Court Opinion

ID: 4154277
Source: CourtListenerOpinion
Date Created: 2017-03-21 16:06:12.620149+00
Date Added: 2024-06-11T14:34:31.977469
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

EZLINKS GOLF, LLC,
Plaintiff,
v. C.A. N0. Nl6C-07-080 PRW CCLD

PCMS DATAFIT, INC.

Defendant.

Submitted: December 16, 2016
Decided: March 13, 2017
Corrected: March 21, 2017

MEMORANDUM OPINION AN]) ORDER

Upon Defendant PCMS Datafz`t, Inc. ’S Partial Motion to Dismiss,
GRANTED.

Stuart Brown, Esquire, Laura D. Hatcher, Esquire, DLA Piper LLP (US),
Wilmington, Delaware, Jeffrey S. Torosian, Esquire (pro hac vice) (argued), Eric
Roberts, Esquire (pro hac vice), DLA Piper LLP (US), Chicago, Illinois,
Attorneys for EZLinkS Golf, LLC.

William D. Johnston, Esquire, Kathaleen St. J. McCormick, Esquire, Mary F.
Dugan, Esquire, Meryem Y. Dede, Esquire, Young Conaway Stargatt & Taylor,
LLP, Wilmington, Delaware, Krista S. Schwartz, Esquire (pro hac vice), Jones
Day, San Francisco, California, Margaret C. Gleason, Esquire (pro hac vice)
(argued), Jennifer W. FitzGerald, Esquire (pro hac vice), Jones Day, Pittsburgh,
Pennsylvania, Attorneys for PCMS Dataflt, Inc.

WALLACE, J.

I. INTRODUCTION

Plaintiff EZLinks Golf, LLC (“EZLinks”) filed this lawsuit against
Defendant PCMS Datafit, Inc. (“PCMS”). EZLinks alleges PCMS fraudulently
induced EZLinks into entering a Reseller Agreement and then breached that
Reseller Agreement.

Before the Court is PCMS’s Partial Motion to Dismiss. PCMS asserts that
EZLinks’s fraudulent-inducement claim rehashes its breach-of-contract claim.
PCMS argues that Delaware law prohibits a party from recomposing a
quintessential contract claim as a fraud claim. Because EZLinks’s claims of
fraudulent-inducement and breach-of-contract, though sufficiently distinct, have
identical damages allegations, the Court GRANTS PCMS’s Partial Motion to
Dismiss.

II. FACTUAL AND PROCEDURAL BACKGROUND

In late 2013, EZLinks, through a third party, solicited a Request for
Proposals (“RFP”) from various companies for a new Point-of-Sale (“POS”)
system.l In mid-January 2014, PCMS responded (the “PCMS Proposal”).
EZLinks thoroughly reviewed the PCMS Proposal, and the parties began a

working relationship2 The parties first made direct contact on February l4, 2014.3

 

' Pl.’s Compl. 1111 7-9.

2 Pl.’s Compl. at 1 15.

And a phone conference followed on February 18, 2014.4 EZLinks contends
PCMS representatives stated then that “their point-of-sale solution could handle
‘remote printing.”’5

PCMS provided EZlinks with sales demonstrations of PCMS’s proposed
POS system on March 6 and l3, 2014.6 On March 18, 2014, several of EZLinks’s
directors had a technical meeting with PCMS to discuss the POS’s specifics.7 The
parties had further meetings on April 22, April 30, and May 28, 2014.8

The parties’ CEOS met on August l, 2014. There, PCMS’s CEO made the
following statements: (l) PCMS could complete the project for the POS system to
meet EZLinks’s current customer demands within Seven months, with “Phase 0”
completed by November 2014, “Phase l” completed by January 5, 2015, and
“Phase 2” completed by March 2015; and (2) PCMS could complete the project for

the POS System to meet EZLinks’s current customer demands on a budget of $1.4

million.9

 

Pl.’s Compl. at 11 l6.
Pl.’s Compl. at 11 16.
5 Pl.’s Compl. at 1 l6.
6 Pl.’s Compl. at 11 l7.
Pl.’s Compl. at 11 18.
Pl.’s Compl. at ‘1] 19.

