Opinion
19-CV-11532 (PGG) (KHP)
04-07-2022
LOCUS TECHNOLOGIES, Plaintiff, v. HONEYWELL INTERNATIONAL, INC., Defendant.
Alexander Wilson Barnett-Howell, John Giardino, Michelman & Robinson, LLP, New York, NY, for Plaintiff. Christine M. Haaker, Thompson Hine LLP (Columbus), Columbus, OH, Emily Joy Mathieu, Thompson Hine LLP (NYC), New York, NY, Sean Patrick McCormick. Thompson Hine LLP, Miamisburg, OH, for Defendant.
Alexander Wilson Barnett-Howell, John Giardino, Michelman & Robinson, LLP, New York, NY, for Plaintiff.
Christine M. Haaker, Thompson Hine LLP (Columbus), Columbus, OH, Emily Joy Mathieu, Thompson Hine LLP (NYC), New York, NY, Sean Patrick McCormick. Thompson Hine LLP, Miamisburg, OH, for Defendant.
REPORT & RECOMMENDATION ON DEFENDANT'S MOTION TO DISMISS
KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE
*1 TO: HON. PAUL G. GARDEPHE, United States District Judge
Plaintiff Locus Technologies (“Locus”) filed suit against Defendant Honeywell International Inc. (“Honeywell”) on December 17, 2019 alleging three causes of action arising out of the parties' almost 20-year business relationship. Locus alleges that Honeywell breached various contractual agreements, including a licensing agreement and an agreement entered into for the joint development of new software. Locus also brings a claim for accounts stated, stemming from unpaid invoices issued pursuant to those various agreements, and for misappropriation of its trade secrets under the Delaware Uniform Trade Secret Act (“DUTSA”). Honeywell has moved to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted.
For the reasons that follow, I recommend granting Honeywell's motion as to the RIMS Invoices under the account stated claim, and denying the remainder of the motion.
The statement of facts is taken from the allegations in the Complaint and those documents incorporated by reference and are assumed true for purposes of the Court's consideration of this motion.
Locus is a technology company, founded and located in California, which develops software related to environmental governmental regulations that allows its users, such as property owners and site managers, to collect relevant data and better navigate those regulations. (Compl. ¶ 2, ECF No. 1.) Honeywell is an international conglomerate, incorporated in Delaware and headquartered in North Carolina, that operates across several technological industries. On June 1, 2003, Locus and Honeywell entered into a Software License Agreement (the “License Agreement”) through which Honeywell acquired the ability to license and use several of Locus's software products. (See generally Ex. 1 to Compl., ECF No. 1-1 (hereinafter “License Agreement”).) Exhibit B to the License Agreement, entitled “Scope of Work, Services and Maintenance” specified the scope of Locus's obligations with respect to its products, such as Honeywell-specific modifications to the products, training and technical support. (License Agreement Ex. B at Task 1, ECF No. 1-1.) The products included Locus's Environmental Information Management module (“EIM”) and LocusFocus Portal (“ePortal”). EIM, one of Locus's first software products, is a “cloud-based ... data management and compliance system for the environmental industry.” (Compl. ¶ 22.) Locus's ePortal served as a “web portal for multiple Honeywell sites” including functions such as document storage and management, a schedule management tool, and “other collaborative applications.” (License Agreement Ex. B at Task 1.) The License Agreement was set to run for an initial term of three years and then automatically renew for four, one-year terms; thereafter it was to automatically renew indefinitely for one-year terms. (License Agreement § 3.2.) Under the License Agreement, Honeywell could prevent the renewal of a new term by providing notice at least 60 days prior to the end of any term. Honeywell also had the unilateral right to terminate the contract for convenience upon 60-days' notice to Locus. (Id. § 6.3.) Both parties maintained the right to terminate the License Agreement for cause in the event of the other's material default if timely notice was provided and the defaulting party failed to adequately cure the default within 30 days. (Id. § 6.2.) Under the License Agreement, Locus was to bill Honeywell on a monthly or bi-monthly basis with payment due to Locus within 60 days of the invoice date. (License Agreement Ex. E § IV.) All unpaid invoices were then subject to interest at a rate of 1.5% per month beginning on the first late day. Finally, as relevant to this litigation, Section 12.5 of the License Agreement provided that it could only be amended or modified through signed writings and that the terms of the License Agreement were to prevail over any potentially conflicting terms in any other writing, including purchase orders, provided that the other writing did not expressly incorporate the License Agreement. (License Agreement § 12.5 (“No amendments or modifications shall be effective unless in writing signed by authorized representatives of both parties.”)
*2 The parties operated under the License Agreement until 2013, seemingly in heavy reliance on the indefinite one-year automatic renewals. (Compl. ¶ 34 (“The License Agreement remained in full force and effect from its inception through 2012 ....”).) Then, on October 16, 2012, the parties signed an order form (hereinafter, the “Order Form”), changing the terms of the EIM and ePortal subscriptions for 2013, 2014, and 2015; Locus alleges the Order Form operated as “an amendment of the License Agreement.” (Id. ¶ 43; see also Ex. 2 to Compl., ECF No. 1-2 (hereinafter, “Order Form”).) While the term “amendment” is absent from the Order Form, the parties incorporated the License Agreement by reference except as to those terms modified in the Order Form, which included modifications to the pricing structure and overall cost, the cancellation provisions, and the addition of a provision regarding a termination fee. Specifically, the Order Form converted the line-item pricing table in Exhibit C of the License Agreement to a fixed annual price for year-long subscriptions to EIM and ePortal. The Order Form's effective date was January 1, 2013 and provided for a “Contract End Date” of December 31, 2015 with no provisions or terms for the renewal of the Order Form. (See Order Form at 1-2.) The billing period also changed from monthly or bi-monthly to annual, with payment due 90 days from the invoice date, as opposed to 60 days under the License Agreement. (Id. at 1.) The Order Form provided for a termination fee based on the volume of records and data provided by Honeywell that Locus would have to transfer back to it. (Id. at 2.) Finally, and perhaps most important to this litigation, the subscriptions to the EIM and ePortal products became “noncancelable before their annual End Date, ” which was the last day of a given year during the Order Form's life. (Id. at 2.) Although the parties never entered into any written extension of the term of the Order Form, they continued to do business under the pricing and billing terms of the Order Form through 2018, renewing on an annual basis. (Compl. ¶¶ 54-55.)
On June 26, 2018, Honeywell terminated its ePortal subscription-it did not seek to terminate the EIM subscription at this time. (Id. ¶¶ 100-02.) Locus asserts that while Honeywell was free to terminate its ePortal subscription, it nonetheless remained responsible for paying the full-year subscription, as any cancellation did not take effect until the following year. Honeywell, in its motion, asserts that it was free to terminate its ePortal subscription on 60-days' notice per the terms of the Licensing Agreement. On October 24, 2018, Honeywell told Locus that it planned to issue a request for proposal (“RFP”) to replace its need for Locus's EIM software. (Id. ¶ 116.) At the same time, Honeywell asked to switch the billing period for the EIM subscription from annual to quarterly, starting with its 2019 subscriptions. (Id. ¶ 117.) Locus agreed to change from annual to bi-annual billing for 2019. (Id.) While the fact that the parties changed to bi-annual billing for 2019 is not disputed, the parties dispute whether this change simply divided the annual billing period into two invoices while maintaining the yearlong non-cancellable nature of the subscription (as contemplated by the Order Form), or rather, whether this division of the billing period converted the annual subscription to a six-month subscription.
