Kentwool Company v. NetSuite Inc

Filing 50

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS by Judge Jon S. Tigar granting in part and denying in part 34 Motion to Dismiss. (wsn, COURT STAFF) (Filed on 2/18/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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KENTWOOL COMPANY,

Case No. 14-cv-05264-JST

Plaintiff,
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ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS

v.
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NETSUITE INC,

Re: ECF Nos. 34, 35

Defendant.

United States District Court
Northern District of California

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Before the Court is Defendant NetSuite, Inc.’s Motion to Dismiss Plaintiff Kentwool

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Company’s Complaint Pursuant to Federal Rule of Civil Procedure Section 12(b)(6), ECF No. 34,

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and Defendant NetSuite Inc.’s Request for Judicial Notice in support of the motion to dismiss,

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ECF No. 35. For the reasons set forth below, the motion to dismiss is granted in part and denied

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in part. The request for judicial notice is granted.

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I.

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BACKGROUND
For the purpose of deciding the motion to dismiss, the Court accepts as true the following

factual allegations from the plaintiff’s complaint. ECF No. 1 Ex. A at 8.

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A.

Factual History

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Kentwool Company (“Kentwool”) is a textile company headquartered in Greenville, South

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Carolina that “operates a state-of-the-art wool-based yarn spinning plant . . . serving a diversified

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international customer base.” Compl. ¶ 7. NetSuite, Inc. (“NetSuite”) is a software company and

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provider of Enterprise Resource Planning (“ERP”) software. Id. ¶ 8. On or about March 14,

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2013, Kentwool and NetSuite entered into a Subscription Services Agreement pursuant to which

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NetSuite agreed to provide its ERP software to Kentwool over a one-year term from March 18,

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2013 to March 17, 2014. Id. ¶ 10-11. Prior to the parties entering this agreement, NetSuite

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represented to Kentwool on numerous occasions that it had experience in the manufacturing

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industry and that its software could integrate the management of Kentwool’s manufacturing,

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inventory, purchasing, financial, sales, and shipping processes. Id. ¶ 12. At this time, NetSuite

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knew that the software lacked the functionality to perform as represented. Id. ¶ 14.

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The ERP software failed to operate as represented by NetSuite. Id. ¶ 17. Relying on

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NetSuite’s assurances that it could correct the problems with the software, Kentwool continued to

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pay for consulting services and technical support. Id. ¶ 18. Kentwool ultimately paid NetSuite

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$317,851.26 — significantly more than NetSuite’s original $245,784.65 estimate. Id. On or about

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December 10, 2013, Mark Kent, the president of Kentwool, wrote to NetSuite to express doubt

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about NetSuite’s ability to perform and to demand adequate assurances that NetSuite would
deliver a functional product. Id. ¶ 20. In response, NetSuite submitted a revised Statement of

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United States District Court
Northern District of California

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Work with a proposed additional cost of $215,912.00 and requested an extension of the

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implementation period to May 2014. Id. ¶ 21. Because Kentwool had failed to provide assurances

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that it would deliver a functional product and had indicated that implementation would involve

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additional time and expenditures, Kentwool provided notice of termination of its agreement with

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NetSuite and demanded a full refund. Id. ¶ 22. NetSuite did not agree to correct the issues with

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the software at its own expense or to provide a refund. Id. ¶ 25.

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B.

Procedural History

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On May 27, 2014, Kentwool filed suit in a South Carolina state court, asserting the

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following claims for relief: (1) breach of contract; (2) breach of express warranty; (3) breach of

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implied warranty of merchantability; (4) breach of implied warranty of fitness for a particular

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purpose; (5) fraud/misrepresentation; (6) negligent misrepresentation; (7) violation of South

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Carolina’s Unfair Trade Practices Act; (8) fraud in the inducement; (9) rescission; and (10) unjust

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enrichment/restitution. Compl. ¶¶ 26-95. NetSuite subsequently removed the lawsuit to the

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United States District Court for the District of South Carolina. ECF No. 1. On December 1,

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2014, the District Court granted NetSuite’s motion to transfer venue to the United States District

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Court for the Northern District of California on the basis of a forum selection clause in the

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contract between the parties.1 ECF No. 22.
NetSuite filed its motion to dismiss and request for judicial notice on January 5, 2015.

