Grouse River Outfitters Ltd v. NetSuite, Inc.

Filing 88

AMENDED ORDER. The attached amended order changes only the caption, the last line of the introduction, and the first line of the conclusion to clarify that the court's order addresses only which allegations sound in fraud. (Beeler, Laurel) (Filed on 1/5/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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San Francisco Division

United States District Court
Northern District of California

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GROUSE RIVER OUTFITTERS LTD,

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Plaintiff,

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v.

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NETSUITE, INC.,

Case No. 16-cv-02954-LB
AMENDED ORDER REGARDING
NETSUITE’S RULE 12(C) MOTION1
Re: ECF No. 76

Defendant.

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INTRODUCTION

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This case is a commercial contract dispute.2 Plaintiff Grouse River Outfitters, Ltd. is an

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outdoor-equipment retailer; defendant NetSuite, Inc. provides commercial software systems that

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integrate various aspects of retailers’ businesses. The parties entered a series of written agreements

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under which NetSuite would install the software system.3 Grouse River alleges that NetSuite

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breached its contractual commitments and also misrepresented the capabilities of its software, its

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experience in installing such a system, and ultimately its ability to provide a system that could

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This amended order changes only the caption, the last line of the introduction, and the first line of the
conclusion to clarify that the court’s order addresses only which allegations sound in fraud.

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Second Amend. Compl. (“SAC”) – ECF No. 43. Citations are to material in the Electronic Case File
(“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of documents.

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Id. at 46 (¶ 257).

AMENDED ORDER – No. 16-cv-02954-LB 

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work as promised.4
NetSuite moves for judgment on the pleadings to strike certain allegations in the complaint on

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the ground that they are not actionable fraud.5 The court grants the motion in part in that it

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identifies which allegations sound in fraud.

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STATEMENT

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The court assumes familiarity with its prior orders, which recount Grouse River’s claims that

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the integrated software system it purchased from NetSuite was installed late and never worked as

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promised.6 The basic allegations are as follows. In 2012, Grouse River began searching for an

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“integrated software system” that would help its retail operations grow.7 Grouse River read (and
later relied upon) false statements made in NetSuite’s advertising material about its capabilities to

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United States District Court
Northern District of California

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implement software solutions.8 Grouse River later relied on express statements that NetSuite made

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that it could deliver a software system that would have the capability to meet Grouse River’s

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requirements.9 The parties entered into a pair of written contracts in March 2014.10 The NetSuite

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system was not installed and operational by its original deadline of September 12, 2014.11 The

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system never met its promised capabilities.12
Grouse River eventually filed this lawsuit. NetSuite moved to dismiss the fraud claims, and the

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court dismissed them with leave to amend.13 The court found — among other things — that

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Id. at 41–45 (¶¶ 216–265).

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Mot. – ECF No. 76 at 2 (the challenged allegations are SAC ¶¶ 15, 17, 19, 21, 23, 25, 27, 29, 31, 33,
35, 37, 39, 41–51, 53, 55, 57, 63–65, 67, 68–71, 73, 75–86, 89–93, 102, 114, 124, 130, 135, 139 and
147).

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Orders – ECF No. 41, 54.

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SAC – ECF No. 43 at 2 (¶¶ 8 ̶ 9).

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Id. at 3–9 (¶¶ 15 ̶ 40).

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See id. at 3 (¶ 14), 9–17 (¶¶ 41 ̶ 92), 41 (¶¶ 219–21), 43 (¶¶ 231–35), 44–45 (¶¶ 241, 245, 248).

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See ECF No. 25-1 at 5–55. The parties’ relationship comprised a handful of agreements related to
the retail software system. After the initial contracts of March 2014, these seem to have consisted of
project extensions and refinements. See id. at 20–65.
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SAC – ECF No. 43 at 18 (¶ 100).

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SAC – ECF No. 43 at 28–33 (¶¶ 148–182).

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Order – ECF No. 41 at 12 ̶ 17.

AMENDED ORDER – No. 16-cv-02954-LB

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Grouse River had adequately pleaded justifiable reliance but had not pleaded fraud with sufficient

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particularity.14 Grouse River filed a second amended complaint with five claims: (1) fraudulent

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misrepresentation; (2) negligent misrepresentation; (3) fraud in the inducement; (4) violation of

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California’s Unfair Competition Law (Cal. Bus. & Profs. Code § 17200); and (5) breach of

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contract.15 NetSuite moved again to dismiss the fraud claims for failing to plead fraud sufficiently

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under Rule 9(b).16 The court denied the motion, primarily because the statements were at least

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identified particularly.17 Reading Rule 9(b)’s pleading requirement in harmony with Rule 8(a)’s

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requirement of a “short and plain” statement of the facts, the court’s view was that the lawsuit

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survived the pleadings stage.18
NetSuite now moves to strike some of the allegations.19 The court held a hearing on December

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United States District Court
Northern District of California

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14, 2017.20

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GOVERNING LAW

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“After the pleadings are closed—but early enough not to delay trial—a party may move for

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judgment on the pleadings.” Fed. R. Civ. P. 12(c). “[T]he same standard of review applicable to a

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Rule 12(b) motion applies to its Rule 12(c) analog,” because the motions are “functionally

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identical.” Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). A Rule 12(c)

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motion may thus be predicated on either (1) the lack of a cognizable legal theory or (2) insufficient

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facts to support a cognizable legal claim. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696,

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699 (9th Cir. 1990). When considering a motion to dismiss under Rule 12(c), the court “must

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accept all factual allegations in the complaint as true and construe them in the light most favorable

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to the non-moving party.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). “A judgment on

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Id.

