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Simulados Software, Ltd. v. Photon Infotech Private, Ltd.

United States District Court, N.D. California, San Jose Division

January 14, 2015



EDWARD J. DAVILA, District Judge.

Presently before the Court is Defendant Photon Infotech Private, Ltd.'s ("Photon" or "Defendant") Motion to Dismiss Plaintiff Simulados Software, Ltd.'s ("Simulados" or "Plaintiff") Second Amended Complaint ("SAC") for lack of subject matter jurisdiction and failure to state claims, including failure to allege fraud and fraudulent inducement with the required level of particularity dictated by the heightened pleading standards of the Federal Rules, and to strike Simulados' punitive damages allegations. See Docket Item No. 92. Federal jurisdiction arises under 28 U.S.C. §1332(a). This case is proceeding in this Court because of the parties' venue selection clause in their contract. See Docket Item No. 15. Having fully reviewed the parties' papers, the Court will DENY Photon's Motion to (1) Dismiss, or in the Alternative, for Summary Judgment and (2) to Strike Punitive Damages for the reasons stated below.

I. BACKGROUND Simulados is a Texas software development company based in Houston, Texas. See SAC, Docket Item No. 92 at ¶ 1. Photon is a technology consulting corporation incorporated in New Jersey with its principal place of business in Chennai, India and a virtual office in San Jose, California. Id. at ¶ 2. Simulados developed a program called Certify Teacher, which is a test simulation program used by educators to prepare for the Texas Examination of Educator Standard ("TExES") certification exam. Id. at ¶ 4. Simulados decided to produce a version of its product compatible with Apple Macintosh ("Mac") computers as well as an internet web application. Id. at ¶ 5.

In early 2009, Esdras Cantao ("Cantao"), the owner of Simulados, received an unsolicited phone call from a representative of Photon, representing Photon's ability to create a Mac-compatible product and develop a web application. Id. at ¶¶ 6-7. Simulados and Photon entered into a contract ("Contract") on March 31, 2009, which consisted of a Statement of Work ("SOW") and a Master Professional Services Agreement ("MPSA"). See Docket Item No. 1-1 (the SOW incorporates all the terms and conditions of the MPSA). In the Contract, Photon represented that the project would start on May 20, 2009 and finish on September 17, 2009. See Dkt. No. 92 at ¶ 12. The Contract provided that Photon would complete: CD mastering, migrating the existing source code to Real Basic, convert VB project, add Mac specific BASIC code, add support for New DB format, address performance bottlenecks in product, customize for Mac operating systems, add platform specific paths, tweak for Mac Human Interface Guidelines, provide license key generation and key validation, create a wen application, create website authentication certification for downloads, upgrade to database content creator, provide support for reading the content, provide support for modifying content, migrate up to three sample products, and code review. See id. at ¶13. Simulados agreed to pay $23, 560 in four installments, the final of which was to be made upon delivery of a complete workable product. Id. at 14. The Contract contained the following choice-of-law and forum selection provision: "[t]his Agreement shall be governed by and construed and enforce [sic] in accordance with law of the State of California." See Docket Item No. 1-1.

Simulados contends that Photon never fulfilled its obligations under the Contract. See Dkt. No. 92 at ¶ 15. On June 9, 2009, Photon communicated to Simulados that it was initiating the project, and represented that there would not be any outstanding serious or critical defects at the time of the site launch, with fewer than five medium defects and fewer than ten low defects. Id . On August 14, 2009, Photon requested that Simulados approve completion of the project's development phase. Id. at ¶ 16. A teleconference demonstration was held on August 19, 2009 and on September 24, 2009 Simulados received an access link for user testing and approval. Id . During the review, Simulados found 38 low level and 8 critical issues. Id. at ¶ 17. Simulados requested a status update on the web application and expressed dissatisfaction that the product was not complete. Id . On May 3, 2010, Simulados gave Photon a deadline of June 3, 2010 to correct an additional 17 errors. On May 17, 2010, Photon responded to Simulados' notice, providing a link to incomplete software. Id. at ¶ 18. To date, Photon has not provided Simulados with fully functioning web application. See Dkt. No. 44 at ¶¶ 12-16.

