Cognizant Worldwide Limited v. Barrett Business Services Inc

• Court: District Court, W.D. Washington
• Decided: April 27, 2021
• Docket: 2:19-cv-01848
• Status: Unknown

Opinion

THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 COGNIZANT WORLDWIDE LIMITED and CASE NO. C19-1848-JCC COGNIZANT TECHNOLOGY SOLUTIONS 10 U.S. CORPORATION, ORDER 11 Plaintiffs, 12 v. 13 BARRETT BUSINESS SERVICES INC., 14 Defendant. 15

16 This matter comes before the Court on Cognizant Worldwide Limited and Cognizant 17 Technology Solutions U.S. Corporation’s (collectively “Cognizant”) and Barrett Business 18 Services Inc.’s (“BBSI”) objections (Dkt. Nos. 93, 95) to the second report and recommendation 19 (“R&R”) of the Honorable Michelle L. Peterson, United States Magistrate Judge (Dkt. No. 89), 20 regarding Cognizant’s motion to dismiss (Dkt. No. 84) BBSI’s Second Amended Counterclaims 21 (“SAC”) (Dkt. No. 83). Having thoroughly considered the parties’ briefing and the relevant 22 record, the Court hereby OVERRULES the parties’ objections, APPROVES and ADOPTS the 23 R&R, and GRANTS in part and DENIES in part Cognizant’s motion to dismiss for the reasons 24 explained herein. 25 26 1 I. BACKGROUND 2 The Court previously entered an order (Dkt. No. 80) adopting Judge Peterson’s first R&R 3 dismissing BBSI’s breach of contract and a portion of its rescission counterclaims (Dkt. No. 73). 4 BBSI then filed its SAC (Dkt. No. 83). The SAC includes additional allegations supporting 5 BBSI’s breach of contract counterclaim, supporting its rescission counterclaim regarding BBSI’s 6 agreement with Oracle, and bolstering its misrepresentation claim. (See generally Dkt. Nos. 83, 7 84-2.) Cognizant again moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). 8 (Dkt. No. 58). The second R&R, much like the first, recommends that Cognizant’s motion be 9 granted in part in that BBSI’s breach of contract claim be dismissed and its rescission 10 counterclaims, at least as they relate to Cognizant’s agreement with Oracle, be dismissed. (See 11 Dkt. No. 89 at 25.) The second R&R recommends that the remaining counterclaims survive.1 12 (Id.) 13 Both Cognizant and BBSI filed objections to the second R&R (Dkt. Nos. 93, 94). 14 Cognizant objects to Judge Peterson’s recommendation not to dismiss BBSI’s misrepresentation 15 counterclaim, and BBSI objects to Judge Peterson’s recommendation to dismiss its breach of 16 contract counterclaim. (See generally Dkt. Nos. 93, 94.) Judge Peterson’s first and second R&Rs, 17 and the Court’s prior order adopting the first R&R, set forth the underlying facts of this case. 18 (See Dkt. Nos. 73 at 2–5, 80 at 1–2, 89 at 2–5.) The Court will not repeat them here. 19 II. DISCUSSION 20 A. Legal Standard 21 A dismissal under Federal Rule of Civil Procedure 12(b)(6) may be based on the lack of a 22 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. 23

