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WO

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Revive You Media LLC, 

Plaintiff, 

v. 

Esquire Bank, 

Defendant. 

No. CV-18-00541-PHX-DGC 

ORDER 

 Plaintiff Revive You Media LLC filed a complaint in Maricopa County Superior 

Court against Defendant Esquire Bank, alleging various contract-related claims. Doc. 1-1 

at 4-12.1

 Defendant removed this action to federal court (Doc. 1), and Defendant has 

filed a motion to dismiss the complaint under Rule 12(b)(6) and (7) (Doc. 8). The motion 

is fully briefed and oral argument will not aid the Court’s decision. Fed. R. Civ. P. 78(b); 

LRCiv 7.2(f). For the reasons that follow, the Court will dismiss Counts Two and Three. 

I. Background. 

 For purposes of this motion, Plaintiff’s factual allegations are accepted as true. 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). On January 28, 2016, Plaintiff, doing 

business as LuminateSkin, SkinPerfect, TryLumaEssence, SkinEssentials, 

TryRejuvaEssence, UltraCleanse, and Pure Slim Cleanse, executed seven merchant 

 

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agreements with Defendant. Doc. 1-1 at 13-47. American Payment Solutions (“APS”) 

was also a party to each agreement. Id. These agreements require Defendant and APS to 

provide certain payment processing services to Plaintiff. Id.

 The agreements permit Defendant to create reserve accounts at Defendant’s bank 

“for all future indebtedness of [Plaintiff] to [Defendant] or [APS] that may arise out of or 

relate to the obligations of [Plaintiff] under this Agreement, including, but not limited to, 

Chargebacks and fees, in such amount as Defendant from time to time may determine in 

its sole discretion.” E.g., id. at 16, ¶ 6. Defendant established reserve accounts pursuant 

to each of the seven agreements. Id. at 6. 

 The agreements also permit Defendant to terminate each agreement “upon at 

least 30 days’ prior written notice to the other parties.” E.g., id. at 17, ¶ 27. But 

Defendant could terminate an agreement “immediately upon written notice” to Plaintiff 

upon the occurrence of 11 listed events. Id. Defendant terminated each of the seven 

agreements on or before April 7, 2017, without providing proper notice to Plaintiff of the 

termination. Id. at 5, ¶¶ 10-11. 

 Each of the agreements explains the disposition of the reserve accounts after 

termination: 

The Reserve Account will be maintained for a minimum of six months after 

the date on which this Agreement terminates or until such time as 

[Defendant] determines that the release of the funds to [Plaintiff] is prudent, 

in the best interest of [Defendant], and commercially reasonable, and that 

[Plaintiff’s] account with [Defendant] is fully resolved. Upon expiration of 

this six-month period, any balance remaining in the Reserve Account will 

be paid to [Plaintiff]. [Defendant] will inform [Plaintiff] in writing of any 

charges debited to the Reserve Account during this six-month period. 

E.g., id. at 16, ¶ 6. 

 After the terminations, Defendant did not inform Plaintiff in writing of any debits 

to the seven reserve accounts. Id. at 6, ¶¶ 13, 15. Yet six months after the terminations, 

Defendant still retained the funds in all seven accounts, which totaled approximately 

$182,897.15 as of October 2017. Id. at 6, ¶¶ 12, 14, 16-17. 
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 Plaintiff filed a complaint in January 2018 seeking damages arising from breach of 

contract (Count One), breach of the covenant of good faith and fair dealing (Count Two), 

unjust enrichment (Count Four), and conversion (Count Five). Id. at 7-12. Plaintiff also 

seeks a declaratory judgment (Count Three). Id. at 9-10.2

II. Failure to Join Necessary Party. 

 Defendant contends that the Court must dismiss the complaint because Plaintiff 

failed to join a necessary party. Doc. 8 at 7-8. 

