IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

ORACLE AMERICA, INC., a

Delaware Corporation,

Plaintiff,

v.

THE OREGON HEALTH INSURANCE

EXCHANGE CORPORATION, dba

COVER OREGON, an Oregon

Limited Liability

Corporation; THE STATE OF

OREGON, BY AND THROUGH THE

OREGON HEALTH AUTHORITY AND

THE OREGON DEPARTMENT OF

HEALTH SERVICES; and DOES

1-25, INCLUSIVE,

Defendants.

3:14-CV-01279-BR

 

OPINION AND ORDER 

BRENNA K. LEGAARD 

JEFFERY S. EDEN

Schwabe, Williamson & Wyatt, P.C.

1211 S.W. Fifth Avenue, Suite 1900

Portland, OR 97204

(503) 222-9981

KAREN JOHNSON-MCKEWAN

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Case 3:14-cv-01279-BR Document 75 Filed 01/13/15 Page 1 of 29
ROBERT S. SHWARTS

ERIN M. CONNELL

Orrick, Herrington & Sutcliffe LLP

The Orrick Building

405 Howard Street

San Francisco, CA 94105

(415) 773-5700

DORIAN E. DALEY

DEBORAH K. MILLER

PEGGY E. BRUGGMAN

Oracle Corporation

Legal Department

500 Redwood Shores, CA 94065

(650) 506-9534 

Attorneys for Plaintiff

DAVID B. MARKOWITZ 

PETER H. GLADE

LISA A. KANER

DALLAS S. DELUCA

HARRY B. WILSON

Markowitz Herbold PC

Suite 3000 Pacwest Center

1211 S.W. Fifth Avenue

Portland, OR 97204-3730

(503) 295-3085 

Attorneys for Defendants

BROWN, Judge.

This matter comes before the Court on the State of Oregon's

Motion (#39) to Dismiss; the Joint Motion (#41) to Dismiss or, in

the Alternative, to Stay of the State and Cover Oregon; and Cover

Oregon's Motion (#44) to Dismiss. For the reasons that follow,

the Court GRANTS the State's Motion to Dismiss; DENIES Cover

Oregon's Motion to Dismiss; and GRANTS in part and DENIES in part

the Joint Motion to Dismiss or, in the Alternative, to Stay of

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the State and Cover Oregon. The Court also GRANTS Oracle

America, Inc., leave to file a Second Amended Complaint no later

than January 27, 2015.

BACKGROUND

The following facts are taken from the Amended Corrected

Complaint and the materials filed in connection with the Motions

to Dismiss.

In 2007-2008 the Oregon Department of Human Services (DHS)

began a project to modernize its technology systems (the

Modernization Project). To identify potential technology vendors

to implement the Modernization Project, DHS issued a Request for

Identification (RFI) in January 2009.

In February 2009 Oracle submitted a response to the RFI.

At some point in 2009 the Oregon Legislature created the

Oregon Health Authority (OHA) as a division of DHS.

On March 23, 2010, Congress enacted the Patient Protection

and Affordable Care Act (ACA), Public Law No. 111–148, 124 Stat.

119 (2010), and thereby established legal foundations for states

either to create health-insurance exchanges (HIX) or to use an

HIX developed by the federal government.

In October 2010 the United States Department of Health and

Human Services (HHS) announced it would offer Early Innovator

grants to states to design and to implement the information

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technology infrastructure needed to operate the HIX required by

the ACA. The State of Oregon determined an Early Innovator Grant

would provide it with the opportunity to combine the

Modernization Project with a project to create an HIX for the

State.

In February 2011 HHS awarded the State an Early Innovator

Grant to implement an HIX. The State then began seeking a

company to provide both the Modernization Project and an HIX.

Throughout 2010 and 2011 OHA employees attended numerous

presentations and demonstrations by Oracle related to its ability

to provide the Modernization Project and the HIX. The State, 

through DHS/OHA, subsequently decided to use Oracle to complete

the Modernization Project and the HIX (the Oracle Solution).

Although the State did not contract with Oracle directly, it

contracted with Mythics, Inc., a corporation that works with

Oracle to distribute and to sell Oracle products and to provide

consulting on the implementation and integration of Oracle’s

products.

On June 30, 2011, the State entered into an agreement with

Mythics and executed the Mythics License and Services Agreement

(MLSA). Although Oracle did not sign the MLSA, Oracle was named

as a third-party beneficiary of the MLSA. 

The MLSA did not provide for the actual purchase of Oracle

products and services, but instead provided a contractual

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framework to govern the purchase of Oracle products and services. 

Actual purchases were made through a series of purchase orders

submitted pursuant to the MLSA. 

