Valcor Engineering Corporation v. Parker Hannifin Corporation

NOTICE OF MOTION AND MOTION to Dismiss

C.D. Cal.July 5, 2017

T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31680009 PARKER HANNIFIN’S NOTICE OF MOTION AND MOTION TO DISMISS VALCOR’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS PAUL L. GALE (SBN 065873) paul.gale@troutmansanders.com PETER N. VILLAR (SBN 204038) peter.villar@troutmansanders.com LAUREN E. GROCHOW (SBN293601) lauren.grochow@troutmansanders.com NICHOLAS J. SCHUCHERT (SBN 307249) nicholas.schuchert@troutmansanders.com TROUTMAN SANDERS LLP 5 Park Plaza, Suite 1400 Irvine, CA 92614-2545 Telephone: 949.622.2700 Facsimile: 949.622.2739 Attorneys for Defendant and Counterclaimant PARKER HANNIFIN CORPORATION UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION VALCOR ENGINEERING CORPORATION, a New Jersey corporation, Plaintiff, v. PARKER HANNIFIN CORPORATION, an Ohio corporation, Defendant. Case No. 8:16-cv-00909-JVS (KESx) Hon. James V. Selna PARKER HANNIFIN CORPORATION’S NOTICE OF MOTION AND MOTION TO DISMISS VALCOR ENGINEERING CORPORATION’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS Date: August 21, 2017 Time: 1:30 p.m. Place: Courtroom 10C AND RELATED COUNTERCLAIM. Case 8:16-cv-00909-JVS-KES Document 116 Filed 07/05/17 Page 1 of 2 Page ID #:5259 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31680009 - 1 - PARKER HANNIFIN’S NOTICE OF MOTION AND MOTION TO DISMISS VALCOR’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on August 21, 2017 at 1:30 p.m., or as soon thereafter as counsel may be heard by the above-entitled Court, located at 411 West 4th Street, Santa Ana, CA 92701, in Courtroom 10C, Defendant and Counterclaimant Parker Hannifin Corporation (“Parker”) will and hereby does move to dismiss Plaintiff and Counter-Defendant Valcor Engineering Corporation’s (“Valcor’s”) fraud and breach of the covenant of good faith and fair dealing claims. As set forth in the accompanying motion, there is good cause for the relief requested. Valcor fails to state a claim for fraud due to the economic loss rule and failure to plead the essential elements of a fraud claim. Valcor fails to state a claim for breach of the covenant of good faith and fair dealing because that claim is duplicative of its breach of contract claim and fails to plead the essential elements of a bad faith claim. Parker’s motion is based upon the motion, the declaration and exhibits attached thereto, any supplemental memorandum in support thereof, all pleadings and papers on file in this action and such further arguments and matters as may be presented to the Court prior to or at the time of the hearing of this motion. This motion is made following the conference of counsel pursuant to L.R. 7- 3, which took place on June 28, 2017. Dated: July 5, 2017 Respectfully submitted, TROUTMAN SANDERS LLP By: /s/ Paul L. Gale Paul L. Gale Peter N. Villar Lauren E. Grochow Nicholas J. Schuchert Attorneys for Defendant and Counterclaimant PARKER HANNIFIN CORPORATION Case 8:16-cv-00909-JVS-KES Document 116 Filed 07/05/17 Page 2 of 2 Page ID #:5260 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS PAUL L. GALE (SBN 065873) paul.gale@troutmansanders.com PETER N. VILLAR (SBN 204038) peter.villar@troutmansanders.com LAUREN E. GROCHOW (SBN 293601) lauren.grochow@troutmansanders.com NICHOLAS J. SCHUCHERT (SBN 307249) Nicholas.schuchert@troutmansanders.com TROUTMAN SANDERS LLP 5 Park Plaza, Suite 1400 Irvine, CA 92614-2545 Telephone: 949.622.2700 Facsimile: 949.622.2739 Attorneys for Defendant and Counterclaimant PARKER HANNIFIN CORPORATION UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION VALCOR ENGINEERING CORPORATION, a New Jersey corporation, Plaintiff, v. PARKER HANNIFIN CORPORATION, an Ohio corporation, Defendant. Case No. 8:16-cv-00909-JVS (KESx) Hon. James V. Selna PARKER HANNIFIN CORPORATION’S MOTION TO DISMISS VALCOR ENGINEERING CORPORATION’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS Date: August 21, 2017 Time: 1:30 p.m. Place: Courtroom 10C AND RELATED COUNTERCLAIM. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 1 of 26 Page ID #:5261 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page 31644640 - i - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS 1. INTRODUCTION ........................................................................................... 1 2. STATEMENT OF FACTS .............................................................................. 4 3. THE ECONOMIC LOSS RULE BARS VALCOR’S FRAUD CLAIM ....... 7 3.1 Valcor Fails to Plead Plausible Non-Economic Damages .................... 8 3.2 Parker had no Legal Duty to Disclose ................................................ 12 4. VALCOR FAILS TO STATE A CLAIM FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAITH DEALING ....... 18 4.1 Valcor Seeks Relief that Expands the Obligations Under the SPA Beyond What the Parties Contemplated ..................................... 18 4.2 Valcor Fails to Allege a Viable Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing .......................................... 19 5. CONCLUSION ............................................................................................. 21 Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 2 of 26 Page ID #:5262 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) - ii - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS CASES Am. Student Fin. Group, Inc. v. Dade Med. Coll., Inc., 180 F. Supp. 3d 671 (S.D. Cal. 2015) ................................................................ 19 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................. 7 Audigier Brand Mgmt. v. Perez, 2012 WL 5470888 (C.D. Cal. Nov. 5, 2012) ....................................................... 8 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................. 7 Blennis v. Hewlett-Packard Co., 2008 WL 818526 (N.D. Cal. Mar. 25, 2008) ..................................................... 17 BNSF Ry. Co. v. San Joaquin Valley R.R., 2011 U.S. Dist. LEXIS 84694 (E.D. Cal. Aug. 2, 2011) ..................................... 8 Boschma v. Home Loan Ctr., Inc., 198 Cal. App.4th 230 (2011) .............................................................................. 17 Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (1990) ............................................................................ 19 Daniel v. City of Glendale, 2015 WL 5448562 (C.D. Cal. Mar. 19, 2015) ................................................... 12 Deteresa v. Am. Broad. Cos., 121 F.3d 460 (9th Cir. 1997) .......................................................................... 4, 16 Doe v. Walmart Stores, Inc., 572 F.3d 677 (9th Cir. 2009) ................................................................................ 7 Env’t Furniture, Inc. v. Bina, 2010 WL 5060381 (C.D. Cal. Dec. 6, 2010)...................................................... 19 Foster Poultry Farms v. Alkar Rapidpak-MP, 868 F. Supp. 2d 983 (E.D. Cal. 2012) ................................................................ 