CDK GLOBAL, LLC v. TULLEY AUTOMOTIVE GROUP, INC. et al

Filing 103

OPINION. Signed by Judge Kevin McNulty on 4/29/2016. (ld, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

CDK GLOBAL, LLC, as successor-in-

interest to ADP DEALER SERVICES,

Plaintiff,

Civ. No. 15-3 103 (KM) (JBC)

OPINION

V.

TULLEY AUTOMOTIVE GROUP, INC.
and JOHN DOE CORPORATIONS 15,
Defendants.

MCNULTY, U.S.D.J.:
This matter arises out of a contract for the lease of equipment
and
installation of computer software designed to facilitate the day-to
-day
operations of a car dealership, known as a dealer management
system (“DMS

”).

The plaintiff, CDK Global, LLC (“CDK”), as successor-in-inter
est to ADP Dealer
Services, Inc., is the provider of the DMS products. CDK brough
t this action
against defendant Tulley Automotive Group, Inc. (“Tulley”), an
automobile
dealership, seeking to recover damages for breach of the parties
’ contract. In
short, CDK alleges that Tulley terminated the agreement early,
triggering
various provisions in the agreement for acceleration of payme
nts owed and
return of the leased equipment. CDK’s complaint sounds in breach
of contract,
replevin and conversion, and it seeks contractual attorney’s fees.
Tulley has
counterclaimed against CDK. Tulley alleges, inter alia, that CDK
misrepresented the efficacy and suitability of the software, and
failed to
respond adequately to complaints about the software not workin
g as intende

d.

Tulley’s five counterclaims allege fraudulent inducement, resciss
ion, breach of

contract, violation of the New Jersey Consumer Fraud Act,

§

56:8-1 et seq., and

unjust enrichment.
Now before the Court are the following motions: (1) CDK’s motion to
dismiss Tulley’s Amended Counterclaims for failure to state a claim pursuant
to Fed. R. Civ. P. 12(b)(6) (Dkt. No. 27) and (2) CDK’s appeal of Magistrate
Judge James B. Clark’s March 3, 2016 Order (Dkt. No. 75) denying CDK’s
application to quash 21 non-party subpoenas (Dkt. No. 86). For the reasons set
forth below, the motion to dismiss will be for the most part denied, but granted
as to Counterclaim Count II (rescission). The appeal of Magistrate Judge
Clark’s Order will be denied; I endorse Judge Clark’s sound and practical
approach and affirm his Order.
BACKGROUND
CDK is an Illinois company which provides technology solutions for the
automotive retail industry. (Amended Answer and Counterclaims, Dkt. No. 22
(“AC”)

¶

16) CDK services over 26,500 auto, truck, motorcycle, marine,

recreational vehicle, and heavy equipment dealers around the world. Tulley is
an automobile dealership with three locations in Manchester and Nashua, New
Hampshire. (Id.

¶

13)

CDK develops and sells dealer management systems (“DMS”).’ Those are
computer systems, including hardware and software, designed to help organize
and manage the functional operations of automobile and large equipment
dealerships. (AC

¶J

7, 8) DMS systems are used to manage payroll, inventory,

accounting, and other daily functions of dealerships. (Id.

¶J

8, 10) CDK sells its

DMS systems to automobile dealerships, repair facilities, and original
equipment manufacturers across multiple industries, including agriculture,
construction, marine, powersports, and recreational vehicles. (Id.

¶J

20, 25)

In December 2011, CDK approached ‘Pulley about a potential sale of
DMS products. (Id.

¶

28) At the time, Tulley was using a DMS from a

competitor, Arkona, Inc., along with supportive systems from DealerSocket and
Although the term “DMS systems” seems redundant, the parties employ it, and
I will as well.
1

2

FirstLook. (Id.
the price. (Id.

¶ 29) The initial approach failed:
¶ 30) CDK, through Jeff Evans, a

the parties could not agree on
Competitive Account Specialist,

and Patti Krueger, a Solution Consultant, approached Tulley again in April
2013. (Id. ¶f 31, 32) At a meeting held on May 1, 2013, CDK represented to
Tulley that its DMS products could handle all of the functions currently being
provided by Arkona, DealerSocket and FirstLook. (Id.

¶

35) CDK told Tulley

that its DMS would promote efficiency by reducing the number of steps a given
process would take, reduce complexity, and generally save Tulley time and
money. (Id.

