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North Clackamas County Water Commission v. Siemens Water Technologies Corp.

United States District Court, Ninth Circuit

January 14, 2014

NORTH CLACKAMAS COUNTY WATER COMMISSION, Plaintiff,
v.
SIEMENS WATER TECHNOLOGIES CORP., a Massachusetts corporation, Defendant.

OPINION AND ORDER

JANICE M. STEWART, Magistrate Judge.

INTRODUCTION

Plaintiff, North Clackamas County Water Commission ("Water Commission"), is a joint water supply partnership among three municipal entities that owns and operates a water treatment plant. In late 2003, after issuing Requests for Proposals ("RFP"), the Water Commission granted a contract to U.S. Filter Wastewater Group to provide a low-pressure, immersed membrane filtration system and associated services for $2, 749, 000. Defendant, Siemens Water Technologies Corporation ("Siemens"), acquired the assets and liabilities of U.S. Filter Wastewater Group in 2004.

The membrane modules (bundles of filtration membranes that screen impurities) began breaking at an above-average rate in 2011, five years after installation of the system. In response, Siemens replaced the broken membranes with "improved technology" and modified the plant intake system, but the above-average breakage continued. The Water Commission alleges that the system is failing rapidly and must be replaced along with the plant's infrastructure that was originally modified to accommodate the custom Siemens system. Based on the design and installation of a defective water filtration system in the plant, the Water Commission alleges five claims against Siemens for breach of contract, breach of implied duty of good faith and fair dealing, negligence, unjust enrichment and breach of warranty.

The court has diversity jurisdiction over the Complaint pursuant to 28 USC § 1332. All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with FRCP 73 and 28 USC § 636(c).

Pursuant to FRCP 12(b)(6), Siemens has filed a Motion to Dismiss (docket #11) the claims for breach of the implied duty of good faith and fair dealing, negligence, and unjust enrichment in their entirety and to dismiss damages greater than 10% of the contract amount on the remaining claims for breach of contract, and breach of warranty. For the reasons that follow, Siemens's motion is granted in part and denied in part.

STANDARD

In order to state a claim for relief, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." FRCP 8(a)(2). To meet this standard and "survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (emphasis added), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plausible claim "does not require detailed factual allegations, '" but does demand "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. Labels and conclusions or a formulaic recitation of the elements of a claim will not do. Twombly, 550 U.S. at 555. In evaluating a motion to dismiss, the court must accept the allegations of material fact as true and construe those allegations in the light most favorable to the non-moving party. Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir 2012).

FINDINGS

I. Contractual Limitations on Damages

Siemens moves to dismiss the First and Fifth Claims for breach of contract and breach of warranty to the extent that they seek damages in excess of the liquidated damages clause in the contract. The parties agree that the contract includes the Water Commission's RFP, Siemens's proposal, and the amendment to the proposal made by letter agreement on January 7, 2004. At oral argument, Siemens conceded that both claims survive a FRCP 12(b)(6) motion to dismiss, but argued that the breach of contract claim should be construed as a breach of warranty claim with recovery capped at 10% of the contract amount pursuant to Section 4.21:

4.21 CONSEQUENTIAL DAMAGES/LIMITS OF LIABILITY
A. The maximum amount of Contractor's liability in damages for breach of contract provisions related to time of performance or for breach or [ sic ] warranty shall be ten percent (10%) of the contract amount for the Total Membrane System.
B. The maximum amount of Contractor's... liability in the aggregate... for any and all injuries, claims, losses, expenses or damages whatsoever arising out of or in any way related to Contractor's services, the project, the work or this agreement from any cause or causes whatsoever, including but not limited to the negligence, errors, omissions, strict liability, tort, breach of contract or breach or [ sic ] warranty (except for causes described in subsection A of this section which are subject to a ...

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