ORDER
In "this сase, Lennar Mare Island, LLC (LMI), CH2M Hill Constructors, Inc. (CCI), and Steadfast Insurance Company dispute their obligations with respect to the clean-up of Mare Island, a former U.S. Navy shipyard. This order addresses LMI’s and CCI’s motions to dismiss Steadfast’s Améñded Counterclaim under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7). The matter was submitted without a hearing. For the following reasons, the motions are granted in part.
First, to avoid confusion, a preliminary note on the parties’ identities: LMI is the plaintiff in this action, and Steadfast is the defendant. See Am. Compl. ¶¶ 1-2, ECF No. 22. Steadfast asserts counterclaims against LMI and CCI. See Am. Coun-tercl. ¶¶ 2-3, ECF No. 164-1.
A. Steadfast’s Allegations
Because LMI and CCI bring motions under Federal Rule of Civil Procedure 12(b)(6), the court assumes the allegations of Steadfast’s amended counterclaim are true. See Starr v. Baca,
The United States Navy operated a base at Mare Island in the City of Vallejo, California for nearly 150 years. JS at 2. Over the years, Mare Island was contaminated. In 1996, the Navy closed the base, and in 2002, it conveyed the land to Vallejo. Id. The Navy, however, was obligated to investigate and remediate pollution on Mare Island. Id. In 2001, the City, the Navy, Steadfast, LMI and- CCI entered several contracts. Id. at 2-3.
First, the Navy and the City entered the Environmental Services Cooperative Agreement, or ESCA. Id. at 2. In the ESCA, the Navy agreed to pay the City about $78 million and the City agreed to remediate certain environmental problems on Mare Island. Id. But the Navy agreed to retain responsibility for certain conditions, ie., the “Navy-Retained Conditions.” Id. These Navy-Retained Conditions included a defined set of known conditions for which the costs of clean-up exceed $114.3 million. Id. Second, in the Mare Island Remediation Agreement, or MIRA, LMI agreed it would take on the City’s obligations under the ESCA to remediate pollution on Mare Island. Id. at 2-3. This agreement anticipated the City’s later transfer of some of Mare Island to LMI. Id. at 2. Third, LMI and CCI entered into a Guaranteed Fixed Price Contract, or GFPC. Id. at 3; Am. Countercl. ¶9. In the GFPC, CCI agreed to remediate specific contamination problems on Mare Island in return for a fixed price. JS at 3; Am. Coun-tercl. ¶9. CCI also agreed to remediate other pollution for additional compensation when LMI requested. JS at 3.
In conjunction with the GFPC, Steadfast, LMI and CCI negotiated a series of insurance policies. Id.; Am. Countercl. ¶ 10. These policies’ premiums were paid for indirectly with Navy funds. JS at 3. Steadfast, LMI and CCI are all parties to these policies, but their rights and obligations differ or conflict. Am. Countercl. ¶ 10. Two of the policies are the subject of this lawsuit. Copies of both are attached as exhibits to the amended counterclaim. See id. Exs. A, B.
Second, the Environmental Liability Insurance or ELI policy: Steadfast issued the ELI policy to both CCI and LMI. Id. ¶ 12, Ex. B. Among other things, the ELI policy “affords coverage for certain cleanup costs required by a ‘Governmental Authority as a result of a ‘Pollution Event’ that is not a ‘Known Pollution Condition’ and that is first discovered by an insured during the policy period.” Id. ¶ 12. The ELI policy is set to expire on March 30, 2021, ten years after the RSL policy expired. Id.
According to the amended counterclaim, when the RSL and ELI policies wеre drafted and signed, LMI, CCI and Steadfast intended for the
Steadfast alleges LMI’s and CCI’s actions after 2001 matched this understanding. Id. ¶ 15. For example, LMI conceded in private discussions with CCI that “the underwriting materials” should be considered when deciding whether a pollution condition was known or unknown. Id. But after the policies were signed, LMI and CCI eventually adopted a different interpretation of the policies in their communications with Steadfast. Id. To Steadfast, they argued that if a pollution event is not listed in the tables and figures appended to the policies, then it is unknown, regardless of anything to the contrary in the “Applications” or “underwriting documents.” Id. This has also been LMI’s position in this action. See Mot. Summ. J., ECF No. 187. '
“Fundamentally,” Steadfast charges LMI and CCI with “a pattern of improper conduct throughout their contractual relationship with Steadfast..,.” Id. ¶20. First, LMI and CCI'“attempted to convert
Steadfast claims LMI and CCI took these actions because the RSL policy expired eárlier than the ELI policy; if claims could no longer be submitted under the RSL policy, then LMI and CCI attempted to- submit them under the ELI policy, which has not expired. Id. ¶ 21(a). LMI also intended to use both the RSL and ELI policies to “finance its infrastructure development at the Mare Island project.” Id. ¶ 21(b). In other words,'LMI attempted to pass- off its real estate development costs as pollution cleanup' costs. See id. But, Steadfast says, the policies were never intended for this purpose. Id. In all, LMI and CCI sought to maximize their profits, regardless of the policy terms or the effects on Steadfast’s own bottom line. Id. § 21(c).
