RBB2, LLC v. CSC Serviceworks, Inc. ( 2019 )

2 3 UNITED STATES DISTRICT COURT 4 FOR THE EASTERN DISTRICT OF CALIFORNIA 5 6 RBB2, LLC, a California limited liability 1:18-cv-00915-LJO-JLT company, individually and on behalf of all 7 others similarly situated, MEMORANDUM DECISION AND ORDER RE PLAINTIFF’S MOTION 8 Plaintiff, TO DISMISS 9 v. (ECF No. 31) 10 CSC SERVICEWORKS, INC., a Delaware Corporation 11 Defendant. 12 13 I. INTRODUCTION 14 In July 2018, Plaintiff RBB2, LLC (“Plaintiff” or “RBB2”) filed a putative class action suit 15 against Defendant CSC ServiceWorks, Inc. (“Defendant” or “CSC”) initially asserting claims for 16 breach of contract and unjust enrichment arising from a 9.75% administrative fee (“Administrative 17 Fee”) Defendant unilaterally charged RBB2 and the putative class. Complaint, ECF No. 1 ¶¶ 1-5. 18 Defendant filed a motion to dismiss, and the Court granted the motion in part, dismissing without 19 prejudice the unjust enrichment claim. Memorandum Decision and Order, ECF No. 25. Plaintiff then 20 filed the First Amended Complaint (“FAC”) asserting claims for breach of contract, and in the 21 alternative, a quasi-contract claim for restitution. ECF No. 26 ¶¶ 41-55. CSC answered the FAC and 22 asserted the following counterclaims: (1) breach of contract, (2) quasi-contract claim for restitution in 23 the alternative of breach of contract, and (3) for declaratory relief. ECF No. 27. 24 25 2 set forth below, Plaintiff’s motion to dismiss is GRANTED with leave to amend. 3 II. BACKGROUND1 4 CSC delivers coin-operated laundry services to multi-unit residential and commercial clients 5 around the country. ECF No. 26 ¶ 11. CSC has expanded rapidly by acquiring various commercial 6 laundry and appliance leasing companies. Id. ¶ 13. CSC provides commercial laundry services to its 7 clients, both through its contracts and the long-term contracts of the companies it acquired. Id. ¶¶ 14- 8 15. Under these agreements, CSC pays a portion of the net revenue generated by the laundry machines 9 as rent to RBB2 and the putative class (collectively “Landlords”). Id. ¶ 16. In a May 2017 letter to the 10 Landlords, CSC announced it was imposing a 9.75% Administrative Fee calculated from gross 11 revenues. Id. ¶ 18. 12 CSC explained in its letter that more than half of the Administrative Fee covers its own costs 13 like billing processing, refund processing, website maintenance, clothing claim processing, and 14 commission check processing. ECF No. 26 ¶ 18. Although CSC claims its Administrative Fee covers 15 necessary costs related to its operation and features new products and services that benefit the 16 Landlords, Plaintiff alleges it is nothing more than an attempt to withhold contractually guaranteed 17 revenue from the Landlords. Id. ¶ 22. 18 Laundry Room Lease Agreement Between CSC and RBB2 19 RBB2 is a real estate management company which owns and manages a multi-unit apartment 20 building in Bakersfield, California. Id. ¶ 28. RBB2 and CSC entered into a long-term contract where 21 CSC installed laundry machines in RBB2’s apartment complex. Id. ¶ 29. The contract, signed in 22 23 1 Unless otherwise noted, the facts are taken from the FAC, ECF No. 26, and Defendant CSC 24 Serviceworks, Inc.’s Answer and Counter-Claims, ECF No. 27. For purposes of the Plaintiff’s motion to dismiss, all alleged material facts are construed in the light most favorable to the CSC. See Coalition 25 2 maintain pay-per-use laundry equipment. Laundry Room Lease Agreement, ECF No. 14-3 ¶ 1. In 3 return, CSC agreed to pay RBB2 a percentage of the laundry machine revenue as rent. ECF No. 14-3 4 ¶ 3. The lease agreement allows CSC to deduct certain costs and expenses associated with the laundry 5 service in calculating the rent due. ECF No. 27, Counterclaim ¶ 6.2 Specifically, the lease agreement 6 provides: 7 Lessee [CSC] agrees to pay Lessor [RBB2] as rent (the “Rent”) from the income of the Equipment, Monthly, in arrears, having first deducted refunds, expenses attributable to 8 vandalism on the Equipment (Lessee and Lessor responsible evenly which included labor, parts and equipment), all applicable fees and/or taxes, including, but not limited to, 9 sales, use, excise, personal property or real estate taxes payable by Lessee in connection with the use and possession of the Leased Premises and the operation of the Equipment, 10 an amount equal to: *28% of revenue, paid Monthly. *Please note variable commission scale based on actual gross income per machine per month on schedule A. 11 ECF No. 14-3 ¶ 3. 12 In May 2017, RBB2 received the “landlord letter” regarding the 9.75% Administrative Fee. 13 ECF No. 26 ¶ 30. 