Transformacon, Inc. v. Vista Equity Partners, Inc.

Filing 31

OPINION AND ORDER re: 15 MOTION to Dismiss . filed by Active Network, LLC, Vista Equity Partners, Inc., 11 MOTION to Dismiss . filed by Lanyon Solutions, Inc. For the foregoing reasons, Lanyon's motion is GRANTED . Vista's and Active's motion is GRANTED as to Vista as to Claim Two, DENIED as to Vista as to Claims One and Four, and GRANTED as to Active. To the extent that TransformaCon can amend its Complaint to state a claim for breach of the implie d covenant of good faith and fair dealing that is based on facts separate from its breach of contract claim, leave to amend Claim Two as to Lanyon and Vista is granted. Leave to amend Claims One, Three, and Four against Active is also granted. Leave to amend Claim Two against Active and Claim Four against Lanyon is denied. Any amended pleading must be filed by August 11, 2015. The final pretrial conference remains scheduled for January 14, 2016, at 4:30 p.m. The Clerk of Court is directed to close these motions (Dkt. Nos. 11 and 15). SO ORDERED. (As further set forth within this Order.) (Signed by Judge Shira A. Scheindlin on 7/21/2015) (ajs)

L

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

----------------------------------------------------------

)

TRANSFORMACON, INC.,

,

usocsDNY
DOCUMENT
ELECTRONICALLY
DOC#:

FILED

-----zhl /J5

DATE FILED:

Plaintiff,
OPINION AND ORDER

- against VISTA EQUITY PARTNERS, INC., LANYON
SOLUTIONS, INC., and ACTIVE
NETWORKS, LLC,

15-cv-3371 (SAS)

Defendants.

---------------------------------------------------------- ){
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION

TransformaCon, Inc. ("TransformaCon") brings this action seeking
damages from Vista Equity Partners, Inc. ("Vista"), Lanyon Solutions, Inc.
("Lanyon"), and Active Network LLC ("Active"). TransformaCon asserts claims
for breach of contract, breach of the implied covenant of good faith and fair
dealing, and unjust enrichment against all defendants and tortious interference with
business relations against Active only. Lanyon now moves under Federal Rule of
Civil Procedure ("Rule") 12(b)(6) to dismiss TransformaCon's request for lost
profits and other consequential damages and its claims for breach of the implied
covenant of good faith and fair dealing and unjust enrichment. By separate
1

motion, Vista and Active move under Rule 12(b)(6) to dismiss all claims against
them. For the following reasons, Lanyon's motion is GRANTED, and Vista's and
Active's motion is GRANTED in part and DENIED in part.

II.

BACKGROUND
A.

Facts 1
TransformaCon is a Florida corporation with its principal place of

business in Florida. 2 Vista is a California corporation with its principal place of
business in Califomia. 3 Lanyon is a Texas corporation with its principal place of
business in Texas. 4 Active is a Texas limited liability corporation with its principal
place of business in Texas. 5 Lanyon and Active are portfolio companies under the
direction of Vista. 6
In 2014, Lanyon and TransformaCon entered into a contract whereby
TransformaCon agreed to complete certain technology-related projects outlined in
a Master Services Agreement ("MSA") and three associated Statements of Work
The facts below are drawn from the Complaint ("Compl.").
2

See Compl.

3

See

id.~

13.

4

See

id.~

14.

5

See id.

~

15.

6

See id.

~

16.

~

12.

2

("SOWs"). 7 While Vista did not sign this contract, it was involved in the
negotiation process and provided ultimate approval for retaining TransformaCon.

8

Further, Vista "provided specific directives and approvals for work performed by
TransformaCon, and certainly benefitted from Plaintiffs work." 9
Prior to fall 2014, TransformaCon completed all work and Lanyon
paid all invoices due under SOWs One and Two. However, by fall 2014, while
TransformaCon was nearing completion of SOW Three, TransformaCon stopped
receiving payments under the contract. 10 In spite of the overdue invoices,
TransformaCon at all times worked in good faith under the agreements, including
by adding senior staff members from other projects at the insistence of Vista and
Lanyon. 11 Eventually, several weeks after Lanyon stopped paying, TransformaCon
removed its staff from the Lanyon project, as a balance of more than $500,000
remained unpaid. 12 On April 30, 2015, TransformaCon filed the present action in

See id.~ 2. I will refer to the MSA and SOWs One, Two, and Three
together as the "contract" or "agreement."
7

8

See

9

Id.

IO

See

11

See id.

12

See

id.~

3.

id.~

4.