On October 25, 2018, Locus issued an invoice to Honeywell for 2019 EIM services EIM totaling $348,855 (the “EIM F2019 First Half Invoice). This invoice covered the EIM subscription for the first six months of 2019 and contained a 90-day payment term. Honeywell paid this invoice on February 19, 2019, which was 117 days after the invoice date. (Id.)
Although the invoice is not attached to the pleadings, it is incorporated by reference and provided by Honeywell in its motion papers. (See Ex. D to Decl. of William J. Hague, dated Sept. 13, 2020, ECF Nos. 39-4.)
On December 20, 2018, Honeywell issued an RFP to solicit bids from other companies to replace Locus's EIM software, including from Locus's “major competitors.” (Id. ¶ 118.) The RFP disclosed Locus's pricing structure under the Order Form, the “high-level data flow” of Locus's EIM software, the “software setup” that disclosed the “parameters and methods” of Locus's products, “software outputs” of the products, and “data dumps” containing Locus's products' “internal tools and processes.” (Id. ¶ 119.) Locus alleges that the RFP's contents were not standard practice in the industry, revealed proprietary information, and also contained some falsehoods about Locus's products. (Id. ¶ 120-21.) Locus attempted to talk with Honeywell to remedy the situation, but Honeywell rebuffed Locus. (Id. ¶ 121-23.)
On April 3, 2019, Locus issued an invoice for the EIM subscription for the second half of 2019 (“EIM 2019 Second Half Invoice”), totaling $359,321, which Honeywell has never paid. (Id. ¶ 110.) On May 2, 2019, Honeywell gave Locus notice of termination for the EIM subscription purporting to cancel it per the 60-day notice of cancellation for convenience provision in the Licensing Agreement. (Id. ¶ 102; see also License Agreement § 6.3.) However, Honeywell continued to use the product despite having only paid for six months of the subscription, prompting Locus to remove Honeywell's access on August 20, 2019. (Compl. ¶ 103.) Following receipt of the termination notice, on May 15, 2019 Locus sent Honeywell Invoice No. 983297 (“EIM Termination Fee Invoice”), totaling $185,702.40, which represented the data transfer fee under the Order Form. (Id. ¶ 110, 114.) On June 5, 2019, Locus submitted another invoice (“ePortal Invoice”) for ePortal charges in the amount of $171,654.30. (Id. ¶ 110.) Although the Complaint does not specify what these ePortal charges were for, Honeywell attached the referenced invoice to its motion papers, which indicates it was for August through December 2018, or the period of 2018 following the ePortal termination notice. (See Ex. A to Decl. of John Morris, dated Sept. 15, 2020, ECF No. 39-1.) Honeywell refused to pay these three invoices (collectively, along with the EIM 2019 First Half Invoice, the “EIM/ePortal Invoices”), claiming the Order Form was not in effect in 2018 or 2019 and that the payments were not due under the terms of the License Agreement because it properly terminated both the EIM and ePortal subscriptions on 60-days' notice.
*3 In addition to providing the EIM and ePortal software, Locus had been developing software for Honeywell, known as the Remediation Information Management System (“RIMS”). This project was governed by a Master Services License Agreement for RIMS (“MSA”), dated January 15, 2015, and a Statement of Work (“SOW”), dated May 1, 2015 (collectively, the “RIMS Agreement”). (Compl. ¶¶ 56-59.) The RIMS Agreement provided, in relevant part, that Honeywell could alter the scope of the SOW through a specified change order process, which, if utilized, required Honeywell to make equitable adjustments to the price and delivery dates outlined in the SOW. (Id. ¶¶ 62-63.) Under the RIMS Agreement, Locus also could charge Honeywell additional costs on a time and material basis for “extra time and resources beyond the expectations established by the original project scope” as set forth in the SOW. (Ex. 3 to Compl. at § 2.1, ECF No. 1-3 (hereinafter, “MSA”); Ex. 4 to Compl. at “Project Plan, ” ECF No. 1-4 (hereinafter, “SOW”).) Honeywell was required to pay Locus's RIMS Agreement invoices during Honeywell's first payment cycle following the 105th day after receipt of an invoice. (MSA § 5.4.) If Honeywell disputed any invoice, it was entitled to withhold the disputed amount, but required to pay the remaining undisputed balance and then use best efforts to settle the dispute in good faith before seeking resolution elsewhere. (Id. § 14.11.) Honeywell ended up disputing certain invoices for extra time and costs incurred on the project (the “RIMS Invoices”). Locus attempted to meet with Honeywell at least ten times to come to a resolution, but Honeywell denied or ignored its requests each time. (Compl. ¶ 72.) On November 15, 2019, Honeywell terminated the RIMS Agreement. (Id. ¶ 108.) It did not pay the outstanding RIMS Invoices it disputed. (Id. ¶ 97.)
Finally, in early 2018, while Locus was working on the RIMS application's development, Honeywell became interested in acquiring Locus. (Id. ¶ 76.) To further explore the acquisition, on March 1, 2018, the parties entered into a non-disclosure agreement (“NDA”) that permitted Honeywell to have access to Locus's confidential engineering and financial information. (Id. ¶ 77; Ex. E to Compl., ECF No. 1-5 (hereinafter, “NDA”).) The NDA also required Honeywell to protect all of Locus's confidential information that was disclosed pursuant to the NDA, but did not cover any prior disclosures. (Id. ¶ 78; NDA at 1.)
LEGAL STANDARD ON A MOTION TO DISMISS
Under Federal Rule of Civil Procedure 12(b)(6), the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. See, e.g., Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam); Littlejohn v. City of New York, 795 F.3d 297, 306-07 (2d Cir. 2015). To survive a motion to dismiss, the complaint must contain “sufficient factual matter ... to ‘state a claim to relief that is plausible on its face.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). While detailed factual allegations are not required, the complaint must contain more than mere “labels and conclusions” or a “formulaic recitation of the elements of a cause of action ....” Id. (cleaned up). “[N]aked assertions devoid of further factual enhancement” are insufficient to survive a motion to dismiss. Id. (cleaned up). The “plausibility standard” asks for “more than a sheer possibility that a defendant has acted unlawfully.” Id.
The Court may consider not only the complaint, but also “other documents related to plaintiff's claim, even if they are not attached to the complaint, so long as those filings are either incorporated by reference or are integral to and solely relied upon by the complaint.” Littlejohn, 795 F.3d at 305 n.3 (cleaned up). Nonetheless, a court may review documents appended by a moving party that are not incorporated or integral to the complaint so long as it does “rely on them or use them as a basis for its decision.” See Hayden v. Cty. of Nassau, 180 F.3d 42, 54 (2d Cir. 1999); Mirage Ent., Inc. v. FEG Entretenimientos S.A., 326 F.Supp.3d 26, 32 (S.D.N.Y. 2018).
