Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_18-cv-04916/USCOURTS-cand-5_18-cv-04916-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-(Citizenship)

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Case No. 18-CV-04916-LHK 

ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

DAVID SWAFFORD,

Plaintiff,

v.

INTERNATIONAL BUSINESS 

MACHINES CORPORATION,

Defendant.

Case No. 18-CV-04916-LHK 

ORDER GRANTING IN PART WITH 

PREJUDICE, GRANTING IN PART 

WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO 

DISMISS AMENDED COMPLAINT

Re: Dkt. No. 42

Plaintiff David Swafford (“Swafford”) brings the instant lawsuit against Defendant 

International Business Machines Corporation (“IBM”). Before the Court is IBM’s motion to 

dismiss the amended complaint. Having considered the parties’ briefs, the relevant law, and the 

record in this case, the Court GRANTS in part with prejudice, GRANTS in part without prejudice, 

and DENIES in part IBM’s motion to dismiss the amended complaint.

I. BACKGROUND

A. Factual Background

Swafford is a resident of Santa Clara County, California and a software sales representative 

at IBM since 2009. Amend. Compl. ¶¶ 6, 12. IBM is a New York corporation with its principal 

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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place of business in the state of New York. Id. ¶ 7. Swafford’s compensation as an IBM sales 

representative consisted of a salary plus commissions. Id. ¶ 15. This case concerns Swafford’s 

commission payments (also referred to as “incentive payments”) and IBM’s commission plan and 

policies.

1. Facts and Allegations Related to IBM’s Commission Payments

Swafford had a written commission plan known as the Incentive Plan Letter (“IPL”) for 

the second half of 2016 that covered the sales period from July 1, 2016 through December 31, 

2016. Id. ¶ 17; see also Mot., Ex. 1 (“IPL”).1 The IPL provided that Swafford’s sales quota for the 

second half of 2016 was $512,600. IPL at 2. The IPL also provided information about Swafford’s 

commissions. 

First, the IPL provided that, without an IPL in place, an employee is “not eligible to 

receive any related incentive payments.” Id. The IPL defined the “Plan” as the incentive plan 

information contained in the IPL and at IBM’s Worldwide Incentives Workplace website. Id.

Second, the IPL provided that IBM had the right to make changes to incentive payment 

rates or quotas. Id. at 3. The IPL stated:

Right to Modify or Cancel: The Plan does not constitute an express or implied 

contract or a promise by IBM to make any distributions under it. IBM reserves the 

right to adjust the Plan terms, including, but not limited to, changes to sales 

performance objectives (including management-assessment objectives), changes to 

assigned customers, territories, or account opportunities, or changes to applicable 

incentive payment rates or quotas, target incentives or similar earnings opportunities, 

or to modify or cancel the Plan, for any individual or group of individuals, at any 

time during the Plan period up until any related payments have been earned under 

the Plan terms. Managers below the highest levels of management do not know 

whether IBM will or will not change or adopt any particular compensation plan; they 

do not have the ability to change the Plan terms for any employee; nor are they in a 

position to advise any employee on, or speculate about, future plans. Employees 

should make no assumptions about the impact potential Plan changes may have on 

their personal situations unless and until any such changes are formally announced 

by IBM.

 

1 A court may consider documents that were referenced but not attached to the complaint for 

purposes of deciding a Rule 12(b)(6) motion. Davis v. HSBC Bank Nev., NS., 691 F.3d 1152, 

1159–60 (9th Cir. 2012); Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994).

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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Id. 

Third, the IPL provided that IBM could change incentive payment calculations resulting 

from errors. Id. The IPL stated:

Adjustments for Errors: IBM reserves the right to review and, in its sole discretion, 

adjust or require repayment of incorrect incentive payments resulting from 

incomplete incentives processes or other errors in the measurement of achievement 

or the calculation of payments, including errors in the creation or communication of 

sales objectives. Depending on when an error is identified, corrections may be made 

before or after the last day of the full-Plan period, and before or after the affected 

payment has been released.

Id. 

The IPL also provided that IBM may review significant transactions: 

Significant Transactions: IBM reserves the right to review and, in its sole 

discretion, adjust incentive achievement and/or related payments associated with a 

transaction which (1) is disproportionate when compared with the territory 

opportunity anticipated during account planning and used for the setting of any sales 

objectives; or for which (2) the incentive payments are disproportionate when 

compared with your performance contribution towards the transaction.

Id. at 4. 

Finally, the IPL also explained how incentive payments are earned under the Plan:

Full-Plan Earnings: Regardless of your start date, your incentive payments are 

earned under the Plan terms, and are no longer considered Plan-to-Date advance 

payments, only after the measurement of complete business results following the end 

of the full-Plan period or (if applicable) after the measurement of complete business 

results after the date you left the Incentive Plan early. Incentive payments will be 

considered earned only if you have met all payment requirements, including: (1) you 

have complied with the Incentive Plan, the Business Conduct Guidelines and all 

other applicable IBM employment policies and practices; (2) you have not engaged

in any fraud, misrepresentation or other inappropriate conduct relating to any of your 

business transactions or incentives; (3) and the customer has paid the billing for the 

sales or services transaction related to your incentive achievement.

Id. 

Despite the IPL, during Swafford’s time at IBM, IBM repeatedly made representations that 

Swafford’s commissions would be uncapped. Amend. Compl. ¶¶ 15–16. For instance, Swafford 

regularly received from IBM PowerPoint presentations with over 200 slides, which IBM called 

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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“Educational Materials,” that described the terms of the commission plans. Id. ¶ 16. Each year, the 

Educational Materials stated repeatedly that “commissions are uncapped.” Id. “Nowhere in the 

Educational Materials is there anything even suggesting that the sales commissions may be capped 

in some instances or that IBM reserves the right to cancel or modify whether and to what extent 

commissions may be capped.” Id. 

During the second half of 2016, Swafford received and reviewed a PowerPoint titled “Our 

Purpose, Values & Practices” relating to “Your 2016 Incentive Plan.” Id. ¶¶ 17–20. Page 13 of the 

PowerPoint specifically stated that “[e]arnings opportunity remains uncapped,” and that the 

presentation mentions no less than six times in its 18 pages that “payments” and/or “earnings 

opportunit[ies]” are “uncapped.” Id. ¶ 20. These representations were repeated in sales meetings 

and by IBM managers. Id. ¶ 21. These representations are “also in line with IBM’s written 

guidance to its managers,” which provides:

Conditions that may lead to an adjustment include the need to correct errors or the 

need to balance with employee’s contribution to the success of a large sales 

transaction (which criteria must be clearly provided to Commissions team). 

Adjustments must not be done only as a ceiling or cap on the total earnings allowable 

to employees.

Id. ¶ 22. The amended complaint alleges that “[i]n other words, IBM’s official policies provide 

that sales representatives’ commissions may be adjusted to correct errors, but their commissions 

may not be arbitrarily capped for the purpose of limiting an employee’s earnings.” Id. ¶ 23.

2. Swafford’s Allegations That His Commission Payments Were Capped

In 2016, Swafford worked on behalf of IBM to close two large deals of IBM products and 

services with Oracle (“Oracle Deal”) and Sabre, Inc. (“Sabre Deal”). Id. ¶¶ 25–26. Swafford’s

efforts in closing the Oracle and Sabre Deals resulted in a total sale of approximately $3 million in 

IBM products and services. Id. ¶ 26. Swafford’s revenue credit on all the deals he closed in the 

second half of 2016, including the Oracle and Sabre Deals, was approximately $4,983,275, and 

Swafford’s quota was $512,600. Id. On those recognized amounts, Swafford earned commissions

of $966,316, that should have been paid to him in January 2017. Id. ¶ 27.

