Versionone, Inc v. Inpixon et al

Brief in Support to 9 MOTION to Dismiss

E.D. Va.July 3, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division ) VERSIONONE, INC., ) ) Plaintiff, ) ) Case No. 1:17CV231 v. ) ) INPIXON, ET AL., ) ) Defendants. ) ) BRIEF IN SUPPORT OF DEFENDANTS’ PARTIAL MOTION TO DISMISS Defendants Inpixon f/k/a Sysorex Global Holdings Corporation (“SGH”), Sysorex USA (“SUSA”), and Sysorex Government Services, Inc. (“SGS”) (collectively, the “Sysorex Defendants”), by counsel and pursuant to L. Civ. R. 7, submit this Brief in support of their Partial Motion to Dismiss. INTRODUCTION VersionOne, Inc. (“VersionOne”) asserts claims against the Sysorex Defendants that do not fit the allegations in the Complaint. Essentially, VersionOne claims that the Sysorex Defendants all owe payment for thirteen invoices, as well as the alleged contractual obligation of another company, Integrio Technologies, Inc. (“Integrio”). But even considering the allegations as true, Count II for breach of contract and Count IV for account stated fail to state claims upon which relief can be granted. Moreover, VersionOne indiscriminately asserts each of its four claims against all three of the Sysorex Defendants, even though the attachments to the Complaint conclusively negate claims against certain defendants. For the reasons discussed below, the Court should (i) dismiss Count II with prejudice, (ii) dismiss Count III in part with prejudice, (iii) dismiss Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 1 of 12 PageID# 75 2 Count IV, (iv) dismiss SGH from all Counts with prejudice, and (v) dismiss SUSA from Count II with prejudice. RELEVANT BACKGROUND AND ALLEGATIONS The Sysorex Defendants accept VersionOne’s allegations as true solely for the purposes of this Partial Motion to Dismiss. VersionOne is a software company that licenses its products to companies around the world, including Integrio, SUSA, and SGS. (ECF No. 1 at ¶ 9); (ECF No. 1-2). On November 14, 2016, all of the Sysorex Defendants allegedly entered into an asset purchase agreement with Integrio (“APA”), under which the Sysorex Defendants allegedly assumed certain assets and debts from Integrio. (ECF No. 1 at ¶¶ 11-12). VersionOne alleges that, as part of the APA, it negotiated a debt settlement agreement (“DSA”) with Integrio, which “reduced Integrio’s outstanding trade obligations to [VersionOne] from $486,337.32 to a modified trade debt of $243,168.66.” Id. at ¶ 12. The DSA is attached to the Complaint as ECF No. 1-1. VersionOne further states that all of the Sysorex Defendants “assumed this [DSA] debt on November 14, 2016 as part of the [APA].” Id. The DSA, dated November 7, 2016, is an agreement between VersionOne and Integrio. (ECF No. 1-1). Under the DSA, VersionOne “covenant[ed] and agree[d] to accept from [SGS] . . . [$243,168.66] as full payment and satisfaction of the Total Outstanding Trade Debt to [VersionOne] as of the Closing Date and full satisfaction of the obligations to [VersionOne] under the Trade Obligations.” Id. at ¶ 2. Payments were to be made in 24 equal installments, with the first payment due on February 12, 2017. Id. at ¶ 2. Notably, none of the Sysorex Defendants ever signed the DSA. Id. In fact, the DSA specifically states that SGS was meant to be a “third party beneficiary” to the agreement rather than a party to it. Id. at ¶ 3(d). Finally, the DSA provides Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 2 of 12 PageID# 76 3 that “[t]his letter agreement shall be governed by and construed in accordance with the laws of the state of California.” Id. In addition to the above, VersionOne alleges that, since closing on the APA, all of the Sysorex Defendants have “issue[d] purchase orders for new services and renewals” and “agreed to 30-day payment terms on invoices issued on purchase orders.” (ECF No. 1 at ¶ 21). VersionOne further alleges that it has “issued invoices and provided services to [all of the Sysorex Defendants],” and that all of the Sysorex Defendants have “failed and refused to pay.” Id. at ¶¶ 22-23. Importantly, however, the purchase orders and invoices attached to the Complaint as ECF No. 1-2 establish that SGH never issued a purchase order or received an invoice for any of the products or services. Finally, VersionOne attaches to its Complaint e-mail correspondence between Kevin Harris (“Harris”), alleged to be the CFO of SGH, and Calvin Jackman (“Jackman”), VersionOne’s controller. (ECF No. 1-3). Jackman initiated the correspondence, stating that: “We have over $144k in invoices due from Sysorex and have yet to receive a payment. Some of the invoices are approaching 60 days past the invoice date. We were told [we] were going to get paid at 30 day terms.” Id. at 3. Harris responded as follows: “I am working on a plan to either get you paid in full or will propose a payment plan. I do not have the details figure[d] out at this point. We will get you paid, please bear with me as I formulate and execute on a financing plan that will include payment to you. In the meantime, it would be helpful to have a statement from your with the exact amount due by invoice.” Id. at 2. Jackman then responded by attaching the DSA and “the latest AR invoices due.” Id. Jackman also asked Harris to “confirm . . . that Sysorex has agreed and accepted the terms of the [DSA] and that you will begin making payments per the agreement.” Id. VersionOne does not allege that Harris responded. Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 3 of 12 PageID# 77 4 Based on these allegations and attachments, VersionOne asserts four claims against all three of the Sysorex Defendants as follows: Count I – breach of contract as to the thirteen invoices; Count II – breach of contract as to the DSA; Count III – quantum meruit as to the products and services provided under the purchase orders; and Count IV – account stated as to the invoices. Each of these claims fails in whole or in part for the reasons discussed below. STANDARD OF REVIEW A Rule 12(b)(6) motion tests the legal sufficiency of the complaint. See Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). The reviewing court must accept well-pleaded allegations as true and must construe factual allegations in favor of the plaintiff. See Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994). However, a plaintiff must provide “more than labels and conclusions” because “a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) (citation omitted). Rather, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “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. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice,” id., and a plaintiff’s “[f]actual allegations must be enough to raise a right to relief above the speculative level . . . .” Twombly, 550 U.S. at 555. Finally, a court “is not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678. Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 4 of 12 PageID# 78 5 ARGUMENT I. The DSA Is a Unilateral Contract That Is Invalid and Unenforceable Given SGS’s Lack of Acceptance by Performance. The Court should dismiss Count II because the DSA is a unilateral contract that is invalid and unenforceable as neither SGS nor Integrio has accepted through performance of payment. This is true under either Virginia or California law.1 “In a unilateral contract, one party makes an offer in the form of a promise to do an act upon the fulfillment of certain conditions by the other party. The second party’s previously inchoate rights to the performance of the promised act by the first party vest and become legally enforceable only when the second party accepts the offer by satisfying the condition precedent.” Young v. Virginia Birth-Related Neurological Injury Compensation Program, 46 Va. App. 558, 574 (2005) (internal quotation marks and citation omitted); Sateriale v. RJ Reynolds Tobacco Co., No. 2:09CV8394, 2014 WL 7338881, at *6 (C.D. Cal. Dec. 19, 2014) (same). Under the DSA, neither Integrio nor SGS made any promise to VersionOne. (ECF No. 1- 1). To the contrary, VersionOne agreed to settle and compromise Integrio’s alleged debt, contingent upon payment by SGS. Thus, neither SGS nor Integrio could accept the compromise unless and until SGS performed by making payment of $243,168.66. However, VersionOne explicitly alleges that payment under the DSA was never made. (ECF No. 1 at ¶¶ 31-33). Consequently, there has been no acceptance. Additionally, the e-mail exchange attached to the Complaint proves that none of the Sysorex Defendants accepted the DSA. In his February 8 e-mail to Harris, Jackman specifically asked Harris to “confirm . . . that Sysorex has agreed and accepted the terms of the [DSA].” (ECF 1 For this issue, it is irrelevant whether the DSA’s choice of law provision extends to questions of contract formation. Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 5 of 12 PageID# 79 6 No. 1-3). VersionOne does not allege that Harris ever provided that confirmation in response to Jackman’s e-mail. Because VersionOne alleges that the Sysorex Defendants have not paid and therefore not accepted the DSA, and because VersionOne’s own evidence proves the lack of acceptance, the DSA is not enforceable. For these reasons, the Court should dismiss Count II with prejudice. II. VersionOne Cannot Enforce the DSA Against any of the Defendants Given the Lack of Privity. The Court should dismiss Count II because, given the lack of privity, VersionOne cannot enforce the DSA against any of the Sysorex Defendants. See, e.g., Fisher v. Bauer, 246 Va. 490, 492 (1993) (“[T]he contract would not be enforceable at law against Cheryl Cavener because there is no privity of contract between her of Fisher.”). Recognizing this defect in its claim, VersionOne alleges without any factual support that, “[u]pon information and belief,” the Sysorex Defendants “assumed” Integrio’s DSA debt under the APA. (ECF No. 1 at ¶ 29). However, this naked assertion of successor liability presents nothing more than a legal conclusion couched as a factual allegation. For this reason, courts routinely find this conclusory allegation insufficient under federal pleading standards. See Burgess v. Global Clean Energy Holdings, Inc., No. 2:11CV682, 2011 WL 5546282, at *2 (D. Utah Nov. 14, 2011) (dismissing claim based on allegation that “obligation had been assumed by Global” and holding that such “statements of ‘fact’ are exactly the kind of naked assertion[s] . . . that Rule 8 seeks to avoid”) (internal quotation marks omitted); High Falls Brewing Co. v. Boston Beer Corp., 852 F. Supp. 2d 306, 322 (W.D.N.Y. 2011) (dismissing claim based on allegation that, “upon information and belief,” opposing party “assume[d] the debt”). Because VersionOne lacks any factual basis for its single conclusory allegation that all of the Sysorex Defendants assumed Integrio’s DSA debt, and because privity is otherwise lacking, the Court should dismiss Count II with prejudice. Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 6 of 12 PageID# 80 7 III. Count II Fails Because the Law Does Not Recognize a Cause of Action for Installment Payments Not Yet Due. Count II also fails as a matter of law because – absent an acceleration clause, which the DSA does not include – the law does not permit a plaintiff to recover contractual installment payments that have not become due.2 See, e.g., tenBraak v. Waffle Shops, Inc., 542 F.2d 919, 924 n.6 (4th Cir. 1976) (“Virginia law does follow the majority rule recognizing that contracts for installment payments are divisible, thereby permitting separate actions to be maintained to recover installment payments as they fall due.”); Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co., 11 Cal. Rptr. 3d 412, 422 (Cal. Ct. App. 2004); Tsemetzin v. Coast Fed. Savings & Loan Ass’n, Cal Rptr 2d 726, 731-32 (Cal. Ct. App. 1997). Even if VersionOne had alleged anticipatory breach, which it did not, that theory likewise fails as a matter of law. See, e.g., Parker v. Moitzfield, 733 F. Supp. 1023, 1025 (E.D. Va. 1990) (recognizing that anticipatory breach “does not apply to unilateral contracts”); John Hancock Mut. Life Ins. Co. v. Cohen, 254 F.2d 417, 427 (9th Cir. 1958) (holding that “contracts for the payment of money in installments are not the proper subjects for the doctrine of anticipatory breach”). For this reason, the Court should dismiss Count II. IV. The DSA Fails Under the Statute of Frauds. The Court should dismiss Count II because the DSA is either void ab initio under the California statute of frauds, Cal. Civ. Code § 1624(a)(1), or procedurally barred by the Virginia statute of frauds, Va. Code § 11-2(8). Whereas the California statute is considered substantive, see All-Pro Reps, Inc. v. Lukenbill, 961 F.2d 216, at *1 (9th Cir. 1992), the Virginia statute is procedural, see T--- v. T---, 216 Va. 867, 871 (1976). The result under either statute is the same, inasmuch as they require the dismissal of Count II. 2 In Count II, VersionOne seeks payment for the entire amount of the purported DSA debt by alleging that it “has suffered damages in the amount of $243,168.66 as a direct and proximate result of [the Sysorex Defendants’] breach.” (ECF No. 1 at ¶ 34). Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 7 of 12 PageID# 81 8 Under the statute of frauds, no action lies on a contract that is (i) not signed by the party to be charged, and (ii) not to be performed within a year of its making. Cal. Civ. Code § 1624(a)(1); Va. Code § 11-2(8). Here, the DSA is not signed by any of the Sysorex Defendants. Moreover, the DSA calls for 24 installment payments beginning 90 days from the closing of the APA, which allegedly occurred on November 14, 2016. Assuming these were monthly payments,3 they would have begun on February 12, 2017 and ended on January 12, 2019. Consequently, the DSA, which is dated November 7, 2016, is not to be performed within a year of its making. For this reason, the Court should dismiss Count II with prejudice. V. VersionOne Cannot Seek Quantum Meruit Recovery Against the Sysorex Defendants for Services Provided to Integrio. Count III fails to the extent it seeks quantum meruit recovery for services allegedly provided to Integrio prior to the APA. To state a claim for quantum meruit, VersionOne must allege that (1) it conferred a benefit on the Sysorex Defendants, (2) the Sysorex Defendants knew of the conferring of the benefit, and (3) the Sysorex Defendants accepted or retained the benefit. See Centex Constr. V. Acstar Ins. Co., 448 F. Supp. 2d 697, 707 (E.D. Va. 2006). VersionOne cannot satisfy these elements inasmuch as Count III seeks payment for the $243,168.66 representing the services allegedly provided to Integrio prior to the APA. Conspicuously, VersionOne’s allegations fail to distinguish between services allegedly rendered to the Sysorex Defendants, as purportedly reflected in the attached invoices, and services allegedly rendered to Integrio, as purportedly reflected in the DSA. The same holds true with respect to the prima facie elements of knowledge and acceptance of benefits. However, VersionOne’s fulfillment of Integrio’s pre-APA purchase orders did not confer a benefit on the 3 Notably, VersionOne does not allege that the parties ever reached a meeting of the minds on the frequency of the 24 installment payments allegedly owed under the DSA (i.e. weekly, monthly, yearly, etc.). Nor does the DSA provide that term. (ECF No. 1-1). Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 8 of 12 PageID# 82 9 Sysorex Defendants; nor did the Sysorex Defendants accept any benefit conferred on any third party. Moreover, the Supreme Court of Virginia has never held that successor liability extends to claims in equity against a predecessor entity. Therefore, the Court should dismiss Count III to the extent it seeks quantum meruit recovery for the $243,168.66 of alleged Integrio debt. VI. VersionOne Fails to Plead an Account Stated. VersionOne fails to allege facts supporting its claim in Count IV for account stated. “An account stated is an agreement that all the items in the account are correct.” Radford v. Fowlkes, 85 Va. 820, 833 (1889). “[T]he mere rendering of an account by one party to another, is not sufficient to make it an account stated. For that purpose there must either be an actual statement and adjustment of the account by the parties by going over the items together and striking the balance, or an admission by one party of the correctness of the balance struck by the other, or some other evidence to show that the party who is sought to be charged has, by his language or conduct, admitted the correctness of the account.” Robertson v. Wright, 58 Va. 534, 541 (1867). In support of its account stated claim, VersionOne attaches the e-mail correspondence between Harris and Jackman. (ECF No. 1-3); (ECF No. 1 at ¶ 17). However, that exchange actually demonstrates that Harris never acquiesced to the alleged invoice liability of $144,724.01. To the contrary, Harris asked Jackman to provide the invoice amount that VersionOne considered due. (ECF No. 1-3 at 2). After VersionOne provided Harris with the invoices and amount, Harris did not respond. Thus, VersionOne fails to allege the requisite statement or conduct by the Sysorex Defendants demonstrating their acceptance of the purported account stated. Without any explicit acceptance of the alleged account by the Sysorex Defendants, VersionOne must rely on a theory of implied acquiescence. Under this theory, an account stated is “presumed to be [settled] from the circumstance of a party’s retaining, for a long time, without Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 9 of 12 PageID# 83 10 objection, the