DISCUSSION
As noted above, Locus brings claims for breach of contract, account stated, and misappropriation of trade secrets under DUTSA. Honeywell seeks dismissal of all three causes of action on the grounds that: (1) it did not commit a breach in failing to pay the EIM/ePortal Invoices because the License Agreement terms as originally drafted applied, not the terms of the Order Form that expired in 2015, and it timely cancelled its subscriptions under the License Agreement's notice provisions; (2) it did not breach the RIMS Agreement in failing to pay the RIMS Invoices because the parties reached a private settlement regarding those; (3) the account stated claim is duplicative of the breach of contract claims, and as such, cannot be maintained as a matter of law; and (4) the limitation of liability provision in the License Agreement bars Locus's misappropriation of trade secrets claim under DUTSA, and even if it does not bar the claim, Locus waived its claim by publicly filing the Order Form containing the purported trade secrets.
A. Choice of Law
*4 In this diversity action, New York choice of law principles apply. See GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 382 (2d Cir. 2006) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941)). New York honors contractual choice of law provisions so long as the parties to the contract have sufficient contacts with the state selected. See Int'l Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996). If a corporate party to a contract is incorporated in the state whose law is selected to govern the contract, New York deems that contact to be sufficient and will honor the choice of law provision in the contract. See Hawes Office Sys., Inc. v. Wang Labs., Inc., 537 F.Supp. 939, 942 (E.D.N.Y. 1982) (honoring a Massachusetts choice of law provision where defendant was a Massachusetts company, noting this to be a “strong connection”).
The License Agreement provides that any dispute “arising under or relating to” it is controlled by Delaware law, and that the parties consent to the non-exclusive jurisdiction of all courts in Delaware. (License Agreement §§ 12.11, 12.12.) The Order Form is governed by the License Agreement, and therefore, shares the same governing law and venue provisions. (Order Form at 2.) Because Honeywell is a Delaware corporation, there are sufficient contacts with Delaware. Hence, this Court will honor the choice of law provision and apply Delaware law to the disputes concerning the EIM/ePortal Invoices that arise out of the License Agreement and Order Form.
The RIMS Agreement, on the other hand, provides that “construction, interpretation and performance ... and all transactions under” the agreement are governed by New York law and that New York courts, both state and federal, have exclusive jurisdiction over any dispute. (MSA § 14.15.) Here, there is no conflict of law issue because a court sitting in diversity normally applies the law of the forum, which is the same law the parties chose. Accordingly, New York law will apply to the disputes arising out of the RIMS Agreement. See GlobalNet Financial.Com, 449 F.3d at 382.
B. First Cause of Action - Breach of Contract
Locus's breach of contract claims are based on untimely payment or non-payment of the four EIM/ePortal Invoices, which it asserts violated the terms of the Order Form, and the non-payment of the RIMS Invoices in violation of the terms of the RIMS Agreement. Honeywell's main argument in support of its motion to dismiss the claim pertaining to the EIM/ePortal Invoices is that the Order Form's term expired after 2015, at which point the License Agreement and its terms of cancellation applied. Because it contends it provided appropriate notice under the License Agreement, its termination of EIM was not a breach and it had no obligation to pay for the remainder of the applicable calendar year. With respect to the RIMS Invoices dispute, Honeywell argues that Locus released those claims pursuant to a private resolution reached between the parties. I address these arguments in turn below.
1. Which Contract Applied After December 31, 2015?
The key issue in this case is whether the terms of the Order Form, including its non-cancellation, termination fee, and payment terms, or the original License Agreement governed the parties' relationship at the time Honeywell terminated the ePortal and EIM services. Although the Order Form states that it expired on December 31, 2015, Locus argues the parties continued to operate under its terms for three more years as evidenced by continuation of its payment and pricing terms. Honeywell argues that provisions in the License Agreement and Order Form, including the provision prohibiting any amendments not in writing to the License Agreement (Section 12.5), the Order Form's express end date, and the License Agreement's auto renewal provision (Section 3.2) preclude Locus's theory of liability as a matter of law.
*5 Under Delaware law, when a contract is at issue, a court will construe “clear and unambiguous” language with its ordinary meaning to establish the parties' intent, but, when faced with ambiguous contract language, may only accept a construction of ambiguous language as a matter of law if it is the only reasonable construction. See MicroStrategy Inc. v. Acacia Research Corp., No. 5735 (VCP), 2010 WL 5550455, at *5 (Del. Ch. Dec. 30, 2010). Thus, in the face of ambiguity, dismissal of a contract claim on a motion to dismiss is appropriate only when the contractual interpretation or construction offered by the moving party is the only reasonable construction of the contract as a matter of law and plaintiff's offered construction is not reasonable. See Tucker v. Chase Bank USA, N.A., 399 F.Supp.3d 105, 112 (S.D.N.Y. 2019) (quoting Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine Partners 2006 L.P., 93 A.3d 1203, 1205 (Del. 2014)).
I turn first to the issue of whether License Agreement § 12.5 precludes a finding that the parties' course of conduct extended the terms of the Order Form. Delaware law permits oral modification of contracts as a general rule. See Reeder v. Sanford School, Inc., 397 A.2d 139, 141 (Del. 1979). However, Delaware courts will not enforce provisions prohibiting non-written amendments if the proponent of such an amendment can show that the parties nonetheless entered into it with sufficient “specificity and directness as to leave no doubt of the intention of the parties to change what they previously solemnized by a formal document.” See id.; see also Continental Ins. Co. v. Rutledge & Co., 750 A.2d 1219, 1230 (Del. Ch. 2000) (cited by Honeywell for proposition that Delaware courts are averse to oral modifications). Delaware courts also have refused to enforce no amendment except by writing provisions in the face of evidence of a lengthy course of conduct suggesting that the parties did in fact agree to change the terms of their relationship through their conduct. See Pepsi-Cola Bottling Co. of Asbury Park v. Pepsico, Inc., 297 A.2d 28, 33 (Del. 1972) (“The effect of the course of conduct engaged in for a period in excess of 15 years by Pepsi and the plaintiffs indicates clearly that to all intents and purposes the provisions of Paragraphs 10 of the appointments of the plaintiffs were emasculated and the price-fixing policy now followed by Pepsi was agreed to by the plaintiffs.”). Additionally, Delaware courts have found that notwithstanding an express termination date of a contract, parties extended the terms of a contract by a continuing course of conduct. See Millcreek Shopping Ctr., LLC v. Jenner Enterprises, Inc., No. N13C-11-145 (PRW), 2016 WL 3752382, at *7-8 (Del. Super. Ct. June 30, 2016) (holding that in the absence of express termination before the renewal period lapsed, parties to a commercial lease agreement were free to, and did, extend the lease through their course of conduct after the contracted for date of renewal had passed).
At the motion to dismiss stage, Locus need only show that its allegations are plausible and that its interpretation of the contract is reasonable to defeat the motion. See Caspian Alpha Long Credit Fund, 93 A.3d at 1205 (dismissal on a motion to dismiss is only appropriate if the moving party's interpretation of the contract is the only reasonable interpretation). In similar cases, courts have denied motions to dismiss where the plaintiff raised facts sufficient to render plausible that a course of conduct modified a contract's terms notwithstanding its no amendment except by writing provision. See, e.g., Good v. Moyer, No. N12C-03-033 (RRC), 2012 WL 4857367, at *6 (Del. Super. Ct. Oct. 10, 2012) (“Despite paragraph 9.9's provision proscribing oral modifications, Plaintiff's assertion that EPX subsequently modified the written agreement by providing part performance is sufficient conceivably to demonstrate a modification based on conduct.”).
