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Axon Solutions, Inc. v. San Diego Data Processing Corp.

May 4, 2010

AXON SOLUTIONS, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
SAN DIEGO DATA PROCESSING CORPORATION, A CALIFORNIA PUBLICLY-OWNED CORPORATION; AND THE CITY OF SAN DIEGO, A CHARTERED POLITICAL SUBDIVISION OF THE STATE OF CALIFORNIA, DEFENDANTS.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER DENYING DISMISS DEFENDANT CITY OF SAN DIEGO'S MOTION TO Doc. No. 21

Plaintiff Axon Solutions, Inc. ("Axon") initiated this litigation on a contract it held with Defendant San Diego Data Processing Corporation ("SDDPC"), a publicly-owned, non-profit corporation which provides information technology services to Defendant City of San Diego (the "City"). The City filed a motion to dismiss all claims, which the court granted in part and denied in part. (Doc. No. 15). Axon filed a first amended complaint. (Doc. No. 20). The City once again moves to dismiss Axon's first claim for breach of contract. (Doc. No. 21). Axon filed an opposition to the City's motion and the City filed a reply. (Doc. Nos. 27, 32).

The court finds this matter appropriate for disposition without oral argument. See CivLR 7.1(d)(1). For the following reasons, the court hereby DENIES the City's motion to dismiss.

I. BACKGROUND

Axon is a Delaware corporation which provides "business and computer consulting services, software product development, implementation, and application management services." (Doc. No. 20, First Amended Complaint, hereinafter "FAC," ¶ 2). The City is a chartered political subdivision of the State of California. (FAC ¶ 4). SDDPC is a California non-profit corporation wholly owned by the City. (FAC ¶ 3).

On September 28, 2007, Axon and SDDPC entered a "Master Services Agreement" ("MSA") by which Axon agreed to provide SDDPC with information technology products and services for use by the City. (FAC ¶ 15). In exchange, SDDPC agreed to pay Axon $16,951,786. (FAC ¶ 16).

The MSA was the result of an extended decision-making process initiated following a report by the City's Audit Committee. The Audit Committee determined that the City needed to upgrade its computer systems. (FAC ¶ 6). The City's Mayor produced a plan for doing so and the City Council approved the plan. (FAC ¶ 8). The City then directed SDDPC to issue a request for proposals, which Axon answered. (FAC ¶¶ 12-13). A committee composed of nine City representatives and four SDDPC representatives reviewed bids and selected Axon. (FAC ¶¶ 13-14).

Axon fulfilled its contractual obligations until SDDPC-at the direction of the City-terminated the agreement for convenience pursuant to section 2.2 of the MSA. (FAC ¶ 62). Upon termination, Axon became entitled to certain payments related to "holdback" amounts, partially completed deliverables, and wind-down costs. (FAC ¶ 76). Nonetheless, after termination, SDDPC and the City continued to use products provided by Axon, which include Axon's trade secret and copyright-protected material.

As neither SDDPC nor the City paid the money due Axon, Axon instituted the claims procedures provided for in article 21 of the MSA. (Compl. ¶ 33). The parties conducted an unsuccessful mediation on August 26, 2009. (Compl. ¶ 34). Axon subsequently filed suit on November 12, 2009. (See Doc. No. 1).

II. LEGAL STANDARD

A court should dismiss an action where a complaint fails to "state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Therefore, a motion to dismiss should be granted where the complaint lacks either a "cognizable legal theory" or facts sufficient to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). In evaluating the claim a court must "accept as true all of the allegations contained in [the] complaint." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). However, the complaint's "factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007).

In testing the complaint's legal adequacy, the court may consider material properly submitted as part of the complaint or subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007).

III. DISCUSSION

The City presents four grounds for dismissing Axon's contract claim: (1) the City is not an express party to the MSA; (2) Axon insufficiently pleads that SDDPC is an agent of the City; (3) Axon insufficiently pleads that the City is the alter ego of SDDPC; and (4) ...


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