Opinion
3:21-cv-00743-AR
07-28-2022
ESCO ELECTRIC COMPANY, an Iowa corporation, Plaintiff, v. VIEWPOINT, INC., a Delaware corporation, Defendant.
FINDINGS AND RECOMMENDATION
JEFFRK STEAD United States Magistrate Judge
After months of discussions, plaintiff ESCO Electric Company and defendant Viewpoint, Inc. entered into an agreement for the purchase of software. Shortly after ESCO bought the software from Viewpoint, it found that the software did not work in the way ESCO says was represented by Viewpoint during the presale discussions. ESCO brings this diversity action, alleging that Viewpoint fraudulently and negligently misrepresented its software's capabilities, breached its agreement with ESCO, and was unjustly enriched by selling software that did not meet ESCO's requirements. First. Am. Compl. (FAC) ¶ 2, ECF No. 13.
Two motions are pending before the court: Viewpoint moves to dismiss ESCO's FAC and ESCO moves for leave to file a second amended complaint. Mot. to Dismiss, ECF No. 37; Mot. to Amend, ECF No. 40. For the following reasons and as stated below, the court recommends that both motions be GRANTED IN PART and DENIED IN PART.
Notwithstanding the parties' request for oral argument, the court does not believe that oral argument would assist in resolving the pending motions. See LR 7-1(d)(1).
BACKGROUND
The court construes as true the factual allegations of ESCO's FAC. SeeWeston Family P'ship LLLP v. Twitter, Inc., 29 F.4th 611, 617 (9th Cir. 2022) (“When assessing the adequacy of a complaint, we accept all factual allegations as true and view them in the light most favorable to the plaintiff.”).
ESCO submits nine documents as exhibits attached to its FAC under Federal Rule of Civil Procedure 10(c) (a “copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes”). These documents include an email from Viewpoint's sales representative (Exhibit 1); a spreadsheet specifying ESCO's requirements (Exhibit 2); copies of the notes of ESCO employees, taken during product demonstrations for Viewpoint's software in May and July 2019 (Exhibits 3, 4, and 5); the “Agreement,” a portion of the parties' contract for purchase of Viewpoint's software (Exhibit 6); and email communications with Viewpoint representatives discussing problems that ESCO experienced with the software during installation (Exhibits 7, 8, and 9). As necessary, the court may consider and refer to those documents in this F&R. SeeSan Carlos Apache Tribe v. Azar, 482 F.Supp.3d 932, 934 n. 1 (D. Ariz. 2020) (noting that the types of instruments typically qualifying for incorporation under Rule 10(c) include documentary evidence, “specifically, contracts, notes, and other writings on which a party's action or defense is based”). The court also considers, under the doctrine of incorporation-by-reference, an online, eight-page document of terms and conditions, titled the Master Software Licensing Agreement (MSLA). SeeKhoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018) (Incorporation-by-reference is a judicially created doctrine that “treats certain documents as though they are part of the complaint itself.”).
A. Precontractual Discussions
ESCO is an automation, electrical, and instrumentation services company. FAC ¶ 3. In 2018, ESCO began soliciting bids to develop custom Enterprise Resource Planning (ERP) software for use at its Iowa facilities. Id. ¶ 1. To ensure the software had certain functions, ESCO sent solicitation emails to multiple software companies. Id. ¶ 8. Each email included a “User Requirements Spreadsheet,” listing sixty-nine functional requirements and inviting the software companies to indicate “Y/N” whether their software met each requirement. Id. ¶ 15, Ex. 2. The spreadsheet also contained a column for “vendor input,” where the companies could provide more detail about each requirement. Id.
In December 2018, ESCO sent a solicitation email and the User Requirements Spreadsheet to Viewpoint, a software company principally based in Portland, Oregon. Id. ¶¶ 4, 9. Viewpoint responded with an initial offer to provide ERP software to ESCO. Id. ¶ 11. The parties entered precontractual discussions, and Frank Schroeder, a Viewpoint sales representative, became ESCO's primary point of contact. Id. ¶ 12.
During the next several months, Schroeder communicated frequently with ESCO about the capabilities of Viewpoint's software. Id. ¶ 13. On January 23, 2019, Schroeder held an initial telephone conference with ESCO's Chief Financial Officer, Director of Quality, and Quality Engineer. Id. Following that conversation, Schroeder emailed ESCO a completed version of the User Requirements Spreadsheet and indicated that he had “answered the questions as [he] understood them.” Id. ¶¶ 14-15, Ex. 1-2. In the completed spreadsheet, Schroeder represented that Viewpoint's software met sixty-seven of the sixty-nine listed requirements and included further explanation in the vendor input column. Id. ¶ 15, Ex. 2.
Schroeder discussed the capabilities of Viewpoint's software with ESCO employees at product demonstrations on May 15, June 20, and July 11, 2019. Id. ¶¶ 19, 24-25. ESCO alleges that at these demonstrations, Schroeder represented the software could perform the following functions:
• Bill to multiple POs on a single job and bill from multiple jobs to a single PO.
• Import billing rates from Excel for standard rates with effective dates, meaning if an employee's standard hourly rate was set to increase on a specific date, that information could be imported from Excel and the software would automatically start applying that rate on the effective date.
• Automatically apply billing rates by Labor Class, overtime, double time, Union, or Task, meaning the software could automatically apply a rate set for that task by, for example, a union contract, and automatically calculate and apply an employee's overtime rate based on [the] standard rate already in the system.
• Allow hierarchy for billing rates as 1. Job union, 2. Customer Service, 3. Employee. The purpose of this function was to allow ESCO to bill different rates for different tasks performed by the same employee on the same job.Id. ¶ 25. These alleged representations are reflected in notes of ESCO employees taken during the May and July demonstrations. Id. ¶ 20, 26, Ex. 4-5. ESCO alleges that “Viewpoint's software's ability to [bill multiple jobs to a single PO] was one of the primary reasons it chose to purchase the software from Viewpoint,” as ESCO's existing system lacked this feature. Id. ¶ 23.
During the May demonstration, Schroeder also “represented that the software included built-in reports that were easy to customize and modify.” Id. ¶ 21. Previously, in the “vendor input” column on ESCO's User Requirements Spreadsheet, Schroeder had indicated that the software included: “Built-in Crystal Reports (all modifiable), Built in financial report designer, BI tool, InfoLink for connection to Excel/Word. Able to accommodate all report types listed.” Following their communications, ESCO decided to purchase software from Viewpoint. Id. ¶ 27.
B. Contractual Terms and Conditions
On October 30, 2019, ESCO agreed to purchase the software from Viewpoint. Id. ¶ 35. At the time, Viewpoint provided ESCO with a hard copy of the Agreement, which comprised an “Order” and a “Statement of Work.” Id. ¶ 31. The Agreement described the software's functionality in generalized terms, indicating that, among other capabilities, it had the following functions: “Accounts Payable, Accounts Receivable, Cash Management, General Ledger, Job Cost, Payroll . . . Human Resources, Document Management, Equipment, Order Processing, Inventory, Work Orders ....” Id. ¶ 28, Ex. 6 (emphasis added). The Agreement also stated that Viewpoint would provide ESCO with installation, training, and technical support. Id.