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ECF Nos. 34, 35.

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C.

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The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332.

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II.

Jurisdiction

REQUEST FOR JUDICIAL NOTICE
NetSuite requests that in considering its motion to dismiss, the Court take judicial notice

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of: (A) the March 14, 2013 Subscription Services Agreement between the parties, including two

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associated exhibits (the Estimate/Order Form and NetSuite Professional Services Addendum);

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(B) NetSuite’s Main Terms of Service (incorporated by reference in the Subscription Services

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United States District Court
Northern District of California

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Agreement); and (C) the March 14, 2013 Shared Statement of Work between the parties. ECF No.

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35. Kentwool does not object to the Court taking judicial notice of either the Subscription

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Services Agreement and its two exhibits or NetSuite’s Main Terms of Service. ECF No. 42 at 2.

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Although Kentwool did file a response objecting to the Court taking judicial notice of the Shared

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Statement of Work because of problems with the version of the document filed by NetSuite, ECF

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No. 42 at 2, the parties have since filed a stipulation providing a new version of the document,

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correcting these deficiencies, ECF Nos. 43, 44. Kentwool has made no other objections to the

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Court taking judicial notice of the Shared Statement of Work.

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A.

Legal Standard

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Although a court’s review on a motion to dismiss is generally limited to the allegations in

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the complaint, the Court may properly “rel[y] on the doctrine of ‘incorporation by reference’ to

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consider documents that [are] referenced extensively in the complaint and [are] accepted by all

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In its opposition to the motion to transfer venue, Kentwool argued that because its complaint is
based on fraudulent inducement, the forum selection clause was unenforceable. ECF No. 22 at 4.
The court concluded, however, that “[i]n order for [it] to find a forum selection clause invalid due
to fraud, the fraud must be to the clause itself and not to the agreement as a whole.” Id. at 6.
Because Kentwool’s arguments concerning fraud related to the entire agreement and not to the
forum selection clause specifically, the court found that it had failed to meet its burden to prove
that the forum selection clause should not be enforced due to fraud. Id. It reached no conclusion
concerning the enforceability of the agreement as a whole.
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parties as authentic.” Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.

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2002) (citing In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999), superseded

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by statute on other grounds (“[The incorporation by reference] doctrine permits a district court to

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consider documents whose contents are alleged in a complaint and whose authenticity no party

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questions, but which are not physically attached to the plaintiff’s pleading.” (internal quotation

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marks omitted))). The incorporation by reference doctrine extends

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to situations in which the plaintiff’s claim depends on the contents
of a document, the defendant attaches the document to its motion to
dismiss, and the parties do not dispute the authenticity of the
document, even though the plaintiff does not explicitly allege the
contents of the document in the complaint.

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United States District Court
Northern District of California

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Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). Under this rule, “a court may look beyond
the pleadings without converting the Rule 12(b)(6) motion into one for summary judgment.” Van
Buskirk, 284 F.3d at 980. A court “must take judicial notice if a party requests it and the court is
supplied with the necessary information.” Fed. R. Evid. 201(c)(2); see Sato v. Wachovia Mortg.,
FSB, No. 11-cv-00810-EJD (PSG), 2011 WL 2784567, at *2 (N.D. Cal. July 13, 2011).

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B.

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Discussion

Defendant’s request for judicial notice is granted. Kentwool’s claim depends on the
contents of the agreement between Kentwool and NetSuite. The parties identify all three
documents as components of the agreement at issue. ECF No. 34 at 1 n.1; ECF No. 41 at 2 n.1.
No party contests their authenticity. The first document, the Subscription Services Agreement, is
extensively referenced in the complaint. See, e.g., Compl. ¶¶ 10-13, 27-30. Although the
remaining documents are not specifically referenced in the complaint,2 Kentwool’s claim depends
on the contents of the agreement of which these documents were a part. Consequently, these
documents also fall within the scope of the incorporation by reference doctrine. See Knievel, 393
F.3d at 1076.