In June 2011 the Oregon Legislature passed legislation

creating the Oregon Health Insurance Exchange Corporation (Cover

Oregon)1 as a public corporation and an independent unit of the

State. Oregon Revised Statute § 741.002(1)(a) provides Cover

Oregon shall "[a]dminister a health insurance exchange in

accordance with federal law to make qualified health plans

available to individuals and groups throughout this state." 

Also on June 30, 2011, DHS/OHA executed a Statement of Work

that provided Mythics and Oracle would "assist" DHS and OHA with

the “installation, implementation, configuration, and

customization of the Oracle Policy Automation 10.2 components to

support benefit eligibility processing and full determination for

various state programs” and the HIX. 

In August 2011 DHS and OHA executed a purchase order with

Oracle for the purchase of licenses for the Oracle Solution, the

hardware on which to run the software, and consulting services to

begin planning and implementing the Oracle Solution.

Between June 30, 2011, and July 11, 2013, the State and

Mythics executed 20 purchase orders under the MLSA for the

1

 On October 1, 2012, the Oregon Health Insurance Exchange

Corporation adopted the name Cover Oregon.

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purchase of Oracle hardware, software, and services.

In November 2011 DHS and OHA entered into the Oracle License

Service Agreement (OHA OLSA) with Oracle. Like the MLSA, the OHA

OLSA did not provide for the actual purchase of Oracle products

and services but instead provided a contractual framework

governing the purchase of Oracle products and services. Actual

purchases were made through a series of purchase orders submitted

pursuant to the OHA OLSA.

Between November 30, 2011, and May 29, 2014, DHS and OHA

executed 23 purchase orders under the OHA OLSA. 

In December 2012 OHA began to transition the HIX-IT Project

to Cover Oregon.

 As noted, Cover Oregon was not a party to the MLSA or the

Oracle-OHA Agreements. On March 14, 2013, therefore, Cover

Oregon executed an Oracle License and Services Agreement (Cover

Oregon OLSA) with Oracle. Like the MLSA and the OHA OLSA, the

Cover Oregon OLSA did not provide for the purchase of Oracle

products and services but instead provided a contractual

framework governing the purchase of Oracle products and services. 

Specifically, purchases were made through a series of Oracle

ordering documents and Cover Oregon purchase orders submitted

pursuant to the Cover Oregon OLSA. 

In order for Oregonians to obtain insurance for 2014 as

required by the ACA, Cover Oregon established the goal of

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launching the HIX by October 1, 2013. The HIX, however, was not

ready to launch at that time. Throughout 2013 and into 2014

Oracle and Cover Oregon worked to make the Oregon HIX useable and

effective.

On August 8, 2014, Oracle filed a Complaint in this Court

against Cover Oregon, 3:14-CV-1279-BR (the Federal Action),

asserting claims for breach of contract and quantum meruit in

which Oracle alleged Cover Oregon has not paid for all of the

services that Oracle rendered, “continue[s] to use Oracle’s work

product[,] and . . . has transferred some or all of that work

product to others in violation of the parties’ written

agreements.” In the Federal Action Oracle based the Court’s

jurisdiction on diversity.

On August 22, 2014, Oregon Attorney General Ellen Rosenblum,

the State of Oregon, and Cover Oregon filed an action in Marion

County Circuit Court (the State Action) against Oracle, Mythics,

and six Oracle employees2 alleging claims for fraud; breach of

contract; breach of the Oregon False Claims Act (OFCA), Oregon

Revised Statute § 180.750, et seq.; and violations of Oregon

Racketeer Influenced and Corrupt Organizations Act (ORICO),

Oregon Revised Statute § 166.715, et seq.

Also on August 22, 2014, Cover Oregon filed in the Federal

2

 The Oracle employees are Stephen Bartolo, Thomas Budnar,

Kevin Curry, Safra Catz, Brian Kim, and Ravi Puri.

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Action a Motion to Dismiss for Failure to State a Claim and

Failure to Join Necessary and Indispensable Party. Specifically,

Cover Oregon asserted this Court must dismiss the Federal Action

because Oracle failed to sue the State of Oregon, a necessary and

indispensable party.

On September 8, 2014, Oracle filed an Amended Complaint3 in

the Federal Action against Cover Oregon and the State in which

Oracle asserted claims for copyright infringement (against Cover

Oregon and the State), breach of contract (against Cover Oregon),

breach of the implied covenant of good faith and fair dealing

(against Cover Oregon), and quantum meruit (against Cover Oregon

and the State). 

