DENA HANOVICE PALERMO, Magistrate Judge.
United States District Judge Kenneth M. Hoyt referred this consolidated case to this Court to conduct all proceedings pursuant to 28 U.S.C. § 636. (Linkers ECF No. 27.) Linkers Products Corp. ("Linkers") and Tiger Valve Company, LLC ("Tiger Valve") (collectively, "Counter-Defendants") move to dismiss Canary, LLC ("Canary") and Canary Drilling Services, LLC's ("CDS") (collectively, "Canary Parties") amended counterclaims. (Linkers ECF No. 11; Tiger Valve ECF No. 14.) The Court
Linkers, a California corporation, and Tiger Valve, a Texas limited liability company, sell parts to companies in the oil and natural gas industry. Canary provides oilfield services across the United States, and CDS is a wholly-owned subsidiary of Canary. In February 2016, Linkers and Tiger Valve filed separate suits in Texas state court against Canary seeking to recover damages based on Canary's alleged failure to pay for parts it ordered from them.
Canary removed the two suits to federal court based on diversity. On April 1, 2016, Canary filed an original answer and counterclaims in both the Linkers case and the Tiger Valve case. On April 22, Linkers and Tiger Valve filed answers to the counterclaims and two (now-moot) motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Canary and CDS jointly filed their "First Amended Answer and Counterclaims" on May 8 in the Tiger Valve case and on May 9 in the Linkers case. Among other things, the amended counterclaims added Deming Gu (also known as "Michael Gu") and Xin Gu (also known as "James Gu") as Counter-Defendants. Both are California residents. Deming Gu is the chief executive officer and a shareholder of Linkers, as well as a member and Governing Person of Tiger Valve. Xin Gu is a shareholder of Linkers, and a member, Governing Person, Managing Partner, and General Manager of Tiger Valve. On May 20, Linkers and Tiger Valve filed the present motions to dismiss. Judge Hoyt subsequently consolidated the Linkers and Tiger Valve cases and referred the consolidated case to this Court.
Canary Parties' amended counterclaims allege that they ordered twenty-nine gate valves used in the hydraulic fracturing of oil and gas wells from Linkers and Tiger Valve; that the valves were supposed to function under working pressures of at least 10,000 pounds per square inch of fluid; that Linkers and Tiger Valve expressly warranted that the valves would work at pressures of up to 10,000 pounds per square inch and further represented that the valves could handle working pressures of up to 15,000 pounds per square inch; that when tested and/or used in the field, many of the valves failed under pressures at or below the 10,000 pounds per square inch threshold; that on September 23, 2014, Xin Gu and other representatives of Linkers and Tiger Valve visited Canary Parties' valve repair facility, admitted that some of the valves had a defective design, and offered assistance in making the necessary repairs; that valves nonetheless continued to fail; that Canary Parties lost customers as a result; and that Canary Parties later learned that Linkers and Tiger Valve had previously sold some of the exact same valves to other companies and that the valves had been returned because they were defective. Canary Parties maintain that Linkers and Tiger Valve knowingly sold them defective valves, failed to disclose that other customers had returned at least some of the valves because they were defective, and misrepresented the quality of the valves and their performance for other customers. They also allege that Deming Gu knew defective valves were being sold to Canary Parties, and that Xin Gu falsely told Canary Parties that Linkers and Tiger Valve had not previously received any customer complaints about the valves. (Am. Counterclaims ¶¶ 54-89, Linkers ECF No. 8, Tiger Valve ECF No. 9.)