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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Swafford was not paid any commission in January 2017. Id. Instead, Swafford’s first line 

manager, Mark Briggs (“Briggs”), informed Swafford that because of the size of the deals, 

Swafford’s commissions were going through an internal review process. Id. ¶ 28. On February 23, 

2017, Briggs emailed Swafford to tell Swafford that Briggs had just been “informed by IBM that 

[Swafford’s] attainment has been capped at 250% of plan.” Id. ¶ 30; see also id., Ex. A. Briggs 

told Swafford in a phone call after that email that “IBM decided it was simply too much money to 

pay Mr. Swafford the full commissions he had earned, and thus, IBM would be paying him only a 

portion of those commissions.” Id. ¶ 30.

IBM ultimately paid Swafford $716,522 in commissions for the second half of 2016, 

which was $249,765 less than what Swafford should have been paid in commissions. Id. ¶¶ 31–34. 

The only reason Swafford was “ever provided by IBM for why he was not paid all of the 

commissions he had earned, was that IBM thought it was simply too much money to pay Mr. 

Swafford, and thus, [IBM], was unwilling to pay him in full.” Id. ¶ 35. After Swafford’s further 

attempts to learn why he had not been paid in full, Swafford’s second line manager, Richard 

Wirtenson (“Wirtsenson”) emailed him on May 1, 2017 and said: “I made the recommendation to 

Don [Leeke] [(Swafford’s third line manager)] that we pay on all other deals 100% but CAP the 

Oracle and Sabre transactions at 150% of your quota on each.” Id. ¶¶ 29, 36; see also id., Ex. B.

3. Swafford’s Allegations Regarding IBM’s History of Capping Commissions

The amended complaint quotes from a case in the Middle District of North Carolina, 

Bobby Choplin v. International Business Machines Corporation, No. 16-cv-1412-TDS-JEP (the 

“Choplin Action”), where the plaintiff, who had an IPL, alleged that IBM had represented in 

PowerPoint presentations that it would not cap commissions, yet capped Choplin’s commissions. 

See Amend. Compl. ¶ 41.2

 

2

IBM raises evidentiary objections to Swafford’s allegations about the Choplin Action. See Mot. 

at 20 (citing Fed. R. Civ. P. 32(a)(8) and Fed. R. Evid. 804(b)(1)). However, at the motion to 

dismiss stage, the Court “accept[s] factual allegations in the complaint as true and construe[s] the 

pleadings in the light most favorable to the nonmoving party.” Manzarek, 519 F.3d at 1031. 

Therefore, the Court OVERRULES IBM’s evidentiary objections.

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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Although the Choplin Action ultimately settled, Choplin had taken four depositions: (1) a 

Rule 30(b)(6) deposition of IBM, through corporate designee Richard Martinotti, id., Ex. C; (2) a 

deposition of Choplin’s first-line manager, Thomas Batthany, id., Ex. D; (3) a deposition of 

Choplin’s second-line manager, Haleh Maleki, id., Ex. E; and (4) a deposition of Mark Dorsey, a 

former IBM Vice President of Software Sales, id., Ex. F (collectively, the “Choplin Depositions”). 

The amended complaint alleges that these Choplin Depositions demonstrate that IBM had 

an obligation not to cap, that Swafford was entitled to rely on the statements in the PowerPoints, 

and that what IBM did when it reduced Swafford’s commission was in fact “capping.” ¶ 43.

During the Choplin Depositions, for instance, IBM testified through corporate designee Richard 

Martinotti that it had an “obligation” not to cap Choplin’s earnings opportunity or payments: “Q. 

Okay. So you would agree that IBM when explaining [Choplin’s] compensation plan for the first 

half of 2015 represented to Bobby Choplin that his earnings opportunity remains uncapped, 

wouldn’t you?” “A. Correct.” “Q. Would you also agree that IBM represented to Bobby Choplin 

regarding his first half of 2015 compensation plan that payments were uncapped?” “A. Correct.” 

“Q. So would you agree that IBM had an obligation not to cap Bobby Choplin’s earnings 

opportunity?” “A. Yes.” “Q. Would you agree that IBM had an obligation not to cap Bobby 

Choplin’s payments?” “A. Correct.” See id., Ex. C at 18:19–19:12. Additionally, IBM testified 

through corporate designee Richard Martinotti that it would be reasonable for a salesperson to rely 

on the statements in various PowerPoints regarding the compensation plan. Id. at 66:5–68:1.

B. Procedural History

Swafford filed his initial complaint against IBM on August 14, 2018, which alleged that 

IBM owes him unpaid commissions related to deals that IBM entered into with Oracle and Sabre, 

Inc. ECF No. 1. Swafford’s initial complaint asserted claims for: (1) breach of oral and/or implied 

contract; (2) quantum meruit; (3) unjust enrichment; (4) fraudulent misrepresentation; (5) 

negligent misrepresentation; (6) violation of the California Labor Code; (7) violations of 

California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200; and (8) punitive 

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damages. See id. On October 19, 2018, IBM moved to dismiss Swafford’s initial complaint. ECF 

No. 24. 

On November 2, 2018, Swafford filed an amended complaint. ECF No. 32 (“Amend. 

Compl.”). In his amended complaint, Swafford asserts claims for: (1) “[v]iolation of California 

Labor Code”; (2) violations of the UCL, Cal. Bus. & Prof. Code § 17200; (3) fraudulent 

misrepresentation; (4) negligent misrepresentation; (5) quantum meruit; (6) unjust enrichment; and 

(7) punitive damages. See id. Swafford’s first cause of action alleges “Violation of California 

Labor Code,” but in fact alleges violations of California Civil Code § 1668 and California Labor 

Code §§ 221, 223, and 2751. Not only is the title of the claim incomplete because it fails to 

mention the California Civil Code, but also lumping all of these claims together into one cause of 

action is improper. See, e.g., Fed. R. Civ. P. 10 (“A party must state its claims or defenses in 

numbered paragraphs, each limited as far as practicable to a single set of circumstances.”); Saling 

v. Royal, No. 2:13-CV-1039-TLN-EFB, 2015 WL 5255367, at *4 (E.D. Cal. Sept. 9, 2015) (“To 

the extent plaintiff is attempting to assert multiple causes of action in one count, they are to be 

separated into individual counts for each cause of action in the event plaintiff files an amended 

complaint.”). 

On November 16, 2018, IBM filed the instant motion to dismiss Swafford’s amended 

complaint. ECF No. 42 (“Mot.”). Swafford opposed on November 30, 2018. ECF No. 44 

(“Opp’n”). IBM replied on December 7, 2018. ECF No. 46 (“Reply”). IBM filed four statements 

of recent decision. See ECF Nos. 45, 47, 54, and 60. Swafford also filed a statement of recent 

decision. ECF No. 61.

II. LEGAL STANDARD

A. Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(6) 

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to include “a 

short and plain statement of the claim showing that the pleader is entitled to relief.” A complaint 

that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil Procedure 

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12(b)(6). The United States Supreme Court has held that Rule 8(a) requires a plaintiff to plead 

“enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. 