On September 18, 2014, this Court denied Cover Oregon’s

Motion to Dismiss (#15) in the Federal Action as moot and

directed Cover Oregon and/or the State to file any motions

against the Amended Corrected Complaint no later than October 2,

2014.

On September 25, 2014, Oracle and Safra Catz removed the

State Action to this Court (3:14-CV-1532-BR).

In the Federal Action on October 2, 2014, the State filed a

Motion to Dismiss; Cover Oregon filed a Motion to Dismiss; and

the State and Cover Oregon filed a Joint Motion to Dismiss or, in

3

 On September 17, 2014, Oracle filed an Amended Corrected

First Amended Complaint (#33) to correct the parties’ names.

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the Alternative, to Stay.

On October 16, 2014, Plaintiffs filed a Motion to Remand the

State Action.

On November 21, 2014, the Court, among other things, heard

oral argument on the Motion to Remand. At oral argument the

Court granted the Motion to Remand. On November 25, 2014, the

Court issued an Opinion and Order formally granting the Motion to

Remand and remanding the State Action to Marion County Circuit

Court.

On December 2, 2014, Oracle once again removed the State

Action to federal court (6:14-CV-1926-BR), and on December 8,

2014, Oracle filed Motions to Consolidate in the State and

Federal Actions.

On December 10, 2014, the Court entered Orders in the State

and Federal Actions in which it concluded it was premature for

the Court to decide the Motions to Consolidate due to the various

outstanding Motions to Dismiss pending in the Federal Action.

On December 19, 2014, the Court heard oral argument in the

Federal Action on the State’s Motion to Dismiss; the Joint Motion

to Dismiss or, in the Alternative, to Stay of the State and Cover

Oregon; and Cover Oregon's Motion to Dismiss. At oral argument

the Court granted the State's Motion to Dismiss, denied Cover

Oregon's Motion to Dismiss, and took the Joint Motion to Dismiss

under advisement.

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STATE OF OREGON’S MOTION (#39) TO DISMISS

As the Court noted at oral argument, the Court concludes at

the time that Congress enacted the Copyright Remedy Clarification

Act (CRCA), Pub.L. 101-553, 104 Stat. 2749 (1990), Congress did

not have authority under Article I of the United States

Constitution to abrogate the states’ sovereign immunity to

copyright claims. See Seminole Tribe of Florida v. Florida, 517

U.S. 44, 72 (1996)("The Eleventh Amendment restricts the judicial

power under Article III, and Article I cannot be used to

circumvent the constitutional limitations placed upon federal

jurisdiction. Petitioner's suit against the State of Florida

must be dismissed for a lack of jurisdiction.").

In addition, as the Court also concluded at oral argument,

when Congress enacted the CRCA, it did not validly abrogate the

states’ sovereign immunity to copyright actions pursuant to

Section 5 of the Fourteenth Amendment to the United States

Constitution. See Chavez v. Arte Publico Press, 204 F.3d 601,

604 (5th Cir. 2000). See also Issaenko v. Univ. of Minn., 

No. 13–3605 (JRT/SER), 2014 WL 4954646, at *11 (D. Minn. 

Sept. 30, 2014), and the cases cited in Issaenko.

Finally, as the Court concluded at oral argument, the State

did not waive its sovereign immunity in the Federal Action when

it brought the State Action in state court alleging state-law

claims. The Court notes Oracle relies on Competitive

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Technologies v. Fujitsu Limited, 286 F. Supp. 2d 1118, 1129 (N.D.

Cal. 2003), for the proposition that when "a state invokes the

jurisdiction of the federal courts, it waives sovereign immunity

not only as to the state's claims, but also as to counterclaims

that arise out of the same transaction or occurrence, that is,

compulsory counterclaims." Here, however, it was Oracle that

filed this Federal Action, and the State did not invoke the

jurisdiction of this Court in the Federal Action.

Accordingly, the only other basis on which Oracle relies to

urge the Court to find the State waived its sovereign immunity in

this Federal Action is the venue provision found in the OHA OLSA. 

As the Court noted at oral argument, however, Oracle has not

established on this record that its claim against the State for

copyright infringement as alleged falls within the scope of the

OHA OLSA contractual provision. In particular, the Court notes

the sole reference to the OHA OLSA in Oracle’s Amended Corrected

Complaint is a parenthetical in ¶ 31 regarding claims arising

from the Cover Oregon OLSA, which states: "The same language

appears in a November 30, 2011 OLSA that Oracle entered into with

DHS and OHA before Cover Oregon took over responsibility for the

HIX project, a contract that Oregon's Department of Justice also

reviewed and approved." Moreover, all of the allegations in the

copyright claim (¶¶ 44-49 of the Amended Corrected Complaint)

refer to violations of the Cover Oregon OLSA and do not reference

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the OHA OLSA.