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The complaint mentions a proposed “revised Statement of Work,” but not the original Statement
of Work signed by the parties on March 14, 2013. See Compl. ¶ 21; ECF No. 44 at 26.
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III.

MOTION TO DISMISS
Defendant NetSuite moves to dismiss the complaint pursuant to Federal Rule of Civil

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Procedure 12(b)(6). ECF No. 34. NetSuite seeks an order dismissing Kentwool’s first cause of

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action without prejudice and Kentwool’s second through tenth causes of action with prejudice. Id.

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A.

Legal Standard

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A complaint must contain “a short and plain statement of the claim showing that the

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pleader is entitled to relief,” in order to “give the defendant fair notice of what the . . . claim is and

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the grounds upon which it rests.” Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S.

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544, 555 (2007). “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,

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United States District Court
Northern District of California

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556 U.S. 662, 678 (2009) (internal quotation marks omitted). “A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.” Id. “Dismissal under Rule 12(b)(6) is

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appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support

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a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th

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Cir. 2008). The Court must “accept all factual allegations in the complaint as true and construe

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the pleadings in the light most favorable to the nonmoving party.” Knievel, 393 F.3d at 1072.

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Fraud claims are subject to a heightened pleading standard. “In alleging fraud or mistake,

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a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ.

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P. 9(b). “Rule 9(b) demands that the circumstances constituting the alleged fraud ‘be specific

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enough to give defendants notice of the particular misconduct . . . so that they can defend against

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the charge and not just deny that they have done anything wrong.” Kearns v. Ford Motor Co., 567

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F.3d 1120, 1124 (9th Cir. 2009) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir.

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2001)). To meet this standard, a “complaint must ‘identify the who, what, when, where, and how

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of the misconduct charged, as well as what is false or misleading about the purportedly fraudulent

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statement, and why it is false.’” Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013)

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(quoting Cafasso, U.S. ex rel. v. General Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir.

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2011)).
B.

Discussion
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Implied Warranties

NetSuite argues that Kentwool’s third and fourth causes of action, for breach of an implied

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warranty of merchantability and breach of an implied warranty of fitness for a particular purpose,

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Compl. ¶¶ 35-42, must be dismissed with prejudice. ECF No. 34 at 3-7. First, NetSuite contends

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that Kentwool has failed to plead that the Uniform Commercial Code (UCC) applies to the

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transaction at issue, and that it does not apply in any event because the services aspect of the

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transaction predominates over the provision of goods. Id. at 3-4. Second, NetSuite argues that
even if the UCC does apply to provide warranties to Kentwool, the implied warranty of

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Northern District of California

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merchantability and implied warranty of fitness for a particular purpose were effectively

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disclaimed by the parties when they entered into the contract at issue. ECF No. 34 at 5-7.

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Because the Court agrees that the UCC does not apply to this transaction and the warranties are

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therefore inapplicable, it does not consider NetSuite’s alternative arguments.

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The UCC applies to transactions in goods, defined as “all things (including specially

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manufactured goods) which are movable at the time of identification to the contract for sale . . . .”

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Cal. Com. Code §§ 2102, 2105. Because transactions involving software often combine elements

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of both goods and services and “[b]ecause software packages vary depending on the needs of the

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individual consumer, we apply a case-by-case analysis” to determine whether a software

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transaction is covered by the UCC. RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 546 (9th Cir.

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1985). Courts look to the essence of the agreement to “determine whether the predominant factor

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or purpose of the contract is rendition of services, with goods incidentally involved, or is rendition

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of goods, with labor incidentally involved.” Simulados Software, Ltd. v. Photon Infotech Private,

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Ltd., No. 5:12-cv-04382-EJD, 2014 WL 1728705, at *5 (N.D. Cal. May 1, 2014); see also Gross

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v. Symantec Corp., No. 12-cv-00154-CRB, 2012 WL 3116158, at *8 (N.D. Cal. July 31, 2012).

