Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_07-cv-00633/USCOURTS-cand-4_07-cv-00633-6/pdf.json

Nature of Suit Code: 195
Nature of Suit: Contract Product Liability
Cause of Action: 28:1332 Diversity-Contract Dispute

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DENA' NENA' HENASH, INC. dba TANANA

CHIEFS CONFERENCE, an Alaska nonprofit corporation,

Plaintiff,

v.

ORACLE CORPORATION, a Delaware

corporation,

Defendant.

 /

No. C 07-633 CW

ORDER GRANTING IN

PART DEFENDANT'S

MOTION TO DISMISS

AND DENYING IT IN

PART AND GRANTING

DEFENDANT'S MOTION

TO STRIKE

Defendant Oracle Corporation again moves pursuant to Federal

Rule of Civil Procedure 12(b)(6) to dismiss the third, fourth,

fifth and sixth causes of action in this case and pursuant to

Federal Rule of Civil Procedure 12(f) to strike portions of the

complaint. Plaintiff Dena' Nena' Henash, Inc., d.b.a. Tanana

Chiefs Conference (TCC) opposes the motions. The motions were

heard on October 11, 2007. Having considered all of the papers

filed by the parties and oral argument on the motions, the Court

grants in part Defendant's motion to dismiss and denies it in part

and grants Defendant's motion to strike. 

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1

For a detailed summary of the factual background of this

case, see the Court's May 16, 2007 order granting in part and

denying in part Defendant's motion to dismiss and motion to strike.

2

BACKGROUND

As stated in the Court's earlier order, this case arises out

of two agreements between the parties, the License and Services

Agreement (License Agreement) and the Services Agreement, through

which Oracle was to implement a software program for TCC.1 In

February, 2006, Plaintiff filed this suit in the District of

Alaska, alleging six causes of action: (1) breach of contract and

express warranty, (2) negligence, (3) fraudulent misrepresentation,

(4) negligent misrepresentation, (5) constructive fraud, 

(6) violation of the Alaska Unfair Trade Practices Act (AUTPA), and

(7) breach of the implied covenant of good faith and fair dealing. 

Defendant filed a motion to dismiss the action for improper venue,

pursuant to Federal Rule of Civil Procedure 12(b)(3), and, in the

alternative, to dismiss the third through sixth claims for failure

to state a claim, pursuant to Federal Rule of Civil Procedure

12(b)(6). The Alaska court found that the proper venue for the

case was the Northern District of California and exercised its

discretion to transfer the case rather than dismiss it. The case

was transferred to this Court on December 15, 2006.

On May 16, 2007, the Court granted in part and denied in part

Defendant's motion to dismiss the third through sixth causes of

action in Plaintiff's first amended complaint (FAC) and granted in

part and denied in part its motion to strike portions of the FAC. 

Specifically, the Court dismissed with leave to amend Plaintiff's

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third cause of action for fraudulent misrepresentation and fourth

cause of action for negligent misrepresentation because the

allegedly fraudulent statements upon which the claims were based

were too vague, or incapable of being proven false when made, and

therefore could not support a claim of fraud. The Court dismissed

with prejudice Plaintiff's fifth cause of action for constructive

fraud. Finally, the Court dismissed Plaintiff's sixth cause of

action under the Alaska Unfair Trade Practices Act (AUTPA) for two

reasons. First, the Court dismissed the claim with prejudice to

the extent it was based on allegations related to the License

Agreement because that agreement contains a California choice of

law provision. Next, the Court dismissed the claim with leave to

amend to the extent it was based on allegations related to the

Services Agreement, finding that claims based on the Services

Agreement are controlled by Alaska law. However, the claim was

based on the same allegedly fraudulent statements as the third and

fourth causes of action. Therefore, the Court advised Plaintiff

that it could replead its AUTPA claim if it could plead actionable

fraud related solely to the Services Agreement. 

Plaintiff filed its Second Amended Complaint (SAC) on June 7,

2007, re-alleging its claims for (1) breach of contract and express

warranty; (2) negligence, (3) fraudulent misrepresentation, 

(4) negligent misrepresentation, (5) violation of AUTPA, and 

(6) breach of the implied covenant of good faith and fair dealing. 

