irth Solutions, LLC v. Windstream Communications LLC

Filing 30

OPINION AND ORDER granting in part and denying in part #8 Motion to Dismiss for Failure to State a Claim. Signed by Judge James L. Graham on 1/25/2017. (ds)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
irth Solutions, LLC,

Case No: 2:16-cv-219

Plaintiff,

Judge Graham

v.
Windstream Communications, LLC,
Defendant.
Opinion and Order

Plaintiff irth Solutions, LLC, a software provider, brings this action against defendant
Windstream Communications, LLC, a former subscriber of plaintiff’s software services. The action
was removed from state court on the basis of diversity jurisdiction. Defendant now moves to
dismiss three of the six claims asserted in the complaint.
I.

Factual Allegations
Plaintiff provides software that assists in tracking “dig tickets,” which are requests for

utilities to mark the location of subsurface utility lines or assets. Defendant is a telecom provider
with underground lines and cables in multiple states. Defendant first subscribed to plaintiff’s
software in 2007 to help it manage the dig tickets it receives and to comply with applicable state law.
On August 8, 2012, plaintiff and defendant entered into an agreement whereby defendant
subscribed to plaintiff’s software for a three year period. The agreement covered an annual volume
of 1,220,000 dig tickets for a yearly subscription cost of $239,031. Defendant had the ability at any
time to monitor the number of dig tickets that had been generated during the subscription year. If
the number of tickets exceeded the stated annual volume, then defendant owed an additional
amount based on the number of ticket overages.
On August 1, 2014, plaintiff billed defendant $51,000 for 339,025 ticket overages that
occurred during the second year of the agreement. Defendant initiated negotiations to extend its
subscription by eight months in consideration for plaintiff forgiving the overage charge, but the
parties did not reach an agreement on the matter.
On July 31, 2015, plaintiff billed defendant $46,163 for 307,758 ticket overages that occurred
during the final year of the agreement. Upon defendant’s promise to pay plaintiff for the services it
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provided, plaintiff agreed to continue providing services to defendant beyond the July 31, 2015
termination date of the subscription in order to pursue negotiations to renew the subscription and
resolve the overage charges.
The complaint alleges that even while negotiating with plaintiff to renew the subscription,
defendant had already begun to install a competitor’s software onto its systems and “used the
extended time to mislead the Plaintiff into relying on Defendant’s bad faith overtures that they
would fully pay the Plaintiff for the ticket overages in one form of consideration or another.”
(Compl., ¶ 42).
On September 1, 2015, defendant canceled plaintiff’s service. Plaintiff billed defendant in
the amount of $18,973 for one-month’s service beyond the termination of the agreement.
According to the complaint, defendant has not paid for the overages from the second and
third years of the agreement and has not paid for the additional month of service in August 2015.
The complaint asserts claims for breach of contract, failure to pay on an account, unjust
enrichment, promissory estoppel, fraud and violation of a license agreement. The last three claims
are the subject of the motion to dismiss.
II.

Standard of Review
Federal Rule of Civil Procedure 8(a) requires that a pleading contain a “short and plain

statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). When
considering a motion under Rule 12(b)(6) to dismiss a pleading for failure to state a claim, a court
must determine whether the complaint “contain[s] sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court should construe the
complaint in the light most favorable to the plaintiff and accept all well-pleaded material allegations
in the complaint as true. Iqbal, 556 U.S. at 679; Erickson v. Pardus, 551 U.S. 89, 93-94 (2007);
Twombly, 550 U.S. at 555-56.
Despite this liberal pleading standard, the “tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556
U.S. at 678; see also Twombly, 550 U.S. at 555, 557 (“labels and conclusions” or a “formulaic
recitation of the elements of a cause of action will not do,” nor will “naked assertion[s]” devoid of
“further factual enhancements”); Papasan v. Allain, 478 U.S. 265, 286 (1986) (a court is “not bound
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to accept as true a legal conclusion couched as a factual allegation”). The plaintiff must provide the
grounds of his entitlement to relief “rather than a blanket assertion of entitlement to relief.”
Twombly, 550 U.S. at 556 n.3. Thus, “a court considering a motion to dismiss can choose to begin
by identifying pleadings that, because they are no more than conclusions, are not entitled to the
assumption of truth.” Iqbal, 556 U.S. at 679.
When the complaint does contain well-pleaded factual allegations, “a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Iqbal,
556 U.S. at 679. “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. at 678. Though “[s]pecific facts are not necessary,” Erickson, 551 U.S. at 93, and though Rule 8
“does not impose a probability requirement at the pleading stage,” Twombly, 550 U.S. at 556, the
factual allegations must be enough to raise the claimed right to relief above the speculative level and
to create a reasonable expectation that discovery will reveal evidence to support the claim. Iqbal,
556 U.S. at 678-79; Twombly, 550 U.S. at 555-56. This inquiry as to plausibility is “a contextspecific task that requires the reviewing court to draw on its judicial experience and common sense. .
. . [W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged – but it has not ‘show[n]’– ‘that the pleader is entitled to
relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
III.