A. Legal Standard. 

 Rule 12(b)(7) allows dismissal of an action for failure to join a necessary and 

indispensable party under Rule 19. Rule 19 provides: 

a three-step process for determining whether the court should dismiss an 

action for failure to join a purportedly indispensable party. First, the court 

must determine whether the absent party is “necessary[.]” . . . If the absent 

party is “necessary,” the court must determine whether joinder is “feasible.” 

Finally, if joinder is not “feasible,” the court must decide whether the 

absent party is “indispensable,” i.e., whether in “equity and good 

conscience” the action can continue without the party. 

United States v. Bowen, 172 F.3d 682, 688 (9th Cir. 1999) (citations omitted); see also 

Salt River Project Agric. Improvement and Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th 

Cir. 2012). 

B. APS. 

 An entity is a required party under Rule 19 if it is subject to service of process and 

its joinder will not deprive the court of subject matter jurisdiction, and at least one of the 

following conditions must be met: 

(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 

so situated that disposing of the action in the person’s absence may: 

 

2

 Plaintiff’s complaint does not attach paragraphs 1 through 14 of the SkinEssentials merchant agreement (see Doc. 1-1 at 44-47), but Defendant does not 

contend that this agreement was different from the other six (see Doc. 8). 
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(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. 

Fed. R. Civ. P. 19(a)(1). 

 Defendant contends that APS is a required party under Rule 19(a)(1)(A) because 

Section 27 of the agreements identifies APS as a party that could terminate the 

agreements or take action that would warrant a termination. Doc. 8 at 8. For this reason, 

Defendant argues, the Court “cannot accord complete relief without the involvement of 

APS.” Id. But Defendant has not explained how Section 27 renders APS necessary in 

light of Plaintiff’s allegations. The complaint asserts that Defendant, not APS, breached 

the agreements. Taking those allegations as true, the Court cannot find at this stage that 

APS’s presence is necessary to “accord complete relief among existing parties.” Fed. R. 

Civ. P. 19(a)(1)(A). 

 Defendant next argues that APS is a required party under Rule 19(a)(1)(B) 

because the agreements give APS a legal interest in the reserve accounts. Doc. 8 at 8. 

The agreements permit the establishment of reserve accounts “for all future indebtedness 

of [Plaintiff] to [Defendant] or [APS] that may arise out of or relate to the obligations of 

[Plaintiff] under this Agreement[.]” E.g., Doc. 1-1 at 16, ¶ 6. For this reason, Defendant 

argues, disposing of this action without APS might (1) impede APS’s claim to some of 

the reserve account funds or (2) expose Defendant to inconsistent obligations insofar as it 

might be required to pay the same money to both Plaintiff and APS. See Doc. 8 at 8. 

 The Court cannot conclude at this stage that APS “claims an interest relating to the 

subject of the action.” Fed. R. Civ. P. 19(a)(1)(B). Granted, the agreements contemplate 

the possibility that APS might have an interest in some of the reserve account funds, but 

the agreements permit Defendant to transmit such debts to APS in the six months 

following termination, and only then with written notice to Plaintiff. Six months have 

passed and Plaintiff asserts that Defendant never provided written notice of deductions to 
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satisfy Plaintiff’s debts to APS. Because the complaint’s allegations do not show that 

APS has an interest in the reserve account funds, the Court declines to dismiss the 

complaint under Rule 12(b)(7). 

III. Failure to State a Claim. 

 Defendant contends that each of Plaintiff’s five counts fails to state a plausible 

claim. Doc. 8 at 8-16. 

A. Legal Standard. 

 A successful motion to dismiss under Rule 12(b)(6) must show either that the 

complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its 

theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A 

complaint that sets forth a cognizable legal theory will survive a motion to dismiss as 

long as it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief 

that is plausible on its face.’” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 570 (2007)). 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.” Iqbal, 556 U.S. at 678 (citing 

Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability 

requirement,’ but it asks for more than a sheer possibility that a defendant has acted 

unlawfully.” Id.

B. Choice-of-Law. 

 The merchant agreements provide that their terms “shall be governed and 

construed in accordance with the laws of the State of New York, without regard to 

internal principles of conflict of laws, and federal law.” E.g., Doc. 1-1 at 18, ¶ 39. 

