N.J. Clean Energy Sols. v. 100 Mount Holly Bypass
| Docket Number | 2:20-CV-856-TS-CMR |
| Decision Date | 02 December 2021 |
| Parties | NEW JERSEY CLEAN ENERGY SOLUTIONS d/b/a SOLAR EXPERTS, Counter-Claimant, v. 100 MOUNT HOLLY BYPASS, MILES TECHNOLOGIES, and CHRISTOPHER MILES, Counter-Defendants. NEW JERSEY CLEAN ENERGY SOLUTIONS d/b/a SOLAR EXPERTS, Cross-Claimant, v. AXOS BANK, Cross-Defendant. |
| Court | U.S. District Court — District of Utah |
100 Mount Holly Bypass, LLC; Miles Technologies; and Christopher Miles (collectively “Counter-Defendants”) sued various defendants for their roles in an allegedly fraudulent equipment leasing scheme.[1] Defendant New Jersey Clean Energy Solutions, LLC d/b/a Solar Experts (“Solar Experts”) filed several state-law counterclaims and crossclaims.[2] Counter-Defendants and Cross-Defendant Axos Bank (“Axos”) filed motions to dismiss some of these claims.[3] For the reasons below Counter-Defendants' motion will be granted in part and denied in part. Axos' motion will be granted in full.
The court accepts the facts as set forth by Solar Experts for purposes of these motions.[4]
Solar Experts is a New Jersey LLC with its business address in New Jersey. 100 Mount Holly Bypass, LLC is a New Jersey LLC and Miles Technologies is a New Jersey corporation, both with business addresses in New Jersey. New Jersey resident Christopher Miles is the sole member of 100 Mount Holly Bypass and President of Miles Technologies. Axos is a federally chartered Federal Savings Association and a wholly owned subsidiary of Axos Financial, Inc., a Delaware corporation with corporate headquarters in Nevada. Axos maintains an office in Cottonwood Heights, Utah.
Counter-Defendants entered into an agreement with Solar Experts on July 24, 2019 (the “Solar Agreement”), in which Solar Experts agreed to provide Counter-Defendants a solar electric system (the “System”) for a total purchase price of $3, 819, 700.[5] To fund the purchase, Counter-Defendants entered into several agreements with Axos including a “Master Progress Funding Agreement” (the “Funding Agreement”).[6] Under the Funding Agreement, Axos would pay the costs of purchase and installation of the System at intervals, conditional on Counter-Defendants' acceptance of the progress on the System and their authorization of payment.
Solar Experts alleges that it installed the System as contemplated in the Solar Agreement. Counter-Defendants authorized several payments by Axos to Solar Experts during the installation period but refused to approve the final payment of approximately $995, 000, claiming that the System was defective.[7] Solar Experts demanded payment from Axos but Axos refused to pay. The total amount allegedly due has since been reduced to $830, 000 pursuant to a settlement agreement in a separate New Jersey case.
Counter-Defendants filed their lawsuit in this court on December 4, 2020[8] and an amended complaint on February 24, 2021.[9] Solar Experts' answer included various state-law counterclaims and crossclaims.[10] Counter-Defendants have moved to dismiss Solar Experts' counterclaims for breach of the implied covenant of good faith and fair dealing and unjust enrichment.[11] Axos has moved to dismiss Solar Experts' crossclaims for enforcement of the Solar Agreement as a third-party beneficiary, declaratory judgment, and tortious interference with contract.[12]
When evaluating a complaint under Rule 12(b)(6), the court accepts all well-pleaded factual allegations, as distinguished from conclusory allegations, as true and views them in the light most favorable to the non-moving party.[13] The plaintiff must provide “enough facts to state a claim to relief that is plausible on its face, ”[14] which requires “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”[15] [16]
In considering a motion to dismiss, a district court considers the complaint, any attached exhibits, [17] the “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.”[18] The court may also consider other documents “referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity.”[19]
Jurisdiction in this case is based on a federal question under 28 U.S.C. § 1331 and 18 U.S.C. § 1962, [20] with supplemental jurisdiction over the state-law claims under 28 U.S.C. § 1367. A federal court exercising supplemental jurisdiction over state-law claims applies the choice-of-law rules of the forum state.[21] The law of the forum state also determines how a claim is characterized-i.e., contract, tort, or restitution-for choice-of-law purposes.[22] Because this court's forum state is Utah, the court applies Utah's choice-of-law principles.
