Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00003/USCOURTS-casd-3_16-cv-00003-5/pdf.json

Nature of Suit Code: 130
Nature of Suit: Miller Act
Cause of Action: 28:1330 Breach of Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA for

the Use and Benefit of PENN AIR

CONTROL INC., a California

Corporation,

Plaintiff,

CASE NO. 16cv0003-WQH-NLS

ORDER

v.

BILBRO CONSTRUCTION

COMPANY, INC., a California

corporation, and INTERNATIONAL

FIDELITY INSURANCE

COMPANY, a New Jersey

corporation,

Defendants.

BILBRO CONSTRUCTION

COMPANY, INC., a California

corporation

 Counterclaim Plaintiff,

 v.

PENN AIR CONTROL INC., a

California Corporation, and ALPHA

MECHANICAL, INC., a California

corporation,

 Counterclaim Defendants,

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ALPHA MECHANICAL, INC., a

California corporation

 Counterclaim Plaintiff,

 v.

BILBRO CONSTRUCTION

COMPANY, INC., a California

corporation; FERGUSON PAPE

BALDWIN ARCHITECTS, INC., a

California corporation; SHADPOUR

CONSULTING ENGINEERS, INC., a

California corporation; SPARLING,

INC., a Washington corporation; and

DOES 1 through 10,

 Counterclaim Defendants,

HAYES, Judge:

The matter before the Court is the Motion to Dismiss Alpha Mechanical, Inc.’s

(“Alpha’s) First Amended Counterclaim filed by Sparling, Inc. (“Sparling”). (ECF No.

111).

I. Procedural History

On July 17, 2015, Penn Air Control, Inc. (“Penn Air”) initiated this action by

filing a complaint against Bilbro Construction Company, Inc. (“Bilbro”) and

International Fidelity Insurance Company (“Fidelity”) alleging: (1) breach of contract;

(2) quantum meruit; (3) imposition of statutory penalties; and (4) recovery under Miller

Act Payment bond. (ECF No. 1). Penn Air seeks damages incurred from nonpayment

for serviced performed during the renovation of the Watkins Hall, Building 245, Naval

Support Activity Monterey, California (“the Project”). 

On October 19, 2015, Bilbro filed a counterclaim against Penn Air and Alpha. 

(ECF No. 17). On January 19, 2016, Alpha filed a counterclaim against Bilbro,

Ferguson Pape Baldwin Architects (“FPBA”), Sparling, and Shadpour Consulting

Engineers (“SC Engineers”). (ECF No. 45). Alpha’s counterclaim included a cause of

action for negligence against Sparling and FPBA. On February 12, 2016, FPBA filed

a motion to dismiss Alpha’s negligence counterclaim. (ECF No. 56). On February 12,

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2016, Sparling filed a motion to dismiss Alpha’s negligence counterclaim. (ECF No.

59). 

On August 26, 2016, the Court issued an order denying the motion to dismiss the

negligence counterclaim filed by FPBA and granting the motion to dismiss the

negligence counterclaim filed by Sparling. (ECF No. 95). The Court found that “Alpha

ha[d] not alleged sufficient facts to establish that Sparling owed Alpha a legal duty of

care.” Id. at 14. On September 6, 2016, Alpha filed the motion for leave to file an

amended counterclaim. (ECF No. 97). On November 3, 2016, the Court issued an

order granting Alpha’s motion for leave to file an amended counterclaim. (ECF No.

107). On November 8, 2016, Alpha filed the First Amended Counterclaim (“FAC”). 

(ECF No. 108).

On November 23, 2016, Sparling filed the Motion to Dismiss Alpha’s FAC. 

(ECF No. 111). On December 23, 2016, Alpha filed a response in opposition. (ECF

No. 116). On December 30, 2016, Sparling filed a reply. (ECF No. 118).

II. Allegations in Alpha’s First Amended Counterclaim (ECF No. 108)

Alpha alleges that “[o]n April 20, 2012, the Department of the Navy, Naval

Facility Engineering Command Southwest (the “Navy”) awarded Bilbro with the prime

contract for the renovation of the Watkins Hall, Building 245, Naval Support Activity

Monterey, California for the amount of $7,321,712.00 (the “Project”).” (ECF No. 108

at ¶ 10). Alpha alleges that Bilbro was the “Prime Contractor” and “contracted with

FPBA to provide architectural design services for the Project, designating FPBA as the

Designer of Record for the Project.” Id. at ¶ 12. “FPBA contracted with Sparling,

whereby Sparling, as an acoustical consultant, agreed to provide ‘. . . noise prediction

of the expected noise levels from the new HVAC equipment; Establish preliminary

noise and vibration control measures . . . and Coordinate and refine noise and vibration

control measures with the team . . .’” Id. at ¶ 13. Alpha alleges that “[o]n October 29,

2012, Bilbro entered into a written subcontract with Alpha designating Alpha as a

subcontractor on the Project[.]” Id. at ¶ 14. Alpha alleges that to “assist[] Bilbro with

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the Project, Alpha cosigned on a performance bond and payment bond[.]” Id. at ¶ 16. 