34) With respect to payroll functions, CDK told Tulley that its
DMS system would be able to integrate with Tulley’s existing setup. (Id. 38)
¶
CDK also assured Tulley that information and data currently stored on the

¶

Arkona DMS could be transferred to CDK’s DMS. (Id.

¶

39) Tulley relied on

CDK’s expertise in selecting the appropriate system for its multi-dealer
business. (Id. ¶ 45)
Tulley executed a Master Services Agreement (“MSA”) on June 26, 2013;
CDK signed the MSA on August 9, 2013. (Id. ¶ 44) Under the terms of the MSA,
CDK was obligated to deliver equipment “in good working order” and furnish
software and services which would “conform to their respective functional and
technical specifications.” (Id.

¶J

47, 48) Tulley paid CDK $5,190.00 on

executing the MSA, and thereafter made required periodic payments until May
2015. (Id. ¶J 49, 50)
In December 2013, CDK delivered the equipment and installed the DMS
software. (Id. ¶J 51) Tulley alleges that it immediately began having problems
with the new DMS system. (Id.) For instance, certain data and information had
been downloaded incorrectly or not at all, and the new system did not integrate
with the prior systems. (Id.

¶flJ

52, 53) Accordingly, Tulley employees had to

manually input information into the systems, resulting in longer hours rather
than an increase in efficiency. (Id. ¶J 53-55) Additionally, the system would fail
to input the correct deal details and would mix details of different deals
together. (Id. ¶ 56) Employees were forced to spend additional time inputting

3

data or filling out forms. (Id.) Moreover, Tulley, as a multi-dealership operation,
required a DMS that could accommodate its three dealerships (a so-called
“three-roof’ system). (Id.

¶

57) However, Tulley alleges that CDK sold Tulley a

“one-roof’ system which was unable to meet the demands of Tulley’s three
dealership operation. (Id.)
As a result of these problems, Tulley alleges, it has suffered a drop in
customer satisfaction and employee morale. (Id.

¶

58) Pulley’s score on the

Customer Satisfaction Index fell in the first three months of 2014 and Tulley
lost an Excellent rating from BMW. (Id.

¶

76) Some employees quit due to the

stress the new system caused and Pulley had to hire additional employees to
handle the slower processes. (Id.

¶J

56, 58, 76) An expert hired by Tulley to

assess the CDK DMS system found that Pulley had suffered over $2.8 million
in losses in the first half of 2014. (Id.

¶

74)

Tulley alleges that it alerted CDK to the issues, but that CDK failed to
correct the deficiencies. (Id.

¶

61) Therefore, in April 2015, Pulley confirmed in

writing its intent to terminate the MSA.
CDK filed this action on May 1, 2015. (Dkt. No. 1) On June 25, 2015,
Pulley answered the complaint and asserted counterclaims against CDK. (Dkt.
No. 16) CDK moved to dismiss the counterclaims on July 16, 2015, but that
motion was mooted by Pulley’s filing of an Amended Answer and Counterclaims
on August 10, 2015. (Dkt. Nos. 20, 22) CDK filed the current motion to dismiss
the Amended Counterclaism on September 8, 2015. (Dkt. No. 27) Pulley filed
an opposition on October 20, 2015, and CDK replied on November 30, 2015.
(Dkt. Nos. 41, 50)
Discovery commenced in September 2015. (Dkt. No. 29) Pulley served
subpoenas on 21 non-party automobile manufacturers, seeking the production
of documents relating to problems encountered and complaints made by other
CDK DMS customers. By letter dated January 12, 2016, CDK moved to quash
the 21 subpoenas. (Dkt. No. 66) A telephone conference was held before
Magistrate Judge Clark on February 1, 2016. (Dkt. No. 72) Magistrate Judge

4

Clark denied CDK’s motion to quash by letter order dated March 3, 2016 (the
“Order”). (Dkt. No. 75) On March 21, 2016, CDK filed an appeal of that Order.
(Dkt. No. 86)
I.