Canary Parties seek to recover: (1) against Linkers and Tiger Valve for breach of contract, breach of express and implied warranties, negligence, gross negligence, setoff, and recoupment (Linkers Am. Counterclaims ¶¶ 110-42, 171-79; Tiger Valve Am. Counterclaims ¶¶ 110-42, 171-79); (2) against Linkers, Tiger Valve, and Xin Gu for common law fraud, fraudulent inducement, and negligent misrepresentation (Linkers Am. Counterclaims ¶¶ 143-57, 166-70; Tiger Valve Am. Counterclaims ¶¶ 143-57, 166-70); and (3) against Linkers, Tiger Valve, and Deming Gu for fraudulent concealment (Linkers Am. Counterclaims ¶¶ 158-65; Tiger Valve Am. Counterclaims ¶¶ 158-65.) Canary Parties maintain that Deming Gu and Xin Gu are personally liable for all damages caused by Linkers and Tiger Valve based on a veil-piercing theory (Linkers Am. Counterclaims ¶ 93; Tiger Valve Am. Counterclaims ¶ 93), and that Linkers and Tiger Valve should be held jointly and severally liable because they were involved in a joint venture and/or joint enterprise, and because they acted as one another's agent (Linkers Am. Counterclaims ¶¶ 100-09; Tiger Valve Am. Counterclaims ¶¶ 100-09).
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a counterclaim that "fail[s] to state a claim upon which relief can be granted." "To survive a Rule 12(b)(6) motion to dismiss, a [counterclaim] `does not need detailed factual allegations,' but must provide the [counterclaimant]'s grounds for entitlement to relief—including factual allegations that when assumed to be true `raise a right to relief above the speculative level.'" Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, the counterclaims must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "Motions to dismiss under Rule 12(b)(6) are viewed with disfavor and are rarely granted." Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009) (citation omitted). Counterclaims must be liberally construed in favor of the counterclaimant, and all well-pleaded facts must be taken as true. Duke Energy Intern., L.L.C. v. Napoli, 748 F.Supp.2d 656, 665 (S.D. Tex. 2010) (Atlas, J.) (citations omitted). Legal conclusions, however, are not entitled to the assumption of truth. Iqbal, 556 U.S. at 679. In passing on a motion to dismiss, a court can consider the contents of the pleadings, including attachments thereto, as well as documents attached to the motion, provided those documents are referenced in the complaint and are central to the claims. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 499 (5th Cir. 2000); Gen. Retail Servs., Inc. v. Wireless Toyz Franchise, LLC, 255 F. App'x 775, 785 (5th Cir. 2007).
Counter-Defendants move to dismiss CDS's counterclaims on grounds that CDS is not a proper party to this suit, and that, even if CDS is a proper party, it has failed to state its counterclaims with the particularity necessary to give Counter-Defendants fair notice. (Linkers Mot. Dismiss 3-4, ECF No. 11; Tiger Valve Mot. Dismiss 4-5, ECF No. 14.)
Federal Rule of Civil Procedure 15(a)(1)(B) permits "a party" to "amend its pleading once as a matter of course"—that is, without leave of court—so long as "the pleading is one to which a responsive pleading is required" and the amendment is made within "21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b) . . ., whichever is earlier." Counter-Defendants do not dispute that Canary and CDS filed the amended counterclaims in accordance with Rule 15(a)(1)(B)'s time limitations.
Because the amended counterclaims were properly filed without leave of court under Rule 15(a)(1)(B), there is no merit to Counter-Defendants' assertion that CDS was required to move for intervention under Rule 24. See McLellan v. Mississippi Power & Light Co., 526 F.2d 870, 873 (5th Cir. 1976) (holding that because Rule 15(a) permitted plaintiff's filing of an amended complaint adding new defendants as a matter of course, plaintiff did not need to obtain leave of court to do so under Rule 21), vacated in part on other grounds, 545 F.2d 919 (5th Cir. 1977); Lehrer v. Connelly, No. 2:11-CV-00735-LDG, 2012 WL 1019164, at *2 (D. Nev. Mar. 23, 2012) (leave of court to add counter-defendants "not required" where amendment was filed pursuant to Rule 15(a)(1)); Voilas v. Gen. Motors Corp., 173 F.R.D. 389, 394 (D.N.J. 1997) ("[A] distinction between a motion to amend as opposed to a motion to intervene is that, joining plaintiffs by amendment requires that the existing plaintiffs support and seek the inclusion of the additional parties, whereas a motion to intervene can be brought irrespective of the particular desires of the existing parties."); cf. Kennedy v. MI Windows & Doors, Inc., No. 2:12-CV-2305-DCN, &2013 WL 4436408, at *3 (D.S.C. Aug. 15, 2013) (refusing to permit addition of new plaintiff via second amended complaint); Effjohn Int'l Cruise Holdings, Inc. v. A&L Sales, Inc., 346 F.3d 552, 560 (5th Cir. 2003) (construing motion to amend under Rule 15 as a motion for intervention under Rule 24).