Where a contract contains a choice-of-law provision, Utah law applies the substantive law of the chosen jurisdiction.[23] Here, the Solar Agreement contains a New Jersey choice of law provision, [24] so New Jersey law governs Solar Experts' counterclaim for breach of the implied covenant of good faith and fair dealing. The Funding Agreement expressly incorporates the Master Lease Agreement, which identifies Utah law as governing, [25] so Utah law governs Solar Experts' crossclaim to enforce the Funding Agreement as a third-party beneficiary.
For other types of claims, Utah courts apply the “most significant relationship” test from the Restatement (Second) of Conflict of Laws.[26] To determine which state “has the most significant relationship to the occurrence and the parties”[27] the court considers the place where the relationship between the parties is centered; the parties' domiciles, residences, places of business, etc.; the place of injury or enrichment; the place of conduct causing the injury or enrichment; and, for actions in restitution, the place where a physical thing substantially related to the enrichment was situated at the time of the enrichment.[28] As to Solar Experts' counterclaim for unjust enrichment, New Jersey indisputably has the most significant relationship-it is the domicile of Solar Experts and all Counter-Defendants as well as the location of the alleged unjust enrichment (installation of the System) and the System itself. Thus, the court will evaluate that claim under New Jersey law. As to Solar Experts' crossclaim for tortious interference with contract, the court need not determine which state has the “most significant relationship” to the claim because the result is the same under either Utah or New Jersey law.
Counter-Defendants move to dismiss Solar Experts' counterclaims for breach of the implied covenant of good faith and fair dealing and unjust enrichment. The court will deny the motion as to the implied covenant but grant it as to unjust enrichment.
As a general rule under New Jersey law, every contract contains an implied covenant of good faith and fair dealing.[30] This “means that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the full fruits of the contract.”[31]“Breach of the implied covenant occurs where a party acts with ill motives to destroy the reasonable expectations of another contracting party.”[32] However, “[w]here a party has breached a specific term of a contract, that party cannot be found separately liable for breaching the implied covenant of good faith and fair dealing when the two asserted breaches basically rest on the same conduct.”[33] Rather, breach of the implied covenant “arises when the other party has acted consistent with the contract's literal terms, but has done so in such a manner so as to have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”[34] Accordingly, breach of contract and the implied covenant may not be pleaded in the alternative if the conduct underlying both claims is identical and it is undisputed that a valid contract governs the conduct.[35]
Solar Experts claims that Counter-Defendants breached the covenant of good faith and fair dealing implied in the Solar Agreement by failing to authorize Axos to make the final payment.[36]Counter-Defendants argue that Solar Experts cannot claim breach of the implied covenant because the counterclaim is based on the same conduct underlying its breach of contract counterclaim and that conduct is governed by the express terms of the agreement.[37]
On their face, the two counterclaims complain of different conduct: Solar Experts bases its breach of contract counterclaim on Counter-Defendants' failure to pay money owed under the contract, [38] while it bases its implied covenant counterclaim on Counter-Defendants' failure to authorize Axos to pay Solar Experts. Furthermore, the Solar Agreement only expressly governs the first: Counter-Defendants contracted with Solar Experts to purchase the system, not to authorize Axos to make payments to Solar Experts. Because Solar Experts pleads conduct supporting the implied covenant claim that differs from the conduct supporting the contract claim, and the Solar Agreement does not expressly govern that conduct, Solar Experts may plead both causes of action.[39] The court will deny the motion to dismiss as to this claim.
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