Lindstrom & McKenney, Inc. v. NetSuite, Inc.

Filing 27

MEMORANDUM AND ORDER; IT IS HEREBY ORDERED that the motion of defendant NetSuite, Inc. to dismiss for failure to state a claim (Doc. 9 ) is denied. Signed by Magistrate Judge David D. Noce on 11/05/2009. (DJO)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION LINDSTROM & McKENNEY, INC., Plaintiff, v. NETSUITE, INC., Defendant. ) ) ) ) ) ) ) ) )

No. 4:09 CV 1169 DDN

MEMORANDUM AND ORDER This action is before the court on the motion of NetSuite, Inc. to dismiss for failure to state a claim. undersigned § 636(c). United States Magistrate Judge pursuant defendant The (Doc. 9.) to 28

parties have consented to the exercise of plenary authority by the U.S.C. (Doc. 15.) I. On January 23, 2009, BACKGROUND plaintiff Lindstrom & McKenney, Inc.

(Lindstrom) commenced this action against NetSuite, Inc. in the Circuit Court of St. Louis County. (Doc. 1, Ex. B at 12-17.) According to the complaint, Lindstrom and NetSuite entered into an agreement, by which Lindstrom agreed to purchase NetSuite's software and services for one year, for $125,000. (Id. at ¶ 4.) Lindstrom alleges that NetSuite Lindstrom further alleges (Id. at ¶¶ 13-14.) (Id. at ¶ 15.) represented that it would perform various "Front Office Functions," and "Back Office Functions." (Id. at ¶¶ 6-12.) that NetSuite agreed to provide "Dashboards," "Configuration," "Data Migration," and an "E-Bay Integration Module." According to the complaint, NetSuite has failed to perform any of these functions or services, in breach of the agreement. the agreement. (Id. at 14-16.) enrichment. (Id. at ¶ 18.) In Count II, Lindstrom asserts a claim for unjust Li n d s t r o m alleges it has paid NetSuite about $100,000, as required by In Count I, Lindstrom asserts a claim for breach of contract. (Id. at 16-17.)

On July 24, 2009, NetSuite removed the case to this court, invoking diversity of citizenship subject matter jurisdiction under 28 U.S.C. § 1332(a) and 28 U.S.C. § 1441(a). II. (Doc. 1 at ¶ 6.)

MOTION TO DISMISS

NetSuite moves to dismiss both counts of the complaint. (Doc. 10.) First, NetSuite argues that, under the contract, it never agreed to provide the functions and services at issue. material. (Docs. 10, 17.) Second, NetSuite argues that Lindstrom has failed to allege that the purported breaches were In response, Lindstrom argues that the (Doc. 16.) alleged problems are related to functions and services that NetSuite agreed to provide under the agreement. III.

MOTION TO DISMISS STANDARD A motion

T h e defendants move to dismiss the case for failure to state a claim upon which relief can be granted under Rule 12(b)(6). complaint. to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the Leatherman v. Tarrant County Narcotics Intelligence & In 2007, the Supreme Bell Coordination Unit, 507 U.S. 163, 164 (1993); Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055, 1059 (8th Cir. 2003). Court issued a new standard for evaluating motions to dismiss.

Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) (overruling the "no set of facts" standard set forth in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Despite overruling the Conley standard, the Supreme Court Bell cautioned that it had not created a heightened pleading standard. Atlantic, 550 U.S. at 569 n.14, 570. Under Bell Atlantic, a complaint must include enough facts to state a claim for relief that is plausible on its face. dismiss the complaint. Id. Id. at 570. If the c laims are merely conceivable - but not plausible - the court must To meet the plausibility standard, the Id. at 555. complaint must contain "more than labels and conclusions."