“Under the design quality control plan Alpha was to submit its design-build plans

to FPBA, the Designer of Record, and Bilbro, the Prime Contractor, for review and

approvals. Subsequently, Bilbro would submit the final proposal to the Navy for

approval.” Id. at ¶ 17. “[O]n or about June 20, 2012, Alpha entered into a written

agreement with SC Engineers, a consulting engineering firm, to design the mechanical

system for the Project in accordance with the terms and conditions of their

agreement[.]” Id. at ¶ 18. “The design-build submittal and review was divided into

stages of 35%, 75% and 100% design completions. With every stage, Alpha would

submit the proposed plans to Bilbro and would receive commentary, changes and

revisions from Bilbro, FPBA and Sparling.” Id. at ¶ 19. 

“On or about October 30, 2012, Sparling conducted an onsite review of the plans

and designs.” Id. at ¶ 20. “On November 14, 2012, Sparling issued a memorandum

which noted a potential issue with noise levels.” Id. at ¶ 22. Alpha alleges that SC

Engineers subsequently asked Sparling “for a comprehensive review and detailed

recommendations[,]” and Sparling responded by “noting eight specific units which

would require enclosures to meet the noise level requirements.” Id. at ¶ 23-24. Alpha

alleges that “[a]t this time . . . Sparling was and remained the only sound consultant and

acoustical expert on the Project.” Id. at ¶ 25. 

“From October 30, 2012 to April 30, 2013, Sparling, FPBA and Bilbro discussed

the concern of the stringent noise level requirements of the Project with Alpha and SC

Engineers and proposed several recommendations to address the anticipated noise in

these eight isolated rooms.” Id. at ¶ 26. Alpha alleges that in April 2013, FPBA

informed Sparling that Alpha requested that “Sparling review and verify the material

prior to Alpha’s implementation. Sparling reviewed and approved the sketch of the

enclosures and the materials for Alpha to proceed.” Id. “On April 3, 2013, Bilbro

notified Alpha that it received the 100% design approval and was ready to proceed with

construction.” Id. at ¶ 27.

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Alpha alleges that after it completed its work, “in or about June, 2014, the Navy

noted that 23 of the rooms in the Watkins Hall exceeded Navy’s noise level

requirements. None of the 23 rooms were noted as a potential problem by Bilbro,

FPBA and Sparling during their review, revision and subsequent approvals of Alpha’s

proposed designs and equipment.” Id. at ¶ 31. Alpha alleges “the 8 rooms initially

noted as a potential problem did not exceed the required noise level threshold and were

not included in the list of the 23 rooms noted by the Navy.” Id. 

“To address the noise issues, Bilbro emailed ‘all involved’ including Sparling,

FPBA, Penn Air, Alpha and SC Engineers . . . FPBA also apprised Sparling of the noise

problem discovered after Alpha completed its installation.” Id. at ¶ 32. “In July of

2014, Sparling provided Bilbro with a Professional Services Proposal and Agreement

which proposed to ‘. . . visit Watkins Hall to assess the noise associated with the

equipment . . . prepare a document presenting findings, recommendations and the next

steps needed to resolve the noise issues . . .’” Id. at ¶ 33. 

“In response, on or about September 2, 2014, Bilbro entered into a

Design-Consultant Agreement with Sparling to ‘. . . [p]repare a document presenting

findings, recommendations and the next steps needed to resolve the noise issues . . .’

and to work with the team to meet the noise level criteria of the Project. This agreement

specifically tasks Sparling with communicating with Bilbro’s subcontractor, Alpha, to

resolve the noise issues.” Id. at ¶ 34. “By entering into this agreement with the general

contractor, Sparling was agreeing to provide recommendations to reduce the noise

levels, which Sparling knew that Alpha as the only mechanical contractor on the Project

would be implementing. Sparling was also agreeing to now act as the acoustical expert

directly for Bilbro, not FPBA.” Id. at ¶ 35. 

