parties’ contractual expectations is particularly applicable to 3 purchase agreements generally. Furthermore, in FTC Solar, the court did not rely on the 4 fact that the contract at issue was a purchase-sale agreement but rather on “the parties’ 5 equal bargaining power and arm’s length negotiations,” in finding that “[a]llowing 6 recovery in tort . . . would undermine the parties’ expectations.” Id. at *4. 7 Here, nothing in the Purchase Agreement suggests that it was the result of 8 significant negotiations between Defendant and Plaintiff. Nor does the Purchase 9 Agreement set forth detailed allocations of risk or specify remedies. For example, the 10 contract states that “it is [Defendant’s] policy not to permit any Customer to reconnect 11 service so long as any Customer has an outstanding Account balance or unreturned 12 Equipment.” (Compl. Ex. A.) But the Purchase Agreement does not state that Defendant is 13 prohibited from reconnecting such customers or specify a remedy if Defendant does. 14 Indeed, nowhere in the two-page agreement is a remedy specified. The absence of detailed 15 terms and specific remedies in the Purchase Agreement sets it apart from contracts to which 16 Arizona courts have applied the economic loss doctrine, especially outside of the 17 construction defect and product liability contexts. Because the Court may not expand the 18 scope of state law, the economic loss doctrine does not provide a basis for dismissal of 19 Plaintiff’s tort claims. 20 B. 21 Defendant also moves to dismiss Plaintiff’s conversion claim by arguing that 22 Plaintiff seeks to recover money owed as the result of a contractual obligation, which is 23 not the proper subject of a conversion claim. (Mot. at 12.) The Court agrees. Under Arizona 24 law, conversion is “an act of wrongful dominion or control over personal property in denial 25 of or inconsistent with the rights of another.” Case Corp. v. Gehrke, 91 P.3d 362, 365 (Ariz. 26 Ct. App. 2004). “[M]oney can be the subject of a conversion provided that it can be 27 described, identified or segregated, and an obligation to treat it in a specific manner is 28 established.” Autoville, Inc. v. Friedman, 510 P.2d 400, 402 (Ariz. Ct. App. 1973). Failure to State a Claim for Conversion -5- 1 However, “[m]oney is not the proper subject of a conversion claim when the claim is used 2 merely to collect on a debt that could be satisfied by money generally.” Liberty Life Ins. 3 Co. v. Myers, No. CV 10-2024-PHX-JAT, 2013 WL 530317, at *13 (D. Ariz. Feb. 12, 4 2013) (internal quotations omitted). In Autoville, the Arizona Court of Appeals held that 5 the withholding of money owed under contract does not give rise to a conversion claim. 6 Autoville, Inc., 510 P.2d at 403. 7 Here, Plaintiff purchased from Defendant accounts on which customers owed 8 money and/or equipment. (Compl. ¶ 7.) The Purchase Agreement specified that any money 9 paid to Defendant on these accounts would be forwarded to Plaintiff. (Compl. ¶ 8, Ex. A.) 10 The Contract also required Defendant to pay a fixed amount of money to Plaintiff for any 11 equipment returned. (Compl. ¶ 9, Ex. A.) Plaintiff claims that Defendant converted 12 Plaintiff’s property by retaining money and equipment received by Defendant on these 13 accounts. 14 Under the Purchase Agreement, Plaintiff essentially had a legal right to collect 15 money from Defendant and debts owed by customers whose service was disconnected by 16 Defendant. Because a conversion claim cannot be used “to collect on a debt that could be 17 satisfied by money generally,” the money owed to Plaintiff under the Purchase Agreement 18 cannot be the basis for a conversion claim. Liberty Life Ins. Co., 2013 WL 530317, at *13. 19 The Court must therefore dismiss Plaintiff’s conversion claim with prejudice. 20 C. 21 Defendant also argues that Plaintiff fails to state a claim for unjust enrichment 22 because the Purchase Agreement provides an adequate remedy at law. Defendant contends 23 that an element of a valid unjust enrichment claim is that there be no adequate remedy at 24 law and therefore that “recovery under quantum meruit presupposes that no enforceable 25 written or oral contract exists.” See Levine v. Haralson, Miller, Pitt, Feldman, & McAnally, 26 P.L.C., 418 P.3d 1007, 1010 (Ariz. Ct. App. 2018). While Plaintiff may be barred from 27 recovery under an unjust enrichment claim due to the existence of the Purchase Agreement, Failure to State a Claim for Unjust Enrichment 28 -6- 1 Plaintiff is not necessarily barred from pleading unjust enrichment as an alternative to 2 breach of contract. 3 Defendant argues that pleading unjust enrichment in the alternative is only 4 appropriate where a plaintiff is able “to articulate a basis for unjust enrichment that does 5 not hinge on Defendant’ alleged breach of contract.” See Aspect Sys., Inc. v. Lam Research 6 Corp., No. 06-1620-PHX-NVW, 2006 WL 2683642, at *5 (D. Ariz. Sept. 16, 2006). In 7 response, Plaintiff states that “the mere existence of a contract governing the dispute does 8 not automatically invalidate an unjust enrichment alternative theory of recovery” where the 9 plaintiff has not received the benefit of its bargain. See Adelman v. Christy, 90 F. Supp. 2d 10 1034, 1045 (D. Ariz. 2000). 11 Because an element of unjust enrichment is that no contractual remedy exists, the 12 Court agrees with Defendant that an unjust enrichment claim that relies on a contract 13 cannot stand. Here, Plaintiff’s unjust enrichment claim alleges that Defendant was enriched 14 by its failure to abide by the terms of the Purchase Agreement. Because Plaintiff does not 15 articulate an unjust enrichment theory that does not depend on breach of the Purchase 16 Agreement, Plaintiff’s unjust enrichment claim fails. Considering Plaintiff’s allegations in 17 the Complaint, the Court does not find it plausible that Plaintiff can state an unjust 18 enrichment claim that does not depend on the terms of the Purchase Agreement, so the 19 Court dismisses the claim with prejudice. See Lopez v. Smith, 203 F.3d 1122, 1130 (9th 20 Cir. 2000). 21 IT IS THEREFORE ORDERED granting in part and denying in part Defendant’s 22 Motion to Dismiss (Doc. 16). Count 3, for unjust enrichment, and Count 4, for conversion, 23 are dismissed with prejudice, but the Court denies Defendant’s Motion as to Count 2, for 24 negligence, and for attorney’s fees under A.R.S. § 12-341.01. 25 Dated this 19th day of February, 2019. 26 27 Honorable John J. Tuchi United States District Judge 28 -7-
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