24 1 This time Judge Peterson recommended that the portion of the misrepresentation counterclaim regarding statements allegedly made by Cognizant about Oracle’s HCM Cloud 25 system’s capabilities be allowed to survive. (See Dkt. No. 89 at 15–17.) This is in addition to allowing the portion of the counterclaim regarding statements allegedly made regarding 26 Cognizant’s experience in working with BBSI’s peer organizations. (Id.) 1 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). In order for a counterclaim 2 to overcome a Rule 12(b)(6) motion to dismiss, it must contain sufficient factual matter, accepted 3 as true, to “state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 4 550 U.S. 544, 556 (2007). The Court accepts factual allegations in a counterclaim as true and 5 construes the pleadings in the light most favorable to the nonmoving party. Manzarek v. St. Paul 6 Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Claims have facial plausibility if a 7 party pleads factual content that “allows the Court to draw the reasonable inference that [the 8 opposing party] is liable for the misconduct alleged.” Twombly, 556 U.S. at 556. “The 9 plausibility standard is not akin to a probability requirement, but it asks for more than a “sheer 10 possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 11 However, while the Court will accept all material allegations in a counterclaim as true, 12 conclusory allegations of law and unwarranted inferences will not defeat an otherwise proper 13 Rule 12(b)(6) motion. Vasquez v. Los Angeles County, 487 F.3d 1246, 1249 (9th Cir. 2007). 14 When considering objections to an R&R, the Court reviews de novo only those portions 15 of an R&R to which a party timely objects. See Fed. R. Civ. P. 72(b)(3). Otherwise, the Court is 16 free to accept, reject, or modify the resulting recommendations; receive further evidence; or 17 return the matter to the magistrate judge with further instructions. Id. Objections must enable the 18 Court to “focus attention on those issues—factual and legal—that are at the heart of the parties’ 19 dispute.” Thomas v. Arn, 474 U.S. 140, 147 (1985). 20 B. Cognizant’s Objections 21 Cognizant asserts the second R&R erred in concluding that BBSI’s misrepresentation 22 counterclaim was adequately pled. (Dkt. No. 93 at 2.) Cognizant argues the alleged statements 23 upon which the misrepresentation counterclaim is based represent performance-based opinions— 24 not actionable fact-based statements. (Id. at 4–6.) Cognizant also takes issue with Judge 25 Peterson’s determination that BBSI sufficiently alleged justifiable reliance on these alleged 26 statements. (Id. at 7–13.) 1 1. Performance-Based Misrepresentations 2 Judge Peterson concluded that BBSI plausibly alleged Cognizant made fact-based 3 misrepresentations regarding the capabilities of Oracle’s HCM Cloud system before entering into 4 the parties’ Statement of Work (“SOW”).2 (Dkt. No. 89 at 13–16.) Cognizant argues this was 5 error because BBSI’s allegations are, simply, implausible, likening them to a mechanic opining 6 on the condition of a car before doing a pre-purchase inspection. (Dkt. No. 93 at 3.) The analogy 7 is neither apt nor persuasive. A mechanic is not familiar with the mechanical faults of a 8 particular car prior to inspecting it, whereas BBSI plausibly alleged that Cognizant represented 9 itself to be intimately familiar with Oracle’s products. (Dkt. No. 83 at 8–14.) BBSI also alleged 10 that it provided Cognizant a detailed list of its functional requirements, and Cognizant 11 represented to BBSI that Oracle’s system could meet those requirements before Cognizant began 12 to perform under the SOW. (Dkt. No. 83 at 7–8, 10–13.) 13 Judge Peterson concluded that, even if Cognizant’s alleged statements were opinions and 14 not fact-based statements, BBSI still alleged a colorable misrepresentation claim because the 15 opinions were allegedly made without care or concern regarding their accuracy. (Dkt. No. 89 at 16 16–17.) Cognizant argues this is a misapplication of Markov. (Dkt. No. 93 at 4–5 (citing Markov 17 v. ABC Transfer & Storage Co., 457 P.2d 535, 539 (Wash. 1969).) The Court disagrees. BBSI’s 18 allegations suggest sufficiently definitive statements by Cognizant, which BBSI allegedly wholly 19 relied on. (See Dkt. No. 83 at 10–13.) This is sufficient to meet the standard articulated in 20 Markov. 21 Cognizant also argues that, regardless of how the statements are characterized, they were 22 made by Oracle—who is not a party in this matter—not Cognizant. (Dkt. No. 93 at 2, 6.) This 23