MOTION TO DISMISS TULLEY’S COUNTERCLAIMS
Tulley has asserted amended counterclaims sounding in fraudulent

inducement, violation of the NJCFA, rescission, breach of contract, and unjust
enrichment. CDK has moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss all
of the counts for failure to state a claim.
Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in
part, if it fails to state a claim upon which relief can be granted. The defendant,
as the moving party, bears the burden of showing that no claim has been
stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a
Rule 12(b)(6) motion, a court must take the allegations of the complaint as true
and draw reasonable inferences in the light most favorable to the plaintiff.
Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (traditional
“reasonable inferences” principle not undermined by Twombly, see infra).
Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the
complaint’s factual allegations must be sufficient to raise a plaintiff’s right to
relief above a speculative level, so that a claim is “plausible on its face.” Id. at
570; see also Umland v. PLANCO Fin. Seru., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
That facial—plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard
is not akin to a ‘probability requirement’.
possibility.” Iqbal, 556 U.S. at 678.

5

.

.

it asks for more than a sheer

A. Fraudulent Inducement (Count I)
Under New Jersey law, a fraudulent inducement claim comprises five
elements: (1) a material representation of a presently existing or past fact; (2)
made with knowledge of its falsity; (3) with the intention that the other party
rely thereon; (4) resulting in reliance by that party; (5) to his detriment. Metex
Mfg. Corp. v. Manson, 2008 WL 877870, at *4 (D.N.J. Mar. 28, 2008) (citing
Jewish Ctr. of Sussex County v. Whale, 432 A.2d 521, 524 (N.J. 1981)). CDK
does not dispute that Tulley has generally pled those elements; rather, CDK
argues that Tulley’s fraudulent inducement claim is barred by the MSA’s
integration clause and by the economic loss doctrine.
1. Integration Clause
CDK contends that Tulley’s fraudulent inducement claim is barred by an
integration clause contained in the MSA. According to CDK, any
representations made prior to the execution of the MSA merge into the contract
and cannot furnish the basis for an independent tort claim.
In general, where a contract contains an integration clause, the parol
evidence rule bars the introduction of evidence of extrinsic negotiations or
agreements to supplement or vary its terms. There is an exception, however, for
evidence of fraud in the inducement; such evidence is not offered to add or
change contract terms but to void the contract altogether. See Ocean Cape
Hotel Corp. v. Masejield Corp., 164 A.2d 607, 611 (N.J. Super. Ct. App. Div.
1960) (“[Pjarol proof of fraud in the inducement is not considered as either
additional or substitutionary but rather as indicating that the instrument is, by
reason of the fraud, void or voidable.”); Walid v. Yolanda for Irene Couture, Inc.,
40 A.3d 85, 94 (N.J. Super. Ct. App. Div. 2012) (noting that “extrinsic evidence
to prove fraud in the inducement is a well-recognized exception to the parol
evidence rule” where the alleged “misrepresented facts are peculiarly within the
misrepresenting party’s knowledge”). The alleged fraud, however, must concern
a matter not addressed in the agreement; in other words, the subject of the
misrepresentation must be extraneous to the agreement. See Travelodge

6

Hotels, Inc. v. Honeysuckle Enters., Inc., 357 F. Supp. 2d 788, 795 (D.N.J.
2005) (citing Filmlzfe, Inc. v. Mal “Z” Ena, Inc., 598 A.2d 1234, 1236 (N.J. Super.
Ct. App. Div. 1991)). Where, by contrast, misrepresentations made during the
course of negotiations are addressed by the terms of the contract, the claim
becomes one for breach of contract, not fraudulent inducement. In such a case,
the integration clause will bar the claim. RNC Systems, Inc. v, Modem Tech.
Grp., Inc., 861 F. Supp. 2d 436, 454 (D.N.J. 2012).
Here, the integration clause reads as follows:
Client acknowledges that it has not been induced to enter into this
Agreement by any representation or warranty not set forth in this
Agreement. This Agreement contains the entire agreement of the parties
with respect to their subject matter and supersedes all existing
agreements and all other oral, written or other communications between
them concerning their subject matter.
(MSA

§ 17.A p. 13-14) Tulley alleges that CDK fraudulently induced it to sign

the MSA based on misrepresentations that the DMS product would work for
Tulley’s three-dealership business, would increase efficiency, and would reduce
costs. (AC

¶J 33-4 1, 89) Tulley further alleges that CDK knew the DMS would

not work as intended for Tulley. CDK knew, for example, that it was giving
Tulley a “one-roof” system when Tulley needed a “three-roof” system, and CDK
knew of prior customer complaints regarding business disruptions caused by
switching to CDK’s DMS. (AC