Counter-Defendants contend that even if CDS is a proper party to this suit, its counterclaims should be dismissed because the allegations, which refer to Canary and CDS in the collective, "fail[] to particularize what CDS is complaining about and thus . . . do[] not provide the required notice." (Linkers Mot. Dismiss 4; Tiger Valve Mot. Dismiss 4-5.)
Federal Rule of Civil Procedure 8(a)(2) "requires only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Twombly, 550 U.S. at 555 (internal quotation marks and citation omitted). Neither Rule 8 nor any other provision of the Federal Rules flatly prohibits pleadings from referring to parties in the collective. See Thomas v. Luzerne Cnty. Corr. Facility, 310 F.Supp.2d 718, 721 (M.D. Pa. 2004) ("[T]he mere fact that an action is brought against several defendants does not necessarily indicate that separate statements . . . [are] required against each individual defendant."); FED. R. CIV. P. 8(d)(1) (mandating "simple, concise, and direct" allegations and emphasizing that "[n]o technical form is required"). On the contrary, "[f]air notice under Rule 8(a)(2) depends on the type of case." Robbins v. Oklahoma, 519 F.3d 1242, 1249 (10th Cir. 2008) (internal quotation marks omitted) (quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008)).
In the context of this case, the amended counterclaims provide fair notice to Counter-Defendants. Paragraph 44 of the amended counterclaims expressly states: "As used in all paragraphs following this one, `Canary' refers collectively to CDS and Canary, LLC." The import of the collective references to Canary and CDS is clear: each is separately asserting the same counterclaims against Counter-Defendants. Counter-Defendants note that Canary and CDS "cannot both sue for the same claims just because they are affiliates" (Linkers Mot. Dismiss 4 (citing cases)); however, nothing in the amended counterclaims suggests that CDS is suing solely because it is an affiliate of Canary. On the contrary, read in light of collective reference, the amended counterclaims plainly allege, inter alia, that Canary and CDS both "issued purchase orders for all of the[] gate valves" and paid consideration for them. (Linkers Am. Counterclaims ¶ 55.) Taking the well-pleaded factual allegations as true, CDS has stated a claim upon which relief can be granted. Counter-Defendants' remaining arguments—that the amended counterclaims fail to "identify which valves, if any, CDS purchased from Linkers" and that none of the purchase orders attached to the amended counterclaims "show that they were placed by CDS, rather than Canary" (Linkers Mot. Dismiss 4)—are not appropriate for resolution on motions to dismiss and must be raised on a motion for summary judgment.
Counter-Defendants move to dismiss Canary Parties' counterclaims to the extent they seek to pierce Linkers' corporate veil and Tiger Valve's entity veil. (Linkers Mot. Dismiss 4-6; Tiger Valve Mot. Dismiss 5-7.) Because this is a diversity case, the Court must apply Texas choice-of-law rules to determine which state's law governs the veil-piercing analyses. In re Parkcentral Global Litig., No. 3:09-CV-0765-M, 2010 WL 3119403, at *4 & n.32 (N.D. Tex. Aug. 5, 2010) (citing Torch Liquidating Trust v. Stockstill, 561 F.3d 377, 386 n.7 (5th Cir. 2009)). Under the Texas Business Organizations Code, "the laws of a foreign corporation's state or place of incorporation shall apply when determining the liability of a managerial official (i.e., an officer or director of a corporation) or a shareholder, for an obligation, debt, or liability of the corporation." Phillips v. United Heritage Corp., 319 S.W.3d 156, 163 (Tex. App.-Waco 2010, no pet.) (citing TEX. BUS ORGS. CODE ANN. § 1.104); accord Cedillo v. Medrano Campos, No. DR-14-CV-057-AM-VRG, 2014 WL 12479202, at *5 (W.D. Tex. Dec. 19, 2014), adopted, 2015 WL 11438111 (W.D. Tex. Sept. 30, 2015). On the other hand, Texas law governs the veil-piercing analysis of a Texas LLC. See Ogbonna v. USPLabs, LLC, No. EP-13-CV-347-KC, 2014 WL 2592097, at *5 (W.D. Tex. June 10, 2014); Parkcentral Global Litig., 2010 WL 3119403, at *4. Therefore, California law governs the veil-piercing analysis as to Linkers (a California corporation), while Texas law governs the veil-piercing analysis pertaining to Tiger Valve (a Texas LLC).
