Apex Directional Drilling, LLC v. SHN Consulting Engineers & Geologists, Inc.

119 F. Supp. 3d 1117, 2015 U.S. Dist. LEXIS 105537, 2015 WL 4749004
CourtDistrict Court, N.D. California
DecidedAugust 11, 2015
DocketCase No. 15-cv-02501-RS
StatusPublished
Cited by3 cases

This text of 119 F. Supp. 3d 1117 (Apex Directional Drilling, LLC v. SHN Consulting Engineers & Geologists, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Apex Directional Drilling, LLC v. SHN Consulting Engineers & Geologists, Inc., 119 F. Supp. 3d 1117, 2015 U.S. Dist. LEXIS 105537, 2015 WL 4749004 (N.D. Cal. 2015).

Opinion

ORDER DENYING MOTION TO DISMISS

RICHARD SEEBORG, United States District Judge

I. BACKGROUND1

This litigation emanates from problems associated with a municipal sewage construction project. In April of 2013, the City of Eureka, California publicly solicited bids from contractors for the instalLttion of a new wastewater pipeline by use of a technique known as horizontal directional drilling (“HDD”).2 SHN Consulting Engineers & Geologists, Inc. (“SHN”) contracted separately with Eureka to serve as lead engineer and project manager. Part of SHN’s job was to conduct geological studies of the site and, based on its findings, to prepare plans, reports, and specifications describing the project. Certain of SHN’s descriptions of the project, including a Geotechnical Baseline Report (“GBR”), were furnished to potential bidders. Eureka and SHN intended that contractors would rely on the reports and drawings to estimate the necessary inputs for completing the work under the represented conditions and to determine whether and how much to bid for the project. In meetings with prospective bidders, SHN representatives orally affirmed that the findings of the GBR and other materials were accurate.

The GBR indicated that the majority of the subterranean region targeted by the project was composed of stable soils suitable for HDD. This representation was critical to contractors. To be successful, HDD jobs require certain soil characteristics. If the soil lacks sufficient stability and density, drilling equipment cannot be effectively controlled and the bore hole is vulnerable to collapse. The GBR’s findings were based on a single test bore, which was drilled a significant distance from the planned path of the project.

Relying on SHN’s representations regarding conditions at the project site, Apex Directional Drilling, LLC (“Apex”), a leading HDD contractor, submitted the lowest qualifying bid (approximately $3.6 million) and entered into a contract with Eureka. Almost immediately after beginning work, Apex encountered adverse conditions. Instead of the competent soils described in the GBR, Apex found itself drilling first in mud and then in flowing sands. While the GBR had anticipated that wet near-surface soils would be initially present during the casing phase of the project, it soon became clear that difficult conditions ran much deeper and farther than anticipated. Over the ensuing [1121]*1121months, in reliance on the assurances of SHN representatives present at the project site each day, Apex continued drilling but did not reach the stable soil formations described in the GBR. Following SHN’s orders, Apex struggled on with the project, in the process incurring unforeseen expenses and losing valuable equipment to the flowing sands.

Even after the true subterranean conditions became known, Apex alleges, SHN unreasonably continued to maintain that the project was proceeding in the competent soils described in the GBR and, on that premise, repeatedly gave Apex illogical instructions. Over the first months of 2014, Apex asked Eureka to authorize change orders reimbursing it for cost overruns, along with easements necessary to complete the project. Based on SHN’s recommendations, Eureka rejected those requests and, on March 25, 2014, terminated Apex from the project. Apex quickly sued Eureka in California state court for breach of contract. That case is now in compelled arbitration. SHN was not a party to the contract between Apex and Eureka and is not a party in the arbitration.

More than a year later, Apex sued SHN in this court, invoking diversity jurisdiction. It asserts three claims for relief under California law: (1) breach of professional duty; (2) negligent misrepresentation; and (3) tort of another. SHN now moves to dismiss the complaint for failure to state a claim. SHN first contends that Apex has no cognizable tort claims against it because an engineer does not owe a contractor any non-contractual duty of care. In fact, a faithful application of the relevant California authorities compels the conclusion that, based on the allegations in the complaint, SHN did owe Apex a duty of care. SHN next argues that the negligent misrepresentation claim fails the heightened pleading standard of Rule 9(b). That contention also fails. Finally, SHN suggests that the complaint must be dismissed because Apex has failed to comply with a California statute aimed at deterring baseless professional negligence suits. That statute, however, merely establishes a rule of state procedure, which does not apply in this federal diversity action. Accordingly, SHN’s motion must be denied.

II. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). Dismissal may be based on either the “lack of a cognizable légal theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.” UMG Recordings, Inc. v. Shelter Capital Partners LLC, 718 F.3d 1006, 1014 (9th Cir.2013). When evaluating a motion to dismiss the court must accept all material allegation's in the complaint as true, even if doubtful, and construe them in the light most favorable to the non-moving party. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Rule 9(b) of the Federal Rules of Civil Procedure requires that “[i]n allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” To satisfy the rule, a plaintiff must allege the “who, what, where, when, and how” of the charged misconduct. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997). In other words, “the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so thát they can defend against the charge and not just deny that they have done anything wrong.” Vess v. CibaGeigy [1122]*1122Corp. U.S.A., 317 F.3d 1097, 1106 (9th Cir.2003).

III. DISCUSSION:

A. Duty of Care-, ,

SHN claims that it cannot be held liable for the torts alleged in this action because it owed Apex no duty of care.. Both parties assume that one test— specifically, the six-factor framework first articulated in Biakanja v. Irving, 49 Cal.2d 647, 650, 320 P.2d 16 (1958) — governs whether each of Apex’s claims may proceed. Under California law, however, negligent misrepresentation “is a separate and distinct tort” from simple negligence and requires a unique duty of care analysis. Bily v. Arthur Young &. Co.,

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119 F. Supp. 3d 1117, 2015 U.S. Dist. LEXIS 105537, 2015 WL 4749004, Counsel Stack Legal Research, https://law.counselstack.com/opinion/apex-directional-drilling-llc-v-shn-consulting-engineers-geologists-cand-2015.