Arcsona Inc. v. Appirio Inc.

• Court: District Court, N.D. California
• Decided: January 13, 2022
• Docket: 5:21-cv-05019
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 ARCSONA INC., Case No. 21-cv-05019-VKD

9 Plaintiff, ORDER GRANTING DEFENDANTS' 10 v. MOTIONS TO DISMISS FIRST AMENDED COMPLAINT 11 APPIRIO INC., et al., Re: Dkt. Nos. 47, 49 Defendants. 12

13 14 Defendants Appirio Inc. (“Appirio”) and Daniel Lascell move to dismiss plaintiff Arcsona 15 Inc.’s (“Arcsona”) first amended complaint against them for promissory fraud. Dkt. Nos. 47, 49. 16 The Court held a hearing on the motions on December 7, 2021. Dkt. No. 62. Having considered 17 the parties’ submissions and arguments, the Court grants defendants’ motions to dismiss with 18 prejudice.1 19 I. BACKGROUND2 20 In June 2012, Arcsona and Appirio entered into an Independent Contractor Agreement 21

22 1 All named parties have consented to magistrate judge jurisdiction. Dkt. Nos. 5, 8. While Arcsona also sues 10 “Doe” defendants, the complaint contains no allegations against these 23 unnamed defendants. These Doe defendants are not “parties” for purposes of assessing whether there is complete consent of all parties to magistrate judge jurisdiction. See Williams v. King, 875 24 F.3d 500, 502–05 (9th Cir. 2017) (all named parties, whether served or unserved, must consent in order to vest jurisdiction in a magistrate judge); RingCentral, Inc. v. Nextiva, Inc., No. 19-cv- 25 02626-NC, 2020 WL 978667, at *1 n.1 (N.D. Cal. Feb. 28, 2020) (distinguishing Williams with respect to unnamed “Doe” defendants). 26

2 The following facts are taken from Arcsona’s first amended complaint (Dkt. No. 42). In relating 27 these facts, the Court also takes judicial notice of the Independent Contractor Agreement (Dkt. No. 1 (“the Agreement”). Dkt. No. 42 ¶ 7. Under the Agreement, Arcsona agreed to provide contract 2 workers for deployment by Appirio at Appirio’s request. Id. At the time, Daniel Lascell was 3 Appirio’s Secretary and General Counsel, and he signed the Agreement on Appirio’s behalf. Id. ¶ 4 3; Dkt. No. 12-1, Ex. A at 4–5. Pursuant to the Agreement, Arcsona agreed to provide Appirio 5 with independent contractors for professional services. Dkt. No. 12-1, Ex. A at 1. The preamble 6 states in relevant part: 7 The Independent Contractor Agreement (the “Agreement”) sets forth terms under which Contractor (as identified below) shall at the request 8 of Appirio Inc. . . . (“Appirio”) provide professional services either directly to Appirio or to customers of Appirio on Appirio’s behalf. 9 Id. at 1. A later section of the Agreement labeled “Services” states: 10 Contractor shall provide professional services (“Services”) to Appirio as described on one or more Statements of Work signed by Contractor 11 and Appirio which reference this Agreement (“SOW” or “Statement of Work”). Contractor shall perform Services in a prompt manner 12 and provide each Deliverable no later than the delivery dates specified in the applicable SOW. At the direction of Appirio, Contractor shall 13 provide Services directly to Appirio or to customers of Appirio on Appirio’s behalf. 14 Id. at 1 (sec. 2). 15 Arcsona alleges that Appirio induced Arcsona to sign the Agreement “by promising that 16 ARCSONA could offer to provide contract resources for APPIRIO or its clients in the future when 17 it knew it would not offer to do business with ARCSONA unless there was no other vendor who 18 could provide the necessary resources.” Dkt. No. 42 ¶ 8. Arcsona alleges that at the time Appirio 19 made this promise, Mr. Lascell had already “resolved not to do any APPIRIO business with 20 ARCSONA unless Appirio had no choice but to use ARCSONA contract resources. In other 21 words, if the choice was between ARCSONA and any other company, APPIRIO would choose the 22 other company regardless of the quality of the ARCSONA contract resource.” Id. ¶ 9. Arcsona 23 alleges that “at the time [Appirio] entered into said Agreement and thereafter APPIRIO never 24 intended to request that ARCSONA fill any of its open positions or to evaluate in good faith any 25 contract resources offered by ARCSONA for open APPIRIO positions.” Id. ¶ 11. Arcsona relied 26 on Appirio to “to act in good faith . . . in requesting ARCSONA contract resources and evaluating 27 them for open APPIRIO positions.” Id. ¶ 13. 