~~

id.~

4, 6.

6.
3

this Court.

III.

LEGAL STANDARD
A.

Pleading in the Alternative
In general, plaintiffs may plead in the alternative under Rule 8(a)(3).

"Moreover, causes of action that are inconsistent are permitted so long as they are
plead[ ed] in separate counts." 13 "Under our system of notice pleading and pleading
in the alternative, a party should plead all theories that [it] wishes to pursue." 14
While plaintiffs may plead alternative contract claims, "to the extent
there is a valid and enforceable contract between plaintiffl s] and defendants,
plaintiffls] will not be able to seek recovery in quasi contract in addition to or in
conflict with the express terms of that contract." 15 However, if no contract exists
between the parties, plaintiffs may recover under an alternative quasi-contract

13

In re Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., No. 14
Civ. 6228, 2015 WL 2354582, at *5 (S.D.N.Y. May 14, 2015). Accord Strobl v.
New York Mercantile Exch., 768 F.2d 22, 30 (2d Cir. 1985) (citing Rule 8(a)(3))
("[T]he Federal Rules of Practice ... provide that inconsistent causes of action
may be stated alternatively or hypothetically.").
14

Peterson v. Insurance Co. ofN Am., 40 F.3d 26, 32 n.3 (2d Cir.

1994).
15

Seiden Assocs., Inc. v. ANC Holdings, Inc., 754 F. Supp. 37, 39
(S.D.N.Y. 1991) (citing Radio Today, Inc. v. Westwood One, Inc., 684 F. Supp. 68,
72 (S.D.N.Y. 1988); Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d
382, 389 (1987)).
4

theory. 16
B.

Motion to Dismiss Under Rule 12(b)(6)
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court

must "accept[] all factual allegations in the complaint as true and draw[] all
reasonable inferences in the plaintiffs favor." 17 The court evaluates the
sufficiency of the complaint under the "two-pronged approach" set forth by the
Supreme Court in Ashcroft v. Iqbal. 18 Under the first prong, a court may "begin by
identifying pleadings that, because they are no more than conclusions, are not
entitled to the assumption of truth." 19 For example, "[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice." 20 Under the second prong of Iqbal, "[w]hen there are well-pleaded factual
allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief." 21 A claim is plausible "when the
16

See id. (citing Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500,
504-05 (1983)).
17

Grant v. County ofErie, 542 Fed. App'x 21, 23 (2d Cir. 2013) (citing
ATS! Commc 'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)).
18

See 556 U.S. 662, 678-79 (2009).

19

Id. at 679.

20

Id. at 678 (citation omitted).

21

Id. at 679.

5

plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged." 22 Plausibility
requires "more than a sheer possibility that a defendant has acted unlawfully. " 23
When deciding a motion to dismiss, "a district court may consider the
facts alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint." 24 A court may also
consider a document that is not incorporated by reference "where the complaint
'relies heavily upon its terms and effect,' thereby rendering the document 'integral'
to the complaint." 25 However, even if a document is integral to the complaint, "'it
must be clear on the record that no dispute exists regarding the authenticity or
accuracy of the document. "'26

C.

Leave to Amend
Rule 15(a)(2) provides that, other than amendments as a matter of

course, "a party may amend [its pleading] only by leave of court or by written
22

Id. at 678 (citation omitted).

23

Id. (quotation marks omitted).

24

DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010)
(citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).
25

Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.

2006)).
26

Id. (quoting Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006)).
6

consent of the adverse party." 27 Although "[t]he Court should freely give leave
when justice so requires," 28 it is "within the sound discretion of the district court to
grant or deny leave to amend." 29 When a motion to dismiss is granted, "' [i]t is the
usual practice ... to allow leave to replead. "' 30 Where a plaintiff inadequately
pleads a claim and cannot offer additional substantive information to cure the
deficient pleading, granting leave to replead is futile.

IV.

31

APPLICABLE LAW
A.

Contract Claims

1.

Breach of Contract
a.

Generally

Under New York law, a breach of contract claim requires "( 1) a valid
contract; (2) plaintiffs performance; (3) defendant's failure to perform; and (4)

27

Slayton v. American Express Co., 460 F.3d 215, 226 n.10 (2d Cir.
2006) (quotation marks omitted) (citations omitted).
28

Fed. R. Civ. P. 15(a)(2).

29

McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.
2007) (citation omitted).
Schindler v. French, 232 Fed. App'x 17, 19 (2d Cir. 2007) (quoting
Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991)).
30

31

See Cuoco v. Moritsugu, 222 F.3d 99, 112 (2d Cir. 2000).

