EDWARD J. DAVILA, District Judge.
Presently before the Court is NetApp, Inc.'s ("Defendant" or "NetApp") Motion to Dismiss Integrated Storage Consulting Services, Inc.'s ("Plaintiff" or "ISCSI") First Amended Complaint. The Court found this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and previously vacated the hearing. The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Having fully reviewed the parties' briefings, and for the following reasons, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion.
Plaintiff ISCSI is a Colorado corporation with its principal place of business in Colorado. Docket No. 44, First Amended Complaint ("FAC") ¶ 2. Defendant NetApp is a Delaware corporation with its principal place of business in California.
Plaintiff markets data center and IT services on behalf of Defendant.
ISCSI has been a NetApp reseller/partner since June 2, 2004.
Sometime between December 2010 and January 2011, Plaintiff attempted to negotiate the terms of the 2011 Agreement.
A number of other documents are alleged to be incorporated by reference into the Agreements, including NetApp's Partner Program Professional Services Certification Program Guide, 2013 North America Commercial USPS Reseller Guide, 2008 VIP Partner Guide, and 2010 Reseller Guide.
From time to time NetApp and a partner may decide to complete an Account Teaming Agreement, which further describes NetApp's and ISCSI's obligations for each registered opportunity.
On or about March 2007, Plaintiff and customer Tri-State entered into a Supplier Alliance Agreement, as amended May, 2009, in which Plaintiff ISCSI agreed to provide to Tri-State, and Tri-State agreed to pay Plaintiff for, NetApp products and services at a specified discount for a two year term per each Supplier Alliance Agreement, subject to renewal.
On or about September 27, 2010, Plaintiff and Xilinx entered into a Master Service Agreement, in which Plaintiff ISCSI agreed to provide to Xilinx, and Xilinx agreed to pay ISCSI, for ISCSI's sale of NetApp services to Xilinx.
During the term of the Agreements, ISCSI was one of NetApp's lead sales agents, receiving numerous awards and recognition from NetApp for the quality of its performance and volume of its sales.
On or about December 12, 2008, NetApp referred ST Micro to competing reseller Agilysys and possibly other resellers, and granted Agilysys a dual registration — the very same kind of registration which NetApp had already granted to ISCSI.
On or about June 30, 2010, NetApp employees Rick Congdon, Keith Macove, Tyler Beecher, Todd Donaldson, Michelle Lanuza and Sam Sears referred CaridianBCT to Trace3 and possibly other resellers through Lanuza's verbal dual registration, stating to Jed Summerton, Director IT of CaridianBCT, that CaridianBCT would get the same registered pricing regardless of which partner CaridianBCT selected in response to Request for Proposals ("RFP") issued by CaridianBCT, and for which NetApp had already granted the exact same registration to ISCSI.
On or about March 30, 2011, NetApp disrupted the Tri-State bidding process by requiring Tri-State to negotiate a volume purchase agreement ("VPA") directly with NetApp so that Tri-State was free to select any partner. NetApp also informed Tri-State of the criteria that they should use to select the NetApp partner and did nothing to support ISCSI's existing registrations with Tri-State for numerous opportunities, as well as the actual bid process for Tri-State.
On or about September 25, 2012, NetApp referred Xilinx to World Wide Tech, Longview, e-Plus, and possibly other resellers and instructed Xilinx that ISCSI will no longer be the NetApp partner covering Xilinx.
In the months preceding NetApp's dual registration of the Customers and/or referral of the Customers to other resellers, authorized representatives of NetApp specifically encouraged ISCSI to continue to sign-up new customers.
On or about June 2010, Ms. Lanuza told Jed Summerton, IT Director at CaridianBCT, that CaridianBCT would get the same registered pricing regardless of which partner CaridianBCT selected in response to a Request for Proposals ("RFP") issued by CaridianBCT.
On or about June 30, 2010, Robert Voydat, President of ISCSI, sent an e-mail request to Tyler Beecher stating his concerns regarding Ms. Lanuza's conduct encompassing past and present engagements at CaridianBCT.