12 Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 3 of 26 Page ID #:5263 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page(s) - iii - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS Free Range Content, Inc. v. Google, Inc., 2016 WL 2902332 (N.D. Cal. May 13, 2015) ............................................. 18, 21 Holmes v. Summer, 188 Cal. App. 4th 1510 (2010) ........................................................................... 17 JMP Secs. LLP v. Altair Nantechnologies, Inc., 880 F. Supp. 2d 1029 (N.D. Cal. 2012).................................................. 10, 11, 12 LiMandri v. Judkins, 52 Cal. App. 4th 326 (1997) ..................................................................... 4, 16, 17 Manley v. Experian Info. Solutions, Inc., 2017 WL 151540 (N.D. Cal. Jan. 16, 2017) ...................................................... 12 Oracle USA, Inc. v. XL Global Svcs., Inc., 2009 WL 2084154 (N.D. Cal. July 13, 2009) ................................................ 7, 12 Pac. Bus. Capital Corp. v. Globex Brands, Inc., 2011 U.S. Dist. LEXIS 3335 (C.D. Cal. Jan. 7, 2011) ..................... 12, 13, 14, 16 Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (2004) ................................................................................. passim Soule v. Gen. Motors Corp., 8 Cal. 4th 548 (1994) .................................................................................... 11, 12 Travelers Prop. Cas. Co. of Ams. v. Centex Homes, 2012 WL 1657121 (N.D. Cal. May 10, 2012) ..................................... 4, 5, 19, 20 UMG Recordings, Inc. v. Global Eagle Entm’t, 117 F. Supp. 3d 1092 (C.D. Cal. 2015) .............................................................. 12 United Guar. Mtg. Indem. Co. v. Countrywide Fin. Corp., 660 F. Supp. 2d 1163 (C.D. Cal. 2009) ................................................................ 7 Warrick v. Travelers Comm. Ins. Co., 2015 WL 11921403 (S.D. Cal. Oct. 29, 2015) ................................................... 12 Water, Inc. v. Everpure, Inc., 2012 WL 12949368 (C.D. Cal. Aug. 2, 2012) ............................................. 18, 19 Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 4 of 26 Page ID #:5264 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page(s) - iv - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS OTHER AUTHORITIES L.R. 7-3 ................................................................................................................ 3, 10 Fed. R. Civ. P. 12(b)(6) ................................................................................... 2, 7, 17 Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 5 of 26 Page ID #:5265 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 1 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS 1. INTRODUCTION This dispute relates to Valcor Engineering Corporation’s (“Valcor”) sale of Air Separation Module products (“ASMs”) to Parker Hannifin Corporation (“Parker”) through Valcor’s Electroid Company division (“Electroid”) under a written contract that the parties negotiated and signed in 2004. The parties’ rights and duties in this case are governed solely by that written contract and its three amendments. Valcor now impermissibly attempts to morph this contract dispute into a fraud case, making its fraud claim a textbook example of one that should be barred by California’s economic loss rule, which bars recovery in tort where the damages a plaintiff seeks are the same economic losses arising from the alleged breach of contract. Valcor’s revised First Amended Complaint (“FAC”) (Dkt. 112) fails to state a valid fraudulent concealment claim or breach of the implied covenant of good faith and fair dealing claim, because both are premised only on Parker’s alleged concealment of information that “obstruct[ed] Electroid’s ability to improve the service life of the ASMs.” (FAC ¶ 164.) Literally, Valcor now is alleging that Parker (the buyer) committed fraud by failing to disclose information to Electroid (the seller) which might have improved the performance and longevity of Electroid’s own products. If this theory were to survive, it would create an absurd new exception to the economic loss rule, whereby every consumer product purchaser would have a duty to disclose information to the seller relating to the seller’s own product, which, if not disclosed, would subject the buyer to fraud claims by the seller if there is any chance of personal damages resulting from the sale. Such an expansion of the economic loss rule goes well beyond the exception to the rule that the California Supreme Court crafted in Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (2004), that is “narrow in scope and limited to a defendant’s [the seller’s] affirmative misrepresentations on which a plaintiff [the Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 6 of 26 Page ID #:5266 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 2 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS buyer] relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” Id. at 993 (emphasis added). The first iteration of Valcor’s FAC (Dkts. 31, 43) did not allege any personal damages, but this Court granted Valcor’s motion to amend, specifically contingent on Valcor “alleg[ing] either personal damages or exposure to liability for personal damages.” (Order at 10 (Dkt. 111).) 1 In its futile attempt to plead around the economic loss rule and fit within the narrow exception, Valcor asserts in a conclusory fashion that Parker ‒ the buyer ‒ concealed “in-service operating data” from Valcor – the seller – that “impeded Valcor’s efforts to improve the service life of the ASMs, and has exposed Valcor to liability for personal damages to third-parties, and disciplinary actions by the FAA” should a fuel tank combust. (See Ex. A attached hereto, FAC ¶ 164 (A) (i)-(iv).) In other words, Valcor now alleges that it would face potential third-party personal damages liability based on the performance of its own product that it sold to Parker. Valcor’s new ill-conceived theory cannot be squared with Robinson Helicopter in numerous respects. Here, unlike Robinson Helicopter, Valcor repeatedly alleges that its products were not defective and that they were “manufactured in conformance with all specifications provided by Parker, and performed according to the specifications provided by Parker.” (FAC ¶¶ 124, 127, 174.) Since the truth of these allegations must be accepted for purposes of a Rule 12(b)(6) motion, there is no possibility that Valcor could be liable for personal injury resulting from its sale of non-defective, fully-conforming products to Parker. 1 The first time Valcor ever broached the subject of it being subject to liability for personal damages was at the very conclusion of the June 12, 2017 hearing on Valcor’s motion for leave to amend. During that hearing, in response to statements that Valcor had only pled economic damages in the proposed FAC, Valcor’s counsel jumped to the podium and represented “on the fly” that they could plead personal damages in an apparent attempt to evade the application of the economic loss rule. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 7 of 26 Page ID #:5267 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 3 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS Indeed, had the plaintiff-buyer in Robinson Helicopter conceded that the defendant- seller’s products fully conformed to the plaintiff-buyer’s specifications, the narrow exception clearly would not have applied in that case. Valcor is bound by its own allegations, which establish the futility of it pleading potential personal damages. More fundamentally, in Robinson Helicopter, the defendant-seller made affirmative misrepresentations to the plaintiff-buyer that induced the buyer to purchase the seller’s defective products, exposing the buyer to personal injury damages, not the other way around. Here, the facts are completely backwards. Valcor alleges that the buyer (Parker) concealed information from the seller (Valcor) that impeded the seller’s ability to improve its non-defective products, exposing the seller to personal injury damages. Parker’s extensive research has revealed no case that supports such a theory of tort liability against the product’s buyer. Nor was Valcor’s counsel able to present a single case to support such a theory after being expressly asked for such case law before counsel conducted their L.R. 7-3 conference leading to the filing of this motion. (Gale Decl., ¶ 2, Ex. 1.) Moreover, while Valcor hints in this newly minted paragraph (Ex. A attached hereto) that it would have used the undisclosed in-service operating data to improve the service life of its products, Valcor urges elsewhere in the FAC that it really had no intention of doing so. (See, e.g., FAC ¶ 170 (“Had Parker shared information regarding in-service operating conditions, Electroid would not have spent unnecessary time and money working on improvements to Electroid’s ASM.”).) Rather, Valcor alleges economic loss because it would have taken steps to sell the ASMs to other customers “at a higher price than it could sell to Parker.” (Id. ¶¶ 190, 194.) In fact, for all of its professed concern about a possible “airplane explosion,” Valcor admits that it continues to sell the same ASMs to this day (id. ¶ 125) – at least six years after it became aware in 2011 of the shortened service life (id. ¶ 24). This further confirms that Valcor’s alleged damages are purely Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 8 of 26 Page ID #:5268 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 4 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS economic and that its personal damages claim is contrived. Further, every duty allegedly breached under Valcor’s fanciful fraud claim is also a duty allegedly breached under Valcor’s breach of contract claim, or is an alleged duty to disclose a plan or intent to breach the contract or commit fraud. In fact, Valcor specifically alleges that Parker’s concealment of in-service operating data that gives rise to Valcor’s alleged fraud claim allegedly breaches an express provision contained in the parties’ written contract. And intending or planning to breach a contract (or commit a tort) does not give rise to a legal duty to disclose. LiMandri v. Judkins, 52 Cal. App. 4th 326, 336 (1997); Deteresa v. Am. Broad. Cos., 121 F.3d 460, 467-68 (9th Cir. 1997). In addition, Valcor’s attempt to stretch a straightforward breach of contract claim into an additional claim for breach of the implied covenant of good faith and fair dealing, again, goes beyond what may be permissibly alleged. That is because each alleged implied breach is inseparable from Valcor’s express breach of contract claims, making it ripe for dismissal. Valcor has not alleged that Parker took any action to “cheat [Valcor] out of contract benefits while not actually breaching the contract.” Travelers Prop. Cas. Co. of Ams. v. Centex Homes, 2012 WL 1657121, at *8 (N.D. Cal. May 10, 2012). For these reasons, Valcor’s fraudulent concealment and breach of the implied covenant claims are not plausible on their face, such that they could draw a reasonable inference that Parker is liable for the alleged misconduct. They should be dismissed with prejudice in their entirety. 2. STATEMENT OF FACTS Under the Strategic Procurement Agreement (“SPA”), Parker contracted to purchase ASMs from Electroid for use in fuel tank inerting systems manufactured by Honeywell Corp., which in turn were sold to Boeing for its 737 planes. Fuel tank inerting systems decrease aircraft fuel tank flammability by delivering nitrogen-enriched air to the fuel tanks, providing an inert gaseous environment. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 9 of 26 Page ID #:5269 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 5 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS (FAC ¶ 6.) ASMs are used to generate nitrogen for fuel tank inerting applications. (Id. ¶ 8.) The SPA had stringent quality and reliability requirements, and its viability was expressly “contingent on [Electroid] meeting Parker’s expectation of acceptable performance ….” (Id. Ex. 3 § 1.0.) Electroid thus expressly agreed to make “foundation performance commitments” (id., at 1), including:  Technology: maintain or improve Electroid’s technology, industry position and competitiveness;  Quality: meet or exceed Parker’s quality requirements;  Lead-time: flexible to support Parker’s requirements;  Delivery quantity: flexible to support Parker’s requirements;  Price: share the benefit from the parties’ commitment, maintain or improve competitiveness;  Continuous Improvement in all the above: work with Parker to reduce cost, improve quality and reliability, increase sales. The SPA then set forth detailed conditions that Electroid’s ASMs were required to meet, such as a minimum service interval requirement of 27,000 hours. (Id., Attach. C § 4.1.3.) Parker agreed to purchase ASMs from Electroid “[p]rovided that [Electroid] remains in compliance with its contractual obligations … and satisfactorily meets all requirements regarding delivery, quality, lead-time and pricing ….” (Id., Ex. 3 § 2.0.) The SPA also expressly permitted Parker to terminate it “[i]n the event [Electroid] does not fulfill the commitments under this Agreement ….” (Id., Attach. B § 20.0.) Several years into the contract, Electroid’s ASMs began failing at an alarming and intolerable rate. (See, e.g., id., Ex. 11 at 2 (“The Electroid ASM currently in use on the 737NG is not meeting service life expectations (10,500 hrs vs. 27,000 hrs) due to tube sheet durability issues.”).) But, even though these failures became more than what Parker could accept, Parker knew that it was not Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 10 of 26 Page ID #:5270 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 6 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS feasible to immediately terminate Electroid as soon as Electroid breached the SPA. Obviously, changing suppliers is no simple task. ASMs are unique products that are subject to strict FAA regulation. Thus, it would take a substantial amount of time and money to develop and obtain approval for a replacement ASM. (See, e.g., id., Ex. 7 (estimating that it will take nearly four years to transition).) However, Parker also was keenly aware that it had to remediate or mitigate the