1 After the Agreement was signed, Arcsona offered many contractors to Appirio, but 2 Appirio approved only two workers. Id. ¶ 14. Arcsona says that it did not know Appirio intended 3 to use Arcsona workers only if Appirio had no other options available until May 29, 2019, when 4 Mr. Lascell testified to that effect in a deposition in another case. Id. ¶ 19; see Dkt. No. 54, Ex. A 5 at 118–19, Ex. B ¶ 3. 6 Arcsona alleges that as a result of defendants’ bad faith conduct, Arcsona has suffered and 7 continues to suffer “lost time and expenses in attempting to place contract workers with defendant 8 APPIRIO pursuant to said Agreement in a total amount presently unknown, but in excess of 9 $2,500.00[sic].” Dkt. No. 42 ¶¶ 22–23. The complaint seeks “compensatory damages, including 10 lost time and lost profits, in amounts according to proof in excess of $25,000.” Dkt. No. 42 at 7.3 11 Defendants Mr. Lascell and Appirio now move to dismiss Arcsona’s first amended 12 complaint under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure for failure to state 13 a claim and to plead fraud with the necessary particularity. Dkt. Nos. 47, 49. Mr. Lascell again 14 argues that Arcsona’s claim is barred as a matter of law by the economic loss rule. 15 II. LEGAL STANDARD 16 A. Rule 12(b)(6) 17 “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 18 claim upon which relief may be granted ‘test the legal sufficiency of a claim.’” Conservation 19 Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 20 729, 732 (9th Cir. 2001)). Although a court generally may not consider any material beyond the 21 pleadings when ruling on a Rule 12(b)(6) motion, documents appended to the complaint, 22 incorporated by reference in the complaint, or which properly are the subject of judicial notice 23 may be considered along with the complaint when deciding a Rule 12(b)(6) motion. Khoja v. 24 Orexigen Therapeutics, 899 F.3d 988, 998 (9th Cir. 2018). 25 When determining whether a claim has been stated, the Court accepts as true all well-pled 26 factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP 27 1 Exploration (Alaska), 643 F.3d 681, 690 (9th Cir. 2011). The court “need not … accept as true 2 allegations that contradict matters properly subject to judicial notice or by exhibit.” Gonzalez v. 3 Planned Parenthood of Los Angeles, 759 F.3d 1112, 1115 (9th Cir. 2014) (citing Sprewell v. 4 Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). Further, while a complaint need not 5 contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to 6 ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 7 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible 8 when it “allows the court to draw the reasonable inference that the defendant is liable for the 9 misconduct alleged.” Id. 10 B. Rule 9(b) 11 Rule 9(b) requires that allegations of fraud be stated with particularity. Specifically, 12 averments of fraud must “be accompanied by ‘the who, what, when, where, and how’ of the 13 misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) 14 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). When an “entire claim within a 15 complaint[] is grounded in fraud and its allegations fail to satisfy the heightened pleading 16 requirements of Rule 9(b), a district court may dismiss the . . . claim.” Id. at 1107. A motion to 17 dismiss a complaint “grounded in fraud” under Rule 9(b) for failure to plead with particularity is 18 “the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim.” 19 Id. 20 III. DISCUSSION 21 To state a claim for promissory fraud, Arcsona must plead