"Under California law, there is no litmus test to determine when the corporate veil will be pierced; rather the results will depend on the circumstances of the case. There are, nevertheless, two general requirements: (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the person no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow." Harwood v. Int'l Estate Planners, 33 F. App'x 903, 906 (9th Cir. 2002) (internal quotation marks, brackets, and citation omitted); accord Gerritsen v. Warner Bros. Ent. Inc., 116 F.Supp.3d 1104, 1136 (C.D. Cal. 2015); Automotriz del Golfo de Cal. S.A. de C.V. v. Resnick, 306 P.2d 1 (Cal. 1957).
Linkers argues that Canary Parties have failed to satisfy the second of these requirements because they have "not pled any cognizable inequitable result." (Linkers Reply Supp. Mot. Dismiss 6 n.7.)
Counter-Defendants argue that Canary Parties cannot pierce Tiger Valve's veil to impose liability on Linkers because Linkers is not a member of Tiger Valve. (Tiger Valve Mot. Dismiss 5-6.)
Counter-Defendants also argue that Canary Parties cannot pierce Tiger Valve's veil to impose liability on Deming Gu and Xin Gu because there is no allegation that fraud was committed for Deming Gu and/or Xin Gu's "direct personal benefit." (Tiger Valve Mot. Dismiss 6.) The amended counterclaims allege that Deming Gu and Xin Gu "used Tiger Valve . . . to perpetrate the actual fraud . . . for their direct personal benefit as owners and officers of Tiger Valve . . . who received salaries, dividends, and distributions as a direct result of the ill-gotten gains" and that they "committed this fraud in order to sell additional oilfield equipment to Canary [Parties] for their direct personal benefit." (Tiger Valve Am. Counterclaims ¶ 93.) Counter-Defendants assert that the personal benefits so alleged were at most "indirect" because the "`fruits of the fraud' contributed generally to the revenues of the firm and some of those funds may have been paid out to" Deming Gu and Xin Gu. (Tiger Valve Mot. Dismiss 6-7.) The Court rejects this argument. Under Texas law, salaries and other benefits may constitute a "direct personal benefit" to an individual for veil-piercing purposes, even if they passed through a business entity beforehand. See In re Morrison, 361 B.R. 107, 120 (Bankr. W.D. Tex. 2007) (concluding that majority stockholder and president of corporation received "direct personal benefit" from misrepresenting the company's financial health to obtain a contract for corporation; he knew the contract was necessary to keep the corporation's "doors open" so that he could continue to draw his salary); Morgan v. Fuller, No. 07-15-00314-CV, 2016 WL 2766106, at *3 (Tex. App.-Amarillo May 11, 2016, no pet.) (evidence that corporation's president and sole shareholder received no salary during time alleged fraud occurred "tend[ed] to contradict the suggestion that the fraud in question was perpetrated primarily for his direct benefit").
Canary Parties allege that Linkers and Tiger Valve entered into a joint enterprise and a joint venture with one another. (Linkers Am. Counterclaims ¶¶ 101-12.) Counter-Defendants argue that the joint enterprise allegations should be dismissed based on the Texas Supreme Court's rejection of the "single business enterprise" theory of joint liability in SSP Partners. (Linkers Mot. Dismiss 6-7; Tiger Valve Mot. Dismiss 7.) However, liability under a joint venture and/or joint enterprise theory was not at issue in SSP Partners, and the court specifically stated that those theories are "not to be confused with [a] single business enterprise" theory. 275 S.W.3d at 451-52 (noting that the single business enterprise theory "does not entail the level of agreement required" for liability under the other doctrines). As such, SSP Partners does not require dismissal of Canary Parties' joint enterprise allegations.