increasingly high cost and significant negative impact of Electroid’s ASM failures. (See, e.g., id., Ex. 4.) Thus, Parker worked with Electroid to determine if it could fix the problem through a “Corrective Action Plan.” But, because there was no guaranty that Electroid could remedy the problem, as any prudent business would, Parker also initiated a plan to engage a different ASM supplier “[a]s a mitigation action” and “in the event the Electroid/Medal option falls apart.” (Id.) Parker worked diligently with Electroid on the Corrective Action Plan for several years before deciding to transition to a different supplier due to Electroid’s inability to cure its products’ performance. (Counterclaim ¶ 46 (Dkt. 19).) During this time, Electroid was well aware that its product was not meeting the SPA’s requirements. In fact, in early 2014, Electroid and Parker were discussing developing a new ASM to replace Electroid’s current ASM. (FAC, Ex. 13 (listing “[d]evelopment status and update regarding next generation ASM” as an item to discuss).) Transitioning to an entirely new ASM manufacturer nonetheless became necessary, because of the reality that Parker would lose significant business due to the rampant premature failures of Electroid’s ASMs. Parker estimated that it would “lose 70% market share if [it] stayed with” Electroid’s deficient ASMs, which ultimately would have led to the loss of the Honeywell business. (Id., Ex. 14.) Once Valcor realized that Electroid would be unable to resolve its products’ failures and that Parker was likely to exercise its right to terminate the SPA, on May 18, 2016, Valcor preemptively filed a complaint alleging that Parker breached Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 11 of 26 Page ID #:5271 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 7 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS various SPA provisions, including “engaging a new OEM supplier of ASMs for the 737 NGS Program” (Complaint ¶ 47(A) (Dkt. 1)), among other contract-based claims, all of which Parker vigorously disputes. Parker, the rightful plaintiff in this contract dispute, filed its counterclaims against Valcor to recover the damages it suffered as a result of Electroid’s many SPA breaches. 3. THE ECONOMIC LOSS RULE BARS VALCOR’S FRAUD CLAIM A court must dismiss a complaint under Rule 12(b)(6) where a plaintiff fails to set forth “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) (emphasis added); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “[C]onclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss.” Doe v. Walmart Stores, Inc., 572 F.3d 677, 683 (9th Cir. 2009). A plaintiff’s complaint “must be dismissed” if it “ha[s] not nudged [its] claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 750. In assessing the legal sufficiency of a claim, a court may and should “draw on its judicial experience and common sense” and conduct a “context-specific” analysis. Iqbal, 556 U.S. at 679. A tort claim is not plausible “where the breach of duty is nothing more than a violation of a promise which undermines the expectations of the parties to an agreement.” Oracle USA, Inc. v. XL Global Svcs., Inc., 2009 WL 2084154, at *4 (N.D. Cal. July 13, 2009). In order for conduct to become tortious, it must violate a duty independent of the contract arising from principles of tort law ‒ such as where there is a “special” or “confidential” relationship between the parties, where there is a “‘duty’ not to commit certain intentional torts” or where there was a knowing intent to “cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.” United Guar. Mtg. Indem. Co. v. Countrywide Fin. Corp., 660 F. Supp. 2d 1163, 1181 (C.D. Cal. 2009). Moreover, a tort claim is not plausible where it fails to plead legitimate non-economic damages separate and apart from contractual damages. The economic loss rule bars Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 12 of 26 Page ID #:5272 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 8 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS recovery in tort where “‘the damages a plaintiff seeks are the same economic losses arising from the alleged breach of contract.’” Audigier Brand Mgmt. v. Perez, 2012 WL 5470888, at *5 (C.D. Cal. Nov. 5, 2012) (citation omitted). 2 3.1 Valcor Fails to Plead Plausible Non-Economic Damages “Providing tort remedies in connection with a breach of contract is particularly inappropriate when the sole injury to the plaintiff is economic.” BNSF Ry. Co. v. San Joaquin Valley R.R., 2011 U.S. Dist. LEXIS 84694, at *16 (E.D. Cal. Aug. 2, 2011). The only narrow exception to this rule is when a plaintiff is exposed to personal damages apart from the economic loss. See Robinson Helicopter, 34 Cal. 4th at 993 (“Our holding today is narrow in scope and limited to defendant’s affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.”). The facts of Robinson Helicopter, and the context in which the narrow exception to the economic loss rule was created, are important to consider as it relates to Valcor’s newly added allegations to paragraph 164 (Ex. A attached hereto). The plaintiff in Robinson Helicopter (the buyer) had contracted with the defendant (the seller) over a number of years to purchase clutches for use in helicopters that the plaintiff-buyer manufactured. These clutches functioned primarily as a safety device. The plaintiff-buyer later learned that the defendant- seller had, for over a year, affirmatively misrepresented that the clutches it 2 Parker notes that in this Court’s order granting Valcor’s motion for leave to amend (Dkt. 111), the Court did not apply the same standard applicable here. Instead the Court “consider[ed] the plausibility of [Valcor’s fraud] claim, but [afforded] Valcor the opportunity to test its claim on the merits unless it appear[ed] beyond doubt that the proposed FAC would be subject to dismiss.” (Order at 12 (emphasis in original).) The Court further explained that “[i]f Parker still takes issue with Valcor’s complaint, it should raise those issues in a motion to dismiss.” (Id.) Parker has done just that. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 13 of 26 Page ID #:5273 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 9 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS produced conformed to contract specifications. The defendant-seller had issued false certificates of conformance, certifying that its clutches were ground to the required level of hardness when in fact they were not. The failure rate of the non- conforming clutches was higher than normal and the FAA and its British equivalent required the plaintiff-buyer to recall each helicopter with a faulty clutch and replace the component. This resulted in substantial costs to the plaintiff-buyer. Robinson Helicopter, 34 Cal. 4th at 985-88. Moreover, although no helicopter had crashed due to a faulty clutch, the defendant-seller’s misrepresentations had exposed the plaintiff-buyer to the risk of such an occurrence and the resulting liability for personal damages. Id. at 991. The Court held that the economic loss rule did not bar the imposition of punitive damages on the defendant-seller in that case. Such damages could be imposed because of the seller’s intentional affirmative misrepresentations regarding the quality of its products, which were independent of the breach of contract. The Court explained, “[a] breach of contract remedy assumes that the parties to a contract can negotiate the risk of loss occasioned by the breach…. However, a party to a contract cannot rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract.” Id. at 992-93. The Court also took care to make clear that its holding was “narrow in scope and limited to a defendant’s affirmative misrepresentations on which a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the plaintiff’s economic loss.” Id. at 993. In sum, the seller’s affirmative misrepresentations through its false certifications exposed the buyer to liability for personal damages that were independent of the buyer’s economic loss under the contract between the parties. Contrast the facts of Robinson Helicopter to the facts here, where Valcor (the seller) has alleged that Parker (the buyer) concealed data about Valcor’s own product. Despite Valcor’s product allegedly lacking any defect and allegedly Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 14 of 26 Page ID #:5274 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 10 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS having been made according to Parker’s specifications, Valcor persists, in the most conclusory of allegations, that Parker’s concealment somehow exposed Valcor to a claim for personal damages. This argument is an illogical and failed attempt to shoehorn the FAC’s alleged facts to fit within this narrow exception to the economic loss rule. Indeed, Parker’s extensive research has not found any case finding an exception under the economic loss rule where a seller of products under a contract was alleging fraud by a buyer ‒ let alone one for fraudulent concealment. Furthermore, before holding the L.R. 7-3 meet and confer on this motion, Parker’s counsel requested that Valcor’s counsel provide citations to any case law where an “exception to the [economic loss] rule was applied to the seller of goods, such as Valcor. . . .” (Gale Decl., ¶ 2, Ex. 1.) No written response to that request for case law was forthcoming. Then, during the telephonic meet and confer, Valcor’s counsel again was asked for case law support, but was unable to provide any. This complete absence of case law is consistent with subsequent courts’ doubts “that Robinson Helicopter has any application outside the products liability context in which it was decided.” JMP Secs. LLP v. Altair Nantechnologies, Inc., 880 F. Supp. 2d 1029, 1043 (N.D. Cal. 2012) (emphasis added) (citing Judge Pfaelzer’s opinion in United Guaranty, 660 F. Supp. 2d at 1183; Oracle USA, 2009 WL 2084154, at *6). It is also consistent with a subsequent court’s conclusion that the “economic loss rule seems particularly suited to commercial transactions.” JMP Secs., 880 F. Supp. 2d at 1043. In JMP Securities, the defendant hired the plaintiff to serve as its financial advisor in anticipation of a substantial financial transaction. The parties formalized their relationship in a written agreement. The deal closed, but the defendant failed to pay any fees to the plaintiff. The plaintiff sued the defendant for breach of contract and fraud (among other claims) alleging that the defendant misrepresented on numerous occasions that it would pay the plaintiff a higher fee associated with Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 15 of 26 Page ID #:5275 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 11 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS certain work, while knowing all along that it would not, and that the plaintiff relied on those alleged falsehoods. Id. at 1033. The court nonetheless held that the economic loss rule barred the plaintiff’s fraud claims. The court noted that policy considerations did not favor excusing the plaintiff from the economic loss rule as the “rule generally means that courts ‘enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.’” Id. at 1043-44 (citing Robinson Helicopter, 34 Cal. 4th at 991-92). The court further observed that the defendant’s “conduct [was] not so clearly deviant as to warrant the imposition of tort remedies.” The court then concluded that the plaintiff’s “assertions of tortious conduct come down essentially to a claim that [the defendant] not only broke its promises, but did so in bad faith. A tort cause of action will not lie on those facts.” JMP Secs., 880 F. Supp. 2d at 1044. Furthermore, as noted earlier, Valcor’s desperate attempt to satisfy this Court’s condition for permitting Valcor’s fraud claim to proceed (Dkt. 111, p.15) directly contradicts its existing allegations and prior positions, further rendering Valcor’s fraud claim implausible. For example, in its initial disclosures and all other iterations of its complaint, Valcor never even hinted at the possibility of any claim against it for potential personal damages. (Gale Decl., Ex. 2, p. 10 (Valcor’s Initial Disclosures)(“COMPUTATION OF EACH CATEGORY OF DAMAGES THAT WE CLAIM”); Dkt. 1 (Complaint); Dkts. 31, 43 (proposed FAC).) To make matters worse, as mentioned above, such allegations directly contradict Valcor’s earlier allegations from the very same pleading. Valcor cannot now plead that its product was free of defects and fully complied with the SPA’s requirements, while alleging that Parker’s conduct exposed it to a claim for personal damages. A defective product is a necessary element of a products liability claim. Soule v. Gen. Motors Corp., 8 Cal. 4th 548, 560 (1994). Other than its belated and futile attempt to circumvent the economic loss Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 16 of 26 Page ID #:5276 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 12 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS rule, all of the other injuries Valcor alleges are economic. Valcor alleges that: “Electroid would have been the exclusive supplier of ASMs for the life of the Boeing 737 Program” (FAC ¶¶ 130, 225), “Electroid would have taken actions to protect itself and its position in the Boeing 737 OEM and aftermarket marketplace” (id. ¶¶ 130, 191-93, 226), and “Electroid would not have unnecessarily expended money to implement the Corrective Action Plan and increase its production capacity” (id. ¶ 172). Valcor is not permitted to plead contradictory facts in order to sidestep pleading requirements. 3 The Oracle court’s opinion, cited with approval by all four of the California district courts, certainly rings true in this case: Virtually any time a contract has been breached, the party bringing suit can allege that the breaching party never intended to meet its obligations. Businesses should not have to worry that simple disputes about bills and contract performance will routinely lead to the threat of punitive damages. To allow claims in actions such as this one would collapse the carefully-guarded distinction between contract and tort law. 2009 WL 2084154, at *7 (cited with approval in, e.g., Foster Poultry Farms v. Alkar Rapidpak-MP, 868 F. Supp. 2d 983, 991 (E.D. Cal. 2012); UMG Recordings, Inc. v. Global Eagle Entm’t, 117 F. Supp. 3d 1092, 1104 (C.D. Cal. 2015); JMP Secs., 880 F. Supp. 2d at 1044 [N.D. Cal.]; and Warrick v. Travelers Comm. Ins. Co., 2015 WL 11921403 at *3 (S.D. Cal. Oct. 29, 2015)). 