14 CSC claims that at the time it imposed the Administrative Fee, it offered to “waive any claims 15 to recoup previously incurred recoverable costs and expenses” which Plaintiff owed CSC. ECF No. 27, 16 Counterclaim ¶ 21. Also, CSC claims that when it implemented the Administrative Fee, it also 17 conferred additional benefits on RBB2 including increased coverage for vandalism, access to CSC’s 18 new technology suite, and a waiver by CSC from back-charging previously uncollected costs. Id., 19 Counterclaim ¶ 12. CSC further claims that by filing this lawsuit, RBB2 rejected CSC’s offer to waive 20 collection of the past due amounts and also “rescind[ed] acceptance of the administrative fee . . . .” Id., 21 Counterclaim ¶ 22. CSC contends that RBB2 has breached the lease agreement by failing to pay, remit, 22 23 24 2 Because CSC’s Answer and Counterclaim—ECF No. 27—has multiple sets of numbered paragraphs, ci tations labeled “Counterclaim” refer to the counterclaims portion of the pleading starting 25 2 CSC’s counterclaim, “Independent of any specific language in the its laundry lease agreement, and in 3 accordance with the parties’ course of dealing and customs in the industry [RBB2] understood that 4 CSC is . . . entitled to . . . [these] costs . . . .” Id., Counterclaim ¶ 20. 5 CSC alleges breach of contract, and in the alternative, a quasi-contract claim for restitution 6 against RBB2. CSC also seeks a declaratory judgment stating that the imposition of the Administrative 7 Fee was proper under the lease agreement. Id., Counterclaim ¶ 43. 8 RBB2 timely filed a motion to dismiss CSC’s counterclaims. The Court has determined that the 9 motion to dismiss is suitable for decision on the papers under Local Rule 230(g). For the reasons stated 10 below, the Court grants RBB2’s motion to dismiss with leave to amend the first two counterclaims. The 11 counterclaim for declaratory relief is dismissed as unnecessary and duplicative of the substantive causes 12 of action. 13 III. ANALYSIS 14 A. Legal Standards 15 1. Federal Rule of Civil Procedure 12(b)(6) 16 A motion to dismiss pursuant to Rule 12(b)(6) is a challenge to the sufficiency of the allegations 17 set forth in the complaint. Dismissal under Rule 12(b)(6) is proper where there is either a “lack of a 18 cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” 19 Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990) overruled on other grounds, Bell 20 Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In considering a motion to dismiss for failure to state 21 a claim, the court generally accepts as true the allegations in the complaint, construes the pleading in 22 the light most favorable to the party opposing the motion, and resolves all doubts in the pleader’s favor. 23 Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). 24 To survive a 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim 25 to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim 2 reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 3 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks 4 for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 5 U.S. at 556). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed 6 factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his ‘entitlement to relief’ 7 requires more than labels and conclusions.” Twombly, 550 U.S. at 555 (internal citations omitted). 8 Thus, “bare assertions . . . amount[ing] to nothing more than a ‘formulaic recitation of the elements’ . . 9 . are not entitled to be assumed true.” Iqbal, 556 U.S. at 681. “[T]o be entitled to the presumption of 10 truth, allegations in a complaint . . . must contain sufficient allegations of underlying facts to give fair 11 notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 12 1216 (9th Cir. 2011). In practice, “a complaint . . . must contain either direct or inferential allegations 13 respecting all the material elements necessary to sustain recovery under some viable legal theory.” 14 Twombly, 550 U.S. at 562. To the extent that the pleadings can be cured by the allegation of 15 additional facts, a plaintiff should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. 16 Northern Cal. Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted). 17 B. Sufficiency of Plaintiff’s Claims under Rule 12(b)(6) 18 1. CSC’s allegations that RBB2 failed to refund putative overpayments does not state a plausible claim for breach of contract. 19 CSC’s breach of contract counterclaim essentially avers that because CSC has not historically 20 deducted all of the allowable shared expenses and costs associated with its laundry services, it has 21 consistently overpaid RBB2 in the form of rent. ECF No. 27, at 10-11. In its counterclaim, CSC now 22 seeks to be made whole by these overpayments. Id., at 11. 