7

damages resulting from the breach."32 A breach of contract claim "that fails to
allege facts sufficient to show that an enforceable contract existed between the
parties is subject to dismissal." 33 "[A] non-signatory to a contract cannot be named
as a defendant in a breach of contract action unless it has thereafter assumed or
been assigned the contract. " 34
The plaintiff must plead facts showing that an enforceable contract
existed, including facts surrounding the formation of the contract, such as the
contract's date, major terms, names of the parties, and that the party to be bound
actually assented to the contract. 35 Additionally, the plaintiff must identify the
specific provisions of the contract on which the plaintiff bases its claim. 36
Under New York law, "a party has an absolute, unqualified right to

32

MeehanCombs Global Credit Opportunities Funds, LP v. Caesars
Entm 't Corp., Nos. 14 Civ. 7091, 14 Civ. 7973, 2015 WL 221055, at *3 (S.D.N.Y.
Jan. 15, 2015) (citing Diesel Props S.r.l. v. Grey Stone Bus. Credit II LLC, 631
F.3d 42, 52 (2d Cir. 2011)).
33

Id. (quotation marks omitted).

34

Crabtree v. Tristar Auto. Grp., Inc., 776 F. Supp. 155, 166 (S.D.N.Y.
1991). Accord Atari, Inc. v. Games, Inc., No. 04 Civ. 3723, 2005 WL 447503, at
*2 (S.D.N.Y. Feb. 24, 2005) aff'd, 164 Fed. App'x 183 (2d Cir. 2006).
35

See Berman v. Sugo LLC, 580 F. Supp. 2d 191, 202 (S.D.N.Y. 2008).

36

See Sheridan v. Trustees of Columbia Univ. in the City ofN.Y., 745
N.Y.S.2d 18, 19 (1st Dep't 2002); see also Sudv. Sud, 621N.Y.S.2d37, 38 (1st
Dep't 1995).
8

terminate a contract on notice pursuant to an unconditional termination clause
without court inquiry into whether the termination was activated by an ulterior
motive."37

b.

Third-Party Beneficiaries

New York law requires that plaintiffs alleging that they are third-party
beneficiaries to a contract "establish that the parties to the contract intended to
confer a benefit on the third-party." 38 "It is ancient law in New York ... that to
succeed on a third party beneficiary theory, a non-party must be the intended
beneficiary of the contract, not an incidental beneficiary to whom no duty is
owed." 39 Under New York law, a third-party is an intended beneficiary only if
"'no one other than the third-party can recover ifthe promisor breaches the
contract' or the contract language should otherwise clearly evidence 'an intent to
37

A.J. Temple Marble & Tile, Inc. v. Long Island R.R., 682 N.Y.S.2d
422, 423 (2d Dep't 1998) (citing Big Apple Car v. City ofNew York, 611 N.Y.S.2d
533, 534 (1st Dep't 1994)). Accord Division of Triple T. Serv. v. Mobil Oil Corp.
304 N.Y.S.2d 191 (Sup. Ct. Westchester Co. 1969), ajf'd, 311N.Y.S.2d961 (2d
Dep't 1970).
38

Subaru Distribs. Corp. v. Subaru ofAm., Inc., 425 F.3d 119, 124 (2d
Cir. 2005) (citing State of Cal. Pub. Emps. 'Ret. Sys. v. Shearman & Sterling, 95
N.Y.2d 427, 434-35 (2000)).
39

Hillside Metro Assocs., LLC v. JPMorgan Chase Bank, Nat. Ass 'n,
747 F.3d 44, 49 (2d Cir. 2014), cert. denied sub nom., Hillside Metro Assocs., LLC
v. JPMorgan Chase Bank, 135 S. Ct. 1399 (2015) (quotation marks omitted)
(emphasis added).
9

permit enforcement by the third-party."'40 "[D]ismissal of a third-party-beneficiary
claim is appropriate ... where the complaint relies on language in the contract or
other circumstances that will not support the inference that the parties intended to
confer a benefit on the claimant."41

c.