After laying out this general theory, Steadfast’s сounterclaim describes several dozen instances of wrongdoing. See id. ¶¶ 23-69. It divides these allegations into several groups:
• “Submitting claims for ‘known’ pollution conditions (under the RSL Poli- , cy) as ‘unknown’ pollution conditions (under the ELI Policy), and vice-versa,” id. ¶¶ 23-33;
• .“Overstaffing, overworking and over-billing,” id. ¶¶ 34-36;
• “Concealing fees in accounting records in order to prevent Steadfast from learning that the fees were im- . proper,” id. ¶¶ 37-42;
• “Performing and billing for unnecessary, non-required, non-approved, settled and non-covered work,” id. ¶¶ 43-50;
• “Billing substantive remediation expenses as ‘Limited Further Investigation,’ ” id. ¶¶ 51-52;
• Concealing other “material misrepresentations” and ’ “critical information,” id. ¶¶ 53 — 60;
• Otherwise failing to cooperate, id. ¶¶ 61-65; and
• Otherwise interfering with Steadfast’s contractual rights, id. ¶¶ 66-69.
On the basis of these allegations, Steadfast advances ten claims against both LMI and CCI: (1) accounting; (2) breach of contract; (3) negligence; (4) restitution; (5) unjust enrichment; (6) intentional interference with contractual relations; (7) negligent misrepresentation; (8) intentional misrepresentation; (9) reformation; and (10) declaratory relief. Id. at 22-31. It seeks relief in the form- of an accounting, restitution, reformation of the policies, cancellation of the ELI policy, compensatory damages, punitive damages, a declaration of its rights under the contracts, and whatever other relief is proper. Id. at 31.
B. Relevant Procedural History
■ LMI filed its original complaint in state court, and the case was removed to this court in August 2012. ECF No. 1. Steadfast filed an answer and its original counterclaim thé same month. ECF Nos. 4, 5. Since then, the parties have engaged in extensive litigаtion.
LMI and CCI filed the pending motions to dismiss on September 4, 2015. CCI joined LMI’s motion in full. ECF No. 298. In opposition to these motions, Steadfast agreed to withdraw its claim for negligence. Opp’n LMI Mot. at 20; Opp’n CCI Mot. at 17. The court construes this agreement as a stipulation to dismissal of the claim for negligence with prejudice, and grants the request.
LMI and CCI request relief under both Rules 12(b)(6) (“failure to- state a claim upon which relief can be- granted”) and 12(b)(7) (“failure to join a party under Rule 19”). The court addresses first the motions under Rule 12(b)(7).
II. RULE 12(b)(7) ANALYSIS
Rule 12(b)(7) allows a party to. request dismissal for “failure to join a party under Rule 19.” Fed. R. Civ.P. 12(b)(7).
The inquiry is fact-specific and practical. N. Alaska Envtl. Ctr. v. Hodel,
Here, LMI and CCI argue the United States Navy is a necessary party to the reformation claim and the request to cancel the ELI policy. LMI Mot. at 16-19; CCI Mot. at 13-15. They argue however that the Navy cannot be joined because the United States has not waived its sovereign immunity, and equity and good conscience do not allow Steadfast to seek reformation and cancellation in the Navy’s absence. LMI and CCI both move to dismiss the reformation claim, LMI Mot. at 16-19, and CCI moves to strike Steadfast’s requests for reformation and cancellation, CCI Mot. at 15. The court first considers whether the Navy is necessary under Rule 19(a).
A. Whether the Navy is a Necessary Party under Rule 19(a)
“A party may be necessary under Rule 19(a) in three different ways.” Salt River,
1. Complete Relief
“Complete relief ‘is concerned with consummate rather than partial or hollow relief as to those already parties, and with precluding multiple lawsuits on the same cause of action.’ ” Alto v. Black,
Here, LMI and CCI argue “resolving Steadfast’s reformation claim without the Navy would mean LMI could not obtain complete relief vis-a-vis Steadfast or CCI because the very bases on which these parties. entered into contracts and did business for some fifteen years could be altered retrospectively.” LMI Mot. at 18. The relationships between LMI, CCI, the Navy and Steadfast are the subject of several lengthy written agreements, including the GFPC, the ELI policy, the RSL' policy, and the ESCA, among others. The parties’ obligations under these agreements are interdependent; the agreements cite one another and define terms by refer
That said, LMI and CCI have argued in only general and abstract terms that the policies’ entire structure would collapse if the Navy is not joined; This does not suffice to satisfy the fact-specific standard of Rule 19. For example, LMI has not shown that if the Navy remains absent, LMI will be precluded from later seeking indemnification from the Navy. Cf., e.g., E.E.O.C. v. Peabody W. Coal Co.,
2. The Navy’s Interests
Rule 19 does not protect every interest an absentee may have. For example, “a financial stake in the outcome of the litigation” does not give rise to Rule 19(a)(2) necessity. Disabled Rights,
LMI and CCI point out three interests the Navy may have in adjudication of the amended counterclaim: (1) the Navy paid the policy premiums, and should Steadfast succeed, the policies would be gutted, LMI Mot. at 16-17; (2) should Steadfast’s reformation claim succeed, the policies’ overall structure would be undermined and the Navy’s intent ignоred, LMI Mot. at 17; and (3) the Navy is a party to the contract Steadfast seeks to reform, and should Steadfast succeed, the Navy is at risk of incurring greater liability, LMI Mot. at 17-18; CCI Mot. at 13-14.
The first and second arguments are similar. In effect, LMI and CCI argue that if the ELI policy is cancelled or reformed, Steadfast would have retroactively changed the terms of the insurance scheme the Navy bought into. In other words, the “very foundation on which the Navy, the City of Vallejo, LMI, and CCI entered into their 2001 agreements” was that “all cleanup costs were to be directly funded by, the Navy’s payment or insured with. Navy-paid premium dollars.” LMI Mot. at 17. LMI does not support this assertion with citations to evidence. Nevertheless, assuming LMI had proven this fact, its argument describes only prejudice in the abstract. It leaves the court to surmise the implications of. Steadfast’s claims for the Navy’s, interests and assumes without explanation that the Navy has an interest in. ensuring • it (and not Steadfast, LMI, CCI, the. City of Vallejo or anyone else) paid for pollution clean-up.
