Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01519/USCOURTS-cand-3_07-cv-01519-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

TEXTAINER EQUIPMENT MANAGEMENT

(U.S.) LIMITED, 

Plaintiff,

 v.

TRS INC., trading as TRS CONTAINERS and

as TRS RESEARCH

Defendants. /

No. C 07-01519 WHA

ORDER GRANTING IN PART

AND DENYING IN PART

MOTION TO DISMISS AND

VACATING HEARING

INTRODUCTION

In this action for breach of contract and other claims, defendants move to dismiss

plaintiff’s claims under Rule 12(b)(6). Plaintiff has successfully pleaded claims for breach of

contract and conversion. Defendants have shown that plaintiff’s claims for fraud and

intentional misrepresentation are not pleaded with particularity as required by Rule 9(b). 

Plaintiff argues in its opposition that it actually should have designated its claim for unjust

enrichment to be a claim for recovery in quantum meruit, thus it will be permitted to amend that

claim. Accordingly, defendants’ motion to dismiss is GRANTED IN PART AND DENIED IN

PART. Plaintiff will be granted leave to amend its claims for fraud, intentional

misrepresentation, and unjust enrichment. As no further argument is necessary, the hearing on

this motion is hereby VACATED.

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United States District Court

For the Northern District of California

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STATEMENT

Plaintiff Textainer Equipment Management Limited is a Delaware corporation that,

among other things, rents and leases intermodal shipping containers. Defendants TRS, Inc.,

trading as TRS Containers and TRS Research, is a New Jersey corporation that leases

intermodal containers and chassis for use by the United States military and other clients

(Compl. ¶¶ 6–14). 

Sometime around February 2002, Gateway Management Services Limited entered into

an agreement to lease defendants a number of intermodal containers. The agreement’s effective

date was October 1, 2001 (id. at ¶ 6). The daily rental rate, the replacement value of the

containers, the lease period, and other specifics of the agreement were set forth in documents

called the lease addendum and schedules (id. at ¶ 8). Each lease addendum covered a specific

time period and specified different containers and equipment to be leased at different rates (id.

at ¶ 9). 

The lease agreement listed and described events constituting default. These included

(Def.’s Exh. A, ¶ 10(d)):

(d) Customer attempts to sell, transfer, encumber, part with

possession of, or assign or sublet (except as expressly permitted

by the provision of the Agreement) the Containers or any part

thereof.

The lease agreement also provided for assignment of the agreement (id. at Exh. A, ¶ 12(b)):

(b) Gateway and Owners, and any direct or remote assignee of

any right, title or interest of Gateway and Owners under the

Agreement, shall have the right at any time or from time to time

to assign part or all of its rights, title and interest in and to the

Agreement, and upon notice from Gateway or Owners and such

assignee, Customer shall immediately make payment of all

monies due and to become due or arising out of said agreement to

such assignee. 

In 2006, Gateway assigned the lease agreement to plaintiff (id. at ¶ 11). Prior to July

2006, plaintiff entered into a separate contract with the United States military to compile and

operate a database for all intermodal containers leased by the military (id. at ¶ 13). While

compiling the database, plaintiff discovered that about 620 of the containers leased to TRS

under the agreement had been sold to the military (id. at ¶ 14). Plaintiff alleges that the first

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such sale occurred around September 2004 (ibid.). Defendants never told Gateway or plaintiff

that the containers had been sold and continued to pay rent under the lease agreement (id. at ¶

15). In the summer of 2006, TRS allegedly told Textainer and Gateway that some of the

containers had been lost (id. at ¶ 19–20). By September 2006, defendants were in default on the

lease. Plaintiff demanded return of the containers, but defendants refused to return the

containers or pay the rent owed under the lease agreement (id. at ¶ 22). 

Plaintiff filed this action on March 16, 2007. The complaint alleges claims for (1)

breach of contract for lease rent and for depreciated replacement value of the containers; (2)

conversion; (3) intentional representation; (4) fraud; and (5) unjust enrichment. This motion

was filed on May 14, 2007. 

ANALYSIS

A motion to dismiss under Rule 12(b)(6) tests for legal sufficiency of the claims alleged

in the complaint. “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not

need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his

‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of

the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955,

1964–65 (May 21, 2007). “All allegations of material fact are taken as true and construed in the

light most favorable to plaintiff. However, conclusory allegations of law and unwarranted

inferences are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v.

Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996).

