United States District Court, D. Alaska
ORDER AND OPINION [RE: MOTION AT DOC. 17]
JOHN
W. SEDWICK SENIOR JUDGE, UNITED STATES DISTRICT COURT.
I.
MOTION PRESENTED
At
docket 17 Defendant Choctaw Defense Services, Inc. (Defendant
or CDS) filed a Motion to Dismiss Complaint Pursuant to
Federal Rules of Civil Procedure 12(b)(6) and 9(b). The
motion was filed with redactions. An unredacted, sealed
motion was filed at docket 21. The confidential contracts at
the heart of the parties' dispute were filed under seal
at dockets 21-1 and 21-2. Plaintiff T&H Services, LLC
(Plaintiff or T&H) filed its unsealed response at docket
25. CDS filed an unsealed reply at docket 26.
II.
BACKGROUND
At some
point prior to January 6, 2016, the United States Coast Guard
(USCG) issued a request for proposals for the provision of
Base Operation Support Services (BOSS) at the base in Kodiak,
Alaska (the RFP). The RFP was published as a small business
set aside opportunity under the Small Business
Administration's Section 8(a) Program. CDS qualified
under Section 8(a) to bid on the RFP, but sought to team with
KIRA, Inc. (KIRA), which had more experience in BOSS
contracting work but was not itself a Section 8(a) contractor
and, therefore, could not directly submit a bid for the
Kodiak BOSS contract.
On
January 6, 2016, CDS entered into a Teaming Agreement with
KIRA whereby KIRA agreed "to work together [with CDS, as
CDS's subcontractor] to prepare and submit a proposal to
the [USCG] in response to the RFP."[1] The proposal
required CDS to estimate the staff it would hire to perform
the work required under the BOSS contract. KIRA consequently
had to estimate the staff it would use to fulfill its portion
of the work that it would be doing as a subcontractor and
estimate how much that staffing would cost. In order to make
such estimations, KIRA discussed with CDS the use of a
specific software system referred to in the complaint as
"MAXIMO." KIRA had used MAXIMO in fulfillment of
other BOSS contracts to operate "handheld computers that
track the equipment status/physical assets" on a
base.[2] KIRA used MAXIMO because it
"substantially increases productivity, reducing man
hours and expenses, and allows a company to decrease its
staffing and cost of performance."[3] According to the
complaint, CDS promised KIRA that it would purchase MAXIMO
software and incorporate the use of MAXIMO in its proposal to
the USCG, and KIRA then began providing its staffing numbers
and costs to CDS based on the understanding that CDS would
purchase and use MAXIMO.
Plaintiff
alleges that KIRA representatives had multiple conversations
and exchanged multiple emails with various CDS
representatives about how its pricing was based on the use of
MAXIMO. It alleges that CDS asked KIRA to develop a
"price model" that included the
"implementation costs" of MAXIMO.[4] It alleges that
the final submission to USCG included KIRA's staffing
numbers and pricing that were based on MAXIMO, as well as the
costs of implementing MAXIMO. It alleges that when preparing
for an oral presentation related to the bid the parties
discussed the implementation of MAXIMO, and then during the
presentation CDS representatives "briefed the [USCG] on
how KIRA used MAXIMO" and how it would be used in
implementing the Kodiak BOSS contract.[5]
Prior
to CDS's submission of its proposal to the USCG, Tlingit
Haida Tribal Business Corporation (THTBC) purchased KIRA.
T&H is a subsidiary of THTBC and is an eligible 8(a)
contractor. While THTBC could have bid on the RFP through
T&H, it decided to continue to work with CDS under the
Teaming Agreement by having T&H take KIRA's place.
In
November of 2016, CDS was awarded the Kodiak BOSS contract.
As contemplated by the Teaming Agreement, CDS executed a
subcontract with T&H wherein T&H agreed to perform
its portion of the services outlined in the BOSS contract for
a fixed monthly price (the Subcontract).[6] T&H alleges
that it would not have entered into the Subcontract without
CDS's promise to pay for and use MAXIMO on the project.