On the other hand, the Navy’s interest in the. insurance .policy is. far. weightier. The Ninth Circuit has “repeatedly. held that ‘[njo procedural principle is more deeply imbedded in the common law than that, in an action to set aside a lease or a contract, all parties^ who may be affected by the determination of the action are indispensable.’” Peabody,
The “United States Department of Defense, Department of the Navy” is an “additional insured” under the ELI policy, "to the extent of Claims arising out of 'the activities, liabilities and obligations of the Navy at the Covered Location: Coverage A.1 only.” Am. Countercl. Ex. B, at 183. As an additional insured, the Navy has an interest in preventing Steadfast from canceling the insurance policy. See Peabody,
■ Steadfast seeks reformation of the definition - of “Known Pollution Condition,” through alteration of the ELI policy as follows:
Known-' Pollution Conditions means all conditions specifically'described in the Policy application materials, including all documents describing the environmental conditions at Mare Island (including Technical Summaries) and in the Scope of Work Endorsement-to-the Remediation Stop Loss Policy No. ERC
5224884-00 (“Scope of Work Endorsement”) and which require or may ultimately require any form-of remedial investigation or action, including solely ■administrative action or establishment of Institutional Controls, by the Named Insured before a Governmental Authority will determine that no further remedial action is required. Known Pollution Conditions constitute all of the conditions that are deemed known to the Insureds for the purposes of this Policy. Known Pollution Conditions am include:
1. those conditions- specifically set , forth in Tables 1-3 and Figures 1 through 89 and Fuel Oil Line Removal Project Figures 1- through 11 to the Scope of Work Endorsement, which statement of conditions is' either (i) a designation of location, contamination, byproducts, breakdown products and source of such identified contamination at the time of policy inception, or (ii) a designation of location, contamination, byproducts, breakdown products and an expressly unidentified source of such identified contamination at the time of policy inception, and
2. any contaminants generally accepted . in the relevant scientific -community at the time of policy inception as a byproduct or breakdown product of the contaminants) referred to in 1) abovе, whether listed on the Scope of Work Endorsement or not. Listing of á byproduct or breakdown product on thé Scope of Work Endorsement shall constitute agreement by the Insureds and the Company that such general acceptance exists with respect to that byproduct or breakdown product.
LMI and CCI argue that should Steadfast succeed on this front, the ELI policy’s coverage will be reduced. They argue the Navy would face greater liability. See LMI Mot. at 17. The court has reviewed the terms of the ELI policy and ESCA, and agrees that were the' ELI and RSL policy definition of “Known Pollution Condition” to expand, the ELI policy’s coverage would contract, and the Navy could arguably face greater liability. See Wer-ner Dec! Ex. 2A, at 3, ECF No. 296-2 (“The Navy shall remain responsible ... for Navy-Retained Conditions____”); id. at 4-5 (defining “Navy-Retained Conditions”); id. at 6 (defining “Known Conditions” and “Unknown Conditions”); id. at 7 (defining “Insured Unknown Conditions”). Steadfast does not dispute this general conclusion, and it has made similar statements in previous filings. See, e.g., Joint Rep. 3, ECF No. 16 (“Under' the ESCA, the City [of'Vallejo] declined responsibility for certain of the Navy’s potential environmental liabilities, including, inter alia, natural resource damages, certain unknown conditions, and known conditions once remediation costs for known conditions exceeded $114.3 million (collectively, ‘Navy Retained Conditions’).”).
If the court were to reform the ELI policy as Steadfast requests, the Navy’s liability could arguably increase. The Navy’s legally cognizable interests may therefore be impaired or impeded by both reformation and cancellation of the ELI policy. In sum, under Rule 19(a)(l)(B)(i), the Navy is a necessary party to Steadfast’s counterclaim’ for reformation and Steadfast’s requests for cancellation and reformation.
3. Inconsistent Obligations
LMI argues reformation would subject LMI to “cleanup obligations under the ESCA that are inconsistent with its insurance coverage for cleanup costs under the ELI policy, eyen though ELI policy coverage was consideration for the original deal.” LMI Mot. at 18. This possible conflict does not require the Navy’s joinder. LMI has not shown, for example, that should Steadfast prevail, the reformed ELI policy would subject LMI to a contractual obligation contrary to another duty LMI owes the Navy. Of, e.g., Peabody, 610 F.3d at, 1081.- . LMI has not shown it cannot defend its financial interests in the ELI policy in the Navy’s absence. The Navy is not necessary under Rule 19(a)(l)(B)(ii).
Although the Navy' has an interest in the adjudication of Steadfast’s counterclaim, it may not be necessary under Rule 19(a) if it is “adequately represented” here. Salt River,
As the Ninth Circuit has explained, “If a legally protected interest exists, the court must further determine whether that interest will be impaired or impeded by the suit. Impairment may be minimized if the absent party is adequately represented in the suit.” Makah Indian Tribe v. Verity,
(1) “whether the interests of a present party to the suit are such that it will undoubtedly make all of the absent party’s arguments”; (2) “whether the party is capable of and willing to make such arguments”; and (3) “whether the absent party would offer any necessary element to the proceedings that the present parties would neglect.”