3.2 Parker had no Legal Duty to Disclose Contractual duties arising under the SPA cannot give rise to a separate fraud claim. Pac. Bus. Capital Corp. v. Globex Brands, Inc., 2011 U.S. Dist. LEXIS 3 See, e.g., Daniel v. City of Glendale, 2015 WL 5448562, at *10 (C.D. Cal. Mar. 19, 2015) (citing Lacey v. Maricopa, 693 F.3d 896, 939 (9th Cir. 2012)); see also Manley v. Experian Info. Solutions, Inc., 2017 WL 151540, at *5 (N.D. Cal. Jan. 16, 2017) (“These two factual allegations are inconsistent with one another and therefore cannot state a claim.”). Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 17 of 26 Page ID #:5277 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 13 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS 3335, at *6 (C.D. Cal. Jan. 7, 2011) (dismissing fraud claim where plaintiff’s “fraud allegations obviously invoke[d] breach of contract theories” and only alleged contract-based duties). Each duty alleged under Valcor’s fraud claim flows from the SPA. In support of its fraudulent concealment claim, Valcor alleges that Parker fraudulently failed to disclose to Valcor material information regarding the Boeing 737 in-service operating environment. (See, e.g., FAC ¶¶ 140-41, 174.) In fact, Valcor’s newly-contrived “exposure to liability for personal damages” is premised exclusively on Parker’s alleged concealment of “in-service operating data,” which allegedly “obstructed Valcor’s ability to improve the service life of the ASMs …” (FAC ¶ 164(A)(iv).) However, Valcor expressly alleges that this duty to disclose arose, “[p]ursuant to Section 8.0 of Attachment B to the SPA,” under which Parker allegedly “had a duty to share all in-service data and work together with Electroid to analyze data and actively develop improvements to the ASM.” (Id. ¶ 188.) Moreover, Valcor’s breach of contract claim is premised, in part, on this same breach of Section 8.0 of the SPA: “Parker was required to share all in-service data and work together with Electroid to analyze data and actively develop improvements to the ASM. Parker has violated Section 8.0 by failing and refusing to share data with Electroid regarding the actual in-service operating environment, failing and refusing to work together with Electroid to analyze the data and develop improvements to the ASM, and failing to cooperate and share technical information with Electroid to complete Phase 2 and Phase 3 of the Corrective Action Plan.” (FAC ¶ 128(H).) Valcor also alleges as part of its fraud claim that “Parker ceased sharing technical data with Electroid, and Parker ceased holding technical meetings and quarterly program reviews with Electroid, in violation of Sections 5.0, 8.0, 12.2, and 12.3 of the SPA [and that] Parker fraudulently concealed from Electroid that it was sharing information with Air Products that it was contractually required to Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 18 of 26 Page ID #:5278 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 14 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS share with Electroid, and planned to have Air Products replace Electroid.” (Id. ¶ 151 (emphasis added).) Undeniably, there is no separating Valcor’s alleged fraudulent concealment duties from Valcor’s alleged contractual duties. As the following comparison demonstrates, each of the duties Valcor alleges Parker owed to it under its fraud claim are duties Valcor alleges Parker purportedly owed to it under its breach of contract claim. Alleged Fraud Claim Duties Alleged Breach of Contract Claim Duties A duty to disclose its initial discussions with Air Products regarding “a memorandum of understanding regarding the 737 MAX program and an exclusivity agreement” (¶¶ 140-41); its plan to replace Electroid (¶ 146). “Parker has materially breached Section 1.0 of the SPA by engaging a new supplier of ASMs for the Boeing 737 Program.” (¶ 128(A).) “Parker materially breached the SPA by signing a January 9, 2014 memorandum of understanding with Air Products…, by signing the Exclusivity Agreement with Air Products…, and by terminating Electroid.” (¶ 128(O).) “[A] duty to work with Electroid to modify the Parker Filter and Electroid ASM” (¶ 156) and “to share information with Electroid” (¶ 174). “Parker ceased sharing technical data with Electroid, and Parker ceased holding technical meetings and quarterly program reviews with Electroid, in violation of Sections 5.0, 8.0, 12.2, and 12.3 of the SPA.” “Parker has materially breached Section 5.0 by failing and refusing to use its best efforts to define and agree on acceptable quality requirements that address the actual in-service operating environment with Electroid, failing to amend or supplement the ASM specifications for the SPA, and failing to cooperate and share technical information with Electroid to complete Phase 2 and Phase 3 of the Corrective Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 19 of 26 Page ID #:5279 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 15 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS (¶ 151.) “[R]ather than working with Electroid on Phase 3 of the Corrective Action Plan, Parker materially breached its duty…” (¶ 156.) Action Plan.” (¶ 128(E).) “[A] duty to inform Electroid that it had changed the specifications.” (¶ 160.) “Parker further materially breached the SPA by developing new specifications for the bleed air entering the ASM without disclosing those specifications to Electroid.” (¶ 128(G).) “[A] duty to disclose honestly and not make misleading statements or suppress facts which are contrary to or materially qualify those stated or asserted.” (¶ 158.) “When Electroid advised Parker that contaminated bleed air was passing through the Parker Filter and causing the early returns, Parker knew Electroid was correct. But Parker concealed that knowledge and denied that contaminated bleed air passing through the Parker Filter was a problem.” (¶ 128(L).) “Pursuant to Section 8.0 of Attachment B to the SPA, Parker had a duty to share all in-service data and work together with Electroid to analyze data and actively develop improvements to the ASM.” (¶ 188.) “Parker has violated Section 8.0 by failing and refusing to share data with Electroid regarding the actual in-service operating environment…” (¶ 128(H).) Moreover, even if the Court finds that there is not sufficient overlap between the alleged tort duties and alleged contract duties, Valcor still cannot plead an independent legal duty to disclose. For example, Valcor alleges Parker’s “scheme Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 20 of 26 Page ID #:5280 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 16 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS to replace Electroid with Air Products as the supplier of ASMs” as a basis for both its fraud claim (id. ¶ 147) and its breach of contract claim (id. at ¶ 128(A)). But, Valcor also alleges that Parker owed it a duty