Sacramento County Employees' Retirement System v. Telus Health (US), Ltd. ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 SACRAMENTO COUNTY EMPLOYEES’ No. 2:24-cv-01431-JAM-SCR RETIREMENT SYSTEM, 12 Plaintiff, 13 ORDER GRANTING DEFENDANT’S v. MOTION TO DISMISS 14 TELUS HEALTH (US) LTD., a 15 Delaware corporation; and DOES 1-10, inclusive, 16 Defendants. 17 18 Before the Court is Telus Health (US) Ltd.’s (hereinafter, 19 “Defendant”) motion to dismiss the second cause of action in 20 Sacramento County Employees’ Retirement System’s (hereinafter, 21 “Plaintiff”) Complaint (“the Complaint”). See Mot., ECF No. 12; 22 Compl., ECF No. 1-4. Plaintiff opposed. See Opp’n, ECF No. 19. 23 Defendant replied. See Reply, ECF No. 21. For the following 24 reasons, Defendant’s motion is GRANTED WITH LEAVE TO AMEND.1 25 /// 26 27 1This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was 28 scheduled for August 20, 2024. 1 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND 2 Plaintiff originally brought the Complaint in the Superior 3 Court of California, County of Sacramento. See Compl. Defendant 4 then timely removed the case to federal court under diversity 5 jurisdiction. See Notice of Removal, ECF No. 1; see also 28 6 U.S.C. § 1441. 7 This controversy arises out of a contract dispute between 8 Plaintiff and Defendant. See Compl. ¶¶ 6-7. Plaintiff is a 9 public employee retirement system, and Defendant is a technology 10 company that sells and implements pension administration 11 software. Id. ¶¶ 1-2. Defendant promised to develop, install, 12 and deliver a software system to Plaintiff. Id. ¶ 15. After 13 Defendant allegedly failed to perform, Plaintiff terminated the 14 contract. Id. ¶ 44. 15 In the Complaint, Plaintiff brings two causes of action: 16 breach of contract and breach of the implied covenant of good 17 faith and fair dealing. Id. ¶¶ 45-53. Defendant now moves to 18 dismiss the second cause of action for breach of the implied 19 covenant. Mot. at 2. Defendant argues that this claim is 20 duplicative of Plaintiff’s breach of contract claim. Id. at 5. 21 Plaintiff counters that its implied covenant claim is 22 distinguishable from its contract claim, and that it has 23 sufficiently pled a claim for breach of the implied covenant. 24 Opp’n at 8, 10-11. 25 II. OPINION 26 A. Legal Standard 27 A Rule 12(b)(6) motion challenges the sufficiency of a 28 complaint for “failure to state a claim upon which relief can be 1 granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to 2 dismiss [under 12(b)(6)], a complaint must contain sufficient 3 factual matter, accepted as true, to state a claim to relief 4 that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 5 662, 678 (2009) (internal quotation marks and citation omitted). 6 Plausibility requires “factual content that allows the court to 7 draw the reasonable inference that the defendant is liable for 8 the misconduct alleged.” Id. While “detailed factual 9 allegations” are unnecessary, the complaint must allege more 10 than “[t]hreadbare recitals of the elements of a cause of 11 action, supported by mere conclusory statements.” Id. 12 Conclusory allegations are not to be considered in the 13 plausibility analysis. Id. at 679 (“While legal conclusions can 14 provide the framework of a complaint, they must be supported by 15 factual allegations.”). When a plaintiff fails to “state a 16 claim upon which relief can be granted,” the Court must dismiss 17 the case. Fed. R. Civ. P. 12(b)(6). 18 B. Breach of the Implied Covenant of Good Faith and Fair 19 Dealing 20 1. Applicable Law 21 “[T]he implied covenant operates to protect the express 22 covenants or promises of [a] contract.” McClain v. Octagon 23 Plaza, LLC, 159 Cal. App. 4th 784, 806 (2008). Importantly, “to 24 state a claim for breach of the implied covenant of good faith 25 and fair dealing, a plaintiff must identify the specific 26 contractual provision that was frustrated.” Id. Whether the 27 implied covenant of good faith has been breached is typically a 28 question of fact. Hicks v. E.T. Legg & Assocs., 89 Cal. App. 4th 1 496, 509 (2001). 