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DCI Solutions, Inc. v. Urban Outfitters

May 6, 2010

DCI SOLUTIONS, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
v.
URBAN OUTFITTERS, INC., A PENNSYLVANIA CORPORATION; AND DOES 1-20, INCLUSIVE, DEFENDANTS.
URBAN OUTFITTERS, INC., A PENNSYLVANIA CORPORATION, COUNTER-CLAIMANT,
v.
DCI SOLUTIONS, INC., A CALIFORNIA CORPORATION, COUNTER-DEFENDANT.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER: (1) DENYING MOTION TO STRIKE [Doc. No. 11]; and (2) GRANTING MOTION TO DISMISS [Doc. No. 10].

This is a contract dispute case. Currently before the Court are Counter-Defendant DCI Solutions, Inc.'s ("DCI") Motion to Strike and Motion to Dismiss certain causes of action in Counter-Claimant Urban Outfitters, Inc.'s ("Urban") counterclaim. Having considered the parties' arguments, and for the reasons set forth below, the Court DENIESthe motion to strike and GRANTSthe motion to dismiss WITH LEAVE TO AMEND.

BACKGROUND

I. The Parties

DCI is a company specializing in overhead cost reduction. Working on a contingency fee, DCI helps companies identify ways to save money. DCI alleges that unlike other companies, which focus only on one expense category, it offers an expert analysis of 40 different overhead and tax categories. DCI does not charge any up-front fee and begins billing its clients only after the client has begun saving money.

Urban is an innovative specialty retail company that offers a variety of "lifestyle" merchandise to highly defined customer niches through its "Urban Outfitters," "Anthropologie," and "Free People" retail stores in the United States, Canada, and Europe, as well as through websites, catalogues, and wholesale concepts.

II. The Dispute

In October 2007, DCI and Urban entered into a written agreement ("Agreement"), whereby DCI was to recommend ways Urban could save money. According to Urban, DCI promised it would "dramatically reduce" Urban's overhead costs and that Urban would realize "six figure savings" as a result of "expert" recommendations. Urban allegedly agreed to pay DCI 33% of all savings it received during the thirty-six months following the implementation of DCI's recommendations.

According to DCI, it demonstrated to Urban that Urban was paying far more than it should for its "Less than Truckload" ("LTL") freight costs. DCI estimated that by renegotiating its tariff rates with its current freight carriers, or negotiating rates with new carriers, Urban could save between $1 million and $1.5 million per year based upon its current annual shipping volume. DCI alleges that it invested valuable time and energy over a period of several months to come up with these recommendations. Urban then told DCI that it decided not to implement DCI's recommendations. DCI has since learned, however, that Urban did in fact secretly implement DCI's recommendations without notifying DCI and is now achieving significant savings on its LTL freight rates. According to DCI, Urban refuses to pay DCI the savings fee that was agreed to in the Agreement.

On the other hand, Urban alleges that DCI's consultant spent less than five hours "analyzing" Urban's extensive freight cost history, and that DCI failed to deliver any useful recommendations.

Accordingly, Urban rejected and did not utilize any recommendations or advice provided by DCI. Urban also alleges that it subsequently discovered that DCI's representations were the core of its regular business practice. According to Urban, DCI fraudulently induces company managers to enter into contracts for services with DCI and to forego entering into any other contracts with competing companies. In fact, DCI has no interest in genuinely analyzing a company's business practices, but rather makes generic recommendations as to what the company should do to save money. Urban alleges that DCI's entire business scheme is intended to fraudulently induce companies to pay DCI money which it has not earned. If a company complains, DCI's practice is to file a lawsuit.

III. Procedural Background

In January 2010, DCI filed this lawsuit in the Superior Court for the County of San Diego. Urban subsequently removed it to this Court based on diversity grounds. DCI's complaint alleges four causes of action: (1) fraud in the inducement, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) quantum meruit.

In response to DCI's complaint, Urban filed a counterclaim. Urban's counterclaim alleges seven causes of action: (1) fraud in the inducement, (2) fraud, (3) breach of contract, (4) violation of Section 17200 of the California Business and Professions Code, (5) declaratory relief, (6) breach of covenant of good faith and fair dealing, and (7) rescission based upon fraud.

Currently before the Court are DCI's Motion to Strike pursuant to California's anti-SLAPP statute, CAL. CIV. PROC. CODE § 425.16, and Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure with respect to certain Urban's counterclaims. Urban filed an opposition to each motion, and DCI replied. The Court heard oral argument on May 3, 2010.

LEGAL STANDARD

I. Motion to Strike

A Strategic Lawsuit Against Public Participation ("SLAPP") is a civil action "in which the [non-moving party's] alleged injury results from petitioning or free speech activities by [the moving party] that are protected by the federal or state constitutions." Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1109 (9th Cir. 2003). "California's anti-SLAPP statute was 'enacted to allow early dismissal of meritless first amendment cases aimed at chilling expression through costly, time-consuming litigation.'"Id. (citations omitted). Specifically, the statute allows a party to move to strike the non-moving party's cause of action if that cause of action "aris[es] from any act of that person in furtherance of the person's ...


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