*6 Under the Order Form, Honeywell received preferential pricing and billing terms in exchange for guaranteeing a year's worth of business. (Compl. ¶ 51.) Specifically, Honeywell agreed that the “[s]ubscriptions are noncancelable before their annual End Date” and agreed to pay a data-transfer fee upon termination. (Id. ¶ 50; Order Form at 2). Locus pleads that the parties continued the pricing and billing terms of the Order Form through the end of 2018 because Locus continued to provide the same pricing and billing benefits to Honeywell and Honeywell continued to renew on an annual basis. (Compl. ¶¶ 54-55.) Thus, it argues, this three-year course of conduct following the end of the Order Form's explicit term demonstrates that the Order Form continued in effect, as the cancellation terms and data transfer fee provision were the consideration for the beneficial pricing Honeywell received. With respect to 2019, Locus alleges that it continued to provide the same preferential pricing provided under the Order Form and merely agreed to split the annual billing into six-month billing periods, but that because the preferential pricing was still in place, the Order Form cancellation provisions and termination fee provision applied. (Id. ¶¶ 54, 55, 117.)
Honeywell argues that its provision of notice of termination of ePortal for convenience pursuant to Section 6.3 of the License Agreement indicated that it was operating under the terms of the License Agreement, not the Order Form. Honeywell disputes that it continued to benefit from the reduced costs for the subscriptions in 2016, 2017, 2018, and 2019; however, the Court accepts Plaintiff's allegations about pricing as true for purposes of this motion. Additionally, in its motion papers, Honeywell provided an invoice from Locus, dated June 29, 2018, describing the invoiced amount as “[o]ne month of ePortal” in one section of the invoice, yet describing the same amount as being for “ePortal Annual License and Subscripti[on], ” elsewhere. (Ex. B to Morris Decl., ECF No. 39-2.) Similarly, Honeywell provided its own purchase order, dated November 12, 2018, that describes the amount paid as “EIM SUBSCRIPTION & ANNUAL L.” (Ex. E to Morris Decl., ECF No. 39-5.) Neither party contests that after 2015, the EIM and ePortal subscriptions were not billed on a monthly or bi-monthly basis, as per License Agreement's terms.
Honeywell argues that it did not continue to benefit from the reduced pricing in the Order Form because its ePortal costs increased 40% when annualizing a 2018 bill for ePortal and 13% when annualizing the EIM 2019 First Half Invoice. But Honeywell does not argue that the parties reverted to the License Agreement following the expiration of the Order Form, or compare these increased costs to the costs Honeywell had under the License Agreement. More facts will no doubt be developed in discovery on this issue.
Given the facts pleaded about the course of conduct, including that in 2019 Honeywell continued to benefit from preferential pricing and the parties had not returned to the billing structure of the License Agreement, as well as the descriptions of the subscriptions as annual in the Complaint, invoices, and purchase orders in 2018, Locus has pleaded sufficient facts to support the plausibility of its theory that the terms of the Order Form were extended through a course of conduct notwithstanding the no amendments except in writing clause of the License Agreement or the Order Form's provision stating that it expired at the end of 2015. Under Delaware law, whether a party has waived a provision that a contract cannot be modified except in writing through a course of conduct raises factual issues that are not appropriate to resolve at this stage of the litigation. See Hugo Neu Corp. v. Freeman Family LLC, No. 17-cv-0373, 2019 WL 11270461 (D.N.J Oct. 9, 2019) (denying motion for summary judgment because of factual issues about course of conduct); Weyerhaeuser Co. v. Domtar Corp., 204 F.Supp.3d 731, 740 (D. Del. 2016) (quoting Mergenthaler v. Hollingsworth Oil Co. Inc., No. 90C-12-85, 1995 WL 108883, at *2 (Del. Super. Ct. Feb 22, 1994) (“The question of waiver is normally a jury question, unless the facts are undisputed and give rise to only one reasonable inference.”); AeroGlobal Capital Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 444-45 (Del. 2005) (reversing grant of summary judgment; jury must determine whether under circumstances there was a waiver of a contract's timing requirements based on course of conduct); PepsiCo, Inc., 297 A.2d at 33 (Del. 1972) (affirming decision of trial court that payment of invoices based on prices at odds with the terms of the contract with notices regarding the price changes was sufficient to show parties were not acting in conformity with the prior contract terms; “the acceptance by the plaintiffs of the periodic price changes made by [defendant] was evidence of acquiescence.”); Viking Pump Inc. v. Liberty Mut. Ins. Co., No. 1465-VCS, 2007 WL 1207107, at *28 (Del Ch. Apr. 2, 2007) (“[N]on-waiver clauses are not iron-clad protections that preclude courts from holding [parties] responsible for their post-contracting behavior.”); see also Weyerhaeuser Co., 204 F.Supp.3d at 738 (D. Del. 2016) (“Delaware law allows a no oral waiver provision to be waived by oral statements or conduct”); In re Estate of Dean, No. 7430-ML, 2014 WL 3221222, at *2 (Del. Ch. June 30, 2014) (waiver may occur expressly or “implied[ly] by conduct indicating an intent to abandon a known right”).,
Honeywell's reliance on Anchor Motor Freight v. Ciabattoni does not require a contrary result, as the proposition for which Honeywell cites this case stands for no more than a binding legal contract will not form unless the parties entering into it have the mutual intent to be bound. See 716 A.2d 154, 156 (Del. 1998). Ciabattoni was not concerned with non-written or course of conduct amendments to a contract in the face of a no non-written amendment provision, but rather, whether the parties ever entered into a binding agreement in the first instance. Id.
Locus cites to several New York cases that, although not controlling, also support denial of the motion on this claim. See, e.g., Service Master Residential/Com. Servs., L.P. v. Westchester Cleaning Servs., Inc., No. 01-cv-2229 (JSM), 2001 WL 396520, at *2 (S.D.N.Y. Apr. 19, 2001) (non-compliance with renewal conditions in franchise agreement did not prevent renewal of the agreement because the parties continued to operate as if the agreement did not expire); Cinefot Int'l Corp. v. Hudson Photographic Indus., 13 N.Y.2d 249, 253 (1963) (reversing dismissal of complaint that sufficiently alleged renewal by conduct given “the implication of an agreed renewal from the fact of continuance beyond a year.... The use of the fact of continuance to prove an intent to prolong the relationship is one of justice and common sense.”).
*7 The cases Honeywell cites do not support dismissal at this stage of the action as most were decided in later postures than the pleading stage, not all the cases contain no non-written amendment clauses, and they are factually distinguishable. For example, in Reeder, plaintiff, who was a teacher, athletic director, and football coach, sued his employer (the school) for breach of his employment contract resulting from the termination of an initial employment contract (the parties entered into a new employment contract with a reduced salary three weeks later). 397 A.2d at 140. The initial contract permitted either party to the contract to terminate the employment at will upon 30-days' notice. However, the plaintiff claimed the termination provision was no longer in effect based on the school principal assuring him that his salary and responsibilities would not be reduced as a result of the elimination of the football program and, thus, the elimination of the program should not have resulted in the termination of his initial employment contract. The court rejected this argument on summary judgment because the plaintiff did not allege that the termination clause of his contract was ever mentioned during his conversation with the principal. Id. at 141. Thus, it found the principal's communication was not sufficiently “specific[ ] and direct[ ] as to leave no doubt of the intention of the parties to change what they previously solemnized by formal document.” Id. The facts here are different, as Locus has at the pleading stage alleged sufficient facts to render plausible its theory that the course of conduct constituted an extension of the Order Form's terms into 2019. (See also Exs. B & E to Hague Decl., ECF Nos. 39-2, 39-5.)
