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Integrated Storage Consulting Services, Inc. v. NetApp, Inc.

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

July 7, 2016

INTEGRATED STORAGE CONSULTING SERVICES, INC., Plaintiff,
v.
NETAPP, INC., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS SECOND AMENDED COMPLAINT RE: DKT. NO. 99

          EDWARD J. DAVILA United States District Judge

         Presently before the Court is NetApp, Inc.'s ("Defendant" or "NetApp") Motion to Dismiss Integrated Storage Consulting Services, Inc.'s ("Plaintiff" or "ISCSI") Second Amended Complaint. The Court found this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and vacated the hearing. The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Having fully reviewed the parties' briefing, and for the following reasons, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion.

         I. BACKGROUND

         A. Factual Background

         The Court's orders on two previous motions to dismiss have discussed the background of this case in some detail. See Dkt. Nos. 29, 81. The Court therefore provides only a summary of the relevant facts here.

         Defendant NetApp, a Delaware corporation with its principal place of business in California, manufactures and sells a range of storage and data management equipment. Dkt. No. 94, Second Amended Complaint ("SAC"), ¶¶s 4, 9-10. Although Defendant does work directly with end users to promote sales of NetApp products, Defendant typically sells its products through resellers. Id., ¶ 11. Plaintiff ISCSI, a Colorado corporation with its principal place of business in Colorado, became one of these resellers in 2004. Id., ¶¶s 3-4, 12-13. Plaintiff and Defendant signed a series of Reseller Authorization Agreements ("the Agreements") to capture the terms of their arrangement. Id., ¶ 13.

         Under the Agreements, a reseller could register new sales opportunities through NetApp deal registration programs if the reseller satisfied certain requirements, including demonstrating that it would make the use of a NetApp product central to the proposed deal. Id., ¶¶s 27-28. According to Plaintiff, once a reseller registered an opportunity, NetApp promised to work exclusively with that reseller in connection with that customer, including providing special pricing. Id., ¶¶s 30-33. Resellers often had to invest significant time and energy into acquiring customers, and the registration system protected them from price competition from other resellers. Id., ¶ 36. In addition, from time to time NetApp and a reseller would enter into an Account Teaming Agreement that would further describe NetApp's and the reseller's obligations for a registered opportunity. Id., ¶ 37.

         From 2008 to 2011, Plaintiff put substantial work into selling NetApp products to four customers: CaridianBCT, ST Micro, Tri-State, and Xilinx. Id., ¶ 40. Defendant granted Plaintiff deal registrations for all four of these customers. Id., ¶ 34. In late 2009, Plaintiff and Defendant entered into a Teaming Agreement to provide services to CaridianBCT (the "CaridianBCT Teaming Agreement"), in which Defendant promised not to jeopardize Plaintiff's "Trusted Advisor" status for the CaridianBCT account. Id., ¶¶s 37-38. Plaintiff and Defendant entered into a similar Teaming Agreement for Xilinx (the "Xilinx Teaming Agreement"). Id., ¶ 39.

         Plaintiff also alleges that Defendant's representatives repeatedly encouraged Plaintiff to continue to sign up new customers. Id., ¶ 54. Defendant allegedly made a number of assurances to Plaintiff about Defendant's commitment to Plaintiff, and these caused Plaintiff to continue its efforts to sell NetApp products to its customers. Id., ¶¶s 55-56.

         Nevertheless, Defendant later granted other resellers deal registrations for CaridianBCT and ST Micro and encouraged Tri-State and Xilinx to work with other partners. Id., ¶¶s 46-51, 85. For example, Defendant promised CaridianBCT, a customer that Plaintiff had procured, that it would get the same pricing if it chose a different reseller, leading it to opt for Plaintiff's competitor Trace3. Id., ¶¶s 59-60. Plaintiff alleges that Defendant's behavior effectively terminated Plaintiff's relationships with its customers and destroyed Plaintiff's resale business, causing over $10 million in damages. Id., ¶¶s 51, 85. On February 1, 2013, Defendant notified Plaintiff that it did not plan to renew Plaintiff's Reseller Authorization Agreement. Id., ¶ 86.