¶J 57, 79)

The MSA does not speak specifically to Tulley’s particular business needs
and how the DMS will work to meet those requirements. Cf Montclair State
Univ. v. Oracle USA, Inc., 2012 WL 3647427, at *10 (D.N.J. Aug. 23, 2012).
Instead, the MSA deals primarily with the terms of the lease, installation of
software, and CDK’s support services for the software and equipment.
Accordingly, I find that the alleged misrepresentations concern matters
extrinsic to the MSA. Such allegations could support a claim of fraudulent

7

inducement, as opposed to breach of contract, and therefore would not be
2
barred by the integration clause.

2. Economic loss doctrine
CDK also argues that the fraudulent inducement tort claim must be
dismissed because, in the context of a contract, the economic loss doctrine
bars recovery of losses beyond benefit-of-the bargain damages.
“Under New Jersey law, the economic loss doctrine defines the boundary
between the overlapping theories of tort law and contract law by barring the
recovery of purely economic loss in tort.” Travelers Indem. Co. v. Dammanri &
Co., Inc., 594 F.3d 238, 244 (3d Cir. 2010). The purpose of the economic loss
doctrine “is to strike an equitable balance between countervailing public
policies[ j that exist in tort and contracts law.” Id. A tort duty protects society’s
interest in freedom from harm, whereas a contractual duty protects society’s
interest in the performance of promises. See Spring Motors Distribs., Inc. v. Ford
Motor Co., 98 N.J. 555, 566, 489 A.2d 660 (1985).
A tort claim may, however, be asserted alongside a breach of contract
claim where the tortious conduct is “extrinsic to the contract between the
parties.” Chen v. HD Dimension Corp., 2010 WL 4721514, at *8 (D.N.J. Nov. 15,
2010) (citing Capitalpius Equity, LLC v. Prismatic Dev. Corp., 2008 WL 2783339,
at *6 (D.N.J. July 16, 2008)). A claim of fraud in the inducement may proceed
where the allegations relate to “misrepresentations unrelated to the
performance of the contract”—i.e., where the misrepresentations breach a duty
“separate and distinct from [contractual] performance.” Id. at *89. A party
which falsely states that it intends to honor a promise may “breach[J a separate
and extraneous duty not to commit fraud.” Bracco Diagnostics, Inc. v. Bergen
Bri.rnswig Drug Co., 226 F. Supp. 2d 557, 564 (D.N.J. 2002). Allegations
CDK also contends that the MSA contains a waiver which bars ‘Pulley’s
fraudulent inducement claim. In relevant part, the purported waiver reads: “Client
waives the right to rely upon any representation or warranty not contained herein.”
(MSA § 12.D p. 11) Because CDK’s arguments as to the applicability of the waiver are
substantially the same as those regarding the integration clause, I reject this
argument on the same grounds as set forth above.
2

8

regarding representations made during negotiation of a contract, which
support an inference that the party was fraudulently induced to enter the
contract, are “necessarily extraneous to the contract.” G&F Graphic Servs., Inc.
v. Graphic Innovators, Inc., 18 F. Supp. 3d 583, 593 (D.N.J. 2014) (finding
exception to the economic loss doctrine to fraud in the inducement claim);
Bracco Diagnostics, Inc., 226 F. Supp. 2d at 563 (noting that New Jersey
decisions permitting fraud claims to proceed alongside breach of contract are
most often ones involving fraudulent inducement claims based on pre—
contractual misrepresentations).
Here, Tulley alleges that, during negotiations, CDK knowingly stated that
the DMS would work for Tulley’s business when CDK knew that it would not.
As discussed above, the MSA is premised on a representation that the software
and equipment would, generally speaking, function, but it does not address its
suitability for Tulley’s dealerships. CDK’s alleged misrepresentations,
independent of the terms of the contract, could give rise to an independent tort.
Cf RNC Sys., Inc. 861 F. Supp. 2d at 452 (dismissing fraudulent inducement
claim under the economic loss doctrine because the alleged misrepresentations
were “addressed squarely within the language” of the contract).
The motion to dismiss Count I of the Counterclaims is therefore denied.
B.