On or about June 30, 2010, Robert Voydat of ISCSI repeatedly requested Messrs. Macove's and Sears' assistance to schedule a meeting with Mr. Beecher to discuss Michelle Lanuza's conduct concerning the CaridianBCT RFP registrations and pricing concerns, but Mr. Macove and Mr. Sears said that Mr. Beecher would not meet with ISCSI to discuss the matter.
In response to Robert Voydat's requests to Mr. Beecher for a meeting with Beecher, on or about June 30, 2010, Mr. Beecher left a voicemail for Bob Voydat stating that he [Mr. Beecher] would "support ISCSI 100%."
Notwithstanding Mr. Beecher's assurance to support ISCSI 100%, and on information and belief, NetApp employee Beecher intentionally allowed Ms. Lanuza to conduct a sales campaign at CaridianBCT.
By April 2011, ISCSI had been the established NetApp partner at Tri-State for the preceding seven years.
On or about June 2010, NetApp employee Sam Sears failed to extend the registration request for ISCSI for the CaridianBCT RFP for an additional 180 days.
On or about April 2011, Sam Sears informed Mark Musilek of ISCSI-procured customer Tri-State, that NetApp had instituted a "new policy" that required customers to sign a VPA (Volume Purchase Agreement) with NetApp, after which Tri-State could select the NetApp Partner that it wanted to use.
On or about April, 2011, Mr. Sears informed Mark Musilek of Tri-State that Tri-State should base its partner selection on various criteria that Mr. Sears and NetApp provided to Tri-State, and thereby encouraged Tri-State to award bids to another reseller.
On or about April 2011, Mr. Sears told Dick Shehan and Robert Voydat that it was Chris Thomas of NetApp, who instituted this new VPA policy.
Keith Macove encouraged ISCSI as the registered partner to continue to sell the NetApp products and services to these customers knowing that a dual registration existed at ST Micro.
On information and belief, on or about September 2012 Tunc Kirli informed Robert Voydat of ISCSI that NetApp Management wanted to introduce ISCSI-procured customer Xilinx to a new NetApp partner to work with Xilinx in San Jose and Colorado, and that ISCSI would no longer be the NetApp partner working with Xilinx.
On or about October 2012, Bill Wong, Kevin Block, Tim Lentz, Dave Sims and Aaron Facey of Xilinx told Robert Voydat that Xilinx did not make any request to change NetApp partners, as it preferred to continue to work with ISCSI as Xilinx's exclusive NetApp partner.
On or about September 2012, NetApp's Tunc Kirli told Robert Voydat, that in discussions with NetApp management in California and with NetApp management in Denver, "it is clear that ISCSI is not being supported by NetApp Management in Denver and thus the request to introduce a new NetApp partner at Xilinx."
Xilinx of San Jose gave ISCSI the highest partner rankings in the most recent NetApp partner survey, which took place in September 2012.
NetApp refused to allow ISCSI to register and procure the NetApp support renewal for Xilinx that was placed with NetApp directly in October 2012, valued at approximately $600,000, and worth approximately $60,000 of annual profits for ISCSI.
ISCSI generated over $3 million in annual NetApp revenue from Xilinx the past two fiscal years.
By letter dated February 1, 2013, NetApp notified ISCSI that it did not plan to renew ISCSI's Reseller Authorization Agreement.
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim in the complaint with sufficient specificity to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests."
Plaintiff's FAC contains twenty-one claims. Defendant moves to dismiss all claims except Claims 14 and 16, which the Court previously ruled were sufficiently pleaded. Docket No. 51, Def.'s Mot. to Dismiss at 1, n.1; Docket No. 39, July 31, 2013 Order at 23.