         B. Procedural Background

         On December 7, 2012, Plaintiff filed the original Complaint in this action, alleging 11 claims for relief. Dkt. No. 1. On July 31, 2013, the Court granted in part and denied in part Defendant's motion to dismiss. Dkt. No. 39. Specifically, the Court denied the motion with respect to a claim for breach of the CaridianBCT Teaming Agreement and a claim for a violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200 et seq. Id. at 11-13, 21. The Court dismissed the remaining nine claims, but with leave to amend. Id. at 7-10, 13-22.

         On August 15, 2013, Plaintiff filed its First Amended Complaint, which alleged 21 claims for relief. Dkt. No. 42. On July 9, 2014, the Court issued an Order Granting in Part and Denying in Part NetApp's Motion to Dismiss ("Order on FAC"). Dkt. No. 81. In the Order, the Court dismissed Plaintiff's new claims, including a claim for a breach of the Xilinx Teaming Agreement, without prejudice but without leave to amend because Plaintiff had not first sought leave to amend to add these claims. Id. at 9-10. The Court dismissed without prejudice and with leave to amend four of Plaintiff's claims: (1) fraud, (2) interference with contractual relations regarding Xilinx, (3) intentional interference with prospective economic relations as to all four customers; and (4) negligent interference with prospective economic relations as to all four customers. Id. at 23. However, the Court denied the motion with respect to three claims: (1) a claim for breach of the CaridianBCT Teaming Agreement; (2) a claim for a violation of the UCL, and (3) a claim for intentional interference with contractual relations related to a contract between Plaintiff and Tri-State. Id. The Order did not include a deadline for filing an amended complaint. Id.

         On October 10, 2014, Plaintiff moved for leave to file a Second Amended Complaint including all three surviving claims, amended versions of all four claims for which the Court had granted leave to amend, and the claim for breach of the Xilinx Teaming Agreement. Dkt. No. 86. On December 3, 2014, the Court issued an Order Denying Plaintiff's Motion for Leave to Amend ("Order Denying Leave to Amend") because Plaintiff had not shown diligence in bringing the claim about the Xilinx Teaming Agreement sooner. Dkt. No. 92.

         On December 22, 2014, Plaintiff filed a Second Amended Complaint ("SAC") containing seven causes of action: (1) a breach of the CaridianBCT Teaming Agreement; (2) fraud; (3) intentional interference with a contract between Plaintiff and Tri-State; (4) intentional interference with a contract between Plaintiff and Xilinx; (5) intentional interference with prospective economic relations as to all four customers; (6) negligent interference with prospective economic relations as to all four customers; and (7) violation of the UCL. Dkt. No. 94. On January 22, 2015, Defendant filed the instant motion to dismiss the SAC in its entirety because the Court had denied Plaintiff's motion for leave to amend or, in the alternative, to dismiss the second, fourth, fifth, and sixth causes of action for failure to state a claim. Dkt. No. 99. The Court found this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and vacated the hearing.

         II. LEGAL STANDARD

         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 quotation marks omitted). Although particular detail is not generally necessary, 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." Id. at 556-57. 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 of a claim under Rule 12(b)(6) may be based on a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); see Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).

         At the motion to dismiss stage, the court must read and construe the complaint in the light most favorable to the non-moving party. Autotel v. Nev. Bell Tel. Co., 697 F.3d 846, 850 (9th Cir. 2012) (citation omitted). 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). 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, 688-89 (9th Cir. 2001).

         The court must accept as true all "well-pleaded factual allegations" in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). However, "courts are not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555. Nor is a complaint sufficient if it merely "tenders naked assertions devoid of further factual enhancement." Iqbal, 556 U.S. at 678 (internal quotation marks omitted). In other words, "to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively." Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) (quoting Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)). "In all cases, evaluating a complaint's plausibility is a ‘context-specific' endeavor that requires courts to ‘draw on . . . judicial experience and common sense.'" Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014) (alteration in original) (quoting Eclectic Props. E., 751 F.3d at 996).

         III. ...


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