The Agreement also contained two clauses incorporating a web-based document of terms: the Master Software Licensing Agreement (MSLA). Id. ¶ 28, Ex. 6 at 3, 7. The hyperlinks functioned the day ESCO signed the Agreement. Order of Transfer at 6, ECF No. 23.
Each clause provided that the documents were “subject to and governed by the Master Software Licensing Agreement or Master Subscription Agreement available at http://viewpoint.com/legal/agreements-and-terms.” FAC ¶ 28, Ex. 6 at 3, 7.
The MSLA is an eight-page document addressing important terms affecting the parties' Agreement. Decl. of Lindsay Bregante Myers ¶ 2, Ex. 1 (MSLA), ECF No. 10-2. For instance, the MSLA contains a governing law provision specifying Oregon law as controlling and naming Portland, Oregon as the forum with exclusive jurisdiction over disputes arising from the Agreement. MSLA § 17. The MSLA also contains a disclaimer clause, providing:
THE EXPRESS WARRANTIES IN SECTION 9 ARE THE EXCLUSIVE WARRANTIES AND REPRESENTATIONS OFFERED BY VIEWPOINT, AND ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, THOSE OF FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGMENT, ACCURACY, QUIET ENJOYMENT, TITLE, MERCHANTABILITY, AND THOSE THAT ARISE FROM ANY COURSE OF DEALING OR COURSE OF PERFORMANCE ARE
HEREBY DISCLAIMED. VIEWPOINT DOES NOT WARRANT THAT THE SOFTWARE OR SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT CUSTOMER'S USE OF THE SOFTWARE WILL BE UNINTERUPTED OR ERROR-FREE, OR THAT ERRORS WILL BE CORRECTED. CUSTOMER IS SOLELY RESPONSIBLE FOR CONFIRMING THE SUITABILITY OF THE SOFTWARE TO MEET CUSTOMER'S COMPLIANCE OBLIGATIONS AND OTHER REQUIREMENTS.Id. § 9.4. Finally, the MSLA contains an integration clause, providing in part:
Collectively the [Agreement and MSLA] constitute[] the entire agreement between the parties with respect to the subject matter hereof and supersede[] all prior and contemporaneous agreements or communications, including, without limitation, any quotations or proposals submitted by Viewpoint.Id. § 19.9 (emphasis added).
C. Installation and Software Problems
In early December 2019, Bob Dialoiso-a third-party contractor hired by Viewpoint- arrived at ESCO's Iowa office to install the software. FAC ¶¶ 36-37. During installation, ESCO employees asked Dialoiso questions about how to use the software and soon “learned that the software could not perform many of the functions promised by Mr. Schroeder during [pre-contractual] demonstrations.” Id. ¶ 38. ESCO alleges that these functional limitations “included, but were not limited to, the four functions specifically” represented by Schroeder at product demonstrations in May, June, and July 2019. Id.
Noting that Schroeder had represented that the software included “built in reports” at product demonstrations and in the User Requirements Spreadsheet, ESCO also questioned Dialoiso about customization of the software's “Analytics and Reporting” function. Id. ¶ 42. Dialoiso “stated that this [customization] function was not possible through the software.” Id. ¶ 45. Following Dialoiso's statements, ESCO emailed Schroeder and asked him to “clarify why Mr. Dialoiso was telling ESCO that the software could not perform specific functions that he . . . promised it could perform.” Id. ¶ 39. Schroeder, who no longer worked at Viewpoint, responded that he did not have a “clear memory” about those representations and directed ESCO back to Dialoiso. Id. ¶¶ 39-50, Ex. 7. Dialoiso consistently stated that the functions Schroeder represented “were not possible with the Viewpoint software.” Id. ¶ 40.
ESCO next raised its concerns about the software's limitations with its new designated point-of-contact at Viewpoint, Bob Kelley. Id. ¶ 46. With respect to the built-in reports representation, Kelly informed ESCO that “it was not possible to customize reports within the Viewpoint software” and stated that “ESCO would need to purchase an additional license for third party software, modify reports in this third-party program, [and] then upload the modified reports back into the Viewpoint software.” Id.
During installation, ESCO also experienced problems with the software's ability to process payroll. Id. ¶ 47. Specifically, the “software failed to properly calculate [Iowa] state tax withholdings” because Iowa's standard deduction amounts “vary based on the number of withholding allowances an employee has chosen.” Id. ¶¶ 48-49, Ex. 8. On ESCO's behalf, Dialoiso emailed Kelly to explain that the only apparent solution for this problem would require “manual intervention with each tax table,” a modification “highly undesired by ESCO.” Id. Kelly referred the problem to Viewpoint's product development team, and he soon reported to ESCO that the team was working on the problem but had not yet found a “programmatic fix for this issue.” Id. ¶ 49, Ex. 8. In the short term, Kelly suggested that ESCO “identify a plan b for how to address this issue for the next payroll with the system as-is.” Id.
As the list of problems grew, Kelly brought in Zach Feige, the senior vice president of professional services at Viewpoint. Id. ¶ 51. Feige sent ESCO a letter, acknowledging that ESCO was experiencing problems with the software and stating his team would work to fix them. Id. ¶ 52, Ex. 9. In that letter, Feige explained:
Viewpoint's process to modify existing standard reports is to download the standard reports in Crystal Reports, make any necessary changes, and upload back into ViewpointOne. This is a standard method deployed by many software products in the industry and will require an additional purchase ($500-$1,000).Id. Feige also acknowledged that “there is not currently and [application programming interface] for job-specific TM Labor Bill Rates and Union Wage Codes,” and he addressed the software's issues in processing Iowa payroll by recommending a “configuration change.” Id. It is unclear if this change was ever implemented. Feige acknowledged later that Viewpoint had “several misses” and stated that “if Viewpoint was not able to resolve the issues for ESCO, he would advocate from within Viewpoint for the refund” of ESCO's fees. Id. ¶¶ 53-54.
ESCO continued to perform software tests, but ultimately concluded that “the software Viewpoint provided could not meet [its] needs.” Id. ¶ 56. ESCO elected not to input any client data, ceased all use of the software, and did not log into any program related to the software. Id. ¶¶ 55-57. On June 29, 2020, ESCO sent notice of termination to Viewpoint. Id. ¶ 58. Viewpoint acknowledged receipt of that notice but refused to refund the fees that ESCO paid for Viewpoint's software and services. Id. ¶ 61.
LEGAL STANDARD
A. Motion to Dismiss
Federal Rule of Civil Procedure (Rule) 8(a) governs pleadings and calls for “a short and plain statement of the claim showing that the pleader is entitled to relief.” A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint under this standard. The complaint must contain sufficient factual allegations to “state a claim to relief that is plausible on its face.” BellAtl. Corp. v. Twombly, 550 U.S. 544, 547 (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). In evaluating the complaint, “[a]ll allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Am. Family Ass'n, Inc. v. City & Cnty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). However, bare assertions that amount to nothing more than a “formulaic recitation of the elements” of a claim “are conclusory and not entitled to be assumed true.” Iqbal, 556 U.S. at 681. “Dismissal can be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Id.