As an initial matter, the Court notes that the FAC contains several claims that were not pleaded in Plaintiff's original complaint. In its July 31, 2013 Order, the Court dismissed all but two of the claims in the original complaint. Although the Court granted Plaintiff leave to amend those claims which were dismissed, the Court did not grant Plaintiff leave to add new claims, and Federal Rule of Civil Procedure 15 prohibited it from doing so on its own volition. Under Rule 15(a)(1), a party "may amend its pleading once as a matter of course" within 21 days after that pleading is served, or 21 days after service of a responsive pleading or motion under Rule 12. "In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave." Fed. R. Civ. P. 15(a)(2).
Here, Defendant filed its first motion to dismiss the original complaint on January 30, 2013 and Plaintiff's ability to amend as a matter of course expired 21 days later pursuant to Rule 15(a)(1)(B). Amending the complaint to add new claims on August 15, 2013 without the stipulation of Defendant or leave of court was in contravention of Rule 15. The new claims must be dismissed on that ground alone.
Comparing the FAC to the original complaint, the new claims (the claims added in contravention of Rule 15) are Claims 1 through 5 and Claim 15.
Plaintiff's sixth through ninth claims are for breaches of four "deal registration contracts." As described by the FAC, each deal registration contract is an agreement between Plaintiff and Defendant detailing the terms by which Plaintiff would resell Defendant's products to a named customer: CaridianBCT, ST Micro, Tri-State, and Xilinx. FAC ¶¶ 146-183. Plaintiff alleges that the four contracts were breached either because Defendant allowed the customers to be registered to resellers other than Plaintiff, or because Defendant encouraged the customers to work with resellers other than Plaintiff.
Defendant denies that the four deal registration contracts are contracts at all, and argues that even if they are, the contracts do not contain the exclusivity terms alleged by Plaintiff. The Court agrees with Defendant and finds that Plaintiff's sixth through ninth claims do not state a claim for breach of contract because Plaintiff does not plausibly allege the existence of any contractual terms that would prevent Defendant from registering customers to other resellers or encouraging customers to work with other resellers.
The deal registration contracts are not alleged to be embodied in written and integrated instruments. Rather, Plaintiff essentially alleges that the deal registration contracts are created by operation of Defendant's procedures for registering a new sales opportunity to a reseller,
Each deal registration contract is alleged to contain the following four terms pertaining to reseller exclusivity:
The terms are not expressly stated in any written document or oral statement. Instead, Plaintiff derives the terms from statements made in a number of documents drafted by Defendant. For example, on page 13 of NetApp's 2010 Reseller Guide, attached as Exhibit A of the FAC, it is stated that "Opportunity Registration protects your sales opportunities." According to the FAC, this language creates a contractual term under which Defendant promises that the deal registrations are exclusive to the reseller.
Plaintiff also contends that the exclusivity terms can be found in or inferred from a number of emails exchanged between Bob Voydat of ISCSI and various persons with @netapp.com or @salesforce.com email addresses. The emails are attached to the FAC as Exhibits F through I. The emails name the customer, list ISCSI as the "Partner/Reseller," show a potential revenue for the opportunity, and provide other information. Pl.'s Opp. to MTD at 7. As proof that the registrations are exclusive, Plaintiff points to the following statement in Exhibit I (emphasis added): "Please be advised that the Deal Registration `XOR 3020 upgrade' for customer `Xilinx Inc.' has changed the status[sic] to `Accepted.' The reason give[sic] for this change in status is: Exclusive: Value Add."
Other than the reseller guides, the VIP guides, and the emails, the only source identified by Plaintiff for the existence of the exclusivity terms is "information and belief." FAC ¶ 36.
To be enforceable under California law, a contract must be sufficiently definite "for the court to ascertain the parties' obligations and to determine whether those obligations have been performed or breached."
