Honeywell International Incorporated v. Forged Metals Incorporated

• Court: District Court, D. Arizona
• Decided: November 13, 2019
• Docket: 2:19-cv-03730
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Honeywell International Incorporated, No. CV-19-03730-PHX-JAT

10 Plaintiff, ORDER

11 v.

12 Forged Metals Incorporated,

13 Defendant. 14 15 Pending before the Court is Defendant Forged Metals Incorporated’s (“Forged 16 Metals”) Motion to Dismiss two of Plaintiff Honeywell International Incorporated’s 17 (“Honeywell”) claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to 18 state a claim upon which relief can be granted. (Doc. 13). On September 9, 2019, 19 Honeywell filed its Response to Forged Metals’ Motion to Dismiss. (Doc. 18). On 20 September 16, 2019, Forged Metals replied. (Doc. 19). The Court now rules on the 21 Motion.1 22 I. FACTUAL BACKGROUND 23 The following facts are either undisputed or recounted in the light most favorable 24 to the non-moving party. See Wyler Summit P’ship v. Turner Broad. Sys., Inc., 135 F.3d 25 658, 661 (9th Cir. 1998). In 2014, Honeywell ordered forgings from Forged Metals for a

26 1 Honeywell’s request for oral argument, (Doc. 18 at 1), is denied because the issues have been fully briefed and oral argument would not have aided the Court’s decisional process. 27 See Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998); Lake at Las Vegas Inv’rs Grp. v. Pac. Dev. Malibu Corp., 933 F.2d 724, 729 (9th Cir. 1991); Prison Legal News v. 28 Ryan, No. CV-15-02245-PHX-ROS, 2019 WL 1099882, at *1 n.l (D. Ariz. Mar. 8, 2019). 1 “T55” test compressor. (Doc. 1 at 1–2). Honeywell alleges that it provided Forged 2 Metals with engineering drawings that instructed it to apply a particular heat 3 treatment to the forgings. (Id. at 2). According to Honeywell, Forged Metals later 4 asserted that it created the forgings in accordance with the drawings. (Id.). On June 9, 5 2017, Honeywell tested the compressor with the forgings supplied by Forged Metals. 6 (Id. at 3). In the process, Honeywell claims the growth compressor rig failed and 7 damaged the attached equipment. (Id.). Honeywell asserts that Forged Metals caused this 8 failure because it did not adequately strengthen the forgings with the appropriate heat 9 treatment as instructed by Honeywell’s drawings. (Id.). Honeywell now seeks damages 10 and alleges breach of contract, breach of express warranty, breach of implied warranty, 11 and, at issue here, two tort claims: one for “falsely certif[ying] that the forgings complied 12 with Honeywell’s specifications” and the other for “negligen[ce] in misreading the 13 specifications provided by Honeywell . . . [and for] providing forgings that were not 14 appropriate for their intended use.” (Id. at 3–6). Forged Metals moves to dismiss those 15 claims under the economic loss doctrine or, alternatively, it moves to dismiss the 16 negligent misrepresentation claim for failure to state a plausible cause of action. 17 (Doc. 13 at 1). 18 II. LEGAL STANDARD 19 A defendant may move to dismiss a complaint for “failure to state a claim upon 20 which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal for failure to state a 21 claim “is proper only where there is no cognizable legal theory or an absence of sufficient 22 facts alleged to support a cognizable legal theory.” Davidson v. Kimberly-Clark Corp., 23 889 F.3d 956, 965 (9th Cir.), cert. denied, 139 S. Ct. 640 (2018). “[T]o survive a motion 24 to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a 25 claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 26 (citation omitted). All facts are read in the light most favorable to the non-moving party. 27 See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). 28 1 III. ANALYSIS 2 A. Choice of Law Dispute 3 The parties debate whether the General Purchase Order Provision that requires 4 New York law to govern “[t]he construction, interpretation and performance” of the 5 agreement and “all transactions” under the agreement, (Doc. 19-1 at 21 (§ 30.1)), also 6 applies to Honeywell’s tort claims. Forged Metals argues that this choice of law provision 7 applies to Honeywell’s tort claims because these claims “depend on interpretation of the 8 parties’ contract.” (Doc. 13 at 7). Honeywell responds that resolution of its tort claims 9 does not depend on “interpretation of a traditional contract,” and thus the choice of law 10 provision does not apply. (Doc. 18 at 2–3). 