As to allegations of fraud, Rule 9(b) supplements the notice-pleading standard of Rule 8(a) and requires a party to “state with particularity the circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b); Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). In other words, the plaintiff must allege ‘the who, what, when, where, and how of the misconduct charged,' including what is false or misleading about a statement and why it is false.” Metropolis Holdings, LLC v. SP Plus Corp., Case No. 3:20-cv-00612, 2020 WL 4506778 *2 (D. Or. Aug. 5, 2020). “Broad allegations that include no particularized supporting detail do not suffice” Id. (citing Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001)). Rule 9(b)'s heightened pleading standard serves two purposes. United States v. United Healthcare Ins.Co., 848 F.3d 1161, 1180 (9th Cir. 2016). First, it ensures that allegations of fraud are “specific enough” to give the defendant notice of the particular misconduct that allegedly constitutes fraud “so that they can defend against the charge.” Id. Second, by requiring some factual basis for the claims, the rule serves “to deter the filing of complaints as a pretext for the discovery of unknown wrongs.” Id.
B. Motion to Amend
Rule 15(a)(2) provides that “the court should freely give leave [to amend a pleading] when justice so requires.” The purpose of this rule “is ‘to facilitate decision on the merits, rather than on the pleadings or technicalities.'” Novak v. United States, 795 F.3d 1012, 1020 (9th Cir. 2015) (quoting Chudacoff v. Univ. Med. Ctr., 649 F.3d 1143, 1152 (9th Cir. 2011)). In line with that purpose, “[r]equests for leave to amend should be granted with ‘extreme liberality.'” Brownv. Stored Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 2020).
Within its discretion, however, a court may deny a motion to amend “due to ‘undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of the amendment.'” Zucco Partners, LLC v.Digimarc Corp., 552 F.3d 981, 1007 (9th Cir. 2009) (alteration in original) (quoting Leadsinger,Inc. v. BMGMusic Publ'g, 512 F.3d 522, 532 (9th Cir. 2008)). Of these factors, “prejudice to the opposing party carries the most weight.” Brown, 953 F.3d at 574. Nevertheless, futility of amendment may “by itself, justify the denial of a motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). When weighing the factors, all inferences should be made in favor of granting the motion to amend. Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999).
MOTION TO DISMISS-DISCUSSION
ESCO asserts five claims for relief against Viewpoint: (1) damages based on fraudulent misrepresentation; (2) contract rescission based on fraudulent misrepresentation; (3) negligent misrepresentation; (4) breach of contract; and (5) unjust enrichment. FAC ¶¶ 62-99. ESCO has since reported that it intends to withdraw its claim for negligent misrepresentation, so that claim is dismissed with prejudice. ESCO Resp. to Mot. to Dismiss (ESCO Resp.) at 3, ECF No. 39 (“Plaintiff agreed to withdraw its negligent misrepresentation claim, and also provided Defendant with a proposed Second Amended Complaint, which omitted the negligent misrepresentation claim.”).
Therefore, the court need not address Viewpoint's arguments based on the economic loss doctrine. SeeOregon Steel Mills, Inc. v. Coopers & Lybrand, LLP, 336 Or. 329, 341 (discussing that the economic loss doctrine precludes a party from recovering in negligence for its purely economic loss).
Viewpoint moves to dismiss ESCO's existing claims with prejudice, asserting that ESCO's fraudulent misrepresentation claims are barred as a matter of law by the parties' contract and are not alleged with particularity as required by Rule 9(b). Mot. to Dismiss at 3, 6, 21. Viewpoint also argues that ESCO fails to state plausible contract and unjust enrichment claims. Id. at 16-18.
The parties' contract comprises both the Agreement and the MSLA.
A. Effect of Integration and Disclaimer Clauses on the First and Second Claims
Viewpoint moves to dismiss ESCO's fraudulent misrepresentation claims (Counts 1 and 2) on the basis that the MSLA's integration clause and disclaimer of any representations made by Viewpoint outside the Agreement, as well as the assignment to ESCO of sole responsibility for “confirming the suitability of the software,” means that-as a matter of law-ESCO cannot have justifiably relied on any representations about the software that Schroeder may have made during precontractual discussions. Id. at 3-5. Viewpoint also asserts that the common-law parol evidence rule excludes any communications made by it outside the contract. Id. at 5.
Because the court has diversity jurisdiction, it must interpret and apply the substantive law of the forum state, which the parties agree is Oregon. SeeErie Railroad v. Tompkins, 304 U.S. 64, 78 (1938). Neither the Oregon Supreme Court nor the Oregon Court of Appeals has directly addressed the question raised by Viewpoint's argument. Consequently, the court “must predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.” Nelson v. City of Irvine, 143 F.3d 1196, 1206 (9th Cir. 1998).
Viewpoint cites an Oregon case, Hoff v. Peninsula Drainage Dist., 172 Or. 630, 637-38 (1943), and non-Oregon law-mainly an unpublished decision from the Northern District of Iowa, Lincoln Sav. Bank v. Open Solutions, Inc., Case No. C12-2070, 2013 WL 997894 (N.D. Iowa March 13, 2013)-for its proposition that no-reliance and integration clauses defeat, as a matter of law, claims for fraudulent misrepresentations made outside the bounds of an agreement.
Viewpoint also cites Ninth Circuit Court of Appeals decisions interpreting California law: Bank of the West v. Valley Nat'l Bank of Ariz., 41 F.3d 471 (9th Cir. 1994) and ParacorFinance, Inc. v. Gen. Elec. Cap. Corp., 96 F.3d 1151 (9th Cir. 1996). Viewpoint, however, fails to explain how those cases bear on interpretation of Oregon law. In any event, the court is skeptical that the cases support Viewpoint's contention. SeeBurton Way Hotels, Ltd. V. FourSeasons Hotels Limited, Case No. 11-303 PSG, 2012 WL 12883616, at *22 (N.D. Cal. Feb. 23, 2012) (The “Court finds that Valley National does not preclude application of the general rule in California that a boilerplate clause ‘stating that the parties relied only on the representations contained in the contract does not bar, as a matter of law a claim for intentional misrepresentation or fraudulent concealment.'” (Quoting, among other cases, Manderville v.PCF & S. Grp., Inc., 146 Cal.App.4th 1486, 1501-02 (2007)).
ESCO, for its part, argues that under Oregon law, a disclaimer does not provide a defense to a fraudulent misrepresentation action where the disclaimer is included in the contract which the plaintiff alleges was induced by fraud. ESCO Resp. at 6. ESCO also attacks the validity of the disclaimer and asserts that ORS 41.470, which codifies the common-law parol evidence rule, allows extrinsic evidence to establish fraud. Id. at 6, 15. As the court explains, ESCO has the better argument.