The Court, therefore, concludes Oracle has not established

the State waived sovereign immunity from the copyright claims in

this action via the venue provision in the OHA OLSA. 

Accordingly, as stated on the record at the December 19, 2014,

hearing, the Court grants the State’s Motion to Dismiss. The

Court concludes, however, that the record does not necessarily

establish Oracle would be unable to cure any such defect upon

amendment. In the exercise of its discretion pursuant to Federal

Rule of Civil Procedure 15, the Court grants Oracle leave to file

a Second Amended Complaint to the extent that it can allege facts

to establish that the State waived sovereign immunity for the

copyright claim in this Federal Action pursuant to the venue

clause in the OHA OLSA.

COVER OREGON’S MOTION (#44) TO DISMISS

Cover Oregon asserts in its Motion to Dismiss that if the

Court dismisses the State from the Federal Action, the Court

should also dismiss the Federal Action against Cover Oregon

pursuant to Federal Rules of Civil Procedure 12(b)(7) and 19

because the State is an indispensable party.

As the Court noted at oral argument, however, the Court

concludes it is premature at this early stage to find

conclusively that there is not any way Cover Oregon could fairly

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litigate the issues in this matter in the event the Court

ultimately dismisses the State from this litigation. 

Accordingly, the Court denies Cover Oregon’s Motion to Dismiss as

premature with leave to renew at a later time on a fullydeveloped record that makes clear Cover Oregon cannot adequately

litigate its own interests or represent the State's interests or

that the State will be prejudiced by the Court's rulings in this

matter.

THE JOINT MOTION (#41) TO DISMISS

OR, IN THE ALTERNATIVE, TO STAY OF 

THE STATE OF OREGON AND COVER OREGON

The State and Cover Oregon assert in their Joint Motion that

the Court should dismiss Oracle’s copyright claim because 

(1) Cover Oregon paid for the services it ordered, and,

therefore, it has a license to use and to distribute the Cover

Oregon OLSA copyright assets and/or (2) the copyrightinfringement claim actually lies in contract rather than in

copyright. The State and Cover Oregon also assert the Court

should dismiss Oracle’s claims for quantum meruit because (1) a

quasi-contract cannot be implied against Cover Oregon and/or 

(2) Oracle has not satisfied the federal pleading standards.

I. Standards

To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as

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true, to “state a claim to relief that is

plausible on its face.” [Bell Atlantic v.

Twombly, 550 U.S. 554,] 570, 127 S. Ct. 1955. A

claim has facial plausibility when the plaintiff

pleads factual content that allows the court to

draw the reasonable inference that the defendant

is liable for the misconduct alleged. Id. at 556.

. . . 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. Ibid. Where a complaint pleads

facts that are “merely consistent with” a

defendant's liability, it “stops short of the line

between possibility and plausibility of

‘entitlement to relief.’” Id. at 557, 127 S. Ct.

1955 (brackets omitted).

Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). See also Bell

Atlantic, 550 U.S. at 555-56. The court must accept as true the

allegations in the complaint and construe them in favor of the

plaintiff. Din v. Kerry, 718 F.3d 856, 859 (9th Cir. 2013). 

"In ruling on a 12(b)(6) motion, a court may generally

consider only allegations contained in the pleadings, exhibits

attached to the complaint, and matters properly subject to

judicial notice." Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir.

2012)(citation omitted). A court, however, "may consider a

writing referenced in a complaint but not explicitly incorporated

therein if the complaint relies on the document and its

authenticity is unquestioned." Swartz v. KPMG LLP, 476 F.3d 756,

763 (9th Cir. 2007)(citation omitted).

II. Copyright Claim

As noted, the State and Cover Oregon assert the Court should

dismiss Oracle’s copyright claim because (1) Cover Oregon paid

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for the services it ordered, and, therefore, it has a license to

use and to distribute the Cover Oregon OLSA copyright assets

and/or (2) the copyright-infringement claim actually lies in

contract rather than in copyright. 

A. Payment for Services

In its claim for copyright infringement Oracle alleges

in pertinent part:

44. Oracle owns all right title and interest in

the copyrights to the Cover Oregon OLSA Copyright

Assets software code, as well as all claims for

infringement thereof.

45. An express condition precedent to any license

to Cover Oregon was that it was required to pay

for all services rendered under the OLSA. That

express condition precedent has not been satisfied

because Cover Oregon has not paid for all of the

services rendered under the OLSA. Accordingly,

Cover Oregon has no license at all for the Cover

Oregon OLSA Copyright Assets code and is not

authorized to reproduce, prepare derivative works

of, distribute, or publicly display those works,

or to authorize others to do so. 