Simulados filed a complaint on May 11, 2012 in the District Court for the Southern District of Texas. See Docket No. 1. The case was transferred to this Court on August 20, 2012, based on the choice-of-law provision in the Contract. See Docket Item No. 16. Simulados filed an Amended Complaint ("AC") on December 11, 2012. Dkt. No. 44. On December 24, 2012, Photon filed a Motion to Dismiss. Dkt. No. 46. The parties engaged in mediation, but failed to reach an agreement regarding arbitration. See Docket Item No. 63. Photon re-noticed its Motion on July 23, 213. Dkt. No. 67. On October 22, 2013, Simulados filed its Motion to Compel Discovery. Dkt. No. 72. The Motion to Compel was denied, Dkt. No. 73, and instead after a Motion to Extend Discovery, Dkt. No. 74, the Court amended the Case Management Order to extend discovery deadlines of February 26, 2014. Dkt. No. 81. On May 1, 2014, the Court Granted Photon's Motion to Dismiss as to Simulados' UCC and Texas DTPA claims. Dkt. No. 83. On that same day the Court again amended the Case Management Order. Dkt. No. 84. Pursuant to that amended Case Management Order, discovery cut off was set for August 29, 2014.

On May 30, 2014, Simulados filed its Second Amended Complaint ("SAC"). Dkt. No. 92. On June 12, 2014, the Court ordered referral of the case to Early Neutral Evaluation. Dkt. No. 94. On June 16, 2014, Photon filed its Third Motion to Dismiss, which is presently before the Court, with a hearing date of September 19, 2014. Dkt. No. 95. A stipulation with proposed order was filed by the parties extending the Case Management Order. Dkt. No. 101. On August 25, 2014, the Court Granted Simulados' stipulation amending Case Management Order. Dkt. No. 104. The parties engaged in Early Neutral Evaluation, but failed to reach an agreement regarding arbitration. Dkt. No. 105. Pursuant to Civil Local Rule 7-1(b), the Court took the motion under submission without oral argument.

II. Legal Standard

A. Motion to Dismiss

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient specificity to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). "Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). Moreover, the factual allegations "must be enough to raise a right to relief above the speculative level" such that the claim "is plausible on its face." Twombly, 550 U.S. at 556-57.

When deciding whether to grant a motion to dismiss, the court generally "may not consider any material beyond the pleadings." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir. 1990). The court must generally accept as true all "well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1988). However, the court may consider material submitted as part of the complaint or relied upon in the complaint, and may also consider material subject to judicial notice. See Lee v. City of Los Angeles, 250 F.3d 668, 688-69 (9th Cir. 2001). "[M]aterial which is properly submitted as part of the complaint may be considered." Twombly, 550 U.S. at 555. Furthermore, "courts are not bound to accept as true a legal conclusion couched as a factual allegation." Id.

Fraud-based claims are subject to heightened pleading requirement under Federal Rule of Civil Procedure 9(b). In that regard, a plaintiff alleging fraud "must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). The allegations must be "specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). To that end, the allegations must contain "an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). Averments of fraud must be accompanied by the "who, what, when, where, and how" of the misconduct charged. Vess v. Ciba Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). Additionally, "the plaintiff must plead facts explaining why the statement was false when it was made." Smith v. Allstate Ins. Co., 160 F.Supp.2d 1150, 1152 (S.D. Cal. 2001) (citation omitted).

B. Motion to Strike

Federal Rule of Civil Procedure 12(f) permits a court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Such motions are disfavored, thus a motion to strike will generally not be granted unless it is clear the matter to be stricken could not have any possible bearing on the subject matter of the litigation. See RDF Media Ltd. v. Fox Broad. Co., 372 F.Supp.2d 556, 566 (C.D. Cal. 2005). When the court considers a motion to strike, it "must view the pleading in a light most favorable to the pleading party." In re, Inc. Sec. Litig., 114 F.Supp.2d ...

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