Courtesy Auto. Grp. v. Subaru of Am.

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COURTESY AUTOMOTIVE GROUP, INC., dba COURTESY SUBARU OF CHICO, Plaintiff, v. SUBARU OF AMERICA, INC. and DOES 1-50, inclusive, Defendant.

No. 2:22-cv-00997 WBS DMC

United States District Court, E.D. California

December 14, 2023

ORDER RE: MOTION TO DISMISS

WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE

Plaintiff Courtesy Automotive Group, Inc. (“Courtesy”) brought this action against defendant Subaru of America, Inc. and Does 1-50 (collectively “Subaru”) in California Superior Court, County of Butte. (Notice of Removal (Docket No. 1).) Defendant removed to this court based on diversity of citizenship. (Id.) Plaintiff alleges claims for breach of contract (Claims 1 and 4) breach of the covenant of good faith and fair dealing (Claims 2 and 5), account stated (Claim 3), violation of California Unfair Competition Law (“UCL”) (Claim 6) intentional and negligent misrepresentation (Claims 7 and 8), and unjust enrichment (Claim 9) relating to attorney's fees that defendant allegedly owes plaintiff, and plaintiff's letter of credit which defendant allegedly called in violation of parties' contract. (First Am. Compl. (“FAC”) (Docket No. 24).)

I. Factual Background

The court takes the following factual allegations as true and draws every factual inference in plaintiff's favor.

Plaintiff and defendant are engaged in a longstanding commercial dispute about plaintiff's construction of a Subaru dealership facility. This dispute was the subject of a protest before the California New Motor Vehicle Board (the “Board”) and a related litigation in federal district court. (FAC ¶ 9.)

The parties initially resolved both actions and entered into a confidential settlement agreement (id. Ex. 1 Ex. 1 (“Settlement”)) on March 20, 2019. (Id. ¶ 10.) Pursuant to the Settlement, the Board maintained jurisdiction over the dispute solely to enforce the Settlement if required in the future. (Id. ¶ 22 & Ex. 1 ¶ 18.) Also pursuant to the Settlement, parties entered into another agreement (“Dealer Agreement”) that, among other things, set forth benchmark dates for plaintiff's completion of a permanent Subaru facility in Chico, CA. (Id. ¶ 16; Settlement ¶ 15.) The Settlement was amended twice: first, on October, 172019, to add a Facility Addendum establishing certain construction deadlines (id. Ex. 3 (“Facility Addendum”)); and second, on May 21, 2020, to push back the construction deadlines after plaintiff missed all previous ones (id. Ex. 4 (“Facility Amendment”)).

Two broad provisions of the Settlement are mainly at issue here. The first provides that should any party commence a legal proceeding to enforce or interpret the Settlement, the prevailing party will recover its attorneys' fees and costs. (FAC ¶ 23; Settlement ¶ 38.) The second provision requires plaintiff to provide defendant a $750,000 letter of credit in order to insure plaintiff's performance under the Dealer Agreement. (Id. ¶ 17; Settlement ¶ 15(b); Facility Addendum ¶ 3(b).)

Both provisions became relevant once defendant issued plaintiff a notice of noncompliance with the Settlement on August 24, 2020. (FAC ¶ 24.) A week later, plaintiff invoked the Board's continuing jurisdiction to enforce the Settlement and resolve parties' dispute. (Id.) The Board appointed an administrative law judge (“ALJ”) to determine whether plaintiff materially failed to comply with the terms of the Settlement. (Id.) Parties appeared before the ALJ for oral argument in September and October of 2021. (Id. Ex. 6 (“ALJ Decision”) ¶ 17.)

While the ALJ proceeding was pending, plaintiff was notified on March 8, 2022 by BMO Harris, the bank that issued the letter of credit, that defendant was calling the letter. (Id. ¶ 26.) On March 21, BMO Harris released the letter of credit funds to defendant. (Id. ¶ 30.)

Three days later, on March 24, 2022, the ALJ issued her decision. (Id. ¶ 31.) The ALJ Decision found that plaintiff did not materially breach the Settlement or Dealer Agreement because any nonperformance was excused by force majeure events -- namely, the arrival of the COVID-19 pandemic and a devastating fire that decimated nearby Paradise, CA and caused significant delays for construction projects in Chico. (Id. ¶ 32; ALJ Decision ¶¶ 261 70.)