Salt River,
The Salt River court’s decision illustrates how these rules may be applied. In that case# two non-tribal entities, the owner and operator of a power plant on Navajo Nation land, were defendants in' an employment case brought in tribal courts. Id. at 1177. In a federal-court complaint against Navajo officials, the power plant sought to bar the application of tribal law in the employment case, arguing the tribe lacked authority to do so under its lease agreement with, the power plant. Id. at 1177-78. The tribe was absent from the federal case, however, and the tribal officers argued the case could not proceed without the tribe because the complaint challenged the lease agreement. Id. at 1178. The district court agreed and dismissed the. federal case under Rule 19. Id.
On appeal, the Ninth Circuit reversed, finding the tribal .officials adequately represented the tribе. Id. at 1180-81. The officials’ interests were “aligned” with the tribe’s interests. Id. at 1180. No evidence suggested the officials would be unable to make every reasonable argument the tribe itself would make. Id. And no evidence suggested the tribe would “offer any necessary element to the action that the Navajo official defendants would neglect.” Id. at 1180-81. The Navajo Nation was therefore not a necessary party, and the case could go forward without it. Id, at 1182.
Here, LMI’s and CCI’s interests are similarly “aligned” with the Navy’s. All are insureds under the ELI policy. In defending Steadfast’s counterclaim, LMI and CCI attempt to rebuff an interpretation they claim would “gut” the ELI Policy for the same reasons the Navy would: to preserve the structure of insurance for the Mare Island project as they see it and to prevent coverage reductions. The Navy arguably faces increased liability should Steadfast succeed. LMI faces the same danger.
The Navy’s rights under the ELI policy may differ from LMI’s and CCI’s rights generally, but their interests all align with respect to Steadfast’s counterclaim. First, Steadfast seeks cancellation of the ELI policy for fraud. LMI and CCI have the same if not a greater interest in defending against this claim as does the Navy: not only could they lose coverage if Steadfast prevails, but they would be branded fraudsters. Second, Steadfast seeks reforma
The court also concludes LMI and CCI are as capable of defending against the counterclaim as the Navy would be. LMI and CCI have not suggested the Navy has evidence they do not or can make arguments they cannot, and the progression of the ease to date also suggests no such shortfall. Neither has any party suggested the Navy’s presence would contribute any element necessary to this case. The Navy is adequately represented in this case, and for this reason it is not a necessary party under Rule 19(a).
The Navy’s public or sovereign status does not lead to the opposite conclusion. In some cases, third party litigants may not adequately represent a public entity’s sovereign interests. See, e.g., W. Watersheds Project v. U.S. Forest Serv., No. 10-612,
' Because the court, concludes the Navy is not a necessary party, it does not address whether the Navy may feasibly be joined as a party.
B. Whether the Case May Proceed in the Navy’s Absence under Rule 19(b)
Even if the Navy.were necessary under Rule 19(a), the court could not grant the motion to dismiss based on Rule 12(b)(7). LMI and CCI have not carried their burden to show that Steadfast’s requests for reformation and cancellation cannot proceed “in equity and good conscience.” Fed. R. Civ. P. 19(b).
Rule 19 lists several specific considerations the court should weigh when joinder of a necessary party is not feasible:
(1) the extent to which a judgment rendered in the person’s absence might prejudice - that person or the existing parties;
(2) the extent to which any prejudice could be. lessened or avoided by:
(A)' protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;.
(3) whether a judgment rendered in the person’s absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.
Fed. R. Civ. P. 19(b). The court’s decision on this question is one of discretion. Salt River,
First, LMI and CCI do not argue they or Steadfast will be prejudiced by the Navy’s absence. Neither does it appear they will be. As to the Navy, as noted above, the course of this litigation shows LMI’s and CCI’s interests parallel the Navy’s. Their vigorous prosecution of this case will substantially reduce any risk of prejudice to the Navy. Moreover, were evidence to be uncovered that showed the Navy faces prejudice, the court may revisit its decision, or the Navy could seek to provide аmicus curiae briefing. See, e.g., Bordallo v. Camacho,
Second, if judgment in Steadfast’s, favor would prejudice the Navy, the court could shape that judgment to minimize prejudice. For example, should Steadfast prevail on its reformation claim, the court may equitably refine the definition of “Known Pollution Condition” to fit the parties’ total pre-contract expectations, including the Navy’s, whatever the evidence may establish those expectations were.
Third, were Steadfast’s ' counterclaim dismissed with prejudice, ,it would likely have no other avenue for relief. See Fed. R. Civ. P. 19(b)(4)., Although the lack of an .alternative forum is not dispositive, see Makah,
Finally, when a person or agency is aware of an action but chooses not to claim an interest, the district court does not err by finding joinder unnecessary. United States v. Bowen,
The motions to dismiss , and strike under Rules 12(b)(7) and 19 are denied.
III. RULE 12(b)(6) ANALYSIS
The court now turns to the motions to dismiss for failure to state a claim.
