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Ada County Highway District v. Rhythm Engineering, LLC

United States District Court, D. Idaho

September 1, 2016

ADA COUNTY HIGHWAY DISTRICT, Plaintiff,
v.
RHYTHM ENGINEERING, LLC, a Kansas limited liability company, Defendant. RHYTHM ENGINEERING, LLC, a Kansas limited liability company, Counterclaimant,
v.
ADA COUNTY HIGHWAY DISTRICT, Counterdefendant.

          MEMORANDUM DECISION AND ORDER RE: PARTIAL MOTION TO DISMISS (DKT. 7)

          Honorable Candy W. Dale United States Magistrate Judge

         INTRODUCTION

         Pending before the Court is Defendant Rhythm Engineering's partial motion to dismiss, seeking to dismiss Plaintiff Ada County Highway District's claims of unjust enrichment and breach of implied warranty of merchantability. (Dkt. 7.) The motion is fully briefed and the Court heard oral argument from the parties on August 22, 2016. After review of the record and consideration of the parties' arguments and relevant legal authorities, the Court will grant Rhythm's motion to dismiss the unjust enrichment claim, with leave to amend, and will deny the motion to dismiss the breach of implied warranty of merchantability claim.

         FACTUAL BACKGROUND[1]

         On January 8, 2014, ACHD and Rhythm entered into an Adaptive Control Technology Purchase Agreement (Purchase Agreement)[2] for the installation of a signal control system on roads throughout Ada County, Idaho. Adaptive signal control technology systems are composed of computer hardware and software, which together, are designed to help control the flow of traffic over busy roads.

         The Purchase Agreement contained a two year warranty. Compl., ¶ 9 (Dkt. 1 at 4). Pursuant to the Purchase Agreement, Rhythm agreed to provide a full refund if, after three months of operation, ACHD believed the adaptive signal control technology system did not reduce travel time and emission and fuel consumption, while also improving safety. Id. To receive a full refund, ACHD had to: (1) collect before and after data using the same collection method; (2) allow Rhythm time to “fine tune” the adaptive signal control technology system; and (3) provide a written list of concerns to Rhythm. Id.

         Between December of 2014 and October of 2015, ACHD and Rhythm corresponded in writing and discussed, in-person, problems ACHD was experiencing with the adaptive signal control technology system. Id. at ¶ 11 (Dkt. 1 at 4). Rhythm attempted to correct the system's problems; however, Rhythm's attempts were not successful.[3]

         On November 9, 2015, ACHD notified Rhythm of its rejection of the adaptive signal control technology system and termination of the Purchase Agreement.[4] Id. at ¶ 19 (Dkt. 1 at 5). ACHD identified Section C.12 of the Purchase Agreement as the basis for termination, [5] and asserted that the system failed field operational testing three times by failing to automatically adjust based on the traffic conditions, which in turn, lead to the failure to reduce side street delays. Id. In its termination notice, ACHD demanded a full refund. Id.

         Three days later, Rhythm responded to the termination notice, informing ACHD that ACHD did not have the right to terminate the Purchase Agreement under Section C.12, ACHD's rejection of the system was untimely under the Idaho Uniform Commercial Code, and ACHD failed to comply with conditions of the warranty. Id. at ¶ 20 (Dkt. 1 at 6). Rhythm demanded ACHD return the adaptive signal control technology system equipment within 30 days for a refund under the warranty. On December 8, 2015, ACHD attempted to return the system's equipment to Rhythm via Federal Express overnight delivery; Rhythm refused to accept delivery of the equipment. Id. at ¶ ¶ 24-25 (Dkt. 1 at 6).

         On December 16, 2015, ACHD filed a Complaint against Rhythm asserting the following claims: (1) breach of contract; (2) breach of express warranty; (3) breach of implied warranty of merchantability; (4) breach of implied warranty of fitness for a particular purpose; and (5) unjust enrichment. ACHD seeks a full refund of the purchase costs of the adaptive signal control technology system and attorney fees.

         On February 16, 2016, Rhythm filed an answer and counterclaim against ACHD (Dkt. 6) and a partial motion to dismiss ACHD's unjust enrichment and breach of implied warranty of merchantability claims (Dkt. 7). The motion is ripe for the Court's consideration.

         LEGAL STANDARDS

         I. Motion to Dismiss

         A complaint fails to state a claim for relief under Rule 8 of the Federal Rules of Civil Procedure if the factual assertions in the complaint, taken as true, are insufficient for the reviewing court plausibly “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 622, 678 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. In other words, although Rule 8 “does not require detailed factual allegations, … it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (internal quotations omitted). If the facts pleaded are “merely consistent with a defendant's liability, ” the complaint has not stated a claim for relief that is plausible on its face. Id. (internal quotations marks omitted).

         II. Leave to Amend

         A dismissal without leave to amend is improper unless it is beyond doubt that the complaint “could not be saved by any amendment.” Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The United States Court of Appeals for the Ninth Circuit has held that, “in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. N. California Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether plaintiff will prevail but whether she “is entitled to offer evidence to support the claims.” See Hydrick v. Hunter, 466 F.3d 676, 685 (9th Cir. 2006).

         DISCUSSION

         I. Unjust Enrichment

         Rhythm claims that Count V-unjust enrichment-must be dismissed pursuant to Fed.R.Civ.P. 12(b)(6), because ACHD admits the existence of an enforceable express written contract that governs the parties' relationship. Rhythm alleges also that the unjust enrichment claim should be dismissed because the unjust enrichment claim itself refers to the existence of a contract, which otherwise defeats the unjust enrichment claim. To the contrary, ACHD contends that, because it is yet to be determined whether the Purchase Agreement is enforceable, and ACHD may plead inconsistent claims pursuant to Fed.R.Civ.P. 8, it is premature to dismiss its unjust enrichment claim. As explained below, the Court agrees with Rhythm's second argument and will dismiss the unjust enrichment claim, although will grant leave to ACHD to amend.

         “Unjust enrichment, or restitution, is the measure of recovery under a contract implied in law.” Barry v. Pac. W. Const., Inc., 103 P.3d 440, 447 (Idaho 2004). “A contract implied in law, or quasi-contract, ‘is not a contract at all, but an obligation imposed by law for the purpose of bringing about justice and equity without reference to the intent of the agreement of the parties, and, in some cases, in spite of an agreement between the parties.'” Id. (citing Continental Forest Prod., Inc. v. Chandler Supply Co., 518 P.2d 1201 (Idaho 1974)).

         Pursuant to Idaho law, to prevail on an unjust enrichment claim, the plaintiff bears the burden of proving: “(1) a benefit conferred upon defendant by plaintiff; (2) appreciation by the defendant of the benefit; (3) acceptance of the benefit under circumstances that would be inequitable for the defendant to retain the benefit without payment of the value thereof.” Aberdeen-Springfield Canal Co. v. Peiper, 982 P.2d 917, 923 (Idaho 1999).

         The doctrine of unjust enrichment, however, does not apply in circumstances where there is an enforceable express contract between the parties covering the same subject matter. Wilhelm v. Johnston,30 P.3d 300, 307 (Idaho.Ct.App. 2001) (finding that the existence of an enforceable promissory note and deed of trust precluded the application of unjust enrichment). “The reason for this rule presently is that the remedies for breach of an express contract, whether by law or by express agreement, afford adequate ...


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