Next, Counter-Defendants contend that the joint venture allegations should be dismissed because "Canary [Parties] make[] no allegation that Tiger Valve and Linkers agreed to share profits and losses, a necessary element of a joint venture." (Linkers Mot. Dismiss 6-7.) There is merit to this argument. "Sharing in profits and losses is an essential element of a joint venture." Blackburn v. Columbia Med. Ctr., 58 S.W.3d 263, 273 (Tex. App.-Fort Worth 2001, pet. denied); accord Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 287 (Tex. 1978) ("an agreement to share profits" is an "essential element" to a joint venture). While Canary Parties allege that Linkers and Tiger Valve shared "a community of pecuniary interest in the sale of oilfield equipment" (Linkers Am. Counterclaims ¶ 101), they do not allege that they shared profits and/or losses. See Blackburn, 58 S.W.3d at 273-74 (holding that the sharing of profits and losses is not synonymous with the existence of a "community of pecuniary interest"). Dismissal of the joint venture allegations is thus appropriate.
Counter-Defendants seek dismissal of Canary Parties' allegation that Linkers and Tiger Valve acted as one another's "agent with apparent and actual authority." (Linkers Mot. Dismiss 7; Tiger Valve Mot. Dismiss 7; see also Linkers Am. Counterclaims ¶ 108.) In their amended counterclaims, Canary Parties specifically state that "in one e-mail, when Canary [Parties] e-mailed Michael Gu about Tiger Valve's stock of oilfield equipment, Michael Gu responded by offering Canary [Parties] oilfield equipment from Linkers." (Linkers Am. Counterclaims ¶ 108.) Attached to the amended counterclaims is a copy of an email chain showing that on February 13, 2014, Michael Gu sent an email from e-mail address tigervalve@yahoo.com providing a product quote to a representative of Canary Parties. (Ex. C, Linkers Am. Counterclaims.) That email appears to have been written in response to an email Canary Parties sent to email addresses associated with both Linkers and Tiger Valve. (Id.) In addition, the amended counterclaims contain specific factual allegations to the effect that Linkers and Tiger Valve sold the same valves to each other's customers. (Linkers Am. Counterclaims ¶¶ 74-86.)
Construed in the light most favorable to Canary Parties, these allegations support a plausible inference that Linkers and Tiger Valve acted with at least apparent authority as each another's agents by offering and/or supplying products to customers on one another's behalf. See Ames v. Great S. Bank, 672 S.W.2d 447, 450 (Tex. 1984) ("Apparent authority in Texas . . . may arise either from a principal knowingly permitting an agent to hold herself out as having authority or by a principal's actions which lack such ordinary care as to clothe an agent with the indicia of authority, thus leading a reasonably prudent person to believe that the agent has the authority she purports to exercise."); Thomas Reg'l Directory Co. v. Dragon Prod., Ltd., 196 S.W.3d 424, 427-29 (Tex. App.-Beaumont 2006, pet. denied) (explaining doctrine of apparent authority under Texas law). Counter-Defendants assert that the email referenced in the amended counterclaims would, at most, permit an inference that Michael Gu "is an agent of both Tiger Valve and Linkers," but not that Tiger Valve and Linkers were one another's agents. (Linkers Mot. Dismiss 7; Tiger Valve Mot. Dismiss 7.) The allegations are not limited to that email, however; they include other allegations regarding Linkers' and Tiger Valve's business relationship. Furthermore, business entities necessarily act through individuals; that Michael Gu allegedly held positions with both Linkers and Tiger Valve therefore supports the plausible inference that he performed actions for one entity under the apparent authority of the other.