“On or about June 25, 2014, Sparling visited the Project and prepared a

memorandum with findings and recommendations of what should be done by Alpha to

decrease the noise. Alpha implemented Sparling’s suggestions, but the noise levels in

the 23 rooms did not decrease.” Id. at ¶ 36. Alpha alleges that “Bilbo, FPBA and

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Sparling continued to provide Alpha with various suggestions[,]” and as a result,

“Alpha had to purchase new equipment, remove prior installations, install new

materials, purchase additional supplies and to remobilize its crew at least on four

separate occasions during the period of August 2014 through May 2015.” Id. at ¶ 37.

Alpha alleges that on six occasions, “Sparling prepared separate memorandums

recommending various alterations by Alpha to selected equipment and various sound

attenuation methods.” Id. at ¶ 38. Alpha alleges that “[o]n January 28, 2015, Sparling

contacted Alpha directly and offered a new solution for” two specific rooms – and

“Alpha implemented the recommendation and informed Sparling that it did not

effectively reduce the noise level.” Id. at ¶ 40. “On March 24, 2015, Sparling provided

new mock ups directly to Alpha asking them to implement, which Alpha did.” Id. at

¶ 41. Alpha alleges that “all of [Sparling’s] opinions, recommendations and proposed

solutions as an acoustical expert, were being communicated by Sparling directly with

Alpha as Alpha was the only subcontractor who could implement Sparlings’[sic]

recommendations.” Id. at ¶ 42. 

“The solutions presented by Bilbro, FPBA and Sparling did not effectively

reduce the noise level in all the rooms and the Navy refused to accept the Project.” Id.

at ¶ 43. Alpha alleges that on May 22, 2015, Bilbro terminated the Subcontract “and

withheld $323,352.00 still owing to Alpha.” Id. at ¶ 45. Alpha alleges that it “remained

a cosigner on the performance bond and payment bond for the Project” despite being

“precluded from access to the Project and the ability to implement its proposed

changes.” Id. at ¶ 46-47.

Alpha alleges that it “was justified in relying on Sparling as an acoustical

engineer and consultant to provide professional services for the Project and to provide

Alpha with proper directions, guidance, instructions and recommendations during the

Project and subsequently to address the noise issues.” Id. at ¶ 63. Alpha alleges that

Sparling breached its duty to Alpha by “failing to meet the applicable standard of care

due in performing their professional services[.]” Id. at ¶ 64. Alpha alleges that “[a]s

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a direct and proximate result of . . . Sparling’s negligence, Alpha has suffered damages”

including the cost of purchasing new equipment, installing new materials, and

purchasing additional supplies, “in an amount estimated at approximately

$1,121,564.57[.]” Id. at ¶ 65. 

III. Legal Standards

A. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for “failure to

state a claim upon which relief can be granted[.]” Fed. R. Civ. P. 12(b)(6). Federal

Rule of Civil Procedure 8(a)(2) provides that “[a] pleading that states a claim for relief

must contain . . . a short and plain statement of the claim showing that the pleader is

entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). “A district court’s dismissal for failure to

state a claim under Federal Rule of Civil Procedure 12(b)(6) is proper if there is a ‘lack

of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable

legal theory.’” Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011)

(quoting Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.1988)).

“[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of a cause of

action’s elements will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007). “To 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) (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. (citation omitted). “[T]he tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal conclusions.” Id. “When

there are well-pleaded factual allegations, a court should assume their veracity and then

determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. “In

sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual

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content,’ and reasonable inferences from that content, must be plausibly suggestive of

a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969

(9th Cir. 2009). 

B. Negligence

Under California law, to establish a claim for negligence a plaintiff must plead

(1) duty; (2) breach; (3) causation; and (4) damages. Ileto v. Glock Inc., 349 F.3d 1191,

1203 (9th Cir. 2003). “The threshold element of a cause of action for negligence is the

existence of a duty to use due care toward an interest of another that enjoys legal

protection against unintentional invasion.” Bily v. Arthur Young & Co., 834 P.2d 745,

760 (Cal. 1992). “Courts sometimes impose a duty to prevent pure economic loss when

there is no privity of contract when the injured party is an intended beneficiary of a

contract between the defendant and another party.” The Ratcliff Architects v. Vanir.

Constr. Mgmt., Inc., 106 Cal. Rptr.2d 1, 8 (Cal. Ct. App. 2001).

