RentPath, Inc. et al v. CarDATA Consultants Inc.
Filing
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ORDER granting in part and denying in part Defendant CarDATA Consultants, Inc.'s 3 Motion to Dismiss. It is GRANTED as to any breach of contract claim arising from representations made before the expiration of the written contracts on 7/31/2010, and it is DENIED as to all other claims. Signed by Judge Richard W. Story on 2/9/2015. (cem)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
RENTPATH, INC. and
CONSUMER SOURCE
HOLDINGS, INC.,
Plaintiffs,
v.
CARDATA CONSULTANTS,
INC.,
Defendant.
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CIVIL ACTION NO.
1:14-CV-01241-RWS
ORDER
This case comes before the Court on Defendant CarDATA Consultants,
Inc.’s Motion to Dismiss [3]. After reviewing the record, the Court enters the
following Order.
Background
This contract dispute arises out of Defendant CarDATA Consultants,
Inc.’s (“CarDATA”) alleged failure to properly advise Plaintiffs of California
law’s requirements related to reimbursing employees for business use of
personally owned vehicles. Plaintiff RentPath, Inc. (“RentPath”) operates an
online business that helps consumers locate apartments available for rent
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nationwide. (Compl., Dtk. [1-1] ¶ 1.) Plaintiff Consumer Source Holdings, Inc.
(“CSHI”), a wholly owned subsidiary of RenthPath with over three hundred
employees, operates RentPath’s largest apartment-locating website. (Id.)
In February 2007, John Domsy, an agent of Defendant CarDATA,
approached CSHI and offered to conduct an analysis of CSHI’s policy for
reimbursing its employees for business use of personally owned vehicles, which
Domsy represented was CarDATA’s area of expertise. (Id. ¶ 7.) In an initial
March 21, 2007 meeting, “Domsy claimed that CarDATA had unique expertise
and knowledge in advising corporate clients on vehicle business expense
reimbursement programs and in devising and administering legally-compliant
programs using CarDATA’s proprietary databases to develop market-specific
reimbursement programs.” (Id. ¶ 8.) Plaintiffs questioned CarDATA about
Plaintiffs’ risk and liabilty exposure and how CarDATA proposed to manage
regional and market variations in costs. (Id.) Plaintiffs then engaged CarDATA
to conduct a “Study & Analysis” of Plaintiffs’ policies related to reimbursing
employees for business use of their vehicles and to come up with “fair car
allowance payments . . . for each market.” (Id. ¶ 9.)
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On June 21, 2007, Domsy reported CarDATA’s findings to Plaintiffs,
which showed that CSHI could provide its employees with a tax-free
reimbursement plan. (Id. ¶ 10.) When Plaintiffs again questioned CarDATA
about risks and how CarDATA managed regional and market differences in
establishing it expense reimbursement plan, Domsy again claimed expertise in
reimbursement policies and assured Plaintiffs that its program was “legally
sufficient.” (Id.)
At this meeting, however, CarDATA failed to advise Plaintiffs that the
reimbursement program did not satisfy California Labor Code § 2802, which
requires employers “to indemnify employees for all necessary expenditures
incurred in direct consequence of the discharge of employment duties,”
including expenses related to business use of personal vehicles, and states that
any payments to employees “must be sufficient to fully indemnify the employee
[for] actual expenses necessarily incurred.” (Id. ¶ 12.) Apparently, CarDATA
calculated lump-sum monthly payments that were not sufficient to indemnify
California employees for actual business expenses necessarily incurred in the
business use of personal vehicles. (Id. ¶ 13.)
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Nevertheless, Plaintiffs and CarDATA then agreed to a one-year contract
(“2007 Contract”) on July 31, 2007, under which CarDATA would convert
CSHI’s reimbursement policies to a non-taxable allowance. (Compl., Dtk. [1-1]
¶ 1; see 2007 Serv. Agreement, Dkt. [3-2].) Under the 2007 Contract, CSHI’s
employees would enter their mileage online with CarDATA, and CarDATA
would issue payment to the employees. (2007 Serv. Agreement, Dkt. [3-2]
Schedule A.) The contract contained a merger clause that stated that the written
agreement represented “the complete and exclusive statement of the contract
between CarDATA and Customer,” superseding any other agreements or
representations. (2007 Serv. Agrement, Dkt. [3-2] ¶ 20.) The clause also stated
that there could be no modification of terms “unless in writing and signed by
CarDATA and Customer.” (Id.)
On July 31, 2008, Plaintiffs and CarDATA agreed to a second contract
(“2008 Contract”), which appears to be similar to the 2007 Contract and
contains the same merger clause. (Compl., Dtk. [1-1] ¶ 15; see 2008 Serv.