Under Oregon law, a plaintiff's “justifiable reliance” on a representation is an essential element of a claim for fraudulent misrepresentation. Strawn v. Farmers Ins. Co., 350 Or. 336, 352 (2011)). The Oregon Supreme Court has explained that this element
serves as a balance between, on the one hand, the policy that a person who intentionally deceives another should not be allowed to profit from the deception and, on the other hand, the recognition that the person deceived, as an autonomous individual, should be responsible for protecting his or her own interests when making a decision.Murphy v. Allstate Ins. Co., 251 Or.App. 316, 324 (2012). The standard for justifiable reliance in the context of fraud is both subjective and objective. Cocchiara v. Lithia Motors, Inc., 353 Or. 282, 298 (2013). Whether reliance was justified, therefore, is “a determination that must be made by the factfinder unless the circumstances of the case compel the conclusion that the plaintiff was not justified, as a matter of law, in so relying.” Murphy, 251 Or.App. at 325. Here, the court must determine whether the no-reliance provisions in the parties' contract compel the conclusion that ESCO's reliance on Schroeder's representations was not justifiable as a matter of law.
The court begins with Viewpoint's reliance on Hoff. Viewpoint, citing Hoff, contends it is a longstanding rule in Oregon that “where an alleged misrepresentation is clearly contradicted by a provision of a subsequent written contract between the parties, and that contract contains an integration clause forewarning the parties that they cannot rely on any prior oral representations, a fraud claim fails for lack of reliance.” Viewpoint Reply in Supp. of Mot. to Dismiss (Viewpoint Reply) at 2, ECF No. 43. The subsequent provision that Viewpoint posits as clearly contradictory to any oral misrepresentations it may have made is “CUSTOMER IS SOLELY RESPONSIBLE FOR CONFIRMING THE SUITABILITY OF THE SOFTWARE TO MEET CUSTOMER'S COMPLIANCE OBLIGATIONS AND OTHER REQUIREMENTS.” MSLA § 9.4. Viewpoint, however, does not explain how that provision directly contradicts the alleged misrepresentations about the software's capabilities. SeeBoydstun Metal Works, Inc. v. Paramatric Tech. Corp., No. CIV. 99-480-AS, 1999 WL 476265, at *5 (noting an exception to Hoff when “the written agreement, though containing an integration clause, does not directly contradict the alleged misrepresentation, the general rule that evidence of fraud is admissible applies and the question of reliance is for the trier of fact” (citing Heise et ux v. Pilot Rock Lbr.Co., 222 Or. 78, 88, 352 P.2d 1072 (1960)). For example, a provision directly contradicting the alleged misrepresentation that the software could “bill to multiple POs on a single job and bill from multiple jobs to a single PO” would be a contractual provision making that representation or disclaiming that the software could perform that function. Such a provision is not the case here, and so Viewpoint's reliance on Hoff is misplaced.
Viewpoint also heavily relies on Lincoln Savings I. In Lincoln Savings I, 2013 WL 997894, at *1, a bank purchased software from a defendant software company, and finding the software unsatisfactory, brought an action alleging that the company had negligently misrepresented its software to induce the purchase. The software company moved to dismiss, arguing that the disclaimer and integration clauses in the agreement barred the bank's claim. Id.at *4. The court agreed and ordered dismissal. Id. at *7. “Because of the integration clause and disclaimer clause[s],” the court concluded that “as a matter of law there could be no reliance on extra-contractual representations.” Id. When the plaintiff later attempted to reassert claims for fraud and negligent misrepresentation, the court confirmed that its prior dismissal was with prejudice, explaining that “the terms of the Agreement disclaimed any representations or warranties not expressly set forth in the contract.” Lincoln Sav. Bank v. Open Solutions, Inc., 956 F.Supp.2d 1032, 1045 n.3 (N.D. Iowa 2013) (Lincoln Savings II).
Lincoln Savings I is distinguishable from this case. Notably, the Lincoln Savings I court addressed only how a no-reliance provision affected a negligent misrepresentation claim. See 2013 WL 997894, at *7 (dismissing the bank's “negligent misrepresentation” claim). While the court briefly compared the scienter elements of claims for fraudulent and negligent misrepresentation, it did not consider or explain how that scienter might affect the enforceability of a no-reliance clause. Seeid. at *4-5. Thus, while Viewpoint urges the court to find ESCO's fraudulent misrepresentation claim barred under this holding, the court is unpersuaded that the Lincoln Savings I court would reach that result under the facts presented here.
In any event, Viewpoint's task is to provide the court with explanations as to how to construe the applicable law of the contract's forum state-Oregon. Lincoln Savings I is an unpublished case applying the law of Delaware. The court finds no reason to believe that Oregon courts would approach the interplay between intentional fraud and the contractual provisions at issue in the case in the same way. Indeed, the way Oregon courts have analyzed fraud and contractual provisions-although, as noted, no cases directly address Viewpoint's specific argument-suggests that a disclaimer is not a defense to a fraudulent misrepresentation action where the disclaimer is contained in the contract that the plaintiff alleges was induced by fraud.
For example, in Teegarden v. State ex rel. Oregon Youth Authority, 270 Or.App. 373, 380 (2015), the Oregon Court of Appeals considered whether a release provision in a settlement agreement barred a plaintiff from asserting that the settlement had been fraudulently induced. After the Oregon Youth Authority (OYA) fired the plaintiff, a youth correctional facility employee, the plaintiff filed a grievance through his union and reached a settlement agreement with OYA, in which he agreed to release OYA from liability arising from circumstances surrounding the termination. Id. at 375. During settlement negotiations, however, OYA did not disclose to the plaintiff that criminal charges based on events related to his firing would likely be brought against him. Id. at 376. Charges were brought but the plaintiff was acquitted of them. Id. at 377. He filed suit against OYA, but the trial court concluded his claims were barred by the settlement agreement and dismissed the action. Id. at 378.
On appeal, the plaintiff argued that the settlement agreement was voidable because OYA induced him to settle by fraudulently concealing its knowledge that related criminal charges were likely. Id. at 381. OYA countered that this argument must fail because the settlement was fully integrated and provided that OYA had not “made any representations or promises concerning the terms or effects” of the agreement. Id. at 376, 380. The court was unpersuaded by OYA's argument. It reasoned that a “contract may be avoided on the basis of fraudulent misrepresentations in the inducement despite a disclaimer clause where the fraud complained of vitiates the entire transaction, including the disclaimer clause.” Id. (citing Wilkinson v.Carpenter, 276 Or. 311, 318-19 (1976)). Noting that the plaintiff had alleged that OYA affirmatively, knowingly, and falsely represented during settlement negotiations that he would not be criminally charged for events related to his termination, the court reversed the trial court's dismissal, enabling the employee to reassert his fraudulent misrepresentation claim against OYA. Id. at 383.