Non-Party Liability

Under New York law, a party who is not a signatory to a contract
generally cannot be held liable for breaches of that contract. 42 New York courts
also recognize an exception to this general rule:

[A] parent company can be held liable as a party to its subsidiary's
contract ifthe parent's conduct manifests an intent to be bound by
the contract, which intent is inferable from the parent's
participation in the negotiation of the contract, or if the subsidiary
is a dummy for the parent, or if the subsidiary is controlled by the
parent for the parent's own purposes. 43

40

Debary v. Harrah's Operating Co., Inc., 465 F. Supp. 2d 250, 263-64
(S.D.N.Y. 2006) (quotingArtwear, Inc. v. Hughes, 615 N.Y.S.2d 689, 692 (1st
Dep't 1994)).
41

Subaru Distribs. Corp., 425 F.3d at 124-25 (citing First Capital Asset
Mgmt., Inc. v. N.A. Partners, L.P., 688 N.Y.S.2d 25, 27 (1st Dep't 1999); Artwear,
Inc., 615 N.Y.S.2d at 693).
42

See Black Car & Livery Ins., Inc. v. H & W Brokerage, Inc., 813
N.Y.S.2d 751, 752 (2d Dep't 2006). See also Bellino Schwartz Padob Adver., Inc.
v. Safaris Mktg. Grp., Inc., 635 N.Y.S.2d 587, 588 (1st Dep't 1995); Smith v.
Fitzsimmons, 584 N.Y.S.2d 692, 695 (4th Dep't 1992).
43

Horsehead Indus. v. Metallgesellschaft AG, 657 N.Y.S.2d 632, 633
(1st Dep't 1997) (citing Warnaco Inc. v. VF Corp., 844 F. Supp. 940, 946

10

Where a parent corporation manifests "intent to be bound" by a contract, the parent
can be considered the alter ego of the subsidiary and therefore bound by the
contract. 44 "However, New York courts recognize that a non-signatory can be
liable for a contract by manifesting an intent to be bound without being an alter ego
of a signatory to the contract." 45 A non-signatory may also be found liable for
breach of contract without being an alter ego if its actions demonstrate privity of
contract or that it assumed obligations under the contract. 46
d.

Lost Profits Damages

In New York, a plaintiff is entitled to recover lost profits in a breach
of contract action "only if he can establish both the existence and amount of such
damages with reasonable certainty."47 The damages may not be merely

(S.D.N.Y. 1994) (noting that a non-signatory parent corporation can be bound if it
participates in the negotiations but has a subsidiary, which is a proxy of the parent,
sign the contract)).
44

Id.

45

MBIA Ins. Corp. v. Royal Bank of Canada, 706 F. Supp. 2d 380, 397
(S.D.N.Y. 2009) (citing RUS, Inc. v. Bay Indus., Inc., No. 01 Civ. 6133, 2004 WL
1240578, at *20-21 (S.D.N.Y. May 25, 2004) (applying New York law and
finding that nonsignatory was liable for breach of contract when its conduct
manifested an unequivocal intent to be bound by the contract).
46

See id.

47

Schonfeld v. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000) (citing
Kenford Co. v. Erie Cnty., 67 N.Y.2d 257, 257-58 (1986)).
11

speculative, possible, or imaginary. 48 Lost profits need not be proven with
"mathematical precision;" however, they must be "capable of measurement based
upon known reliable factors without undue speculation." 49 Projections of future
profits based upon "a multitude of assumptions" that require "speculation and
conjecture" and rely on few known factors do not provide the requisite certainty.

50

Additionally, a plaintiff must prove that lost profits damages were
within the reasonable contemplation of the parties when the contract was made.

51

"The party breaching the contract is liable for those risks foreseen or which should
have been foreseen at the time the contract was made. "

2.

52

Breach of the Implied Covenant of Good Faith and Fair
Dealing

"Under New York law, the implied covenant of good faith and fair
dealing inheres in every contract." 53 However, breach of this implied covenant is

48

See id.

49

Id. (citing Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993)).

50

Id. (citingKenford Co., 502 N.Y.S.2d at 131).

51

See Ashland Mgmt., 82 N.Y.2d at 403.

52

Schonfeld, 218 F .3d at 172 (citation omitted).

53

Travellers lnt'l, A.G. v. Trans World Airlines, Inc., 41 F.3d 1570,
1575 (2d Cir. 1994) (citing Van Valkenburgh, Nooger & Neville, Inc. v. Hayden
Publ'g Co., 30 N.Y.2d 34, 45 (1972)).
12

"merely a breach of the underlying contract," not a separate cause of action. 54 For
this reason, a claim for breach of the implied covenant of good faith and fair
dealing will be dismissed as duplicative where the conduct allegedly violating the
implied covenant is also the predicate for breach of an express provision of the
underlying contract. 55

3.