account of the other party, which has been presented to him, showing a balance against him.” Ellison v. Weintrob, 139 Va. 29 (1924). As a matter of law, however, any period of time less than four months is insufficient for implied acquiescence. See Landfill Consulting, LLC v. Virginia State Univ., 90 Va. Cir. 38 (City of Richmond 2015) (dismissing an account stated claim with prejudice because “four months is not a ‘long time’”). Here, the most recent invoice comprising the $144,724.01 is dated February 4, 2017 (ECF No. 1-2 at 8), and Jackman provided the invoices and amount to Harris on February 8, 2017 (ECF No. 1-3 at 2). VersionOne then filed its Complaint on March 1 – less than one month after the most recent invoice was submitted. As a matter of law, this is an insufficient time period to create implied acquiescence on the part of the Sysorex Defendants to support an account stated claim. For these reasons, the Court should dismiss Count IV. VII. The Allegations and Attachments Do Not Support All Four Claims Against All Three Defendants. Rather than specifying which allegations correspond specifically to individual defendants, VersionOne bluntly asserts all four claims against all three of the Sysorex Defendants. In Count I, VersionOne alleges that “Defendants have failed and refused to pay Plaintiff.” (ECF No. 1 at ¶ 23). However, VersionOne’s own attachments prove that SGH did not issue any purchase orders, nor did it receive any invoices from VersionOne. (ECF No. 1-2). Thus, the Court should dismiss SGH from Count I. In Count II, VersionOne alleges that “Defendants assumed this [DSA] debt on November 14, 2016 as part of the [APA].” (ECF No. 1 at ¶ 29). However, the only obligation allegedly owed under the DSA belonged to SGS. Thus, the allegation that SGS “assumed” its own alleged payment obligation does not make sense, and VersionOne lacks any factual basis to allege that Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 10 of 12 PageID# 84 11 either SGH or SUSA assumed SGS’s alleged obligation. Accordingly, SGH and SUSA should be dismissed from Count II. In Count III, VersionOne alleges that “Defendants accepted the work, labor, services and materials furnished by Plaintiff,” and that they did so “with the knowledge that Plaintiff expected to be paid.” Id. at ¶¶ 39-40. However, the purchase orders and invoices attached as ECF No. 1-2 establish that SGH never accepted any of the services or products allegedly provided, and therefore they did not expect to pay VersionOne. Accordingly, the Court should dismiss SGH from Count III. In Count IV, VersionOne alleges that it “sent invoices to Defendants,” and that “Defendants received each of the invoices sent by Plaintiff and retained same without objection.” (ECF No. 1 at ¶¶ 45-46). Again, however, the purchase orders and invoices demonstrate the falsity of these allegations as they relate to SGH. (ECF No. 1-2). Therefore, the Court should dismiss SGH from Count IV. CONCLUSION For the reasons discussed above, the Court should (i) dismiss Count II with prejudice, (ii) dismiss Count III in part with prejudice, (iii) dismiss Count IV, (iv) dismiss SGH from all Counts with prejudice, and (v) dismiss SUSA from Count II with prejudice. Dated: July 3, 2017 Respectfully submitted, /s/ Brooks H. Spears John D. Wilburn (VSB # 41141) Jennifer A. Guy (VSB # 65516) Brooks H. Spears (VSB # 86391) McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 McLean, Virginia 22102 Phone: (703) 712-5000 Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 11 of 12 PageID# 85 12 Fax: (703) 712-5282 jwilburn@mcguirewoods.com jguy@mcguirewoods.com bspears@mcguirewoods.com Counsel for Defendants Inpixon f/k/a Sysorex Global Holdings Corp., Sysorex USA, and Sysorex Government Services CERTIFICATE OF SERVICE I hereby certify that, on July 3, 2017, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send electronic notice to all counsel of record. /s/ Brooks H. Spears John D. Wilburn (VSB # 41141) Jennifer A. Guy (VSB # 65516) Brooks H. Spears (VSB # 86391) McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 McLean, Virginia 22102 Phone: (703) 712-5000 Fax: (703) 712-5282 jwilburn@mcguirewoods.com jguy@mcguirewoods.com bspears@mcguirewoods.com Counsel for Defendants Inpixon f/k/a Sysorex Global Holdings Corp., Sysorex USA, and Sysorex Government Services Case 1:17-cv-00231-JCC-TCB Document 10 Filed 07/03/17 Page 12 of 12 PageID# 86