The Teegarden rationale crops up in other areas of Oregon law, most notably in disputed real estate transactions. See, e.g., Farnsworth v. Feller, 256 Or. 56, 65 (1970) (“contract provision reciting that plaintiff relied solely on their own investigation and not upon any representations by defendants . . . provides no defense when . . . the contract containing such a provision is voidable and itself subject to recission”). For example, in Wilkinson, 276 Or. at 314, the Oregon Supreme Court considered whether a clause stating that a restaurant had been sold without warranties or representations made to induce the sale defeated the defendant-buyer's claim for fraudulent inducement. Because the trial court had found that the defendant-buyer did not prove actual fraud, the court did not reach the disclaimer issue. Seeid. at 315. However, the court explained in dicta that, although a disclaimer may “prevent defendants from relying upon any innocent misrepresentations as the basis of a suit for recission,” such a clause “will not preclude relief upon a showing of actual fraud.” id. Addressing the disclaimer's different effect on fraudulent and innocent misrepresentation claims, the court explained that “[n]o one can be allowed to profit from intentional misstatements of material facts.” id.
This policy is echoed in several opinions from Oregon's intermediate court. For example, after concluding that a jury could find that “a defendant [franchisor] induced plaintiffs to purchase [a] franchise by intentionally representing that the financial information disclosed [about the franchise's profitability] was meaningless,” the court refused to give effect to a disclaimer stating that “no representations as to profit were made.” Campbell v. Southland Corp., 127 Or.App. 93, 102 (1994). The court reversed summary judgment and explained that “[d]efendants cannot rely on the disclaimers to escape liability if there were intentional misrepresentations.” Id. at 102-03; see alsoMcNeff v. Emmert, 260 Or.App. 239, 249 (2013) (“[W]e cannot imagine what principal of law would permit a party to fraudulently promise to execute a contract that includes an integration clause, and then rely on a provision of that unexecuted agreement to defeat the fraud claim.”).
Given this weight of authority, the court is not persuaded that the Oregon Supreme Court would hold that the no-reliance provisions in the parties' contract preclude, as a matter of law, justifiable reliance on a fraudulent representation. SeeNelson, 143 F.3d at 1206-07 (“[W]here there is no convincing evidence that the state supreme court would decide differently, a federal court is obligated the follow the decisions of the state's intermediate appellate courts.”). Oregon courts have expressly recognized that “[t]he type of interest protected by [fraud claims] is the interest in formulating business judgments without being misled by others-in short, in not being cheated.” Cocchiara, 353 Or. at 298. To protect this business interest, “a purchaser who has, in fact, been induced to enter a contract by an intentional misrepresentation may rescind the contract even though his reliance may have been negligent.” Bodenhamer v. Patterson, 278 Or. 367, 374 (1977). Accordingly, the court is not persuaded that the Oregon Supreme Court would find that-should ESCO plausibly allege and eventually prove that Viewpoint made fraudulent misrepresentations-its claim would be barred as a matter of law.
Similarly, Viewpoint's assertion that the parol evidence rule prohibits ESCO from relying on evidence of oral communications to alter the terms of the parties' integrated contract is unavailing. It is well settled that, although the parol evidence rule, codified at ORS § 41.740, generally prohibits parties from relying on “evidence of the terms of the agreement, other than the contents of the writing,” the rule “does not exclude other evidence of the circumstance under which the agreement was made . . . to establish illegality or fraud.” ORS § 41.740. Therefore, the parol evidence rule does not bar evidence of Schroeder's alleged oral representations to prove fraudulent inducement. SeeCurtis v. Golden, 55 Or.App. 400, 404 (1981) (“Parol evidence was admissible to prove fraud in the inducement of the contractual relationship.”).
ESCO raises alternative arguments about the validity of the disclaimer clause. The court has reviewed those arguments but it is unnecessary to include in this F&R a discussion of each. To the extent that ESCO's arguments are properly understood as arguments regarding the disclaimer of warranties, the court addresses them later in this F&R when discussing Viewpoint's argument that ESCO failed to plausibly allege that Viewpoint breached its warranty of merchantability. Moreover, even though it is likewise unnecessary to reach ESCO's arguments concerning waiver, course of performance, the parties' contractual obligation to comply with the law, and a limited warranty that the software will comply with “Documentation,” the court nonetheless readily finds those arguments unpersuasive or insufficiently developed.
B. Rules 8(a) and 9(b) and ESCO's First and Second Claims
As separate grounds for dismissal of the First and Second Claims, Viewpoint argues that ESCO has failed to plead its fraudulent misrepresentation claims plausibly as required by Rule 8(a) and Iqbal, 556 U.S. at 678, and with particularity as required by Rule 9(b). Motion to Dismiss at 8. ESCO contends that it has adequately pleaded both claims. ESCO Resp. at 11.
With respect to the Second Claim-contract rescission based on fraudulent misrepresentation-Viewpoint also argues that the FAC does support rescission as an appropriate remedy. Viewpoint Reply at 21. Because Viewpoint first raised this argument in its Reply, ESCO has not had an opportunity to respond. Consequently, the court declines to address that argument at this stage. SeeTovar v. U.S. Postal Serv. 3 F.3d, 1271, 1273 n.3d (9th Cir. 1993) (“To the extent that [a reply] presents new information, it is improper.”).
To state a claim for fraud, a plaintiff must allege facts to plausibly show that:
[1] the defendant made a material misrepresentation that was false; [2] the defendant did so knowing that the representation was false; [3] the defendant intended the plaintiff to rely on the misrepresentation; [4] the plaintiff justifiably relied on the misrepresentation; and [5] the plaintiff was damaged as a result of that reliance.McNeff, 260 Or.App. at 247 (quoting Strawn, 350 Or. at 352). Rule 9(b) also requires that the plaintiff state the “who, what, when, where, and how of the misconduct charged” with sufficient detail to give the defendant notice and opportunity to defend itself. United Healthcare Ins. Co., 848 F.3d at 1180.
For the most part, ESCO's first and second claims satisfy these pleading standards. ESCO alleges that Viewpoint-through Schroeder-represented in product demonstrations on May 15, June 20, and July 11, 2019, that its software could perform the following functions:
ESCO's allegations fail these standards in one respect: its generalized allegation that “Viewpoint made representations, including but not limited to, Viewpoint's software's satisfaction of sixty-seven [out of sixty-nine] of ESCO's user specifications.” FAC ¶¶ 63, 71 (emphasis added). Given the particularity standard, ESCO may not rely on examples of alleged representations. Moreover, with the exception of Viewpoint's response regarding customizable built-in user reports, ESCO does not allege facts to suggest that Viewpoint's other responses in the spreadsheet were false. Thus, the court considers only the five representations set forth above as adequately alleged.
• Bill to multiple POs on a single job and bill from multiple jobs to a single PO.
• Import billing rates from Excel for standard rates with effective dates, meaning if an employee's standard hourly rate was set to increase on a specific date, that information could be imported from Excel and the software would automatically start applying that rate on the effective date.
• Automatically apply billing rates by Labor Class, overtime, double time, Union, or Task, meaning the software could automatically apply a rate set for that task by, for example, a union contract, and automatically calculate and apply an employee's overtime rate based on [the] standard rate already in the system.