9 Pl.’S Compl. at\lZl.

EZLinks now contends that PCMS made these statements to fraudulently
induce EZLinl27 A.3d 531, 535 (Del.
2011) (outlining standard for motions to dismiss).

_7_

But the Court will “ignore conclusory allegations that lack specific supporting
factual allegations.”30

The Court must accept as true all well-pleaded allegations for Rule 12(b)(6)
purposes.31 And every reasonable factual inference will be drawn in the non-
moving party’s favor.32 If the claimant may recover under that standard of review,
then the Court must deny the motion to dismiss.33 This is because “[d]ismissal is
warranted [only] where the plaintiff has failed to plead facts supporting an element
of the claim, or that under no reasonable interpretation of the facts alleged could
the complaint state a claim for which relief might be granted.”34

Delaware law requires plaintiffs to plead fraud and misrepresentation claims
with particularity_a heightened pleading standard.35 To satisfy Civil Rule 9(b), a
complaint must allege:

(1) the time, place, and contents of the false

representation; (2) the identity of the person making the
representation; and (3) what the person intended to gain

 

30 Anderson v. Tingle, 2011 WL 3654531, at *2 (Del. Super. Ct. Aug. 15, 2011) (quoting
Ramunno v. Cawley, 705 A.2d 1029, 1034 (Del. 1998)).

3‘ Anderson, 2011 wL 3654531, at *2.

32 Wilmington Sav. Funa' Soc ’y, F,S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super.
Ct. Mar. 9, 2009) (citing Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).

33 Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
34 Hedenberg v. Raber, 2004 WL 2191164, at *l (Del. Super. Ct. Aug. 20, 2004).

33 super. Ct. Civ. R. 9(b).

by making the representations Essentially, the plaintiff
is required to allege the circumstances of the fraud with
detail sufficient to apprise the defendant of the basis for
the claim.36
V. DISCUSSION
For both a breach-of-contract claim and a tort claim to coexist in a single
action, “the plaintiff must allege that the defendant breached a duty that is
independent of the duties imposed by the contract.”37 PCMS argues that the issue
here is whether the allegedly false statements were independent of the Reseller
Agreement’s terms. Generally, a fraud claim only survives if it is based on some
conduct distinct from that constituting a breach of contract.38 PCMS contends that
all three of EZLinks’s assertions are “inextricably linked to contractual duties and
obligations.”39 And, PCMS posits, all three theories of the alleged falsity are

“based entirely on EZLinks’ expectations regarding _ and PCMS’ performance

under - the Reseller Agreement and Statements of Work.”40 So, because the

 

33 Abe Parmers V, L.P. v. F&WAcquisi¢ion LLC, 891 A.2d1032, 1049 (Del. ch. 2006)_

37 Brasby v. Morris, 2007 WL 949485, at *7 (Del. Super. Ct. Mar. 29, 2007) (quoting
McKenna v. Termz'nix Int’l Co., 2006 WL 1229674, at *2 (Del. Super. Ct. Mar. 13, 2006)). ln
Brasby, this Court dismissed certain fraud allegations because the alleged actionable “statements
and assurances relate[d] directly to the performance of the contract and [we]re better addressed
by applicable contract law.” Ia'.

33 Hiller & Arban, LLC v. Reserves Mgm¢., LLC, 2016 wL 3678544, ar *4 (Del. super Ct.
July 1, 2016).

39 Def.’s Br. at 14.

40 Def.’s Br.at14_15.

fraudulent-inducement claim is based solely on PCMS’s alleged failure to deliver
the POS system as EZLinks expected them to, the Court should dismiss the
claim.41

Not so, says EZLinks. lt complains it was fraudulently induced to enter into
the Reseller Agreement with PCMS by: (1) statements in PCMS’s RFP
Response;42 (2) PCMS’s alleged statement on February 18, 2014 about remote
printing;43 and (3) PCMS’s alleged statement on August 1, 2014 about the project’s
timing and cost of the project.44