Although the court dismissed the breach of contract claim, rejecting the plaintiff's non-written modification argument, it denied summary judgment on the ground that the conversation with the principal gave rise to a dispute of material fact related to the plaintiff's separate promissory estoppel claim. Reeder, 397 A.2d at 141-42.
Similarly, the Rutledge case cited by Honeywell does not change the analysis. In that case, the court evaluated on summary judgment whether the parties orally amended a withdrawal provision in a Delaware limited partnership agreement. Rutledge & Co., 750 A.2d at 1231-32. The original agreement, which created a limited partnership to raise and invest capital, permitted limited partners to withdraw at will and included a no non-written modification provision. Once a limited partner gave the required notice of its at-will withdrawal, RCI, as the general partner of the limited partnership, was required to pay out the withdrawing partner according to its capital account. Id. at 1224-25. In its counterclaim, RCI asserted that the limited partner who withdrew (plaintiff Continental Ins. Co, ) was not entitled to its withdrawal payment because RCI alleged the parties to the agreement orally agreed to modify its terms such that a limited partner could only withdraw at agreed-upon harvesting points. Id. RCI pointed to discussions it had with two executives of Continental regarding a shift in investment strategy from public to private securities in which RCI alleged that those executives agreed to a non-written amendment of the withdrawal provision that suspended Continental's ability to withdraw as a limited partner. Id. The court, after evaluating the affidavits of those executives and other evidence, held that RCI failed to establish the requisite “specificity and directness” of the alleged oral amendment and granted plaintiffs' motion for summary judgment on the withdrawal issue. Id. at 1231-32. The court also noted, in rejecting RCI's argument, that RCI did not “vigorously assert” its non-written-amendment argument until after Continental had declined to agree to an inflated valuation, which “color[ed] RCI's claims.” Id. at 1228. In this case, Locus points to a course of conduct and there is additional documentation rendering plausible that the terms of the Order Form were extended and that the License Agreement was not in effect, such as documents referring to an annual license, as noted above. This is sufficient at the pleading stage to state a plausible claim of renewal by course of conduct. See Good, 2012 WL 4857367 at *4-5 (citing and quoting Pepsico, Inc., 297 A.2d at 33) (denying a motion to dismiss, finding allegations that course of conduct modified contract plausible notwithstanding presence of no non-written modifications provision).
As such, Honeywell has not met its burden of showing that its interpretation of the contract is the only reasonable one, which is required to obtain dismissal under Rule 12. Caspian Alpha Long Credit Fund, 93 A.3d at 1205 (dismissal on a motion to dismiss is only appropriate if the moving party's interpretation of the contract is the only reasonable interpretation).
2. EIM and ePortal Invoices
*8 Locus seeks payment of the EIM/ePortal Invoices pertaining to the licensing and termination of the ePortal and EIM software services. There are four invoices at issue: (1) EIM 2019 First Half Invoice, dated October 25, 2018 (referred to as the “Final EIM Invoice” by Honeywell), which Locus claims was untimely paid; (2) EIM 2019 Second Half Invoice, dated April 3, 2019, which was never paid; (3) EIM Termination Fee Invoice, dated May 15, 2019, also unpaid; and (4) ePortal Invoice, dated June 5, 2019, also unpaid (collectively, the EIM/ePortal Invoices). (Compl. ¶¶ 110, 111-14 (EIM 2019 Second Half Invoice), 131-32.)
Honeywell attached copies of these invoices to its motion papers.
The common question the Court will ultimately have to answer to determine liability on invoices (2) through (4) is whether the original License Agreement terms or the terms as modified by the Order Form controls those invoices. If Locus prevails in demonstrating that the parties' course of conduct reflected their intent to extend the terms of the Order Form including its non-cancelable annual subscription term for 2019 and data transfer fee provision, then Honeywell will be liable for payment of these invoices. If Honeywell is correct that the parties reverted to operating under the terms of the License Agreement except as to the billing period, then Honeywell complied with the termination provisions and does not owe the invoiced amounts. As noted above, the Court cannot resolve which party is correct on a motion to dismiss because Honeywell has not demonstrated that its interpretation is the only reasonable one.
To the extent Honeywell implies that its termination of ePortal was within its right to change the scope of services, Honeywell fails to cite to the applicable provision of the relevant contract or law. Further, Locus has alleged that the ePortal service was non-cancellable for a year per the Order Form. Which party is correct must be determined at a later stage of this case, not on a motion to dismiss when the Court assumes Plaintiff's allegations to be true.
As for the untimely paid EIM 2019 First Half Invoice, Locus alleges that Honeywell did not contest the validity of the invoice and that Locus is entitled to collect on the late fees that accrued. Here, the determinative question is whether Honeywell's late payments constituted breaches of contract. This invoice, dated October 25, 2018, in the amount of $348,855, was for the first half of 2019 EIM subscription. (Compl. ¶ 95; Ex. D to Hague Decl., ECF No. 39-4.) Honeywell paid this invoice on February 19, 2019, 117 days after the invoice date. (Id.) Honeywell argues that the payment was timely and not in breach given the payment terms of the RIMS Agreement. However, the EIM 2019 First Half Invoice was issued for Honeywell's EIM subscription, which has no relation to the RIMS Agreement. (See Compl. ¶ 95; see also infra Discussion § B.3 (discussing the separate nature of the EIM/ePortal subscriptions and the RIMS Agreement.) This invoice, which Honeywell chose to provide in its papers, supports Locus's argument, as the invoice indicates “Terms: Net 90 Days.” (Ex. D to Hague Decl.) The Order Form provided for a 90-day pay period whereas the original Licensing Agreement provided for a 60-day pay period. (Compare Order Form at 1 with License Agreement Ex. E § IV.) Thus, per the well-pleaded allegations, this invoice would be governed by the payment terms of either the License Agreement or the Order Form, whichever one is ultimately found to govern or, to the extent Honeywell can demonstrate that neither of those contracts govern, some other payment term(s) agreed to by the parties. Because the Court accepts Plaintiff's allegations as true on this motion, the resolution of the amount due, if any, under this invoice is premature at this stage of the litigation.
Further undermining its own position, the purchase order Honeywell provides to the Court also indicates that should there be any conflicting terms between the purchase order and any controlling contracts, the “contract document signed by both parties” takes precedence over any contradictory and irreconcilable terms in the purchase order. (See Ex. E to Hague Decl. at General Terms and Conditions of Purchase § 1.2, ECF No. 39-5.)
3. The RIMS Invoices
*9 The final aspect of Locus's breach of contract claim centers on untimely and unpaid invoices issued under the RIMS Agreement. The RIMS Agreement was entered into by the parties to develop a new product that would improve on the Locus products Honeywell used. Locus alleges that these were valid invoices issued pursuant to the provisions in the RIMS Agreement providing for equitable adjustments by Honeywell for work beyond the contemplated scope and those enabling Locus to charge extra work on a time and materials basis. (Id. ¶¶ 62-64; see also MSA § 2.1; SOW at Ex. B.) Although the allegations do not provide extensive details regarding each and every invoice at issue, the Complaint specifically identifies various unpaid RIMS invoices and one RIMS invoice that was untimely paid: Invoice No. 983108, dated October 25, 2018 (the same date as Invoice No. 983109), in the amount of $92,040 for “RIMS 2019.” (Compl. ¶ 95.) Honeywell paid invoice No. 983108 on February 26, 2019, 124 days after the invoice date. (Id.) Honeywell argues this payment was timely under the RIMS Agreement, which provided that Honeywell must pay invoices during the company's “first payment cycle” following the 105th day after the invoice date. (MSA § 5.4.) While Honeywell is correct that the RIMS Agreement controls the payment terms of RIMS Invoices, Honeywell has not shown that Locus's allegations cannot plausibly give rise to an inference that this late payment constituted a breach of contract, as the allegations do not specify what Honeywell's payment cycle was. Thus, it is unclear whether it was timely paid.