that Appirio did not intend to 22 perform a promise at the time the promise was made, that the promise was intended to deceive and 23 induce reliance, that it did induce reliance, and that this reliance resulted in damages. Fleet v. 24 Bank of Am. N.A., 229 Cal. App. 4th 1403, 1411 (2014). “‘Promissory fraud’ is a subspecies of 25 the action for fraud and deceit. A promise to do something necessarily implies the intention to 26 perform; hence, where a promise is made without such intention, there is an implied 27 misrepresentation of fact that may be actionable fraud.” Lazar v. Super. Ct., 12 Cal. 4th 631, 638 1 Here, Arcsona asserts one claim for promissory fraud against Appirio and Mr. Lascell. 2 Arcsona says that it “did not rely on statements [by Appirio or Mr. Lascell] other than the terms of 3 the [Agreement],” Dkt. No. 50 at 14, and that Mr. Lascell “did not make any express 4 misrepresentations” that differed from the terms of the Agreement, Dkt. No. 51 at 14. Rather, 5 Arcsona alleges that defendants entered into the Agreement with no intention of performing the 6 terms of the contract. Dkt. No. 42 ¶¶ 17–18. Specifically, Arcsona says that Mr. Lascell’s stated 7 intention to use Arcsona-supplied workers only if no other workers were available demonstrates 8 that defendants acted in bad faith. Dkt. No. 42 ¶ 9; Dkt. No. 50 at 8–11, 13; Dkt. No. 51 at 10–11; 9 Dkt. No. 42 ¶¶ 8–9, 16–24. In other words, Arcsona argues that the Agreement itself contains a 10 promise (or promises) that defendants did not intend to perform when the Agreement was signed. 11 See Dkt. No. 50 at 6 (“allegations of a bad faith state of mind existing at the time the contract was 12 entered into amounts [sic] to a promise made without any intention of performing it and will 13 support a claim of promissory fraud”); see also Dkt. No. 51 at 5 (same). 14 Arcsona’s argument depends on the premise that the terms of the Agreement are 15 inconsistent with defendants’ plan to use Arcsona-supplied workers only if no other workers were 16 available. But nothing in the Agreement supports this premise. The Agreement states that “[a]t 17 the direction of Appirio, [Arcsona] shall provide Services directly to Appirio or to customers of 18 Appirio on Appirio’s behalf.” Dkt. No. 12-1 at 1 (preamble, sec. 2). Nothing in the Agreement 19 requires Appirio to request or accept a particular number of contract workers from Arcsona, or to 20 accept more than the two Arcsona-supplied workers Appirio hired. Moreover, nothing in the 21 Agreement requires Appirio to base its decision to request or accept professional services from 22 Arcsona solely on the qualifications of the proposed contract workers and without regard to other 23 business considerations. If, as Arcsona alleges, Appirio decided to use Arcsona’s professional 24 services only when it could obtain workers from no other source, such a decision does not violate 25 any term of the Agreement. In short, Arcsona’s unilateral expectations regarding the volume of 26 business it would do with Appirio do not appear to have been communicated to defendants or 27 memorialized in the Agreement. 1 Bros., 57 Cal. App. 4th 354 (1997) and Lazar v. Super. Ct., 12 Cal. 4th 631 (1996). Dkt. No. 50 at 2 5–6, 15–16; Dkt. No. 51 at 14–15. Both cases are distinguishable. 3 In Locke, the plaintiff, an actress and film director, entered into an agreement with Warner 4 Bros. that required her to submit to Warner Bros. any film she was interested in developing before 5 submitting it to any other studio and gave Warner Bros. 30 days to accept or reject the proposal. 6 57 Cal. App. 4th 354, 358. Warner Bros. did not develop any of the plaintiff’s proposed films. 