Defendant now moves to dismiss the third, fourth and fifth claims

and to strike portions of the SAC, arguing that Plaintiff has not

remedied the problems identified in the Court's order on the first

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motion to dismiss.

DISCUSSION

I. Motion to Dismiss

As stated in the Court's earlier order, a complaint must

contain a “short and plain statement of the claim showing that the

pleader is entitled to relief.” Fed. R. Civ. P. 8(a). A plaintiff

need not set out in detail the facts upon which it bases its claim;

however, the plaintiff must "give the defendant fair notice of what

the plaintiff's claim is and the grounds on which it rests." 

Conley v. Gibson, 355 U.S. 41, 47 (1957); see Bell Atlantic Corp.

v. Twombly, 127 S. Ct. 1955, 1964 (2007). All material allegations

in the complaint, "even if doubtful in fact," are assumed to be

true, id., and are construed in the light most favorable to the

plaintiff. NL Indus., Inc. v. Kaplan, 792 F. 2d 896, 898 (9th Cir.

1986). 

Defendant argues first that Plaintiff again fails to allege

fraud with sufficient particularity as required by Federal Rule of

Civil Procedure 9(b). Therefore, Defendant contends that

Plaintiff's third cause of action for fraudulent misrepresentation

and fourth cause of action for negligent misrepresentation, which

both sound in fraud, must be dismissed. Defendant also argues that

Plaintiff's AUTPA claim, which is based on the same fraudulent

statements, fails for the same reason. Further, Defendant contends

that the AUTPA claim still contains allegations related to the

License Agreement in violation of the Court's order. 

A. Failure to Allege Fraud with Particularity

Federal Rule of Civil Procedure 9(b) provides, "In all

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averments of fraud or mistake, the circumstances constituting fraud

or mistake shall be stated with particularity." If a plaintiff

alleges "a unified course of fraudulent conduct and relies entirely

on that course of conduct as the basis of a claim . . . the claim

is said to be 'grounded in fraud' or to 'sound in fraud,' and the

pleading of that claim as a whole must satisfy the particularity

requirement of Rule 9(b)." Vess v. Ciba-Geigy Corp. USA, 317 F.3d

1097, 1103-04 (9th Cir. 2003). Here, Plaintiff's fraudulent

misrepresentation, negligent misrepresentation and AUTPA claims

sound in fraud and so must be plead with particularity. 

The allegations must be "specific enough to give defendants

notice of the particular misconduct which is alleged to constitute

the fraud charged so that they can defend against the charge and

not just deny that they have done anything wrong." Semegen v.

Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Statements of the

time, place and nature of the alleged fraudulent activities are

sufficient, Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439

(9th Cir. 1987), provided the plaintiff sets forth "what is false

or misleading about a statement, and why it is false." In re

GlenFed, Inc., Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). 

Scienter may be averred generally, simply by saying that it

existed. See id. at 1547; see Fed. R. Civ. P. 9(b) ("Malice,

intent, knowledge, and other condition of mind of a person may be

averred generally"). As to matters peculiarly within the opposing

party's knowledge, pleadings based on information and belief may

satisfy Rule 9(b) if they also state the facts on which the belief

is founded. Wool, 818 F.2d at 1439. 

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In dismissing these claims in the FAC, the Court advised

Plaintiff:

In order to restate these claims against Defendant,

Plaintiff must identify who made specific false

statements of fact, when they made them, what they

said, why Plaintiff believes the statements were

knowingly false when made, how Plaintiff will prove

that they were knowingly false when made, and how the

misrepresentations harmed Plaintiff.

May 16, 2007 Order at 12. 

In the FAC, Plaintiff alleged that many of the fraudulent

statements were made in writing and attached documents to support

those claims. In addition, Plaintiff alleged that Defendant's

representatives made additional oral misrepresentations in

meetings. 

