Rail World Locomotive Leasing, LLC v. Mass. Bay Transp. Auth., Civil Action No. 16-11541

Rail World Locomotive Leasing, LLC, Plaintiff and Counterclaim Defendant, v. Massachusetts Bay Transportation Authority, Defendant and Counterclaim Plaintiff.

Civil Action No. 16-11541

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

May 9, 2017

MEMORANDUM AND ORDER

CASPER, J.

I. Introduction

Plaintiff and Counterclaim Defendant Rail World Locomotive Leasing, LLC ("Rail World") has filed this lawsuit against Defendant and Counterclaim Plaintiff Massachusetts Bay Transportation Authority (the "MBTA"), alleging breach of contract, unjust enrichment and quantum meruit. D. 1. The MBTA has filed counterclaims against Rail World, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, quantum meruit, conversion and promissory estoppel and also seeks a declaratory judgment. D. 17 at 13-17. Rail World now moves to dismiss the MBTA's counterclaims. D. 26. For the reasons stated below, the Court GRANTS in part and DENIES in part Rail World's motion, D. 26.

II. Standard of Review

The Court will grant a Fed. R. Civ. P. 12(b)(6) motion to dismiss if a counterclaim fails to plead sufficient facts to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering a motion to dismiss, the Court is obligated to "assume the truth of all well-plead[ed] facts and give the plaintiff the benefit of all reasonable inferences therefrom." Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d 1, 5 (1st Cir. 2007) (citing Rogan v. Menino, 175 F.3d 75, 77 (1st Cir. 1999)). The Court, however, must distinguish "the [counterclaim's] factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited)." Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012). "[N]o single allegation need [establish] . . . some necessary element [of the cause of action], provided that, in sum, the allegations . . . make the claim as a whole at least plausible." Garayalde-Rijos v. Municipality of Carolina, 747 F.3d 15, 24 (1st Cir. 2014) (quoting Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 14-15 (1st Cir. 2011)).

III. Factual Background

Unless otherwise cited, the following summary is based upon the factual allegations in the MBTA's counterclaims, D. 17, which the Court must accept as true for the purposes of Rail World's motion to dismiss.

On or about February 23, 2015, the MBTA and Rail World entered into a Railroad Locomotive Lease Agreement (the "Lease" or "Lease Agreement"). D. 17 at 10 ¶ 9; see D. 26-1. Per the terms of the Lease, the MBTA agreed to lease seven locomotives from Rail World, each for one calendar year beginning on the date the MBTA accepted the locomotive. D. 17 at 10 ¶¶ 10-12. In exchange, the Lease obligated the MBTA to make quarterly rental payments, id. at 10 ¶ 13, in addition to paying Rail World an advance deposit of $204,750 to secure the locomotives pursuant to Section 7 of the Lease, id. at 11 ¶ 17. The MBTA alleges that it not only paid the advance deposit in or about February 2015, id. at 11 ¶ 18, but it also paid all rental payments due to Rail World under the Lease, id. at 10 ¶ 15.

Section 14 of the Lease allowed Rail World to "at any time assign its rights and obligations hereunder to any of the [l]ocomotives" such that the "assignee shall have, to the extent provided in the assignment, the rights, powers, privileges and remedies of [the] Lessor hereunder." D. 26-1 at 7. Section 14 additionally required, however, that the Lessor "provide or cause to be provided to Lessee written notification ten (10) days prior to any such assignment." Id. Pursuant to Section 14 of the Lease, Rail World assigned the Lease to Rail Transportation Services Corporation ("RTSC") to the extent provided in the assignment agreement between Rail World and RTSC in a purchase and sale agreement to which the MBTA was not a party on or about August 2015. D. 17 at 11 ¶¶ 20-21. The MBTA alleges that it did not receive written notification from Rail World ten days prior to the assignment. Id. at 11 ¶ 22.

After the assignment, Rail World issued an invoice to the MBTA, "Invoice Number 744," seeking payment in the amount of $421,694.33. D. 1-2 at 2; D. 17 at 12 ¶ 28. Thereafter, the MBTA paid Rail World $189,435.44 in connection with Invoice Number 744. D. 17 at 13 ¶ 33. In addition, Rail World issued two credit memoranda to the MBTA, which reduced the amount allegedly due first by $6,732.00 and then by $14,634.90. Id. at 12 ¶¶ 30-31. The MTBA alleges that it is further entitled to a reduction of $6,141.99 due to erroneous charges in Invoice Number 744. Id. at 12 ¶ 32. Taken together, the remaining amount allegedly due to Rail World is $204,750, which is the exact amount of the advance deposit that the MBTA provided to Rail World at the start of the Lease. Id. at 11-13 ¶¶ 17-18, 28-33.

