Market America Inc v. Google Inc, et al

Filing 1

CIVIL CASE DOCKETED. Notice filed by Appellant Market America Inc in District Court No. 1-09-cv-00494. (SLC)

Case 1:09-cv-00494-GMS Document 58

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

)
)
)
Plaintiff,
)
)
v.
)
)
GOOGLE, INC., LTECH CONSULTING, )
LLC and GETTHEJOB DEVELOPMENT )
SERVICES, LLC,
)
)
Defendants.
)

MARKET AMERICA, INC.,

C.A. No. 09-494-GMS

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MEMORANDUM
I. INTRODUCTION
On July 7, 2009, the plaintiff, Market America, Inc. ("Market America"), filed this
diversity action against Google, Inc. ("Google") and LTech Consulting, LLC ("LTech")
(together, "the defendants") for: fraudulent inducement (Count I), fraud (Count II), failure of
essential purpose (Count III), and unfair and deceptive trade practices (Count IV). (0.1. 1.)
Google and LTech filed motions to dismiss pursuant to Rule 12(b)(6), and Market America
amended its complaint in accordance with Rule 15(a)(1)(A) on September 30, 2009. (0.1.22.)
Market America's amended complaint retained Counts I, II, and IV and alleged rescission for
failure of consideration in lieu of failure of essential purpose as its Count III claim. (Id.)
On October 19,2009, the defendants filed motions to dismiss Counts I, II, and III of Market
America's amended complaint pursuant to Rule 12(b)(6) (0.1.26; 0.1. 28), and the court granted
the defendants' motions to dismiss (0.1.35). Market America filed a second amended complaint

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on September 23,2010, adding GetTheJob Development Services, LLC as a defendant. (D.l.
38.) Presently before the court is Google's motion for judgment on the pleadings (D.l. 45) and
LTech's motion for judgment on the pleadings or, in the alternative, for summary judgment (D.l.
47). For the reasons that follow, the court will grant the defendants' motions.

II.

BACKGROUND 1
The following facts are taken from Market America's second amended complaint. (D.l.

38.) Market America is an Internet marketing and product brokerage company that pioneered an
online shopping portal similar to Amazon.com. (Id. at ~ 7.) Market America's technology
enables customers using the site to maintain an "online contact or guide" on the Internet, which
aims to facilitate the creation of a "preeminent online shopping destination." (Id.) In November
2007, Market America contacted Google to assess whether Google could assist it in developing
an "internal capability for its visitors to search the retail offerings available on the affiliate
partner stores" by implementing a search system using Google Search Appliances ("GSAs"). (Id.
at ~~ 10, 13.) Google responded to Market America's inquiry and introduced it to LTech, a
Google partner. (Id. at ~ 11.)
Market America entered into a Services Agreement with LTech on February 1,2008,
pursuant to which LTech agreed to design and develop a GSA-based search system for Market
America. (Id. at ~ 21.) On February 4,2008, Market America entered into a License Agreement
with Google which outlined the terms and conditions of Market America's use of Go ogle's
hardware and software. (Id.) A review of the agreements reveals that both contain Delaware

1The court refers to its previous decision in this matter for a more thorough factual
background. (D.l. 35); Market Am., Inc. v. Google, Inc., C.A. No. 09-494-GMS, 2010 WL
3156044 (D. Del. Aug. 9, 2010).
2

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choice oflaw provisions. 2 (D.I. 46, Ex. A, Ex. B.) Specifically, the Services Agreement states:
This Agreement shall be governed and construed in accordance with the laws of
the State of Delaware without regard to the conflict of laws provisions thereof,
and the state and federal courts located in that state shall have exclusive
jurisdiction of the parties for the purposes of adjudicating all disputes that may
arise under this Agreement.
(Id., Ex. A at 4.) Likewise, the License Agreement between Market America and Google states:
This Agreement and any claim or dispute of whatever nature arising out of or
relating to this Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware and the federal U.S. laws applicable therein,
without giving effect to any choice of law principles that would require the
application of the laws of a different state.
(Id., Ex. Bat 6.)
After executing the agreements, Market America purchased a GSA for one million
dollars to handle fifteen million documents, with the option of upgrading this capacity through
the acquisition and installation of additional licenses and GSA machines. (D.L 38 at ~ 21.) As of
April 2008, however, the GSA system showed search response times well above the sub-second
timeframe that Google and LTech allegedly agreed to provide and would crash at fifteen queries
per second. (Id. at ~ 27.) Google's representatives guaranteed Market America that Google
would devote resources to resolving the deficiencies, but each attempted solution failed. (Id. at