11 “Claims arising in tort are not ordinarily controlled by a contractual choice of law 12 provision . . . [but] are decided according to the law of the forum state.” Winsor v. 13 Glasswerks PHX, L.L.C., 63 P.3d 1040, 1043 ¶ 9 (Ariz. Ct. App. 2003) (quoting Sutter 14 Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992)); see 15 also Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002) (“When a federal court sits in 16 diversity, it must look to the forum state’s choice of law rules to determine the controlling 17 substantive law.”). However, under Arizona law, “contractual choice of law provisions 18 may apply to tort claims [when] . . . ‘resolution of th[ose] claims relates to interpretation 19 of the contract.’” Winsor, 63 P.3d at 1044 ¶ 10 (quoting Manetti-Farrow, Inc. v. Gucci 20 Am., Inc., 858 F.2d 509, 514 (9th Cir. 1988)). In such a case, the tort claims cannot “be 21 adjudicated without analyzing whether the parties were in compliance with the contract.” 22 Id. (quoting Manetti-Farrow, Inc., 858 F.2d at 514). 23 Honeywell’s tort claims rely on contract interpretation, and thus, New York law 24 applies pursuant to the parties’ contract. Honeywell states in its Complaint that “[t]he 25 purchase orders for the forgings incorporate [the] General Purchase Order Provisions 26 (‘GPOPs’) by reference.” (Doc. 1 at 2). And the General Purchase Order Provisions 27 explicitly define a purchase order as “an order issued by Honeywell for the purchase of 28 Goods, together with the specifications, drawings, terms and conditions, or other 1 documents referred to, attached to, or incorporated by reference on the face of [the] 2 Purchase Order.” (Doc. 19-1 at 2 (§ 1) (emphasis added)). Moreover, Honeywell alleges 3 that “[e]ach purchase order incorporated the drawing for that forging.” (Doc. 1 at 4). In 4 fact, this allegation is the basis of its breach of contract cause of action. (See id.). Based 5 on Honeywell’s allegations, solely for purposes of deciding Forged Metals’ Motion to 6 Dismiss (Doc. 13), the Court concludes that certain specifications relating to heat 7 treatment were incorporated into the parties’ contract. 8 Consequently, the allegations in the Complaint indicate that the basis of 9 Honeywell’s tort claims depends on contract interpretation. Honeywell alleges, for 10 purposes of its negligent misrepresentation tort claim, that “Forged Metals falsely 11 certified that the forgings complied with Honeywell’s specifications.” (Doc. 1 at 6). 12 Honeywell alleges, for purposes of its negligence tort claim, that “Forged Metals was 13 negligent in misreading the specifications provided by Honeywell.” (Id.). Thus, based on 14 Honeywell’s allegations, its tort claims cannot be resolved without deciphering what the 15 contract’s specifications required of Forged Metals. In fact, it appears Honeywell does 16 not dispute that the drawings and specifications were incorporated into the parties’ 17 contract, but rather Honeywell claims that interpretation of what the drawings and 18 specifications require is not “traditional” contract interpretation, and thus the contract’s 19 choice of law provision does not apply. (Doc. 18 at 2–3). Honeywell cites no authority 20 for this assertion, and the Court is not aware of any Arizona law that draws a distinction 21 based on the traditionality of the required contract interpretation. Because Honeywell’s 22 tort claims cannot “be adjudicated without analyzing whether the parties were in 23 compliance with the contract,” the Court will enforce the parties’ choice of law provision, 24 which requires the Court to apply New York law. See Winsor, 63 P.3d at 1044 ¶ 10 25 (citation omitted). 26 B. Economic Loss Doctrine 27 The Court must next decide whether, under New York law, Honeywell seeks 28 recovery in tort for economic harms already fully recoverable by contract. Forged Metals 1 argues that Honeywell’s tort claims are barred by the economic loss doctrine because 2 Honeywell’s tort claims are based on a failure to perform the duties imposed by the 3 parties’ contract. (Doc. 13 at 7–10). 