Discussion
A.

Promissory Estoppel

Promissory estoppel is an equitable doctrine which enforces a party’s right to rely on certain
promises: “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.” See Mers v. Dispatch
Printing Co., 19 Ohio St. 3d 100, 104, 483 N.E.2d 150, 154 (Ohio 1985) (internal quotation marks
omitted). In order to establish a claim for promissory estoppel, a party must establish the following
elements: (1) a clear and unambiguous promise was made; (2) upon which it would be reasonable
and foreseeable for the party to rely; (3) actual reliance on the promise; and (4) the party was injured
as a result of the reliance. Weiper v. W.A. Hill & Assocs., 104 Ohio App.3d 250, 661 N.E.2d 796,
803 (Ohio Ct. App. 1995).

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Defendant argues that the complaint fails to allege the first two elements of a promissory
estoppel claim. Regarding the first element, defendant contends that the complaint does not identify
a clear promise that it made to plaintiff. As to the second element, defendant contends that any
promise allegedly made was so vague that no reasonable business would have relied on such a
promise.
The court finds that the complaint sufficiently alleges a promissory estoppel claim. The
parties’ subscription agreement ended on July 31, 2015. At that time, defendant allegedly owed
roughly $97,000 for ticket overages. The complaint alleges that defendant “promised to repay
Plaintiff for the services furnished to Defendant at their request” and that plaintiff agreed to
continue to provide service while the parties explored retiring the past due overages and entering
into a new subscription period. (Compl., ¶ 67). A promise is defined as “‘a manifestation of
intention to act or refrain from acting in a specified way, so made as to justify a promisee in
understanding that a commitment has been made.’” Stull v. Combustion Engineering, Inc., 72 Ohio
App.3d 553, 557, 595 N.E.2d 504, 507 (Ohio Ct. App. 1991) (quoting Restatement of the Law,
Contracts 2d (1981) 8, Section 2(1)). Here, the promise that the complaint identifies is defendant’s
promise to pay for plaintiff’s services rendered after the termination of the agreement and while the
parties were attempting to negotiate a new deal. See McCroskey v. State, 8 Ohio St.3d 29, 30, 456
N.E.2d 1204, 1205 (Ohio 1983) (a clear and unambiguous promise is one that the promisor would
expect to induce reliance).
Defendant emphasizes that the complaint does not allege the amount of consideration that
defendant would provide under its purported promise. At the pleading stage, the court finds that
the complaint sufficiently alleges that the parties had just completed a three-year subscription period
and that the rate by which defendant would pay plaintiff for services provided after July 31, 2015
could be reasonably determined by reference to the parties’ course of dealing. See Nilavar v.
Osborn, 137 Ohio App.3d 469, 487, 738 N.E.2d 1271, 1284 (Ohio Ct. App. 2000) (contract terms
“‘may be given precision by usage or trade or by course of dealing between the parties’”) (quoting
Restatement of Contracts 2d § 33, cmt. f).
The complaint also makes sufficient factual allegations to support the plausibility of
plaintiff’s reliance being reasonable. Defendant had been a client of plaintiff’s since 2007. Wanting
to retain its client’s business and to recover as much of the past due overages as readily as it could,
plaintiff made the good faith gesture of continuing to provide service to defendant on defendant’s
promise that it would pay for the continuation of service. Plaintiff did so for one month, a period of
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time that the court views, again at the pleading stage, as reasonable in light of the allegations that the
parties were attempting to negotiate a new deal during that period.
Accordingly, defendant’s motion to dismiss the promissory estoppel claim is denied.
B.