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Courts have generally found that “mass-produced, standardized, or generally available
software, even with modifications and ancillary services included in the agreement, is a good that

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is covered by the UCC.” Simulados Software, 2014 WL 1728705, at *5 (collecting cases); see,

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e.g., RRX Indus., 772 F.2d at 546 (“Here, the sales aspect of the transaction predominates. The

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employee training, repair services, and system upgrading were incidental to sale of the software

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package and did not defeat characterization of the system as a good.”). On the other hand, courts

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have reached varying conclusions concerning software adapted for specific customer needs.

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Simulados Software, 2014 WL 1728705, at *6 (collecting cases); compare Advent Sys. Ltd. v.

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Unisys. Corp., 925 F.2d 670, 675 (3d Cir. 1991) (“The fact that some programs may be tailored

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for specific purposes need not alter their status as ‘goods’ . . . .”), with Sys. Am., Inc. v. Rockwell

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Software, Inc., No. 03-cv-02232 JF (RS), 2007 WL 218242, at *4 (N.D. Cal. Jan. 26, 2007)
(concluding that a software agreement was not covered by the UCC where “[t]he essence or thrust

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Northern District of California

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[was the] development of software from scratch and the granting of a license” and where the

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developer “retain[ed] all ownership rights to the software”).

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Here, Kentwool’s complaint states that the parties entered into an agreement that “required

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Defendant to sell, customize, configure, and, implement its ERP Software for Kentwool’s specific

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needs and uses [and] . . . to provide training and consulting services to enable Kentwool to utilize

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the Software in managing its business needs” over a one year term. Compl. ¶¶ 10-11. The

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Subscription Services Agreement states that NetSuite “shall make the Service available to

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Customer,” and explains that “NetSuite shall host the Service and may update the functionality,

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user interface, usability and other user documentation, training and educational information of,

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and relating to the Service from time to time in its sole discretion . . . .” ECF No. 35, Ex. A ¶ 1.

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The agreement restricts Kentwool from outsourcing, renting, reselling, or sublicensing the

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software. Id. ¶ 3. The licensing agreement is for a term of twelve months, after which the license

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must be renewed. Id. ¶ 4.1.

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The Court concludes that in this particular case, the predominant purpose of the contract is

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the provision of services, and the UCC therefore does not apply. Kentwool did not purchase pre-

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existing software that it could download and retain indefinitely or transfer to others. Rather, it

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contracted to access an online service customized for its needs, subject to updates at any time, and

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available only for a fixed term. See Simulados Software, 2014 WL 1728705, at *6 (“Where

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software is designed from scratch, or the transaction is mainly for one party's knowledge and skills

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in creating software, the software is often found to be a service rather than a good.”). Because the

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UCC does not apply to this transaction, the implied warranty claims are dismissed without leave to

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amend.3
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Fraud and Negligent Misrepresentation

NetSuite next argues that Kentwool’s fifth, sixth, and eighth causes of action — for fraud

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by misrepresentation, negligent misrepresentation, and fraud in the inducement — fail because

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(1) fraud cannot consist of promises contrary to those contained in the parties’ integrated written
contract; (2) Kentwool has not pleaded justifiable reliance; and (3) in any event, fraud was not

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United States District Court
Northern District of California

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pleaded with particularity as required by Federal Rule of Civil Procedure 9(b). ECF No. 34 at

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8-13.
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Parol Evidence Rule

Kentwool’s fraud and misrepresentation claims involve statements made by NetSuite, both

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before and after the Subscription Services Agreement was signed, concerning NetSuite’s

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experience and the capabilities of its software. The parties’ Subscription Services Agreement and

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Statement of Work contain unambiguous language indicating that the written contract is fully