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See generally SAC – ECF No. 43.

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Motion – ECF No. 46.

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Order – ECF No. 54 at 4–5.

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Id.

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Motion – ECF No. 76.

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Minute Order – ECF No. 82.

AMENDED ORDER – No. 16-cv-02954-LB

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the pleadings is proper if, taking all of [plaintiff]’s allegations in its pleadings as true, [defendant]

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is entitled to judgment as a matter of law.” Compton Unified Sch. Dist. v. Addison, 598 F.3d 1181,

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1185 (9th Cir. 2010).
ANALYSIS

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The motion is procedurally appropriate and valid at least in part. A chart with the court’s

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conclusions about each challenged statement is set forth at the end of the order.

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1. The Rule 12(c) Motion Is Procedurally Appropriate
Grouse River argues that the court should deny NetSuite’s motion for judgment on the

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pleadings because “it is nothing more than a disguised motion to have the Court rehear NetSuite’s

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United States District Court
Northern District of California

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prior Rule 12(b)(6) motion the Court carefully considered, and carefully denied. . .”21 The precise

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argument — whether the statements in the complaint are not fraud because they are mere puffery

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— was not raised in the earlier motions or addressed in the court’s two prior orders.

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As the court said at the hearing, its prior order denying the motion to dismiss was aimed at

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moving the case forward through discovery. Moreover, there are so many allegations that might or

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might not — depending on context — sound in fraud that the court essentially kicked the fraud

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can down the road. The court anticipated that the defense was better raised later22 and (perhaps

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naively) thought that the parties might resolve their contract dispute with some discovery.
In any event, it was not the court’s intent to foreclose the issue. It is procedurally appropriate.

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Fed. R. Civ. P. 12(h)(2); In re Apple iPhone Antitrust Litig., 846 F.3d 314, 320 (9th Cir.) cert.

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docketed, 2017 WL 3393652 (Aug. 8, 2017).

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2. Statements That Are Actionable Fraud

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Under California law, the elements of fraud and deceit are: (1) misrepresentation; (2)

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knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damages.

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Opp. – ECF No. 77 at 1.

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Order – ECF No. 54 at 5.

AMENDED ORDER – No. 16-cv-02954-LB

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Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). “The same elements comprise a cause of

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action for negligent misrepresentation, except there is no requirement of intent to induce reliance.”

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Cadlo v. Owens-Illinois, Inc., 125 Cal. App. 4th 513, 519 (2004). “In both causes of action, the

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plaintiff must plead that he or she actually relied on the misrepresentation.” Id.
NetSuite argues that certain allegations in the Second Amended Complaint (“SAC”) are not

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fraud because they are either (1) “mere puffery,” (2) statements about future events; or (3) not

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alleged to be false.

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2.1 Statements That Are “Mere Puffery”

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NetSuite argues that the advertisements and communications described in the second amended
complaint are “mere puffery.”23 Some are “mere puffery,” but others are actionable because they

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United States District Court
Northern District of California

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refer to specific aspects of NetSuite’s product and services.

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Statements constituting mere “puffery” cannot support liability under a claim for fraud or

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negligent misrepresentation. Glen Holly Entm’t, Inc. v. Tektronix, Inc., 100 F. Supp. 2d 1086,

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1093 (C.D. Cal. 1999). “Puffery” has been described “as making generalized or exaggerated

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statements such that a reasonable consumer would not interpret the statement as a factual claim

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upon which he or she could rely.” In re All Terrain Vehicle Litig., 771 F. Supp. 1057, 1061 (C.D.

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Cal. 1991) (citing Cook, Perkiss & Liehe, Inc. v. Nor. Cal. Collection Serv., 911 F.2d 242, 246

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(9th Cir. 1990)). “[U]ltimately, the difference between a statement of fact and mere puffery rests

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in the specificity or generality of the claim.” Newcal Indus., Inc. v. Ikon Office Sols., 513 F.3d

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1038, 1053 (9th Cir. 2008). “[A]dvertising which merely states in general terms that one product

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is superior is not actionable.” Cook, Perkiss & Liehe, 911 F.2d at 246 (quoting Smith–Victor Corp.

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v. Sylvania Elec. Prods., Inc., 242 F. Supp. 302, 308 (N.D. Ill.1965)). “However, misdescriptions

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of specific or absolute characteristics of a product are actionable.” Id. (quoting Stiffel Co. v.