4 1. New York Law 5 New York’s economic loss doctrine bars tort recovery for damage to property that 6 is “the subject of [a] contract” so long as there are no allegations relating to personal 7 injury. Weiss v. Polymer Plastics Corp., 802 N.Y.S.2d 174, 175 (App. Div. 2005); see 8 also Bristol-Myers Squibb, Indus. Div. v. Delta Star, Inc., 620 N.Y.S.2d 196, 198–99 9 (App. Div. 1994) (“[D]amages arising from the failure of the bargained-for consideration 10 to meet the expectations of the parties are recoverable in contract, not tort.”). The 11 doctrine is premised on the fact that economic loss entails losing part of a bargain, so 12 courts must uphold contractual remedies that the parties have already negotiated. See 13 Bristol-Myers, 620 N.Y.S.2d at 198–99. New York’s economic loss doctrine thus bars 14 torts claims when the product at issue caused no damages aside from failing to achieve a 15 contractual purpose. See Bocre Leasing Corp. v. Gen. Motors Corp. (Allison Gas Turbine 16 Div.), 645 N.E.2d 1195, 1199 (N.Y. 1995); cf. Hodgson, Russ, Andrews, Woods & 17 Goodyear, LLP v. Isolatek Int’l Corp., 752 N.Y.S.2d 767, 769 (App. Div. 2002). “In 18 determining whether the economic loss doctrine applies, a court should consider the 19 nature of the defect, the injury, the manner in which the injury occurred, and the damages 20 sought.” Hodgson, 752 N.Y.S.2d at 769. 21 New York’s economic loss doctrine does not bar claims that a product did perform 22 as expected but still caused damages. Id. (allowing tort recovery for damage due to 23 product defect that was “not the result of the failure of the product to perform its intended 24 purpose”). Thus, plaintiffs may seek tort recovery for products that function as contracted 25 but have unanticipated dangers or defects. Id. In contrast, “defects related to the quality 26 of the product, e.g., product performance, go to the expectancy of the parties (loss of 27 bargain) and are not recoverable in tort.” Hemming v. Certainteed Corp., 468 N.Y.S.2d 28 789, 790 (App. Div. 1983), cited in Praxair, Inc. v. Gen. Insulation Co., 611 F. Supp. 2d 1 318, 326 (W.D.N.Y. 2009); see also Weiss, 802 N.Y.S.2d at 175–76 (holding that 2 economic loss doctrine applied where tort claims were based on the failure of a product 3 that was “the subject of the contract”). As the New York Court of Appeals has said, 4 “where the claims at issue are, fundamentally and in all relevant respects, essentially 5 contractual, product-failure controversies[,] [t]ort law is not the answer.” Bocre, 645 6 N.E.2d at 1199. 7 Additionally, New York’s economic loss doctrine does not bar tort recovery for 8 damage to other property. Elec. Waste Recycling Grp., Ltd. v. Andela Tool & Mach., Inc., 9 968 N.Y.S.2d 765, 767 (App. Div. 2013). New York courts have not, however, extended 10 the meaning of other property to include the systems housing a defective product. 11 Progressive Ins. v. Ford Motor Co., 790 N.Y.S.2d 358, 360 (Dist. Ct. 2004) (holding that 12 a defective electrical part that set fire to the vehicle containing it did not damage “other 13 property”); see Bocre, 645 N.E.2d at 1196, 1199 (concluding that the economic loss 14 doctrine applied to tort claims for “cost of repairs and lost profits” resulting from an 15 engine’s failure and the damage it caused to the helicopter housing it); see also Landtek 16 Grp., Inc. v. N. Am. Specialty Flooring, Inc., No. CV141095SJFAKT, 2016 WL 17 11264722, at *18 (E.D.N.Y. Aug. 12, 2016) (“[C]ourts have generally held that ‘other 18 property’ does not include ‘damage caused to a unit or system by a defective 19 component.’”), adopted, No. 14CV1095SJFAKT, 2016 WL 8671839 (E.D.N.Y. Sept. 16, 20 2016). Otherwise, allowing the “over-parsing” of mechanical devices into a collection of 21 parts “would represent an undue expansion of tort law into an area traditionally reserved 22 for contract and warranty.” Trump Int’l Hotel & Tower v. Carrier Corp., 524 F. Supp. 2d 23 302, 312 (S.D.N.Y. 2007). 24 2. Analysis 25 Honeywell’s tort claims are barred by the economic loss doctrine. Honeywell 26 improperly seeks tort recovery for pure contractual violations, and Honeywell does not 27 allege any damage to other property. 28 1 Honeywell’s tort claims are based on the duties imposed by the parties’ contract. 