In the SAC, Plaintiff now alleges that Defendant made only

oral misrepresentations, most of which are more tempered versions

of the statements alleged in the FAC. Plaintiff alleges two sets

of misrepresentations, which were designed to induce it to enter

into the Services Agreement and to agree to a time and materials

contract rather than a fixed price contract. SAC ¶¶ 13, 14.

The SAC also includes a claim that Defendant fraudulently

induced Plaintiff to enter into the License Agreement. See SAC 

¶ 11. However, at oral argument, counsel stated that Plaintiff no

longer alleges that the License Agreement was fraudulently induced. 

Therefore, the Court deems the claims based on the allegations

contained in Paragraph 11 to have been voluntarily dismissed. 

1. Paragraph 13

Plaintiff alleges that after it entered into the License

Agreement, it had "numerous communications" with various named

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2At oral argument, the Court considered whether this

allegation is inconsistent with Plaintiff's prior allegation that

"the implementation could be fully completed within 90 days." FAC

¶ 10(e); see Reddy v. Litton Indus., 912 F.2d 291, 296-97 (9th Cir.

1990). However, as Plaintiff contended, the FAC did not define the

scope of "implementation." Therefore, the Court finds that the

current allegation does not contradict the FAC. 

7

Oracle representatives "with respect to the execution of an

agreement with Oracle under which Oracle would provide services for

the Phase One software implementation." SAC ¶ 13. Plaintiff

alleges that Defendants made two misrepresentations, "designed to

induce TCC to enter into a contract with Oracle." Id.

a. Paragraph 13(a)

Plaintiff first alleges that the Oracle representatives

indicated that "[t]he Phase One software could be implemented, and

TCC could go live on that software, within 90 days." SAC ¶ 13(a).2

Defendant argues that this claim is undermined by the ordering

document to the Services Agreement, which indicates that the

agreement covers only "[t]he basic functionality of the Flows" and

indicates a longer estimated timeline than ninety days. SAC, Ex. D

at 9. However, there is nothing in that document which indicates

that "the basic functionality of the flows" is the same thing as

Phase One, which the SAC defines as encompassing only "[t]he

portions of Oracle's software system that needed to be implemented

to replace the functionality provided by TCC's legacy system." SAC

¶ 11(a). 

In fact, Plaintiff sought "to replace a legacy system that was

neither sufficiently reliable nor otherwise adequate to meet TCC's

current and future needs." SAC ¶ 8. If the entire scope of the

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project was to replace an unreliable and inadequate system, it is

not unrealistic that Plaintiff might have sought an initial phase

to provide the functions of its existing system in a reliable

manner before proceeding to the remainder of the project to provide

capabilities beyond the existing functions.

Defendant also argues that this claim is an "overly vague

statement of opinion on which TCC could not reasonably rely,

because a "statement that Oracle 'could' do something, on its face,

permits the possibility that it 'could not' do that same thing." 

Motion at 7. However, Plaintiff alleges that, in negotiating the

Services Agreement, it relied on Defendant's representation that it

could (i.e. was able to) meet the ninety-day deadline. In this

context, the statement is neither vague nor a statement of opinion. 

Rather, it is a concrete representation of a timeline that

Defendant was able to offer. 

The Court finds that the allegation regarding the completion

of Phase One within ninety days supports Plaintiff's fraud cause of

action. 

b. Paragraph 13(b)

Plaintiff next alleges that Defendant represented that "[n]o

customization of Oracle's software would be needed during the

implementation of the Phase One software," but that this assertion

proved false when Oracle consultants "spent considerable time and

resources creating [a] customized integration link" between the

grants and payroll modules of the program. SAC ¶ 13(b), 17(f). 

Plaintiff alleges that, given Defendant's knowledge of its own

software and the complexity of Plaintiff's needs, this statement

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was, at best, made in reckless disregard of the truth. Defendant

argues that allowing this claim to go forward would allow fraud

challenges based on most agreements to provide services. However,

Plaintiff alleges that it is prepared to present expert and lay

testimony establishing that Defendant knew or was reckless in

disregarding that customizations would be necessary in order to

implement Phase One. Plaintiff's allegation regarding the need for

customization supports its fraud cause of action.

