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Ezlinks Golf, LLC v. PCMS Datafit, Inc.

Superior Court of Delaware

March 13, 2017

EZLINKS GOLF, LLC, Plaintiff,
v.
PCMS DATAFIT, INC. Defendant.

          Submitted: December 16, 2016

         Upon Defendant PCMS Datafit, Inc. 's Partial Motion to Dismiss, GRANTED.

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

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

          MEMORANDUM OPINION AND ORDER

          Paul R. Wallace, Judge

         I. INTRODUCTION

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

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

         II. FACTUAL AND PROCEDURAL BACKGROUND

         In late 2013, EZLinks, through a third party, solicited a Request for Proposals ("RFP") from various companies for a new Point-of-Sale ("POS") system.[1] In mid-January 2014, PCMS responded (the "PCMS Proposal"). EZLinks thoroughly reviewed the PCMS Proposal, and the parties began a working relationship.[2] The parties first made direct contact on February 14, 2014.[3] And a phone conference followed on February 18, 2014.[4] EZLinks contends PCMS representatives stated then that "their point-of-sale solution could handle 'remote printing.'"[5]

         PCMS provided EZlinks with sales demonstrations of PCMS's proposed POS system on March 6 and 13, 2014.[6] On March 18, 2014, several of EZLinks's directors had a technical meeting with PCMS to discuss the POS's specifics.[7] The parties had further meetings on April 22, April 30, and May 28, 2014.[8]

         The parties' CEOs met on August 1, 2014. There, PCMS's CEO made the following statements: (1) PCMS could complete the project for the POS system to meet EZLinks's current customer demands within seven months, with "Phase 0" completed by November 2014, "Phase 1" completed by January 5, 2015, and "Phase 2" completed by March 2015; and (2) PCMS could complete the project for the POS System to meet EZLinks's current customer demands on a budget of $1.4 million.[9]

         EZLinks now contends that PCMS made these statements to fraudulently induce EZLinks into signing a Reseller Agreement.[10]

         Based, in part, on the PCMS Proposal, and the parties' conversations on February 18, 2014, and August 1, 2014, EZLinks awarded its new POS contract to PCMS. The parties signed a Reseller Agreement on October 9, 2014 (amended July 30, 2015).[11] That Reseller Agreement contemplated that the parties would enter into various "statements of work" ("SOWs") providing EZLinks updates on PCMS's performance.[12]

         PCMS allegedly fell behind schedule and ran over budget. In early 2015, EZLinks expressed its frustration with the project's timing and overruns.[13] In February 2015, PCMS provided a scaled-back beta POS system. It didn't work.[14]In September 2015, PCMS delivered a second beta POS system. It also was allegedly defective.[15] Then PCMS billed EZLinks $1.8 million for its work; exceeding the earlier $1.4 million projection.[16]

         The parties entered into separate SOWs, numbered 2-8, to track PCMS's continued work.[17] SOWs 2-7 set deadlines for work associated with each. And under the SOWs' terms, PCMS had to notify EZLinks by February 29, 2016, if it would not or could not meet those respective deadlines.[18] PCMS neither met the deadlines nor timely notified EZLinks that it would fail to meet them.[19]

         On May 19, 2016, EZLinks, fed up with the delays, terminated the Reseller Agreement. EZLinks rejected PCMS's outstanding invoices, demanded a return of the nearly $1.6 million it had already paid out, and triggered the parties' pre-suit dispute resolution measures.[20] Dispute resolution failed.

         EZLinks filed this suit on July 12, 2016. EZLinks's complaint has two counts: Breach of Contract and Fraudulent Inducement. EZLinks describes the parties' relationship in two phases: pre- and post-Reseller Agreement. EZLinks contends the PCMS Proposal, and PCMS's February 18 and August 1, 2014 assurances constituted false statements and misrepresentations.[21] It says these pre-contractual statements fraudulently induced EZLinks into signing the Reseller Agreement. EZLinks claims further that, post-signing, PCMS breached the Reseller Agreement by not following the SOWs.

         PCMS answered EZLinks's Complaint and filed this Partial Motion to Dismiss under this Court's Civil Rule 12(b)(6). PCMS seeks to dismiss EZLinks's fraudulent-inducement claim as a redundant breach-of-contract claim.