Twombly, 550 U.S. 544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility 

standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a 

defendant has acted unlawfully.” Id. (internal quotation marks omitted). For purposes of ruling on 

a Rule 12(b)(6) motion, the Court “accept[s] factual allegations in the complaint as true and 

construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. 

Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 

The Court, however, need not accept as true allegations contradicted by judicially 

noticeable facts, see Schwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and it “may look 

beyond the plaintiff’s complaint to matters of public record” without converting the Rule 12(b)(6) 

motion into a motion for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 

1995). Nor must the Court “assume the truth of legal conclusions merely because they are cast in 

the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per 

curiam) (internal quotation marks omitted). Mere “conclusory allegations of law and unwarranted 

inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 

(9th Cir. 2004).

B. Motion to Dismiss Under Federal Rule of Civil Procedure 9(b) 

Federal Rule of Civil Procedure 9(b) requires that allegations of fraud be stated with 

particularity. Specifically, the Ninth Circuit has held that averments of fraud “be accompanied by 

‘the who, what, when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy Corp. 

USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 

1997)). When an “entire claim within a complaint[] is grounded in fraud and its allegations fail to 

satisfy the heightened pleading requirements of Rule 9(b), a district court may dismiss the . . . 

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claim.” Id. at 1107. The Ninth Circuit has recognized that “it is established law in this and other 

circuits that such dismissals are appropriate,” even though “there is no explicit basis in the text of 

the federal rules for the dismissal of a complaint for failure to satisfy 9(b).” Id. A motion to 

dismiss a complaint “under Rule 9(b) for failure to plead with particularity is the functional 

equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim.” Id.

C. Leave to Amend

If the Court determines that a complaint should be dismissed, it must then decide whether 

to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend 

“shall be freely given when justice so requires,” bearing in mind “the underlying purpose of Rule 

15 to facilitate decisions on the merits, rather than on the pleadings or technicalities.” Lopez v. 

Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (alterations and internal quotation marks 

omitted). When dismissing a complaint for failure to state a claim, “a district court should grant 

leave to amend even if no request to amend the pleading was made, unless it determines that the 

pleading could not possibly be cured by the allegation of other facts.” Id. at 1130 (internal 

quotation marks omitted). Accordingly, leave to amend generally shall be denied only if allowing 

amendment would unduly prejudice the opposing party, cause undue delay, or be futile, or if the 

moving party has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532 

(9th Cir. 2008).

III. DISCUSSION

As discussed, in his amended complaint, Swafford asserts claims for: (1) “[v]iolation of 

California Labor Code”; (2) violations of the UCL, Cal. Bus. & Prof. Code § 17200; (3) fraudulent 

misrepresentation; (4) negligent misrepresentation; (5) quantum meruit; (6) unjust enrichment; and 

(7) punitive damages. See Amend. Compl. ¶¶ 53–112. Swafford’s first cause of action alleges

“Violation of California Labor Code,” but in fact alleges violations of California Civil Code § 

1668 and California Labor Code §§ 221, 223, and 2751

IBM argues that all of Swafford’s claims should be dismissed. See Mot. First, IBM argues 

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that Swafford’s fraudulent misrepresentation claim fails because Swafford failed to plead his fraud 

claim with the requisite particularity and because Swafford failed to allege an intent to deceive and

reasonable reliance. Mot. at 2, 10–11. Second, IBM argues that Swafford’s negligent 

misrepresentation claim fails because Swafford cannot establish the requisite reasonable reliance. 

Id. at 5. Third, IBM argues that the Court should dismiss Swafford’s quantum meruit and unjust 

enrichment claims for failure to state a claim. Id. at 15. Fourth, IBM argues that the Court should 

dismiss Swafford’s claim for violations of the California Civil and Labor Code. Id. at 15–17. Fifth, 

IBM argues that Swafford’s unfair business practices in violation of California’s UCL, Cal. Bus. 

& Prof. Code § 17200, claim fails because it is derivative of Swafford’s other insufficient claims. 

Mot. at 18. Finally, IBM argues that the Court should dismiss Swafford’s claim for punitive 

damages because the punitive damages claim is derivative of Swafford’s fraudulent 

misrepresentation claim. Id. at 18. The Court addresses IBM’s motion to dismiss as to each claim 

below. For the reasons given below, the Court GRANTS in part with prejudice, GRANTS in part 

without prejudice, and DENIES in part IBM’s motion to dismiss.

A. Fraudulent Misrepresentation Claim

Swafford brings a claim for fraudulent misrepresentation. Amend. Compl. ¶¶ 78–86. For

the elements of fraud, the Court looks to state law. Kearns v. Ford Motor Co., 567 F.3d 1120, 

1126 (9th Cir. 2009). In California, the elements of fraud are: (1) a misrepresentation; (2) made 

with knowledge of its falsity (scienter); (3) with the intent to defraud, i.e., to induce reliance; (4) 

which did induce reasonable reliance; (5) causing damages. Id. (citation omitted). Under Rule 

9(b), a plaintiff is required to state with particularity the circumstances of his allegations of fraud. 

Id. at 1124; see also Fed. R. Civ. P. 9(b). “Averments of fraud must be accompanied by ‘the who, 

what, when, where, and how’ of the misconduct charged.” Kearns, 567 F.3d at 1124.

IBM argues that Swafford’s fraud claim must be dismissed because (1) Swafford fails to 

plead his fraud claim with sufficient particularity pursuant to Rule 9(b); (2) Swafford fails to 

allege that IBM had an intent to deceive; and (3) Swafford fails to allege reasonable reliance. Mot. 

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at 10–13. The Court discusses each argument below.

1. Sufficient Particularity

First, IBM argues that Swafford fails to plead fraud with sufficient particularity because, 

according to IBM, Swafford does not allege the “who” and the “when” of his claim. Mot. at 10–

11; see Kearns, 567 F.3d at 1124. Specifically, IBM points out that Swafford alleges that IBM 

made misrepresentations that Swafford’s commissions would not be capped in: (1) a PowerPoint, 

which “IBM sent to Mr. Swafford to explain his commissions for the 2H 2016 sales period, and 

which Mr. Swafford reviewed, and which was always available via the intranet”; and (2) “the 

statements at sales meetings by IBM executives and Managers at the highest levels of management 

that commissions would not be capped.” Amend. Compl. ¶ 79. As to the second instance, IBM 

argues that Swafford “inexplicably fails to identify any IBM managers or executives who 

allegedly represented that his commissions were uncapped, the specific statement[s] made by 

these individuals, and when these statements were purportedly made.” Mot. at 11. The Court 

agrees with IBM that Swafford’s failure to identify the “who” and “when” for this allegation “as it 

relates to any alleged oral representations by managers” falls short of the pleading standard 

required by Rule 9(b). See id. However, the Court also agrees with Swafford that “IBM implicitly 

concedes in its brief that the PowerPoint representation is sufficient.” See Opp’n at 10.

Thus, the Court DENIES IBM’s motion to dismiss Plaintiff’s fraudulent misrepresentation 

claim for lack of sufficient particularity to the extent Plaintiff’s fraudulent misrepresentation claim 

is based on the PowerPoint.

However, to the extent Plaintiff’s fraudulent misrepresentation claim is based on oral 

statements by IBM executives and managers at sales meetings, the Court finds that the allegation 

is not pled with sufficient particularity, and therefore the Court GRANTS IBM’s motion to 

dismiss. See, e.g., Beard v. Int’l Bus. Machs. Corp., No. C 18-06783 WHA, Dkt. No. 51 (N.D. 