Unjust Enrichment

Under New York law, a claim for unjust enrichment requires that "the
defiendant benefitted ... at the plaintiffs expense [and] ... that equity and good
conscience require restitution." 56 "An indispensable ingredient of such a claim is
that as between the two parties involved there must be an injustice." 57 The essence
of a cause of action for unjust enrichment is that "one party possesses money ...
that in equity and good conscience ... should not have [been] obtained or

54

Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73, 80 (2d Cir.
2002) (quotation marks omitted).
55

See Houbigant, Inc. v. ACB Mercantile, Inc., 914 F. Supp. 964, 989
(S.D.N.Y. 1995) modified by 914 F. Supp. 997 (S.D.N.Y. 1996); see also Canstar
v. J.A. Jones Constr. Co., 622 N.Y.S.2d 730, 731 (1st Dep't 1995).
56

Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 306 (2d

Cir. 2004).
57

Songbird Jet Ltd., Inc. v. Amax, Inc., 581 F. Supp. 912, 926 (S.D.N.Y.
1984) ("The doctrine of unjust enrichment rests upon an equitable principle that a
person should not be allowed to enrich himself at the expense of another.").
13

possessed because it rightfully belongs to another. " 58 While privity is not required
to succeed on an unjust enrichment claim, such a claim also does not lie where the
relationship between the parties is too attenuated. 59

B.

Tortious Interference with Business Relations
Under New York law, the elements of a tortious interference with

business relations claim are: "( 1) there is a business relationship between the
plaintiff and a third party; (2) the defendant, knowing of that relationship,
intentionally interferes with it; (3) the defendant acts with the sole purpose of
harming the plaintiff, or, failing that level of malice, uses dishonest, unfair, or
improper means; and (4) the relationship is injured. " 60

V.

DISCUSSION
A.

Contract and Quasi-Contract Claims
1.

Claim One: Breach of Contract

Active and Vista argue that they are not bound by the contract

58

Rodriguez v. It's Just Lunch Int'/, No. 07 Civ. 9227, 2009 WL
399728, at *7 (S.D.N.Y. Feb. 17, 2009), report and recommendation adopted,
2009 WL 666435 (S.D.N.Y. Mar. 12, 2009) (citing Strong v. Strong, 715 N.Y.S.2d
499, 501 (3d Dep't 2000) (quotation marks omitted)).
59

See Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182
(2011); Sperry v. Crompton Corp., 8 N.Y.3d 204, 215 (2007).
60

See Goldhirsch Grp., Inc. v. Alpert, 107 F.3d 105, 108-09 (2d Cir.

1997).
14

between TransformaCon and Lanyon. Therefore, they argue, the claim for breach
of contract must fail.
TransformaCon plainly alleges that Vista, the parent company of both
Lanyon and Active, was intimately involved in and would benefit from the
contract. 61 For example, TransformaCon alleges that Lanyon agreed to the contract
under Vista's watch and control. Further, senior Vista executives reviewed and
approved various aspects of SOW Three. 62 This alleged conduct is sufficient to
demonstrate that Vista manifested the intent to be bound by the contract because it
participated in the negotiation and controlled the subsidiary during the contract
negotiations for its own benefit. 63
TransformaCon never alleges that Active was a party to the contract. 64
In fact, the Complaint never states any reason why Active should have been bound

61

See Compl.

62

See id.

~~

~~

32-33.

34-35.

See Horsehead Indus., 657 N.Y.S.2d at 633; see also Compl. ~~
21-22 ("Vista is a private equity firm that invests in software and technology
businesses .... Lanyon is a Vista portfolio company that purports to offer
'cloud-based' software to assist companies in the hospitality industry with
managing corporate meetings, events, and travel programs.").
63

Only TransformaCon and Lanyon are parties to the contract. See id. ~
2; see also 7/14/14 MSA, Ex. 1-A to Compl., at 1, 7; 8/11/14 SOW Three, Ex. 1-B
to Compl., at 1, 4.
64

15

to perform in any way. The contract does contemplate Active's assistance in
"copying ... Active's entire [software] footprint, which included applications and
data" and that Active "would be responsible for, inter alia, providing information,
documentation and appropriate access to certain systems and infrastructure
activities to TransformaCon." 65 However, the Complaint's conclusory allegation
that Active was the intended beneficiary of the contract66 is belied by other
allegations in the Complaint and the contract's own terms. The Complaint states
that Active "shared" Lanyon's objectives and at times provided data as requested
by the contracting parties. 67 SOW Three also unambiguously states that "[i]t is the

desire ofLanyon to have [non-party affiliate of Vista] and Active run on separate
ERP[ 68 ] systems." 69 Thus, the contract's terms contain no statement as to how or
even if Active would be affected by the work contemplated in the MSA and SOW
Three.
TransformaCon's sole non-conclusory statement attempting to allege
65

Compl. ~~ 36, 39, 41.