to disclose that it was working with Air Products and “intended to terminate Electroid.” (Id. ¶¶ 140-41.) Thus, Valcor is alleging that failing to disclose Parker’s alleged plan to breach the contract (and commit fraud) also is tortious. However, “one who intends to commit a tort [does not owe] a duty to disclose that intention to his or her intended victim.” LiMandri, 52 Cal. App. 4th at 338; see also Deteresa, 121 F.3d at 467-68 (“Even if the audiotaping and videotaping were wrongful under tort principles or a statute, ABC is not liable for failing to disclose its intention to commit those wrongful acts.”). Notably, Valcor does not disclose how much additional advance warning Parker owed (either under the SPA or under tort duties) of its alleged intention to terminate the SPA. Indeed, although one contracting party relies on the other to honor its obligations, neither party reasonably expects the other to disclose in advance its intention to breach the contract. Thus, any alleged duty to disclose an intent to breach the SPA or commit fraud cannot serve as a basis for Valcor’s fraud claim. Furthermore, the mere fact that there was a transaction between Parker and Valcor, or a buyer/seller relationship, does not, by itself, automatically give rise to a duty to disclose. Notably, while LiMandri v. Judkins, upon which Valcor previously relied, generally suggested the possibility that such a circumstance could arise as part of the court’s enumeration of various relationships, 52 Cal. App. 4th at 337, the court gave absolutely no context when that would apply and certainly did not apply such a duty to that case. Indeed, to the contrary, the LiMandri court held that there was no fiduciary duty between counsel for one party and counsel for another that would give rise to a duty to disclose. Id. However, the LiMandri court’s opinion is notable here for the following maxim of law: “[t]he general duty is not to warn of the intent to commit wrongful acts, but to refrain from committing Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 21 of 26 Page ID #:5281 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 17 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS them. We are aware of no authority supporting the imposition of additional liability on an intentional tortfeasor for failing to disclose his or her tortious intent before committing a tort.” Id. at 338 (emphasis added). Significantly, Valcor has never cited a single case, nor could it, that explains the factual context in which a duty to disclose existed solely by reason of a buyer/seller relationship. Truly, it would be absurd to impose a non-contractual legal duty on a buyer to disclose facts relating to a seller’s product. This is likely why neither party has been able to locate a case based on that set of facts. (Gale Decl., ¶ 2, Ex. 1.) It doesn’t exist. In the limited circumstances where a buyer/seller relationship does give rise to a legal duty to disclose, it is imposed upon a seller, or there is some sort of special relationship between the parties, such as a broker in a real estate transaction. And typically, that relationship induces a party to enter into a transaction (not to continue operating under a contract that has been in effect for over ten years). See, e.g., Holmes v. Summer, 188 Cal. App. 4th 1510, 1515 (2010) (finding seller’s real estate brokers had a duty to disclose to the buyer that “there was a substantial risk that the seller could not transfer title free and clear of monetary liens and encumbrances”); see also Blennis v. Hewlett-Packard Co., 2008 WL 818526, at *5 (N.D. Cal. Mar. 25, 2008) (finding that the seller of printer ink had a duty to disclose to buyers that the life span of the cartridges would not last as long as the warranty provided by the seller). Accordingly, Valcor cannot plead a legal duty independent of the SPA’s contractual provisions. Because a legal duty to disclose is an essential element of a fraudulent concealment claim, Boschma v. Home Loan Ctr., Inc., 198 Cal. App.4th 230, 248 (2011), Valcor fails to state a claim for fraudulent concealment under Rule 12(b)(6) for this additional reason. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 22 of 26 Page ID #:5282 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 18 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS 4. VALCOR FAILS TO STATE A CLAIM FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAITH DEALING “Under California law, a claim for breach of the implied covenant of good faith and fair dealing requires that a contract exists between the parties, that the plaintiff performed his contractual duties or was excused from nonperformance, that the defendant deprived the plaintiff of a benefit conferred by the contract in violation of the parties’ expectations at the time of contracting, and that the plaintiff’s damages resulted from the defendant’s actions.” Free Range Content, Inc. v. Google, Inc., 2016 WL 2902332, at *14 (N.D. Cal. May 13, 2015) (citation omitted). 4.1 Valcor Seeks Relief that Expands the Obligations Under the SPA Beyond What the Parties Contemplated “The implied covenant of good faith and fair dealing must rest on ‘the existence of some specific contractual obligation’ and is implied ‘as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’” Water, Inc. v. Everpure, Inc., 2012 WL 12949368, at *14 (C.D. Cal. Aug. 2, 2012) (emphasis in original) (quoting Los Angeles Equestrian Cir., Inc. v. City of Los Angeles, 17 Cal. App. 4th 432, 447 (1993)). Valcor alleges that it would have both “been the exclusive supplier of ASMs for the life of the Boeing 737 program” and participated in the aftermarket marketplace. (FAC ¶ 225.) But Valcor does not plead how participating in the aftermarket marketplace is a “benefit[] of the contract.” 4 Indeed, if Valcor were to 4 Valcor cites to FAC Exhibit 11 to support this statement. However, that excerpted slide expressly states that “[a]lthough Parker continues to absorb the cost of premature ASM failures and Boeing plans to carry the Electroid ASM forward to the 737MAX, dissatisfaction expressed by the operators suggests that: - The market Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 23 of 26 Page ID #:5283 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 19 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS continue performing under the contract and participate in the aftermarket, it would be in breach of the SPA. (Id., Ex. 3 at 1 § 1.0 (“Seller agrees to work exclusively with Parker and to not…otherwise assist any third party with respect to any…aftermarket or spare part sales….”).) In effect, Valcor is asserting that Parker deprived it of its right to breach the SPA ‒ a claim for breach of the covenant of good faith and fair dealing therefore cannot lie on those facts. 