Honeywell also argues that the parties entered into a settlement for amounts due under these invoices and that Locus waived claims for additional payments as a result. Honeywell argues that Locus improperly failed to acknowledge the settlement in the Complaint and should not be able to avoid dismissal of this claim through clever drafting. Honeywell attaches a document to its motion papers that it contends reflects a settlement of the disputed invoices. (Ex. F to Hague Decl., ECF No. 39-6). However, this Court cannot consider this document on a motion to dismiss. See Holowecki v. Fed. Exp. Corp., 440 F.3d 558, 566 (2d Cir. 2006), aff'd, 552 U.S. 389 (2008). Waiver and release is an affirmative defense that is only appropriate for resolution on a motion to dismiss if “it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff's claims are barred as a matter of law.” Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008). This standard is not satisfied here. Further, even if the Court were to consider it, the document provided by Honeywell does not clearly demonstrate a settlement of the disputed invoices as alleged on the face of the Complaint. The documentation submitted by Honeywell seems to evidence a private resolution related to the “RIMS Project Dispute” in which Honeywell agreed to a payment of $275,000 for “labor hours, ” but does not include a separate settlement agreement or reference specific invoices. (See Ex. F to Hague Decl., ECF No. 39-6 (the parties “agree[d] to settle the past labor hours completed that were in dispute ....”). Additionally, the RIMS Invoices specifically mentioned in the Complaint all post-date the purported settlement, further undermining an argument that Locus's claims concerning the RIMS Invoices were already settled.
Thus, for all the reasons stated above, I recommend that the motion to dismiss Locus's contract claims be denied.
C. Second Cause of Action - Account Stated
Locus's account stated claim is based on invoices, including those already discussed, it believes were validly presented to Honeywell that Honeywell did not pay or timely pay. (See Compl. ¶¶ 140-45.) Honeywell argues that Locus cannot maintain both its breach of contract claim and its account stated claim because the underlying facts and damages sought are the same, rendering the claims impermissibly duplicative.
Under New York law, to allege a claim for account stated, a plaintiff “must plead that: (1) an account was presented; (2) it was accepted as correct; and (3) debtor promised to pay the amount stated.” IMG Fragrance Brands, LLC v. Houbigant, Inc., 679 F.Supp.2d 395, 411 (S.D.N.Y. 2009) (collecting cases). Similarly, under Delaware law, to plead a claim for account stated, a plaintiff must plead that: “(1) an account existed between the parties; (2) the defendant stated or admitted to owing a specific sum on the account to the plaintiff; and (3) the defendant made this admission after the original account or debt was created.” Citibank (S. Dakota) N.A. v. Santiago, No. CPU4-11-5562, 2012 WL 592873, at *2 (Del. Com. Pl. Feb. 23, 2012). Thus, New York and Delaware law are substantially similar with regard to this common law claim.
Honeywell cites both New York and Delaware law without discussing which state's law controls. Locus cites New York law only. Given the substantial similarity in the two states' laws, the outcome will be the same regardless of the law that is applied.
*10 Focusing on the second and third elements of this claim, Honeywell argues that there are no allegations in the Complaint showing that Honeywell accepted the EIM/ePortal or RIMS Invoices presented to it as valid and duly owed or that it separately promised to pay the invoices at issue. Neither New York nor Delaware law require explicit allegations of acceptance of the account or promises to pay at the pleading stage; both jurisdictions allow for allegations that a party owing an account stated implicitly accepted the account and do not require proof of an independent promise to pay the account. For example, a failure to object to an invoice in a timely manner can constitute assent. See, e.g. CP Printing Ltd. v. Glitterati Inc., No. 18-cv-1526 (CFC), 2021 WL 212690, at *1 (D. Del. Jan. 21, 2021) (“[T]he failure to object to an invoice within a reasonable time can constitute the assent necessary for estoppel by an account stated.”); IMG Fragrance Brands, 679 F.Supp.2d at 411 (“The second and third requirements ... may be implied ‘if a party receiving a statement of account keeps it without objecting to it within a reasonable time or if the debtor makes partial payment.' ” (quoting LeBoeuf, Lamb, Greene & MacRae, L.L.P. v. Worsham, 185 F.3d 61, 64 (2d Cir. 1999)).
Locus asserts that the parties' course of conduct regarding invoice payment terms and timing, in light of the contractual provisions dictating when and how Honeywell could contest an invoice, and Honeywell's failure to timely object within the contractual periods, act as acceptance of the accounts stated. (Compl. ¶¶ 36-37 (License Agreement), 70-71 (RIMS Agreement), 141-44 (both). Regarding the invoice discrepancy process under the License Agreement, which was never modified by the Order Form and continued to be in effect according to Locus, Honeywell had ten days from receipt of an invoice to dispute it and 30 days from the invoice date to pay it. (Id. ¶ 37 (citing License Agreement Ex. E § IV).) Failure to timely pay the invoice would result in the accrual of 1.5% interest starting on the 31st day after the invoice date. (Id.) Under the RIMS Agreement, if Honeywell disputed an invoice, it was only entitled to withhold the disputed amount, while being required to pay the undisputed amount and use best efforts to come to an agreement over the dispute. (MSA §§ 5.1, 5.4, 14.11.) Given the applicable legal standard, Locus's allegations in light of the contractual provisions identified are sufficient to render it plausible that Honeywell accepted the invoices and promised to pay them. See Leepson v. Allan Riley Co., No. 04-cv-3720 (LTS) (AJ), 2006 WL 2135806, at *4 (S.D.N.Y. July 31, 2006) (denying motion to dismiss because the moving party “accepted these statements as correct ... by failing to question or object to these statement within a reasonable time after receipt ....”).
Honeywell next argues that Locus cannot maintain duplicative claims and that the account stated claim is duplicative of the breach contract claim. The Second Circuit has held that an account stated claim is not duplicative of a related breach of contract claim if the contract provides for the recovery of attorneys' fees, which ordinarily are not permitted under an account stated claim. See NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 175 (2d Cir. 2008). More generally speaking, NetJets stands for the proposition that two claims are not duplicative of one another if they are based on different facts/evidence or seek different remedies. Id.