2Generally, on a motion to dismiss pursuant to Rule 12(b)(6), a court may not consider
material outside of the pleadings. The court makes an exception, however, when a document
becomes "integral to or explicitly relied upon in the complaint." In re Burlington Factory Sec.
Lltig., 114 F.3d 1410, 1426 (3d Cir. 1997) (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194,
1220 (1st Cir. 1996) (superseded by statute on other grounds)). The analysis is the same for a
motion for judgment on the pleadings. See Revell v. Port Auth., 598 F.3d 128, 134 (3d Cir.
2010); Mele v. Fed. Reserve Banko/NY., 359 F.3d 251, 256 n.5 (3d Cir. 2004). Here, the court
finds that Market America has made the Services Agreement and the License Agreement
"integral" parts of the complaint. Thus, it considers them for the purpose of deciding the
defendants' motion to dismiss.
3

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28-35.) With Market America's independent distributors and partners losing confidence in the

GSA-based search system, Market America informed Google on January 2, 2009 that it would
not proceed with the implementation of the GSA-based enterprise search capacity. (Id. at ~~ 3639.) As a result of Google and LTech's inability to produce a GSA system scalable to ninety
million products, Market America alleges that it "has incurred and continues to incur significant
costs in developing an alternative enterprise search capacity." (Id. at ~ 42.)

III. STANDARD OF REVIEW
The defendants move for judgment on the pleadings pursuant to Federal Rule of Civil
Procedure 12(c). When deciding a Rule 12(c) motion for judgment on the pleadings based on an
allegation that the plaintiff has failed to state a claim, the motion "is analyzed under the same
standards that apply to a Rule 12(b)(6) motion." Revell v. Port Auth., 598 F.3d 128, 134 (3d Cir.
2010), cert. denied, l31 S. Ct. 995 (Jan. 18,2011). That is, the court must view all facts and
inferences drawn from the pleadings in the light most favorable to the non-moving party. Green
v. Fund Asset Mgmt., L.P., 245 F.3d 213, 220 (3d Cir. 2001). The motion can be granted only if
no relief could be afforded under any set of facts that could be proved. Turbe v. Gov 't of the
Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991). However, the court need not adopt conclusory
allegations or statements oflaw. Paoli v. Delaware, C.A. No. 06-462-GMS, 2007 WL 4437219,
at *1 (D. Del. Dec. 18,2007) (citing In re Gen. Motors Class EStock Buyout Sec. Litig., 694 F.
Supp. 1119, 1125 (D. Del. 1988)).

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IV. DISCUSSION
In support of their motions, the defendants contend that the choice of law provisions
contained in the Services Agreement and License Agreement mandate the application of
Delaware law to all disputes arising under the Agreements. (D.!. 46 at 8; D.I. 48 at 9-10.)
Applying Delaware law, the defendants contend that Market America fails to state a claim for
unfair and deceptive trade practices under either the Delaware Consumer Fraud Act ("CFA") or
the Delaware Deceptive Trade Practices Act ("DTPA"). (D.!. 46 at 10; D.I. 48 at 10-11.)
Specifically, the defendants contend that Market America fails to allege any wrongful conduct
occurring in Delaware, as required to state a claim under the CFA. (D.!. 46 at 10-11; D.I. 48 at
11.) Moreover, the defendants contend that the DTPA does not apply to relationships between
businesses and customers such as Google's relationship with Market America in the instant
action, and Market America has failed to assert a basis for injunctive relief as required by the
statute. (0.1. 46 at 11-13; D.I. 48 at 11.)
In response, Market America contends that judgment on the pleadings is inappropriate
where, as here, there are factual matters to resolve regarding choice of law. (D.I. 51 at 10-11.)
Specifically, Market America contends that the Delaware choice of law provisions in the
agreements does not apply to the unfair and deceptive conduct alleged in the complaint because
the conduct complained of occurred outside the scope of the agreements. (Id. at 11.) According
to Market America, North Carolina has the most significant relationship to the wrongful conduct
alleged in the complaint, and the claim for unfair and deceptive trade practices is not defective in
any way under North Carolina law. (Id. at 11-26.)

5

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The court concludes that Delaware law applies to Count IV of Market America's second
amended complaint. The License Agreement between Market America and Google contains a
choice of law provision clearly stating that Delaware law shall govern the terms of the
agreement. Although the parties agree that the allegations of Count IV sound in tort, the court
concludes that the choice of law provision in the License Agreement is broad enough to
encompass disputes beyond those arising from the construction of the contract itself. See