2 Specifically, the gravamen of Honeywell’s tort claims is that Forged Metals failed to 3 perform according to the contract’s specifications. (See Doc. 1 at 6). Thus, Honeywell’s 4 tort claims are “properly characterized as being for ‘economic loss’ due to product 5 failure” just like the tort claim in Weiss. See 802 N.Y.S.2d at 176. Moreover, the failure 6 of the forgings differs from the damages in Hodgson, which were “not the result of the 7 failure of the product to perform its intended purpose.” See 752 N.Y.S.2d at 769. 8 Nowhere does Honeywell claim that the forgings performed as contractually intended. 9 Instead, Honeywell alleges that “catastrophic failure occurred because certain forgings, 10 which Forged Metals had provided, were not hardened pursuant to Honeywell’s 11 specifications”—specifications that Honeywell claims were incorporated into the parties’ 12 contract. (Id. at 1–2; see also Doc. 19-1 at 2 (§ 1)).2 Therefore, Honeywell’s tort claims 13 are barred because they allege that Forged Metals failed to meet the parties’ 14 contractually-agreed-upon expectations. See Hemming, 468 N.Y.S.2d at 790. 15 Indeed, as noted above, New York law requires that a court review “the nature of 16 the defect, the injury, the manner in which the injury occurred, and the damages sought” 17 when assessing whether the economic loss doctrine applies. Hodgson, 752 N.Y.S.2d at 18 769. The nature of the defect and the manner in which the injury occurred relates to 19 Forged Metals’ alleged failure to make the forgings according to the contracted 20 specifications. Honeywell alleges that this failure caused damage to the test compressor 21 and the various equipment that was attached to it. (Doc. 1 at 3–4). Simply put, because 22 the “claims at issue are, fundamentally and in all relevant respects, essentially 23 contractual, product-failure controversies[,] [t]ort law is not the answer.” Bocre, 645 24 N.E.2d at 1199. 25 2 The Court again notes that it accepted as true for the purpose of deciding Forged 26 Metals’ Motion to Dismiss Honeywell’s allegation that the specifications relating to heat treatment were incorporated into the parties’ contract. However, should Forged Metals 27 assert, during the course of litigation, that the heat treatment specifications were not incorporated by the parties’ contract (or that there was no contract at all), Honeywell may 28 move for reconsideration of this Order on Forged Metals’ Motion to Dismiss (Doc. 13) within thirty days of such a contention. 1 Honeywell also fails to allege damage to other property recoverable in tort. 2 Honeywell claims that “[t]he growth compressor rig failure caused significant damage to 3 the T55 compressor rig and various equipment that was attached to the compressor,” and 4 Honeywell alleges that it “incorporated the forgings into the T55 test compressor.” (Doc. 5 1 at 3 (emphasis added)). Under New York law, a defective component merges with any 6 machinery fixed to or housing it. Honeywell integrated the forgings into the 7 compressor—effectively making them one unit. Thus, as in both Bocre and Progressive, 8 this integration precludes the Court from saying there was damage to other property that 9 would allow tort recovery. Dividing the forgings from the attached equipment in order to 10 raise claims in separate areas of law “would represent an undue expansion of tort law into 11 an area traditionally reserved for contract and warranty.” See Trump, 524 F. Supp. 2d at 12 312. In other words, the reasonable person expects that a defective component could 13 harm the surrounding machinery, so, because the parties here have already contracted in 14 anticipation of the forgings’ performance, they have necessarily contracted for damage to 15 the equipment attached to the forging. See id. at 311–13 (holding that a device integrated 16 with absorption chiller “did not damage ‘other property’ when it malfunctioned and 17 caused the absorption chiller to freeze”). 18 However, Honeywell contends that “which items of damaged property were 19 ‘integrated’ with the forgings” cannot be determined at this time. (See Doc. 18 at 6). But, 20 Honeywell alleges that the forgings were incorporated into the T55 test compressor. 