• Allow hierarchy for billing rates as 1. Job union, 2. Customer Service, 3. Employee. The purpose of this function was to allow ESCO to bill different rates for different tasks performed by the same employee on the same job.Id. ¶¶ 15, 20, 25-26. ESCO further alleges that-at the May 15 demonstration and in the “Vendor Input” column of its User Requirements Spreadsheet-Schroeder represented that the software included “built-in reports that were easy to customize and modify” and that its “Analytics and Reporting” feature included:
• Built-in Crystal Reports (all modifiable), Built in financial report designer, BI tool, InfoLink for connection to Excel/Word. Able to accommodate all report types listed.FAC ¶¶ 21, 42-44, 15, Ex. 2.
Viewpoint asks the court to take judicial notice of a Wikipedia article describing the “publicly known capabilities of the third-party software ‘Crystal Reports.' Viewpoint Reply at 11 n.5. At this stage, the court declines Viewpoint's request. Viewpoint may raise the issue of Crystal Report's capabilities in later dispositive motions.
These allegations state in detail who made the representations (Schroeder), what was represented about the software (functions related to billing purchase orders, billing rates, and customizing reports), as well as when, where, and how the representations were made (spoken at product demonstrations on May 15, June 20, and July 11, 2019, and written in the “Vendor Input” column of the User Requirements Spreadsheet). At this stage, therefore, the FAC contains sufficient detail to give Viewpoint notice of these five alleged representations and opportunity to defend against them.
Despite this detail, Viewpoint argues that ESCO does not adequately allege the elements of materiality, falsity, knowledge of falsity, and justified reliance. The court disagrees.
Turning first to materiality, ESCO has alleged facts plausibly showing that the abovelisted representations foreseeably influenced its decision to purchase software from Viewpoint. “In the context of a fraud claim, a material representation is one that would likely affect the conduct of a reasonable person with reference to the transaction.” Campbell, 127 Or.App. at 102 (citing Milliken v. Green, 283 Or. 283, 285 (1978)). ESCO purchased software from Viewpoint only after months of extensive due diligence, during which ESCO attempted to confirm that the software had a variety of functions that suited its business needs. These efforts included sending solicitation emails to multiple software companies, following up with those companies by sending a detailed User Requirements Spreadsheet to preliminarily assess the software, and expending the time and resources of multiple personnel, including ESCO's Chief Financial Officer, Director of Quality, and Quality Engineer, to learn about the software at telephone conferences and product demonstrations. FAC ¶¶ 13-15, 21, 42. Given these efforts, ESCO has plausibly alleged that Viewpoint's presale representations were material to ESCO's decision to purchase the software.
With respect to falsity, ESCO has plausibly alleged that the software does not have the functions allegedly represented during presale discussions. Viewpoint cites an Eighth Circuit case, Ambassador Press, Inc. v. Durst Image Tech. U.S., LLC, 949 F.3d 417, 422 (2020), ostensibly to argue that ESCO must “specifically allege the features which made the [software] defective.” Mot. to Dismiss at 9 (“ESCO must do more than set forth ‘general descriptions' about the software's ‘inadequacies' to show any representations Viewpoint might have made about it were false.”). The court finds that level of detail unreasonable at this stage. While Rule 9(b) requires a plaintiff to explain what is false about a representation, that burden “may be relaxed as to matters within the opposing party's knowledge.” Moore v. Kayport Package Exp.,Inc., 885 F.2d 531, 540 (9th Cir. 1989). ESCO has alleged that Schroeder's representations about the software were false because the software lacked the represented features, thus satisfying-at the pleading stage-its burden to explain what is false or misleading about the alleged representations.
Viewpoint also argues that ESCO has not alleged falsity with the requisite level of detail because ESCO's allegations rely on statements from Bob Dialoiso, the installation contractor, to establish that the software lacked the functions represented. This argument is unpersuasive for two reasons. First, as a third-party contractor hired by Viewpoint to install the software, Dialoiso was acting on Viewpoint's behalf and in a strong position to know the functional limitations of Viewpoint's software. As such, it is plausible that ESCO reasonably relied on Dialoiso's statement that represented functions were “not possible through the software.” FAC ¶ 45. Second, in responding to ESCO's issues with the software, Viewpoint did not contest, and indeed appears to partially acknowledge, that the software lacked at least some of the represented functions. See FAC ¶ 52, Ex. 9 (letter in which Vice President Feige acknowledges that there is “not currently an [application programming interface] for job-specific TM Labor Bill Rates and Union Wage Codes,” among other issues). Construing these factual allegations as true and viewing them in ESCO's favor, ESCO has plausibly alleged the element of falsity.
Turning to the next element, ESCO has adequately alleged that Viewpoint knew or recklessly disregarded that Schroeder's representations about the software were false. Even under the heightened pleading standard of Rule 9(b), “knowledge, and other conditions of a person's mind may be alleged generally.” FED. R. CIV. P. 9(b). ESCO satisfies this general obligation by alleging that “Viewpoint knew its representations were false and intended to deceive ESCO and induce ESCO to purchase Viewpoint's software by making false representations.” FAC ¶¶ 66, 73. Moreover, it is plausible that, as the vendor and sales representative for the software, Viewpoint and Schroeder were in the best position to know its capabilities and limitations. Thus, ESCO has alleged enough facts from which the court may infer that Viewpoint “contemporaneously knew that [the representations] were false.” MetropolisHoldings, LLC, 2020 WL 4506778, at *3.
Finally, ESCO has plausibly alleged the element of justifiable reliance. As an initial matter-and as addressed in the preceding section-the no-reliance and integration clauses in the parties' contract do not preclude ESCO's justifiable reliance on fraudulent representations. Thus, the only question that remains is whether ESCO's reliance on the allegedly fraudulent representations was justified under the circumstances.
“Whether reliance is justified requires consideration of the totality of the parties' circumstances and conduct, which includes whether the party claiming reliance took reasonable precautions to safeguard his or her own interests.” Masood v. Safeco Ins. Co. of Oregon, 275 Or.App. 315, 332 (2015) (quotations omitted). Finding justifiable reliance, therefore, “hinges on the extent to which the plaintiff had a duty to investigate the truth of the statement.” Murphy, 251 Or.App. at 324.
ESCO has alleged diligent attempts to investigate the capabilities and limitations of the software before contracting with Viewpoint. For instance, ESCO issued a “detailed description of its software requirements” to Viewpoint and participated in numerous meetings and product demonstrations, where its employees questioned Schroeder at length about various features of the software. Given these efforts to safeguard its interests and considering the parties' roles in this transaction-in particular, their relative familiarity with and access to the software-ESCO has plausibly alleged that its reliance on Viewpoint's responses was reasonable under the circumstances. Thus, ESCO's allegations satisfy the element of justifiable reliance.
In summary, the court finds that-with respect to the five above-listed alleged representations-ESCO has adequately alleged claims for fraudulent misrepresentation.