“When parties include an express choice-of-law provision, Arizona courts apply the 

analysis set forth in the Restatement (Second) of Conflict of Laws § 187 to determine 

whether that choice is ‘valid and effective’ and to determine the appropriate balance 

between the parties’ circumstances and states’ interests.” Sherman v. PremierGarage 

Sys., LLC, No. CV-10-0269-PHX-MHM, 2010 WL 3023320, at *5 (D. Ariz. 
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July 30, 2010) (citing Swanson v. The Image Bank, Inc., 77 P.3d 439, 441-42 

(Ariz. 2003)). The last phrase of the parties’ choice-of-law provision in this case 

suggests that New York law should be applied without regard to conflict of law principles 

like those in § 187, but Arizona courts do not honor such provisions. Parties cannot 

contractually bypass the § 187 analysis. Swanson, 77 P.3d at 441. 

 The parties do not identify an actual conflict between Arizona and New York law 

or apply § 187 to the facts of this case. Docs. 8, 16. Rather than engage in this analysis, 

the parties cite New York and Arizona law simultaneously to support their arguments. 

Id. Defendant explains that it “does not engage in a lengthy conflict of laws analysis for 

purposes of its Motion, where the substantive laws of New York and Arizona are 

substantially in agreement with respect to Plaintiff’s claims.” Doc. 17 at 2. Because 

Defendant bears the burden on this motion, the Court will decline to dismiss any claim 

that would survive under either New York or Arizona law. 

C. Count One. 

 Count One alleges a breach of contract based on Defendant’s (1) termination of 

the agreements without proper notice and (2) retention of reserve account funds. 

Doc. 1-1 at 7-8. To prevail on this claim under both New York and Arizona law, Plaintiff 

must show, among other things, a breach of contract that caused damages. Fischer & 

Mandell, LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011); Thomas v. Montelucia 

Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013). 

1. Conduct Constituting Breach. 

 Defendant contends that its conduct does not constitute a breach of the 

agreements. Doc. 8 at 9. With respect to Plaintiff’s allegation that Defendant terminated 

the agreements with improper notice, Defendant argues that Plaintiff failed to allege that 

its decision to terminate the agreements was improper. Id. Such an allegation is 

unnecessary. No matter the reason for termination, the agreements require Defendant to 

provide written notice to Plaintiff. E.g., Doc. 1-1 at 17, ¶ 27. Plaintiff alleges that 
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Defendant’s notice was deficient. Id. at 5, ¶¶ 10-11. This states a plausible breach of the 

agreements. 

 With respect to Plaintiff’s allegation that Defendant wrongfully retained the 

reserve account funds, Defendant argues that the agreements permit it to retain them 

longer than six months. Doc. 8 at 9. Defendant emphasizes that it could retain the funds 

for a minimum of six months “or until such time as [Defendant] determines that the 

release of the funds to [Plaintiff] is prudent, in the best interest of [Defendant], and 

commercially reasonable, and that [Plaintiff’s] account with [Defendant] is fully 

resolved.” E.g., Doc. 1-1 at 16, ¶ 6; see also Doc. 8 at 9. Its decision to keep the reserve 

accounts longer than six months, Defendant argues, does not establish a breach of 

contract. Doc. 8 at 9. 

 The Court does not agree. The agreements attempt to give Defendant discretion to 

withhold the reserve account funds for longer than six months, but they simultaneously 

state: 

Upon expiration of this six-month period, any balance remaining in the 

Reserve Account will be paid to [Plaintiff]. [Defendant] will inform 

[Plaintiff] in writing of any charges debited to the Reserve Account during 

this six-month period. 

