Chevron Products Company v. Advanced Corrosion Technologies & Training, LLC

Background

Chevron Products Company sued Advanced Corrosion Technologies & Training, LLC over ACTT’s contractual performance of nondestructive Positive Material Identification inspection services at the Chevron Richmond Refinery. The inspections were intended to verify metal-alloy composition and help prevent industrial accidents and maintain safety. Chevron alleged that ACTT failed to properly identify the metallurgy of components, submitted reports containing inaccurate descriptions of the work, and stated that some services had been performed when they had not. Chevron alleged that it had to hire a third party to redo the services.

Chevron asserted claims for breach of contract, breach of warranty, negligence, and negligent misrepresentation. It also sought punitive damages. ACTT moved under Rule 12(b)(6), which permits dismissal for failure to state a claim for which relief may be granted, challenging the negligent-misrepresentation claim and the punitive-damages demand.

Negligent-Misrepresentation Claim

ACTT argued that Chevron’s allegations had to satisfy Rule 9(b), which requires fraud-related allegations to identify the alleged misconduct with particularity. Chevron argued that the less demanding Rule 8 standard applied and that its complaint satisfied that standard.

The court noted that the Ninth Circuit had not decided which pleading standard applies to negligent-misrepresentation claims and that district courts had taken different approaches. The court adopted a case-by-case approach. It concluded that Rule 9(b) applied here because Chevron’s allegations included alleged knowing misrepresentations and nondisclosure.

The court held that Chevron’s complaint did not identify the time, place, identities, and content of the alleged misleading representations with enough specificity. Chevron did not identify which reports submitted during the contract period were incorrect, who signed them, or specifically what was incorrect. It also did not identify which reports described work that was never performed and which merely misrepresented work that had been performed. The court dismissed Chevron’s fourth cause of action, for negligent misrepresentation, without prejudice because Chevron said it could provide more detail in an amended claim.

Punitive-Damages Demand

The contract contained a provision stating that neither party would be liable for, and each party would release the other from, punitive or exemplary damages suffered in connection with the contract’s performance, subject to an exception for certain third-party damages covered by the contract’s indemnification provision.

Chevron argued that its claims concerned ACTT’s nonperformance rather than performance of the contract. The court rejected that distinction, reasoning that alleging nonperformance meant Chevron was alleging that ACTT broke its contractual obligations, which was directly connected with the contract’s performance. The court concluded that amendment would be futile and dismissed Chevron’s demand for punitive damages with prejudice.

Disposition

The court dismissed Chevron’s negligent-misrepresentation claim without prejudice and dismissed Chevron’s demand for punitive damages with prejudice. Judge Charles R. Breyer signed the order.