United States District Court, D. New Hampshire
New Hampshire Electrical Cooperative, Inc.
Elster Solutions, LLC, et al. Opinion No. 2017 DNH 131
MEMORANDUM AND ORDER
Barbadoro United States District Judge
case arises from a contract in which Elster Solutions, LLC
(“Elster”) agreed to provide goods, software, and
services to the New Hampshire Electrical Cooperative, Inc.
(“Cooperative”) to establish an integrated
metering system for the Cooperative's 83, 000 electric
customers. The Cooperative alleges that “smart”
meters delivered and installed by Elster, which are an
essential component of the metering system, began to fail at
an unacceptably high rate. According to the Cooperative,
these meter failures are the result of a manufacturing defect
that Elster either knew about or should have discovered
before the contract went into effect. It also claims that
Elster concealed the defect and misrepresented the rate at
which its meters fail during contract negotiations.
Cooperative's allegations provide the basis for a
complaint asserting that Elster and its parent, Honeywell
International, Inc., are liable for breach of contract,
intentional and negligent misrepresentation, breach of
warranty, unjust enrichment, breach of the duty of good faith
and fair dealing, and breach of New Hampshire's Consumer
Protection Act. Elster and Honeywell have attacked the
complaint in a motion to dismiss for failure to state a
Cooperative's contract with Elster obligates Elster to
provide “certain goods, software and services as
determined herein to provide an Advanced Metering
Infrastructure (AMI) system (the ‘system') for
electric meters purchased by NHEC.”Doc. No. 13-4 at
2. Among other things, the contract obligates Elster to
supply smart meters for each of the Cooperative's 83, 000
customers. See Doc. No. 1 ¶ 5-6, 10. The smart meters
are designed to provide information to the Cooperative
concerning each customer's electric usage and inform the
Cooperative of any power outages. Unlike traditional electric
meters, smart meters are designed to report usage and outage
information to the Cooperative via radio frequency. Each
smart meter operates as a link in a chain with other smart
meters. Information from one meter is reported to a nearby
meter, which in turn adds its own information and reports the
collected data up the chain to the next meter. The aggregated
data is eventually forwarded to a “gate keeper”
unit that transmits the data directly to the Cooperative. A
failure of one meter in a chain thus can prevent the
Cooperative from receiving information from all downstream
meters. See Id. ¶ 7-9.
contract contains a warranty that “equipment shall be
delivered free of defects in material and workmanship and
that services shall be performed in a good and workmanlike
manner.” Doc. No. 12-1 at 7. If Elster breaches this
warranty, it must, at its option, either “(i) repair or
replace the nonconforming portion of the equipment or
re-perform the nonconforming services or (ii) refund the
portion of the price applicable to the nonconforming portion
of equipment or services.” Id. The contract
also states that “THE REMEDIES STATED HEREIN CONSTITUTE
PURCHASER'S EXCLUSIVE REMEDIES AND VENDOR'S ENTIRE
LIABILTY FOR BREACH OF WARRANTY.” Id.
000 meters delivered and installed under the contract contain
a manufacturing defect. See Doc. No. 1 ¶ 17, 23. Elster
first notified the Cooperative of the defect on March 16,
2012, after approximately 50, 000 of the 83, 000 meters
called for by the contract had been installed. Id.
¶ 14. This notice was followed by two bulletins
providing additional information concerning the defect.
Id. ¶ 15. Although Elster has stated that the
defect is present in only the approximately 54, 000 of the
Cooperative's meters that were manufactured between
December 2009 and March 2012, see Id. ¶ 16, a
company representative informed the Cooperative that all of
its 83, 000 meters contained the defect, which the
representative explained was an improperly sized computer
chip, see Id. ¶ 17.
rollout progressed, meters began to fail. They frequently
lost usage data or falsely reported power outages. A total of
5, 500 meters have failed so far, sometimes at a rate of 40
meters per week. This represents a failure rate in excess of
6%. Further, because the Cooperative was receiving so many
false reports of power outages, it could no longer use the
system's power outage reporting feature. Although the
Cooperative demanded that Elster replace all of the defective
meters immediately, Elster maintained that it was entitled to
replace meters one at a time as they failed.
the negotiations that led to the contract, Elster told the
Cooperative that “Elster's meters, Gatekeepers and
repeaters have a failure rate of less than 0.3%. This is
calculated by dividing the number of failed units by the
number of units shipped.” Id. ¶ 12. It
also represented that its meters have a typical lifespan of
twenty years. See id. Considering these
representations together, the Cooperative reasonably expected
that only approximately 250 meters were likely to fail during
the first twenty years in which the system was in operation.
Id. The Cooperative alleges that Elster knew or
should have known when it entered into the contract that its
smart meters included a manufacturing defect and that meters
containing the defect were failing at a substantially higher
rate than Elster had claimed during the contract negotiation
process. See Id. ¶ 62, 67-69. Nevertheless,
Elster concealed the manufacturing defect from the
Cooperative and affirmatively misrepresented the meters'
expected failure rate and lifespan. See Id. ¶
STANDARD of REVIEW
survive a Rule 12(b)(6) motion, a plaintiff must allege
sufficient facts to “state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is facially
plausible if it provides “factual content that allows
the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Id.
This plausibility standard “asks for more than a sheer
possibility that a defendant has acted unlawfully, ”
id., but “simply calls for enough fact to raise a
reasonable expectation that discovery will reveal
evidence” of wrongdoing. Twombly, 550 U.S. at 556.
employ a two-step approach in deciding a Rule 12(b)(6)
motion. See Ocasio-Hernández v.
Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011).
First, I screen the complaint for statements that
“merely offer legal conclusions couched as fact or
threadbare recitals of the elements of a cause of
action.” Id. (citations, internal punctuation,
and alterations omitted). I then accept as true all
non-conclusory factual allegations and the reasonable
inferences drawn therefrom, and determine whether the claim
is plausible. Id.
challenges the Cooperative's contract claim by arguing
that the contract only requires it to repair, replace, or
refund the cost of a meter when it fails, a duty Elster
claims it has fulfilled. It challenges the misrepresentation
claims by contending both that the Cooperative has failed to
plead its claims with the particularity required by Rule 9(b)
and that the claims seek only nonrecoverable economic losses.
It then challenges the remaining claims on other grounds that
are specific to each claim.
Breach of Contract
Cooperative alleges that Elster breached its express
contractual warranty to provide meters that are free of
material defects. To support this assertion, it claims that
all of the 83, 000 meters it acquired from Elster contain a
manufacturing defect, that the meters have been failing at
such an unacceptably high rate that it is unable to operate
certain features of the integrated metering system it
contracted with Elster to provide, and that Elster has failed
to address the problem in the manner required by the
contract. Elster argues in response that even if all of its
meters contain a manufacturing defect, its only obligation
under the contract is to repair, replace, or refund the cost
of a ...