Cal. Apr. 7, 2019) (dismissing IBM sales representative plaintiff’s fraudulent misrepresentation 

claim to the extent it is based on statements by IBM managers because “the complaint fails to 

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

DENYING IN PART MOTION TO DISMISS AMENDED COMPLAINT

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identify the IBM managers who allegedly represented that plaintiff’s commissions were uncapped 

or the specific statements made by those individuals”). However, because the Court finds that 

leave to amend would not unduly prejudice IBM, cause undue delay, or be futile, and because 

Swafford has not acted in bad faith, the Court grants leave to amend to allege the “who” and 

“when” as to Swafford’s allegations regarding the oral statements by IBM executives and 

managers at sales meetings. Leadsinger, Inc., 512 F.3d at 532.

2. Intent to Deceive

IBM next argues that Swafford cannot allege the requisite intent to deceive because IBM 

expressly disclaimed in the IPL that Swafford’s incentive plan did not create any promise or 

obligation by IBM to pay any particular amount in commissions. Mot. at 11–12. The Court finds 

that IBM’s argument fails. IBM’s argument focuses primarily on whether reliance was reasonable, 

not whether IBM intended to deceive, and the IPL disclaimers do not reveal IBM’s motivation for 

informing sales representatives in the PowerPoint presentation and managers’ statements that 

commissions were uncapped. As Swafford points out, circumstantial evidence may be used to 

prove a party’s intent. See, e.g., In re Eashai, 87 F.3d 1082, 1090 (9th Cir. 1996). Here, Swafford 

has alleged that most employers in Swafford’s field do not cap commissions and that IBM would 

be unable to recruit good sales representatives if IBM informed sales representatives that their 

commissions would be capped. Amend. Compl. ¶ 40. Accordingly, the Court concludes that 

Swafford has plausibly alleged intent to deceive. See, e.g., Fessler v. Int’l Bus. Machines Corp., 

No. 1:18-cv-798, 2018 WL 6220209, at *6 (E.D. Va. Nov. 28, 2018) (finding that IBM sales 

representative plaintiff alleged intent to deceive when the sales representative alleged that most 

employers in the field do not cap commissions and that if IBM advertised that it capped, that 

would affect IBM’s ability to recruit) (appeal filed); Beard, No. C 18-06783 WHA, Dkt. No. 51 

(finding IBM sales representative plaintiff alleged intent to deceive because “[t]he complaint 

alleges that IBM knew that an ‘uncapped commissions’ program was highly motivating to sales 

representatives” and that “most employers do not cap commissions,” so “[w]ere IBM to disclose 

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that it capped commissions, it would severely hamper its efforts to recruit good salespeople”).

3. Reasonable Reliance 

IBM also argues that Swafford cannot allege reasonable reliance because Swafford’s IPL 

unambiguously states that IBM reserved the discretion to review and adjust commission payments. 

Mot. at 13. The Court disagrees.

Here, the Court finds inconsistent IBM’s insistence that Swafford is bound by the 

representations in the IPL. IBM repeatedly states that the IPL is not a contract and that the IPL 

does not create any obligations for IBM. See, e.g., Mot. at 16 (“[T]he IPL does not create an 

enforceable contract.”); Reply at 9 (“[T]he IPL does not create an enforceable contract that 

imposes contractual obligations on IBM”); Mot. at 11 (stating that IBM expressly informed

Swafford that “his incentive plan did not create a contractual obligation or promise by IBM to pay 

commissions”). Yet, IBM nonetheless insists that Swafford was required to rely only on IBM’s 

representations in the IPL and nothing else. Moreover, although the IPL stated that IBM did not 

promise to make any commission payments under the Plan and that IBM had the right to modify 

or cancel the Plan, Swafford has nonetheless alleged that IBM made representations in a 

PowerPoint that his commissions would not be capped. Amend. Compl. ¶ 79. These IBM 

representations were inconsistent with the representations in the IPL. See IPL at 3–4.

Moreover, Swafford has alleged why IBM may have made the inconsistent 

representations: most employers in Swafford’s field do not cap commissions and IBM would be 

unable to recruit good sales representatives if IBM informed sales representatives that their 

commissions would be capped. Amend. Compl. ¶ 40. IBM should not be allowed to make 

inconsistent representations and then insist that, as a matter of law, its sales representatives were 

incorrect to rely on IBM’s representations. The Court concludes that, given the inconsistent 

representations in the PowerPoint and given that the IPL was not a contract, it is plausible that 

Swafford reasonably relied on IBM’s representations that the commissions would be uncapped. 

United States District Judge William Alsup of the United States District Court for the 

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ORDER GRANTING IN PART WITH PREJUDICE, GRANTING IN PART WITHOUT PREJUDICE, AND 

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Northern District of California recently considered the question of whether an IBM sales 

representative sufficiently alleged reasonable reliance in a case concerning substantially similar 

allegations. See Beard, No. C 18-06783 WHA, Dkt. No. 51. Judge Alsup found that the sales 

representative plaintiff had plausibly alleged reasonable reliance on the misrepresentations. 

Specifically, Judge Alsup noted that, “[f]ollowing his receipt of the IPL, plaintiff received the 

PowerPoint presentation which repeatedly and without reservation stated that his compensation 

would not be capped. His managers said the same.” Id. at 6. Judge Alsup continued “[p]laintiff 

then worked hard to earn a large commission that IBM later capped (or so a jury might reasonably 

find).” Id. Judge Alsup concluded that “even though the IPL contained disclosures regarding 

IBM’s ‘right to adjust the Plan terms[,]’ the complaint alleges sufficient facts to plausibly suggest 

that plaintiff reasonably relied on statements in the PowerPoint presentation and by management 

assuring plaintiff that IBM would not cap his compensation.” Id. Judge Alsup determined “[i]t will 

be a question of fact for the jury whether the reliance was reasonable.” Id. Judge Alsup therefore 

denied the motion to dismiss plaintiff’s misrepresentation claims. Id.

Judge Alsup’s ruling is consistent with Vinson v. Int’l Bus. Machines Corp., No. 1:17-CV00798, 2018 WL 4608250, at *10 (M.D.N.C. Sept. 25, 2018). In Vinson, the United States District 

Court for the Middle District of North Carolina found that an IBM sales representative plaintiff 

plausibly alleged reasonable reliance on IBM’s PowerPoint presentation that “payments and 

earnings opportunity are ‘uncapped’” because the IPL only reserved IBM’s discretion to modify or 

cancel incentive payments “up until any related payments have been earned under the Plan,” and 

that therefore “whether IBM actually capped [the plaintiff’s] commissions and misrepresented its 

policy on capping depends on facts not before the court.” Id. The Vinson Court therefore denied 

IBM’s motion to dismiss the plaintiff’s misrepresentation claims. See id. 

Moreover, Judge Alsup in Beard addressed several district court rulings to the contrary. 

For instance, Judge Alsup distinguished the decision of former United States District Judge 

Jeremy Fogel in Schwarzkopf v. Int’l Bus. Machines Corp., No. C 08-2715 JF (HRL), 2010 WL 

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1929625, at *14 (N.D. Cal. May 2010), which resolved a fraud claim based on an IBM manager’s 

statements, on the basis that Judge Fogel’s “decision followed summary judgment and a fullydeveloped factual record.” Beard, No. C 18-06783 WHA, Dkt. No. 51 at 7 n.2. Moreover, in 

Schwarzkopf, there was no mention of a PowerPoint or any similar misrepresentations about not 

capping. See 2010 WL 1929625.