“A defendant’s counterclaims are held to the same pleading standard as a plaintiffs complaint.” First Serv. Networks, Inc. v. First Serv. Maint. Grp., Inc., No. 11-01897,
A counterclaim need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), not “detailed factual allegations,” Bell Atl. Corp. v. Twombly,
Federal Rule of Civil Procedure 9(b) imposes a heightened pleading standard on fraud allegations: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R, Civ. P. 9(b). “Fraud can be averred by specifically alleging fraud, or by alleging facts that necessarily constitute fraud (even if the word ‘fraud’ is not used).” Vess v. Ciba-Geigy Corp. USA,
To meet the Rule 9(b) standard, a pleading must “ ‘be specific enough to give defendants notice of the particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong.’ ” Sanford v. MemberWorks, Inc.,
LMI and CCI challenge the amended counterclaim as a whole, as' insufficiently specific under Rule 9(b). Their motions also advance several claim-specific arguments for dismissal, targeting the claims for breach of contract, negligence, intentional interference with contractual relations, and reformation. Each is a state law claim. Therefore California substantive law applies. See Bell Lavalin, Inc. v. Simcoe & Erie Gen. Ins. Co.,
1. Breach of Contract.
California courts define a claim for breach 'of contract in four parts: “(1) the existence of the contract, (2) plaintiffs performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman,
The amended counterclaim lists four alleged breaches:
• LMI and CCI wrongfully submitted claims for Known Pollution Conditions under the ELI policy and unknown conditions under the RSL policy — that is, claims were wrongfully submitted under the incorrect policy, Am. Countercl. ¶ 75;
• LMI and CCI wrongfully submitted claims for costs not required by Governmental Authority, id. ¶ 76;
• LMI and CCI submitted unreasonable claims, id. ¶ 75; and
• LMI and CCI breached their covenant to cooperate, id. ¶ 77.
The court addresses each claim in turn.
a) Wrong Policy
Steadfast alleges as follows:
Under the RSL Policy, CH2M[9 ] was to submit claims for Known Pollution Evеnts. Under the ELI Policy, LMI was to submit claims for Unknown Pollution Events. Thus, CH2M and LMI agreed to submit claims for Known Pollution Events only under the RSL Policy and agreed to submit claims for Unknown Pollution Events only under the ELI Policy.
Am. Countercl. ¶ 75.
No provision of the RSL or ELI policies forbids LMI or CCI from submitting claims for unknown pollution events under the RSL policy or known events under the ELI policy. First, the RSL policy provides coverage for “any Loss arising out of the Insured Project that exceeds the Self Insured Retention(s), provided the loss is the result of a Claim first reported to the Company, in' writing by the Named Insured, during the Policy Period.” Am. Countercl. Ex. A, at 35 (bold typeface omitted). The “Insured Project” is “the project designated in Item 5 of the Declarations as specifically described in and limited by the appended Scope of Work endorsement.” Id. at 37. Item 5 lists “Remediation of the Covered Location as described by the Scope of Work Endorsement ... to this policy.” Id. at 33. The Scope of Work endorsement provides, “The conditions and activities identified in Tables 1, 2, and 3 and listed below represent the Scope of Work of the Insured Project and are Known Pollution Conditions or actions with respect to such Known Pollution Conditions authorized un
Second, the ELI policy provides- coverage for (1) “Cleanup Costs in excеss of the applicable Self Insured Retention required by Governmental Authority as a result of a Pollution Event on, at or under.a Covered Location that is not a Known Pollution Condition and that is first discovered during the Policy Period”; and (2) “Cleanup Costs in excess of the applicable Self Insured Retention where the Insured is legally obligated to pay as a result of a Claim first made against the Insured during the Policy Period of Cleanup Costs caused by a Pollution Event on, at, under or coming from a Covered Location that is not a Known Pollution Condition.” Id. Ex. B, at 131 (bold typeface omitted). Therefore, Steadfast may deny a claim submitted under the ELI policy because the claim is for a known condition, but submitting such a claim is not a breach of contract.
The motion to dismiss is granted as to this claim with prejudice and without leave to amend. See, e.g., Cafasso,
b) Work not: Required by Governmental Authority
Steadfast alleges as follows:
[T]he RSL and ELI Policies allow CH2M and- LMI only to submit claims for investigation or cleanup that is required by governmental authority. Instead, and in breach of this requirement, CH2M and LMI have submitted claims that do not-arise out of governmental authority and have in fact asked the government to require them to investigate and remediate the sites. ¡
Am. Countercl. ¶ 76. The court has carefully reviewed the RSL and ELI policies. No provision of eithеr policy forbids LMI or CCI from submitting claims for costs, not required by governmental authority. Rather, the terms quoted above show Steadfast may deny claims for cleanup not required by government authority, but the policies impose no contractual duty to refrain from submitting such a claim. See supra pages 1158-59. This claim is dismissed with prejudice and without leave to amend.
c) Unreasonable Claims
Steadfast alleges CCI and LMI “submitted claims that were not reasonable in amount or kind, all in violation of the terms of the RSL and ELI Policies.” Am. Countercl. ¶ 75. The RSL Policy provides, “Allowable Expenses of the Named Insured include the sum of [specific items listed in the policy], to the extent they are reasonable and necessary to complete the agreed Scope of Work.” Am. Countercl. Ex. A, at 35 (bold typeface omitted). Similarly, the ELI policy provides, “[I]tems which will comprise and which are Allowable Expenses of the First Named Insured include the sums of [certain items], to the extent they are • reasonable and necessary to complete the agreed Covered Work.” Id. Ex. B, at 132 (bold typeface omitted). No provision prohibits LMI or CCI from submitting unreasonable claims; rather, the policies allow Steadfast to deny unreasonable claims. As above, this claim is dismissed with prejudice and without leave to amend.
Steadfast alleges as follows:'
CH2M and LMI also covenanted to cooperate with Steadfast in the adjustment of claims under the RSL and ELI Policies. In breach of those covenants, CH2M and LMI have submitted claims they know to be improper, have refused to provide requested support for submitted claims,- have concealed information from Steadfast, have misrepresented the facts of the claims submitted, have refused to allow Steadfast to hire proper consultants,, and have otherwise withheld information from both Steadfast and each other.