46. By continuing to operate the Cover Oregon

website, Cover Oregon is violating Oracle's

exclusive rights to reproduce and publicly display

the work.

47. By transferring source code to the control of

OHA and DHS for further development, Cover Oregon

has unlawfully distributed the Cover Oregon OLSA

Copyright Assets work, and has unlawfully

authorized others to prepare derivative works

based on the Cover Oregon OLSA Copyright Assets

work.

48. By accepting the transfer of source code from

Cover Oregon and exercising dominion and control

over a project to augment that code, OHA and DHS

have violated Oracle's exclusive rights to

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reproduce and to prepare derivative works of Cover

Oregon OLSA Copyright Assets.

49. Oracle has been actually and irreparably

harmed by the actions of Cover Oregon in using,

reproducing, distributing and preparing derivative

works of the code without authorization.

Defendants have benefitted [sic] from code for

which they have not paid.

Am. Corrected Compl. at ¶¶ 44-49.

Cover Oregon asserts Oracle’s claim for copyright

infringement fails “because Cover Oregon has a license for the

Cover Oregon OLSA Copyright Assets.” Specifically, Cover Oregon

asserts courts have held “[generally, a ‘copyright owner who

grants a nonexclusive license to use his copyrighted material

waives his right to sue the licensee for copyright infringement’

and can sue only for breach of contract.” Sun Microsystems, Inc.

v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir. 1999)(quoting

Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998)). See also

John G. Dandelion, Inc. v. Winchester-Conant Prop., Inc., 322

F.3d 26, 40 (1st Cir. 2003)(“Uses of the copyrighted work that

stay within the scope of a nonexclusive license are immunized

from infringement suits.”). Cover Oregon notes Oracle alleges in

its Amended Corrected Complaint that an “express condition

precedent to any license to Cover Oregon was that it was required

to pay for all services rendered under the OLSA.” Am. Corrected

Compl. ¶ 45. The condition precedent that Oracle relies on

appears in the Cover Oregon OLSA and provides: 

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Upon payment for services, you have the

non-exclusive, nonassignable, royalty free,

perpetual, limited right to use for your internal

business operations anything developed by Oracle

and delivered to you under this agreement;

however, certain deliverables may be subject to

additional license terms provided in the ordering

document.

Am. Corrected Compl., Ex. A § C. Oracle also alleges in its

Amended Corrected Complaint that Cover Oregon did not meet the

alleged condition precedent because Cover Oregon has not paid for

all of the services rendered under the OLSA. Cover Oregon, in

turn, asserts Oracle’s claim for copyright infringement fails

because Cover Oregon paid for the services it ordered, and,

therefore, it had a license to use and to distribute the Cover

Oregon OLSA copyrighted assets. 

Although both Cover Oregon and Oracle go to

considerable lengths to argue and then to rebut the assertion of

payment for services and an existing license, that is not a

proper analysis on a motion to dismiss. As noted, the Supreme

Court and the Ninth Circuit have made clear that to survive a

motion to dismiss, a complaint need only contain “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. at 679. For purposes of this Motion, the Court

must accept as true the allegations in the Amended Corrected

Complaint and construe them in favor of Oracle. See Din, 718

F.3d at 859. The Supreme Court and Ninth Circuit have held

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"[c]opyright infringement claims have two basic elements: 

‘(1) ownership of a valid copyright, and (2) copying of

constituent elements of the work that are original.'" Seven Arts

Filmed Entm’t Ltd. v. Content Media Corp. PLC, 733 F.3d 1251,

1254 (9th Cir. 2013)(quoting Feist Publ'ns, Inc. v. Rural Tel.

Serv. Co., 499 U.S. 340, 361 (1991)). Oracle alleges in its

Amended Corrected Complaint that it owns the copyrights at issue;

that Cover Oregon has unlawfully used Oracle’s copyrighted

materials; and that “Cover Oregon has not paid for all of the

services rendered under the OLSA[, and, therefore], Cover Oregon

has no license . . . for the Cover Oregon OLSA Copyright Assets

code.” 

On this record, therefore, the Court concludes Oracle

has sufficiently alleged a claim for copyright infringement. 

Accordingly, the Court declines to dismiss Oracle’s copyright

claims on the basis of failure to state a claim.