A. PCMS’s STATEMENTS IN THE RFP REsPoNsES

PCMS first contends that Complaint Paragraphs 11_13 merely allege that
the software actually delivered under the contract did not meet EZLinks’s
expectations, not fraudulent inducement to enter the contract. To maintain its
contention, PCMS cites to various paragraphs of the Complaint.45 PCMS alleges

that all of the allegations in Complaint Paragraphs 12 and 13 simply criticize the

 

41 Pl.’s Compl. at 11 27, 36-38, 44, 48-50.

42 Pl.’s Compl. at 11 11_13.

43 Pl.’s Compl. 611 16.

44 Pl.’s Compl. at 1111 22, 37.

45 For example, “PCMS staff ultimately were unable to define the user roles requested by
EZLinks, even after the investment of substantial time and cost,” and “PCMS committed to
providing ‘API access to system data for manipulation by other 3d party solutions,’ yet charged

EZLinks an additional, unquoted amount when EZLinks requested API access upon receiving
the preliminary, defective product.” Pl.’s Compl. at 1 12(d), (m).

_10_

product actually delivered; they say nothing of what was stated in the RFP

Response.46

PCMS correctly notes that “Delaware courts will not permit a plaintiff to
‘bootstrap’ a breach of contract claim into a tort claim merely by intoning prima
facie elements of the tort while telling the story of the defendant’s failure to
perform under the contract.”47 As Paragraphs 12 and 13 describe only the ways the
delivered software failed to meet EZLinks’s expectations, they merely “tell[] the
story of the defendant’s failure to perform under the contract.”48 Those specific
issues EZLinks has with the product are, of course, “better addressed by applicable
contract law.”49

B. PCMS’s FEBRUARY 18, 2014 AssURANCEs

EZLinks alleges that during a phone call on February 18, 2014, PCMS
“stated that their point-of-sale solution could handle ‘remote printing’ . . . which
they knew to be false.”50 PCMS argues that EZLinks was told that “any written or

46

oral communication” was not a contractually binding promise or

 

46 Def.’s Br. at 16.

47 Cornell Glasgow, LLC v. La Grange Props. LLC, 2012 WL 2106945, at *8 (Del. Super.
Ct. June 6, 2012).

48 Id
43 Bmsby, 2007 wL 949485, at *8.

50 Pl.’s Compl. at 1 16.

_11_

representation.”5 1 Again, PCMS states, EZLinks’s issue with the lack of a remote
printing feature was due to the delivered software failing to function as EZLinks
believed it would, not fraudulent inducement of the contract.52

C. PCMS’s AUGUsT 1, 2014 PRoMIsEs

EZLinks claims that on August 1, 2014, PCMS estimated it could complete
the project in three phases “on a budget of $1.4 million.”53 EZLinks says that
PCMS made that representation when “PCMS in fact knew that the total timing
and cost of the project would far exceed what PCMS had decided to tell
EZLinks.”54 According to EZLinks, the PCMS Proposal, and the February 18 and
August l statements were “specific, knowingly false statements on which [PCMS]
intended [EZLinks] to rely.”55

PCMS argues that EZLinks uses this allegation to support both the breach-

of-contract and fraud claims.56 But, suggests PCMS, the cost and Scheduling were

 

51 Transmittal Aff. of Meyem Y Dede in Supp. of Def.’s Br. Ex. C. at 3, 1 1 (“The
responses in this document are provided as guidance . . . . Notwithstanding any statement to the
contrary . . . this document . . . does not constitute any offer capable of acceptance or a contract
or binding agreement between the parties or a contractually binding promise or representation.”).
52 Def.’s Br. at 17_18.