Am. Countercl. ¶ 77. Under the ELI Policy, “The Insureds agree with the Company to assist and cooperate in the fulfillment of the policy’s terms, including the investigation, adjustment, defense or settlement of Claim(s).'”’ Am. Countercl. Ex. B, at 154.
Under longstanding California law, if an- insured breaches a covenant to cooperate, the insurer may enjoy a defense in an action under that policy. See, e.g., Billington v. Interinsurance Exch. of S. Cal.,
Some California federal court decisions are consistent with these state cases. ' See Pac. Dental Servs., LLC v. Homeland Ins. Co. of N.Y., No. 13-749,
In recent years, however, some federal district courts have held otherwise, allowing insurers to pursue an affirmative contract claim under California law for breach of a cooperation clause. See- Travelers In-dem. Co. of Connecticut v. Centex Homes, No. 14-451,
The rule that requires the court to apрly California law here famously stems from Erie Railroad Co. v. Tompkins,
Law was conceived as a “brooding omnipresence” of Reason, of which decisions were merely evidence and not themselves the controlling formulations. Accordingly, federal courts deemed themselves free to ascertain what Reason, and therefore Law, required wholly independent of authoritatively declared State law, even in cases where a legal right as the basis for relief was created by State authority and could not be created by federal authority and the case got into a federal court merely because it was “between Citizens of different States”____
Guar. Trust Co. of N.Y. v. York,
This court adopts the position of the court in Insurance Company of the State of Pennsylvania as persuasively comprehending what the California Supreme Court’s decision would be. Steadfast must pursue its cooperation-clause theories as a defense, not an independent, affirmative contract claim. The court reaches this conclusion on the basis of four considerations. First, California courts have final authority to define and interpret California law. See, e.g., Mullaney v. Wilbur,
Second, California courts have treated an insurer’s defensive posture in this situation as axiomatic. In deciding decades of case law, no California court has even taken up the question of an affirmative cooperation-clause claim, which suggests adopting Steadfast’s position would be a groundbreaking move better left to the state courts as a matter, of comity.
Third, as a practical matter, allowing Steadfast to pursue an affirmative claim in
Finally, the California Supreme Court has emphasized differences between an insurer’s and an insured’s position in a contract action. See, e.g., Kransco,
The motion is granted with prejudice and without leave to amend as to this claim.
e) The Covenant of Good Faith and Fair Dealing
Steadfast does not allege a claim for breach of the covenant of good faith and fair dealing in its amended counterclaim. It does advance this theory in its opposition brief to LMI’s motion. See Opp’n LMI Mot. at 13-14. “In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the [pleadings] to a [party’s] moving papers, such as a memorandum in opposition to a ,.. motion to dismiss.” Schneider v. Cal. Dep’t of Corr.,
California law recognizes the implied covenant of good faith and fair dealing in every contract. Kransco,
Here, it appears the counterclaim could be amended to state a claim for LMI’s and CCI’s breach of the covenant of good faith and fair dealing. Steadfast alleges LMI and CCI attempted to shift claims from one policy to another, to conjure government authority, and to submit inflated claims in bad faith. Steadfast is therefore granted leave to amend to allege a claim for breach of the implied covenant of good faith and fair dealing.
2. Intentional Interference with Contractual Relations
California law recognizes a tort claim for intentional interference with existing contractual rights. Woods v. Fox Broad. Sub., Inc.,
In an action for intentional interference with contractual relations, the plaintiff and defendant may not both be parties to the contract in question. Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,
Onе contracting party owes no general tort duty to another not to interfere with performance of the contract; its duty is simply to perform the contract according to its terms. The tort duty not to interfere with the contract falls only on strangers — interlopers who have no legitimate interest in the scope or course of the contract’s performance.
Id. at 514,
The Applied Equipment court’s language has “spawned much controversy” in both California state and federal courts. Id. Many courts have held, relying on Applied Equipment, that California law recognizes “no tort duty not to interfere falling on non-contracting parties who do have a legitimate interest in the scope or course of the contract’s performance, concluding ... that such third-parties are not strangers to the -relationship.” Id. (citing Exxon Corp. v.Super. Ct.,
In- a few recent decisions, California appellate courts have “limited [.Applied Equipment ] to its specific holding that only parties to a contract are excluded from asserting an intentional interference claim.” Id. at 1026-27. For example, in Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corp., the Court of Appeal allowed a motorcycle dealer to sue its distributor for interfering in a contract between the dealer and a prospective buyer.
Whatever the exact contours of the not-a-stranger rule may be, no court, federal or state, has interpreted California law to allow a elaim for intentional interference with contractual relations to proceed between parties to the same agreement. State and federal courts in other states,
Here, Steadfast alleges, “Although Steadfast, CH2M and LMI are parties to the same contracts, their rights and obligations thereunder are not ■ co-terminus and, in fact, conflict in many -regards.” Am. Countercl. ¶ 93. “In other words,” Steadfast alleges, “the contours of Steadfast’s coverage obligations under the RSL arid ELI Policies are not congruently owed to CH2M and LMI.” Id. Steadfast acknowledges that no California cases' have adopted an exception to the not-a-stranger rule along the lines of the out-of-state cases cited above. Opp’n LMI Mot. at 18; Opp’n CCI Mot. at 15. It requests this court .extend California law to allow an exception here. Id. The court declines to do so. ' Steadfast may pursue- contract remedies in this action.
■ The motion is therefore granted • with prejudice and without leave to amend with respect to this claim.
3.' Reformation
a) In General
Under California Civil Code section 3399, a party to a written agreement may request reformation of that agreement:
When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.