1. BREACH OF CONTRACT.

Plaintiff’s first claim is for breach of contract. “A cause of action for damages for

breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff’s

performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting

damages to plaintiff.” Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co., 116 Cal. App.

4th 1375, n.6 (2004) (citation omitted). “Performance under a contract becomes due when all

necessary conditions, and the passage of any required time, have occurred so that a failure of

performance will be a breach.” Restatement (Second) of Contracts § 224(b). “Parties may

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agree that a right or duty is conditional upon the occurrence or nonoccurrence of an event.” 

Platt Pac. v. Andelson, 862 P.2d 158, 161–62 (1993). 

Defendants argue that plaintiff has failed to plead a condition precedent that would

establish plaintiff’s right to payment under the contract. Defendants allege that a provision in

the lease agreement requires notice by both Gateway and plaintiff to defendants of any

assignment of the lease agreement. Defendants’ duty to pay an assignee is not triggered until

and unless written notice is given to defendants by both the assignor and assignee. Plaintiff did

not plead the fulfilment of this condition, defendants contend, because plaintiff merely pleaded

that there was an assignment. 

In the complaint, however, plaintiff pleads that it “has performed all obligations under

the Lease Agreement due and owing to defendants and/or Lessee, except for those which

Plaintiff was prevented or excused from performing” (Compl. ¶ 33). Here, taking all of

plaintiff’s allegations as true, Textainer has pleaded all the necessary elements. It has pleaded

that it fulfilled all conditions under the contract. More detail is not necessary at this time. The

question of whether plaintiff and Gateway actually gave written notice is a factual dispute that

will be developed later in this action. Accordingly, defendants’ motion to dismiss on the claim

for breach of contract is DENIED.

2. CONVERSION.

Plaintiff’s second claim is for conversion. “The elements of a conversion are the

plaintiff’s ownership or right to possession of the property at the time of the conversion; the

defendant’s conversion by a wrongful act or disposition of property right; and damages.” 

Oakdale Village Group v. Fong, 43 Cal. App. 4th 539, 543–544 (1996). “Conduct amounting

to a breach of contract becomes tortious only when it also violates a duty independent of

contract law.” Erlich v. Menezes, 21 Cal. 4th 543, 551 (1999). A breach of contract, however,

can be tortious when accompanied by a traditional common law tort, such as fraud or

conversion. Id. at 543–44. 

TRS contends that their actions in selling the containers to the military did not go

beyond their rights under the contract, so plaintiff may only recover economic damages on the

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contract. TRS claims that the contract specifically contemplated the sale of the containers to the

military. This, however, is a fact question better resolved on summary judgment than on the

pleadings. Plaintiff pleaded that it owned the containers at the time of the conversion, that

defendants wrongfully sold the containers to the military, and that plaintiff was damaged. TRS

also argues that it had no independent duty of care not to convert the containers. This argument

makes little sense. Conversion is an intentional tort that requires no proof of an independent

duty. Moreover, parties to contracts are expected to understand the risks allocated by contract,

but are not expected to anticipate fraud and dishonesty. Robinson Helicopter Co., Inc. v. Dana

Corp., 34 Cal. 4th 979, 993 (2004). Textainer had no reason to enter into a contract believing

that defendants would sell the containers and then conceal their actions. 

Defendants cite McGehee v. Coe Newnes/Mcgehee ULC, 2004 WL 2452855 (N.D. Cal.

2004) (Jenkins, J.), for the proposition that plaintiff cannot plead a claim for conversion where

the relationship is governed by a contract. That decision involved a contract to develop and

possibly market equipment. The deal eventually cratered. The plaintiffs filed an action for

breach of contract; the defendants counterclaimed for conversion. The court dismissed the

conversion counterclaim because there was no independent duty in tort other than the duties by

the contract. Id. at *3. This decision is distinguishable because here, TRS had an independent

duty not to misappropriate the containers. This duty existed outside the contract. Taking

plaintiff’s allegations as true, it can recover on a claim for conversion. Accordingly, plaintiff

has stated a claim for conversion, and defendants’ motion to dismiss is DENIED as to that claim. 

3. FRAUD.

Plaintiff next claims that defendants committed fraud by concealing the sale of the

containers. “The elements of fraud that will give rise to a tort action for deceit are: (a)

misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of

falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and

(e) resulting damage.” Engalla v. Permanente Medical Group, Inc., 14 Cal. 4th 951, 974

(1997) (internal citations and quotations omitted). “In all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent,

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knowledge, and other condition of mind of a person may be averred generally.” FRCP 9(b); see

also Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1106 (9th Cir. 2003). “A pleading is sufficient

under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can

prepare an adequate answer from the allegations. While statements of time, place and nature of

the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are

insufficient.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (1989). 