B. Nature of the Copyright Claims

The State and Cover Oregon also assert the Court should

dismiss Oracle’s copyright-infringement claim because that claim

lies in contract rather than in copyright. Specifically, the

State and Cover Oregon note a copyright owner generally waives

its right to sue the licensee for copyright infringement when the

copyright owner has granted the licensee a nonexclusive license

to use copyrighted work. The State and Cover Oregon concede

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“[i]f . . . a license is limited in scope and the licensee acts

outside the scope, the licensor can bring an action for copyright

infringement.” Sun Microsystems, 188 F.3d at 1121. 

Nevertheless, the State and Cover Oregon assert they did not act

outside of the nonexclusive license granted to them by Oracle,

and, therefore, Oracle may not bring a claim for copyright

infringement. The State and Cover Oregon rely on MDY Industries,

LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir.

2010), to support their assertion.

In MDY Industries the Ninth Circuit held the “potential

for [copyright] infringement exists only [when] the licensee’s

action (1) exceeds the license’s scope (2) in a manner that

implicates one of the licensor’s exclusive statutory rights.” 

Id. at 940. In MDY Industries the Ninth Circuit reviewed the

district court’s decision at summary judgment, including an

analysis of the scope of the license at issue and the licensor’s

statutory rights as developed by evidence in the record. Here,

however, a motion to dismiss is before the Court. As noted,

therefore, Oracle must only plead factual content that allows the

Court to draw a reasonable inference that the State and Cover

Oregon are liable for the misconduct alleged, and the Court must

take the allegations of the Amended Corrected Complaint as true. 

Oracle has alleged Cover Oregon and the State exceeded the scope

of the license. Specifically, Oracle points out that the terms

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of the license limited Cover Oregon to “using” the copyright

assets. Oracle also alleges Cover Oregon distributed, copied,

and authorized preparation of derivative works. The Court,

therefore, concludes Oracle has stated a claim for copyright

infringement that does not, as alleged, lie solely in contract. 

Accordingly, on this record the Court denies the Joint

Motion of the State and Cover Oregon to dismiss Oracle’s

copyright-infringement claim on the ground of failure to state a

claim.

III. Quantum Meruit

The State and Cover Oregon assert the Court should dismiss

Oracle’s claim for quantum meruit because (1) a quasi-contract

cannot be implied against the State or Cover Oregon and/or 

(2) Oracle’s quantum meruit claim does not satisfy federal

pleading standards. Because the Court agrees a quasi-contract

cannot be implied against the State or Cover Oregon in this

matter, the Court declines to address the second basis on which

the State and Cover Oregon seek dismissal of the quantum meruit

claim.

A claim for quantum meruit is a quasi-contractual

claim. Robinowitz v. Pozzi, 127 Or. App. 464, 467

(1994). The elements of the claim are a benefit

conferred, awareness by the recipient that a

benefit has been received, and judicial

recognition that, under the circumstances, it

would be unjust to allow retention of the benefit

without requiring the recipient to pay for it.

Verizon Nw., Inc. v. Main St. Dev., Inc., 693 F. Supp. 2d 1265,

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1275 (D. Or. 2010)(quotations and citations omitted). 

The State and Cover Oregon point out that DHS/OHS as state

agencies and Cover Oregon as a public corporation can only act

pursuant to statutory authority. See Ochoco Constr., Inc. v.

Dep’t of Land Conservation & Dev., 295 Or. 422, 426 (1983). See

also Davis v. Nye Ditch Users Imp. Dist., 247 Or. App. 266, 272

(2011)(Improvement districts organized as public corporations are

creatures of statute and have "only the powers conferred by the

legislature."). The statute creating and authorizing Cover

Oregon, however, only permits Cover Oregon to form or to enter

into contracts in a particular manner. Specifically, Oregon

Revised Statute § 741.250(2) provides Cover Oregon’s “board of

directors or the executive director of the corporation may

contract with any state agency or other qualified person or

entity for the performance of such duties, functions and powers

as the board or executive director considers appropriate.” 

Oregon statutes do not give Cover Oregon the authority to enter

into contracts in an manner other than that noted in 

§ 741.250(2). Similarly, DHS and OHA are subject to statutes and

rules governing their contracting authority. Neither agency is

permitted to "approve a contract before the contract has been

reviewed for legal sufficiency and approved by the Attorney

General." Or. Rev. Stat. § 279A.140(2)(b). Section 291.047(1)

provides information technology contracts are not binding on DHS

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and OHA until the Attorney General has approved the contracts for

legal sufficiency. To obtain Attorney General approval, the

contract must be "reduced to written form" and contain on its

face "all the essential elements of a legally binding contract."

Or. Admin. R. § 137-045-0015(4)(a), (c). 