It alleges that the use of MAXIMO was the foundation for its
staffing numbers and profit calculations.
Ultimately,
CDS did not implement the MAXIMO system. T&H alleges that
because of CDS's "failure to utilize the MAXIMO cost
controls T&H's employees incurred unanticipated
overtime causing T&H to incur extra costs beyond those
utilized in the bid inputs . . . ."[7] It alleges that
as of May 2018 these extra overtime costs totaled $500, 000
and that every month it continues to incur these
unanticipated costs. T&H also alleges that CDS had
promised T&H an onsite management position to oversee the
performance of tasks for which T&H would be responsible
but failed to provide T&H such a position. It alleges
that its lack of management on site has contributed to
staffing inefficiencies. CDS refuses to pay T&H for
anything beyond the monthly fixed price in the Subcontract.
As a
result of failed discussions on the matter, T&H filed
this lawsuit, alleging one count of fraud in the inducement
and one count of breach of contract. CDS now moves to dismiss
both counts based on Rule 12(b)(6), arguing the T&H
complaint fails to state a claim based on the terms of the
Subcontract. It moves to dismiss the fraud in the inducement
claim for the added reason that T&H failed to set forth
the necessary details required under Rule 9(b).
III.
STANDARD OF REVIEW
Rule
12(b)(6) tests the legal sufficiency of a plaintiff's
claims. In reviewing such a motion, “[a]ll allegations
of material fact in the complaint are taken as true and
construed in the light most favorable to the nonmoving
party.”[8] To be assumed true, the allegations
“may not simply recite the elements of a cause of
action, but must contain sufficient allegations of underlying
facts to give fair notice and to enable the opposing party to
defend itself effectively.”[9] Dismissal for failure to
state a claim can be based on either “the lack of a
cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.”[10]
“Conclusory allegations of law . . . are insufficient
to defeat a motion to dismiss.”[11]
To
avoid dismissal, a plaintiff must plead facts sufficient to
“‘state a claim to relief that is plausible on
its face.'”[12] “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.”[13] “The plausibility standard is not
akin to a ‘probability requirement,' but it asks
for more than a sheer possibility that a defendant has acted
unlawfully.”[14] “Where a complaint pleads facts
that are ‘merely consistent with' a defendant's
liability, it ‘stops short of the line between
possibility and plausibility of entitlement to
relief.'”[15] “In sum, for a complaint to
survive a motion to dismiss, the non-conclusory
‘factual content,' and reasonable inferences from
that content, must be plausibly suggestive of a claim
entitling the plaintiff to relief.”[16] “In all
cases, evaluating a complaint's plausibility is a
‘context-specific' endeavor that requires courts to
‘draw on ... judicial experience and common
sense.'”[17]
In
deciding whether to dismiss a claim under Federal Rule of
Civil Procedure 12(b)(6), the Court is generally limited to
reviewing only the complaint, but documents whose contents
are incorporated into and integral to the complaint and whose
authenticity no party questions, but which are not physically
attached to the pleading, may be considered in ruling on a
Rule 12(b)(6) motion to dismiss.[18] Leave to amend must be
granted "[u]nless it is absolutely clear that no
amendment can cure the defects."[19]
Under
Rule 9(b), a party alleging fraud or mistake "must state
with particularity the circumstances constituting fraud or
mistake."[20] To be particular the complaint must
state "the who, what, when, where, and how" of the
misconduct."[21] This includes setting forth "what
is false or misleading about a statement, and why it is
false."[22] These specifics are required "to
give the defendants notice of the particular misconduct which
is alleged to constitute the fraud charged so they can defend
against the charge and not just deny that they have done
anything wrong."[23] The requirement for specifics also
"protects against false or unsubstantiated
charges."[24]
If a
complaint or claim within a complaint fails to meet the
requirements of Rule 9(b), dismissal is
appropriate.[25] Dismissals under Rule 9(b) are
functionally equivalent to dismissals under Rule 12(b)(6) and
therefore leave to amend should be granted unless it is clear
that the complaint cannot be cured by including additional
facts.[26]
IV.