In this case, the License Agreement authorizes Locus to seek attorneys' fees “[i]n the event that Locus places Client's account in the hands of an attorney for collection” and also provides for specific interest. (License Agreement Ex. E § IV.) Locus's contract claim seeks breach of contract damages under the License Agreement. For an account stated claim a party's recovery is limited to the unpaid accounts and does not include additional damages or fees because those are not “certain sum[s], ” as required by Delaware law. Chrysler Corp. v. Airtemp Corp., 426 A.2d 845, 848-49 (Del. Super. Ct. 1980); see also Beaver Dam Marble Co. v. William H. Jones & Co., 92 A. 1012, 1013 (Del. Super. Ct. 1915). Therefore, the claims can be construed as pleaded in the alternative, as different remedies are available under them. See also Fed. R. Civ. P. 8(d). Because Locus cannot recover attorneys' fees pursuant to an account stated claim, and because Locus is explicitly authorized to seek attorneys' fees related to its attorneys' collection efforts for unpaid EIM/ePortal Invoices issued pursuant to the License Agreement/Order Form, it is clear that the claims are not duplicative of one another. Locus is entitled to plead the two theories in the alternative even though it will not be permitted to argue to a jury that it is entitled to double recovery on the unpaid amounts under both causes of action. See, e.g., Interglobo Customs Broker, Inc. v. Sunderland Bros. Co., No. 19-cv-5723 (GBD) (JLC), 2019 WL 5996281, at *6 (S.D.N.Y. Nov. 14, 2019), report and recommendation adopted, 2020 WL 409685 (S.D.N.Y. Jan. 24, 2020) (relying on NetJets, holding that because “plaintiffs seek the same relief in both their account stated claims and breach of contract claims, and the Court has already found defendant to be liable under plaintiffs' breach of contract claims, the Court need not reach a determination on defendant's liability under the account stated claims”); Firmenich Inc. v. Nat. Flavors, Inc., No. N19C-01-320 (MMJ), 2020 WL 1816191, at *9 (Del. Super. Ct. Apr. 7, 2020), cert. denied, 2020 WL 2193285 (Del. Super. Ct. May 6, 2020), and appeal refused, 230 A.3d 901 (Del. 2020) (since the claims are pleaded in the alternative, the claims “would never co-exist at final judgment and are, therefore, not duplicative”).
*11 In contrast, the RIMS Agreement does not authorize Locus to seek attorneys' fees for unpaid RIMS Invoices or any other amounts in addition to the balance of the unpaid invoices (i.e., specific interest rates for late payments), making the sought-after remedies in the breach of contract and account stated claims duplicative with respect to unpaid RIMS Invoices. The facts giving rise to the two claims, as well as the evidence on which Locus will rely to prove the claims, are also duplicative of one another. For example, the facts Locus points to in its briefing about the RIMS Agreement invoice dispute resolution process will be necessary to prove both a breach of the payment terms under the RIMs Agreement and Honeywell's implied acceptance and agreement to pay the RIMS Invoices for its account stated claim. It is therefore clear that Locus impermissibly seeks recovery for the RIMS Invoices from a “single set of facts” based on “the same allegations of a failure to pay monies owed.” Wachtel & Masyr LLP v. Brand Progression LLC, No. 11-cv-7398 (LTS) (MHD), 2012 WL 523621, at *1 (S.D.N.Y. Feb. 15, 2012) (citing Erdman Anthony & Assoc. v. Barkstrom, 298 A.D.2d 981, 981 (N.Y.App.Div., 4th Dep't 2002)). As such, Locus's account stated claim is duplicative of its breach of contract claim with respect to the RIMS Invoices.
Thus, I recommend granting Honeywell's motion with respect to the RIMS Invoices aspect of the account stated claim, and denying the motion to dismiss the account stated claim with respect to the EIM/ePortal Invoices.
D. Third Cause of Action - Misappropriation of Trade Secrets
Locus's third cause of action is for misappropriation of trade secrets in violation of DUTSA, Del. C. § 2001 et seq., stemming from Honeywell's disclosure of proprietary information about Locus's software and pricing in the RFP to Locus's major competitors that it gained through the course of its relationship with Locus and in connection with certain due diligence related to Honeywell's potential acquisition of Locus. (Compl. ¶¶ 76, 118, 119.) The RFP included specific descriptions of Locus's methods, software architecture and workflows, screenshots of software, and details about Locus's costs. (Id.; see also Compl. ¶¶ 120-123.)
To plead a claim for misappropriation of trade secrets under the Delaware statute, a plaintiff must allege: “(1) that a trade secret exists; (2) that plaintiff communicated the trade secret to defendant; (3) that the communication occurred with the understanding that defendant would protect the secrecy of the information; and (4) that the defendant improperly used or disclosed the trade secret.” ELENZA, Inc. v. Alcon Labs. Holding Corp., No. N14C-03-185 (MMJ) (CCLD), 2017 WL 2651716, at *2 (Del. Super. Ct. Apr. 20, 2017), aff'd, 183 A.3d 717 (Del. 2018).
Honeywell argues that Locus has failed to assert the existence of any direct damages and that any purported damages from the disclosures in the RFP are speculative “consequential” damages barred by the limitation on liability provision in the License Agreement (Section 11). The relevant section of the EIM Agreement states in pertinent part:
EXCEPT AS PROVIDED BELOW, IN NO EVENT SHALL LOCUS OR CUSTOMER BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE, ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE THE LICENSED PATENTS, OR ANY CONFIDENTIAL INFORMATION, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.(License Agreement § 11.) Indirect, special, incidental, and consequential damages are generally recognized as special forms of damages for breach of contract. In contrast, expectation, actual, and direct damages are the traditional measures of damages for breach of contract and are designed to put the nonbreaching party in as good a position as it would have been had there been full performance of the contract. See Wallace Steel, Inc. v. Ingersoll-Rand Co., 739 F.2d 112, 115 (2d Cir. 1984). Thus, the limitation of liability provision in the License Agreement here is concerned with limiting special forms of damages for breaches of contract. The provision does not purport to limit direct, actual, compensatory, or statutory damages.
Punitive damages are typically not awarded for a breach of contract because they are inconsistent with the purpose of contract remedies, which is compensatory, not punitive. See Rocanova v. Equitable Life Assurance Society of the U.S., 83 N.Y.2d 603, 613 (1994). It is only when the breach of contract causes a public harm or is extraordinarily egregious that punitive damages may be awarded. TVT Records v. Def Jam Music Group, 412 F.3d 82, 94 (2d Cir. 2005).
*12 Here, Locus seeks damages as a result of Honeywell's alleged disclosure of its trade secrets to its competitors and other appropriate relief provided under DUTSA. (Compl. ¶¶ 17, 151-53.) The statute authorizes damages for the actual loss caused by misappropriation, any additional, non-duplicative unjust enrichment caused by the misappropriation, injunctive relief, and in cases of willful and malicious misappropriation, exemplary damages and attorneys' fees. DUTSA §§ 2002-04. Locus alleged the following with regard to misappropriation: (i) the RFP contained trade secrets, some of which were specifically alleged, (ii) the RFP was sent to Locus's major competitors, and (iii) Locus's major competitors did not have capabilities similar to those of EIM. (Compl. ¶¶ 118-20.) At the pleading stage, Locus is not required to specify its exact damages flowing from Honeywell's disclosure of its proprietary information to its competitors when the information it has alleged satisfies the notice pleading requirements for a claim under DUTSA. Its allegations described above give rise to a plausible inference that Locus has been damaged and that Honeywell is liable for disclosing Locus's trade secrets. See Alantra LLC v. Apex Indus. Techs. LLC, No. 20-cv-10852 (FDS), 2020 WL 6263596, at *3 (D. Mass. Oct. 23, 2020) (“[T]he fact that the [disclosed confidential] information is now public and therefore these parties have the opportunity to [use the information] is sufficient to plausibly raise an inference of damages.”); Blue Ocean Lab'ys, Inc. v. Tempur Sealy Int'l, Inc., No. 1:15-cv-0331, 2015 WL 9592523, at *5 (M.D. N.C. Dec. 31, 2015) (“Because damages are inherent” when confidential information exchanged pursuant to an NDA is misused, “the court concludes that Blue Ocean has adequately pleaded its damages.”). Thus, the limitation of liability provision in the License Agreement does not limit the damages that Locus seeks because it seeks direct damages and other relief permitted under the applicable statute, not special contract damages addressed in the provision.