23 Under California law, which governs the parties’ Agreement, a plaintiff must plead four 24 elements to adequately state a claim for breach of contract: (1) the existence of a contract; (2) plaintiff’s 25 2 as a result of the breach. DCF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008). CSC 3 alleges that RBB2 breached the contract by failing to pay, remit, or return all amounts to which CSC is 4 contractually entitled. ECF No. 27 ¶ 24. 5 A court may resolve contractual claims on a motion to dismiss if the terms of the contract are 6 unambiguous. Leghorn v. Wells Fargo Bank, N.A., 950 F. Supp. 2d 1093, 1117 (N.D. Cal. 2013). A 7 contract is ambiguous when, on its face, it is capable of two different reasonable interpretations. United 8 Teachers of Oakland v. Oakland Unified Sch. Dist., 75 Cal. App. 3d 322, 330 (1977). When the 9 meaning of contract language is disputed, “the first question to be decided is whether the language is 10 ‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the case is over.” 11 Consolidated World Investments, Inc. v. Lido Preferred, Ltd., 9 Cal. App. 4th 373, 379 (1992). Parol 12 evidence is admissible only to prove a meaning to which the contractual language is reasonably 13 susceptible, not to directly contradict the express terms of the agreement. Id. 14 RBB2 argues that CSC’s counterclaims are an attempt to retroactively charge the 15 Administrative Fee. ECF No. 31, at 1. RBB2 contends that CSC is responsible for calculating the 16 amount of rent it owes RBB2 and RBB2 takes no role in calculating this amount. Id. RBB2 further 17 contends that CSC has never complained that it has overpaid RBB2. Id. Essentially, CSC asserts breach 18 of contract by RBB2 failing to refund CSC for an unspecified amount for overpayments of rent. Id. The 19 plaint terms of the contract are not reasonably susceptible to CSC’s interpretation. CSC has not alleged 20 that it requested a refund from RBB2 or that it ever notified RBB2 of the alleged overpayments. CSC 21 fails to explain how its conduct of undercalculating the rent constituted a breach of contract by RBB2. 22 CSC has not alleged that RBB2 has breached the plain terms of the lease agreement 23 First, CSC acknowledges that RBB2’s alleged breach does not violate the terms of the laundry 24 lease agreement, but instead claims that RBB2 violated the parties’ contract evidenced by their course 25 of dealing. ECF No. 27, Counterclaim ¶ 8. Thus, by CSC’s implicit admission, the written laundry lease 2 overpaid. ECF No. 27, Counterclaim ¶ 20 (“Independent of any specific language in its laundry lease 3 agreement, and in accordance with the parties’ course of dealing . . . CSC is and was entitled to 4 payment for certain costs and expenses associated with CSC’s provision of laundry equipment and 5 services . . .”). 6 The written lease agreement states that CSC is the party responsible for calculating and paying 7 the rent to RBB2 after deducting allowable expenditures. ECF No. 14-3 ¶ 3. The lease agreement does 8 not impose a duty on RBB2 to calculate the rent or to calculate the taxes and fees CSC is allowed to 9 deduct when calculating the rent payment. See ECF No. 14-3. Accordingly, RBB2’s failure to refund 10 CSC for amounts that it allegedly overpaid is not a breach of the plain terms of the written lease. The 11 remaining question is whether the parties’ course of dealing created a duty for RBB2 to refund CSC’s 12 alleged overpayments for rent.3 13 Course of Dealing 14 Under California law, the terms of a written contract may be explained or supplemented by 15 course of dealing or course of performance. Simi Mgmt. Corp. v. Bank of America, N.A., 930 F. Supp. 16 2d 1082, 1098 (9th Cir. 2013) (citing Cal. Civ. Proc. Code § 1856(c)). “Course of dealing” is defined as 17 “a sequence of previous conduct between the parties to a particular transaction which is fairly to be 18 regarded as establishing a common basis of understanding for interpreting their expressions and other 19 conduct.” Id. (quoting In re CFLC, Inc., 166 F.3d 1012, 1017 (9th Cir. 1999)). Course of dealing 20 evidence may supplement a contract by providing evidence of the parties’ intentions. Simi Mgmt. 21 Corp., 930 F. Supp. 2d at 1098. However, the court will first attempt to ascertain the parties’ intention 22 23 3 Although an analysis of course of dealing is unnecessary to determine that CSC’s breach of 24 contract counterclaim fails, the Court nonetheless analyzes this theory raised by CSC. See O’Neill v. United States, 50 F.3d 677, 684 (1995) (holding that course of dealing and course of performance may 25 2 2018). 