Grouse River Outfitters Ltd v. NetSuite, Inc., No. 3:2016cv02954 - Document 83 (N.D. Cal. 2017)
Court Description: ORDER granting in part and denying in part 76 Motion for Judgment on the Pleadings. In the attached order, the court grants in part NetSuite's motion. For paragraph 84 only, Grouse River may amend to cure the deficiency. The court will discuss the timing of any amended complaint at the January case-management conference. (Beeler, Laurel) (Filed on 12/21/2017)
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Grouse River Outfitters Ltd v. NetSuite, Inc. Doc. 83 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 San Francisco Division United States District Court Northern District of California 11 GROUSE RIVER OUTFITTERS LTD, 12 Plaintiff, 13 v. 14 NETSUITE, INC., Defendant. 15 Case No. 16-cv-02954-LB ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR JUDGMENT AS A MATTER OF LAW Re: ECF No. 76 16 17 INTRODUCTION 18 This case is a commercial contract dispute.1 Plaintiff Grouse River Outfitters, Ltd. is an 19 outdoor-equipment retailer; defendant NetSuite, Inc. provides commercial software systems that 20 integrate various aspects of retailers’ businesses. The parties entered a series of written agreements 21 under which NetSuite would install the software system.2 Grouse River alleges that NetSuite 22 breached its contractual commitments and also misrepresented the capabilities of its software, its 23 experience in installing such a system, and ultimately its ability to provide a system that could 24 work as promised.3 25 26 27 28 1 Second Amend. Compl. (“SAC”) – ECF No. 43. Citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of documents. 2 Id. at 46 (¶ 257). 3 Id. at 41–45 (¶¶ 216–265). ORDER – No. 16-cv-02954-LB Dockets.Justia.com NetSuite moves for judgment on the pleadings to strike certain allegations in the complaint on 1 2 the ground that they are not actionable fraud.4 The court grants the motion in part. 3 4 STATEMENT The court assumes familiarity with its prior orders, which recount Grouse River’s claims that 6 the integrated software system it purchased from NetSuite was installed late and never worked as 7 promised.5 The basic allegations are as follows. In 2012, Grouse River began searching for an 8 “integrated software system” that would help its retail operations grow.6 Grouse River read (and 9 later relied upon) false statements made in NetSuite’s advertising material about its capabilities to 10 implement software solutions.7 Grouse River later relied on express statements that NetSuite made 11 United States District Court Northern District of California 5 that it could deliver a software system that would have the capability to meet Grouse River’s 12 requirements.8 The parties entered into a pair of written contracts in March 2014.9 The NetSuite 13 system was not installed and operational by its original deadline of September 12, 2014.10 The 14 system never met its promised capabilities.11 Grouse River eventually filed this lawsuit. NetSuite moved to dismiss the fraud claims, and the 15 16 court dismissed them with leave to amend.12 The court found — among other things — that 17 Grouse River had adequately pleaded justifiable reliance but had not pleaded fraud with sufficient 18 19 20 21 22 23 24 25 26 27 28 4 Mot. – ECF No. 76 at 2 (the challenged allegations are SAC ¶¶ 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35, 37, 39, 41–51, 53, 55, 57, 63–65, 67, 68–71, 73, 75–86, 89–93, 102, 114, 124, 130, 135, 139 and 147). 5 Orders – ECF No. 41, 54. 6 SAC – ECF No. 43 at 2 (¶¶ 8 9). 7 Id. at 3–9 (¶¶ 15 40). 8 See id. at 3 (¶ 14), 9–17 (¶¶ 41 92), 41 (¶¶ 219–21), 43 (¶¶ 231–35), 44–45 (¶¶ 241, 245, 248). 9 See ECF No. 25-1 at 5–55. The parties’ relationship comprised a handful of agreements related to the retail software system. After the initial contracts of March 2014, these seem to have consisted of project extensions and refinements. See id. at 20–65. 10 SAC – ECF No. 43 at 18 (¶ 100). 11 SAC – ECF No. 43 at 28–33 (¶¶ 148–182). 12 Order – ECF No. 41 at 12 17. ORDER – No. 16-cv-02954-LB 2 1 particularity.13 Grouse River filed a second amended complaint with five claims: (1) fraudulent 2 misrepresentation; (2) negligent misrepresentation; (3) fraud in the inducement; (4) violation of 3 California’s Unfair Competition Law (Cal. Bus. & Profs. Code § 17200); and (5) breach of 4 contract.14 NetSuite moved again to dismiss the fraud claims for failing to plead fraud sufficiently 5 under Rule 9(b).15 The court denied the motion, primarily because the statements were at least 6 identified particularly.16 Reading Rule 9(b)’s pleading requirement in harmony with Rule 8(a)’s 7 requirement of a “short and plain” statement of the facts, the court’s view was that the lawsuit 8 survived the pleadings stage.17 NetSuite now moves to strike some of the allegations.18 The court held a hearing on December 9 10 14, 2017.19 United States District Court Northern District of California 11 GOVERNING LAW 12 “After the pleadings are closed—but early enough not to delay trial—a party may move for 13 judgment on the pleadings.” Fed. R. Civ. P. 12(c). “[T]he same standard of review applicable to a 14 Rule 12(b) motion applies to its Rule 12(c) analog,” because the motions are “functionally 15 identical.” Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). A Rule 12(c) 16 motion may thus be predicated on either (1) the lack of a cognizable legal theory or (2) insufficient 17 facts to support a cognizable legal claim. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 18 699 (9th Cir. 1990). When considering a motion to dismiss under Rule 12(c), the court “must 19 accept all factual allegations in the complaint as true and construe them in the light most favorable 20 to the non-moving party.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). “A judgment on 21 the pleadings is proper if, taking all of [plaintiff]’s allegations in its pleadings as true, [defendant] 22 23 24 25 26 27 28 13 Id. 14 See generally SAC – ECF No. 43. 15 Motion – ECF No. 46. 16 Order – ECF No. 54 at 4–5. 17 Id. 18 Motion – ECF No. 76. 19 Minute Order – ECF No. 82. ORDER – No. 16-cv-02954-LB 3 1 is entitled to judgment as a matter of law.” Compton Unified Sch. Dist. v. Addison, 598 F.3d 1181, 2 1185 (9th Cir. 2010). 3 ANALYSIS 4 The motion is procedurally appropriate and valid at least in part. A chart with the court’s 5 6 conclusions about each challenged statement is set forth at the end of the order. 7 8 1. The Rule 12(c) Motion Is Procedurally Appropriate Grouse River argues that the court should deny NetSuite’s motion for judgment on the 9 pleadings because “it is nothing more than a disguised motion to have the Court rehear NetSuite’s 11 United States District Court Northern District of California 10 prior Rule 12(b)(6) motion the Court carefully considered, and carefully denied. . .”20 The precise 12 argument — whether the statements in the complaint are not fraud because they are mere puffery 13 — was not raised in the earlier motions or addressed in the court’s two prior orders. 14 As the court said at the hearing, its prior order denying the motion to dismiss was aimed at 15 moving the case forward through discovery. Moreover, there are so many allegations that might or 16 might not — depending on context — sound in fraud that the court essentially kicked the fraud 17 can down the road. The court anticipated that the defense was better raised later21 and (perhaps 18 naively) thought that the parties might resolve their contract dispute with some discovery. In any event, it was not the court’s intent to foreclose the issue. It is procedurally appropriate. 19 20 Fed. R. Civ. P. 12(h)(2); In re Apple iPhone Antitrust Litig., 846 F.3d 314, 320 (9th Cir.) cert. 21 docketed, 2017 WL 3393652 (Aug. 8, 2017). 22 23 2. Statements That Are Actionable Fraud 24 Under California law, the elements of fraud and deceit are: (1) misrepresentation; (2) 25 knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damages. 26 27 28 20 Opp. – ECF No. 77 at 1. 21 Order – ECF No. 54 at 5. ORDER – No. 16-cv-02954-LB 4 1 Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). “The same elements comprise a cause of 2 action for negligent misrepresentation, except there is no requirement of intent to induce reliance.” 3 Cadlo v. Owens-Illinois, Inc., 125 Cal. App. 4th 513, 519 (2004). “In both causes of action, the 4 plaintiff must plead that he or she actually relied on the misrepresentation.” Id. NetSuite argues that certain allegations in the Second Amended Complaint (“SAC”) are not 5 6 fraud because they are either (1) “mere puffery,” (2) statements about future events; or (3) not 7 alleged to be false. 8 2.1 Statements That Are “Mere Puffery” 9 NetSuite argues that the advertisements and communications described in the second amended complaint are “mere puffery.”22 Some are “mere puffery,” but others are actionable because they 11 United States District Court Northern District of California 10 refer to specific aspects of NetSuite’s product and services. 12 Statements constituting mere “puffery” cannot support liability under a claim for fraud or 13 negligent misrepresentation. Glen Holly Entm’t, Inc. v. Tektronix, Inc., 100 F. Supp. 2d 1086, 14 1093 (C.D. Cal. 1999). “Puffery” has been described “as making generalized or exaggerated 15 statements such that a reasonable consumer would not interpret the statement as a factual claim 16 upon which he or she could rely.” In re All Terrain Vehicle Litig., 771 F. Supp. 1057, 1061 (C.D. 17 Cal. 1991) (citing Cook, Perkiss & Liehe, Inc. v. Nor. Cal. Collection Serv., 911 F.2d 242, 246 18 (9th Cir. 1990)). “[U]ltimately, the difference between a statement of fact and mere puffery rests 19 in the specificity or generality of the claim.” Newcal Indus., Inc. v. Ikon Office Sols., 513 F.3d 20 1038, 1053 (9th Cir. 2008). “[A]dvertising which merely states in general terms that one product 21 is superior is not actionable.” Cook, Perkiss & Liehe, 911 F.2d at 246 (quoting Smith–Victor Corp. 22 v. Sylvania Elec. Prods., Inc., 242 F. Supp. 302, 308 (N.D. Ill.1965)). “However, misdescriptions 23 of specific or absolute characteristics of a product are actionable.” Id. (quoting Stiffel Co. v. 24 Westwood Lighting Grp., 658 F. Supp. 1103, 1115 (D. N.J. 1987)). Whether an alleged 25 misrepresentation is a non-actionable statement of puffery is a question of law. Id. 26 27 28 22 The challenged allegations are SAC ¶¶ 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35, 37, 39, 41–51, 53, 55, 57, 63–65, 67–71, 73, 75–86, 89–93, 102, 114, 115, 124, 130, 135, 139, and 147. ORDER – No. 16-cv-02954-LB 5 1 The following advertisements and communications are not actionable because they are 2 general, exaggerated assertions about characteristics of NetSuite’s product: SAC ¶¶ 15, 21, 27, 31, 3 33, 63, 64, 67, 69, 70, 71, 75, 83, 85, 86, 89, 90. Examples of these statements include: 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 “Every company wants to deliver the commerce experience that Apple delivers to customers—an experience that recognizes the customer regardless of channel or device, and efficiently delivers goods and services in world-class fashion, projecting a powerful brand message. NetSuite SuiteCommerce is architected to enable companies of all sizes to deliver this type of rich, touch-point agnostic experience to their customers.” (¶ 15) “As the No. 1 cloud business management suite, NetSuite meets the in-store retailing needs of multi-channel and multi-location retailers with a modern POS solution that enables retailers to streamline and accelerate the transaction process, while also delivering personalized customer service…” (¶ 29) “NetSuite further represented at the meeting that the SuiteCommerce software could and would provide Grouse River with an Ecommerce solution that makes is “fast & easy to find products”, and allow Grouse River’s customers to shop efficiently through any touchpoint including social media and mobile devices.” (¶ 71) A reasonable consumer would not interpret these statements as a factual claim upon which he or she could rely. To the extent that Grouse River brings claims for fraud and misrepresentation based on these paragraphs, the court dismisses the claims. The remaining advertisements (SAC ¶¶ 17, 19, 23, 25, 31, 35, 37) and communications (SAC ¶¶ 53, 55, 57, 65, 68, 73, 76, 77, 78, 79–82) are actionable because they make specific assertions about how NetSuite’s product functions. They all state absolute characteristics of the product, such as (1) the ability to see customer “purchase history and communications with your company and whether they interacted with your brand online, at a brick-and-mortar store location or with a sales representative,” and (2) the ability for shoppers to “create and manage lists of favorite or frequently purchased items.” These specific statements are distinguishable from generalized “puffery” about the superiority of a product. In addition, NetSuite’s representation that it could deliver a software system that would have the capability to meet Grouse River’s requirements is not puffery. Grouse River provided NetSuite with a specific list of requirements. NetSuite said it could meet those requirements. In a different context, a statement that a product could meet a customer’s needs might be generalized “puffery.” But in the case here, given that Grouse River asked if NetSuite could meet specific requirements, ORDER – No. 16-cv-02954-LB 6 1 it was plausibly reasonable for Grouse River to rely on the representation that NetSuite would 2 deliver a product that met those specifications. NetSuite’s representation that it could meet the 3 requirements outlined by Grouse River therefore is not mere “puffery.” 4 2.2 Statements About Future Events 5 NetSuite contends that the allegations in SAC ¶ 84 regarding NetSuite’s communications with 6 Grouse River are non-actionable because they were statements about future events. Grouse River 7 alleges that NetSuite falsely and fraudulently “committed to have a four month implementation 8 cycle, a top tier team of consultants on the project, 30 minute status calls every two weeks, had the 9 clout to get things done and intended to keep the project on track.”23 The court agrees with 10 NetSuite that the statements are not actionable fraud. Statements that are predictions of future events or commitments to take some action in the United States District Court Northern District of California 11 12 future generally are not actionable fraud. Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 13 4th 153, 158 (1991). “Certain broken promises of future conduct may, however, be actionable.” Id. 14 “To maintain an action for deceit based on a false promise, one must specifically allege and prove 15 . . . that the promisor did not intend to perform at the time he or she made the promise and that it 16 was intended to deceive or induce the promise to do or not do a particular thing.” Id. at 159. There are no allegations in the complaint that NetSuite did not intend to carry out a four-month 17 18 implementation cycle or provide other follow-up to keep the project on track. The statements in 19 SAC ¶ 84 are not actionable fraud. For this paragraph only, Grouse River may amend to cure this 20 deficiency if it can. 21 2.3 Statements Not Alleged To Be False 22 NetSuite contends that “throughout the SAC, Grouse River often suggests that various 23 statements may form the basis of fraud claims without actually pleading them as such.”24 More 24 succinctly, the argument is that the SAC does not allege that these statements are false. The 25 complaint, however, is very clear about what statements it alleges to be false and fraudulent, as it 26 27 28 23 Motion – ECF No. 76 at 11 (quoting SAC – ECF No. 43 at 16 (¶ 84), 19 (¶ 91)). 24 Id. at 10 n. 4. ORDER – No. 16-cv-02954-LB 7
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