The Supreme Court of California has held that “[w]here a special relationship

exists between the parties, a plaintiff may recover for loss of expected economic

advantage through the negligent performance of a contract although the parties were not

in contractual privity.” J’Aire Corp. v. Gregory, 598 P.2d 60, 63 (Cal. 1979). To assess

whether there is a “special relationship” in the absence of privity of contract, California

courts balance six factors: (1) the extent to which the transaction was intended to affect

the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty

that the plaintiff suffered injury, (4) the closeness of the connection between the

defendant’s conduct and the injury suffered, (5) the moral blame attached to the

defendant’s conduct, and (6) the policy of preventing future harm. Biakanja v. Irving,

320 P.2d 16, 19 (Cal. 1958).

IV. Discussion

Sparling contends that Alpha has failed to cure the pleading deficiencies in its

original counterclaim that was previously dismissed by this Court. Sparling contends

that the newly-alleged agreement between Bilbro and Sparling “do[es] not change the

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nature of Sparling’s relationship with Alpha and the contractual chain of command for

the Project[.]” (ECF No. 111-1 at 20). Sparling contends that it had no control over

whether Alpha adopted or otherwise used Sparling’s acoustical recommendations. Id.

at 21. Sparling contends that “[u]ltimately, whether Sparling performed its work for

FPBA or Bilbro, does not change the fact that Sparling was not in privity with Alpha[.]” 

(ECF No. 118 at 4).

Alpha contends that “the main basis of [its] FAC against Sparling” is the new

factual allegation that “Sparling was engaged for the second time directly by Bilbro to

assess the noise problem and tell Alpha how to fix it.” (ECF No. 116 at 14 n.2). Alpha

contends that the FAC contains allegations of an agreement between Bilbro and

Sparling that was not previously plead in Alpha’s original counterclaim. Alpha

contends that the Design-Consultant Agreement was made between Bilbro and Sparling

following the Navy’s finding that twenty-three of the rooms in the Project failed to meet

the Navy’s sound requirements. Alpha contends that Sparling entered into this

agreement with Bilbro to “provide recommendations to reduce the noise levels, which

Sparling knew Alpha, as the only mechanical contractor on the Project, would

implement.” Id. at 9. Alpha contends that it performed work on four separate occasions

to reduce sound levels pursuant to Sparling’s recommendations. Alpha contends that

Sparling directly communicated “recommendations and solutions to Alpha so Alpha

could implement and bring the Project into acoustical compliance.” Id. at 10.

Alpha has not alleged that there is contractual privity between Alpha and

Sparling, or that a statute establishes the duty of care between the two parties. To

demonstrate a duty of care, Alpha must allege facts to satisfy the “checklist of factors”

set forth in Biakanja that courts use “to consider in assessing legal duty in the absence

of privity of contract between a plaintiff and a defendant.” Bily, 834 P.2d at 761; see

also Beacon Residential Cmty. Assn. v. Skidmore, Owings & Merrill LLP, 327 P.3d 850,

853 (Cal. 2014) (“This case is concerned solely with the first element of negligence, the

duty of care.”).

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Under the first Biakanja factor, the extent to which the transaction was intended

to affect Alpha, Alpha alleges that in September 2014, Bilbro and Sparling entered into

a contract to provide recommendations to Alpha regarding compliance with the Navy’s

sound criteria. Alpha includes an excerpt from the agreement in its FAC. Id. at ¶ 34. 

Alpha alleges the agreement states that Sparling was to “. . . [p]repare a document

presenting findings, recommendations and the next steps needed to resolve the noise

issues. . .” Id. Alpha alleges the agreement “specifically task[ed] Sparling with

communicating with Bilbro’s subcontractor, Alpha, to resolve the noise issues.” Id.

Sparling was “the only sound consultant and acoustical expert on the Project.” 

Id. at ¶ 25. As a result of the September 2014 contract, Sparling was working directly

with Bilbro to provide recommendations to Alpha regarding the noise level. The

agreement between Bilbro and Sparling supports the inference that Sparling’s noise

level recommendations were intended to be acted upon by Alpha. Sparling’s agreement

with the primary contractor, Bilbro, eliminated the separation between Sparling and

Alpha, and plausibly supports the inference that Alpha was the intended beneficiary of

Sparling’s recommendations and advice. See Apex Direct. Drilling, LLC v. SHN

Consulting Eng’rs & Geologists, Inc., 119 F. Supp.3d 1117, 1124-26 (N.D. Cal. 2015)

(finding a special relationship between lead engineer and subcontractor on a

construction project). This factor weighs in favor of imposing a duty of care.

The second Biakanja factor, foreseeability of harm, is present. While courts give

“limited weight to the foreseeability factor[,]” Alpha has alleged facts to support the

conclusion that it was foreseeable Alpha would suffer harm based on any negligent

recommendations offered by Sparling, pursuant to its agreement with Bilbro. Alpha has

alleged that Sparling was the principal and sole sound consultant and acoustical expert

on the project. (ECF No. 108 at ¶ 25). In Beacon, the Supreme Court of California

found it relevant to a Biakanja analysis that the defendants were “the principal

architects on the Project” and that “[a]mong all the entities involved in the Project,

defendants uniquely possessed architectural expertise.” 327 P.3d at 860. The court

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found that the defendants had not alleged that “anyone else had special competence or

exercised professional judgment on architectural issues[.]” Id.

