1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 SACRAMENTO COUNTY EMPLOYEES’ No. 2:24-cv-01431-JAM-SCR RETIREMENT SYSTEM, 11 Plaintiff, 12 ORDER GRANTING PLAINTIFF’S v. MOTION TO DISMISS AMENDED 13 COUNTERCLAIM TELUS HEALTH (US) LTD., a 14 Delaware corporation; and DOES 1-10, inclusive, 15 Defendants. 16 17 Before the Court is Sacramento County Employees’ Retirement 18 System’s (“Plaintiff”) motion to dismiss Telus Health (US) Ltd.’s 19 (“Defendant”) First Amended Counterclaim (“FACC”). See Mot., ECF 20 No. 27-1; FACC, ECF No. 26. Defendant opposed. See Opp’n, ECF 21 No. 28. Plaintiff replied, though it failed to comply with the 22 Court’s order regarding filing requirements. See Reply, ECF No. 23 29; Order re Filing Requirements, ECF No. 11-2. For the 24 following reasons, Plaintiff’s motion is granted with leave to 25 amend.1 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 February 11, 2025. 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., ECF No. 4 1-4. Defendant then timely removed the case to federal court 5 under diversity jurisdiction. See Notice of Removal, ECF No. 1; 6 see also 28 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 (“the Agreement”). Id. ¶ 44. 15 The Court previously granted Defendant’s motion to dismiss 16 Plaintiff’s claim for breach of the implied covenant of good 17 faith and fair dealing. See Order, ECF No. 23. Defendant then 18 brought the FACC with three counterclaims: (1) breach of 19 contract; (2) breach of the implied covenant of good faith and 20 fair dealing; and (3) quantum meruit. See FACC. 21 Plaintiff now moves to dismiss the second and third 22 counterclaims for failure to state a claim. See Mot. Defendant 23 argues that it has properly pled these counterclaims. See Opp’n. 24 II. OPINION 25 A. Legal Standard 26 A Rule 12(b)(6) motion challenges the sufficiency of a 27 complaint for “failure to state a claim upon which relief can be 28 granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to 1 dismiss [under 12(b)(6)], a complaint must contain sufficient 2 factual matter, accepted as true, to state a claim to relief 3 that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 4 662, 678 (2009) (internal quotation marks and citation omitted). 5 Plausibility requires “factual content that allows the court to 6 draw the reasonable inference that the defendant is liable for 7 the misconduct alleged.” Id. While “detailed factual 8 allegations” are unnecessary, the complaint must allege more 9 than “[t]hreadbare recitals of the elements of a cause of 10 action, supported by mere conclusory statements.” Id. 11 Conclusory allegations are not to be considered in the 12 plausibility analysis. Id. at 679 (“While legal conclusions can 13 provide the framework of a complaint, they must be supported by 14 factual allegations.”). 15 B. Breach of the Implied Covenant of Good Faith and Fair 16 Dealing 17 “[T]he implied covenant operates to protect the express 18 covenants or promises of [a] contract.” McClain v. Octagon 19 Plaza, LLC, 159 Cal. App. 4th 784, 806 (2008). A breach of the 20 covenant of good faith and fair dealing is “prompted not by an 21 honest mistake, bad judgment or negligence but rather by a 22 conscious and deliberate act.” Careau & Co. v. Sec. Pac. Bus. 23 Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990) (“Careau”). If 24 the allegations of a breach of good faith “do not go beyond the 25 statement of a mere contract breach and, relying on the same 26 alleged acts, simply seek the same damages or other relief 27 already claimed in a companion contract cause of action, they may 28 be disregarded as superfluous as no additional claim is actually 1 stated.” Id. 2 Defendant alleges that Plaintiff violated the implied 3 covenant because it refused to “dedicate sufficient and 4 competent resources” and “discharge its responsibilities 5 necessary to the performance of the Agreement.” FACC ¶ 27. 