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Westwood Lighting Grp., 658 F. Supp. 1103, 1115 (D. N.J. 1987)). Whether an alleged

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misrepresentation is a non-actionable statement of puffery is a question of law. Id.

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The challenged allegations are SAC ¶¶ 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35, 37, 39, 41–51, 53,
55, 57, 63–65, 67–71, 73, 75–86, 89–93, 102, 114, 115, 124, 130, 135, 139, and 147.

AMENDED ORDER – No. 16-cv-02954-LB

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The following advertisements and communications are not actionable because they are

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general, exaggerated assertions about characteristics of NetSuite’s product: SAC ¶¶ 15, 21, 27, 31,

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33, 63, 64, 67, 69, 70, 71, 75, 83, 85, 86, 89, 90. Examples of these statements include:

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“Every company wants to deliver the commerce experience that Apple delivers to
customers—an experience that recognizes the customer regardless of channel or
device, and efficiently delivers goods and services in world-class fashion, projecting
a powerful brand message. NetSuite SuiteCommerce is architected to enable
companies of all sizes to deliver this type of rich, touch-point agnostic experience to
their customers.” (¶ 15)

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“As the No. 1 cloud business management suite, NetSuite meets the in-store retailing
needs of multi-channel and multi-location retailers with a modern POS solution that
enables retailers to streamline and accelerate the transaction process, while also
delivering personalized customer service…” (¶ 29)

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“NetSuite further represented at the meeting that the SuiteCommerce software could
and would provide Grouse River with an Ecommerce solution that makes is “fast &
easy to find products”, and allow Grouse River’s customers to shop efficiently
through any touchpoint including social media and mobile devices.” (¶ 71)

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United States District Court
Northern District of California

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A reasonable consumer would not interpret these statements as a factual claim upon which he or
she could rely. To the extent that Grouse River brings claims for fraud and misrepresentation
based on these paragraphs, the court dismisses the claims.
The remaining advertisements (SAC ¶¶ 17, 19, 23, 25, 31, 35, 37) and communications (SAC
¶¶ 53, 55, 57, 65, 68, 73, 76, 77, 78, 79–82) are actionable because they make specific assertions
about how NetSuite’s product functions. They all state absolute characteristics of the product, such
as (1) the ability to see customer “purchase history and communications with your company and
whether they interacted with your brand online, at a brick-and-mortar store location or with a sales
representative,” and (2) the ability for shoppers to “create and manage lists of favorite or
frequently purchased items.” These specific statements are distinguishable from generalized
“puffery” about the superiority of a product.
In addition, NetSuite’s representation that it could deliver a software system that would have
the capability to meet Grouse River’s requirements is not puffery. Grouse River provided NetSuite
with a specific list of requirements. NetSuite said it could meet those requirements. In a different
context, a statement that a product could meet a customer’s needs might be generalized “puffery.”
But in the case here, given that Grouse River asked if NetSuite could meet specific requirements,
AMENDED ORDER – No. 16-cv-02954-LB

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it was plausibly reasonable for Grouse River to rely on the representation that NetSuite would

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deliver a product that met those specifications. NetSuite’s representation that it could meet the

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requirements outlined by Grouse River therefore is not mere “puffery.”

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2.2 Statements About Future Events

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NetSuite contends that the allegations in SAC ¶ 84 regarding NetSuite’s communications with

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Grouse River are non-actionable because they were statements about future events. Grouse River

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alleges that NetSuite falsely and fraudulently “committed to have a four month implementation

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cycle, a top tier team of consultants on the project, 30 minute status calls every two weeks, had the

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clout to get things done and intended to keep the project on track.”24 The court agrees with

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NetSuite that the statements are not actionable fraud.
Statements that are predictions of future events or commitments to take some action in the

United States District Court
Northern District of California

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future generally are not actionable fraud. Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App.

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4th 153, 158 (1991). “Certain broken promises of future conduct may, however, be actionable.” Id.

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“To maintain an action for deceit based on a false promise, one must specifically allege and prove

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. . . that the promisor did not intend to perform at the time he or she made the promise and that it

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was intended to deceive or induce the promise to do or not do a particular thing.” Id. at 159.
There are no allegations in the complaint that NetSuite did not intend to carry out a four-month

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implementation cycle or provide other follow-up to keep the project on track. The statements in

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SAC ¶ 84 are not actionable fraud. For this paragraph only, Grouse River may amend to cure this

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deficiency if it can.

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2.3 Statements Not Alleged To Be False

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NetSuite contends that “throughout the SAC, Grouse River often suggests that various

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statements may form the basis of fraud claims without actually pleading them as such.”25 More

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succinctly, the argument is that the SAC does not allege that these statements are false. The

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complaint, however, is very clear about what statements it alleges to be false and fraudulent, as it

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Motion – ECF No. 76 at 11 (quoting SAC – ECF No. 43 at 16 (¶ 84), 19 (¶ 91)).

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Id. at 10 n. 4.

AMENDED ORDER – No. 16-cv-02954-LB

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