In this case, Alpha has alleged that Sparling agreed “to provide recommendations

to reduce the noise levels, which Sparling knew that Alpha as the only mechanical

contractor on the Project would be implementing.” (ECF No. 108 at ¶ 35). Sparling

allegedly prepared a memorandum addressed to Alpha concerning “various alterations

. . . to selected equipment and various sound attenuation methods.” Id. at ¶ 38. The

Court concludes that Alpha has plead facts sufficient to show it was foreseeable that any

negligence in the proposals and recommendations made by Sparling would adversely

affect Alpha, which was engaged by Bilbro in a written subcontract relationship on the

Project. See id. at ¶ 14. This factor weighs in favor of imposing a duty of care.

The third and fourth Biakanja factors, certainty of injury and the closeness of the

connection between Sparling’s conduct and the injury suffered, weigh in favor of

imposing a duty of care. Alpha alleges that it adopted one of Sparling’s

recommendations in January 2015, and the recommendation failed to effectively reduce

the noise level in two rooms. Id. at ¶ 40. Alpha alleges that after it “implemented”

Sparling’s recommendation, Alpha “informed Sparling” that the recommendation had

failed. Id. Alpha alleges that Sparling was aware that its recommendations had failed

to adequately reduce noise levels when the Navy identified the twenty-three problem

rooms in June 2014. Id. at ¶ 31-32. Alpha alleges that Sparling proposed to “prepare

a document presenting” Bilbro with “the next steps needed to resolve the noise issues”

identified by the Navy in June 2014. Id. at ¶ 33. Alpha alleges that as a result of

Sparling’s negligence, Alpha has suffered approximately $1,121,564.57 in damages. 

Id. at ¶ 65.

These factual allegations are sufficient to support the conclusion that Sparling

had knowledge that its actions could cause Alpha injury. See Apex, 119 F. Supp.3d at

1124 (finding the third and fourth Biakanja factors established with a showing that the

subcontrator “had positive knowledge . . . that its actions were directly responsible for

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considerable losses”). This factor weighs in favor of imposing a duty of care.

The fifth Biakanja factor, moral blame, has no application in this case because

the relationships at issue involved arm’s length transactions and Alpha has not alleged

any facts to support a claim that Sparling acted in bad faith. See ECF No. 95 at 13.

The final Biakanja factor represents “the policy of preventing future harm.” 

Ratcliff, 106 Cal. Rptr.2d at 8 (citation omitted). The Supreme Court of California has

held that “[a]s a matter of economic and social policy, third parties should be

encouraged to rely on their own prudence, diligence, and contracting power, as well as

other informational tools.” Bily, 834 P.2d at 765. Alpha is a sophisticated actor and

had a responsibility to protect itself throughout its dealings on the Project with Bilbro,

FBPA, and Sparling. See ECF No. 95 at 13. Alpha has alleged that it implemented

Sparling’s recommendations and purchased equipment and installed new materials to

fully adopt Sparling’s suggestions. (ECF No. 108 at ¶¶ 37-42). However, Alpha has

not presented factual allegations to support an inference that Alpha was required to rely

on Sparling’s “recommendations” and “suggestions.” Id. at ¶¶ 34, 37. This factor

weighs against imposing a duty of care.

After a review of the Biakanja factors, the Court concludes that Alpha has alleged

facts sufficient to plausibly support the conclusion that there was a special relationship

between Alpha and Sparling, such that Alpha was an intended beneficiary of the

contract between Bilbro and Sparling. See Ratcliff, 106 Cal. Rptr.2d at 8 (“Courts

sometimes impose a duty to prevent pure economic loss when there is no privity of

contract when the injured party is an intended beneficiary of a contract between the

defendant and another party.”). Alpha has alleged sufficient facts to infer that Sparling

owed Alpha a legal duty of care. See Apex, 119 F. Supp.3d at 1125 (“California courts

have repeatedly found construction design professionals potentially liable to third

part[ies] . . . with whom they had no direct relationship.”).

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V. Conclusion

IT IS HEREBY ORDERED that Sparling’s Motion to Dismiss Alpha’s First

Amended Counterclaim (ECF No. 111) is denied.

DATED: February 24, 2017

WILLIAM Q. HAYES

United States District Judge

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