Cover Oregon also notes because it received a “substantial

federal grant” and was using funds “supplied entirely from the

federal government” to develop the HIX, Cover Oregon was subject

to federal rules governing its ability to contract with vendors,

including the requirement “that every purchase order or other

contract includes any clauses required by Federal statutes and

executive orders and their implementing regulations.” 45 C.F.R.

§ 92.36(a).

Thus, according to the State and Cover Oregon, because

DHS/OHS and Cover Oregon lacked the statutory authority to enter

into contracts in any manner other than those specified under

Oregon statute and in various federal regulations, they cannot be

held liable in quasi-contract for agreements that allegedly arose

without complying with the procedures required in DHS/OHS and

Cover Oregon’s authorizing statutes and the federal regulations

governing federal grantees. The State and Cover Oregon rely on

Wegroup PC /Architects & Planners v. State, 131 Or. App. 346

(1994), to support their assertion that they may not be bound by

such quasi-contracts. In Wegroup the plaintiff alleged

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the State frustrated the negotiation term of the

contract, which required the State to bargain and

formalize its request for added work. Because

[plaintiff] had contracted to do all the design

from the beginning to the end, the architects

could not blithely refuse the State's directions. 

Therefore, an implied-in-fact promise arose in the

existing contract to pay the reasonable value of

the services requested and rendered.

Id. at 354. The Oregon Court of Appeals rejected the plaintiff's

argument as follows:

The general doctrine unquestionably is that when

one receives the benefit of another's work or

property, he is bound to pay for the same, and

this doctrine applies as well to [public]

corporations as to individuals in cases where

there is no restriction imposed by law upon the

[public] corporation against making in direct

terms a contract like the one sought to be

implied; but where there exist legal restrictions

which disable a [public] corporation to agree in

express terms to pay money, the law will not imply

any such agreement against the corporation.” 

Twohy Bros. Co. v. Ochoco Irr. Dist. et al., 108

Or. 1, 33, 210 P. 873 (1923). 

Id. The court noted 

[t]hat rule places rigorous burdens of compliance

on persons and entities in plaintiff's position

and may, on occasion, compel seemingly — or

actually — draconian consequences. But that is

the statutorily imposed price of doing business

with a public body. Persons who enter into public

contracts are deemed to know the laws governing

such contracts, and they assume the risk of

nonpayment if they perform without insisting on

strict compliance with those laws.

Id. at 354-55 (citation omitted). 

Wegroup makes clear that when legal restrictions exist that

prohibit a public corporation or state agency from agreeing “in

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express terms to pay money, the law will not imply any such

agreement” against the corporation or the state agency. The

authorizing statutes for DHS/OHS and Cover Oregon establish Cover

Oregon did not have authority to enter into a contract (quasi or

actual) with Oracle absent approval of its board or executive

director and OHA and DHS could not enter into a contract without

a legal sufficiency review by the Attorney General. The Court

notes, however, that Oracle does not allege in its Amended

Corrected Complaint that Cover Oregon's board of directors or

executive director approved the agreement that Oracle describes

in ¶ 66. In fact, Oracle alleges Cover Oregon refused to execute

Ordering Documents. Am. Corrected Compl. ¶ 54. In addition,

Oracle does not allege it provided the services described in 

¶¶ 66 and 67 of the Amended Corrected Complaint accompanied by

the notices required under 45 C.F.R. § 92.36(a). Oracle also

does not allege in its Amended Corrected Complaint that the

Oregon Attorney General provided a legal sufficiency review for

the services that Oracle alleges it provided in ¶ 68.

Oracle, nevertheless, notes Cover Oregon is empowered by

statute to enter into contracts generally. Oracle points out

that Oregon Revised Statute § 741.250(2) provides the “board of

directors or the executive director of the corporation may

contract with any state agency or other qualified person or

entity for the performance of such duties.” Emphasis added. 

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According to Oracle, therefore, the statute does not require the

board to approve every contract entered into by Cover Oregon. 

Oracle notes Oregon Revised Statute § 741.002(3)© provides Cover

Oregon may purchase all services necessary to carry out the

corporation's duties, and § 741.002(6) permits Cover Oregon to

"adopt rules necessary to carry out its mission, duties and

functions." According to Oracle, therefore, “nothing in the

statute places limits on how Cover Oregon may carry out its

duties.”

As noted, however, Oregon courts have made clear that public

corporations and state agencies are creatures of statute and may

only act as authorized by the Oregon Legislature. Davis, 247 Or.