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integrated. For example, the Subscription Services Agreement contains the following statement:

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This Agreement, including all exhibits and/or Estimate/Order
Forms, shall constitute the entire understanding between Customer
and NetSuite and is intended to be the final and entire expression of
their agreement. The parties expressly disclaim any reliance on any
and all prior discussions, emails, RFP’s and/or agreements between
the parties. There are no other verbal agreements, representations,

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In its reply brief, Netsuite makes the additional argument that because title never passed from
Netsuite to Kentwool, no “sale” was consummated under the California UCC, and so the UCC
does not apply. See ECF No. 45 at 6-8; Cal. Com. Code § 2106. It is unnecessary for the Court to
reach that argument, however, since the Court concludes that the software at issue is not subject to
the UCC because it is not a “good.” In any event, the Court does not consider new facts or
argument made for the first time on reply. “It is inappropriate to consider arguments raised for the
first time in a reply brief.” Ass'n of Irritated Residents v. C & R Vanderham Dairy, 435 F.Supp.2d
1078, 1089 (E.D. Cal. 2006).
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warranties[,] undertakings or other agreements between the parties.

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ECF No. 35 Ex. A ¶ 9. NetSuite seeks to rely on the parol evidence rule, which “generally
prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to
the terms of an integrated written instrument.” Casa Herrera, Inc. v. Beydoun, 32 Cal. 4th 336,
343 (2004); see also Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass’n, 55 Cal.
4th 1169, 1174 (2013) (“[W]hen the parties put all the terms of their agreement in writing, the
writing itself becomes the agreement. The written terms supersede statements made during the
negotiations . . . to ensure that the parties’ final understanding, deliberately expressed in writing, is
not subject to change.”).
While the parol evidence rule precludes reliance on extrinsic evidence to vary the terms of
a fully integrated contract, it does permit the use of extrinsic evidence to prove fraud. Cal. Code
Civ. Proc. § 1856(g). In Riverisland, the California Supreme Court recently reaffirmed “the
venerable maxim[:] . . . [I]t was never intended that the parol evidence rule should be used as a
shield to prevent the proof of fraud.” 55 Cal. 4th at 1182 (internal quotation marks omitted). This
exception has been interpreted to permit both fraud and negligent misrepresentation claims to go
forward, even in the face of an integration clause. See Thrifty Payless, Inc. v. Americana at
Brand, LLC, 218 Cal. App. 4th 1230, 1241 (2013) (“[U]nder Riverisland, extrinsic evidence is
admissible to establish fraud or negligent misrepresentation in the face of the lease’s integration
clause.”).
NetSuite seeks to avoid this result by pointing to cases concluding that plaintiffs may not
assert fraud claims involving promises that contradict the terms of their written agreements. See
Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal. 4th 394, 423 (1996) (negligent failure to
acquaint oneself with the contents of a written agreement precludes a finding that the contract is
void for fraud in the execution); Groth-Hill Land Co., LLC v. General Motors LLC, No. 13-cv1362-TEH, 2013 WL 3853160, at *15 (N.D. Cal. July 23, 2013) (plaintiffs are barred from
introducing alleged oral promises which contradict the terms of the written agreements they
signed); Crane v. Wells Fargo, No. 13-cv-01932-KAW, 2014 WL 1285177, at *6 (N.D. Cal. Mar.
24, 2014) (“a fraud claim may not consist of promises that run counter to the written contract”).
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The reasoning of these cases does not apply here, for two reasons. First, the cases do not

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address situations in which plaintiffs, like Kentwool, attack the validity of the contract. See

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Groth-Hill Land Co., 2013 WL 3853160, at *15 (“Plaintiffs are correct that a fraud exception to

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the parol evidence rule permits the use of extrinsic evidence to attack the validity of an integrated

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agreement.”); Riverisland, 55 Cal. 4th at 1183 n.11 (“We expressed no view in Rosenthal on the

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‘validity’ and ‘exact parameters’ of a more lenient rule that has been applied when equitable relief

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is sought for fraud in the inducement of a contract.”); see also May v. Semblant, Inc., No. 13-cv-

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01576-BLF, 2014 WL 3725296, at *4 (N.D. Cal. July 23, 2014) (“Typically, application of the

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fraud exception to the parol evidence rule would be urged by a party to a written contract
challenging the validity of the written agreement, seeking rescission or damages caused by

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Northern District of California

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fraudulent inducement . . . ”). Second, Kentwool does not seek to enforce promises that “run

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counter to the terms of the written contract[].” Groth-Hill Land Co., 2013 WL 3853160, at *15.