4.2 Valcor Fails to Allege a Viable Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing If the allegations of bad faith “do not go beyond the statement of a mere contract breach and, relying on the same alleged acts simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990). Moreover, “acts that comply with the terms of a contract ‘cannot without more be equated with bad faith.’” Am. Student Fin. Group, Inc. v. Dade Med. Coll., Inc., 180 F. Supp. 3d 671, 679 (S.D. Cal. 2015). As an initial matter, Valcor’s claim for bad faith is subject to dismissal because the damages under that claim (FAC ¶ 228) are identical to the damages under its breach of contract claim (id. ¶ 131). See Env’t Furniture, Inc. v. Bina, 2010 WL 5060381, at *3 (C.D. Cal. Dec. 6, 2010); see also Centex Homes, 2012 WL 1657121, at 8* (“[S]ince both claims sound in contract, they seek the same damages. Accordingly [Plaintiff’s] bad faith claim must be dismissed as duplicative.”). Moreover, Valcor’s alleged damages under its bad faith claim – the is rife with opportunity for a PMA solution from a competitor - Promoting the Electroid ASM over the long term will be unsustainable and the 737NG and 737MAX ASM business will be lost to a competitor.” Thus, the slide says the opposite of what Valcor cites it to support, making this yet another inconsistent pleading within the FAC. Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 24 of 26 Page ID #:5284 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 20 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS ability to be the exclusive supplier in the OEM marketplace and participate in the ASM aftermarket (FAC ¶¶ 225-28) – are not rights of which Valcor was deprived under the SPA due to Parker’s alleged bad faith conduct, but rather the alleged consequential damages of Parker’s alleged breaches of the SPA itself (id. ¶¶ 130- 31). In addition, each of Parker’s alleged bad faith acts also is an alleged breach of various express SPA provisions, or equates to Parker demanding that Valcor comply with the SPA’s express provisions. In other words, Valcor does not allege that Parker’s conduct cheated Valcor out of its benefits under the SPA without actually breaching the SPA, making Valcor’s claims for breach of contract and bad faith entirely duplicative. See Centex Homes, 2012 WL 1657121, at *8. For example, Valcor alleges that Parker “performing financial analyses to determine whether it was in Parker’s interest to breach the SPA and terminate Electroid” (FAC ¶ 203(A)) and Parker “developing a plan to terminate Electroid” (id. ¶ 202(H)) are breaches of the implied covenant of good faith and fair dealing. However, Valcor fails to connect how such conduct deprived Valcor of any benefit under the SPA. This is true even if Parker did, as Valcor alleges, end up terminating the contract, since Parker’s alleged termination is simply a breach of the contract. Furthermore, Valcor expressly alleges that Parker planning to terminate the SPA was a breach. Thus, this claim is also duplicative of Valcor’s breach of contract claim. (See, e.g., id. ¶ 128(N) (“Parker…has stated and confirmed its intent to terminate Electroid as the supplier of ASMs for the Boeing 737 Program, in violation of Section 20.0.”).) As another example, Valcor alleges that Parker acted in bad faith by “meeting with Air Products to replace Electroid” (id. ¶ 202), but it alleges that same conduct breached Section 5.0 of the SPA (id. ¶ 128(F) (“instead of complying with its obligations under Section 5.0 to work with Electroid, Parker materially breached Section 5.0 of the SPA by working with Air Products to design a new ASM as a Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 25 of 26 Page ID #:5285 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31644640 - 21 - PARKER HANNIFIN CORP.’S MOTION TO DISMISS VALCOR ENGINEERING CORP.’S FRAUD AND BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS replacement for the Electroid ASM”). In sum, Valcor fails to plead that Parker “deprived [Valcor] of a benefit conferred by the contract” by some breach beyond the express covenants in the contract – two essential elements of a bad faith claim. Free Range Content, 2016 WL 2902332, at *14. 5. CONCLUSION Valcor’s fraud and breach of the covenant of good faith and fair dealing claims should be dismissed with prejudice. Dated: July 5, 2017 Respectfully submitted, TROUTMAN SANDERS LLP By: /s/ Paul L. Gale Paul L. Gale Peter N. Villar Lauren E. Grochow Nicholas J. Schuchert Attorneys for PARKER HANNIFIN Case 8:16-cv-00909-JVS-KES Document 116-1 Filed 07/05/17 Page 26 of 26 Page ID #:5286 EXHIBIT A Case 8:16-cv-00909-JVS-KES Document 116-2 Filed 07/05/17 Page 1 of 3 Page ID #:5287 Case 8:16-cv-00909-JVS-KES Document 116-2 Filed 07/05/17 Page 2 of 3 Page ID #:5288 Case 8:16-cv-00909-JVS-KES Document 116-2 Filed 07/05/17 Page 3 of 3 Page ID #:5289 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31680040 [PROPOSED] ORDER GRANTING PARKER HANNIFIN’S MOTION TO DISMISS VALCOR’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS PAUL L. GALE (SBN 065873) paul.gale@troutmansanders.com PETER N. VILLAR (SBN 204038) peter.villar@troutmansanders.com LAUREN E. GROCHOW (SBN293601) lauren.grochow@troutmansanders.com NICHOLAS J. SCHUCHERT (SBN 307249) nicholas.schuchert@troutmansanders.com TROUTMAN SANDERS LLP 5 Park Plaza, Suite 1400 Irvine, CA 92614-2545 Telephone: 949.622.2700 Facsimile: 949.622.2739 Attorneys for Defendant and Counterclaimant PARKER HANNIFIN CORPORATION UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION VALCOR ENGINEERING CORPORATION, a New Jersey corporation, Plaintiff, v. PARKER HANNIFIN CORPORATION, an Ohio corporation, Defendant. Case No. 8:16-cv-00909-JVS (KESx) Hon. James V. Selna [PROPOSED] ORDER GRANTING PARKER HANNIFIN CORPORATION’S MOTION TO DISMISS VALCOR ENGINEERING CORPORATION’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS Date: August 21, 2017 Time: 1:30 p.m. Place: Courtroom 10C AND RELATED COUNTERCLAIM. Case 8:16-cv-00909-JVS-KES Document 116-3 Filed 07/05/17 Page 1 of 2 Page ID #:5290 T R O U T M A N S A N D E R S L L P 5 P A R K P L A Z A S U IT E 1 4 0 0 IR V IN E , C A 9 2 6 1 4 -2 5 4 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31680040 - 1 - [PROPOSED] ORDER GRANTING PARKER HANNIFIN’S MOTION TO DISMISS VALCOR’S FRAUD AND BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING CLAIMS On August 21, 2017, a hearing was held on Defendant and Counterclaimant Parker Hannifin Corporation’s (“Parker”) Motion to Dismiss Valcor Engineering Corporation’s (“Valcor’s”) Fraud and Breach of the Covenant of Good Faith and Fair Dealing Claims. Upon consideration of all papers filed by the parties, and argument of counsel, the Court finds as follows: 1. Valcor fails to state a claim for fraud as its claim is barred by the economic loss rule and fails to plead essential elements of a fraud claim. 2. Valcor fails to state a claim for breach of the covenant of good faith and fair dealing as its claim is duplicative of its breach of contract claim and fails to plead essential elements of a bad faith claim. IT IS HEREBY ORDERED: 1. Parker’s Motion to Dismiss is GRANTED; 2. Valcor’s fraud claim is DISMISSED with prejudice; and 3. Valcor’s breach of the covenant of good faith and fair dealing claim is DISMISSED with prejudice. Dated: ___________ _______________________________________ Honorable James V. Selna United States District Court Judge Case 8:16-cv-00909-JVS-KES Document 116-3 Filed 07/05/17 Page 2 of 2 Page ID #:5291