Tetra Tech EC, Inc. v. CH2M Hill Inc.

Background

The court considered the defendants’ motion to dismiss Tetra Tech’s first amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court had previously dismissed negligence, negligent misrepresentation, and equitable indemnification claims and allowed Tetra Tech to amend. In the first amended complaint, Tetra Tech re-alleged negligence and equitable indemnification, and added claims for inducing breach of contract, intentional interference with contractual relations, and unfair business practices under California’s Unfair Competition Law.

Tetra Tech alleged that the defendants, who were hired by the Navy to evaluate Tetra Tech’s environmental data and perform confirmation surveys, used biased or flawed methods that caused the Navy to view the data as unreliable. The complaint alleged resulting economic and competitive injuries, including unpaid Navy invoices, lost business, and other losses of money and property.

Claims Dismissed

The court dismissed the negligence claim because Tetra Tech still had not plausibly alleged that the defendants owed it a duty of care. The court reasoned that the defendants were hired to evaluate Tetra Tech’s data after allegations of irregular soil sampling and criminal convictions involving two former Tetra Tech employees. In the court’s view, the defendants’ relationship with Tetra Tech was investigative, if not antagonistic, and the Navy contract did not show that its purpose was to benefit Tetra Tech. The court declined to give Tetra Tech another opportunity to amend this claim.

The court also dismissed the equitable indemnification and contribution claim without leave to amend. Under the court’s stated rule, such a claim requires an actual monetary loss through payment of a judgment or settlement. Tetra Tech had alleged no payment, judgment, or settlement, and had not plausibly alleged that it and the defendants were likely to be jointly and severally liable to a third party. The court noted that Tetra Tech could ask to revisit the claim later if circumstances warranted.

The court dismissed the unfair-business-practices claim under California’s Unfair Competition Law, but granted leave to amend. The court explained that the claim relied only on the statute’s “unfair” practices prong. For alleged unfair competition between businesses, the court said the complaint needed facts suggesting an incipient, or developing, antitrust violation. The complaint did not provide those facts. The court also stated that the declaratory relief requested was not a remedy contemplated by the Unfair Competition Law.

Claims Allowed to Proceed

The court denied dismissal of the claim for inducing breach of contract. The defendants argued that the claim was barred by a two-year limitations period, based on an asserted right in the Navy contract to terminate the contract at any time for any reason. The court declined to imply that provision because it was not pleaded and the contract was not before the court on the motion. Based on the allegation that the Navy suspended the work in December 2019 and the suit was filed on July 14, 2020, the court found the claim timely on the record presented.

The court also denied dismissal of the intentional-interference-with-contractual-relations claim. The defendants argued that Tetra Tech had not pleaded an independently wrongful act. The court declined to apply that requirement at this stage because the complaint did not clearly allege that Tetra Tech’s Navy contract was terminable at will, and Tetra Tech disputed that the contract was at will. The claim could proceed, although the court stated that proof of an at-will contract could later warrant dismissal.

Other Arguments and Order

The court rejected the defendants’ arguments that the claims were subject to a one-year limitations period and an actual-malice pleading requirement because they allegedly sounded in defamation. It also declined to apply California’s official-proceeding privilege or the asserted federal-contractor defamation immunity on the allegations and arguments presented. The court rejected the federal-enclave argument because the defendants had not shown the relevant boundaries of exclusive federal jurisdiction at the Hunters Point Naval Shipyard.

The court dismissed the negligence and equitable indemnification or contribution claims, dismissed the Unfair Competition Law claim with leave to amend, and denied dismissal of the inducing-breach-of-contract and intentional-interference claims. Tetra Tech could file a second amended complaint addressing the dismissed Unfair Competition Law claim by February 11, 2022, but could not add claims or parties without the court’s prior consent. Judge James Donato signed the order.