Moreover, the instant Court agrees with Judge Alsup that Fessler and Middleton are not 

persuasive. The United States District Court for the Eastern District of Virginia’s decision in

Fessler is inconsistent and conclusory because the Fessler court simultaneously found that the 

IPLs were not a contract, but nonetheless the IPLs’ statements bound the plaintiff as a matter of 

law. 2018 WL 6220209, at *4–8. Moreover, the United States District Court for Northern District 

of Georgia’s decision in Middleton v. Int’l Bus. Machs. Corp., is distinguishable because the 

Northern District of Georgia emphasized that under the law of its circuit, “a disclaimer can render 

reliance unreasonable as a matter of law and, here, the IPL is wrought with disclaimers that bar 

Plaintiff from claiming justifiable reliance.” Case No. 18-cv-3724, at 12 (N.D. GA. Jan. 2, 2019).

In the instant case, the Court is not bound by the law of the Eleventh Circuit or its district courts. 

Similarly, Snyder v. Int’l Bus. Machs. Corp, Case No. 1:16-cv-03596-WMR (N.D. GA. Mar. 18, 

2019), which relied on Middleton, does not require the instant Court to find that Swafford’s 

reliance was not reasonable.

Accordingly, because Swafford has plausibly alleged reasonable reliance on 

misrepresentations regarding “uncapped” commissions, and because the Court already found that 

Swafford alleged intent to deceive, the motion to dismiss Swafford’s fraudulent misrepresentation 

claim on this basis is DENIED.3

However, as already discussed above, to the extent Plaintiff’s fraudulent misrepresentation 

claim is based on oral statements by IBM executives and managers at sales meetings, the Court 

 

3 Because the Court finds that Swafford has alleged reasonable reliance based on the 

representations in the PowerPoint, the Court need not address the Choplin Action deposition 

testimony for purposes of this motion to dismiss. 

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finds the allegation is not pled with sufficient particularity under Rule 9(b), and therefore the 

Court GRANTS IBM’s motion to dismiss with leave to amend to allege the oral statements by 

IBM executives and managers at sales meetings with sufficient particularity.

B. Negligent Misrepresentation Claim

Swafford also brings a claim for negligent misrepresentation. Amend. Compl. ¶¶ 87–98. 

California recognizes a claim for negligent misrepresentation, which, unlike fraudulent 

misrepresentation, allows recovery in the absence of scienter or intent to defraud. Los Angeles 

Unified School Dist. v. Great American Ins. Co., 49 Cal. 4th 739, 750 n. 5 (2010). The elements of 

negligent misrepresentation are: (1) the misrepresentation of a past or existing material fact, (2) 

without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on 

the fact misrepresented, (4) reasonable reliance on the misrepresentation, and (5) resulting 

damage. National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services, 171 

Cal. App. 4th 35, 50 (Cal. Ct. App. 2009).

IBM argues that Swafford’s negligent misrepresentation claim fails for the same reason 

that Swafford’s fraudulent misrepresentation claim fails, namely, that Swafford cannot establish 

the requisite reasonable reliance to support his claim. Mot. at 14. The Court has already found 

above that Swafford has plausibly alleged reasonable reliance on the misrepresentations in the 

PowerPoint presentation. Therefore, the Court DENIES IBM’s motion to dismiss Swafford’s 

negligent misrepresentation claim. See, e.g., Beard, No. C 18-06783 WHA, Dkt. No. 51 at 6–7 

(denying IBM’s motion to dismiss sales representative plaintiff’s negligent misrepresentation 

claim and fraudulent misrepresentation claim after finding plaintiff had pled facts plausibly 

demonstrating reasonable reliance when plaintiff pled the PowerPoint presentation 

misrepresentations and the misrepresentations made by IBM managers). 

C. Quantum Meruit and Unjust Enrichment

Swafford brings claims for quantum meruit and unjust enrichment. Amend. Compl. ¶¶ 99–

108. Quantum meruit (or quasi-contract) “is an equitable remedy implied by the law under which a 

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plaintiff who has rendered services benefitting the defendant may recover the reasonable value of 

those services when necessary to prevent unjust enrichment of the defendant.” In re De Laurentiis 

Ent. Grp. Inc., 963 F.2d 1269 (9th Cir. 1992). To state a claim for quantum meruit, Swafford must 

show: (1) that he performed certain services for IBM; (2) that the services were rendered at IBM’s 

request; and (3) that they are unpaid. Summit Estate, Inc. v. Cigna Healthcare of Cal. Inc., No. 17-

CV-3871-LHK, 2017 WL 4517111, at *11 (N.D. Cal. Oct. 10, 2017) (citations omitted). Under

California law, quantum meruit requires evidence of a plaintiff’s reasonable expectation of 

receiving compensation for services rendered. See Huskinson & Brown v. Wolf, 32 Cal. 4th 453, 

458 (2004).

In California, “unjust enrichment is not a standalone cause of action.” In re Safeway Tuna 

Cases, No. 15-cv-05078-EMC, 2016 WL 3743364, at *1 (N.D. Cal. July 13, 2016). It is for this 

reason that IBM first asks that this Court dismiss Swafford’s unjust enrichment claim. Mot. at 14.

However, the Ninth Circuit has previously recognized that “[w]hen a plaintiff alleges unjust 

enrichment, a court may ‘construe the cause of action as a quasi-contract claim seeking 

restitution.’” Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th Cir. 2015) (quoting 

Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221 (2014)). Accordingly, the 

Court construes Swafford’s unjust enrichment claim as a quasi-contract claim seeking restitution. 

See Opp’n at 14; see also Astiana, 783 F.3d at 762 (“To the extent the district court concluded that 

the [unjust enrichment] cause of action was nonsensical because it was duplicative of or 

superfluous to Astiana’s other claims, this is not grounds for dismissal”). The Ninth Circuit has 

explained that unjust enrichment and restitution “describe the theory underlying a claim that a 

defendant has been unjustly conferred a benefit through mistake, fraud, coercion, or request” or a 

situation where “restitution require[s] a party to return a benefit when the retention of such benefit 

would unjustly enrich the recipient.” Astiana, 783 F.3d at 762 (quotation marks and citations 

omitted).

IBM argues that Swafford’s quantum meruit and unjust enrichment claims must be 

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dismissed because: (1) neither theory of recovery is available when a contract exists governing all 

the claimed rights and responsibilities of the parties; and (2) in light of the disclaimers regarding 

IBM’s discretion in the IPL, Swafford cannot allege that he had a reasonable expectation of 

receiving additional commission or that it was “unfair” or “unjust” for IBM to pay him a reduced 

commission. Mot. at 15; Reply at 6. The Court discusses both arguments in turn.

First, IBM argues that neither quantum meruit nor unjust enrichment is available when a 

contract governing all the claimed rights and responsibilities of the parties exists. Mot. at 15 

(citing O’Connor v. Uber Techs., Inc., No. C-13-3826 EMC, 2013 WL 6354543, at *13 (N.D. Cal. 