With respect to the fraud-based counterclaims, Counter-Defendants maintain that the agency allegations should be dismissed for failure to satisfy the heightened pleading standard under Federal Rule of Civil Procedure 9(b). See In re Enron Corp. Sec., Derivative & "ERISA" Litig., 540 F.Supp.2d 800, 805 (S.D. Tex. 2007) (Harmon, J.) ("[Wh]en agency is an element of a fraud claim, agency must be pleaded with particularity required under Rule 9(b)." (internal quotation marks and citations omitted)). The Court disagrees and finds that Canary Parties have satisfied Rule 9(b) because the amended counterclaims lay out "the who, what, when, where, and how" of the agency allegations. Oakwood Shores Prop. Owners Ass'n, Inc. v. NTP Timber Plus + Fund I, L.P., No. 4:15-CV-02313, 2016 WL 4494438, at *3 (S.D. Tex. Aug. 26, 2016) (Hoyt, J.) (internal quotation marks and citations omitted); see also Whitney Nat'l Bank v. Med. Plaza Surgical Ctr. L.L.P., No. H-06-1492, 2007 WL 400094, at *4 (S.D. Tex. Feb. 1, 2007) (Rosenthal, J.) (agency allegations that are merely conclusory do not satisfy Rule 9(b)).
Counter-Defendants assert that Canary Parties' counterclaims for negligence, gross negligence, and negligent misrepresentation must be dismissed because they are barred by Texas' "economic loss rule." (Linkers Mot. Dismiss 7-8; Tiger Valve Mot. Dismiss 8.) In response, Canary Parties first argue that California law may apply to these counterclaims, but that the parties have not yet conducted sufficient discovery to permit the Court to conduct an adequate choice-of-law analysis. Next, Canary Parties argue that their counterclaims survive a Rule 12(b)(6) analysis under both California and Texas law. Counter-Defendants reply that a choice-of-law analysis is unnecessary because California's economic loss doctrine also requires dismissal.
Under Texas law, "[t]he economic loss rule generally precludes recovery in tort where a plaintiff's only injury is an economic loss to the subject of a contract." Worldpak Intern., LLC v. Diablo Valley Packaging, Inc., No. 4:08-CV-00469, 2009 WL 1577989, at *2 (E.D. Tex. June 4, 2009), adopted, No. 4:08-CV-00469, 2009 WL 1873784 (E.D. Tex. June 30, 2009). "The rule restricts contracting parties to contractual remedies for such economic losses, even when the breach might reasonably be viewed as a consequence of a contracting party's negligence." Worldpak Intern., 2009 WL 1577989, at *2 (citation omitted). "Thus, in order for a tort duty to arise out of a contractual duty, . . . the liability must arise independent of the fact that a contract exists between the parties; the defendant must breach a duty imposed by law rather than by the contract." Id. (internal quotation marks and citation omitted). With one relevant exception (discussed below), California's economic loss rule is the same as Texas'. Id. at *2 n.1 ("California treats the economic loss rule in the same manner as Texas.").
Here, Canary Parties' counterclaims for negligence, gross negligence, and negligent misrepresentation all seek recovery for economic losses related to items that were allegedly the subject of contracts with Counter-Defendants. (See Linkers Am. Counterclaims ¶¶ 133-42, 166-70.) Accordingly, those counterclaims are barred by the economic loss doctrine under both Texas and California law.
Canary Parties maintain that the negligent misrepresentation counterclaims are not subject to the economic loss rule, citing Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 418 & n.14 (Tex. 2011). However, in Sharyland, the Texas Supreme Court did not state that negligent misrepresentation claims are totally exempt from the economic loss rule; rather, it cited negligent misrepresentation as one example of "tort claims for which courts have allowed recovery of economic damages even absent physical injury or property damage." Id. (emphasis added). Other courts have dismissed negligent misrepresentation claims based on the economic loss rule. See Miller v. Citi Mortgage, Inc., 970 F.Supp.2d 568, 576 (N.D. Tex. 2013) ("Plaintiff's claim for negligent misrepresentation should be dismissed with prejudice because of the economic loss rule. The damages that Plaintiff seeks as a result of the alleged misrepresentations . . . are economic damages that are recoverable under Plaintiff's breach of contract claim.").
Canary Parties also contend that dismissal is unwarranted due to California's "special relationship exception" to the economic loss rule, which provides that "[w]here a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage through the negligent performance of a contract although the parties were not in contractual privity." J'Aire Corp. v. Gregory, 598 P.2d 60, 63 (Cal. 1979). However, Canary Parties point to no factual allegations in their amended counterclaims that, when accepted as true, support application of this exception based on the purported sale of defective valves between Linkers and Tiger Valve.
For the foregoing reasons, the Court