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Rather, Kentwool’s claims involve misrepresentations concerning the functionality of the ERP

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software NetSuite agreed to provide and NetSuite’s ability to implement the software and correct

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problems as they arose — statements that are consistent with the agreements contained in the

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contract.

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b.

Justifiable Reliance

One necessary element of a fraud claim is justifiable reliance on the alleged

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misrepresentation. Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). NetSuite contends that

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Kentwool has failed to plead justifiable reliance because its claim that it relied on NetSuite’s pre-

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contract and post-contract statements, despite the existence of a fully integrated contract signed by

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two sophisticated parties, is precluded by the California Supreme Court’s decision in Rosenthal.

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ECF No. 34 at 12-13 (citing Rosenthal, 14 Cal. 4th at 419). As discussed above, the court’s

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analysis in Rosenthal concerning whether parties may justifiably rely on misrepresentations when

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they do not read their contracts does not apply here.

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In the complaint, Kentwool states:
Based on NetSuite’s superior knowledge of its Software and its
ability to customize, configure, and implement the Software for
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Kentwool’s specific needs and uses, Kentwool, who had no actual
knowledge of the Software’s capabilities, justifiably relied upon
NetSuite’s representations by entering into the Agreement and
continuing the relationship with NetSuite.
Compl. ¶ 51; see also ¶¶ 65, 82. The Court concludes that these statements are sufficient to plead
justifiable reliance at this stage.
c.

Rule 9(b)

Having concluded that Kentwool’s fraud claims are not barred by the parol evidence rule,
the Court considers NetSuite’s alternate argument that Kentwool has failed to meet the heightened
pleading requirements for fraud claims. ECF No. 34 at 8; see Fed. R. Civ. P. 9(b). To meet the
standard, the “complaint must ‘identify the who, what, when, where, and how of the misconduct
charged, as well as what is false or misleading about the purportedly fraudulent statement, and
why it is false.’” Salameh, 726 F.3d at 1133 (quoting Cafasso, 637 F.3d at 1055).
For reasons discussed more fully in Howard v. First Horizon Home Loan Corporation, No.
12-cv-05735-JST, 2013 WL 6174920 (N.D. Cal. Nov. 25, 2013), the Court concludes that Rule
9(b) does not apply to claims for negligent misrepresentation. In Howard, the Court explained that

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“the language and underlying policy of Rule 9(b) do not support applying that rule to claims for

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negligent misrepresentation . . . . ‘[B]ecause an allegation of negligent misrepresentation suggests

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only that the defendant failed to use reasonable care — an objective standard — it does not result

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in the kind of harm that Rule 9(b) was designed to prevent.’” Id. at *5 (quoting Petersen v.

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Allstate Indem. Co., 281 F.R.D. 413, 418 (C.D. Cal. 2012)). Accordingly, NetSuite’s motion to

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dismiss Kentwool’s negligent misrepresentation claim for failure to satisfy the Rule 9(b) pleading

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requirements is denied.
Rule 9(b) does, of course, apply to Kentwool’s fifth and eighth causes of action, for
fraud/misrepresentation and fraud in the inducement. The Court concludes that, as to these claims,

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the complaint fails to adequately “identify the who, what, when, where, and how of the

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misconduct” such that defendants have “notice of the particular misconduct” alleged. Salameh,

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726 F.3d at 1133; Kearns, 567 F.3d at 1124. Kentwool alleges the following:
Prior to Kentwool entering into the Agreement with NetSuite,

