HP, Inc. v. TUV Rheinland of N. Am.

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HP, INC., Plaintiff, v. TUV RHEINLAND OF NORTH AMERICA, INC., Defendant.

No. 21-CV-11575-AK

United States District Court, D. Massachusetts

September 27, 2022

MEMORANDUM AND ORDER ON DEFENDANT'S MOTIONS TO DISMISS

ANGEL KELLEY, U.S. DISTRICT JUDGE

This is a contract action arising out of a personal injury action that has been litigated in the state courts of Oregon. Plaintiff HP, Inc. (“HP”), a global technology corporation, seeks to recover against Defendant TUV Rheinland of North America (“TUV”), a testing laboratory after a device certified by TUV exploded in an HP facility in Oregon and injured a worker. TUV moves to dismiss this action for failure to state a claim. For the reasons described below, that motion will be GRANTED and the complaint will be DISMISSED without prejudice.

I. FACTUAL and PROCEDURAL BACKGROUND

On a motion to dismiss, the Court accepts as true the facts as pleaded in the complaint. HP, a California-based corporation operates a facility in Corvallis, Oregon. [Dkt. 1 (“Compl.”) ¶¶ 1, 6]. Prior to March 2018, HP contracted with Proton Energy Systems (“Proton”) to build an H Series 6 Hydrogen Generator (“the generator”) for use at the Corvallis HP facility. [Id. ¶ 7]. This generator included two condensate drain traps designed and manufactured by Spirax Sarco, Inc. (“Spirax”). [Id. ¶ 8]. Proton, a Connecticut-based company, then contracted with TUV, a Massachusetts-based company, for testing and certification of the generator. [Id. ¶¶ 2, 12]. TUV tested and certified the generator as meeting applicable standards prior to it being installed at the Corvallis HP facility. [Id. ¶ 12]. TUV performed its testing in Connecticut. Cox v. HP, Inc., 492 P.3d 1245, 1249-50 (Or. 2021). TUV had previously certified other pieces of equipment located at the Corvallis HP facility. [Compl. ¶ 18].

On March 22, 2018, the generator exploded at the Corvallis HP facility. [Id. ¶ 6]. The explosion injured William Cox (“Mr. Cox”), a Proton employee who was working on commissioning the generator. [Id. ¶¶ 6, 7]. HP alleges that the condensate drain traps had been defectively designed and manufactured by Spirax, and that these defects proximately caused the explosion and injuries to Mr. Cox. [Id. ¶¶ 9-11].

In April 2019, Mr. Cox filed a personal injury action in the Multnomah County Circuit Court in Oregon, naming HP and Spirax as defendants and claiming over $23 million in damages. [Id. ¶ 22]. HP has denied liability in this action, [id. ¶ 23], and timely filed a third-party complaint against TUV and Proton, Cox v. HP, Inc., Case No. 19CV14525 (Or. Cir. Ct., filed Apr. 2, 2019). TUV moved to dismiss HP's claim for lack of personal jurisdiction, which the Oregon trial court denied. Cox, 492 P.3d at 1247. On petition for writ of mandamus, the Oregon Supreme Court reversed, ordering the trial court to dismiss HP's claim against TUV on personal jurisdiction grounds. Id. at 1248. HP then re-filed its third-party complaint against TUV in this Court, and TUV-assenting to personal jurisdiction-now moves to dismiss for failure to state a claim. [Dkt. 13]. In July 2022, during the pendency of this motion, the parties to the underlying Oregon action notified the Oregon trial court that they had reached a settlement, although that case has not yet been dismissed. See Cox, No. 19CV14525 (docket entry of July 19, 2022).

II. DISCUSSION

A. Pleading Standard

To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege sufficient facts to state a claim for relief that is actionable as a matter of law and “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Reading the complaint “as a whole,” the Court must conduct a two-step, contextspecific inquiry. Garda-Catalan v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must perform a close reading of the claim to distinguish the factual allegations from the conclusory legal allegations contained therein. Id. Factual allegations must be accepted as true, while conclusory legal conclusions are not entitled credit. Id. A court may not disregard properly pled factual allegations even if actual proof of those facts is improbable. Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 12 (1st Cir. 2011). Second, the Court must determine whether the factual allegations present a “reasonable inference that the defendant is liable for the conduct alleged.” Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011) (citation omitted).