Agreement, Dkt [3-3].) The 2008 Contract was set to expire on July 31, 2009,
subject to an automatic one-year renewal unless either party provided notice of
termination at least thirty days before the end of the one-year period. (Compl.,
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Dtk. [1-1] ¶ 17.) Apparently, neither party timely terminated the agreement,
and the contract renewed until July 31, 2010. (Id.) Plaintiffs allege, however,
that after July 31, 2010, “the parties continued a de facto or implied contractual
relationship,” with CarDATA providing its services in exchange for payment
until July 2013. (Id.)
Moreover, the parties met in 2010 to provide an annual assessment for
the previous year and to discuss any changes for the coming year. (Id.) Despite
its purported expertise, like at other meetings Defendant failed to advise
Plaintiffs that its expense reimbursement program did not satisfy California
Labor Code § 2802, placing Plaintiffs at risk of significant liabilities. (Id.)
On December 17, 2012, Juanita Garner, an employee of CSHI, filed a
class-action lawsuit in California against Plaintiffs. (Id. ¶ 19.) The lawsuit
claimed that CSHI’s reimbursement method did not properly and fully
reimburse its employees for travel expenses in accordance with California law.
Plaintiffs settled the lawsuit on October 10, 2013, incurring over $400,000 in
settlement and litigation costs. (Id. ¶¶ 19-21.)
Plaintiffs brought this action against Defendant CarDATA in Gwinnett
County Superior Court alleging breach of contract, promissory estoppel, and
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breach of the implied covenant of good faith and fair dealing. Defendant
removed the case to this Court pursuant to diversity jurisdiction. Defendant
now moves to dismiss all claims for failure to state a claim.
Discussion
I.
Motion to Dismiss Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a
“short and plain statement of the claim showing that the pleader is entitled to
relief.” While this pleading standard does not require “detailed factual
allegations,” mere labels and conclusions or “a formulaic recitation of the
elements of a cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In
order to withstand 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.’ ” Id. (quoting Twombly, 550 U.S. at 570). A complaint is plausible on
its face when the plaintiff pleads factual content necessary for the court to draw
the reasonable inference that the defendant is liable for the conduct alleged. Id.
“At the motion to dismiss stage, all well-pleaded facts are accepted as
true, and the reasonable inferences therefrom are construed in the light most
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favorable to the plaintiff.” Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273
n.1 (11th Cir. 1999). However, the same does not apply to legal conclusions set
forth in the complaint. See Iqbal, 556 U.S. at 678. “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. Furthermore, the court does not “accept as true a legal conclusion
couched as a factual allegation.” Twombly, 550 U.S. at 555.
II.
Analysis
Plaintiffs’ first claim is for breach of a duty owed by Defendant “to
ensure that the vehicle reimbursement program it arranged and managed for
RentPath conformed with the legal requirements of California law.” (Compl.,
Dkt. [1-1] ¶ 23.) Plaintiffs claim they relied on Defendant’s purported
expertise in the area of employee reimbursement and that, due to its expertise,
Defendant knew or should have known that the program violated California law
but did not advise Plaintiffs of this risk. (Id. ¶ 17.) This breach resulted in
insufficient reimbursements to its California employees, causing Plaintiffs to
incur over $400,000 in defense and settlement costs. (Id. ¶ 26.)
Defendant argues that the merger clauses in the 2007 and 2008 Contracts
bar Plaintiffs’ claims. Thus, even assuming Defendant verbally promised that
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its reimbursement program would comply with California law, Defendant states
that the merger clause defeats Plaintiffs’ claim. Furthermore, Defendant argues
that if the alleged breach did not occur during the original terms of the 2007 and
2008 Contracts, the merger clause still bars any representations made after July
31, 2010, when the renewed 2008 Contract expired, under a theory of implied
contract. (See Def.’s Br., Dkt. [3-1] at 16.) Because the parties continued
performance under the terms of the 2007 and 2008 Contracts, Defendant
contends that the parties intended to remain bound under those terms, including
the merger clause. (Id.)
Plaintiffs respond by arguing that they are not bound by the merger
clauses because their claim accrued after the expiration of the second service
contract on July 31, 2010. (See Pls.’ Resp., Dkt. [6] at 4-5.) Thus, they say
their breach of duty claim arises from an “at will” business relationship.1 (See
id. at 9.) Plaintiffs therefore argue that they state a claim, and that discovery is
required to reveal the precise terms of the continuing business relationship.
1
Because Plaintiffs do not contest that their claims are based only on events
after July 31, 2010, Defendant’s Motion to Dismiss [3] is GRANTED for any claim
based on representations regarding compliance with California law made during the
duration of the 2007 and 2008 Contracts.
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In its reply, Defendant challenges Plaintiffs’ argument that Defendant
owed them duties under a new implied contract. Defendant points out that
Plaintiffs allege in their Complaint that CarDATA made representations
“[i]ndependent of its contracts (written, de facto and implied) with CSHI, . . .
and in light of such representations, owed plaintiff a duty to ensure that the
vehicle reimbursement program it arranged and managed for RentPath
conformed with the legal requirements of California law.” (Compl., Dkt. [1-1]
¶ 23.) Interpreting that language, Defendant argues that Plaintiffs may not rely
on the alleged terms of any written or implied contract for their breach of duty
claim because they appear to allege that the duties are unrelated to any contract
at all.