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NetSuite represented to Kentwool that the Software would integrate
the management of Kentwool’s manufacturing, inventory,
purchasing, financial, sales and shipping processes, specifically
including providing visibility and management of blended products
through the manufacturing process. NetSuite further represented to
Kentwool that the Software functionality would include, among
others, advanced financials, item management, production planning,
manufacturing control, cost control, lot and serial control, multidivision/multi-site solutions, and order management.
During the implementation process NetSuite represented to
Kentwool that it would, and did, correct the problems experienced
by Plaintiff so that the Software would perform as originally
represented to Kentwool. . . .
NetSuite also represented to Kentwool that complete
implementation would be achieved on or around October 1, 2013.

United States District Court
Northern District of California

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Compl. ¶¶ 44-45, 76. Although Kentwool has indicated what the misrepresentations were, the

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complaint does not describe with particularity which representative or representatives of NetSuite

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made these statements, when they were made, where they were made, or whether they were made

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in person, by phone, or via email or other correspondence. Because Kentwool has not given

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NetSuite adequate notice of “the who, what, when, where, and how of the misconduct” alleged, as

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required by Rule 9(b), its fraud claims are dismissed with leave to amend.

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3.

Breach of Contract

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“A cause of action for breach of contract requires pleading of a contract, plaintiff’s

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performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting

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therefrom.” McKell v. Washington Mut., Inc., 142 Cal. App. 4th 1457, 1489 (2006). “[I]t is

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unnecessary for a plaintiff to allege the terms of the alleged contract with precision,” but “the

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Court must be able generally to discern at least what material obligation of the contract the

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defendant allegedly breached.” Langan v. United Servs. Auto. Ass’n., No. 13-cv-04994-JST,

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2014 WL 4744790, at *7 (N.D. Cal. Sept. 23, 2014).

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NetSuite argues that Kentwool’s claim for breach of contract must be dismissed because

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plaintiff has failed to (1) allege that it performed its obligations under the contract and (2) point to

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the terms of the contract that it claims were breached. ECF No. 34 at 13-14. The Court concludes

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that Kentwool has adequately pleaded its breach of contract claim. In the complaint, Kentwool

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states that “Kentwool paid NetSuite $317,851.26, satisfying its obligations under the Agreement.”

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Compl. ¶ 28. NetSuite correctly points out the agreement between the parties allocates other

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responsibilities to Kentwool in addition to payment. See, e.g., ECF No. 44 at 17 (describing

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“Customer Roles”). Pleading that Kentwool paid is therefore not necessarily tantamount to

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pleading that Kentwool performed. However, the complaint includes the phrase, “satisfying its

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obligations under the Agreement.” Compl. ¶ 28. Construing the pleadings in the light most

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favorable to Kentwool, the Court therefore finds that the complaint adequately alleges that

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Kentwool satisfied all of its obligations under the contract.
The Court also finds that Kentwool’s complaint, which described “a valid and existing

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United States District Court
Northern District of California

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contract for the purchase, customization, configuration, and implementation of NetSuite’s ERP

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software for Kentwool’s specific needs and uses,” adequately alleged that NetSuite breached the

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contract “by supplying defective and non-functional Software, and/or failing to properly configure

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and implement functional software.” Compl. ¶¶ 27, 29; see Ronpak, Inc. v. Elecs. for Imaging,

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Inc., No. 14-cv-04058-JST, 2015 WL 179560, at *5 (N.D. Cal. Jan. 14, 2015) (finding that

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plaintiff adequately alleged that defendant failed to perform under the contract where plaintiff

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alleged that defendant “failed to deliver functioning software;” that defendant was required “to

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deliver functional software as promised in the license agreement, to configure the software and/or

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deliver software that is configurable by either party;” and that defendant “failed to meet any of its

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obligations under the license agreement”).
For the foregoing reasons, NetSuite’s motion to dismiss the breach of contract term is

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denied.
4.