Dec. 5, 2013), and Integrated Storage Consulting Servs., Inc. v. NetApp, Inc., No. 5:12-CV06209-EJD, at *8–9 (N.D. Cal. Jul. 31, 2013)). However, IBM admits that the IPL did not create a 

contract and that the “IPL did not create any contractual obligations.” Mot. at 15; see also id. at 9 

(“[T]he IPL does not create an enforceable contract.”). Therefore, this argument fails. 

Second, IBM argues that Swafford cannot allege that he had a reasonable expectation of 

receiving additional commission or that it was “unfair” or “unjust” for IBM to pay him a reduced 

commission in light of the IPL. Mot. at 15. As above, the Court finds that Swafford has plausibly 

alleged reasonable reliance on the misrepresentations in the PowerPoint regarding “uncapped” 

commissions. Therefore, the Court finds that Swafford plausibly alleges that he reasonably 

expected his full, uncapped commission and that he provided IBM with a benefit for which he was 

not fairly compensated. Judge Alsup also recently denied IBM’s motion to dismiss a sales 

representative plaintiff’s unjust enrichment claim on this basis. See, e.g., Beard, No. C 18-06783 

WHA, Dkt. No. 51 at 10 (denying motion to dismiss the unjust enrichment claim because 

“plaintiff ha[d] sufficiently alleged that he provided IBM with a benefit for which he was not 

fairly compensated”); see also Vinson, 2018 WL 4608250, at *6–7 (denying IBM’s motion to 

dismiss sales representative plaintiff’s quantum meruit and unjust enrichment claims). 

Accordingly, the Court DENIES IBM’s motion to dismiss Swafford’s quantum meruit and 

unjust enrichment claims. 

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D. California Civil and Labor Code Claims4

Swafford’s amended complaint alleges violations of California Civil Code § 1668 and 

California Labor Code §§ 221, 223, and 2751. Amend. Compl. ¶¶ 54–67. IBM argues that each of 

these claims fail. Mot. at 15–16. In the subsections that follow, the Court explores each of IBM’s 

arguments.

1. California Civil Code § 1668

Swafford claims that IBM violated California Civil Code § 1668. Amend Compl. ¶¶ 59, 

66. California Civil Code § 1668 provides that “[a]ll contracts which have for their object, directly 

or indirectly, to exempt anyone from responsibility for his own fraud . . . or violation of law, 

whether willful or negligent, are against the policy of the law.” Swafford’s amended complaint

alleges that IBM’s actions are in violation of California Civil Code § 1668 because “IBM 

represented that his commissions were uncapped, and that IBM then capped his commissions” and 

that “IBM is not permitted to cap commissions after it promises sales representatives like 

Swafford that his commissions are uncapped.” Opp’n at 18 (citing Amend. Compl. ¶ 15). 

Swafford further argues that “to the extent that IBM relies on any provisions of the IPL to excuse 

its fraud, ‘directly or indirectly,’ Section 1668 prohibits that.” Id. IBM argues that Swafford’s 

claim for violation of California Civil Code § 1668 should be dismissed because the IPL does not 

contain language that would exempt IBM from responsibility for fraudulent conduct. Mot. at 16. 

The Court agrees with IBM that the IPL does not, directly or indirectly, contain language 

which would exempt IBM from responsibility for fraudulent conduct. See Mot. at 16; see also

Beard, No. C 18-06783 WHA, Dkt. No. 51 (dismissing IBM sales representative plaintiff’s

 

4 Swafford’s first cause of action alleges “Violation of California Labor Code,” but in fact alleges 

violations of California Civil Code § 1668 and California Labor Code §§ 221, 223, and 2751. Not 

only is the title of the claim incomplete because it fails to mention the California Civil Code, but 

also lumping all of these claims together into one cause of action is improper. See, e.g., Fed. R. 

Civ. P. 10 (“A party must state its claims or defenses in numbered paragraphs, each limited as far 

as practicable to a single set of circumstances.”); Saling v. Royal, No. 2:13-CV-1039-TLN-EFB, 

2015 WL 5255367, at *4 (E.D. Cal. Sept. 9, 2015) (“To the extent plaintiff is attempting to assert 

multiple causes of action in one count, they are to be separated into individual counts for each 

cause of action in the event plaintiff files an amended complaint.”).

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California Civil Code § 1668 claim because “[t]he IPL contains no term which purports to limit 

IBM’s liability for fraudulent conduct or waive plaintiff’s ability to bring such a claim.”). 

Accordingly, the Court GRANTS IBM’s motion to dismiss Swafford’s claim for violation of 

California Civil Code § 1668. Because the language in the IPL forecloses this claim, any leave to 

amend the California Civil Code § 1668 claim would be futile. See Leadsinger, Inc., 512 F.3d at 

532. Therefore, the Court dismisses this claim with prejudice.

2. California Labor Code § 2751

Swafford claims that IBM violated California Labor Code § 2751. Amend Compl. ¶¶ 60, 

64–66. “California Labor Code Section 2751 requires that whenever an employer enters into a 

contract of employment with an employee, the employer must provide a written contract to the 

employee if the employee’s payment involves commissions for services rendered in California.”

Piccarreto v. Presstek, LLC, No. CV 16-1862 DMG (JCx), 2017 WL 3671153, at *2 (C.D. Cal. 

Aug. 24, 2017) (citing Cal. Labor Code § 2751(a)). “In addition, an employer must then give a 

‘signed’ copy of the contract to the employee and obtain a receipt for the contract from the 

employee.” Id. (citing Cal. Labor Code § 2751(b)). Swafford’s amended complaint as to the 

California Labor Code § 2751 violation alleges only that “IBM relied on methods for the 

computation and payment of commissions that are not set forth in the commissions contract in 

violation of Section 2751. In particular, IBM capped Mr. Swafford’s commissions, despite written 

promises as part of his compensation plan that his commissions were uncapped.” Amend. Compl. 

¶ 65. 

IBM argues that Swafford’s claim for violation of California Labor Code § 2751 should be 

dismissed because the IPL is in writing and Swafford signed his IPL. Mot. at 17. Swafford 

responds that Swafford has alleged a violation of California Labor Code § 2751 because the IPL is 

not a contract and Swafford’s IPL was not signed by IBM as required by California Labor Code § 

2751. Opp’n at 16; see also Piccarreto, 2017 WL 3671153, at *2 (“In failing to provide Piccarreto 

with a ‘signed’ copy of the 2015 Compensation Plan, which is a commission agreement, Presstek 

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violated the express terms of Section 2751(b).”); Abrishamcar v. Oracle Am. Inc., Case No. CIV 

535490 (San Mateo County Super. Ct. Apr. 5, 2018) (holding that Oracle’s Compensation Plan, 

which was electronically “signed” by the plaintiff but not by Oracle, violated Section 2751). 

The Court finds that even if Swafford’s argument regarding the fact that IPL is not a 

contract and that Swafford’s IPL was not signed by IBM would be sufficient to state a California 

Labor Code § 2751 violation, those allegations only appear in Swafford’s opposition and are 

absent from Swafford’s amended complaint. The Court cannot rely on Swafford’s allegations in 

his opposition to save his California Labor Code § 2751 violation claim because “[a]llegations 

raised for the first time in the briefing are not considered in determining the sufficiency of the 

complaint.” SriCom, Inc. v. EbisLogic, Inc., No. 12-CV-00904-LHK, 2012 WL 4051222, at *6 

(N.D. Cal. Sept. 13, 2012). 