Rescission (Count II)

CDK seeks dismissal of Tulley’s rescission claim on the grounds that
Tulley has failed to set forth a prima facie claim for fraud. I have already held
that it does. CDK also urges that rescission is not a cause of action as such,
but a remedy.
At least in this context, rescission is best viewed as an equitable remedy
“only available in the context of an appropriate substantive equitable claim.”
Hoke, Inc. v. Cullinet Software, Inc., 1992 WL 106784, at *2 (D.N.J. Apr. 28,
1992). Thus rescission of a contract may be appropriate “where there is either
original invalidity, fraud, failure of consideration or a material breach or

9

default.” Travelodge Hotels, Inc. v. BO-ED Inc., 2007 WL 8053668, at *10
(D.N.J. Mar. 19, 2007) (citing 17 Am. Jur. 2d Contracts

§ 951).

Pled as an independent cause of action, rescission appears to be
superfluous. Accordingly, Count II will be dismissed.

C.

Breach of Contract (Count Ill)

To establish a breach of contract claim, “a plaintiff has the burden to
show that the parties entered into a valid contract, that the defendant failed to
perform his obligations under the contract and that the plaintiff sustained
damages as a result.” Murphy v. Implicito, 920 A.2d 678, 689 (N.J. Super. Ct.
App. Div. 2007). Neither party disputes that the MSA is a valid contract.
Rather, CDK contends that Tulley (1) has failed to allege that CDK breached
any provision of the MSA and (2) cannot demonstrate recoverable damages.
The core of Tulley’s breach of contract counterclaim is that CDK failed to
live up to the terms and warranties of the MSA. CDK treats this Counterclaim
as one that its DMS did not integrate with the systems of Tulley’s prior
vendors; it is, but that is too narrow a reading. Tulley alleges that CDK
warranted that the software and services provided under the MSA would
“conform to their respective functional and technical specifications” and that
the equipment would “be in good working order.” (AC ¶ 102; MSA § 12A, B p.
10) The DMS, however, did not work as intended: the Amended Counterclaims
are replete with allegations as to how the software failed to function properly.
(See AC

¶J 52-57) Tulley also alleges that CDK agreed to provide support

services to keep the software in “good working order” but failed to do so: when
alerted to problems, CDK allegedly failed to correct or fix them. (See AC
61; MSA

¶f 60-

§ 5A p. 4, § 13.A. p. 11 (CDK undertakes to “use reasonable efforts to

correct any Services of Software which is not in compliance with the warranties
provided under Paragraph 12.A.”)) Those allegations sufficiently set forth a
breach of the MSA.

10

CDK also cites provisions of the MSA that limit recoverable damages and
exclude recovery for special, direct, incidental or consequential damages. (See
MSA

13.E) That contention does not bear on the question of whether this

Counterclaim pleads a claim of breach of contract. At a minimum, Tulley has
alleged direct damages in the form of the amount paid at the time the MSA was
executed and the periodic payments required under the agreement. (AC

¶J 49-

50, 104)
The motion to dismiss Count III of the Counterclaims (breach of contract)
is therefore denied.

D.

New Jersey Consumer Fraud Act (Count IV)

CDK seeks dismissal of Count IV of Tulley’s counterclaim under the New
Jersey Consumer Fraud Act (“NJCFA”), primarily because the MSA did not
involve goods and services sold to the general public. I disagree.
3
The NJCFA is designed to “protect consumers who purchase goods or
services generally sold to the public at large,” in other words, “products and
services sold to consumers in the popular sense.” Cetel v. Kirwan Fin. Grp., Inc.,
460 F.3d 494, 514 (3d Cir. 2006) (citing Marascio v. Campanella, 689 A.2d 852,
857(N.J. Super. Ct. App. Div. 1997) and Arc Networks, Inc. v. Gold Phone Card
Co., 756 A.2d 636, 637 (N.J. Super. Ct. App. Div. 2000)) (internal quotations
omitted). The NJCFA is not confined, however, to items on the shelves of retail
stores. It has been held to apply, for example, to the sale of merchandise to
business end users for use in their operations. Hundred East Credit Corp. v.
Eric Shuster Corp., 515 A.2d 246, 249 (N.J. Super. Ct. App. Div. 1986) (finding
that “unlawful practices thus can victimize business entities as well as
individual customers”); Dreier Co., Inc. v. Unitronix Corp., 527 A.2d 875, 882
(N.J. Super. Ct. App. Div. 1986) (finding sale of custom programmed software
to business entity was within scope of NJCFA). “It is the character of the
CDK alleges that the economic loss doctrine applies to the NJCFA claim for the
same reasons it applied to the fraudulent inducement claim. I have already held,
however, that it does not apply there, so I do not apply it here.
11

