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Dci Solutions Inc., A California Corporation v. Urban Outfitters

April 5, 2011


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

[Doc. No. 47]


In this contract dispute, Plaintiff DCI Solutions, Inc. ("DCI") asserts four claims against Defendant Urban Outfitters, Inc. ("Urban"): (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. Presently before the Court is a motion for summary judgment or, in the alternative, partial summary judgment brought by Urban.Having considered the parties' arguments, and for the reasons stated below, the Court GRANTS IN PART and DENIES IN PART Urban's motion.


I. The Parties

Plaintiff DCI Solutions, Inc. ("DCI") is a company specializing in overhead cost reduction services. Working on a contingency basis, DCI helps companies identify areas where savings are possible. DCI does not charge any up-front fees and begins billing its clients only after the client has begun saving money. Among the services DCI performs for its clients is a "benchmarking" analysis. Benchmarking is the process whereby DCI compares the rates paid by one client for a particular service with the rates other companies pay for the same service. Either DCI or the client can then use the benchmarks to negotiate lower rates with new carriers or renegotiate its rates with its existing carriers.

Defendant Urban is a specialty retail company which offers a variety of "lifestyle" merchandise to highly defined customer niches through "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 Contract

In 2007, DCI approached Urban about the prospect of providing consulting services to Urban. All negotiations between DCI and Urban were conducted by the same two individuals: Kirk Conole on behalf of DCI and John Kyees on behalf of Urban.

In October 2007, DCI and Urban entered into a written, integrated contract. By the terms of the two-page agreement, DCI promised to recommend ways in which Urban could reduce its "Less than Truckload" ("LTL") and Truckload freight costs. In exchange, Urban agreed to pay DCI a portion of the "Savings" it obtained. "Savings" are defined as any cost reductions that "result from any DCI recommendation during the thirty-six months which follow the completion of the recommendation's implementation." The contract provides that "DCI shall not be compensated for any recommendation which Client declines and does not use. Compensation is due if Client receives Savings in area cost where DCI previously disclosed a Savings recommendation."

III. Performance under the Contract

In November 2007, DCI's independent contractor, Robert Fike, spent about 90 minutes at Urban's main distribution center gathering sample invoices and speaking with Urban's transportation logistics managers. Thereafter, Fike and DCI's principal, Jim Baker, spent an additional 30 hours performing DCI's benchmarking analysis.

DCI's recommendations for cost savings were contained in a document entitled Disclosure of Savings to Urban Outfitters, dated November 16, 2007. The Disclosure of Savings referred to an attached spreadsheet, which listed the rates Urban paid for LTL freight shipments to three freight carriers (New Penn, Roadway, and Gilbert), and the "DCI rate" that DCI believed could potentially be obtained with these same carriers. DCI concluded that Urban could "potentially reduce" overall LTL freight costs with the three carriers by "20% to 30%." DCI's recommendation further stated that the"Savings" could be obtained by Urban Outfitters' staff or by DCI. The Disclosure of Savings also included a Letter of Authorization ("Letter") for John Kyees to sign. The Letter would have empowered DCI to negotiate better rates on Urban's behalf. Notwithstanding DCI's attempts, Kyees never signed the Letter.

From DCI's perspective, Urban became less and less cooperative over time. Principally, Urban's managers failed to provide DCI with the amount of Urban's "spend" (i.e. the amount spent on shipping). Eventually, DCI obtained some, but not all copies of Urban's pricing agreements with its carriers. To DCI's dismay, an Urban manager assigned to oversee the project temporarily, Matt Kaness, denied the existence of a signed agreement between the parties.

On July 3, 2008, Urban's Kenneth McKinney sent Jim Baker an email stating, "I had discussion with John Kyees, and my recommendation to him was that we not engage in a partnership with DCI at this time." Over the next several weeks, DCI attempted to get Urban to perform under the contract. In July 2008, Baker sent Kyees a letter expressing a number of concerns related to Urban's performance under the parties' agreement. Urban broke off all communications with DCI by the end of August 2008.

IV. Urban's Interactions with Carriers

Terese Tubbs has been Urban's Manager of Transportation Logistics since 2003. Tubbs' responsibilities include negotiating with Urban's freight carriers to obtain "good rates." Tubbs testified that believes she has obtained the "best rates possible." Tubbs also acknowledged it would reflect "poorly" on her if DCI was able to find better available rates. At her deposition, Tubbs was unable to identify any instances in which she asked a carrier for a rate reduction. The following is a summary of evidence DCI has submitted regarding interactions between Tubbs and Urban's carriers before and after DCI issued its recommendations in November 2007.

a. New Penn

William Sawdey of New Penn has been the account representative for the Urban account for over 18 years. In December 2006, Urban entered into a two-year price agreement with New Penn that increased Urban's base rate by 3% in the first year and by 2% in the second year. Terese Tubbs did not ask for a rate reduction in connection with the December 2006 pricing agreement. Nor, according to both Tubbs and Sawdey, had Tubbs ever asked for a rate reduction prior to the December 2006 pricing agreement. In its November 2007 Disclosure of Savings, DCI estimated that Urban would be able to save at least 20% on its rates with New Penn. In December 2008, Urban negotiated a 27% rate reduction with New Penn.

b. Gilbert

Prior to November 2007, Tubbs had never asked Gilbert for reduction in general rates. In its November 2007 Disclosure of Savings, DCI estimated that Urban would be able to save at least 3% on its rates with Gilbert. In December ...

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