Because Rail World retained the advance deposit in lieu of transferring the deposit to RTSC, id. at 11 ¶¶ 23-24, and the term of the Lease for each locomotive has ended, id. at 11 ¶ 25, the MBTA now asserts that Rail World has improperly failed to credit, refund or pay the advanced deposit to the MBTA, id. at 12 ¶ 26.

IV. Procedural History

On July 26, 2016, Rail World instituted this action against the MBTA. D. 1. On September 30, 2016, the MBTA filed its answer and counterclaims against Rail World. D. 17. Rail World has now moved to dismiss the MBTA's counterclaims. D. 26. The Court heard the parties on the pending motion and took this matter under advisement. D. 39.

V. Discussion

A. The Court Considers the Purchase and Sale Agreements for Purposes of Deciding This Motion to Dismiss

"Ordinarily, a court will not consider documents outside of the pleadings in a motion to dismiss." Facey v. Dickhaut, 892 F. Supp. 2d 347, 351 (D. Mass. 2012) (citations omitted). Nevertheless, "the First Circuit makes a 'narrow exception for documents the authenticity of which [is] not disputed by the parties; for official public records; for documents central to plaintiffs' claim; or for documents sufficiently referred to in the complaint.'" Id. (quoting Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993)); see Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 17 (1st Cir. 1998). This is so even when a party fails to include a pertinent document as part of its pleadings; instead, the opposing party "may introduce the exhibit as part of his motion attacking the pleading." Fudge v. Penthouse Int'l, Ltd., 840 F.2d 1012, 1015 (1st Cir. 1988).

In a footnote, the MBTA asserts that it "lacks knowledge or information sufficient to form a belief as to the truth of Rail World's assertions" with respect to the April 22, 2015 and August 25, 2015 purchase and sale agreements attached to its motion to dismiss. D. 28 at 4 n.2; see D. 26-2; D. 26-3. This bare assertion, without more, is not sufficient to challenge the authenticity of these documents. The MBTA provides no reason to doubt the authenticity of the agreements, particularly since the MBTA does not contend that the documents were in fact inaccurate orinauthentic. Cf. Oliverio v. Allied Steel Buildings, Inc., No. 15-cv-13562-DJC, 2016 WL 1369331, at *3 (D. Mass. Apr. 6, 2016) (declining to examine purported contract because the plaintiff argued it was inauthentic, invalid, inaccurate and that he never bargained for or agreed to the terms listed within it and otherwise based his complaint upon a separate agreement with different terms); Bagg v. HighBeam Research, Inc., 862 F. Supp. 2d 41, 44-45 (D. Mass. 2012) (deciding not to rely upon a 2006 forum selection clause in the contract for a motion to dismiss because the plaintiffs explained there was no guarantee that the 2006 contract was identical to the contracts agreed to between the parties from 2007 to 2010). Here, the MBTA has relied upon the assignment agreement between Rail World and RTSC in framing its own allegations within the counterclaim. See, e.g., D. 17 at 11-12, 14 ¶¶ 20-22, 27, 41. Considering that the two agreements are dated and signed by both Rail World and RTSC and the limits of the MBTA's challenge, the Court has considered these documents in resolving the motion to dismiss the MBTA's counterclaims.

B. The Court Dismisses the MBTA's Separate Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing (Count III)

Rail World moves to dismiss Count III, the MBTA's counterclaim for breach of the implied covenant of good faith and fair dealing. D. 26 at 8-9. Under Illinois law, the duty of good faith and fair dealing is predicated on the existence of a contract.¹ Mid-W. Energy Consultants, Inc. v. Covenant Home, Inc., 352 Ill. App. 3d 160, 163 (2004). "To establish a breach of the implied duty of good faith and fair dealing, a party must show 'that the contract vested the opposing party withdiscretion in performing an obligation under the contract and the opposing party exercised that discretion in bad faith, unreasonably, or in a manner inconsistent with the reasonable expectations of the parties.'" Ronald McDonald House Charities of Chicagoland v. Winning Charities Ill., LLC, No. 13-cv-1430, 2013 WL 5907668, at *5 (N.D. Ill. Nov. 4, 2013) (internal citation omitted). In essence, the purpose of such an implied covenant is "to ensure that parties do not take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or do anything that will destroy the other party's right to receive the benefit of the contract." RBS Citizens, National Ass'n v. RTG-Oak Lawn, LLC, 407 Ill. App. 3d 183, 191 (2011) (citing Cramer v. Insurance Exchange Agency, 174 Ill.2d 513, 523-24 (1996)).

Rail World urges the Court to dismiss the MBTA's claim for breach of good faith and fair dealing in Count III because it cannot stand as an independent cause of action. D. 26 at 8-9. "Illinois does not recognize an independent cause of action for breach of the implied duty of good...