7 Plaintiff contended that Warner Bros. never intended to make any films with her and categorically 8 refused to work with her, regardless of the merits of her proposals. Id. at 358-59, 365. Warner 9 Bros. argued that it had discretion to make subjective creative decisions about which films to 10 produce. Id. at 365. The California Court of Appeals affirmed that right but concluded that if 11 Warner Bros. refused to even consider the subjective merits of the plaintiff’s proposals, as she 12 alleged, then a triable issue of fact existed regarding whether Warner Bros.’ promise to consider 13 her proposals was made in bad faith and therefore fraudulent. Id. at 367-68. By contrast here, 14 Arcsona has identified nothing in the Agreement that suggests defendants were required to 15 exercise their discretion according to any particular criteria or other considerations. And it is 16 undisputed that Appirio did consider and hire two contract workers supplied by Arcsona. 17 In Lazar, the plaintiff, who had been president of a restaurant equipment company in New 18 York, alleged that the defendant company made specific representations that induced him to 19 relocate and accept the company’s job offer. Those representations were false when they were 20 made. 12 Cal. 4th 631, 635–37. The California Supreme Court held that the plaintiff stated a 21 cause of action for fraudulent inducement of his employment contract, and that he was not limited 22 to an action for breach of contract. Id. at 639. By contrast here, Arcsona does not allege that 23 defendants made any representations that induced him to enter into the Agreement, let alone any 24 false representations that could support a claim of promissory fraud. 25 Accordingly, the Court concludes that the first amended complaint does not state a claim 26 for promissory fraud against Appirio or Mr. Lascell. The Court does not reach Mr. Lascell’s 27 argument that Arcsona’s claim against him is barred by the economic loss rule. IV. LEAVE TO AMEND 1 Arcsona seeks further leave to amend its complaint if the Court concludes that it fails to 2 state a claim. Dkt. No. 50 at 16; Dkt. No. 51 at 15. Arcsona acknowledges that it has already had 3 one opportunity to amend the complaint but argues that its counsel suffered a serious concussion 4 shortly after the Court’s first order of dismissal that impacted Arcsona’s ability to adequately 5 amend the complaint. See Dkt. No. 50 at 16. However, in his declaration, Arcsona’s counsel 6 focuses principally on the adequacy of the complaint’s allegations with respect to application of 7 the economic loss rule. See Dkt. No. 54 ¶ 5. As noted above, the Court’s decision does not 8 depend on application of the economic loss rule. 9 Arcsona’s opposition briefing does not identify any amendments that Arcsona believes it 10 could make that would address the deficiencies that the Court identified in its earlier order 11 dismissing the complaint or that defendants identify in their respective motions to dismiss the 12 FAC. During the hearing on defendants’ motions, the Court inquired what amendments, if any, 13 Arcsona would make if given leave to amend. Arcsona’s counsel did not identify any proposed 14 amendments. Dkt. No. 62. 15 As Arcsona has not explained how it would cure the deficiencies in the first amended 16 complaint if it were given leave to amend a second time, the Court is persuaded that leave to 17 amend is not warranted and would be prejudicial to defendants. See Gardner v. Martino, 563 F.3d 18 981, 991 (9th Cir. 2009) (finding no abuse of discretion where district court denied plaintiffs’ 19 request to amend the first amended complaint because plaintiffs “did not propose any new facts or 20 legal theories for an amended complaint and therefore gave the Court no basis to allow an 21 amendment”). Accordingly, the Court denies Arcsona’s request for leave to amend. 22 V. CONCLUSION 23 For the foregoing reasons, the Court grants defendants’ motions to dismiss Arcsona’s first 24 amended complaint with prejudice. 25 // 26 // 27 // 1 IT ISSO ORDERED. 2 || Dated: January 12, 2022 3 4 ‘ 5 VIRGINIA K. DEMARCHI United States Magistrate Judge 6 7 8 9 10 11 12

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