6 Plaintiff argues, in part, that Defendant fails to allege a 7 “conscious and deliberate act” that interfered with the 8 Agreement. See Mot. at 5. The Court agrees with Plaintiff and 9 finds that Defendant’s counterclaim fails to meet the applicable 10 standard for this cause of action. See Careau, 222 Cal. App. 3d 11 at 1395. 12 In the FACC, Defendant relies on the following allegations: 13 Plaintiff failed to reconcile the payroll (FACC ¶ 12); Plaintiff 14 was “tardy and unresponsive in its communications” with 15 Defendant (FACC ¶ 14); Plaintiff failed to dedicate qualified 16 and sufficient resources to the project (FACC ¶ 27); Plaintiff 17 failed to train its employees to use the system (FACC ¶ 27); 18 Plaintiff failed to take actions to reduce its employee turnover 19 (FACC ¶ 27); Plaintiff failed to direct and supervise its 20 contractors that provided data conversion, reconciliation, and 21 clean-up (FACC ¶ 27); Plaintiff failed to work with Defendant 22 “in good faith” to address issues that arose (FACC ¶ 27); and 23 Plaintiff’s contractors did not “have a mandate to act” and were 24 incompetent (FACC ¶ 28). None of these statements allege a 25 “conscious and deliberate act” by Plaintiff to interfere with 26 the contract. See Careau, 222 Cal. App. 3d at 1395. Just as 27 the Court previously held regarding Defendant’s actions, any 28 failure on Plaintiff’s end to remedy problems or devote more 1 resources was, at best, negligent. See Order at 5. Defendant 2 argues that Plaintiff’s actions taken together constitute a 3 “pattern of misconduct . . . to maintain known problems.” See 4 Opp’n at 6 n.1. But that argument sidesteps Defendant’s initial 5 obligation to plead any act that is “conscious and deliberate.” 6 None of the above allegations satisfy that requirement. 7 Defendant also alleges that Plaintiff “terminated the 8 Agreement in bad faith” to avoid additional payments to 9 Defendant. FACC ¶ 29. Defendant states that Plaintiff’s 10 “pretextual termination” frustrated its right to receive the 11 benefits of the Agreement, thereby stating an implied covenant 12 counterclaim. Id. To support this theory, Defendant cites a 13 footnote in Guz v. Bechtel Nat’l, Inc., where the California 14 Supreme Court held that the implied covenant “prevents a party 15 from acting in bad faith to frustrate the contract’s actual 16 benefits. Thus, for example, the covenant might be violated if 17 termination of an at-will employee was a mere pretext to cheat 18 the worker out of another contract benefit to which the employee 19 was clearly entitled, such as compensation already earned.” 24 20 Cal. 4th 317, 353 n.18 (2000) (emphasis added). 21 As Plaintiff points out, however, Defendant is caught in an 22 impossible bind. See Mot. at 8. If Plaintiff breached the 23 Agreement by terminating it, then this counterclaim fails 24 because it is duplicative of the breach of contract 25 counterclaim. See Careau, 222 Cal. App. 3d at 1395.
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 SACRAMENTO COUNTY EMPLOYEES’ No. 2:24-cv-01431-JAM-SCR RETIREMENT SYSTEM, 11 Plaintiff, 12 ORDER GRANTING PLAINTIFF’S v. MOTION TO DISMISS AMENDED 13 COUNTERCLAIM TELUS HEALTH (US) LTD., a 14 Delaware corporation; and DOES 1-10, inclusive, 15 Defendants. 16 17 Before the Court is Sacramento County Employees’ Retirement 18 System’s (“Plaintiff”) motion to dismiss Telus Health (US) Ltd.’s 19 (“Defendant”) First Amended Counterclaim (“FACC”). See Mot., ECF 20 No. 27-1; FACC, ECF No. 26. Defendant opposed. See Opp’n, ECF 21 No. 28. Plaintiff replied, though it failed to comply with the 22 Court’s order regarding filing requirements. See Reply, ECF No. 23 29; Order re Filing Requirements, ECF No. 11-2. For the 24 following reasons, Plaintiff’s motion is granted with leave to 25 amend.1 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 February 11, 2025. 