Cal. Civ. Code § 3399. “ ‘[T]he purpose of the remedy is to make the written contract truly express the intention of the parties.’ ” Century Sur. Co. v. Weir Bros. Const. Corp., No. 14-0687,
Here, as noted above, Steadfast alleges, “At the. time the RSL and ELI Policies were drafted and agreed to by LMI, CH2M and Steadfast, the parties intended that a prerequisite for coverage under the ELI Policy was that the Pollution Event was not known to CH2M or LMI at policy inception.” Am. Countercl. ¶ 12. The parties meant to define “known” conditions and events to include both those listed in the “tables appended to or incorporated into the policies” and in other “documentation available to CH2M and/or LMI at that time.” Id. But “[b]y mutual mistake or inequitable conduct' of CH2M and LMI,” the tables and figures in the policies “do, not include all known pollution conditions.” Id. ¶ 106. ■ Steadfast therefore claims the
LMI and CCI argue this claim is barred by the applicable statute of limitations,
b) Statute of Limitations
The statute of limitations for a reformation claim is three years. Cal. Civ. Proc. Code § 338(d); N. Star Reins. Corp. v. Super. Ct.,
Here, the ELI and RSL Policies were signed in 2001. Am. Countercl. ¶¶ 11-12. A person who signs a contract has a general duty 'to read it. Century Sur. Co.,
The amended counterclaim alleges LMI and CCI made misrepresentations and withheld information when they submitted claims аfter 2001. It also includes allega*-tions that after 2001, the parties behaved as though the definition of “Known Pollution Condition” was written as Steadfast would have it reformed. See Am. Coun-tercl. ¶ 106. But it includes no allegations of fraud in the crafting of the definition of “Known Pollution Condition” or the tables and figures in the endorsements. Steadfast does not allege, for example, that LMI and CCI actually were aware of several pollution events and conditions at the time they negotiated and signed the policies, but ■ did' not disclose this knowledge to Steadfast. Neither does Steadfast allege, for' example, that LMI and CCI knew or suspected Steadfast was mistaken but kept quiet.
Instead, in its opposition briefs, Steadfast argues “by mutual mistake or inequitable conduct, LMI’s and CCI’s positions that the meaning of ‘Known Pollution Condition’ is limited to . only the Tables and Figures to the Scope of Work Endorsement did not become apparent until the onset of this litigation.” Opp’n LMI Mot. at 19; Opp’n CCI Mot. at 16-17. But Steadfast alleges LMI’s and CCI’s intent in 2001 was consistent with Steadfast’s current position. See Am. Countercl. ¶ 12. LMI’s and CCI’s current positions on contract interpretation have no bearing on the alleged defect in the written policy. Whatever legal interpretation CCI and LMI have adopted in recent years, the words of the written policies remain unchanged.
The reformation claim is dismissed; however, because the deficiency could be cured by additional factual allegations of fraud ' or mistake, -Steadfast is granted leave to amend'if possible within the confines of Rule 11. See, e.g., Lipton v. Pathogenesis Corp.,
4. Fraud; Rule 9(b)
The court now turns to LMI’s and CCI’s arguments under Rule . 9(b). Each of Steadfast’s claims draws on the same foundational allegations, and these allegations include many averments of fraud. See,
Steadfast also alleges fraud in defining all of the counterclaims that the court, has not dismissed with prejudice. See, e.g., Am. Countercl. ¶72 (Accounting: “CH2M and LMI submitted false, misleading and/or inflated claims and information under the RSL and ELI Policies .... ”); id ¶ 77 (Breach of Contract: “CH2M and LMI .,. have concealed information from Steadfast, have misrepresented the facts of the claims submitted, have refused to allow Steadfast to hire proper consultants, and have otherwise withheld information from both Steadfast and each other.”); id. ¶ 85 (Restitution: “CH2M and LMI have both ... submitted] false, misleading and/or inflated claims under the RSL and ELI Policies ____”);' id. ¶89 (Unjust Enrichment: “CH2M and LMI submitted false, misleading and/or inflated claims under the RSL and ELI Policies.”; id. ¶ 99 (Negligent Misrepresentation: “CH2M and LMI made material misrepresentations as to past or existing facts .... ”); id. ■ ¶ 101 (Intentional Misrepresentation: “CH2M and LMI made material misrepresentations as to past or existing facts .... ”); id. ¶¶ 108-109 (Declaratory Relief: incorporating all previous allegations and noting Steadfast’s right to cancel the ELI policy “as set forth under Section VIII.D of that policy,” which provides for cancellation in the event Steadfast “discovers material misrepresentation or fraud by an Insured”). The court therefore finds that each of these claims either includes fraud as a necessary element or rests chiefly on allegations of fraud,
As noted above, the counterclaim must “be speсific enough to give [LMI and CCI] notice of the particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong.” Sanford,
Here, the counterclaim’s allegations generally do not clear this high bar. In none of its allegations does Steadfast clarify who at LMI or CCI made a particular fraudulent statement, on what date or dates a false statement or omission was made, or to whom the false statement was made. Steadfast also omits details about how false statements were communicated, for example by in-person conversation, phone, fax, email or letter. In many instances where the counterclaim does provide specific details, it does so in terms of examples, hinting at additional instances of fraud excluded from the pleading without explanation. And in several instances, Steadfast simply lumps LMI and CCI together, without distinguishing and clarifying their respective roles. “Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires plaintiffs to differentiate their allegations when suing more than one defendant and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.” Swartz,
Federal courts have on occasion applied a more lenient standard to fraud claims under Rule 9(b). For example, when a claimant “cannot be expected to have personal knowledge of the relevant facts,” the particularity requirement may be relaxed. Sanford,
In some cases courts have also applied a less stringent test if thе plaintiff alleges fraudulent omissions. UMG Recordings,
The Third Circuit has allowed plaintiffs “to use alternative means of injecting precision and some measure of substantiation into their allegations of fraud.” Seville Indus. Mach. Corp. v. Southmost Mach. Corp.,
Even assuming the court may apply a more lenient approach to Rule 9(b), the current counterclaim does not provide the sort of detail necessary to apprise LMI and CCI of the fraud claims against them. It must contain at minimum sufficiently granular allégations of fraud to serve as blueprints of the alleged scheme. See, e.g., Clausen,
As noted above, when a particular allegation of fraud does not meet the Rule 9(b) standard, it is “stripped from the claim.” Vess,
Given the circumstances of this- case, and considering Rule 15’s liberal policy on amendments, the court grants Steadfast leave to amend to bring its counterclaim into compliance with Rule 9(b). The majority of Steadfast’s claims, were asserted for the first time in the amended counterclaim, which was prepared hastily in late 2014 after Steadfast received large numbers of documents, from CCI. Because discovery and motion deadlines rapidly approach, and because Steadfast has argued it has ample documentation of LMI’s and CCI’s wrongdoing, see, Mot. Am. 2, ECF No. 162, a second amended. counterclaim must be filed within fourteen days.