21 (Doc. 1 at 3). And, Honeywell also claims that “[t]he growth compressor rig failure 22 caused significant damage to the T55 compressor rig and various equipment that was 23 attached to the compressor” and that it “had to rebuild the rig with new instruments and 24 parts to replace the damaged components.” (Doc. 1 at 3). In other words, according to 25 Honeywell’s allegations, all the property that was damaged was part of the test 26 compressor that the alleged defective forgings were incorporated into. Hence, because 27 Honeywell does not allege any facts showing damage to any property other than property 28 1 that was attached to the test compressor, there is no basis for tort recovery as to other 2 property that was damaged as a result of the alleged failure of the forgings.3 3 As the economic loss doctrine bars both of Honeywell’s tort claims, the Court 4 need not evaluate whether Honeywell plausibly alleged its negligent misrepresentation 5 claim. Accordingly, the Court grants Forged Metals’ Motion to Dismiss as to 6 Honeywell’s tort claims alleged in counts four and five of the Complaint (Doc. 1). 7 /// 8 /// 9 /// 10 /// 11 /// 12 ///

13 3 Honeywell argues that the economic loss doctrine does not bar its negligent misrepresentation claim because the parties were in privity of contract. (Doc. 18 at 8– 14 9). A negligent misrepresentation claim may avoid the economic loss doctrine if the injured party alleges that it and the breaching party had a special relationship. N.Y. 15 Disaster Interfaith Servs. Inc. v. Council of Peoples Org., Inc., 94 N.Y.S.3d 539 (Sup. Ct. 2018) (table); see also Nebraskaland, Inc. v. Sunoco, Inc., No. 10 CV 1091 RJD, 2011 16 WL 6131313, at *4 (E.D.N.Y. July 13, 2011), adopted, No. 10 CV 1091 RJD CLP, 2011 WL 6131298 (E.D.N.Y. Dec. 8, 2011); cf. Alamo Contract Builders, Inc. v. CTF Hotel 17 Co., 663 N.Y.S.2d 42, 43 (App. Div. 1997) (stating that a negligent misrepresentation claim cannot be alleged with a breach of contract claim “unless a special relationship 18 exists between the parties, and the alleged misrepresentation concerns a matter which is extraneous to the contract itself”). Honeywell does not allege sufficient facts in support of 19 its assertion that the parties had a special relationship. Amusement Indus., Inc. v. Stern, 786 F. Supp. 2d 758, 778–82 (S.D.N.Y. 2011) (dismissing negligent misrepresentation 20 claim at pleading stage because complaint lacked sufficient allegations to adequately plead a special relationship between the parties). Honeywell alleges that Forged Metals 21 had “special knowledge” relating to whether the forgings complied with the agreement’s specifications and that Forged Metals certified that the forgings complied with these 22 specifications. (Doc. 1 at 6). These allegations are not sufficient to adequately plead a special relationship because the special relationship “must have existed prior to the very 23 contractual relationship giving rise to the alleged wrong, and not as a result of it.” 50-01 Realty LLC v. Brooklyn Fed. Sav. Bank, 951 N.Y.S.2d 85 (Sup. Ct. 2012) (table) (citing 24 Emigrant Bank v. UBS Real Estate Sec., Inc., 854 N.Y.S.2d 39, 42 (App. Div. 2008)); see also M & T Bank Corp. v. LaSalle Bank Nat’l Ass’n, 852 F. Supp. 2d 324, 337 25 (W.D.N.Y. 2012) (“While New York courts have recognized that a business relationship can give rise to a special relationship between parties, this occurs only where ‘the 26 requisite high degree of dominance and reliance [] existed prior to the transaction giving rise to the alleged wrong, and not as a result of it.’” (alteration in original) (citation 27 omitted)). Honeywell’s allegations relate to conduct that occurred after the parties’ contractual relationship began. Thus, Honeywell has failed to sufficiently plead the 28 existence of a special relationship. IV. CONCLUSION 2 IT IS ORDERED that Defendant Forged Metals Incorporated’s Motion to 3|| Dismiss (Doc. 13) counts four and five of Plaintiff Honeywell International Incorporated’s Complaint (Doc. 1) is GRANTED pursuant to Rule 12(b)(6).* 5 Dated this 13th day of November, 2019. 6 ' 7 2 Ke James A. Teilborg 8 Senior United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 4 Because other counts survive, the Clerk of Court shall not enter judgment at this time.

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