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., ECF No. 4 1-4. Defendant then timely removed the case to federal court 5 under diversity jurisdiction. See Notice of Removal, ECF No. 1; 6 see also 28 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 (“the Agreement”). Id. ¶ 44. 15 The Court previously granted Defendant’s motion to dismiss 16 Plaintiff’s claim for breach of the implied covenant of good 17 faith and fair dealing. See Order, ECF No. 23. Defendant then 18 brought the FACC with three counterclaims: (1) breach of 19 contract; (2) breach of the implied covenant of good faith and 20 fair dealing; and (3) quantum meruit. See FACC. 21 Plaintiff now moves to dismiss the second and third 22 counterclaims for failure to state a claim. See Mot. Defendant 23 argues that it has properly pled these counterclaims. See Opp’n. 24 II. OPINION 25 A. Legal Standard 26 A Rule 12(b)(6) motion challenges the sufficiency of a 27 complaint for “failure to state a claim upon which relief can be 28 granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to 1 dismiss [under 12(b)(6)], a complaint must contain sufficient 2 factual matter, accepted as true, to state a claim to relief 3 that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 4 662, 678 (2009) (internal quotation marks and citation omitted). 5 Plausibility requires “factual content that allows the court to 6 draw the reasonable inference that the defendant is liable for 7 the misconduct alleged.” Id. While “detailed factual 8 allegations” are unnecessary, the complaint must allege more 9 than “[t]hreadbare recitals of the elements of a cause of 10 action, supported by mere conclusory statements.” Id. 11 Conclusory allegations are not to be considered in the 12 plausibility analysis. Id. at 679 (“While legal conclusions can 13 provide the framework of a complaint, they must be supported by 14 factual allegations.”). 15 B. Breach of the Implied Covenant of Good Faith and Fair 16 Dealing 17 “[T]he implied covenant operates to protect the express 18 covenants or promises of [a] contract.” McClain v. Octagon 19 Plaza, LLC, 159 Cal. App. 4th 784, 806 (2008). A breach of the 20 covenant of good faith and fair dealing is “prompted not by an 21 honest mistake, bad judgment or negligence but rather by a 22 conscious and deliberate act.” Careau & Co. v. Sec. Pac. Bus. 23 Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990) (“Careau”). If 24 the allegations of a breach of good faith “do not go beyond the 25 statement of a mere contract breach and, relying on the same 26 alleged acts, simply seek the same damages or other relief 27 already claimed in a companion contract cause of action, they may 28 be disregarded as superfluous as no additional claim is actually 1 stated.” Id. 2 Defendant alleges that Plaintiff violated the implied 3 covenant because it refused to “dedicate sufficient and 4 competent resources” and “discharge its responsibilities 5 necessary to the performance of the Agreement.” FACC ¶ 27. 6 Plaintiff argues, in part, that Defendant fails to allege a 7 “conscious and deliberate act” that interfered with the 8 Agreement. See Mot. at 5. The Court agrees with Plaintiff and 9 finds that Defendant’s counterclaim fails to meet the applicable 10 standard for this cause of action. See Careau, 222 Cal. App. 3d 11 at 1395. 