24 2 Cognizant attached a copy of the SOW to its original complaint, (Dkt. No. 68-2), BBSI refers to it throughout the SAC, (see, e.g., Dkt. No. 83 at 16, 17, 34), and neither party has 25 questioned its authenticity. Accordingly, the Court can consider this document without converting Cognizant’s motion to one seeking summary judgment. Coto Settlement v. Eisenberg, 26 593 F.3d 1031, 1038 (9th Cir. 2010). 1 distorts the SAC, which describes Oracle and Cognizant’s responses to its functional 2 requirements questions as “joint answers.” (Dkt. No. 83 at 12–13.) 3 Finally, Cognizant suggests that the SAC fails to meet Rule 9(b)’s particularity 4 requirement. (Dkt. No. 93 at 6–7.) This objection is without merit. The SAC clearly satisfies 5 Rule 9(b)’s requirements. (See Dkt. No. 83 at 12–13, 18–19.) 6 2. Justifiable Reliance 7 To plead a claim for misrepresentation, even if it plausibly alleges that otherwise- 8 actionable statements occurred, BBSI must also allege facts supporting the notion that it 9 reasonably relied on those statements; this is true regardless of whether New York or 10 Washington law applies to this matter.3 See LBBW Luxemburg S.A. v. Wells Fargo Securities 11 LLC, 10 F. Supp. 3d 504, 514 (S.D.N.Y. 2014); Lawyers Title Ins. Corp. v. Baik, 55 P.3d 619, 12 624 (Wash. 2002). Judge Peterson concluded that the SAC adequately established this element. 13 (Dkt. No. 89 at 18–24.) Cognizant argues this was error. (Dkt. No. 93 at 7.) Specifically, 14 Cognizant argues Judge Peterson misapplied relevant caselaw in assessing the import of the 15 Master Services Agreement’s (“MSA”)4 disclaimer provision, § 8.3; erroneously concluded that 16 the allegations contained in the SAC were sufficient to demonstrate BBSI’s diligence; and 17 misapplied relevant caselaw regarding BBSI’s failure to include protective language in the 18 parties’ agreements. (Id. at 7–13.) 19 As to the import of the parties’ disclaimer provision, § 8.3, Cognizant suggests Hitachi 20 should control. (See id. at 7–10 (citing Hitachi Data Sys. Credit Corp. v. Precision Discovery, 21 Inc., 331 F. Supp. 3d 130 (S.D.N.Y. 2018).) But the agreements between BBSI and Cognizant 22 3 The Court need not address this issue to consider the parties’ objections to the second 23 R&R. 24 4 Cognizant attached a copy of the MSA to its original complaint, (Dkt. No. 68-1), BBSI refers to it throughout the SAC, (see, e.g., Dkt. No. 83 at 16, 17, 34), and neither party has 25 questioned its authenticity. Accordingly, the Court can consider this document without converting Cognizant’s motion to one seeking summary judgment. Coto Settlement v. Eisenberg, 26 593 F.3d 1031, 1038 (9th Cir. 2010). 1 are not analogous to those in Hitachi. Moreover, the overwhelming body of evidence does not 2 suggest that a generic disclaimer, lacking in specificity, like the one in the MSA, is sufficient to 3 defeat BBSI’s counterclaims. See, e.g., Trainum v. Rockwell Collins, Inc., 2017 WL 2377988, 4 slip op. at 15 (S.D.N.Y. May 31, 2017), aff’d, 765 F. App’x. 514 (2d Cir. 2019); Loreley 5 Financing (Jersey) No. 3 Ltd. v. Citigroup Glob. Markets Inc., 119 A.D.3d 36, 143 (N.Y. App. 6 2014); P.T. Bank C. Asia v. ABN AMRO Bank N.V., 301 A.D.2d 373, 375 (N.Y. App. 2003). 7 This is particularly true given the SAC’s allegation that the suitability of Oracle’s software was 8 information uniquely within Cognizant’s knowledge. (See Dkt. No. 83 at 10–11.) 9 Cognizant next asserts that, for BBSI to demonstrate the diligence necessary to support 10 an allegation of justifiable reliance, it had to hire a consultant to essentially do the same thing it 11 hired Cognizant to do: assess the suitability of Oracle’s HCM Cloud system to its needs. (Dkt. 12 No. 93 at 11–12.) This ignores BBSI’s allegations that this information was exclusively held by 13 Cognizant. (See Dkt. No. 83 at 10–11.) BBSI would have no reason to know that an independent 14 investigation of Cognizant’s pre-SOW representations was required. See Douglas N.W., Inc. v. 15 Bill O’Brien & Sons Const., Inc., 828 P.2d 565, 577 (Wash. App. 1992); Trainum, 2017 WL 16 2377988, slip op. at 16–17. 