33 Pl.’s Compl. at 11 22, 37.

54 Pl.’s Compl. at137.

55 Pl.’s Opp. at 14

5 6 Pl.’s Compl. at 1 36 (“By April 2016, PCMS was nowhere near being able to deliver the
POS System contemplated by the Reseller Agreement. To do so would require at least three

_12_

terms of the parties’ final written agreement to be fulfilled, not inducements
leading to creation of that written agreement57 As such, this fraud allegation
describes no duty owed to EZLinks independent of the contract; and thus, says
PCMS, it cannot serve as the basis for a separate fraud claim,58

D. BREACH-oF-CoNTRACT vs. FRAUD CLAIMS

Both EZLinks and PCMS agree that an alleged misrepresentation’s timing is
key to distinguishing fraudulent inducement from breach of contract.59 That is, the
question of whether or not a fraudulent-inducement claim stands is whether the
alleged conduct “go[es] directly to the inducement of the contract, rather than its
performance.”60

Courts often focus on when the fraudulent conduct is alleged to have

occurred. 61 “Allegations related to the inducement to contract have been

recognized as ‘separate and distinct’ conduct, while those focused on inducement

 

more years and $6 million of additional work, both of which vastly exceeded the time and budget
representations made by PCMS in the 8/1/14 Meeting.”); id. at 11 27, 31 (“PCMS Fails to
Timely Deliver a POS System and Greatly Exceeds Budget Estimate.”).

57 Def.’s Br. at 19_20.

58 Def.’s Br. at 20.

59 Pl.’s Opp. at 14; Def.’s Br. at 14, n. 9.

60 Brasby, 2007 WL 949485, at *7.

61 Hiller & Arban, LLC, 2016 WL 3678544, at *4; Cornell Glasgow, LLC, 2012 WL
2106945, at *8.

_13_

of continued performance are generally impermissible.”62 And under Delaware
law, a plaintiff “cannot ‘bootstrap’ a claim of breach of contract into a claim of
fraud merely by alleging that a contracting party never intended to perform its
obligations.”63 Nor can a plaintiff devise a claim for fraud “simply by adding the
term ‘fraudulently induced’ to a complaint.”64 To the contrary, casting an alleged
failure to comply with a contract as a failure to disclose an intention to take certain
actions arguably inconsistent with that contract is “exactly the type of
bootstrapping [Delaware c]ourt[s] will not entertain.”65

ln its best light, EZLinks’s fraudulent-inducement claim is read to allege
that PCMS intentionally and knowingly: (1) made numerous false pre-contract
representations of its then-extant product; (2) engaged in a pre-contract

concealment of its inability to create EZLinks’s proposed product; (3) greatly

undersold project times and costs; and (4) did all of this to induce EZLinks into

 

43 Hiller & Arban, LLC, 2016 wL 3678544, at *4 (citing Comell Glasgow, LLC, 2012 wL
2106945,31*3)1

63 Narrowstep, Inc. v. Onstream Mea'l`a Corp., 2010 WL 5422405, at *15 (Del. Ch. Dec. 22,
2010) (citing Iotex Commanicalions, Inc. v. Defries, 1998 WL 914265, at *4 (Del. Ch. Dec. 21,
1998)).

64 Narrowstep, Inc., 2010 WL 5422405, at *15 (quoting Iotex Communications, Inc., 1998
WL 914265, at *5 (“[A breach-of-contract claim] cannot be ‘bootstrapped’ into a fraud claim
merely by adding the words ‘fraudulently induced’ or alleging that the contracting parties never
intended to perform.”).

65 BAE Sys. N. Am. Inc. v. Lockheea' Martin Corp., 2004 WL 1739522, at *8 (Del. Ch. Aug.
3, 2004).

_14_

entering the Reseller Agreement. 66 EZLinks has met the heightened pleading
standard imposed by Rule 9(b) to address the time, place, and contents elements of
fraud claims So too, under the specific circumstances presented here, it has
pleaded enough to distinguish its fraudulent-inducement from its breach-of-
contract claim.67 But that is not all that might doom EZLinks’s fraud claim.