B. Claim 1 - Breach of Contract as Third-Party Beneficiary

HP's first claim alleges that it is a third-party beneficiary to a contract between Proton and TUV, and that it has suffered damages as a result of TUV's breach of that contract. Because the parties did not brief the Court on choice of law, the Court's first task is to determine which state's contract law should govern this claim for purposes of this motion.

i. Choice of Law

A federal court sitting in diversity jurisdiction applies the choice-of-law rules of its forum state-here, Massachusetts. See Klaxon Co. v. Stentor Co., 313 U.S. 487 (1941). In contract actions, Massachusetts courts will enforce a choice-of-law clause “as long as the result is not contrary to public policy.” Hodas v. Morin, 814 N.E.2d 320, 325 (Mass. 2004) (citation omitted). Otherwise, courts look first to “the place where the contract was made” as a “general rule.” Choate, Hall & Stewart v. SCA Servs., Inc., 392 N.E.2d 1045, 1048 (Mass. 1979). However, courts will not apply the law of the state where the contract was formed if the parties had “no other substantial contact with that State.” Id. at 1049. Rather, the law of the state with the “most significant relationship” to the contract applies. See id. (quoting Restatement (Second) of Conflict of Laws § 188 (1971)).

At this motion to dismiss stage, the contract between Proton and TUV that forms the basis for HP's claims is not before the Court, and the parties have not alleged that this contract contains a choice-of-law clause. Nor do the pleadings indicate the state in which the contract was formed. However, the findings of the Oregon Supreme Court in its earlier opinion in this matter make clear that Connecticut is the state with the “most significant relationship” to the contract between Proton and TUV, as Proton is based in Connecticut, the generator was manufactured in Connecticut, and TUV performed “all” of its work at Proton's facility in Connecticut. Cox, 492 P.3d at 1249-50. Thus, the Court will assume without deciding that Connecticut law applies to Claim 1.^[1] Because the Court is without the information, in the form of the contract between Proton and TUV, necessary to make a more determinative holding as to choice of law, this assumption is made for purposes of resolution of this motion only.

ii. Standard and Analysis

Connecticut applies a familiar common-law standard for breach of contract claims, the elements of which are “the formation of an agreement, performance by one party, breach of the agreement by the other party, and damages.” CCT Comms., Inc. v. Zone Telecom, Inc., 172 A.2d 1228, 1240 (Conn. 2017). Further, in addition to the parties to the contract, “[a] third party beneficiary may enforce a contractual obligation without being in privity with the actual parties to the contract.” Wilcox v. Webster Ins., Inc., 982 A.2d 1053, 1062 (Conn. 2009) (citation omitted). This doctrine of third-party beneficiary status is the basis for HP's Claim 1.

“The ultimate test to be applied in determining whether a person has a right of action as a third party beneficiary is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party beneficiary.” Id. (emphasis added) (citation and alterations omitted). The third party must be an intended, rather than merely a foreseeable, beneficiary in order to assert a claim, and must have been so intended by both parties to the contract. Grigerik v. Sharpe, 721 A.2d 526, 539 (Conn. 1998). This requirement of mutual intent upholds the state's policy of “certainty in enforcing contracts,” as it “minimize[es] the risk that a contracting party will be held liable to one whom he neither knew, nor legitimately could be held to know, would ultimately be his contract obligee.” Dow & Condon, Inc. v. Brookfield Development Corp., 833 A.2d 908, 914 (Conn. 2003).

Connecticut courts have relied on the Restatement (Second) of Contracts in determining whether parties to a contract intended a third party to be a beneficiary. Grigerik, 721 A.2d at 538-39; Anderson v. Town of Bloomfield, 247 A.3d 642, 648 (Conn. App. 2021). The Restatement identifies a third-party beneficiary as follows:

Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

Restatement (Second) of Contracts, § 302(1) (1981). Thus, where a contract does not expressly state that the parties intended to create enforcement rights in a third party, courts may infer the requisite intent where the performance of the contract will satisfy an obligation of one contractual party to pay money to the third party, or circumstances indicate that the contractual parties intended to give a contractual benefit to the third party. See also Dow &amp Condon, 833 A.2d at 914 (“[I]t is not in all instances necessary...