12 In the FACC, Defendant relies on the following allegations: 13 Plaintiff failed to reconcile the payroll (FACC ¶ 12); Plaintiff 14 was “tardy and unresponsive in its communications” with 15 Defendant (FACC ¶ 14); Plaintiff failed to dedicate qualified 16 and sufficient resources to the project (FACC ¶ 27); Plaintiff 17 failed to train its employees to use the system (FACC ¶ 27); 18 Plaintiff failed to take actions to reduce its employee turnover 19 (FACC ¶ 27); Plaintiff failed to direct and supervise its 20 contractors that provided data conversion, reconciliation, and 21 clean-up (FACC ¶ 27); Plaintiff failed to work with Defendant 22 “in good faith” to address issues that arose (FACC ¶ 27); and 23 Plaintiff’s contractors did not “have a mandate to act” and were 24 incompetent (FACC ¶ 28). None of these statements allege a 25 “conscious and deliberate act” by Plaintiff to interfere with 26 the contract. See Careau, 222 Cal. App. 3d at 1395. Just as 27 the Court previously held regarding Defendant’s actions, any 28 failure on Plaintiff’s end to remedy problems or devote more 1 resources was, at best, negligent. See Order at 5. Defendant 2 argues that Plaintiff’s actions taken together constitute a 3 “pattern of misconduct . . . to maintain known problems.” See 4 Opp’n at 6 n.1. But that argument sidesteps Defendant’s initial 5 obligation to plead any act that is “conscious and deliberate.” 6 None of the above allegations satisfy that requirement. 7 Defendant also alleges that Plaintiff “terminated the 8 Agreement in bad faith” to avoid additional payments to 9 Defendant. FACC ¶ 29. Defendant states that Plaintiff’s 10 “pretextual termination” frustrated its right to receive the 11 benefits of the Agreement, thereby stating an implied covenant 12 counterclaim. Id. To support this theory, Defendant cites a 13 footnote in Guz v. Bechtel Nat’l, Inc., where the California 14 Supreme Court held that the implied covenant “prevents a party 15 from acting in bad faith to frustrate the contract’s actual 16 benefits. Thus, for example, the covenant might be violated if 17 termination of an at-will employee was a mere pretext to cheat 18 the worker out of another contract benefit to which the employee 19 was clearly entitled, such as compensation already earned.” 24 20 Cal. 4th 317, 353 n.18 (2000) (emphasis added). 21 As Plaintiff points out, however, Defendant is caught in an 22 impossible bind. See Mot. at 8. If Plaintiff breached the 23 Agreement by terminating it, then this counterclaim fails 24 because it is duplicative of the breach of contract 25 counterclaim. See Careau, 222 Cal. App. 3d at 1395. On the 26 other hand, if Plaintiff did not breach the Agreement by 27 terminating it, then this counterclaim fails because the implied 28 covenant cannot “impose substantive terms and conditions beyond 1 those to which the parties actually agreed.” See Avidity 2 Partners, LLC v. State of California, 221 Cal. App. 4th 1180, 3 1204 (2013); see also Guz, 24 Cal. 4th at 327. The implied 4 covenant exists “to protect the express covenants or promises of 5 the contract, not to protect some general public policy interest 6 not directly tied to the contract’s purposes.” Foley v. 7 Interactive Data Corp., 47 Cal. 3d 654, 690 (1988). As such, 8 Defendant cannot bring an implied covenant claim based on 9 Plaintiff’s conduct that is expressly allowed by the contract, 10 in this case, terminating the Agreement. Thus, regardless of 11 whether Plaintiff breached the Agreement by terminating it, 12 Defendant’s implied covenant counterclaim fails. 13 Plaintiff presents further arguments regarding the 14 sufficiency of this counterclaim. Because the Court finds that 15 dismissal is warranted for the reason stated above, it does not 16 address the remaining issues. Accordingly, the Court grants 17 Plaintiff’s motion to dismiss as to this counterclaim. 18 C. Quantum Meruit 19 Under California law, quantum meruit is “an equitable 20 remedy implied by the law under which a plaintiff who has 21 rendered services benefiting the defendant may recover the 22 reasonable value of those services when necessary to prevent 23 unjust enrichment of the defendant.” In re De Laurentis 24 Entertainment Group, Inc., 963 F.2d 1269, 1272 (9th Cir. 1992). 25 “[I]t is well settled that there is no equitable basis for an 26 implied-in-law promise to pay reasonable value when the parties 27 have an actual agreement covering compensation.” Hedging 28 Concepts, Inc. v. First All. Mortg. Co., 41 Cal. App. 4th 1410, 1 1419 (1996). 