Defendants are correct in their assertion that plaintiff’s fraud claim by itself does not

contain any specific allegations, it merely incorporates by reference the previous paragraphs in

the complaint. There is nothing wrong with doing so, provided that plaintiff has pleaded all

necessary elements in the preceding paragraphs. 

Plaintiff alleges that the containers were leased to defendant who never purchased them,

that defendants sold the containers to the military without authorization and without informing

plaintiff, hid their actions, and then stopped paying lease rent when their activities were

discovered. In the rest of the complaint, plaintiff does not identify any particular statement that

defendants made that was fraudulent, nor did it allege when any such statements took place. 

Similarly, plaintiff does not allege with specificity that defendants omitted to tell Textainer of

the alleged sale or conversion of the containers. Given plaintiff’s allegations, defendants would

be hard-pressed to know what specific conduct or statements plaintiff alleges were false or

misleading. Accordingly, plaintiff has not pleaded its fraud claim with the particularity

required by Rule 9(b), and defendants’ motion is GRANTED. 

4. INTENTIONAL MISREPRESENTATION.

Plaintiff also brings a claim for intentional misrepresentation. Under California law, the

elements of a claim for intentional misrepresentation are: (1) a misrepresentation, including a

concealment or a nondisclosure; (2) knowledge of falsity of the misrepresentation; (3) intent to

induce reliance on the misrepresentation; (4) justifiable reliance; and (5) damages. Cadlo v.

Owens-Illinois, Inc., 125 Cal. App. 4th 513, 519 (2004). The elements are very similar to a

claim for fraud, and so a claim for intentional misrepresentation is also subject to the heightened

pleading standard of Rule 9(b). “The general rule for liability for non-disclosure is that even if

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material facts are known to one party and not the other, failure to disclose those facts is not

actionable fraud unless there is some fiduciary or confidential relationship giving rise to a duty

to disclose. However, active concealment of facts and mere nondisclosure of facts may under

certain circumstances be actionable without such a relationship.” La Jolla Vill. Homeowner’s

Assn. v. Superior Court, 212 Cal. App. 3d 1131, 1151 (1989). 

Here, plaintiff argues that the misrepresentation at issue was that defendants continued

to pay lease rent on the containers after they had allegedly sold them. As with plaintiff’s claim

for fraud, plaintiff has not pleaded the elements of a fraud claim with sufficient specificity. 

Accordingly, defendants’ motion to dismiss is GRANTED as to the claim for intentional

misrepresentation. 

5. UNJUST ENRICHMENT.

Textainer’s final claim is for unjust enrichment. Plaintiff, in its opposition, contends

that its claim for unjust enrichment should have been labeled a claim for recovery in quantum

meruit, or quasi-contract, and not a claim for unjust enrichment. Plaintiff will be granted leave

to amend its complaint and may rename or replead this claim as it sees fit. 

6. TRS RESEARCH.

Defendants argue that TRS Research should be dismissed because only TRS, Inc., was a

party to the contract at issue in this action. Assuming that TRS, Inc., and TRS Research are in

fact both proper defendants, defendants’ argument neglects that plaintiff has alleged claims

other than breach of contract. In response, plaintiff contends that TRS Research was listed as a

“doing business as” name, and not an actual party to this action. After receiving defendants’

initial disclosures, plaintiff states that it may, if necessary, seek leave to add or delete parties

from this action. At this time, defendants have not succeeded in demonstrating that TRS

Research is not a proper defendant. Accordingly, defendants’ motion to dismiss all claims

against TRS Research is DENIED. 

CONCLUSION

For all of the above-stated reasons, defendants’ motion to dismiss is DENIED as to

plaintiff’s claims for breach of contract and conversion, and GRANTED as to plaintiff’s claims

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for fraud, intentional misrepresentation, and unjust enrichment. Defendants’ motion to dismiss

all claims against TRS Research is DENIED. Plaintiff will be allowed leave to amend, and the

amended complaint should be filed no later than JULY 21, 2007. Further dismissal motion

practice is discouraged but not barred. Seeing no need for further oral argument, the hearing on

this motion is VACATED.

IT IS SO ORDERED.

Dated: June 20, 2007. ______________________________________ 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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