3 In Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1117 (9th Cir. 2018), the Ninth Circuit upheld the 4 dismissal of a putative class action lawsuit filed by golf caddies against the professional golf 5 association, PGA Tour, Inc. The golf association operated three tours of professional golf tournaments, 6 and the association required the caddies to wear bibs which contained advertising during the events. 7 Hicks, 897 F.3d at 1113. The caddies brought claims alleging that requiring them to wear the bibs 8 violated various state and federal laws and constituted a breach of contract between the parties. Id. at 9 1114. The Ninth Circuit confirmed that the caddies’ claims failed because they had consented to wear 10 the bibs when they signed the “Caddie Registration and Regulations Form” (“Form”). Id. at 1113, 11 1117. This interpretation of the contract was confirmed by the parties’ course of dealing because the 12 golf association “ha[d] required caddies to wear bibs for decades.” Id. at 1117. Any ambiguity as to 13 whether the Form required the caddies to wear bibs was resolved by the caddies’ concession that the 14 tour had required them to wear bibs for decades. Id. at 1118. 15 “Considering the parties’ course of dealing advances California law’s ‘fundamental goal of 16 contract interpretation,’ namely ‘to give effect to the mutual intent of the parties as it existed at the time 17 of contracting.’” Hicks, 897 F.3d at 1118 (quoting Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 18 1005, 1014-15 (9th Cir. 2012)). 19 In the present case, although CSC avers that the parties’ course of dealing demonstrates that 20 RBB2 breached the contract, CSC alleges no facts to support this assertion. CSC claims that RBB2 21 knew that CSC was entitled to payment for certain costs and expenses and that RBB2 breached the 22 contract by not paying it those amounts. However, it is undisputed that CSC collected the laundry 23 service revenue, calculated applicable deductions, and paid RBB2 the appropriate percentage of 24 adjusted revenue. ECF No. 14-3, ¶ 3 & Schedule A. Nowhere in the parties’ course of dealing has 25 RBB2 been responsible for remitting payments to CSC. Rather than the parties’ course of dealing 2 CSC was solely responsible for calculating and submitting rent payments to RBB2. 3 CSC has not sufficiently pled that it has performed under the contract 4 Under California law, to state a claim for a relief for breach of contract, the party alleging 5 breach must plead that she performed or was excused from performing. See DCF Firefighters v. 6 Maldonado, 158 Cal. App. 4th 1226, 1239 (2008). CSC makes only a conclusory statement of the 7 performance element of the breach of contract claim: “CSC has performed its duties under [the] lease 8 agreement by providing the laundry services as described therein . . . .” ECF No. 27, Counterclaim ¶ 9 23. This threadbare recital of performance element does not meet the pleading requirements to survive 10 a motion to dismiss. See Iqbal, 566 U.S. at 678 (“Threadbare recitals of the elements of a cause of 11 action, supported by mere conclusory statements, do not suffice.”). 12 For these reasons, the contract is not reasonably susceptible to CSC’s interpretation that RBB2 13 breached the contract by failing to remit the alleged overpayments, and CSC’s breach of contract claim 14 is dismissed for failure to state a claim for relief. 15 “Dismissal without leave to amend is proper if it is clear that the complaint could not be saved 16 by amendment.” Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir. 2008). If the court 17 concludes that dismissal under Rule 12(b)(6) is warranted, the court should not dismiss the 18 complaint “unless it determines that the pleading could not possibly be cured by the allegation of other 19 facts.” Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 20 1990) (citations omitted). 21 The Court cannot conclude it is impossible for CSC to cure the counterclaim’s defects by 22 amendment. Thus, the breach of contract counterclaim is dismissed with leave to amend. 23 24 25 Relief. 2 Next, Defendant CSC brings a quasi-contract counterclaim for restitution as an alternative to its 3 breach of contract claim. CSC avers that it conferred a benefit on RBB2 by paying more rent than was 4 contractually due. ECF No. 27, Counterclaim ¶ 30. This occurred by CSC not deducting the full amount 5 that it was legally entitled and by “not collecting certain guaranteed minimum payments from [RBB2] 6 prior to May 2017.” Id. 7 “Common law principles of restitution require a party to return a benefit when the retention of 8 such benefit would unjustly enrich the recipient . . . .” Munoz v. MacMillan, 195 Cal. App. 4th 648, 661 9 (2011). A quasi-contract claim for restitution may be available when a party has been unjustly 10 conferred a benefit as through mistake, fraud, coercion, or request, such that it would be unjust for the 11 recipient to retain the benefit. See Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 12 2015). 