XP Climate Control, LLC v. Intermountain Elecs.

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XP Climate Control LLC, Plaintiff, v. Intermountain Electronics Inc. Defendant, Intermountain Electronics Inc., Counterclaim Plaintiff, v. XP Climate Control LLC and Will D. Knight individually, Counterclaim Defendants.

No. 5:22-cv-00096-KDB-DSC

United States District Court, W.D. North Carolina, Statesville Division

March 2, 2023

MEMORANDUM AND RECOMMENDATION

DAVID S. CAYER, UNITED STATES MAGISTRATE JUDGE

THIS MATTER is before the Court on Counterclaim Defendants XP Climate Control LLC and Will D. Knight's “Motion to Dismiss Counterclaims,” Doc. No. 16 filed November 21, 2022.

The Motion has been referred to the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1) and is now ripe for consideration.

Having fully considered the arguments, record, and applicable authority, the undersigned respectfully recommends that Counterclaim Defendants' Motion to Dismiss be granted in part and denied in part.

I. FACTUAL BACKGROUND

Accepting the factual allegations in the Counterclaim as true Intermountain Electronics designs, manufactures, and services custom electrical and control equipment for underground and surface mining as well as power generation. Doc. No. 8, at 15. In October 2020, Intermountain entered into a subcontract with M.A. Mortensen Company. Mortensen was the general contractor for the Valley Center Energy Storage Project in Valley Center, California. Id. at 16. The purpose of the project was to construct a facility to store electricity in several thousand lithium-ion batteries housed within fifty-one large rectangular Battery Energy Storage System enclosures. Id. Due to the volatile nature of lithium-ion batteries, they must be cooled to avoid overheating. Id. To maintain the required temperature control for the battery system, Intermountain required a customized air conditioning system to provide cooling for the BESS containers. Id.

Intermountain approached XP Climate Control about the need for air conditioning units. Id. at 17. From the outset, Intermountain notified XP of the critical timeframe for the project. Id. XP ultimately provided Intermountain a competitive quote for the air conditioning units. XP represented that it could meet both the performance and schedule requirements for the project by June 2021. Id. In January 2021, Intermountain and XP entered into a contract for the manufacture of fifty-one air conditioning units for a total sum of $3,411,000. Id. Intermountain provided XP with multiple schedules through the early stages of its work. XP repeatedly responded with affirmative representations of its ability to meet the production timeline.

The parties' business relationship soon began to degenerate. Due to XP's delays, the factory acceptance testing, which had been scheduled for May 2021, was delayed until June 10, 2021. Id. at 18. When the factory acceptance testing began, Intermountain discovered multiple performance issues with the air conditioning units. Id. XP's design did not meet the 20,000 CFM performance XP represented it could provide and did not modulate temperatures in the required nineteen to twenty-seven degrees Celsius range. Id. at 19.

The parties also ran into scheduling conflicts. In May 2021, after Intermountain had provided XP with schedule confirmations, Will Knight told Intermountain that he may be delayed in providing the air conditioning units, but that he was “planning on shipping [the units] out next week” and would ship “4-5 units every 2 weeks until the order [was] completed.” Id. Concerned that Knight's plan would not satisfy the production schedule, Intermountain employee Jake Bramwell conducted a phone call with Knight where he agreed to provide five units per week. Id. Later that month, Knight emailed Intermountain explaining that XP had suffered additional delays in mass production as it awaited fan components for the units. Id. at 20. In June 2021, Knight notified Intermountain that XP had added shifts and hours in order to meet the delivery goals. Id.

In August 2021, Intermountain informed Mortenson of XP's misrepresentations and failure to meet the schedule. Id. at 22. The next day, Intermountain executives flew to XP's factory in Boone, North Carolina, to assist XP in addressing the delays. Id. Upon arriving at XP's facility, they found that contrary to Knight's representations, XP had not completed any additional units other than the six it had previously shipped. Id. They also discovered that XP had not added any additional employees or shifts. Id. Shortly thereafter, Mortensen provided Intermountain with a liquidated damages schedule showing it responsible for $2,000,000 to $4,000,000 if XP did not deliver the units by October 2021. Id. In September 2021, the parties discussed a “path to success” document that provided various good-faith guideline requirements from Intermountain in exchange for Intermountain signing a Non-Disclosure Agreement and Modification Agreement. Id. at 24.

By November 2021, the parties still had not entered into the Modification Agreement. Id. at 28. At that time, Knight emailed Intermountain an “updated version” of the Modification Agreement, stating XP would not ship the final unit until it was signed. Id. On November 22, 2021, after incurring significant liquidated damages, Intermountain signed the agreement. Id.

From August through November 2021, XP's products contained significant defects. Id. Intermountain discovered that the air conditioning units did not meet the stated performance of 20,000 CFM or keep the batteries within the BESS enclosures cooled to the necessary temperatures. Id. Intermountain made numerous requests for assistance from XP, but XP neither supported nor responded to those requests. Id.

Plaintiff filed suit in July 2022 after the parties failed to resolve their disputes. It alleged breach of contract for the modification and non-disclosure agreements. In its Answer, Defendant filed a Counterclaim alleging breach of contract, breach of the covenant of good faith and fair dealing, breach of express warranty, breach of the implied warranty of fitness for a particular purpose, breach of the implied warranty of merchantability, fraud, negligent misrepresentation, and unfair and deceptive trade practices. Counterclaim Defendants subsequently filed their Motion to Dismiss.

II. DISCUSSION

a. Standard of Review

In reviewing a Rule 12(b)(6) motion, “the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff.” Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). The plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” Id. at 563. A complaint attacked by a Rule 12(b)(6) motion to dismiss will survive if it contains enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

In Iqbal, the Supreme Court articulated a two-step process for determining whether a complaint meets this plausibility standard. First, the court identifies allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555) (allegation that government officials adopted challenged policy “because of” its adverse effects on protected group was conclusory and not assumed to be true); see also Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012) (“Although we are constrained to take the facts in the light most favorable to the plaintiff, we need not accept legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.”) (internal quotation marks omitted)). Although the pleading requirements stated in “Rule 8 [of the Federal Rules of Civil Procedure] mark[] a notable and generous departure from the hyper-technical, code-pleading regime of a prior era ... it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Iqbal at 678-79.

Second, to the extent there are well-pleaded factual allegations, the court should assume their truth and then determine whether they plausibly give rise to an entitlement to relief. Id. at 679. “Determining whether a complaint contains sufficient facts to state a plausible claim for relief “will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. “Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]' ‘that the pleader is entitled to relief,'” and therefore should be dismissed. Id. (quoting Fed.R.Civ.P. 8(a)(2)).

The sufficiency of the factual allegations aside, “Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.” Sons of Confederate Veterans v. City of Lexington, 722 F.3d 224, 228 (4th Cir. 2013) (quoting Neitzke v. Williams, 490 U.S 319, 327 (1989)). Indeed, where “it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations, a claim must be dismissed.” Neitzke v. Williams, 490 U.S. at 328; see also Stratton...