Moreover, as Judge Alsup recently discussed in Beard, the California Labor Code no 

longer provides a private right of action for a violation of § 2751. Prior to January 2012, California 

Labor Code § 2752 provided that “[a]ny employer who does not employ an employee pursuant to 

a written contract as required by Section 2751 shall be liable to the employee in a civil action for 

triple damages.” When the California Legislature amended California Labor Code § 2751 in 2011, 

it repealed § 2752. Stats. 2011, ch. 556, § 3. Therefore, California Labor Code § 2752 no longer 

provides a private right of action. See Beard, No. C 18-06783 WHA, Dkt. No. 51 (dismissing IBM 

sales representative plaintiff’s California Labor Code § 2752 claim because the Labor Code no 

longer provides a private right of action for violations of that provision). Because the Labor Code 

no longer provides a private right of action for violations of § 2751, the motion to dismiss this 

standalone claim is GRANTED. Moreover, any leave to amend to attempt to state a private right 

of action for violations of § 2751 would be futile. Leadsinger, Inc., 512 F.3d at 532. Therefore, the 

dismissal is with prejudice. However, as discussed below, in Section III.E.2., this violation may 

nevertheless serve as a predicate violation for Swafford’s UCL claim.

3. California Labor Code § 221

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Swafford claims that IBM violated California Labor Code § 221. Amend Compl. ¶¶ 61, 66. 

California Labor Code § 221 makes it unlawful for an employer “to collect and receive from an 

employee any part of wages theretofore paid by said employer to said employee.” Cal. Labor Code 

§ 221. “[A]n employee’s ‘wages’ or ‘earnings’ are the amount the employer has offered or 

promised to pay, or has paid pursuant to such an offer or promise, as compensation for that 

employee’s labor.” Kemp v. Int’l Bus. Machs. Corp., No. 3:09-cv-03683, 2010 WL 4698490, at *5 

(N.D. Cal. Nov. 4, 2010) (citing Prachasaisoradej v. Ralphs Grocery Co., 42 Cal. 4th 217, 228 

(2007)). Commissions can qualify as wages under California Labor Code § 221, but as the court 

noted in Kemp, “the right of a salesperson or any other person to a commission depends on the 

terms of the contract for compensation.” Id. (citations omitted). Accordingly, Swafford’s 

California Labor Code § 221 claim requires “some showing that he is contractually entitled to the 

commissions he claims to have been denied.” Id. at *6.

Both Swafford and IBM agree that the IPL is not a contract. See Mot. at 17 (IBM stating 

that Swafford’s IPL “did not create an enforceable contract”); Opp’n at 16 (“Swafford has not 

alleged a claim for breach of contract because he agrees with IBM that the IPL is not an 

enforceable contract.”). Moreover, several courts have found that an IBM sales representative’s 

IPL that is similar to the IPL at issue in this case was not a contract. See, e.g., Kemp, 2010 WL 

4698490, at *5 (finding that the IPL is not a contract because it expressly specifies that it “does 

not constitute an express or implied contract or a promise by IBM to make any distributions under 

it” and dismissing IBM sales representative plaintiff’s § 221 claim); Jensen v. Int’l Bus. Machs. 

Corp., 454 F.3d 382, 388 (4th Cir. 2006) (“The terms of IBM’s Sales Incentive Plan make clear 

that they are not to be construed as an offer that can be accepted to form a contract.”); 

Schwarzkopf, 2010 WL 1929625, at *8–9 (N.D. Cal. May 12, 2010) (“Any inferences that may be 

drawn in Schwarzkopfs favor . . . are insufficient to negate IBM's clear intent not to contract.”) 

(emphasis in original)); Gilmour v. Int’l Bus. Machs. Corp., No. CV 09–4155 SJO, 2009 WL 

8712153, at *2 (C.D. Cal. Dec. 16, 2009) (“[T]he Incentive Plan and Quota Letter did not create 

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an enforceable employment contract.”). Accordingly, because the IPL is not a contract, Swafford

cannot allege a violation of California Labor Code § 221, and therefore Swafford’s California 

Labor Code § 221 claim fails as a matter of law. Thus, any leave to amend would be futile. See, 

e.g., Beard, No. C 18-06783 WHA, Dkt. No. 51 (dismissing IBM sales representative plaintiff’s

California Labor Code § 221 claim because the IPL is not a contract); Leadsinger, Inc., 512 F.3d 

at 532. Therefore, the Court GRANTS IBM’s motion to dismiss Swafford’s California Labor 

Code § 221 claim with prejudice. 

4. California Labor Code § 223

Swafford claims that IBM violated California Labor Code § 223. Amend Compl. ¶¶ 62–63, 

66. California Labor Code § 223 provides that “[w]here any statute or contract requires an 

employer to maintain the designated wage scale, it shall be unlawful to secretly pay a lower wage 

while purporting to pay the wage designated by statute or by contract.” Swafford alleges that 

“IBM secretly underpays commission wages while purporting to follow commission rates 

designed by contract in violation of Section 223.” Amend. Compl. ¶ 63. IBM argues that the Court 

should dismiss Swafford’s California Labor Code § 223 claim because the IPL is not a contract 

and because the IPL does not designate a wage. Mot. at 17; Reply at 9. Swafford’s opposition

acknowledges that his California Labor Code § 223 violation claim is contingent on the IPL being 

an enforceable contract. Opp’n at 16–17. The Court agrees with IBM that Swafford’s California 

Labor Code § 223 claim fails. 

First, Swafford’s complaint alleges that IBM underpays commissions while purporting to 

follow commission rates designated by contract in violation of § 223. However, as just discussed,

Swafford agrees and several courts have already found that the IPL does not constitute a contract. 

Opp’n at 16; see, e.g., Kemp, 2010 WL 4698490, at *5. For this reason alone, Swafford’s 

California Labor Code § 223 claim fails. Moreover, the plain text of the IPL does not “designate” 

a wage. See IPL at 3–4. Accordingly, the Court finds that Swafford’s California Labor Code § 223 

claim fails as a matter of law, and therefore any leave to amend would be futile. Leadsinger, Inc., 

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512 F.3d at 532. Thus, the Court GRANTS IBM’s motion to dismiss Swafford’s California Labor 

Code § 223 claim with prejudice.

E. UCL, Cal. Bus. & Prof. Code § 17200

Swafford also brings a claim for unfair business practices in violation of California’s UCL, 

Cal. Bus. & Prof. Code § 17200, et seq. See Amend. Compl. ¶¶ 68–77. The UCL creates a cause 

of action for business practices that are (1) unlawful, (2) unfair, or (3) fraudulent. Each “prong” of 

the UCL provides a separate and distinct theory of liability. Lozano v. AT & T Wireless Servs., 

Inc., 504 F.3d 718, 731 (9th Cir. 2007). Swafford invokes all three prongs of the UCL.

In his complaint, Swafford alleges that IBM violated § 17200 of the UCL because IBM: 

(1) knowingly misrepresented to Swafford the uncapped nature of his sales commissions; (2) 

willfully failed to pay all earned commissions to Swafford; and (3) because IBM violated the 

California Labor Code. Amend. Compl. ¶ 71. IBM moves to dismiss Swafford’s UCL claim in its 

entirety because IBM argues that, to the extent Swafford’s UCL claim was derivative of 

Swafford’s other claims, Swafford cannot establish an underlying unlawful, unfair, or fraudulent 

practice. Mot. at 18; see Cel-Tech Commc’ns., Inc. v. L.A. Cellular Telephone Co., 20 Cal. 4th 

163, 180 (1999) (explaining that the UCL effectively “‘borrows’ violations of other laws and 

treats them as unlawful practices that the unfair competition law makes independently 

actionable.”). The Court discusses each prong below.