E.g., Doc. 1-1 at 16, ¶ 6. This inconsistency creates an ambiguity which cannot be 

resolved at the motion to dismiss stage. In New York and Arizona, ambiguous contracts 

often are construed against the drafter. See Lai Ling Cheng v. Modansky Leasing Co., 

Inc., 539 N.E.2d 570, 573 (N.Y. 1989) (ambiguous terms “must be strictly construed 

against the drafter”); Abrams v. Horizon Corp., 669 P.2d 51, 57 (Ariz. 1983) (there is a 

“preference to construe ambiguities against the drafter”). Defendant appears to have 

drafted the agreements. See Doc. 1-1 at 14-47 (standard merchant-bankcard applications 

with Defendant’s header); Doc. 16 at 9 (Plaintiff asserts that Defendant drafted the 
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agreements); Doc. 17 at 3 (Defendant does not dispute that it drafted the agreements). In 

addition, parol evidence might come into play in resolving ambiguous agreements.3

 Despite the language that Defendant emphasizes, the agreements state that “[u]pon 

expiration of this six-month period, any balance remaining in the Reserve Account will 

be paid to [Plaintiff].” E.g., Doc. 1-1 at 16, ¶ 6. Plaintiff asserts that this provision 

requires Defendant to return the reserve accounts to Plaintiff within six months. Id. at 6, 

¶ 16. Plaintiff alleges that Defendant failed to do so. Id. at 5-6, ¶¶ 11-17. At this stage 

in the litigation, the Court finds that the complaint states a plausible interpretation of the 

agreements and breach of contract. 

2. Damages. 

 Defendant contends that Section 23 of the agreements absolves Defendant from 

liability for any damages. Doc. 8 at 9. Section 23(d) states that Defendant is not liable to 

Plaintiff for any 

[i]nterruption or termination of any Services caused by any reason except 

for failure of [APS] to repair or replace Equipment at [Plaintiff’s] expense 

(in which case, any resulting liability shall be for the sole account of 

[APS]). At no time will [APS]’s liability exceed the amount of fees 

collected or reasonably expected to be collected from [Plaintiff] for this 

delay period. 

E.g., Doc. 1-1 at 17, ¶ 23(d). Plaintiff counters that the damages it seeks are not the result 

of the interruption or termination of services, but rather the result of Defendant’s 

termination of the agreements without proper notice and its retention of the reserve 

account funds. See Doc. 16 at 10. Again, the Court cannot resolve this issue at the 

motion to dismiss stage. The Court cannot determine on this bare record what is meant 

by “[i]nterruption or termination of any Services,” and whether that phrase is limited to 

 

3

 The Arizona Supreme Court has adopted a more liberal interpretation of the parol evidence rule than many courts. “[T]he judge first considers the offered evidence 

and, if he or she finds that the contract language is ‘reasonably susceptible’ to the interpretation asserted by its proponent, the evidence is admissible to determine the 

meaning intended by the parties.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 

P.2d 1134, 1140 (Ariz. 1993). 
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specific loss-of-service scenarios or whether it is broad enough to encompass termination 

of the entire agreement. 

 Defendant also contends that another provision of Section 23 requires dismissal: 

NEITHER [DEFENDANT] NOR [APS] SHALL BE LIABLE FOR ANY 

LOST PROFITS, PUNITIVE, INDIRECT, SPECIAL OR 

CONSEQUENTIAL DAMAGES TO [PLAINTIFF] OR TO ANY THIRD 

PARTY IN CONNECTION WITH OR ARISING OUT OF THIS 

AGREEMENT OR ANY OF THE SERVICES TO BE PERFORMED BY 

[DEFENDANT] OR [APS] PURSUANT TO THIS AGREEMENT. 

E.g., Doc. 1-1 at 17, ¶ 23; see also Doc. 8 at 9. But this section is found within 

Section 23 and, as noted above, the Court cannot determine on this record whether it is 

limited to specific scenarios in that section. The Court accordingly finds that it cannot 

rely on Section 23 to dismiss Count One. 

D. Count Two. 

 Count Two alleges a breach of the implied covenant of good faith and fair dealing. 