See id.~ 2 ("TransformaCon's engagement was reviewed and
approved by all Defendants for their collective benefit.").
66

67

Id.~

68

"ERP" is a technology application system that is not defined in SOW

69

SOW Three at 1.

36.

Three.

16

that Active approved the contract cites to the MSA. 70 But as discussed, the MSA
does not contemplate Active's agreement to the contract. At best TransformaCon
alleges that Active was an incidental beneficiary -

because it shared some of

Lanyon's objectives and may have incidentally benefitted -however, such an
allegation does not state a claim under New York law. 71
TransformaCon cites to a presentation as evidence of Active's intent
to be bound by the contract. 72 TransformaCon alleges that its employees gave this
presentation to executives from Lanyon and Vista to explain how it would
implement certain "key objectives" described in SOW Three. 73 In support of its
allegations, TransformaCon includes a copy of the PowerPoint presentation that it
presented to the Lanyon and Vista executives. 74 The PowerPoint describes how
TransformaCon will perform under the contract and assigns certain responsibilities

See Compl. ~ 25 ("TransformaCon provided a proposal for the
Project, which was approved by Defendants .... ").
70

71

See Hillside Metro Assocs., 747 F.3d at 49.

72

See 8/21/14 BSG "Operation Separation" Program Kick-Off
("PowerPoint"), Ex. 5 to Compl.
73

The key objectives included "(1) separat[ing] BSG from Active
Networks; (2) minimiz[ing] throw away work in preparation for business
transformation effort; and (3) complete separation as quickly as possible." Compl.
~ 38.
74

See Compl.

~~

37-44.
17

of TransformaCon, Lanyon, Vista, and Active. 75 But TransformaCon does not
state how a presentation purporting to assign responsibilities to Active at a meeting
that Active employees did not attend could show Active' s intent to be bound.
Instead, the presentation further supports the conclusion that non-signatory Vista
intended to be bound because Vista executives attended the presentation and
because Vista is the parent corporation. 76
For these reasons, Vista and Active's motion as to Claim One is
denied as to Vista and granted as to Active.

2.

Claim Two: Breach of the Implied Covenant of Good Faith
and Fair Dealing
a.

Lanyon and Vista

Although the general rule in New York is that a separate claim for
breach of the implied covenant of good faith and fair dealing does not normally lie
when the parties agree that a contract exists, TransformaCon argues for an
exception. TransformaCon contends that its claim is supported by factual
allegations distinct from its breach of contract claim and points to two actions by
Lanyon and Vista in support of an exception. Neither supports a separate claim for
breach of the implied covenant.
75

See PowerPoint at 1-6.

76

See Compl.

~~

37-44.
18

First, TransformaCon alleges that Lanyon and Vista made "unilateral
changes to the agreed-upon scope of work ... detailed in the 'Assessment and
Recommendations' ... and SOW Three. " 77 Second, TransformaCon alleges that
Lanyon and Vista failed "to provide TransformaCon with the necessary
information and materials required to complete the project." 78 Both allegations
sound in breach of contract because the contract plainly governs them. 79 Thus,
there is no basis for creating an exception to the general rule. Any failure on the
part of Lanyon or Vista to provide information does not constitute a separate claim.
Because Lanyon is a party to the contract and Vista manifested an intent to be
bound, the motion to dismiss Claim Two is granted as to Lanyon and Vista.
TransformaCon cannot state a claim for breach of contract as to
Active, thus it follows that TransformaCon cannot state a claim for breach of the
implied covenant. 80 As a result, the motion as to Claim Two is granted as to

77

Id.~

78

Id.

77.

See id.~ 48. SOW Three, to which TransformaCon and Lanyon are
the sole signatories, specifically describes the provision of data to TransformaCon.
See SOW Three.
79

80

See Atari, Inc., 2005 WL 447503, at *2 ("[A] non-signatory cannot be
held liable for breach of the implied covenant of good faith and fair dealing,
because there is no contract between the two parties under which to find such an
implied term.").
19

Active.

3.