2 Defendant does not plausibly allege that the services it 3 seeks compensation for are not covered by the Agreement. It 4 alleges that it provided “services to correct data 5 synchronization issues and services to provide additional 6 training to” Plaintiff’s employees. FACC ¶ 33. But Defendant 7 does not allege in the FACC that these services go beyond the 8 Agreement, even though it argues in its opposition that these 9 services “were outside the terms of the Agreement.” See Opp’n 10 at 15. Plaintiff states that the Agreement governed the 11 relationship between it and Defendant, and thus the Agreement 12 determines Defendant’s compensation for these services. See 13 Opp’n at 12. Because Defendant has not plausibly alleged that 14 its quantum meruit counterclaim seeks recovery for services 15 outside of the Agreement, the Court grants Plaintiff’s motion to 16 dismiss as to this counterclaim. 17 D. Leave to Amend 18 A court granting a motion to dismiss a claim must then 19 decide whether to grant leave to amend. Leave to amend should 20 be “freely given” where there is no “undue delay, bad faith or 21 dilatory motive on the part of the movant, . . . undue prejudice 22 to the opposing party by virtue of allowance of the amendment, 23 [or] futility of [the] amendment . . . .” Foman v. Davis, 371 24 U.S. 178, 182 (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 25 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as 26 those to be considered when deciding whether to grant leave to 27 amend). Dismissal without leave to amend is proper only if it 28 is clear that “the complaint could not be saved by any 1 amendment.” Intri-Plex Techs., Inc. v. Crest Group, Inc., 499 2 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 3 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil 4 Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Leave need not be 5 granted where the amendment of the complaint . . . constitutes 6 an exercise in futility . . . .”)). 7 Here, the Court finds leave to amend is appropriate because 8 it is conceivable that the implied covenant and quantum meruit 9 counterclaims could be “saved by amendment.” See Eminence Cap., 10 LLC v. Aspeon, Inc., 316 F.3d at 1052. However, the leave 11 granted is limited to pleading the implied covenant and quantum 12 meruit counterclaims. Defendant may not add new counterclaims or 13 any additional theories of breach without leave of Court. 14 E. Sanctions for Failure to Comply with the Court’s Order 15 Plaintiff’s Reply exceeded the Court’s page limit. See 16 Order re Filing Requirements. Plaintiff’s Reply was nine pages, 17 and the filing requirements limit this brief to five pages and 18 call for sanctions of $50 per page exceeding the limit. See id. 19 Local Rule 110 authorizes the Court to impose sanctions for 20 “failure of counsel or of a party to comply with . . . any order 21 of the Court.” Therefore, in addition to not considering any 22 arguments made past the page limit, the Court sanctions 23 Plaintiff’s counsel, Alexander Westerfield, $200. 24 III. ORDER 25 For the reasons set forth above, Plaintiff’s motion to 26 dismiss Defendant’s implied covenant and quantum meruit 27 counterclaims is GRANTED WITH LEAVE TO AMEND. 28 If Defendant elects to file an Amended Counterclaim, it must ne nn nee en ee nnn nnn ne oe on nnn nO NO IE IID
1 do so within twenty (20) days of this Order. Plaintiff shall 2 file its response to the Amended Counterclaim within twenty (20) 3 days thereafter. 4 It is further ordered that, within ten (10) days of this 5 Order, Alexander Westerfield shall pay sanctions of $200.00 to 6 the Clerk of the Court. 7 IT IS SO ORDERED. 8 Dated: February 25, 2025
. SM ns JOHN A. MENDEZ 11 SENIOR UNITED*STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28