A complaint does not, however, need specific facts; a complaint only needs to "give the defendant fair notice of what the claim is and the grounds upon which it rests." Ct. Erickson v. Pardus, 551 U.S. 89, 127 S. The Federal Rules of Civil 2197, 2200 (2007) (per curiam). -2-

Procedure demand only that a complaint present a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Atlantic, 550 U.S. at 555. A complaint must be liberally construed in the light most favorable to the plaintiff. See id. Moreover, a court must accept the facts Thus, a well-pled complaint may Id. alleged as true, even if doubtful. Id. That said, the allegations must still be Bell enough to "raise a right to relief above the speculative level."

proceed even if it appears the recovery is very remote or unlikely. short of being plausible. Id. at 569 n.14, 570. IV. Count I: Breach of Contract DISCUSSION

To warrant dismissal, the plaintiff's entitlement to relief must fall

T o recover for breach of contract, Lindstrom must prove: (1) a valid contract existed between the parties, (2) it performed the Wall Street Network, contract or had an excuse for nonperformance, (3) NetSuite breached the contract, and (4) it suffered damages as a result. Ltd. v. New York Times Co., 80 Cal. Rptr. 3d 6, 12 (Cal. Ct. App. 2008). In this case, NetSuite argues that Lindstrom cannot state a claim for breach of the contract terms, because it never agreed to provide the functions and services at issue. The question, therefore, is what promises NetSuite made on its side of the contract. Contract Interpretation The basic goal of contract interpretation is to give effect to the mutual intent of the parties at the time of contracting. Inc., 135 Cal. Rptr. 2d 505, 513 (Cal. Ct. App. 2003). has been reduced to writing, that writing Id. defines intentions, to the extent possible. Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, If the contract the parties'

When a court interprets a Id.; S. Pac.

contract, the words of the agreement are given their ordinary and popular sense, unless the parties intended otherwise. (Cal. Ct. App. 1999). Transp. Co. v. Santa Fe Pac. Pipelines, Inc., 88 Cal. Rptr. 2d 777, 783 "[R]eliance on the common understanding of -3-

language is bedrock [law]."

Velazquez v. GMAC Mortgage Corp., 605 F.

Supp. 2d 1049, 1069 (C.D. Cal. 2008). The language of a contract must also be interpreted as a whole, and according to the circumstances of the case; it cannot be found ambiguous in the abstract. if none exist. ASP Props. Group v. Fard, Inc., 35 Cal. Rptr. 3d 343, Courts may not strain to create ambiguities Velazquez, 605 S. Pac. A contract provision is ambiguous if the provision If a contract provision is either patently or Extrinsic evidence is admissible Id. To that end, the court 351 (Cal. Ct. App. 2005). Id.

is capable of two or more reasonable interpretations. F. Supp. 2d at 1069.

latent l y ambiguous, the court can admit extrinsic evidence. Transp. Co., 88 Cal. Rptr. 2d at 783.

whenever it is "relevant to prove a meaning to which the language of the instrument is reasonably susceptible." the parties' intent. In this case, should not grant a motion to dismiss if the contract leaves doubt as to Velazquez, 605 F. Supp. 2d at 1069. NetSuite and Lindstrom signed the NetSuite (Doc. 12

Subscription Services Agreement (agreement) on May 31, 2008. under seal at 7.) The agreement provides, in relevant part,

4.2. Fees and Payment. Customer shall pay a total fee of $125,000.00 for the licenses and services listed on the attached Estimate No(s). 89864 (Exhibit A), which is hereby f u l l y incorporated herein by reference. In the event that NetSuite provides certain professional services to customer, such professional services fees shall be included in the Estimate and shall be more fully described in the attached Statement of Work (Exhibit B), which, if applicable, is hereby fully incorporated herein by reference. (Id. at 1.) The agreement also contains an integration clause, stating

that the agreement and its exhibits and/or attachments represents the entire agreement, and are intended to be the final expression of the agreement. (Id. at 6.) Finally, the agreement states that the law of (Id.) California and any controlling federal law governs the contract. a ttached to the agreement. Deployment." (Id. at 10-37.)