Doc. 1-1 at 8-9. Defendant contends that this claim must be dismissed because it is 

duplicative of the breach of contract count. Doc. 8 at 10. Specifically, Defendant argues 

that the violation of an express term of a contract, without more, is not a breach of the 

implied covenant. Id. Plaintiff counters that Rule 8 permits it to plead in the alternative. 

Doc. 16 at 11-12. 

 Rule 8 may permit inconsistent pleadings (Fed. R. Civ. P. 8(d)(3)), but a breach of 

the implied covenant cannot depend on the same exact facts as an alleged breach of an 

express contractual term, Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 125 (2d Cir. 2013) 

(under New York law, “when a complaint alleges both a breach of contract and a breach 

of the implied covenant of good faith and fair dealing based on the same facts, the latter 

claim should be dismissed as redundant”); Aspect Sys., Inc. v. Lam Research Corp., No. 

CV 06-1620-PHX-NVW, 2006 WL 2683642, at *3 (D. Ariz. Sept. 16, 2006) (dismissing 

implied covenant claim “[b]ecause Plaintiff has not explained how Defendants have 

breached the implied covenant other than through the breach of an express contractual 
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term”) (citing Bike Fashion Corp. v. Kramer, 46 P.3d 431, 435 (Ariz. Ct. App. 2002)). 

Plaintiff’s additional case citations, without explanation, do not require a different 

conclusion. Doc. 16 at 13 (citing House of Diamonds v. Borgioni, LLC, 737 F. 

Supp. 2d 162, 170 (S.D.N.Y. 2010) (decision on duplicative implied covenant claim is 

inconsistent with the Second Circuit decision in Cruz); Wells Fargo Bank v. Ariz. 

Laborers, Teamsters and Cement Masons Local No. 395 Pension Tr. Fund, 38 

P.3d 12, 28-31 (Ariz. 2002) (decision is silent on whether the mere violation of an 

express contractual term can constitute a breach of the implied covenant)). 

 Count One alleges two breaches of express contractual terms: (1) termination 

without proper notice and (2) wrongful retention of reserve account funds. Doc. 1-1 at 7, 

¶¶ 22, 24. Count Two leaves no doubt as to the substance of its allegations: it relies on 

the exact same conduct to assert a breach of the implied covenant of good faith and fair 

dealing. Id. at 8, ¶¶ 36-37. Plaintiff’s response does not identify any other conduct to 

substantiate this claim. See Doc. 16 at 13. The Court accordingly will dismiss Count 

Two.4

E. Count Three. 

 Count Three seeks a declaratory judgment pursuant to A.R.S. § 12-1831 that 

Defendant “is obligated to pay, and is directed to pay, the funds in the reserve accounts” 

to Plaintiff. Doc. 8 at 9, ¶¶ 49-50. Because this action has been removed to federal court, 

however, Plaintiff’s state-law claim must be converted to a claim brought under the 

Federal Declaratory Judgment Act (“Act”), 28 U.S.C. § 2201. See Golden Eagle Ins. Co. 

v. Travelers Cos., 103 F.3d 750, 753 (9th Cir. 1996) (when a state-law declaratory 

judgment claim is removed to federal court under diversity of citizenship jurisdiction, 

“the claim remain[s] one for declaratory relief, but the question whether to exercise 

federal jurisdiction to resolve the controversy bec[omes] a procedural question of federal 

law.”), overruled on other grounds by Gov’t Emps. Ins. Co. v. Dizol, 133 

 

4

 Defendant argues that Count Two suffers from the same deficiencies it asserts 

against Count One. Doc. 8 at 10-11. The Court rejects these arguments for the same 

reasons. See supra Part III(C). 
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F.3d 1220, 1224-26 (9th Cir. 1998) (en banc) (overruling Golden Eagle’s implication that 

district courts must sua sponte consider whether jurisdiction should be declined over a 

claim under the Act). This is so because under the Erie doctrine, federal courts sitting in 

diversity apply state substantive law and federal procedural law, and the Act is a 

procedural statute. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); see also Medtronic, 

Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 849 (2014) (“We have long 

considered the operation of the Declaratory Judgment Act to be only procedural, leaving 

substantive rights unchanged.” (internal quotation marks omitted)). 