1. Unfair and Fraudulent Prongs

First, Swafford’s UCL claim under the unfair and fraudulent prongs relies on his 

misrepresentation and quantum meruit/unjust enrichment claims. Specifically, Swafford alleges 

that IBM knowingly misrepresented to Swafford the uncapped nature of his sales commissions 

and that IBM willfully failed to pay all earned commissions to Swafford. Amend. Compl. ¶ 71.

“A business practice is unfair within the meaning of the UCL if it violates established 

public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to 

consumers which outweighs its benefits.” McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 

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1473 (2006). In determining whether a practice is unfair, California courts examine the practice’s 

impact on its alleged victim and balance that impact against the reasons, justifications, and 

motives of the alleged wrongdoer. Id. To state a claim under the fraudulent prong of the UCL, 

plaintiffs must prove “actual reliance on the allegedly deceptive or misleading statements,” 

Kwikset Corp v. Superior Court, 51 Cal. 4th 312, 326 (2011), and that “the misrepresentation was 

an immediate cause of the injury-producing conduct,” In re Tobacco II Cases, 46 Cal. 4th 298, 

326 (2009).

Because the Court found in the instant Order that Swafford stated misrepresentation claims 

and claims for quantum meruit/unjust enrichment, see Section III.A & B, Swafford’s UCL unfair 

prong claim and Swafford’s UCL fraudulent prong claim that relies on those claims also survives. 

See, e.g., Beard, No. C 18-06783 WHA, Dkt. No. 51 at 10 (denying IBM’s motion to dismiss 

UCL claim where plaintiff plausibly alleged misrepresentation claims). Accordingly, the Court 

DENIES IBM’s motion to dismiss Swafford’s UCL unfair prong and fraudulent prong claim. 

2. Unlawful Prong

The unlawful prong of the UCL prohibits “anything that can properly be called a business 

practice and that at the same time is forbidden by law.” Cel-Tech Commc’ns., Inc., 20 Cal. 4th at 

180. Swafford alleges here that IBM violated the UCL’s unlawful prong because IBM violated 

California Labor Code §§ 200, 201, 202, 204, 221, 223, and 2751. Amend. Compl ¶ 71. 

As an initial matter, IBM does not challenge, nor do the parties discuss the underlying 

California Labor Code §§ 200, 201, 202, 204 violations. See Mot.; Opp’n; Reply. Therefore, to the 

extent Swafford’s UCL unlawful prong claim is predicated on violations of those provisions, 

Swafford’s UCL unlawful prong claim survives this motion to dismiss.

With respect to Swafford’s predicate California Labor Code §§ 221 and 223 claims, as 

discussed above, the Court granted with prejudice IBM’s motion to dismiss Swafford’s underlying 

California Labor Code §§ 221 and 223 claims. See Section III.D.3 & 4. Therefore, to the extent 

Swafford’s UCL unlawful prong claim is predicated on a violations of California Labor Code §§ 

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221 and 223, the Court GRANTS IBM’s motion to dismiss with prejudice. 

Finally, with respect to Swafford’s predicate California Labor Code § 2751 claim, the 

Court granted IBM’s motion to dismiss Swafford’s California Labor Code § 2751 with prejudice 

above because a violation of § 2751 cannot serve as a standalone claim. See Section III.D.2. 

Nonetheless, the Court recognized that although a § 2751 violation could not serve as a standalone 

claim, it could still serve as a predicate violation for Swafford’s UCL unlawful prong claim. See, 

e.g., Beard, No. C 18-06783 WHA, Dkt. No. 51 at 8–9 (granting IBM’s motion to dismiss the 

California Labor Code § 2751 claim but holding that a violation of California Labor Code § 2751 

may “nevertheless serve as a predicate violation for plaintiff’s Section 17200 [claim].”).

Therefore, the Court finds that Swafford’s UCL unlawful prong claim can rely on a California 

Labor Code § 2751 violation. 

However, for the reasons given in Section III.D.2., the Court finds that Swafford did not 

sufficiently allege a California Labor Code § 2751 violation because Swafford relies on 

allegations in the opposition that were not stated in the amended complaint. Therefore, the Court 

GRANTS IBM’s motion to dismiss to the extent Swafford’s UCL unlawful prong claim is 

predicated on a violation of California Labor Code § 2751. The Court finds that leave to amend 

would not unduly prejudice IBM, cause undue delay, or be futile and Swafford has not acted in 

bad faith. Leadsinger, Inc., 512 F.3d at 532. Accordingly, the Court provides Swafford leave to 

amend to allege this theory. 

F. Punitive Damages

Finally, IBM argues that Swafford’s claim for punitive damages should be dismissed 

because it is derivative of Swafford’s fraud claim. Mot. at 18; see also, e.g., La Jolla Spa MD, Inc.

v. Avidas Pharms., LLC, No. 17cv1124-MMA (WVG), at (S.D. Cal. Oct. 17, 2017) (dismissing 

claim for punitive damages because plaintiff’s fraud claim was dismissed). Swafford 

acknowledges that his claim for punitive damages is derivative of his fraud claim. See Opp’n at 

19. However, because the Court denied IBM’s motion to dismiss Swafford’s fraud claim in the 

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instant Order, the Court also DENIES IBM’s motion to dismiss Swafford’s punitive damages 

claim.

IV. CONCLUSION

For the foregoing reasons, the Court rules as follows:

• To the extent the fraudulent misrepresentation claim is based on the PowerPoint 

presentation, the motion to dismiss is DENIED;

• To the extent the fraudulent misrepresentation claim is based on oral statements by 

IBM executives and managers at sales meetings, the motion to dismiss is GRANTED 

with leave to amend;

• The motion to dismiss the negligent misrepresentation claim is DENIED;

• The motion to dismiss the quantum meruit and unjust enrichment claims is DENIED;

• The motion to dismiss the California Civil and Labor Code claims is GRANTED with 

prejudice; 

• The motion to dismiss the UCL claim based on the unfair and fraudulent prongs is 

DENIED;

• The motion to dismiss the UCL claim based on the unlawful prong to the extent the 

unlawful prong is predicated on violations of California Labor Code §§ 200, 201, 202, 

204 is DENIED;

• The motion to dismiss the UCL claim based on the unlawful prong to the extent the 

unlawful prong is predicated on violations of California Labor Code §§ 221 and 223 is 

GRANTED with prejudice; 

• The motion to dismiss the UCL claim based on the unlawful prong to the extent the 

unlawful prong is predicated on a violation of California Labor Code § 2751 is 

GRANTED with leave to amend;

• The motion to dismiss the claim for punitive damages is DENIED.

If Swafford elects to file a second amended complaint, Swafford must do so within 30 days 

of this Order. If Swafford fails to file a second amended complaint within 30 days or fails to cure 

the deficiencies identified in this Order, the deficient claims or theories will be dismissed with 

prejudice. Swafford may not add new causes of action or new parties without stipulation or leave 

of the Court.

IT IS SO ORDERED.

Dated: April 17, 2019

______________________________________

LUCY H. KOH

United States District Judge

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