E. IDENTICAL DAMAGES CANNoT SUsTAIN EZLINKs’s SEPARATE CoUNTs

Even if one were to assume here that EZLinks’s two claims are distinct, it
still must plead separate damages Failure to plead separate damages is an
independent ground for dismissal. 66 Here EZLinks’s damages claims and
calculations for the alleged fraudulent inducement and breach of contract appear
materially identical. And EZLinks’s mere addition of punitive damages to its

fraudulent inducement charge is not enough to distinguish it from the contract

 

43 P1.’s compl. at 11 22, 37.

43 ITW Gzobal lnvs. ma v. Am. Indus. Parmers Cap. Fund 11/, L.P., 2015 wL 3970908, at
*6 (Del. Super. Ct. June 24, 2015) (“Allegations that are focused on inducement to contract are
‘separate and distinct’ conduct.”) (emphasis in original). See also Narrowstep, Inc., 2010 WL
5422405, at *15 (denying dismissal based on defendant’s bootstrapping argument while
observing: “[Defendant] repeatedly lied to [Plaintiff] at multiple steps in the lntegration process
in order to strip [Plaintiff] of its valuable assets with no intention of closing the merger. This
conduct, if true, goes beyond a mere intention not to comply with the terms of the Agreement. . .

The Agreement is not the source of [Plaintiff’s] fraud claim, but rather the instrument by
which [Defendant] perpetrated its broader scheme to loot [Plaintiff].”).

66 Cornell Glasgow, LLC, 2012 WL 2106945, at *9 (“[Plaintiff] has failed to plead fraud

damages separate and apart from its breach damages The fraud claim, therefore, must be
dismissed for this reason as well.”). See also ITW Global Invs. Inc., 2015 WL 3970908, at *5.

_15_

damages69 Because EZLinks “fail[ed] to separate the damages incurred by any
fraudulent conduct from those incurred by any breach of contract,” the claim for
the former should be dismissed.70

To counter, EZLinks argues that this Court’s decision in 1TW Global
Investments controls this issue.71 ln ITW, the Court noted that rescission and

rescissory damages for money paid to defendants under the contract are not

97 72

“barred as a ‘rehash’ of the Complaint’s breach of contract damages ln

EZLinks’s complaint, however, it alleges only damages “in an amount to be

proved at trial, including punitive damages, attomey’s fees, and costs” regarding

 

49 see, e.g., Hiller & Arban, LLC, 2016 wL 3678544, at *4-5. See also AFH Hlding.
Aa’visory, LLC v. Emmaas Life Scis., Inc., 2013 WL 2149993, at *12-13 (Del. Super. Ct. May 15,
2013) (granting partial summary judgment on fraud and fraud-in-the-inducement claims while
noting that “[t]he only claims for relief unique to the fraud claims are for punitive damages . . . .
The Court finds that Emmaus’s breach of contract claims and fraud claims are based on the same
operative facts Additionally, Emmaus has not demonstrated a prima facie basis for damages for
fraud or fraud in the inducement, separate and apart from any compensatory damages or
declaratory relief to which Emmaus may be entitled for breach of contract . . . .”).

76 Khushaim v. Tallow, Inc., 2016 WL 3594752, at *6-7 (Del. Super. Ct. June 27, 2016)
(dismissing claim for fraud where plaintiff “merely pled identical damages”); 1TW Global Invs.,
Inc., 2015 WL 3970908, at *5 (dismissing claim for fraud where plaintiff pleaded materially
identical damages); Cornell Glasgow, LLC, 2012 WL 2106945, at *8 (dismissing fraud claims
where breach-of-contract claim alleged identical damages); 4C, Inc. v. Pouls, 2014 WL 1047032,
at *7 (D. Del. Mar. 5, 2014) (“A plaintiff alleging both fraudulent misrepresentation and breach
of contract must prove that the damages pled under each cause of action are distinct.”);
Greenstar, LLC v. Heller, 934 F. Supp. 2d 672, 697 (D. Del. 2013) (claim for fraud failed because
plaintiff failed to demonstrate damages caused by the fraud “separate and apart from” the alleged
breach of contract damages).

34 1TW Globaz lnvs. Inc. v. Am. lndus. Parmers Cap. Fund 11/, L.P., 2015 wL 3970908
(Del. Super. Ct. June 24, 2015.

73 1a at*7,n.103.