 Defendant contends that the declaratory judgment claim must be dismissed 

because alternative remedies are available and it is duplicative of the breach of contract 

claim. Doc. 8 at 11-12. Plaintiff counters that this claim seeks different relief: a 

declaration that Plaintiff “is the owner of, is entitled to take possession, custody and 

control of, and is entitled to the use of, the funds in the reserve accounts applicable to the 

Merchant Agreements.” Doc. 16 at 13. This is simply an alternative remedy, Plaintiff 

argues, in the event that Defendant prevails on the contract-law claims. Id. at 13-14. 

 Under the Act, the Court may “declare the rights and other legal relations of any 

interested party seeking such declaration.” 28 U.S.C. § 2201(a). “Federal courts do not 

have a duty to grant declaratory judgment,” Leadsinger, Inc. v. BMG Music Pub., 512 

F.3d 522, 533 (9th Cir. 2008), and have “discretion to determine whether maintaining 

jurisdiction over the declaratory action would be appropriate,” Allstate Ins. Co. v. 

Herron, 634 F.3d 1101, 1107 (9th Cir. 2011). The Ninth Circuit has explained: 

In making such a determination, a district court is to consider a variety of 

factors, including whether retaining jurisdiction would: (1) involve the 

needless determination of state law issues; (2) encourage the filing of 

declaratory actions as a means of forum shopping; (3) risk duplicative 

litigation; (4) resolve all aspects of the controversy in a single proceeding; 

(5) serve a useful purpose in clarifying the legal relations at issue; 

(6) permit one party to obtain an unjust res judicata advantage; (7) risk 

entangling federal and state court systems; or (8) jeopardize the 

convenience of the parties. 
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Id. at 1107-08. 

 Considering the first factor, the Court can discern no useful purpose for Plaintiff’s 

declaratory judgment claim. Courts have interpreted this factor to preclude declaratory 

judgment claims that simply repeat claims or defenses already in the action. Jajo v. AutoOwners Ins. Co., No. CV-13-00069-PHX-SRB, 2013 WL 12195628, at *2 (D. Ariz. 

Oct. 2, 2013); Stickrath v. Globalstar, Inc., No. C07-1941 TEH, 2008 WL 2050990, 

at *3-4 (N.D. Cal. 2008) (compiling cases). But a district court should be careful to 

dismiss a declaratory judgment claim “only when it is clear that there is a complete 

identity of factual and legal issues” between the declaratory judgment claim and the other 

counts. Stickrath, 2008 WL 2050990, at *4. 

 Count Three arises in contract and seeks a declaration regarding the rightful 

disposition of the reserve account funds. Doc. 1-1 at 9, ¶¶ 49-51. The breach of contract 

claim seeks resolution of the same issue: whether Defendant retained the reserve account 

funds in violation of the merchant agreements. Id. at 7, ¶ 24-26. Resolving this factual 

and legal dispute for the breach of contract claim will identify the party entitled to the 

reserve account funds under the merchant agreements. That is all Plaintiff seeks in Count 

Three. This factor weighs heavily in favor of dismissal. 

 The parties make cursory references to some remaining factors (see Doc. 8 

at 11-12; Doc. 16 at 13-14), and Plaintiff emphasizes the lack of parallel state 

proceedings, forum shopping, or a needless determination of state-law issues (Doc. 16 

at 14). But the Court finds that these factors are insufficient to overcome the absence of a 

useful purpose for Count Three. And the two federal cases Plaintiff cites, without 

explanation, do not counsel against dismissal. Doc. 16 at 13-14. They either simply 

recite the same factors or fail to address them. The Court accordingly will dismiss Count 

Three. 

F. Count Four. 

 Count Four presents a claim for unjust enrichment, alleging that Defendant 

wrongfully retained the reserve account funds. Doc. 1-1 at 10. Defendant contends that a 
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claim for unjust enrichment is unavailable where the dispute arises out of contract. 