IV. CONCLUSION
LMI’s and CGI’s motions are GRANTED IN PART as follows:
(1)- LMI’s motion to dismiss under Rule 12(b)(7) and CCI’s motion to ‘ strike the prayer under Rule 19 are denied;
(2) ' Steadfаst’s counterclaim for breach of contract is dismissed with prejudice and without leave to amend, but Steadfast is granted leave to. amend to allege a claim for breach • of the implied covenant of good faith and fair dealing;
(3) As stipulated, Steadfast’s counterclaim for negligence . is dismissed with prejudice and without leave to amend;
(4) Steadfast’s counterclaim for intentional interference with contractual relations is dismissed with prejudice and without leave to amend;
(5) In all other respects, the counterclaim is dismissed with leave to amend.
(6) Any second amended counterclaim must be filed within fourteen days of the date this order is filed.
This order resolves ECF Nos. 293 and 297.
IT IS SO ORDERED.
Notes
. Steadfast’s proposed amended counterclaim was deemed filed after the court granted its motion for leave to amend. See Order Aug. 17, 2015, ECF No. 290.
. The pages cited here are those printed consecutively throughout the counterclaim in the bottom right corner of each page.
. See LMI Mot. Sever, ECF No. 41; LMI Mot. Summ. J., ECF No. 51; LMI Mot. Recons., ECF No. 96; LMI Mot. Summ. J„ ECF No. 160; Steadfast Mot. Am. Countercl., ECF No.
. Rule 19 provides, in relevant part, as follows:
(a) Persons Required to Be Joined if Feasible.
(1)Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is sо situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
(b) When Joinder Is Not Feasible. If a person who is required to be joined if feasible cannot be joined, the Court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. The factors for the court to consider include:
(1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions ill the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4)whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.
. In opposition to LMI’s pending motion for summary judgment, Steadfast has advanced an interpretation of “Known Pollution Conditions" that tracks this reformation claim. See Opp’n Mot. Summ. J. 11, ECF No. 193 (arguing the parties understood they could "resort to environmental studies during the underwriting and during the claims adjusting pro-, cess ... to determine whether a pollution condition was ‘known’ or ‘unknown.’ ”); id. at 3 (‘‘[T]he issues in this case are not simply whether a condition is listed in a table, but rather whether the аctual pollution .,. was known.”). Here, Steadfast argues this similarity shows the Navy must be joined to LMI’s and CCI’s requests for declaratory judgment if .it must be joined to Steadfast’s counterclaim. See Ópp’n LMI Mot. 15-16. The court 'disagrees. "[A]s’ a practical' matter,” proceeding without the Navy on LMI’s and CCI’s claims would not “impair” or "impede” any interest the. Navy has, in the ELI policy. Fed, R. Civ. P. 19(a)(l)(B)(i). The declaratory relief LMI and CCI seek is of Steadfast’s obligations to make payments to LMI and CCI, not to the Navy; were LMI and CCI to succeed, the Navy's interests would not be adversely affected. Moreover, CCI’s counterclaim seeks relief under only the RSL policy, and the court is aware of no evidence showing the Navy is á party to the RSL policy. See Answer & Countercl. ¶¶ 27-43, ECF No. 12.
. These cases concerned motions to intervene. Intervention as of right under Rule 24(a) and necessary joinder under Rule 19 are governed by analogous standards. Compare, e.g., Salt River,
. The court notes, however, that the United States’ sovereign immunity would likely bar the Navy’s'involuntary joinder. See, e.g., Munoz v. Mabus,
. "Following stylistic amendments enacted in 2007, Federal Rule of Civil Procedure 19 no longer refers to 'indispensable' parties, but instead uses the term ‘required parly.' ” Alto,
. The amended counterclaim refers to CCI-as '‘CH2M.” See Am. Countercl. ¶ 3.
, Cooper was a securities case decided before passage of the Private Securities Litigation Reform Act (PSLRA), IS U.S.C.- §§ 78u-4(b)(1) & (2), and may therefore no longer accurately reflect the law of pleading in a securities context. See In re Vantive Corp. Sec. Litig.,