Claim Four: Unjust Enrichment

The parties agree that TransformaCon and Lanyon entered into a valid
and binding contract. Because an unjust enrichment claim does not lie where a
valid and binding contract controls, Lanyon's motion to dismiss Claim Four is
granted.
Vista, on the other hand, disputes that it is bound by the contract.
Although TransformaCon has stated a breach of contract claim against Vista, this
fact does not foreclose an unjust enrichment claim pleaded in the alternative under
Rule 8. Until the fact-finder determines whether the contract governs Vista (or the
parties stipulate to the same), dismissing Claim Four as to Vista would be
premature. 81 Furthermore, TransformaCon properly alleges each element of unjust
enrichment. 82 Accordingly, Vista's motion as to Claim Four is denied.
Active also denies being bound by the contract. However, that does

81

See International Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 593
(2d Cir. 1996) ("[W]here the intent to be bound is not conclusively determinable
based on the facts alleged in the complaint and the documents incorporated by
reference, the issue of whether and when the parties intended to be bound is a
factual issue that should be submitted to the jury.") (quotation marks omitted)
(citations omitted).
82

See Compl.

~~

8, 10, 59, 91-98.
20

not end the inquiry. TransformaCon does not plead how Active was enriched by
TransformaCon's performance, a required element of the claim. 83 TransformaCon
merely alleges that "Defendants received enrichment from TransformaCon's
services." This statement lacks the factual recitation necessary to make the claim
non~conclusory. 84

B.

Accordingly, Active's motion as to Claim Four is granted.

Claim Three: Tortious Interference with Business Relations
Against Active
TransformaCon fails to adequately plead actual interference against

Active, a necessary element of its tortious interference claim. Instead,
TransformaCon pleads only conclusory allegations. For example, TransformaCon
alleges that "[i]t can only be assumed from Active's acts and omissions that

83

See Michele Pommier Models, Inc. v. Men Women NY Model Mgmt.,
Inc., 14 F. Supp. 2d 331, 338 (S.D.N.Y. 1998), aff'd, 173 F.3d 845 (2d Cir. 1999)
("[A] plaintiff must demonstrate that services were performed for the defendant
resulting in its unjust enrichment. It is not enough that the defendant received a
benefit from the activities of the plaintiff; if the services were performed at the
behest of someone other than the defendant, the plaintiff must look to that person
for recovery.") (citation omitted).
84

TransformaCon alleges that Lanyon wanted Active and another Vista
affiliate BSG to run on separate systems and that Active shared this objective
(Compl. ~ 36); however, the relationship between parties that merely share an
objective is too attenuated to support an unjust enrichment claim. See Mandarin
Trading Ltd., 16 N.Y.3d at 182.
21

Active's sole agenda was to hinder TransformaCon's work .... " 85
TransformaCon's allegation is wholly conclusory because it merely repeats an
allegation of actual interference. Moreover, Active may have had rational business
reasons for not providing the data that TransformaCon requested. Without
pleading additional facts alleging how Active's actions were nefarious and not
rational business decisions, TransformaCon does not state a plausible claim. 86
Additionally, TransformaCon relies on the August 21 presentation
discussed above as evidence that Active' s decision not to provide certain data was
tortious interference. But TransformaCon never alleges that Active executives
actually attended the presentation, ever saw materials discussed during that
presentation, or were ever legally required to provide the data discussed in the
contract. TransformaCon cannot allege tortious interference against Active for
failing to provide certain data when it does not allege whether Active was bound to
provide the data in the first place. TransformaCon does allege that Active provided
some data-though not the data that TransformaCon required-but Active's
decision to provide some data does not require it to provide other data absent some
enforceable agreement to the contrary.

85

Compl.

86

See Iqbal, 556 U.S. at 678.

~

84.

22

An email attached to the Complaint sheds further light on this point.
TransformaCon's Chief Executive Officer stated that "[i]t was agreed and
approved by Vista Executives on the approach that would be taken ...." 87 This
quotation demonstrates that Vista's executives -

not Active's executives -

determined what approach TransformaCon would use to perform under the
contract and therefore what and whose data TransformaCon required. But nothing
in the Complaint alleges that Active's executives agreed to provide their data to
TransformaCon or had any responsibility to do so. TransformaCon cannot allege
that Active, a nonparty to the contract, interfered with the contract because Active
failed to provide something that Vista -

not Active -

may have agreed to

provide. Accordingly, Active's motion as to Claim Three is granted.

C.