transaction, not the identity of the purchaser, which determines whether the
CFA is applicable.” Findeme Mgmt. Co., Inc., v. Barrett, 955 A.2d 940, 954 (N.J.
Super. Ct. App. Div. 2008).
To fall within the scope of the NJCFA, goods and services need not be
only those that are purchased by “average consumers”; the statute may also
cover merchandise that is “expensive, uncommon, or only suited to the needs
of a limited clientele.” Prescription Counter v. Amerisource Bergen Corp., 2007
WL 3511301, at *14 (D.N.J. Nov. 14, 2007). If the consumption or use of goods
and services occurs in the course of business, the transaction may be covered
by the NJCFA. Id. (distinguishing merchandise used in the course of business
from that which is not, such as items which are purchased for resale, designs,
and franchises); see also Stockroom, Inc. v. Dydacomp Dev. Corp., 941 F. Supp.
2d 537, 545 (D.N.J. 2013).
Here, the transaction concerned the lease of computer equipment and
the installation of a computer software system. The Counterclaims adequately
allege that these goods and services are offered to the public at large and
bought or leased by business end users. The DMS equipment and software is
used by businesses in furtherance of their daily business transactions. See
Prescrztion Counter, 2007 WL 3511301, at *16 (“Prescription Counter used the
DataStat software system to track customer information, to communicate and
order products directly from its wholesalers, and to access price updates from
wholesalers, and therefore, consumed the service.”). Tulley did not obtain the
DMS equipment and software for, e.g., resale; Tulley was the consumer and
user of that merchandise. As alleged, the DMS product was used in all areas of
Tulley’s day to day operations, including payroll, sales, pricing, inventory,
accounting, service, insurance, client files and human resources. (AC

¶J

52,

53, 55, 56) Accordingly, I find that the DMS product was allegedly consumed or
used during the course of business.
Furthermore, although the software might be “only suited to the needs of
a limited clientele,” Tulley has alleged that the software is marketed to

12

thousands of businesses across many industries. Specifically, Tulley alleges
that CDK is “the largest global provider of integrated information technology
and digital marketing solutions to the automotive retail industry.” (AC

¶

16)

CDK has provided these products to over 26,500 auto, truck, motorcycle,
marine, recreational vehicle and heavy equipment dealerships across the world.
(Id.

¶

17) Tulley also alleges that in addition to serving dealership industries,

CDK sells its DMS products to repair facilities and original equipment
manufacturers. (Id.

¶

20) CDK’s DMS products are offered to the agriculture,

construction, marine, powersports and recreational vehicle industries. (Id.

¶

25) These allegations permit an inference that CDK’s DMS products are sold to
the public at large.
The motion to dismiss is therefore denied as to Count IV of the
Counterclaim.

E.

Unjust Enrichment

Finally, CDK seeks dismissal of the unjust enrichment claim on the
grounds that it is not pled in the alternative but is instead premised on a valid
and binding contract, which precludes recovery under an unjust enrichment
theory.
An unjust enrichment claim is commonly an alternative to a breach of
contract claim. Palmeri v. LG Elects. USA, Inc., 2008 WL 2945985, at

*

7 (D.N.J.

This case is distinguishable from Princeton Healthcare System u. Nets mart New
Inc., 29 A.3d 361 (N.J. Super. Ct. App. Div. 2011), on which CDK relies. In that
York,
case, the New Jersey court found a contract for the installation of a computer software
program to be outside the scope of the NJCFA. That case, however, was presented on a
motion for summary judgment, and it rested on many factors not apparent in this
case, at least at the pleading stage. In Princeton Healthcare, for example, the plaintiff
sought proposals for an upgraded computer system, worked for years on a process to
evaluate the proposals, and worked with the defendant to create the computer
software, and engaged in “lengthy negotiations” over the contractual terms. That
process culminated in the design of a “custom-made program to satisfy [plaintiff’s]
unique needs.” Id. at 474. Whether such factors exist here cannot be known without
the benefit of discovery. See Stockroom, Inc., 941 F. Supp. 2d at 545. For the present,
it is sufficiently alleged that this is a product offered to the public.