Honeywell cites two cases to support its argument that Locus has not sufficiently pleaded damages that are not applicable here. See IBM v. Dale, No. 7:11-cv-951 (VB), 2011 WL 4012399, at *2 (S.D.N.Y. Sept. 9, 2011) (granting motion to dismiss defendant's counterclaims for fraud, negligent misrepresentation, fraudulent inducement, breach of contract, and breach of the covenant of good faith and fair dealing for failure to adequately plead damages; holding defendant's allegation she “suffered damages” without any supporting facts in the pleadings to be insufficient to meet the plausibility standard); DynCorp v. GTE Corp., 215 F.Supp.2d 308, 315 (S.D.N.Y. 2002) (cited by Honeywell for proposition that a court may grant a motion to dismiss as a matter of law “if the contract unambiguously shows that the plaintiff is not entitled to the requested relief.”). Here, Locus has pleaded facts supporting its argument that the RFP disclosed trade secrets to its major competitors, giving rise to a plausible inference of harm, and Section 11 of the License Agreement does not unambiguously show Locus is barred from seeking its requested relief.
To the extent Honeywell contends that Section 11 should be read expansively to limit any damages “arising out of” the License Agreement, its argument is not persuasive. Honeywell relies on My Play City, Inc. v. Conduit Ltd. for the proposition that a contractual clause limiting liability may apply to claims other than breach of contract and for conduct occurring after the contract is terminated. 589 Fed.Appx. 559, 562 (2d Cir. 2014). In My Play City, the plaintiff created a toolbar with customized features that users could purchase and install in their web browser. The plaintiff entered into an agreement with the defendant allowing it to use plaintiff's trademark and software in connection with the toolbar in exchange for revenue generated from users' use of the toolbar. The defendant terminated the agreement but continued to distribute and grant Internet users access to plaintiff's toolbar and products for eight months. The plaintiff then sued for trademark and copyright infringement. The parties' agreement contained a limitation of liability clause stating that defendant would have no liability “for any lost profits or costs of procurement of substitute goods or services, or for any indirect, special, incidental or consequential damages including damages for lost data, however caused and under any theory of liability, including but not limited to contract, product liability, strict liability and negligence ....” My Play City, Inc. v. Conduit Ltd., No. 10-cv-1615 (CM), 2013 WL 150157, at *1 (S.D.N.Y. Jan. 11, 2013) (emphasis added). The provision contained a second sentence stating that “[i]n no event will [defendants'] aggregate liability arising out of or related to this agreement, the use of or inability to use the Toolbar and/or Environment, to the fullest extent possible under applicable law, exceed $5,000.” Id. Notably, the contract expressly stated that the limitation of liability provision survived termination of the contract. Id.
*13 The Second Circuit found that the limitation on liability was unambiguous and did apply to claims arising after termination of the contract. My Play City, 589 Fed.Appx. at 562. It also held that the post-termination conduct-continued use of the plaintiff's toolbar and trademark-related to the parties' prior agreement because it was a continuation of conduct permitted under the agreement. Id. Finally, it held that the provision limited liability to no more than $5,000. Id. Thus, the two sentences in the relevant provision of the agreement, read together, were interpreted as precluding certain types of special contract damages altogether and limiting liability on all other damages, whether arising out of tort, statute, contract, or otherwise, to $5,000.
The language in the contract in My Play City differs from the language here insofar as the License Agreement limits liability for special contract damages altogether but does not limit or cap direct damages or statutory damages arising out of the agreement. Honeywell does not argue otherwise. Thus, My Play City does not assist Honeywell insofar as the damages sought under DUTSA are direct damages and other statutory relief. Additionally, My Play City involved an interpretation of New York law, whereas the License Agreement specifies Delaware law applies and the statutory claim involves a Delaware statute. Finally, the alleged DUTSA violation pertains to conduct that was not just in breach of the License Agreement, but also in alleged breach of the NDA signed by the parties in connection with Honeywell's potential acquisition of Locus and related due diligence. Section 11 of the License Agreement does not operate to limit damages for breach of the NDA-any damages suffered by Locus stemming from information exchanged pursuant to the NDA would “arise out of or relate to” that contract.
To the extent Honeywell argues that Locus's Complaint does not meet applicable pleading standards to state a claim under DUTSA because it did not plead a violation of the NDA, this argument is without merit. DUTSA requires only that a plaintiff plead that the communication of a trade secret occurred with the understanding that defendant would protect the secrecy of the information and that the defendant improperly disclosed it. Locus has satisfied this requirement. It has asserted that both the License Agreement and NDA allowed Honeywell significant access to confidential proprietary, engineering, and financial information. (Compl. ¶¶ 77, 119.) It has alleged the NDA had strict confidentiality provisions, as did the License Agreement. (Id. ¶¶ 78, 129.) It has alleged that Honeywell violated its duties to maintain Locus's confidential information and DUTSA by disclosing information in the RFP that it was required to keep confidential under both the NDA and the License Agreement. (Id. ¶¶ 118-123, 129, 134, 150.) The fact that there are not specific allegations regarding whether Honeywell obtained certain confidential information disclosed in the RFP under the License Agreement or NDA is not fatal to Locus's claim at this stage in the litigation. Locus has sufficiently stated a claim for a violation of DUTSA under the notice pleading requirements of Rule 8.
Honeywell also argues that Locus waived its right to bring this claim because it publicly filed the Order Form containing the pricing structure trade secret it claims Honeywell misappropriated within the meaning of DUTSA. This argument is unpersuasive. Locus's DUTSA claim is not just based on disclosure of pricing information. Locus also complains that Honeywell disclosed other types of proprietary information such as its methods, software architecture and workflows, screenshots of software, and details about its costs. Thus, even if there were a waiver of Locus's right to claim the pricing information as a trade secret, it would only be a partial one as to the information disclosed.
The Court makes no finding whether the information disclosed is a trade secret within the meaning of DUTSA or that it was waived in this Report and Recommendation.
*14 Thus, Honeywell's motion to dismiss the DUTSA claim should be denied.
CONCLUSION
For the reasons set forth above, I recommend granting Honeywell's motion to dismiss only with respect to the RIMS Invoices within the account stated claim, and denying the motion in all other respects.
NOTICE
The Defendant shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a), (d) (adding three additional days only when service is made under Fed.R.Civ.P. 5(b)(2)(C) (mail), (D) (leaving with the clerk), or (F) (other means consented to by the parties)). Plaintiff shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure.
If Plaintiff files written objections to this Report and Recommendation, the Defendant may respond to Plaintiff's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Alternatively, if Defendant files written objections, Plaintiff may respond to such objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2); see also Fed. R. Civ. P. 6(a), (d). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Paul G. Gardephe at the United States Courthouse, 40 Foley Square, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Gardephe. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).