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