3. Paragraph 14

Finally, Plaintiff alleges that these same misrepresentations

"were also designed to induce TCC to agree that the consulting

contract with Oracle should be structured as a time and materials

contract." SAC ¶ 14. Further, Plaintiff alleges that one of

Defendant's representatives made additional false statements, that

a time and materials contract would provide a "substantial cost

savings to TCC" and that because the project was a "fairly

predictable, basic flows implementation," a time and materials

contract was "in TCC's best interest." Id. 

However, Plaintiff does not make sufficient allegations that

Defendant's statements were knowingly false when made. Although

the statements purportedly turned out to be incorrect, Plaintiff

alleges only that, given Defendant's sophistication and knowledge

of the complexity of Plaintiff's needs, Defendant must have known

that the statements were false. While these allegations may be

sufficient to sustain a fraud claim based on a clear statement of

fact that can be proved false, such as the statement regarding

customizations challenged in Paragraph 13(b), they are not

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sufficient to sustain a claim based on a subjective prediction that

one type of contract would be in a party's best interest. If this

were enough to sustain Plaintiff's claim, any time a sophisticated

company contracted to do a complicated project but could not meet

its predicted deadlines or could not stay within an estimated

budget, it would be subject to liability for fraud. The Court

grants Defendant's motion to dismiss the fraud allegations in

Paragraph 14. 

B. AUTPA Claim

In the May 16, 2007 order, the Court instructed Plaintiff that

it "may bring an AUTPA claim based solely on unfair practices

related to the Services Agreement" and that it "must plead

actionable fraud . . . or provide other bases for its AUTPA claim." 

May 16, 2007 Order at 20. Defendant argues that Plaintiff failed

to follow either of these instructions. 

Plaintiff states that it mistakenly failed to eliminate

references to its claims based on the License Agreement in its

AUTPA claim in the SAC. Further, at argument Plaintiff made clear

that it now abandons any claim based on the License Agreement.

Because these references can easily be eliminated, the Court will

not dismiss the AUTPA claim on these grounds and strikes the

reference to Paragraph 11 in Paragraph 49 of the SAC. 

As stated above, the Court finds that Plaintiff has plead

actionable fraud based on its allegations of statements Defendant

made regarding the need for customizations of its software. 

However, as Defendant argues, these allegations, even if now solely

supporting the claim of inducement of the Services Agreement in the

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SAC, require reference to the License Agreement because they

concern the functionality of the software itself. In other words,

Plaintiff alleges that, because the software did not function as

Defendant said that it would, Defendant had to perform

customizations. As Defendant notes, the Alaska court already

determined that any claim about the functionality of the software

arises out of the License Agreement, which is controlled by

California law. See District of Alaska December 15, 2006 Order at

10. 

Therefore, the Court grants Defendant's motion to dismiss

Plaintiff's AUTPA claim with prejudice. Plaintiff has not plead an

AUTPA claim based solely on the Services Agreement. 

II. Motion to Strike

Defendant also moves to strike Plaintiff's prayer for punitive

damages based on its claim for breach of the implied covenant of

good faith and fair dealing. That claim is based upon the Services

Agreement, which the Court previously found to be controlled by

Alaska law. See May 16, 2007 Order at 20. Defendant argues and

Plaintiff concedes that under Alaska law, "punitive damages are not

recoverable for breach of the implied covenant of good faith and

fair dealing." Acro Alaska, Inc. v. Akers, 753 P.2d 1150, 1155

(Alaska 1988). The Court grants Defendant's motion to strike. 

CONCLUSION

For the foregoing reasons, the Court GRANTS in part

Defendant's motion to dismiss and DENIES it in part and GRANTS

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3Defendant's evidentiary objections to the declarations filed

in support of Plaintiff's opposition are DENIED as moot (Docket No.

32). The Court did not consider any improper or inadmissible

evidence in deciding these motions.

12

Defendant's motion to strike (Docket No. 27).3

IT IS SO ORDERED.

10/31/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

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