17 Finally, BBSI had no duty to include the protective language that Cognizant suggests was 18 required until BBSI was on “notice that it had received false or incomplete information.” Meisel 19 v. Grunberg, 521 F. App’x. 3, 7 (2d Cir. 2013). 20 Fundamentally, justifiable reliance is a fact-intensive determination. Havens v. C. & D. 21 Plastics, Inc., 876 P.2d 435, 447 (Wash. 1994); Country World, Inc. v. Imperial Frozen Foods 22 Co., 186 A.D.2d 781, 782 (N.Y. App. 1992).While BBSI may ultimately fail to put forth 23 sufficient evidence to demonstrate this element of its counterclaim, it is premature to dismiss the 24 counterclaim now, given the allegations in the SAC. 25 Accordingly, Cognizant’s objections to the second R&R are OVERRULED. 26 1 C. BBSI’s Objections 2 BBSI asserts that the second R&R erred in dismissing BBSI’s breach of contract 3 counterclaim. (Dkt. No. 94 at 1–2.) It concedes that the SAC does not include allegations 4 supporting the conclusion that it complied with the deficiency notification provisions contained 5 within both the SOW and the MSA. (See generally Dkt. No. 94.) But it argues that substantial 6 compliance is sufficient and that the allegations in the SAC meet this bar. (Dkt. No. 94 at 4–6.) 7 It further argues that, regardless, the deficiencies it identified in Cognizant’s performance fell 8 outside of the SOW’s definition of a “deliverable” and, as a result, the deficiency notification 9 provisions do not apply. (Dkt. No. 94 at 6–8.) 10 BBSI’s arguments are unpersuasive. First, regardless of whether New York or 11 Washington law applies, strict compliance with the SOW and MSA’s deficiency notification 12 provisions was required, both as to form and timing. See Mike M. Johnson, Inc. v. County of 13 Spokane, 78 P.3d 161, 162 (Wash. 2003) (“We hold that ‘actual notice’ is not an exception to 14 compliance with mandatory contractual protest and claim provisions.”); Kollatz v. KOS Bldg. 15 Group, LLC, 188 A.D.3d 1175, 1178 (N.Y. App. 2020) (requiring strict compliance with 16 warranty provisions). The SAC does not allege BBSI strictly complied—this is fatal to the 17 breach of contract claim. (See generally Dkt. No. 83.) Second, the provision in the MSA covered 18 “any Deliverable or Services,” (Dkt. No. 68-1 at 7 (emphasis added).) BBSI fails to establish 19 why all of the allegedly deficient work Cognizant performed, or not performed, is not covered by 20 the notification provision, given its broad scope. Accordingly, BBSI’s objections to the second 21 R&R are OVERRULED. 22 Lastly, BBSI seeks leave to again amend its counterclaims to cure the deficiencies noted 23 above. But BBSI has had already had multiple opportunities to amend its counterclaims. (See 24 Dkt. Nos 47, 54, 83). Despite these attempts, it has been unable to cure the deficiencies noted in 25 the first and second R&R’s. (See Dkt. Nos. 73 at 7–8, 89 at 6–9.) Moreover, given the 26 undisputed language contained within the MSA and SOW, any further amendment appears futile. 1 See W.C. by and through Chang v. Rowland Unified Sch. Dist., 769 F. App’x. 471, 472 (9th Cir. 2 2019). Therefore, leave to amend is DENIED. 3 III. CONCLUSION 4 For the foregoing reasons, the Court FINDS and ORDERS as follows: 5 1. Cognizant’s objections to the second R&R (Dkt No. 93) are OVERRULED; 6 2. BBSI’s objections to the second R&R (Dkt. No. 94) are OVERRULED; 7 3. Judge Peterson’s second R&R (Dkt. No. 89) is APPROVED and ADOPTED; 8 4. Cognizant’s motion to dismiss BBSI’s SAC (Dkt. No. 84) is GRANTED in part and 9 DENIED in part: BBSI’s counterclaims for breach of contract of the SOW and 10 rescission of the agreement between Oracle and BBSI are DISMISSED. The 11 remaining counterclaims survive. 12 5. The Clerk is DIRECTED to send a copy of this order to Judge Peterson. 13 14 DATED this 27th day of April 2021. A 15 16 17 John C. Coughenour 18 UNITED STATES DISTRICT JUDGE

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