Estimate No. 89864 and the Statement of Work (SOW) were each The estimate and the SOW each discuss, respectively, "eBay Integration," and "eBay Setup & (Id. at 10, 21.) The estimate states, in relevant part,

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Item eBay Integratio n Module

Qty 1

Description eBay Integration for up to 1,500 Transactions (sales orders) per month. **Allows export of items from NetSuite into eBay **Allows real time imports of sales transactions from eBay into NetSuite **Transaction volume is monthly, based on annual usage

Term Mos 12

Amount 8,388.00

(Id. at 10.) The SOW states, in relevant part, This Statement of Work ("SOW") describes the services to be performed by NetSuite Inc. ("NetSuite") for the Customer ("Customer") (collectively "Parties") pursuant to the NetSuite License Agreement or Subscription Services Agreement (the "Agreement") executed between the Parties. Once executed by the Parties, this SOW shall be incorporated by r e ference into the Agreement. In the event of any inconsistency or conflict between the terms and conditions of this SOW and the Agreement with respect to the subject matter of this SOW, the terms and conditions of this SOW shall govern. ... 1.5 NetCommerce

The following options have been selected for the source of the NetCommerce online content, the source of the online catalog, and the shopping cart approach: Online Content · NetSuite Generated Online Catalog · NetSuite Generated Shopping Cart · NetSuite Generated

T h e following options will be implemented for additional NetCommerce capabilities: Functionalities eBay Setup & Deployment Description · · · Setup Token and Global Settings Setup Item Information Settings (for listing on eBay Store) Setup Item Listings/Import Sales Orders -5-

(Id. at 14, 20-21.) In the complaint, Lindstrom alleges that NetSuite breached the agreement by failing to provide a number of services related to the eBay service provisions. (Doc. 1, Ex. B at ¶ 15.) In particular, Lindstrom alleges that it was unable to: (1) use multiple eBay Seller accounts; (2) manage its inventory in NetSuite because there was no way to autogenerate the next available item number; (3) use multiple eBay templates; (4) obtain support for eBay categories/item specifics; (5) manage images on its external FTP server; (6) track the fees charged per item on eBay; (7) automatically notify winning bidders on eBay; and (8) automatically notify past due auction winners. (Id. at ¶ 15(a),(b),(e)(j).) Lindstrom further alleges that NetSuite represented that its (Id.) eBay EBay is a popular website that allows private sellers to list goods they wish to sell, either at a fixed price or through an auction. Inc. v. MercExchange, L.L.C., 547 U.S. 388, 390 (2006). template. A seller services would perform these functions.

advertises the item on the eBay interface by using the website's Action Tapes, Inc. v. Weaver, No. Civ. 3:05-CV-1693-H, 2005 Buyers purchase or bid Id. To complete the sale, eBay WL 3199706, at *2 n.2 (N.D. Tex. Nov. 23, 2005). on the item through the eBay interface. and shipping. Id.

puts the seller in touch with the buyer, so they can arrange for payment A seller may upload images of the item for sale to See Bose Corp. v. Silonsonnic Corp., 413 F. Supp. According to the complaint, Lindstrom is the eBay interface.

2d 339, 346 (S.D.N.Y. 2006). unwanted valuables.

a company that helps people and institutions market or dispose of (Doc. 1, Ex. B at ¶ 1.) However, The services described in ¶ 15(a),(b),(e)-(j) are not explicitly included or excluded by any provision of the agreement. looking to the terms of the estimate and the SOW, it is entirely plausible that a contract that promised to set up eBay "Item Listings" and eBay "Item Information Settings," and to accommodate up to 1,500 eBay sales transactions a month, would naturally include these services. The allegations in ¶ 15(a),(b),(e)-(j) survive the motion to dismiss. See Velazquez, 605 F. Supp. 2d at 1069 ("[A] motion to dismiss should