C. ESCO's Contract and Unjust Enrichment Claims
ESCO also asserts claims for breach of contract, breach of the warranty of merchantability, and unjust enrichment. FAC ¶¶ 89-99 (Counts 4 and 5). Viewpoint contends that these claims are not alleged plausibly and should be dismissed with prejudice. Mot. to Dismiss at 17-19.
1. Breach of Contract
As an alternative to rescission, ESCO alleges that Viewpoint “breached its contract obligations . . . by delivering software that failed to perform as described in the contract and associated documents.” FAC ¶ 92. This vague pleading lacks facts identifying the “obligations” or “documents” at issue, and therefore, is conclusory at best. SeeFleshman v. Wells Fargo Bank,N.A., 27 F.Supp.3d 1127, 1136 (D. Or. 2014) (dismissing contract claims where plaintiff failed to allege “which provision(s) were violated by what specific conduct”).
Despite its general pleadings, ESCO argues that Viewpoint breached the contract by failing to provide software that could process “Payroll.” ESCO Resp. at 19. ESCO alleges that the software “could not, in fact, perform payroll” because “it could not properly calculate [Iowa] state tax withholdings.” Id. Its factual allegations on this point, however, are not well developed. See FAC ¶¶ 47-50 (alleging that, although the software could otherwise process payroll, it miscalculated state tax withholdings, but that Dialoiso and Viewpoint were working on short and long-term solutions).
Consequently, the court recommends dismissing ESCO's breach of contract claim with leave to amend.
Viewpoint requests the court dismiss ESCO's claim with prejudice because ESCO previously had an opportunity to amend its complaint and substituted allegations that were “more vague.” Viewpoint Reply at 17 (citing Notice of Removal, ECF No. 1-1 (alleging breach of contract because the software “did not meet ESCO's specified requirements”)). The court acknowledges Viewpoint's request but grants ESCO a final opportunity to amend this claim because this is the first time that the claim has been formally dismissed. See Order of Transfer at 1 n.1 (“The parties agree that . . . Viewpoint's [first] motion to dismiss is moot.”).
2. Implied Warranty of Merchantability
Within its breach of contract claim, ESCO also alleges that Viewpoint “breached its warranty of merchantability . . . by delivering software that failed to perform.” FAC ¶ 93. This claim is not cognizable because the parties' contract expressly disclaims the implied warranty of merchantability. MSLA § 9.4 (disclaiming “ALL OTHER REPRESENTATIONS AND WARRANTITES, INCLUDING . . . MERCHANTABILITY”).
ESCO attempts to sustain its merchantability claim by arguing that the disclaimer was not conspicuous, and therefore, is unenforceable. ESCO Resp. at 20; see ORS § 72.3160(2) (“[T]o exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous.”). “Whether a term is ‘conspicuous' or not is a decision for the court.” ORS § 71.2010(2)(j). A term is conspicuous when it is “so written, displayed or presented that a reasonable person against which it is to operate ought to have noticed it.” Id. Conspicuous terms include “[l]anguage in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size.” Id.
ESCO argues that the disclaimer is not conspicuous because it was located only in the MSLA, a web-based document that “was not provided to ESCO, was not signed by ESCO, and was referenced only as a URL address in the Agreement.” ESCO Resp. at 20. This argument is unavailing. Without more, the clause's placement in the web-based MSLA-a document referenced twice in the Agreement and set off with underlined hyperlinks-does not render it inconspicuous. SeeColgate v. JUUL Labs, Inc., 402 F.Supp.3d 728, 758 (finding disclaimer of warranties conspicuous where clause was available online and plaintiff could be charged with knowledge of it); Order of Transfer at 6 (noting hyperlinks to MSLA were active the day ESCO signed the contract). Similarly, the court has reviewed the MSLA and concludes that the disclaimer is displayed within that document such that a reasonable party should have noticed it. Although the clause is located on the fourth page of the MSLA, it is set off from the surrounding text by capitalized typeface. SeeHelicopter Transp. Servs., LLC v. Sikorsky Aircraft Corp., 448 F.Supp.3d 1127, 1142 (D. Or. 2020) (“the disclaimer, in all capital letters, was conspicuous”). Moreover, the clause is one of “only two paragraphs out of several dozen . . . rendered in all capital letters throughout the MSLA.” Viewpoint Reply at 5. Given these features, the court finds that the disclaimer is conspicuous within the MSLA, foreclosing ESCO's merchantability claim.
Accordingly, ESCO's claim for breach of the implied warranty of merchantability should be dismissed with prejudice.
3. Unjust Enrichment
ESCO alleges that Viewpoint was unjustly enriched because it “paid Viewpoint for [software] that did not and could not meet ESCO's stated requirements” and Viewpoint's receipt of those funds “came at the expense, harm, and disadvantage of ESCO.” FAC ¶¶ 95-99.
To state a claim for unjust enrichment, a plaintiff must allege that (1) a benefit was conferred; (2) the recipient was aware that it received the benefit; and (3) it would be unjust to allow the recipient to retain the benefit without requiring it to pay. Cron v. Zimmer, 255 Or.App. 114, 130 (2013). Additionally, because unjust enrichment is a ‘quasi-contract' theory based on an implied contract, the plaintiff must plausibly allege the absence of an express contract. Confederated Tribes of Warm Springs Res. of Oregon v. Ambac. Assurance Corp., Case No. 10-130-KI, 2010 WL 4875657, at *6 (D. Or. Nov. 17, 2010) (citing Summer Oaks Ltd. P'ship v.McGinley, 183 Or.App. 645, 654 (2002)). Oregon law does “not allow unjust enrichment claims to be pleaded as an alternate theory of recovery when a valid contract exists.” Nguyen v. Cree,Inc., Case No. 3:18-cv-02097-SB, 2019 WL 7879879, at *8 (D. Or. Nov. 6, 2019).
ESCO argues that it should be permitted to assert a claim for unjust enrichment in the alternative to its breach of contract claim. SeeMartell v. General Motors, 492 F.Supp.3d 1131, 1146 (2020) (permitting unjust enrichment claim in the alternative if a court “cannot yet determine whether there is a valid, applicable enforceable contract governing the subject of the lawsuit”). The flaw in this argument, however, is that ESCO has not-and indeed cannot- plausibly allege the absence of an express contract. In both its original complaint and FAC, ESCO alleges that it signed a contract to purchase software from Viewpoint. Notice of Removal, ECF No. 1-1; FAC ¶ 90. ESCO submitted a portion of that contract as an exhibit, and does not explain how that Agreement should now be construed as invalid or unenforceable. Id. ¶ 28, Ex. 6; see ESCO Resp. at 20 (stating, without elaboration, that ESCO “contests the validity and enforceability” of the contract). Given the contract exhibits and ESCO's allegations, the court readily determines that an express contract exists at the center of this dispute.