_16_

the fraudulent-inducement claim,73 and “pre- and post- judgment interest on its
claim, in addition to the attorney’s fees and costs expended for this lawsuit”
regarding the breach-of-contract claim,74 Notably, EZLinks’s count for fraud in
the inducement pleads neither for rescission nor rescissory damages as did the 1TW
complaint.75 Thus, reliance on 1TW Global Investments on this basis is unavailing

“Delaware courts have consistently held that to successfully plead a fraud
claim, the allegedly defrauded plaintiff must have sustained damages as a result of
a defendant’s action.”76 And those fraud damages allegations can’t simply
“rehash” the damages that were allegedly caused by the claimed breach of
contract.77

EZLinks contends that its damages claims, at this stage, are distinct.
EZLinks cites JCM Innovatz`on Corp. v. FL Acquisitz`on Hola’ings, Inc.78 ln JCM,

plaintiffs alleged defendants defrauded them into signing a purchase agreement

 

75 Pl.’s Compl. at 1 53.
74 Pl.’s Compl. at 1 46.
73 Compare ia, with 1TW Global lnves¢., lnc., 2015 wL 3970908, at *5, *7, n. 103.

76 Cornell Glasgow, LLC, 2012 WL 2106945, at *8 (quoting Dalton v. Fora’ Motor Co.,
2002 WL 338081, at *6 (Del. Super. Ct. Feb. 28, 2002)).

77 1a ar *8 (citing Alb@n v. Alex Brown Mg¢, serv., lnc., 2005 wL 2130607, at *7 (Del. Ch.
Aug. 26, 2005)).

76 JCMInnovation Corp. v. FL Acquisition Hla'gs., Inc., 2016 WL 5793192 (Del. Super. Ct.
Sept. 30, 2016).

_17_

Plaintiffs pled a litany of claims, including fraud and breach of contract. And it
appears that the JCM plaintiffs alleged identical damages calculations for both
types79

But JCM hardly stands for the proposition that identical damages claims in
breach-of-contract and fraudulent-inducement counts are permissible and allow
both counts to coexist in one action. ln JCM, the parties’ agreement’s
indemnification provisions prohibited all of JCM’s contract claims By operation
of those express contractual provisions, only JCM’s fraud and unjust enrichment
claims remained.66 Not so here.

VI. CONCLUSION

EZLinks has failed to establish - even after oral argument and supplemental
briefing _ how its alleged fraudulent-inducement and breach-of-contract damages
are distinct. EZLinks has merely pleaded identical damages Fraud-induced

damages cannot mirror breach-of-contract damages 61 And so, both the

 

73 see JCMInnavarian Carp., 2016 wL 5793192, at *9.

66 JCM Innovatz'on Corp., 2016 WL 5793192, at *7 (“The Exclusive Remedy Provision,
however, bars JCM’s contractual claims.”); ia'. (noting unjust enrichment claim would survive
because it “is a quasi-contractual claim . . . a claim that proceeds under the theory that no
contract exists.”); id. at *9 (“JCM alleges Defendants repeatedly misled it throughout the
negotiation and signing. lf true, then the Agreement is the ‘instrument by which Defendants
perpetrated its broader scheme’ to defraud JCM. At this juncture, JCM’s fraud claim is different
from its breach of contract claim.”) (citing Narrowstep, Inc., 2010 WL 5422405, at *15).

3' See 1TW Glabal lavs. ma, 2015 wL 3970908, at *5 (dismissing plaintiffs fraud claim
“[b]ecause 1TW has pleaded materially identical damages for $85 million, they fail to separate
the damages incurred by any alleged fraudulent misrepresentation and any alleged breach of

_13_

fraudulent-inducement and breach-of-contract counts cannot survive. PCMS’s
Partial Motion to Dismiss is GRANTED. Count ll (Fraudulent lnducement) of

EZLinks’s Complaint is DISMISSED.

IT IS SO ORDERED. 62 ;

Paul R. Wallace, Judge

 

contract under the SPSA”). See also Khushaim, 2016 WL 3594752, at *6 (dismissing a fraud
claim where the plaintiff"s alleged fraud damages were “a copy-and-paste recitation of [the]
contract damages.”).

_19_