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n ot be granted where the contract leaves doubt as to the parties intent."). The SOW also discussed "Back Office Functions." seal at 16-17.) 1.2 The SOW states, in relevant part, (Doc. 12 under

Back Office Functions Description · Accounts Receivable · Invoicing · Payments: Credit Card, EFT, PayPal · Customer Credits Accounts Payable · Bills · Checks: Online Bill Pay, ACH Payments · Vendor Credits Item record setup, configuration, and management · Item pricing setup and configuration · Price schedules, levels & quantity pricing Assemblies and Kits Multi-location Inventory Review existing NetSuite Item/Inventory reports P u rchase Order record setup, configuration, and management Purchasing/Vendor management Revie w existing NetSuite Purchasing reports Vendor Center

Functionalities Accounting

·

Item Management

·

· · · Purchasing · · · · (Id.)

In the complaint, Lindstrom also alleges that NetSuite breached the agreement by failing to provide services that would allow it to: (1) manage its inventory in NetSuite because there was no way to autogenerate the next available item number; and (2) control the access of customer vendor records and regular vendor records. at ¶ 15(b),(c).) that its services would perform these functions. or excluded by any provision of the agreement. (Id.) (Doc. 1, Ex. B Lindstrom further alleges that NetSuite represented

The services described in ¶ 15(b),(c) are not explicitly included However, looking to the

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terms of the SOW, it is entirely plausible that a contract that promised "Item record setup, configuration, and management," "Purchase Order record setup," "Purchasing/Vendor management," and a "Vendor Center," would naturally include these services. The allegations in ¶ 15(b), (c) survive the motion to dismiss. See Velazquez, 605 F. Supp. 2d at 1069. The motion to dismiss Count The agreement does not clearly and unambiguously exclude the functions and services described in ¶ 15. I is denied in its entirety. See Rogers v. Prudential Ins. Co., 267

Cal. Rptr. 499, 502 (Cal. Ct. App. 1990) ("[W]hen the terms of a contract are ambiguous or uncertain, it is the duty of the trial court to construe it after the parties are given a full opportunity to produce evidence of the facts, circumstances and conditions surrounding its executi o n as well as the conduct of the parties to the contract. . . ."). Material Breach NetSuite argues that Lindstrom failed to allege that the breaches were material. Any failure to comply with the terms of a contract constitutes a breach of the contract. Superior Motels, Inc. v. Rinn Motor Hotels, However, not every Id. There is no Id. Id. To terminate a contract, Inc., 241 Cal. Rptr. 487, 495 (Cal. Ct. App. 1987). breach justifies terminating a contract. a breach must be material, substantial, or total.

bright line that divides a material breach from a trivial one.

Accordingly, "whether a breach is so material as to constitute cause for the injured party to terminate a contract is ordinarily a question for the trier of fact." Id. at 496. The fact that the Accepting the allegations in the complaint as true, a jury could plausibly find the purported breaches were material. is not fatal to the complaint. Count II: Unjust Enrichment To recover for unjust enrichment, Lindstrom must prove that NetSuite received a benefit, and unjustly retained that benefit at -8complaint does not specifically allege that the breaches were material

Lindstrom's expense.

Peterson v. Cellco P'ship, 80 Cal. Rptr. 3d 316, In the complaint, Lindstrom alleges it paid (Doc. 1, Ex. B at ¶ 18-19.) Accepting these

323 (Cal. Ct. App. 2008). promised by the agreement.

NetSuite over $100,000, yet failed to receive the products and services allegations as true, Lindstrom has stated a claim for unjust enrichment. V. CONCLUSION

For the reasons stated above, IT IS HEREBY ORDERED that the motion of defendant NetSuite, Inc. to dismiss for failure to state a claim (Doc. 9) is denied.

/S/ David D. Noce UNITED STATES MAGISTRATE JUDGE

Signed on November 5, 2009.

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