Because ESCO cannot plausibly allege the absence of an express contract in its transaction with Viewpoint its unjust enrichment claim should be dismissed with prejudice. See Harney v. Associated Materials, LLC, Case No. 3:16-cv-1587-SI, 2018 WL 468303, at *4 (D. Or. Jan. 18, 2018) (“[B]ecause [] Oregon . . . do[es] not allow unjust enrichment claims to be pleaded as an alternate theory of recovery when a valid contract exists, Plaintiff's unjust enrichment claim cannot survive.”).
MOTION TO AMEND-DISCUSSION
In its motion to amend, ESCO proposes to consolidate its fraudulent misrepresentation claims into one claim with alternative grounds for relief and to add new claims for innocent misrepresentation, mutual mistake, and breach of the covenant of good faith and fair dealing. Mot. to Amend at 4. Viewpoint contends that ESCO's request to amend was unduly delayed and that the proposed claims are futile. Viewpoint Opp'n to Mot. to Amend (Viewpoint Opp'n) at 19, ECF No. 48.
A. Prejudice and Undue Delay
Viewpoint argues that ESCO failed to show good cause for its delayed attempt to file a second amended complaint. Id. at 19. However, the court is not persuaded that this factor weighs against permitting amendment.
ESCO filed the motion to amend on June 23, 2021, well within the schedule that the parties originally contemplated for this case. See Scheduling Order by Judge Acosta, ECF No. 47 (“Deadline for motions to amend pleadings is 11/1/2021”). This timing also appears reasonable against the procedural backdrop of the case, as ESCO filed its motion about one month after the case was transferred to this court. See Order of Transfer (dated May 14, 2021). Additionally, the timing of ESCO's motion does not unduly prejudice Viewpoint because, although the parties have been litigating this action for more than a year, the case remains in an early procedural posture. Viewpoint has not yet filed an Answer, and the court recently granted the parties' stipulated motion to stay discovery and deadlines pending resolution of these motions. Order Granting Joint Motion to Stay Discovery, ECF No. 59. In light of this posture, Viewpoint would not be unduly prejudiced by amendment.
B. Futility
Viewpoint also argues that the court should not permit amendment because ESCO's proposed amendments are futile. Viewpoint Opp'n at 2-11. A proposed amendment is futile “if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense.” Nissan Motor Co., Ltd. v. Nissan Computer Corp., 204 F.R.D. 460, 463 (C. D. Cal. 2001).
The court has already conducted extensive analysis of ESCO's existing claims and declines to do so again here. If ESCO believes in good faith that it can cure the deficiencies identified in this F&R, then it should be granted leave to amend its fraudulent misrepresentation and breach of contract claims. However, as explained above, ESCO should not be granted leave to replead claims for breach of the warranty of merchantability, negligent misrepresentation, and unjust enrichment.
ESCO also proposes to add allegations that Viewpoint “recklessly disregarded whether it was misleading ESCO.” Mot. to Amend, Ex. 2 ¶ 65. This amendment is permissible.
The court addresses the sufficiency of ESCO's proposed new claims below.
1. Breach of the Duty of Good Faith and Fair Dealing
In Oregon, “the law imposes a duty of good faith and fair dealing into every contract to facilitate performance and enforcement in a manner that is consistent with the terms of the contract and that effectuates the reasonable contractual expectations of the parties.” Whistler v.Hyder, 129 Or.App. 344, 348 (1994). The duty may not “be construed in a way that changes or inserts terms into a contract.” Safeco Ins. Co. of Oregon v. Masood, 264 Or.App. 173, 178 (2014). Nevertheless, because a party “may violate its duty of good faith without also breaching the express provisions of the contract,” a claim for breach of the duty of good faith “may be pursued independently of a claim for breach of the express terms of the contract.” McKenzie v.Pacific Health & Life Ins. Co., 118 Or.App. 377, 381 (1993).
ESCO seeks leave, over Viewpoint's opposition, to allege that “Viewpoint breached the duty of good faith and fair dealing by . . . providing ESCO with software as a service that could technically perform a ‘payroll' function, but which could not actually apply the correct state tax withholding in order to properly process payroll.” Mot. to Amend, Ex. 2 ¶ 98. Viewpoint regards this proposed amendment as duplicative of its breach of contract claim because both claims rely on an express, though vague, term in the agreement: “Payroll.” Viewpoint Opp'n at 12. The court disagrees. Contrary to Viewpoint's assertion, ESCO's proposed claim is not duplicative of its breach of contract claim because, rather than inserting new terms into the contract, the proposed claim is directed at the performance of the contract in line with existing terms.
Thus, ESCO should be permitted to assert this claim in its second amended complaint.
2. Innocent Misrepresentation
Generally, an innocent misrepresentation of fact renders a contract voidable where a party's “manifestation of assent” to the contract is induced by a material misrepresentation upon which the party seeking rescission justifiably relied. Lesher v. Strid, 165 Or.App. 34, 41-42 (2000) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 164 (1981)). However, a party's reliance on an innocent misrepresentation is not justified where the contract specifically disclaims reliance on such representations. Id. at 44 (“[W]hen a contract contains a ‘disclaimer' clause-one that declares that the buyer is not relying on extrinsic representations by the seller- that clause may prevent a buyer from relying on any innocent misrepresentation as a basis for recission.”); see alsoWilkinson, 276 Or. at 314 (explaining that innocent misrepresentations do not implicate the public policies that safeguard against fraudulent misrepresentations).
ESCO seeks leave to assert a claim for innocent misrepresentation based on the same alleged representations that form the basis its fraudulent misrepresentation claims. However, because the parties' contract specifically disclaimed reliance on “ALL OTHER REPRESENTATIONS” made outside the contract, ESCO's reliance on any innocent representations made by Viewpoint or Schroeder was not, as a matter of law, justifiable.
Accordingly, ESCO's proposed claim for innocent misrepresentation is futile and it should not be permitted leave to assert this claim.
3. Mutual Mistake
For similar reasons, ESCO's proposed claim for mutual mistake is futile. Under the doctrine of mutual mistake, a contract is voidable “where the parties are mistaken as to the facts existing at the time of the contract, if the mistake is so fundamental that it frustrates the purpose of the contract . . . and where the adversely affected party does not bear the risk of the mistake. Lesher, 165 Or.App. at 42 (emphasis added).
In asserting this claim, ESCO proposes to allege that it “[did] not bear the risk of mistake, in part, because of the extensive due diligence that ESCO engaged in” prior to deciding to purchase the software. Mot. to Amend, Ex. 2 ¶ 83. As a matter of law, this allegation must fail because ESCO contractually assumed sole responsibility for confirming the suitability of the software. RESTATEMENT (SECOND) OF CONTRACTS § 154 (1981) (explaining a party bears the risk of a mistake when “the risk is allocated to [it] by agreement of the parties”).
Because the parties' contract allocated the risk of mistake to ESCO, it should not be granted leave to assert a claim for mutual mistake.
CONCLUSION
For the above reasons and as stated in this F&R, the court recommends Viewpoint's motion to dismiss (ECF No. 37) and ESCO's motion to amend (ECF No. 40) be GRANTED IN PART and DENIED IN PART.
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due within fourteen days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.