Fraud

The elements of a claim for fraud under Ohio law are: (1) a representation, or, where there is
a duty to disclose, concealment of a fact; (2) which is material to the transaction at hand; (3) made
falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is
true or false that knowledge may be inferred; (4) with the intent of misleading another into relying
upon it; (5) justifiable reliance upon the representation or concealment; and (6) a resulting injury
proximately caused by the reliance. Gaines v. Preterm–Cleveland, Inc., 33 Ohio St.3d 54, 55, 514
N.E.2d 709, 712 (Ohio 1987).
Federal Rule of Civil Procedure 9(b) requires that averments of fraud be stated with
particularity. The Sixth Circuit requires a plaintiff, at a minimum, to allege the time, place and
content of the alleged misrepresentation relied upon, the fraudulent scheme, the fraudulent intent of
the defendants, and the injury resulting from the fraud. Coffey v. Foamex L.P., 2 F.3d 157, 161–62
(6th Cir. 1993). Allegations of fraudulent misrepresentation must be made with sufficient
particularity and with a sufficient factual basis to support an inference that they were knowingly
made. Id. at 162.
Defendant argues that the complaint fails to allege fraud with particularity because the time,
place and content of any misrepresentation are not alleged. The court concedes that this is a close
call, but finds that the complaint does sufficiently allege fraud. The Sixth Circuit reads Rule 9(b)’s
requirement of particularity “liberally” and in harmony with the policy favoring simplicity in
pleading codified in Rule 8. Coffey, 2 F.3d at 161; Sanderson v. HCA–The Healthcare Co., 447 F.3d
873, 876 (6th Cir. 2006). The threshold test is whether the complaint places the defendant on
sufficient notice of the misrepresentation, thus allowing the defendants to answer and address the
plaintiff’s claim of fraud in an informed manner. Coffey, 2 F.3d at 162; United States ex rel. Bledsoe
v. Community Health Systems, Inc., 342 F.3d 634, 643 (6th Cir. 2003) (complaint should provide
fair notice to defendants and enable them to prepare an informed pleading responsive to the specific
allegations of fraud).
The complaint alleges that defendant promised to pay plaintiff for continued service while
the parties attempted to negotiate a new deal and promised that the new deal would in some way
resolve the past due overages. It is true, as defendant observes, that the complaint does not allege
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which particular individual made the promise or when exactly it was made, but, under a fair reading
of the complaint, plaintiff is alleging that a representative of defendant made the promise at some
time proximate to when the subscription agreement ended. The complaint further alleges that
defendant acted with the intent to deceive because when defendant made its promise, it intended to
(and did) “utilize the negotiation time to secure and install competitive software” and never intended
to pay plaintiff for the extended service or overages. (Compl., ¶ 77).
As with the promissory estoppel claim, defendant argues that complaint does not allege
justifiable reliance. For the reasons stated above, the court finds that the complaint sufficiently
alleges the element of justifiable reliance.
Accordingly, defendant’s motion to dismiss the fraud claim is denied.
C.

Violation of a License Agreement

Plaintiff’s final cause of action alleges that defendant “made malicious plans to enter into
agreements with Plaintiff for products and services knowing that Defendant had the intention of
misusing individual licenses and the violation [sic] of their contractually limited use.” (Compl., ¶ 89).
The complaint references a provision of the subscription agreement that granted plaintiff a license
to use “Subscriber Data as necessary to provide the Services to Subscriber.” (Master Services Agr.,
§4.3).
Defendant argues that the final cause of action is nonsensical in that the complaint alleges
that defendant misused licenses, when in fact the license granted by the cited provision was for
plaintiff to use defendant’s data. In its response brief, plaintiff does not address this prong of
defendant’s motion to dismiss. The court agrees with defendant that the complaint does not state a
plausible claim that defendant violated the license provision of the agreement. Defendant’s only
duty under the provision was to allow its data to be used; it was plaintiff who was granted a license
by the provision. The complaint contains no allegation that defendant prevented its data from being
accessed or used by plaintiff.
Accordingly, defendant’s motion to dismiss the claim for a violation of a license agreement is
granted.
IV.

Conclusion
For the reasons stated above, defendant’s motion to dismiss (doc. 8) is GRANTED IN

PART and DENIED IN PART. The motion is granted with respect to the claim for a violation of

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a license agreement, but it is denied as to the claims for promissory estoppel and fraud.

s/ James L. Graham
JAMES L. GRAHAM
United States District Judge
DATE: January 25, 2017

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