DISCUSSION
A.
Breach of Contract
In its
complaint T&H alleges that "[CDS] has failed to
implement MAXIMO and to provide T&H with a management
position as promised by Defendant in the bid formulation
process, thereby breaching its contract with
T&H."[27] CDS asserts that T&H has not pled
any plausible breach of contract and cannot do so. It asserts
that the Subcontract does not impose any obligation on CDS to
implement MAXIMO nor does it require CDS to allow T&H an
onsite management position.
T&H
argues that the use of MAXIMO is expressly included in and
incorporated into the Subcontract. It relies on the fact that
the Subcontract incorporates a Performance Work Statement and
that the Performance Work Statement requires the use of
MAXIMO. The Performance Work Statement states as follows:
The Government will provide, via Coast Guard computer
network, access to a CMMS. The Contractor will be responsible
for utilizing this program to, at a minimum, track work order
and preventative maintenance completion, and personnel
man-hour expenditures . . . The Government's current CMMS
is IBM Maximo. The Government reserves the right to update or
change software.[28]
The
court agrees with CDS that "[s]uch language cannot
reasonably be read to obligate CDS to implement MAXIMO in the
course of fulfilling the BOSS contract."[29] The provision
refers to the software as belonging to and used by the
Government and gives the Government the option to change
software. There are no allegations that the Government's
"IBM Maximo" software is the same as the MAXIMO
software T&H expected CDS to use, and there are no
allegations asserting that the Government's software
dictated what software CDS used.
T&H
also asserts in its response that the Subcontract's scope
of work states that all services must be performed to the
"specifications, standards, and requirements set forth
in the Prime Contract."[30] T&H does not cite any
specific provision in the underlying BOSS contract that
dictates the use of MAXIMO, and the complaint does not set
forth any allegation about the specifications, standards, and
requirements of the underlying contract.
More
persuasively, however, T&H argues that the use of MAXIMO
was a part of the parties' contract because it underlies
the staffing plan it submitted and that was included in the
Subcontract as Attachment B, which in turn was the basis for
the fixed price that CDS was obligated to pay T&H. While
the staffing plan in Attachment B does not expressly
incorporate an obligation on the part of CDS to use MAXIMO,
it creates, along with the other allegations in the
complaint, a plausible claim that the use of MAXIMO was an
additional term consistent with and supplementing the
parties' agreement.
CDS
counters that no additional terms could plausibly be a part
of the parties' agreement based on the Subcontract's
integration clause. An integration clause, however, is not
conclusive proof of complete integration, only partial
integration.[31]Unlike a completely integrated
contract-where the contract is the complete and exclusive
statement of the parties' agreement and thus unable to be
supplemented by any additional terms within the scope of the
contract-a partially integrated contract can be supplemented
with consistent terms.[32] That is to say, unless a contract is
completely integrated, evidence of a consistent additional
term is admissible to supplement the written agreement.
Whether
a contract is in fact completely or partially integrated
depends on the intent of the parties and "can be proved
by any relevant evidence."[33] An integration clause
certainly "strengthens the presumption that a written
contract is the final repository of the
agreement."[34] Even if a contract is determined to be a
completely integrated one, a prior agreement may nonetheless
be enforced as an independent obligation if the alleged prior
agreement is not within the scope of the integrated written
agreement.[35] If a contract is determined to be only
partially integrated-that is, not a complete recitation of
the entire bargain-the question is whether the additional
term sought to be enforced is consistent or inconsistent with
the explicit terms of the written contract. Such a
determination "requires interpretation of the writing in
the light of all the circumstances, including ...