On March 28, 2022, plaintiff sent defendant a demand for attorneys' fees and costs pursuant to the Settlement's provision for fees. (FAC ¶ 35.) Defendant refused, and sought review of the ALJ decision in Alameda County Superior Court on May 5, 2022. (Id. ¶¶ 36, 46-51.) The Alameda court denied defendant's request twice, the second time with prejudice on April 4, 2023. (Id. ¶¶ 48-51.) Specifically, the Alameda court held in relevant part that the ALJ Decision was properly binding and non-appealable pursuant to parties' own negotiated terms. (Docket No. 27-1 Exs. 1-2 (“Alameda Orders”); Settlement ¶ 28(b) .)

On June 22, 2022, shortly after the ALJ Decision issued, plaintiff filed a separate petition with the Board to request a Department of Motor Vehicles (“DMV”) investigation into whether defendant violated California law and the terms of the Settlement by refusing to provide Subaru signage specifications to plaintiff. (FAC ¶ 56; id. Ex. 7 (“DMV Petition”).) The Board approved the petition and ordered the DMV to investigate (“DMV Investigation”). (Id. Ex. 8.)

II. Procedural History

On April 6, 2023, plaintiff filed its original complaint in Butte County Superior Court. (FAC ¶ 37.) On June 8, defendant removed the action to this court based on federal diversity jurisdiction. (Id. ¶ 38.)

Previously, defendant moved to dismiss, and plaintiff moved to file an amended complaint because certain documents relevant to the complaint were no longer under seal. (Docket Nos. 20, 21.) The court denied defendant's motion to dismiss without prejudice and granted plaintiff's request to file its amended complaint. (Docket No. 23.) Plaintiff filed that amended complaint on October 2, 2023. (FAC.) Defendant now moves to dismiss the amended complaint. (Mot. (Docket No. 25).) III. Legal Standard

Federal Rule of Civil Procedure 12(b)(6) allows for dismissal when the plaintiff's complaint fails to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). The inquiry before the court is whether, accepting the allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor, the complaint has alleged “sufficient facts . . . to support a cognizable legal theory,” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001), and thereby stated “a claim to relief that is plausible on its face,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In deciding such a motion, all material allegations of the complaint are accepted as true, as well as all reasonable inferences to be drawn from them. Id.

The court “need not accept as true legal conclusions or ‘[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.'” Whitaker v. Tesla Motors, Inc., 985 F.3d 1173, 1176 (9th Cir. 2021) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009)).

IV. Discussion Plaintiff's claims can generally be sorted into two categories: those relating to attorneys' fees (Claims 1-3), and those relating to the letter of credit (Claims 4-9).

A. Attorneys' Fees

1. Breach of Contract (Claim 1)

Plaintiff's breach of contract claim for unpaid attorneys' fees has two different factual predicates: the ALJ proceeding, and plaintiff's petition to the DMV for an investigation.

(i) ALJ Proceeding

Plaintiff alleges that defendant is in breach of a contractual promise to pay for plaintiff's legal fees related to the ALJ proceeding. That alleged promise is set forth in Paragraph 38 of the Settlement, which provides that “[s]hould it become necessary for any Party to this [Settlement] to commence a legal proceeding for the purpose of enforcing or interpreting the terms of this [Settlement], the prevailing party in such action shall be entitled to recover its reasonable attorneys' fees and costs incurred for prosecuting or defending the action.”^[1](Settlement ¶ 38.)

Plaintiff pleads facts sufficient to sustain its breach of contract claim at this stage. Black's Law Dictionary defines “legal proceeding” as “Any proceeding authorized by law and instituted in a court or tribunal to acquire a right or to enforce a remedy.” Black's Law Dictionary (11th ed. 2019). The ALJ proceeding was a legal proceeding^[2] pursuant to Paragraph 38 for the following reasons. The ALJ proceeding was designed and entered into pursuant to the parties' own negotiated agreement. (Settlement ¶ 28.) It was further authorized by the Board pursuant to its continuing jurisdiction over the parties' Board Protest. (Id. ¶ 28(b).) Its purpose was to determine whether defendant had a right to terminate plaintiff's Subaru franchise due to plaintiff's alleged non-compliance with the Settlement terms. (Id. ¶ 28.) It had all the hallmarks of an adjudicative process, as it featured the live testimony and examination of witnesses, extensive briefing, discovery deposition designations, and seven days of live hearing before the ALJ. (See generally FAC Ex. 6 (“ALJ Decision”).) The ALJ's decision also involved the “appl[ication of] the common law of contracts to interpret the text of a stipulated decision in order to determine whether specified conditions have been met,” as confirmed by the Alameda County Superior Court upon defendant's appeal of the ALJ decision to that court. (Docket 27-1 Ex. 1 (“Alameda Decision I”) at 7.)^[3] Finally, plaintiff was the prevailing party regarding whether the set of facts upon which defendant rested its August 24, 2020 Notice of Non-Compliance constituted a material breach of the Settlement, thereby justifying the termination of...