4

13

July 30, 2008). As I have said before, an unjust enrichment claim is a
“backstop cause of action that often turns out to be superfluous if, for example,
a breach of contract is shown.” Dzielak v. Whirlpool Corp., 26 F. Supp. 3d 304,
331 (D.N.J. 2014). That Tulley did not explicitly use the words “in the
alternative” is not critical. And at the pleading stage, dismissal of an unjust
enrichment claim because it might turn out to be superfluous would be
premature. Accordingly, I decline to dismiss the unjust enrichment claim on
this ground.
On that understanding, I further find that Tulley has sufficiently stated a
claim for unjust enrichment. New Jersey law requires that the party asserting
such a claim set forth sufficient facts to show that it conferred a benefit on the
other party and that the circumstances are such that to deny recovery would
be unjust. Weichert Co. Realtors v. Ryan, 608 A.2d 280, 285 (N.J. 1992). Here,
Tulley has alleges that it conferred a direct benefit on CDK: the payment made
at the time of executing the MSA and the periodic payments thereafter. (AC

¶f

49-50, 124) Tulley has also alleged that CDK did not provide good value in
return, and has therefore been unjustly enriched. (Id.

¶

125) The elements of a

claim have been set forth, and the motion to dismiss will be denied as to this
count.

In sum, CDK’s motion to dismiss the Amended Counterclaims will be
granted as to Count II (Rescission) but denied as to all other counts.

II.

APPEAL OF JUDGE CLARK’S ORDER OF MARCH 3, 2016
On March 3, 2016, Magistrate Judge Clark entered an Order denying

CDK’s motion to quash non-party subpoenas that Tulley served upon 21
automobile manufacturer customers of CDK. Tulley appeals.
A.

Standard of Review

A District Court will reverse a Magistrate Judge’s decision on a non
dispositive motion only if it is “clearly erroneous or contrary to law.” Fed. R.
14

Civ. P. 72(a); L. Civ. R. 72. 1(c)(1)(A). This Court will determine that a finding is
clearly erroneous “when although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm conviction that a
mistake has been committed.” United States v. United States Gypsum Co., 333
U.s. 364, 395 (1948).
This Court has frequently spoken of the discretion granted to the
Magistrate Judge in non-dispositive matters. Where the appeal seeks review of
a matter within the core competence of the Magistrate Judge, such as a
discovery dispute, an abuse of discretion standard is appropriate. See Cooper
Hospital/Univ. Med. Ctr. v. Sullivan, 183 F.R.D. 119, 127 (D.N.J. 1998);
Deluccia v. City of Paterson, No. 09-703, 2012 WL 909548, at *1 (D.N.J. March
15, 2012). “This deferential standard is especially appropriate where the
Magistrate Judge has managed this case from the outset and developed a
thorough knowledge of the proceedings.” Lithuanian Commerce Corp., Ltd. v.
Sara Lee Hosiery, 177 F.R.D. 205, 214 (D.N.J. 1997)(internal quotations
omitted); see Deluccia, 2012 WL 909548, at *1 (same). Abuse of discretion
review, of course, may get us to much the same place: as a practical matter it
incorporates plenary review of legal questions. See Koon v. United States, 518
U.S. 81, 100 (1996).
The party filing the appeal has the burden of demonstrating that the
magistrate’s decision was clearly erroneous or contrary to law, Exxon Corp. v.
Halcon Shipping Co., 156 F.R.D. 589, 591 (D.N.J. 1994), and unless that
burden is met, the magistrate judge’s findings should not be rejected even if
the district court could have decided the matter differently. Toth v. Alice Pearl,
Inc., 158 F.R.D. 47, 50 (D.N.J. 1994).
B.