The reseller guides, VIP guides, and emails discussed above are the only "objective manifestations of agreement or objective expressions of intent" alleged by the FAC as a source of the exclusivity terms. Their only other source is "information and belief," which is irrelevant because the law focuses on objective, not subjective, manifestations of agreement. Thus, any exclusivity terms must necessarily be derived or inferred from the language in the above-mentioned documents. Plaintiff does not allege that the interpretation of this language turns upon the credibility of extrinsic evidence. Interpretation of the language is therefore a legal question, and the Court must determine whether the language from NetApp's reseller and VIP guides and the email exchanges would lead a reasonable person to believe that NetApp and ISCSI agreed that the reseller-customer relationships would be exclusive to ISCSI.
The Court concludes that it does not. Most telling is the fact that, other than a single context-less line in Exhibit I that states "Exclusive: Value Add," the word "exclusive" does not appear in any of the language identified by Plaintiff. Also absent are any express statements that Defendant will refrain from registering customers to more than one reseller or that Defendant will not encourage customers to work with more than one reseller. Plaintiff points to the multiple references that "Opportunity Registration will protect your sales opportunities," arguing that when Defendant allowed customers to be registered or referred to other resellers, Plaintiff was denied certain pricing protection that it had been promised. Pl.'s Opp. to MTD at 9. However, this statement is too vague to amount to an enforceable promise. It says nothing explicit regarding the rights and obligations of the parties. The references to "Your Customer" are even less indicative of a contractual promise of exclusivity. It would be expected that a right to deal exclusively with a customer would carry significance to the parties such that that right would be stated explicitly and clearly.
Furthermore, it is the general rule that "[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together. Cal. Civ. Code § 1642. Even assuming
For the reasons stated above, Claims 6 through 9 are DISMISSED with prejudice. Dismissal with prejudice is proper because under the Court's interpretation of the written instruments discussed above, Plaintiff can prove no set of facts that would entitle it to relief under a claim for breach of contract on this particular theory. Therefore, it appears to a certainty that Plaintiff would be entitled to no relief under any state of facts that could be proved.
Claims 10 through 13 are for breach of the 2008 and 2011 Agreements (collectively, "the Agreements"). Plaintiff alleges that the Agreements were breached when Defendant dual-registered customers to other resellers and/or when Defendant referred the customers to other partners. Plaintiff also alleges that the Agreements were constructively terminated without cause or notice and that Defendant deprived Plaintiff of the benefits of the contract. Finally, Plaintiff alleges that the 2011 Agreement was breached when Defendant failed to renew the Agreement for another term.
A number of Plaintiff's theories of breach of the Agreements are predicated on the contention that Defendant was restricted by contract from registering or referring customers to other resellers. The Agreements do not expressly bar Defendant from doing so; rather, Plaintiff alleges that NetApp's VIP and reseller guides contain the exclusivity terms, and that the VIP and reseller guides are incorporated by reference into the Agreements. As discussed in the previous section, the VIP and reseller guides cannot reasonably be read to impose the alleged exclusivity terms, and thus the Court rejects any theory of breach that is predicated on Defendant's registration or referral of customers to other resellers.
Plaintiff also alleges that Defendant breached the Agreements by failing to renew them, but this allegation is conclusory because Plaintiff points to no contractual term or source of authority that would require Defendant to renew the Agreements.
Plaintiff also alleges that the Agreements were breached by Defendant's failure to renew the Agreement for another term or by Defendant's terminating the Agreement without cause. Both the 2008 and 2011 Agreements expressly allow either party to terminate without cause upon thirty days prior written notice (Section 3.0 of the 2008 Agreement and Section 4.0 of the 2011 Agreement).
As a threshold matter, Plaintiff contends that the termination provisions in the Agreements are unconscionable. Previously, the Court rejected this contention, finding that the provisions were not procedurally unconscionable because Plaintiff failed to produce evidence that the mutual termination provisions are the result of "oppression," and Plaintiff did not allege that it objected or sought to negotiate the content of the mutual termination provisions at the time of the contract formation. Docket No. 39, 7/31/13 Order at 8. The Court also found that the termination provisions were not substantively unconscionable because Plaintiff and Defendant had the same power to sever the Agreements upon 30 days prior written notice.