2 Also, a breach of the covenant of good faith and fair 3 dealing is “prompted not by an honest mistake, bad judgment or 4 negligence but rather by a conscious and deliberate act.” Careau 5 & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 6 (1990) (hereinafter, “Careau”). If the allegations of a breach 7 of good faith “do not go beyond the statement of a mere contract 8 breach and, relying on the same alleged acts, simply seek the 9 same damages or other relief already claimed in a companion 10 contract cause of action, they may be disregarded as superfluous 11 as no additional claim is actually stated.” Id. 12 2. Analysis 13 Plaintiff alleges that Defendant violated the implied 14 covenant because it “failed to perform its contractual 15 obligations in good faith.” Compl. ¶ 52. Defendant counters 16 that this claim is duplicative of Plaintiff’s claim for breach 17 of contract. Mot. at 5. As explained below, the Court finds 18 that Plaintiff’s claim fails to meet the applicable standard 19 because (a) many of Plaintiff’s allegations do not constitute a 20 “conscious and deliberate act” and (b) the remaining allegations 21 “do not go beyond the statement of a mere contract breach.” See 22 Careau, 222 Cal. App. 3d at 1395. 23 a. Conscious and Deliberate Act 24 First, Plaintiff fails to allege a “conscious and 25 deliberate act” on the part of Defendant. In its opposition to 26 the present motion, Plaintiff relies on the following 27 allegations: Defendant pressured Plaintiff to approve failed 28 tests based on Defendant’s assurances that failures would be 1 quickly remedied (Compl. ¶ 24); Defendant’s software developers 2 operated outside of its pension solution team (Compl. ¶ 24); 3 Defendant did not provide adequate testing support, training 4 support, and data conversion expertise to remedy the chronic 5 failures revealed by testing (Compl. ¶ 25); Defendant used 6 testing processes that it admitted were not industry standard 7 (Compl. ¶ 29); and Defendant identified additional requirements 8 for phase implementation but never increased resources to meet 9 additional workload demands (Compl. ¶ 32). See Opp’n at 5-6. 10 None of these allegations explicitly or implicitly constitute a 11 “conscious and deliberate act” by Defendant to interfere with 12 the contract. See Careau, 222 Cal. App. 3d at 1395. On the 13 contrary, any failure on Defendant’s end to remedy problems or 14 devote more resources was, at best, negligent. Plaintiff 15 provides no factual allegations demonstrating that Defendant’s 16 failures were in bad faith. In fact, Defendant apparently kept 17 Plaintiff apprised of its progress (or lack thereof) in 18 implementing the System. 19 The only allegation that might be construed as constituting 20 “bad faith”—that Defendant misled Plaintiff regarding the 21 System’s readiness—is insufficient to support a claim for breach 22 of the implied covenant. Plaintiff alleges that Defendant led 23 Plaintiff to believe the system was ready for use despite system 24 failures, and that Defendant did not respond to Plaintiff’s 25 repeated requests for information to understand the testing 26 defects and delays in requirements development. Compl. ¶¶ 23, 27 34. But Plaintiff knew about the System failures despite 28 Defendant’s assurance to remedy, and Plaintiff states that 1 Defendant did provide some documentation. See id. Defendant’s 2 alleged conduct is not a “conscious and deliberate act” to 3 interfere with the contract. See Careau, 222 Cal. App. 3d at 4 1395. Rather, Plaintiff learned about Defendant’s failures 5 throughout the Agreement and nonetheless continued the 6 contractual relationship. 7 b. Duplicative of the Breach of Contract Claim 8 Second, in its opposition, Plaintiff misrelies on breach of 9 contract allegations for this claim. See Opp’n at 5-6. 10 Plaintiff alleges that Defendant consistently delayed and altered 11 delivery dates for key functions. Compl. ¶ 27. But elsewhere in 12 the Complaint, Plaintiff alleges that key deliverables and 13 deadlines were memorialized in Amendment 6, which means this 14 alleged conduct would be a breach of contract. Compl. ¶¶ 18, 26. 