The Court finds that Plaintiffs allege sufficient facts to show that a
contract existed after the expiration of the written service agreements. On the
other hand, Plaintiffs do appear to allege that the duty on which they relied
arose solely from an at-will relationship, not from any written, de facto, or
implied contracts. Nevertheless, the Court finds that Plaintiffs have pled
sufficient facts to put Defendant on notice that their claim is based on the
ongoing business relationship and representations made in 2010 after the
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expiration of the written contracts, whether those representations are construed
as creating an implied contract or some other duty. Under the liberal notice
pleading standards of Rule 8(a)(2), a complaint “need only ‘give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.’ ”
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). Here, construing all inferences in
Plaintiffs’ favor, Plaintiffs’ Complaint meets that standard.
Still, Defendant insists that if an implied contract existed, all the terms of
the written agreements became terms of the implied contract. Although the
2007 and 2008 Contracts contained merger clauses, at this stage the Court
cannot find as a matter of law that the subsequent contract incorporated these
provisions. See Astral Health & Beauty, Inc. v. Aloette of Mid-Miss., Inc., 895
F. Supp. 2d 1280, 1281 (N.D. Ga. 2012) (stating that “ ‘the fact that the parties
continue to deal under some sort of informal arrangement does not, without
more, mean that all the terms of the expired formal contract continue to apply’”
(quoting Town of Webster v. Village of Webster, 720 N.Y.S.2d 664 (App. Div.
2001))). Thus, “according to the allegations in the complaint, there was some
sort of contract between the parties, and the terms of that contract—based on
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the parties’ expectations and their course of dealing—are left for discovery to
reveal.” See id. at 1282.
Defendant also moves for dismissal of Plaintiffs’ promissory estoppel
claim. Plaintiffs allege that Defendant made promises and representations of
“legal sufficiency,” which Defendant reasonably expected would induce
reliance, and Plaintiffs in fact relied on those representations by reimbursing
their California employees in the amount Defendant calculated. (Compl., Dkt.
[1-1] ¶ 28.) Under Georgia law, “[a] promise which the promisor should
reasonably expect to induce action or forbearance on the part of the promisee or
a third person and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.” O.C.G.A. § 133-44(a). Thus, a party asserting a claim of promissory estoppel must show that
“(1) the promisor made certain promises; (2) the promisor should have expected
that the party would rely on the promises; and (3) the party relied on those
promises to its detriment.” F&W Agriservices, Inc. v. UAP/Ga. Ag. Chem.,
Inc., 549 S.E.2d 746, 749 (Ga. 2001).
Defendant argues that Plaintiffs failed to plead this claim in the
alternative to breach of contract. See, e.g., Am. Casual Dining, LP v. Moe’s
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Sw. Grill, LLC, 426 F. Supp. 2d 1356, 1371 (N.D. Ga. 2006) (noting that “a
party is generally permitted to plead both promissory estoppel and breach of
contract claims in the alternative”). However, upon reviewing the Complaint,
the Court finds that Plaintiffs appear to assert their promissory estoppel claim as
an alternative theory of liability. Defendant also argues that promissory
estoppel is not available when there is a contract. See Bank of Dade v. Reeves,
354 S.E.2d 131, 133 (Ga. 1987) (“These parties entered into a contract the
consideration of which was a mutual exchange of promises. The promises
exchanged were bargained for. Promissory estoppel is not present.”). Again,
however, Plaintiffs allege that there were representations made outside the
terms of a contract. In light of these allegations, whether the correct theory of
liability (if any at all) is breach of contract or promissory estoppel is a question
best left for discovery.
Finally, Plaintiffs bring a claim for breach of the implied duty of good
faith and fair dealing. But this implied covenant “cannot be breached apart
from the contract provisions it modifies and therefore cannot provide an
independent basis for liability.” Myung Sung Presbyterian Church, Inc. v. N.
Am. Ass’n of Slavic Churches & Ministries, 662 S.E.2d 745, 748 (Ga. Ct. App.
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2008). Thus, to state a claim for breach of the implied duty of good faith and
fair dealing, “a plaintiff must set forth facts showing a breach of an actual term
of an agreement.” Am. Casual Dining, 426 F. Supp. 2d at 1370 (citations
omitted). Given the Court’s findings above, the Court cannot make this
determination on a motion to dismiss, and so Plaintiffs’ claim for breach of the
implied duty of good faith and fair dealing is not subject to dismissal.
Conclusion
In accordance with the foregoing, Defendant CarDATA Consultants,
Inc.’s Motion to Dismiss [3] is GRANTED in part and DENIED in part. It is
GRANTED as to any breach of contract claim arising from representations
made before the expiration of the written contracts on July 31, 2010, and it is
DENIED as to all other claims.
SO ORDERED, this 9th
day of February, 2015.
_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE
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