Lost Profits Claim
Lanyon argues that this Court should dismiss TransformaCon's claim

for lost profits for two reasons. First, Lanyon argues that the existence of a
termination clause in the contract forecloses TransformaCon's claim for lost profits
because TransformaCon cannot assume that Lanyon would have maintained the
contract any longer than it actually did. TransformaCon responds that it may

87

See 10/19/14 Email from Terry Wharton, CEO ofTransformaCon, to
Mark Shannon, an Active employee, Ex. 8 to Compl. (emphasis added).
23

recover lost profits because the contract does not state a firm duration, and New
York courts in these circumstances imply a reasonable period after notice of
termination. TransformaCon contends that it may recover lost profits that it would
have earned under the contract during the reasonable notice period. The parties
agree that the contract does not mention any notice period, as the contract states
only that"[ e]ither party may terminate ... without cause at any time." 88 The
parties disagree how to interpret this provision.
Under New York law, termination clauses must be enforced as
written, including those allowing termination at any time or without cause. 89 As
written, SOW Three does not require any party to give notice before termination.
Thus, Lanyon's notice of termination effectively ended the contract immediately
and without a notice period. As a result, TransformaCon may not recover lost
profits.

Second, Lanyon also moves to dismiss TransformaCon's request for
lost profits from "other revenue-generating projects." 90 TransformaCon alleges

88

SOW Three § 3.

89

See A.S. Rampell, Inc. v. Hyster Co., 3 N.Y.2d 369, 380 (1957); see
also Fleischmann Distilling Corp. v. Distillers Co., 395 F. Supp. 221, 233
(S.D.N.Y. 1975).
90

See Compl. if 68.
24

that defendants insisted that TransformaCon shift resources from another project to
the Lanyon project. 91 But the MSA specifically states text -

in bold and capitalized

that the parties' liability does not extend to "incidental, special, punitive, or

consequential damages. " 92
Under New York law, "lost profits are consequential damages when,
as a result of the breach, the non-breaching party suffers loss of profits on
collateral business arrangements."93 TransformaCon alleges just such a loss on its
collateral business arrangements. Thus, TransformaCon's request for
consequential damages fails.
TransformaCon also argues that its claim for lost profits damages
should survive notwithstanding the contractual bar because it is predicated on
defendants' tortious acts. However, the only claims remaining for any defendant
are for breach of contract or, in the alternative, unjust enrichment. The
Complaint's allegations do not sound in tort because TransformaCon does not

91

Compl. ~ 68.

92

MSA § 4.3(E).

93

Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89,
109 (2d Cir. 2007).
25

allege a cognizable tort claim. 94 For these reasons, Lanyon's motion to dismiss the
lost profits damages claims is granted.
VI.

CONCLUSION
For the foregoing reasons, Lanyon's motion is GRANTED. Vista's

and Active's motion is GRANTED as to Vista as to Claim Two, DENIED as to
Vista as to Claims One and Four, and GRANTED as to Active. To the extent that
TransformaCon can amend its Complaint to state a claim for breach of the implied
covenant of good faith and fair dealing that is based on facts separate from its
breach of contract claim, leave to amend Claim Two as to Lanyon and Vista is
granted. Leave to amend Claims One, Three, and Four against Active is also
granted. Leave to amend Claim Two against Active and Claim Four against
Lanyon is denied. Any amended pleading must be filed by August 11, 2015. The
94

In any event, the Complaint fails to articulate how defendants' actions
were "fraudulent, malicious, or prompted by ... sinister intention" as required to
overcome the contractual bar. Kalish-Jarcho, Inc. v. City ofNew York, 461
N.Y.S.2d 746, 750 (1983). TransformaCon merely makes the conclusory
allegation that "TransformaCon got the work far enough along such that
Defendants could shift the remaining work [to another consultant who would take
TransformaCon's place], and Defendants stopped paying TransformaCon when
calculated to be most cost efficient to them. These bad acts were malicious and
improper." Compl. ~ 8. In fact, the New York Court of Appeals has held that an
allegation such as this, where the opposing party acted in economic self interest,
does not give rise to consequential damages. See Metropolitan Life Ins. Co. v.
Noble Lowndes Int'!, Inc., 84 N.Y.2d 430, 439 (1994).
26

final pretrial conference remains scheduled for January 14, 2016, at 4:30pm. The
Clerk of Court is directed to close these motions (Dkt. Nos. 11 and 15).

."\

Dated:

New York, New York
July 21, 2015

27

-AppearancesFor Plaintiff:

Jason Bonk, Esq.
Cozen O'Connor
277 Park Avenue
New York, NY 10172
[phone]
[phone] (fax)
[e-mail]
For Defendants Vista Equity Partners, Inc. and Active Network, LLC:

Matthew Osborn Solum, Esq.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
[phone]
[phone] (fax)
[e-mail]
For Defendant Lanyon Solutions:

Charles Anthony Michael, Esq.
Brune & Richard LLP
One Battery Park Plaza
New York, NY 10004
[phone]
[phone] (fax)
[e-mail]

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