Analysis

CDK’s appeal is untimely under Fed. R. Civ. P. 72(a). The rule provides
that any objection to a magistrate order must be brought within 14 days of the
date of the order. See Fed. R. Civ. P. 72(a). Here, the Order is dated March 3,
2016. CDK filed their appeal on March 21, 2016, four days late. CDK has not

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acknowledged or offered any excuse for its untimeliness. On that ground alone,
the appeal would be denied. At any rate, however, I find that there is no error
of law or fact requiring reversal of Magistrate Judge Clark’s Order.
CDK first asserts that Magistrate Judge Clark rested his decision only on
a relevancy analysis, and failed to apply the proportionality standard of Fed. R.
Civ. P. 26(b)(1). Contrary to CDK’s contentions, Magistrate Judge Clark applied
the correct standard.
Rule 26(b)(1) provides as follows:
Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party’s claim or defense and proportional to the needs of
the case, considering the importance of the issues at stake in the action,
the amount in controversy, the parties’ relative access to relevant
information, the parties’ resources, the importance of the discovery in
resolving issues, and whether the burden or expense of the proposed
discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1). That proportionality language is designed to “guard
against redundant or disproportionate discovery by giving the court authority
to reduce the amount of discovery that may be directed to matters that are
otherwise proper subjects of inquiry.” Fed. R. Civ. P. 26(b) advisory committee’s
note (1983 Amendment). The factors set forth in the rule are for the court to
use “in reaching a case-specific determination on the appropriate scope of
discovery.” Id. (2015 Amendment).
Magistrate Judge Clark weighed these factors in reaching his
determination that the subpoenas were appropriate. Judge Clark found that
there was a nexus between the requested information and Tulley’s
counterclaims. (Order 6-7) The subpoenas were directed at determining
whether CDK had a practice or pattern of misrepresenting its Drive System
product to other customers, and whether there had been other complaints
about the system’s functionality. (Order 6—7; Dkt. No. 88-1, Ex. B 7: 19-8:7,
9:25-10:10)
Judge Clark also considered and rejected CDK’s argument that the
discovery is disproportionate because it brought this action as a simple
contract case. In CDK’s mind, this is a pure “$400,000 collections case,” which
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should not be complicated by a document dump from other customers. That
argument, however, simply wishes away Tulley’s counterclaims, which seek
millions of dollars in damages. (Order 6—7) And there was no sufficient showing
that the requested discovery is unduly voluminous, expensive, or
disproportionate to what is at stake.
CDK’s substantive arguments themselves tend to focus on relevance.
(See Br. 13) CDK repeats the argument made before Magistrate Judge Clark
that because each of its customers uses a unique version of the Drive
programs, the information requested in the subpoenas is “unrelated to the
claims in this case.” (Br. 10, 12) That argument, however, was considered and
rejected by Magistrate Judge Clark; as he explained, the experience of other
customers is relevant. (Order 6—7)
CDK next argues that Magistrate Judge Clark failed to consider the
burden—especially the burden on CDK, which will have to sift through the
discovery produced in response to the subpoenas. In the Order, Judge Clark
dealt with this argument, and the related argument that the requested
discovery would be unduly burdensome for the non-party recipients of the
subpoenas. (Order 7) Judge Clark focused on the burden to non-parties, but
found that CDK had no standing to assert that: “any undue burden in
producing the requested information would be faced by the Automobile
Manufacturers arid not by CDK.” (Id.) (emphasis added). That ruling was plainly
*7 (E.D. Pa. Mar. 21, 2016)
correct. See Green v. Cosby, 2016 WL 1086716, at
(“Even if a defendant has standing generally to quash a subpoena, he still lacks
standing to challenge a third-party subpoena based on undue burden because
it is the third-party that faces the burden of production and not the
defendant.”) (collecting cases).
The burden of reviewing the produced discovery is of secondary
importance, at best. That burden would fall equally on both parties here. At
any rate, CDK has made no factual showing as to the likely extent of the

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discovery to be produced; its argument that it will be forced to sift through a
mountain of discovery is speculative.

I find that Judge Clark’s well-reasoned ruling was supported by the
record and well within the scope of the Magistrate Judge’s authority.
Accordingly, I deny CDK’s appeal and affirm Magistrate Judge Clark’s order.

CONCLUSION
For the reasons stated above, Plaintiff CDK’s Motion to Reverse
Magistrate Judge Clark’s Order is DENIED and the Opinion and Order are
AFFIRMED. Plaintiff CDK’s Motion to Dismiss the Amended Counterclaims is
GRANTED as to Count II, but DENIED as to all remaining counts. An
appropriate order follows.

I

/

KEVIN MCNULTY, U.S.D.
Date: April 29, 2016

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