Plaintiff alleges new facts that it argues support findings that the terms are procedurally and substantively unconscionable. However, the Court notes that Plaintiff does not appear to allege that Defendant exercised its right to terminate according to the termination provisions of the Agreement. Rather, Plaintiff appears to regard Defendant's registration and referral of customers to other resellers as the act of termination, labeling it a "constructive termination."
Accordingly, Claims 10 through 13 are DISMISSED with prejudice. Dismissal with prejudice is appropriate because Plaintiff's amendments address only the alleged unconscionability of a contractual provision that was never exercised. Plaintiff pleads no new facts that suggest the existence of a viable theory for breach of the 2008 and 2011 Agreements. Therefore, it is clear that these claims could not be saved by amendment.
The elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.
Under Rule 9(b), averments of fraud must be accompanied by "the who, what, when, where, and how" of the misconduct charged, and the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.
The FAC sets forth numerous statements and identifies the person or document making the statement and approximate or exact dates for when the statements were made, and attempts to explain why those statements are false. Plaintiff identifies the following alleged misrepresentations:
Pl.'s Opp. to MTD at 19. Plaintiff also points to the statement in the reseller guides that "Opportunity Registration protects your sales opportunities."
With respect to the majority of these statements, they cannot support a claim for fraud either because they are statements of opinion or because Plaintiff fails to sufficiently allege that they are false. A representation is one of opinion "if it expresses only (a) the belief of the maker, without certainty, as to the existence of a fact; or (b) his judgment as to quality, value, authenticity, or other matters of judgment." Restatement (Second) of Torts § 538A (1977). Expressions of opinion are not generally treated as representations of fact, and thus are not grounds for a misrepresentation cause of action.
The only statement identified by Plaintiff as a potentially actionable assertion of fact is the statement to Mr. Voydat that ISCSI would receive a 8% commission on the ST Micro renewal, because Plaintiff alleges that it received only a 5% commission. However, Plaintiff fails to plead reliance on this specific statement, or resulting damages from that reliance. Instead, Plaintiff pleads generally that it relied on
Accordingly, Plaintiff's seventeenth claim is DISMISSED with leave to amend.
To state a claim for intentional interference with contractual relations, Plaintiff must show: (1) a valid contract between plaintiff and a third party, (2) defendant's knowledge of this contract, (3) defendant's intentional acts designed to induce breach or disruption of the contractual relationship, (4) actual breach or disruption of the contractual relationship, and (5) resulting damage.
To show a valid contract between Plaintiff and a third party, Plaintiff points to two contracts: the Supplier Alliance Agreement between Plaintiff and Tri-State (Exhibit M of the FAC, Claim 18) and the Master Services Agreement between Plaintiff and Xilinx (Exhibit N, Claim 19). Defendant does not dispute the validity of these contracts or its knowledge of their existence.
As a threshold matter, the parties dispute whether Defendant is a "stranger" to the two contracts. Under California law, as recognized by the Ninth Circuit, a claim for tortious interference of contract and prospective economic advantage may only lie against "strangers" or interlopers who do not have a direct and significant interest in the plaintiff's contractual relationship with another individual or entity.
On a motion to dismiss, with few exceptions, the Court may consider only well-pleaded facts in the complaint.
Having reviewed the relevant case law, the Court shall not dismiss Plaintiff's claims on the basis of the "not-a-stranger" doctrine. First, NetApp's interest in the contracts, at least as alleged by the FAC, does not rise to the level of the defendant's in
Plaintiff alleges that Defendant induced a breach or disruption of this contract by 1) referring Tri-State to ISCSI's competitor(s), which resulted in the Supplier Alliance Agreement not being extended as it had been in 2009, and 2) ISCSI obtained registrations that Defendant failed to honor prior to the expiration of the Supplier Alliance Agreement.