13 Existence of a Binding Agreement 14 “[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists between 15 the parties a valid express contract covering the same subject matter.” Lance Camper Mfg. Corp. v. 16 Republic Indemnity Co., 44 Cal. App. 4th 194, 203 (1996); see also Doctors Med. Ctr. of Modesto, Inc. 17 v. Principal Life Ins. Co., 2011 WL 1438156, at *16-*17 (E.D. Cal. 2011). When parties have an actual 18 contract covering a subject, a court cannot substitute its own concept of fairness regarding that subject 19 in place of the parties’ contract. Hedging Concepts, Inc. v. First Alliance Mortg. Co., 41 Cal. App. 4th 20 1410, 1419-20 (1996). However, “restitution may be awarded in lieu of breach of contract damages 21 when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective 22 for some reason.” McBride, 123 Cal. App. 4th at 388. 23 In the present case, CSC’s quasi-contract counterclaim fails to allege the absence of a binding 24 agreement between the parties or that the contract was otherwise unenforceable. CSC alleges that 25 2 more money and greater value than CSC contractually owed [RBB2].” ECF No. 27, Counterclaim ¶ 31 3 (emphasis added). Here, CSC acknowledges the existence of a valid contract which forecloses the 4 possibility of recovery under a quasi-contract claim for restitution. In CSC’s quasi-contract claim, it 5 essentially complains that the contract between the parties was unfair to CSC and CSC paid more in 6 rent than required. This is not the type of allegation suitable for a quasi-contract claim for restitution. 7 This Court will not substitute its concept of fairness for contractual terms agreed-upon by the parties. 8 See Hedging Concepts, Inc., 41 Cal. App. 4th at 1419-20. 9 Accordingly, CSC’s quasi-contract counterclaim is improperly pled, and it is dismissed with 10 leave to amend. 11 3. CSC’s Claim for Declaratory Relief 12 CSC also requests that the Court declare that CSC was entitled to implement the Administrative 13 Fee and that CSC was entitled to deduct additional costs from the rent even prior to instituting the 14 Administrative Fee. ECF No. 27, Counterclaim ¶¶ 37-43. RBB2 argues that this general request serves 15 no useful purpose and should be denied. 16 Injunctive relief is a remedy and not in itself a cause of action. See McNeary-Calloway v. JP 17 Morgan Chase Bank, N.A., 863 F. Supp. 2d 928, 964 (N.D. Cal. 2012). A cause of action must exist 18 before injunctive relief may be granted. Id. A claim for declaratory relief becomes duplicative and 19 unnecessary when it is commensurate with the relief sought through other causes of action. Id. 20 Declaratory relief is appropriate “(1) when the judgment will serve a useful purpose in clarifying and 21 settling the legal relations at issue, and (2) when it will terminate and afford relief from the uncertainty, 22 insecurity, and controversy giving rise to the proceeding.” Guerra v. Sutton, 783 F.2d 1371, 1376 (9th 23 Cir. 1986) (quoting Bilbrey by Bilbrey v. Brown, 738 F.2d 1462, 1470 (9th Cir. 1984)). 24 CSC’s claim for declaratory relief is remedial in nature rather than a stand-alone cause of 25 action. See Lewis v. Trans Union, LLC, 2013 WL 1680639 at *5 (E.D. Cal. 2013). Therefore, CSC’s 2 that the declaratory relief would accomplish the elements set forth in Guerra. The declaratory relief 3 claim is dismissed as unnecessary and duplicative of CSC’s other counterclaims. If the defects in 4 CSC’s pleadings are cured, it may seek declaratory relief as a remedy under those claims. 5 IV. CONCLUSION 6 CSC’s cause of action for declaratory relief is dismissed as unnecessary and duplicative of the 7 remaining counterclaims. The remaining counterclaim for breach of contract and, in the alternative, the 8 quasi-contract counterclaim for restitution, are dismissed with leave to amend. CSC shall have 21 days 9 to amend their counterclaims or to file a notice indicating they do not intend to amend. Plaintiff shall 10 have 21 days from the date of CSC’s filing to file a responsive pleading or appropriate motion. 11 The Court has limited resources. Should leave be taken, the Court will assume that it is the best 12 and final effort. No further leave will be given. 13 14 IT IS SO ORDERED. 15 Dated: August 19, 2019 /s/ Lawrence J. O’Neill _____ UNITED STATES CHIEF DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25