Doc. 8 at 12-14. Plaintiff counters that the “mere existence of a contract between the 

parties does not preclude equitable relief.” Doc. 16 at 14. 

 New York and Arizona preclude recovery on an unjust enrichment claim where a 

valid and enforceable contract governs the subject matter of the lawsuit. Sutter Home 

Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 408 (9th Cir. 1992) (Under 

Arizona law, “Vintage cannot recover on its claims of unjust enrichment and breach of 

implied contract, however, because Vintage’s relationship with Sutter Home was 

governed by a valid express contract.”) (citing Brooks v. Valley Nat’l Bank, 548 

P.2d 1166, 1171 (Ariz. 1976)); Digizip.com, Inc. v. Verizon Servs. Corp., 139 F. 

Supp. 3d 670, 682 (S.D.N.Y. 2015) (under New York law, “the existence of a valid and 

enforceable written contract governing a particular subject matter ordinarily precludes 

recovery in quasi contract for events arising out of the same subject matter.” (quoting 

Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 516 N.E.2d 190, 193 (N.Y. 1987)); see also 

IDT Corp. v. Morgan Stanley Dean Witter & Co., 907 N.E.2d 268, 274 (N.Y. 2009) 

(same). But dismissal for this reason is only appropriate where the validity and 

enforceability of the contract are not in issue. CCR Int’l, Inc. v. Elias Grp., LLC, 15 

Civ. 6563 (RWS), 2016 WL 206475, at *5 (S.D.N.Y. Jan. 15, 2016) (“where a contract 

exists, it will control, but in the event a party disputes the validity of the contract, a 

plaintiff may seek (though not recover) remedies sounding in both breach and quasi 

contract”). 

 The Court cannot determine at this stage that the merchant agreements are valid 

and enforceable, and Plaintiff asserts the unjust enrichment claim “[i]n the event the 

merchant agreements are unenforceable.” Doc. 1-1 at 10, ¶ 58. Although Plaintiff cannot 

recover twice for the same harm, it may maintain an alternative claim for unjust 

enrichment. See Adelman v. Christy, 90 F. Supp. 2d 1034, 1045 (D. Ariz. 2000) (plaintiff 

“is entitled to pursue that alternative theory although she will, of course, be barred from 
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collecting a double recovery should she prevail on the [breach of contract claim] at 

trial”). The Court will not dismiss Count Four.5

G. Count Five. 

 Count Five asserts a claim of conversion, alleging that Defendant wrongfully 

retained control over the reserve account funds. Doc. 1-1 at 10-12. Defendant contends 

that the economic loss rule prohibits this claim because it asserts damages identical to 

those caused by the alleged breach of contract. Doc. 8 at 14-15. Plaintiff counters that it 

can plead in the alternative (Doc. 16 at 11-12), and further argues that the application of 

the economic loss rule to this claim would violate the anti-abrogation clause of the 

Arizona Constitution (id. at 16-17). 

 New York law is clear. A conversion claim cannot rely on the same facts and 

allege the same damages as a breach of contract claim. Kalimantano GmbH v. Motion in 

Time, Inc., 939 F. Supp. 2d 392, 416 (S.D.N.Y. 2013) (under the New York economic 

loss doctrine, “[a] conversion claim must be dismissed when it does not stem from a 

wrong independent of the alleged breach of contract.”); LaRoss Partners, LLC v. 

Contact 911 Inc., 874 F. Supp. 2d 147, 164 (E.D.N.Y. 2012) (under New York law, “a 

conversion claim may only proceed if there are allegations of violations and damages 

distinct from those predicated on a breach of contract”) (citing Priolo Commc’ns, Inc. 

MCI Telecomms. Corp., 669 N.Y.S.2d 376, 377 (N.Y. 1998)). 