Express Warranty and South Carolina’s Unfair Trade Practices Act

NetSuite next argues that Kentwool’s second cause of action for breach of an express

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warranty must be dismissed with prejudice because it is based on statements inconsistent with the

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terms of the parties’ fully integrated written contract and is therefore barred by the parol evidence

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rule. ECF No. 34 at 14. Similarly, NetSuite contends that any claim under South Carolina’s

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Unfair Trade Practices Act is barred by the choice of law provision in the parties’ contract. Id. at

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14-15; see ECF No. 35 Ex. A ¶ 9. Kentwool maintains that it has properly pleaded alternative

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theories of recovery, including that the contract is void due to fraud, rendering NetSuite’s warranty

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disclaimers and the choice of law provision ineffective. ECF No. 41 at 8, 17-18 (citing Compl. ¶¶

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75-90). Because Kentwool has not adequately pleaded a claim for fraud, the express warranty

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claim and Unfair Trade Practices Act claim, which rely on the written contract being invalid,

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necessarily fail. These causes of action are therefore dismissed with leave to amend. See PlasPro

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GMBH v. Gens., No. 09-cv-04302-PSG, 2011 WL 1000755, at *5 (N.D. Cal. Mar. 21, 2011).

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5.

Rescission, Unjust Enrichment, and Restitution

Kentwool’s rescission, unjust enrichment, and restitution claims also depend on

United States District Court
Northern District of California

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Kentwool’s claims that the contract is invalid due to fraud. See Plaspro GMBH, 2011 WL

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1000755, at *5 (“[Plaintiff] has not adequately pleaded a claim for fraud. Therefore, any claim

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based on fraud, including rescission based on fraud, necessarily fails.”); Svenson v. Google, Inc.,

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No. 13-cv-04080-BLF, 2014 WL 3962820, at *4 (N.D. Cal. Aug. 12, 2014) (“A plaintiff may not

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plead the existence of an enforceable contract and maintain a quasi-contract claim at the same

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time, unless the plaintiff has pled facts suggesting that the contract may be unenforceable or

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invalid.”). Accordingly, the rescission cause of action is dismissed with leave to amend.

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Kentwool’s claims for unjust enrichment and restitution suffer from the additional defect

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that they duplicate each other. In California “‘[t]here is no cause of action for unjust enrichment.

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Rather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition

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of a constructive trust.’” Clancy v. The Bromley Tea Co., No. 12-CV-03003-JST, 2013 WL

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4081632, at *11 (N.D. Cal. Aug. 9, 2013) (quoting Myers–Armstrong v. Actavis Totowa, LLC,

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382 Fed. Appx. 545, 548 (9th Cir.2010) (unpublished). “The doctrine applies where plaintiffs,

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while having no enforceable contract, nonetheless have conferred a benefit on defendant which

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defendant has knowingly accepted under circumstances that make it inequitable for the defendant

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to retain the benefit without paying for its value.” Hernandez v. Lopez, 180 Cal. App. 4th 932,

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938, 103 Cal. Rptr. 3d 376, 380 (2009), as modified (Dec. 28, 2009). If Kentwool amends its

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complaint, it must eliminate its duplicative unjust enrichment claim.
CONCLUSION

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3

For the reasons discussed above, Defendant’s motion to dismiss is denied as to Kentwool’s

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breach of contract and negligent misrepresentation claims. The motion is granted with leave to

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amend as to Kentwool’s claims for breach of express warranty, fraud/misrepresentation, violation

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of Unfair Trade Practices Act, fraud in the inducement, rescission, and unjust enrichment/

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restitution. The motion is granted with prejudice as to Kentwool’s claims for breach of implied

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warranty of merchantability and breach of implied warranty for a particular purpose.

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United States District Court
Northern District of California

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Any amended complaint shall be filed within thirty days of the date of this order.
IT IS SO ORDERED.
Dated: February 18, 2015

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______________________________________
JON S. TIGAR
United States District Judge

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