         At oral argument, the Court requested supplemental briefing on three things: (1) whether rescission or rescissory damages were requested or applicable; (2) whether anything in the Reseller Agreement prohibited or limited available damages; and (3) whether EZLinks could "identify the specific damages requested under each claim and how they differ in the complaint as it is drafted now."[22]

         III. PARTIES' CONTENTIONS

         PCMS contends EZLinks's fraud claim fails for two reasons.[23] First, PCMS argues that the pre-contractual statements' alleged falsities are premised solely on PCMS's later alleged failures to perform under the agreement - it is merely a reclad breach-of-contract claim. As such, EZLinks fails to allege fraud damages other than those based on expectations in the agreement. And so the claims are indistinguishable.[24]

         Second, PCMS argues that EZLinks did not adequately plead fraudulent inducement, namely justifiable reliance and false representations of material fact. Even if EZLinks's allegations are given full credit, PCMS says the allegations do not meet the pleading standard required for fraudulent inducement.

         EZLinks counters that its fraudulent inducement claim is distinct. According to EZLinks, as a part of the negotiation process PCMS agreed to customize the POS system by adding functions to standard capabilities PCMS claimed were already in existence. EZLinks argues that PCMS "grossly misrepresented [the POS system's] capabilities" and that few of the "standard" functions were in fact standard.[25] EZLinks claims PCMS knew it would have to build these functions into the system, but did not tell EZLinks. It also argues that PCMS misrepresented the budget and time necessary to develop the software and that PCMS knew this when the misrepresentation was made.[26]

         EZLinks argues PCMS's statements "defrauded [it] to get [it] to sign the deal, making this a classic fraudulent inducement case."[27] EZLinks says that the obligations arising under the Reseller Agreement are based on the assumption that the software functioned as represented by PCMS. Yet, EZLinks posits, PCMS knew: that the software did not have the required capabilities the time of the Reseller Agreement; that the required capabilities could not be developed on the timeline given before the Reseller Agreement was entered into; that PCMS made the representations to induce EZLinks to enter into the Reseller Agreement; and that PCMS wrongly profited from that agreement.[28] Its two claims are distinct, EZLinks says. And, therefore, it may seek damages via both.

         IV. STANDARD OF REVIEW

         When considering a motion to dismiss pursuant to Superior Court Civil Rule 12(b)(6), the Court will:

(1) accept all well pleaded factual allegations as true, (2) accept even vague allegations as "well pleaded" if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) [not dismiss the claims] unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[29]

         But the Court will "ignore conclusory allegations that lack specific supporting factual allegations."[30]

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

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

(1) the time, place, and contents of the false representation; (2) the identity of the person making the representation; and (3) what the person intended to gain by making the representations. Essentially, the plaintiff is required to allege the circumstances of the fraud with detail sufficient to apprise the defendant of the basis for the claim.[36]

         V. DISCUSSION

         For both a breach-of-contract claim and a tort claim to coexist in a single action, "the plaintiff must allege that the defendant breached a duty that is independent of the duties imposed by the contract."[37] PCMS argues that the issue here is whether the allegedly false statements were independent of the Reseller Agreement's terms. Generally, a fraud claim only survives if it is based on some conduct distinct from that constituting a breach of contract.[38] PCMS contends that all three of EZLinks's assertions are "inextricably linked to contractual duties and obligations."[39] And, PCMS posits, all three theories of the alleged falsity are "based entirely on EZLinks' expectations regarding - and PCMS' performance under - the Reseller Agreement and Statements of Work."[40] So, because the fraudulent inducement claim is based solely on PCMS's alleged failure to deliver the POS system as EZLinks expected them to, the Court should dismiss the claim.[41]

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

         A. PCMS's Statements in the RFP Responses

         PCMS first contends that Complaint Paragraphs 11-13 merely allege that the software actually delivered under the contract did not meet EZLinks's expectations, not fraudulent inducement to enter the contract. To maintain its contention, PCMS cites to various paragraphs of the Complaint.[45] PCMS alleges that all of the allegations in Complaint Paragraphs 12 and 13 simply criticize the product actually delivered; they say nothing of what was stated in the RFP Response.[46]

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

         B. PCMS's February 18, 2014 Assurances

         EZLinks alleges that during a phone call on February 18, 2014, PCMS "stated that their point-of-sale solution could handle 'remote printing' . . . which they knew to be false."[50] PCMS argues that EZLinks was told that "any written or oral communication" was not "a contractually binding promise or representation."[51] Again, PCMS states, EZLinks's issue with the lack of a remote printing feature was due to the delivered software failing to function as EZLinks believed it would, not fraudulent inducement of the contract.[52]

         C. PCMS's August ...


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