 Arizona’s economic loss doctrine is less clear. It is “a common law rule limiting a 

contracting party to contractual remedies for the recovery of economic losses 

unaccompanied by physical injury to persons or other property.” Flagstaff Affordable 

Hous. Ltd. P’ship v. Design All., Inc., 223 P.3d 664, 667 (Ariz. 2010). Economic loss 

“refers to pecuniary or commercial damage[.]” Id. As the Arizona Supreme Court 

emphasized, “[t]he principal function of the economic loss doctrine, in our view, is to 

encourage private ordering of economic relationships and to uphold the expectations of 

 

5

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against Count One. Doc. 8 at 14. The Court rejects these arguments for the same 

reasons. See supra Part III(C). 
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the parties by limiting a plaintiff to contractual remedies for loss of the benefit of the 

bargain.” Id. at 671. 

 The Arizona Supreme Court has adopted the doctrine for purposes of construction 

defect and products liability cases. Id. at 669, 673. But Flagstaff did not limit the 

application of the doctrine to those cases. Rather, the Arizona Supreme Court explained 

that application of the doctrine to various tort claims requires a context-specific analysis 

that must take into account the policies behind contract and tort law. Id. at 669. While 

tort law seeks to promote safety and spread the costs of accidents, contract law “seeks to 

preserve freedom of contract and to promote the free flow of commerce.” Id. at 667. 

Thus, if “common law contract remedies provide an adequate remedy because they allow 

recovery of the costs of remedying the defects . . . and other damages reasonably 

foreseeable to the parties upon entering the contract[,]” there is no strong policy reason to 

also provide a tort remedy. Id. at 669. 

 This Court held that the economic loss doctrine applied to bar tort claims alleging 

conversion and fraud in the performance of a contract for credit card payment processing 

services. TSYS Acquiring Sols., LLC. v. Elec. Payment Sys., LLC, No. CV10-1060 PHX 

DGC, 2010 WL 3882518, at *3-4 (D. Ariz. Sept. 29, 2010). In reaching this conclusion, 

the Court noted that the harms alleged in these claims arose directly from the “failure to 

provide the benefit of the parties’ bargain[.]” Id. at *4 (“Because the harm alleged by the 

conversion counterclaim is the failure to receive the property or interest promised by the 

parties’ contract, and not some separate harm, the counterclaim is barred by the economic 

loss rule.”). Like the contract at issue in TSYS, the merchant agreements in this case are 

contracts for payment processing services. 

 The Court cannot conclude at this stage that the Arizona economic loss doctrine 

requires dismissal of the conversion claim. As noted above, the bare record is 

insufficient for the Court to determine that a valid and enforceable contract governs the 
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disposition of the reserve accounts. Rule 8 permits Plaintiff to assert an alternative tort 

claim in the event the contracts are invalid. The Court will not dismiss Count Five.6

H. Attorneys’ Fees. 

 Defendant asks the Court to strike Plaintiff’s requests for attorneys’ fees under 

A.R.S. §§ 12-341 and 12-341.01. Doc. 8 at 15-16. The Court “may strike from a 

pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous 

matter.” Fed. R. Civ. P. 12(f). Motions to strike are generally disfavored and “should not 

be granted unless it is clear that the matter to be stricken could have no possible bearing 

on the subject matter of the litigation.” Johnson v. Cal. Med. Facility Health Servs., 

No. 2:14-cv-0580 KJN P, 2015 WL 4508734, at *6 (E.D. Cal. July 24, 2015). 

 Defendant contends that the Court must strike Plaintiff’s requests because New 

York, not Arizona, law governs this action. Doc. 8 at 15-16. But Defendant has not 

established that New York law governs the merchant agreements. See supra Part III(B). 

For that reason, the Court declines to strike Plaintiff’s requests for attorneys’ fees. 

IT IS ORDERED that Defendant’s motion to dismiss (Doc. 8) is granted in part

and denied in part as explained above. Counts Two and Three are dismissed without 

prejudice. Plaintiff may file an amended complaint by May 24, 2018. 

Dated this 10th day of May, 2018. 

 

6

 Defendant also contends that Sections 6 and 23 of the agreements prohibit this claim. Doc. 8 at 15. For reasons stated above, the Court does not agree. See supra

Part III(C).