Defendant contends that Plaintiff fails to allege that any customers breached a contract with ISCSI as a result of NetApp's actions. Defendant also contends, and the Court agrees, that "ISCSI cannot allege that customers breached their contracts with it because there are no facts showing the contract terms prohibited customers from buying NetApp products from other sources." Docket No. 51, Def.'s Mot. Dismiss at 21. Plaintiff also fails to identify anything in the contract that would obligate Tri-State to grant Plaintiff an extension.
However, a plaintiff need not allege an actual or inevitable breach of contract in order to state a claim for disruption of contractual relations.
Plaintiff alleges that, but for Defendant's referral of Tri-State to other resellers, which was deliberately intended to disrupt the agreements between ISCSI and Tri-State, the Supplier Alliance Agreement would have been extended another term. Although Tri-State was not obligated to extend the contract, and Defendant was not barred from referring Tri-State to other resellers, such allegations are sufficient to state a claim because Plaintiff alleges that the referrals were intended to interfere with the contractual relationship.
For example, in
For the reasons discussed above, the Court finds that the FAC states a claim for intentional interference with contractual relations as to the contract between Plaintiff and Tri-State. Accordingly, Defendant's motion is DENIED to the extent it seeks to dismiss Claim 18.
Plaintiff alleges that Defendant induced a breach or disruption of this contract by 1) referring Xilinx to ISCSI's competitor(s), 2) instructions to Xilinx that ISCSI would no longer be the NetApp partner covering Xilinx, and 3) NetApp's declining several ISCSI registrations causing ISCSI to no longer be able to provide Xilinx with VPA pricing per the established NetApp VPA with Xilinx. As a result of Defendant's actions, Plaintiff alleges that it became unable to fulfill the terms of the Master Services Agreement ("MSA").
The Court finds that claim 19 is insufficiently pleaded. Although Plaintiff alleges that the contractual relationship was disrupted because it became unable to fulfill the terms of the MSA, Plaintiff does not identify any specific contractual term or obligation. As a result, the allegation is conclusory and not entitled to the assumption of truth.
Furthermore, having reviewed the MSA, the Court is unable to identify what, if any, obligations Plaintiff had under this contract. The MSA, according to its terms, obligates ISCSI to "perform the duties specified in one or more Statements of Work signed by each party and incorporated into this Agreement by reference." However, the only Statement of Work attached to the MSA is blank and includes only ISCSI's signature, and as far as the Court can tell the MSA did not actually obligate Plaintiff to do anything.
Accordingly, Claim 19 is DISMISSED with leave to amend.
The elements of intentional interference with prospective economic advantage have been stated as follows: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.
Unlike a claim for intentional interference with contractual relations, a claim for interference with prospective economic relations requires proof that the defendant's conduct is wrongful apart from the interference itself.
As to independent wrongful conduct, Plaintiff alleges that Defendant's conduct was wrongful because of the CEDA violations alleged in Claims 1 through 5, Defendant's breach of its commitments under the VIP and reseller guides, Defendant's intentional misrepresentation, and Defendant's breach of the Xilinx Teaming Agreement and CaridianBCT Teaming Agreement. Pl.'s Opp. to MTD at 24. However, as stated above, Plaintiff fails to state a claim for violation of CEDA, fails to state a claim for breach of commitments under the VIP and reseller guides, and fails to state a claim for intentional misrepresentation.
Defendant's alleged breach of the Caridian BCT Teaming Agreement could potentially support a claim for interference with prospective economic relations, but Plaintiff fails to non-conclusorily allege how the breaches of the Teaming Agreements interfered with a prospective economic relationship between Plaintiff and CaridianBCT. Instead, the FAC simply alleges generally that the relationships with all customers were disrupted by a number of wrongful acts without adding any facts that explain how the relationships were disrupted by a particular wrongful act.
Accordingly, Claims 20 and 21 are DISMISSED with leave to amend.
For the foregoing reasons, the Court GRANTS IN PART AND DENIES IN PART Defendants' Motion to Dismiss. Claims 1 through 5 and Claim 15 are dismissed without prejudice and
Plaintiff is advised that it