Gloucester Holding Corp. v. US Tape and Sticky Prods., LLC, 832 A.2d 116, 123-24 (Del. Ch.
2003) ("There are certain circumstances where courts have held that a broad choice of law clause
in a contract could encompass tort claims that relate to contract formation."). Specifically, the
License Agreement states that Delaware law governs "[t]his Agreement and any claim or dispute
of whatever nature arising out of or relating to this Agreement," indicating that the parties
intended Delaware law to govern all disputes arising between the parties regarding this
transaction, whether sounding in contract or tort.
The choice of law provision in the Services Agreement, while not as broad in scope, also
supports the application of Delaware law to the claim for unfair and deceptive trade practices
sounding in tort. The choice of law provision provides that Delaware courts shall have exclusive
jurisdiction "for the purposes of adjudicating all disputes that may arise under this Agreement,"
and it does not contain language explicitly limiting its reach to contractual disputes. (D.I. 46, Ex.
A at 4) (emphasis added); see Organ v. Byron, 435 F. Supp. 2d 388, 392 (D. Del. 2006)
(distinguishing clauses limiting their reach to the '''rights ofthe parties' derived from the
contract" from those extending to "all ... aspects of the Agreement"). Delaware law provides
that a choice of law provision such as the one included in the Services Agreement "shall

6

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conclusively be presumed to be a significant, material and reasonable relationship with this State
and shall be enforced whether or not there are other relationships with this State." 6 Del. C. §
2708(a).
Moreover, applying Delaware law to Count IV will prevent bifurcation of pure contract
claims and other claims in accordance with Delaware public policy. See Pharmathene, Inc. v.

Siga Techs., Inc., C.A. No. 2627-VCP, 2008 WL 151855, at *7 (Del. Ch. 2008) (quoting Weilv.
Morgan Stanley DW Inc., 877 A.2d 1024, 1032-33 (Del. Ch. 2005), aff'd, 894 A.2d 407 (Del.
2005) (a contract "should not be interpreted in a crabbed way that creates a commercially
senseless bifurcation between pure contract claims and other claims that arise solely because of
the nature of the relations between the parties created by the contract.")). As the court explained
in Abry Partners:
When a rational businessperson enters into an agreement establishing a
transaction or relationship and provides that disputes arising from the agreement
shall be governed by the law of an identified jurisdiction, the logical conclusion is
that he or she intended that law to apply to all disputes arising out of the
transaction or relationship. We seriously doubt that any rational businessperson,
attempting to provide by contract for an efficient and businesslike resolution of
possible future disputes, would intend that the laws of multiple jurisdictions
would apply to a single controversy having its origin in a single, contract-based
relationship. Nor do we believe such a person would reasonably desire a
protracted litigation battle concerning only the threshold question of what law was
to be applied to which asserted claims or issues. Indeed, the manifest purpose of a
choice-of-Iaw clause is precisely to avoid such a battle.

Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1048 n.25 (Del. Ch. 2006)
(quoting Nedlloyd Lines B. V v. Superior Court, 834 P.2d 1148, 1154 (Cal. 1992)).
The parties agree that, under Delaware law, two statutory provisions apply to Count IV of
the second amended complaint: Delaware's Deceptive Trade Practices Act ("DTPA") and

7

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Consumer Fraud Act ("CF AH). Market America concedes that, "due to the narrow scope of
Delaware's Deceptive Trade Practices Act and Consumer Fraud Act, Market America does not
have a claim under either statute." (D.!. 51 at 20.) Specifically, Count IV fails to allege that an
unfair or deceptive practice occurred in Delaware as required by the CFA. See Wal-Mart Stores,

Inc. v. AIG Lift Ins. Co., 901 A.2d 106, 117 (Del. 2006). Count IV also fails under the DTPA
because the claim involves a vertical, customer-seller relationship between Market America and
Google or LTech as opposed to the horizontal relationships between various business interests
that the DTPA was intended to redress. Grand Ventures, Inc. v. Whaley, 632 A.2d 63, 70 (Del.
1993). Moreover, Market America did not assert a basis for injunctive relief in Count IV of its
second amended complaint as required under the DTPA. See Lynch v. Coinmaster USA, Inc.,
614 F. Supp. 2d 494,504 (D. Del. 2009). Having determined that Delaware law governs the
dispute with the defendants, the court concludes that judgment on the pleadings is appropriate
with respect to Market America's claim for unfair and deceptive trade practices against the
defendants. 3

V. CONCLUSION
For the reasons stated above, the defendants' motions for judgment on the pleadings (D.1.
45; D.I. 47) are granted. An appropriate order shall issue.

Dated: April

.tL, 2011

3Because the court grants the defendants' motions for judgment on the pleadings, the
court need not reach LTech's alternative argument in favor of summary judgment.
8

Case 1:09-cv-00494-GMS Document 58

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

)
MARKET AMERICA, INC.,
)
)
Plaintiff,
)
)
v.
)
)
GOOGLE, INC., LTECH CONSULTING, )
LLC and GETTHEJOB DEVELOPMENT )
SERVICES, LLC,
)
)
Defendants.
)

C.A. No. 09-494-GMS

--------------------------~)
ORDER
For the reasons stated in the court's Memorandum ofthis same date, IT IS HEREBY
ORDERED that:
1. The defendants' motions for judgment on the pleadings (OJ. 45; OJ. 47) are
GRANTED.

Dated: April--l3-, 2011