App. at 272. Thus, the absence of express limits on the

authority of OHS/DHS and Cover Oregon does not mean those

entities may perform any actions that they please. In fact, the

result is the opposite: Absent express authorization, DHS/OHS

and Cover Oregon may not act. Moreover, as noted, § 741.250(2)

only permits Cover Oregon’s board of directors and executive

director to enter into contracts. Because the authorizing

statute does not identify any other employees or agents who may

enter into contracts for Cover Oregon, no other employees or

agents may do so. Even though the provision in § 741.250(2) uses

the permissive term "may," it does not expressly confer power to

enter into contracts in some manner other than that set out by

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statute. Thus, the Court concludes the Oregon Legislature has

circumscribed the manner in which DHS/OHS and Cover Oregon may

enter into contracts whether quasi or actual.

In addition, the authorities that Oracle relies on to

support its assertion that Cover Oregon and DHS/OSH may be held

liable in quantum meruit are distinguishable. In Washer v.

Clatsop Care & Rehabilitation District, 304 Or. 3 (1987), a

statute expressly authorized the defendant health district to

take the action that the plaintiff alleged the defendant failed

to perform. Id. at 6, 8. In Andal v. City of Salem, 53 Or. App.

159 (1981), the defendant was a city rather than a public

corporation. The authority of cities is derived from their

charters unlike public corporations whose authority is dependent

upon express statutory authorization. Thus, a city may have more

latitude to act absent express authorization. See DeFazio v.

Wash. Pub. Power Supply Sys., 296 Or. 550, 581 (1984)("A charter

also may specify whether it means to authorize only acts

expressly mentioned, or others implied in order to achieve wider

objectives[.]"). See also Sizemore v. City of Madras, 02-74-KI,

2005 WL 273006 (D. Or. Feb. 2, 2005)(City of Madras charter "is a

general powers charter, not an enumerated powers charter, meaning

that the city need not identify specific authorization in the

charter for every action it takes."). In Andal the Oregon Court

of Appeals concluded it could apply “general contract law”

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because the City of Salem lacked a "charter-imposed limitation"

on contract formation. 53 Or. App. at 163.

Here the Court concludes Cover Oregon and DHS/OHS are not

authorized to enter into contracts in any manner other than those

allowed by statute. Oracle has not alleged Cover Oregon and/or

DHS/OHS were conferred the benefits alleged by Oracle in its

Amended Corrected Complaint pursuant to a contract (quasi or

actual) entered into in a manner permitted by the authorizing

statutes for Cover Oregon and DHS/OHS. The Court, therefore,

concludes pursuant to Wegroup that DHS/OHS and Cover Oregon may

not be held liable in quantum meruit for the quasi-contractual

benefits that Oracle alleges they received.

Accordingly, the Court grants the Joint Motion of the State

and Cover Oregon to dismiss Oracle’s alternative Fourth claim for

quantum meruit. To the extent Oracle contends it has a basis to

replead this Claim consistent with the Court’s analysis herein,

the Court grants Oracle leave to do so with its next form of

Complaint.

VI. Doe Defendants

The State and Cover Oregon move to dismiss the Doe

Defendants from the Federal Action, and Oracle concedes the Court

should dismiss the Doe Defendants.

Accordingly, the Court grants the Joint Motion of the State

and Cover Oregon to dismiss the Doe Defendants.

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V. Alternative Motion to Stay Pursuant to the Colorado River

Doctrine

In Colorado River Water Conservation District v. United

States, 424 U.S. 800 (1976), the Supreme Court established an

abstention rule applicable to situations when parallel state and

federal litigation are pending. 

The State and Cover Oregon assert in the alternative to

their Motion to Dismiss that if the Court (1) dismisses Oracle's

copyright-infringement claim, (2) declines to dismiss one or more

of Oracle's other claims in this action, and (3) remands at least

some of the claims in the State Action to state court, the Court

should stay any claims remaining in federal court during the

pendency of the state-court action pursuant to Colorado River. 

The Court has not yet decided whether to remand any of the

claims in the State Action, and, as noted, it has granted Oracle

leave to amend its Amended Corrected Complaint. Accordingly, the

Court denies the Joint Motion to Stay pursuant to the Colorado

River Doctrine as premature at this time.

CONCLUSION

For these reasons, the Court GRANTS the State of Oregon's

Motion (#39) to Dismiss; DENIES Cover Oregon's Motion (#44) to

Dismiss; and GRANTS in part and DENIES in part the Joint Motion

(#41) to Dismiss or, in the Alternative, to Stay of the State of

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Case 3:14-cv-01279-BR Document 75 Filed 01/13/15 Page 28 of 29
Oregon and Cover Oregon. The Court also GRANTS Oracle leave to

file a Second Amended Complaint no later than January 27, 2015.

IT IS SO ORDERED.

DATED this 13th day of January, 2015.

/s/ Anna J. Brown

 

ANNA J. BROWN

United States District Judge

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