15 Plaintiff further states that Defendant increased deliverable 16 lead times after agreed schedules, and without adding any 17 additional resources. Compl. ¶ 35. But a violation of the agreed 18 schedule is a breach of contract. Next, Plaintiff alleges that 19 Defendant failed to provide documentation, results, or proof of 20 testing. Compl. ¶ 38. But the only example in this paragraph is 21 that Defendant did not meet the requirements of Amendment 6, 22 which would mean that Defendant breached the contract. Finally, 23 Plaintiff relies on its descoping allegation that Defendant 24 removed the payment processing and member portal features. Opp’n 25 at 9; Compl. ¶ 39. But, as Defendant asserts, removal of these 26 features would have been a violation of the express terms of the 27 contract. See id.; Mot. at 7. Because these allegations “do not 28 go beyond the statement of a mere contract breach,” they fail to 1 support this claim. See Careau, 222 Cal. App. 3d at 1395. 2 To be sure, the Complaint is primarily focused on supporting 3 a claim for breach of contract, not breach of the implied 4 covenant of good faith and fair dealing. Plaintiff alleges 5 throughout the Complaint that Defendant violated the Agreement 6 and subsequent Amendments. See, e.g., Compl. ¶ 31 (“[t]he 7 reasons for these altered timelines stemmed directly from 8 Defendant’s inability and/or failure to deliver functional 9 modules and deliverables as required by the Agreement”); Compl. 10 ¶ 41 (“the System delivered by Defendant was incomplete, replete 11 with functionality problems, and failed to perform as required by 12 the Agreement”); and Compl. ¶ 42 (“Defendant therefore breached 13 the Agreement by taking many more years to deliver the promised 14 ‘commercially available’ PAS system”). Nowhere in the Complaint 15 does Plaintiff allege that Defendant committed a “conscious and 16 deliberate act” that goes “beyond the statement of a mere 17 contract breach.” See Careau, 222 Cal. App. 3d at 1395. 18 Accordingly, Plaintiff fails to “state a claim to relief 19 that is plausible on its face” for breach of the implied 20 covenant of good faith and fair dealing. See Ashcroft v. Iqbal, 21 556 U.S. at 678. 22 C. Leave to Amend 23 A court granting a motion to dismiss a claim must then 24 decide whether to grant leave to amend. Leave to amend should 25 be “freely given” where there is no “undue delay, bad faith or 26 dilatory motive on the part of the movant, . . . undue prejudice 27 to the opposing party by virtue of allowance of the amendment, 28 [or] futility of [the] amendment . . . .” Foman v. Davis, 371 em REI OI OIE IIE EE II II EEE II OSE ID ONE 1 U.S. 178, 182 (1962). “Dismissal with prejudice and without 2 leave to amend is not appropriate unless it is clear .. . that 3 the complaint could not be saved by amendment.” Eminence Cap., 4 LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). 5 Here, leave to amend is appropriate because Plaintiff has 6 | not previously amended the Complaint, so it is conceivable that 7 | the implied covenant claim could be “saved by amendment.” See 8 Eminence Cap., LLC v. Aspeon, Inc., 316 F.3d at 1052. However, 9 the leave granted is limited to pleading the breach of implied 10 covenant claim. Plaintiff may not add new claims or any 11 additional theories of breach without prior authorization from 12 the Court. 13 Til. ORDER 14 For the reasons set forth above, Defendant’s motion to 15 | dismiss the second cause of action in the Complaint for breach of 16 the implied covenant of good faith and fair dealing is GRANTED 17 WITH LEAVE TO AMEND. 18 If Plaintiff elects to file an Amended Complaint, it should 19 do so within twenty (20) days of this Order. Defendant shall 20 file its response to the Amended Complaint within twenty (20) 21 days thereafter. If Plaintiff elects not to file an Amended 22 Complaint, Defendant shall file its Answer to the Complaint no 23 later than October 18, 2024. 24 IT IS SO ORDERED. 25 Dated: September 17, 2024 26 opens JOHN A. MENDEZ 28 SENIOR UNITED*STATES DISTRICT JUDGE