Arkray Am., Inc. v. Navigator Bus. Sols., Inc.

• Court: Delaware Superior Court
• Writing for the Court: JOHNSTON, J.
• Decision Date: 09 June 2021
• Docket Number: C.A. No. N20C-12-012 MMJ [CCLD]
• Citation: Arkray Am., Inc. v. Navigator Bus. Sols. , C.A. No. N20C-12-012 MMJ [CCLD] (Del. Super. Jun 09, 2021)
• Parties: ARKRAY AMERICA, INC., Plaintiff, v. NAVIGATOR BUSINESS SOLUTIONS, INC., AND N'WARE TECHNOLOGIES, INC., Defendants.

ARKRAY AMERICA, INC., Plaintiff, v. NAVIGATOR BUSINESS SOLUTIONS, INC., AND N'WARE TECHNOLOGIES, INC., Defendants.

C.A. No. N20C-12-012 MMJ [CCLD]

SUPERIOR COURT OF THE STATE OF DELAWARE

Submitted: March 29, 2021

June 9, 2021

On Defendant N'Ware Technologies, Inc.'s Motion to Dismiss Counts III, V, and VII of the Complaint

GRANTED IN PART and DENIED IN PART

On Defendant Navigator Business Solutions, Inc.'s Motion to Dismiss Counts IV and VI of the Complaint

DENIED

On Defendant Navigator Business Solutions, Inc.'s Motion for a More Definite Statement

DENIED

OPINION

Jennifer C. Wasson, Esq., Carla M. Jones, Esq., Potter Anderson Corroon LLP, Wilmington, Delaware, Julia E. Markley, Esq. (Argued), Nathan R. Morales, Esq., Perkins Coie LLP, Portland, Oregon, Lindsey Dunn, Esq. (Argued), Perkins Coie LLP, Denver, Colorado, Attorneys for Plaintiff ARKRAY America, Inc. Stephen J. Kraftschik, Esq., Christina B. Vavala, Esq., Polsinelli PC, Wilmington, Delaware, Eric E. Lynch, Esq., Jonathan G. Brinson, Esq. (Argued), Polsinelli PC, Phoenix, Arizona, Attorneys for Defendant Navigator Business Solutions, Inc.

Scott B. Czerwonka, Esq., Wilks Law, LLC, Wilmington, Delaware, Mark K. Thompson, Esq. (Argued), MKT Law PLC, Minneapolis, Minnesota, Attorneys for Defendant N'Ware Technologies, Inc.

JOHNSTON, J.

FACTUAL AND PROCEDURAL CONTEXT

Parties

This case arises from the performance of a business software system. Plaintiff ARKRAY America, Inc. ("ARKRAY") is a Delaware corporation with its principal place of business in Edina, Minnesota.¹ Defendant Navigator Business Solutions, Inc. ("Navigator") is a Utah corporation with its principal place of business in Pleasant Grove, Utah.² Defendant N'Ware Technologies, Inc. ("N'Ware") is a Delaware corporation with its principal place of business in Dover, New Hampshire.³

ARKRAY's Business Software Needs

ARKRAY is a major manufacturer and distributor of diabetes testing and management supplies.⁴ ARKRAY's business practices are highly regulated by the United States Food and Drug Administration.⁵ Additionally, many of ARKRAY's clients impose specific requirements on how orders are filled.⁶

In order to ensure compliance with all manufacturing and distribution requirements—such as documenting the batch and serial numbers of the finished devices in each sale, and tracking which devices are under warranty—ARKRAYpurchased a fully integrated Enterprise Resource Planning ("ERP") system.⁷ ARKRAY needed an ERP system that would "[p]rovide an advanced Warehouse Management System (WMS) for inventory receiving, inventory movement, order management, order replenishment, and hand-held scanners for all inventory transactions" and "[p]rovide advanced technical customer service functionality to handle initial telephone calls from customers, field service technician dispatching, complaint handling, and travel and material invoicing."⁸

ARKRAY Enters into Agreements with Navigator and N'Ware

Navigator provides software and consulting services to manufacturers and businesses in various industries.⁹ In early 2015, Navigator and ARKRAY began discussing an arrangement whereby Navigator would provide ARKRAY with the necessary ERP system.¹⁰ On April 27, 2015, Navigator visited ARKRAY's facilities in Edina, Minnesota.¹¹ During this meeting, ARKRAY and Navigator discussed ARKRAY's operations and software needs.¹² Navigator told ARKRAY that it could design and implement an ERP system that would meet ARKRAY's requirements.¹³

During the discussion stage, Navigator proposed a second meeting at ARKRAY's facilities and suggested that a representative from N'Ware also attend.¹⁴ N'Ware provides custom "add-on" software and consulting services.¹⁵ A Navigator representative told AKRAY that N'Ware was "the expert" and a "'best of breed' partner for warehouse management."¹⁶ Navigator and N'Ware visited ARKRAY's facilities on June 15, 2015.¹⁷ During this meeting, ARKRAY reiterated the specifies of its operations and software needs.¹⁸ Navigator indicated that it understood ARKRAY's requirements and could provide an adequate software system.¹⁹

On September 25, 2015, Navigator sent ARKRAY an initial proposal document setting forth its recommendation for an SAP BusinessOne ERP system with nine software add-ons.²⁰ One of the recommended add-ons was a warehouse management program—LISA Distribution ("LISA")—developed by N'Ware.²¹ Navigator represented that this configuration of base software and add-ons would meets ARKRAY's needs.²²

After negotiations and various proposal documents, ARKRAY entered into an agreement with Navigator on February 24, 2016. Navigator agreed to provide software and consulting services (the "Agreement").²³ ARKRAY additionally entered into a license agreement with N'Ware to utilize the LISA program on April 6, 2016 (the "License Agreement").²⁴

ARKRAY Terminates the Agreement

Following execution of the Agreement and the License Agreement, Navigator began working on ARKRAY's ERP system.²⁵ Navigator failed to meet various deadlines as set out in the Agreement.²⁶ ARKRAY provided extensions to Navigator.²⁷ However, Navigator still failed to provide and test a successful software system by May 2017.²⁸

ARKRAY notified Navigator and N'Ware—orally and in writing—about various issues with the Navigator system as a whole and with the N'Ware LISA add-on.²⁹ On June 6, 2017, ARKRAY wrote a letter to Navigator, listing flaws in the system. ARKRAY asked Navigator to complete nine tasks within 30 days.³⁰ The June 6^th letter also notified Navigator that ARKRAY viewed the system'sfailures as a material breach of the Agreement and gave Navigator 30 days to cure the defects.³¹ Thirty days later, the issues with the system had not been cured.³² ARKRAY terminated the Agreement with Navigator on July 21, 2017.³³

Procedural History

In October 2019, the parties entered into mediation to resolve various disputes stemming from the Agreement and License Agreement.³⁴ After mediation was unsuccessful, ARKRAY filed suit in Minnesota on May 27, 2020.³⁵ The Minnesota action was dismissed based on forum non conveniens grounds, and because ARKRAY failed to properly serve Navigator.³⁶

ARKRAY filed suit in this Court on December 1, 2020. ARKRAY asserts the following claims: (1) breach of contract against Navigator; (2) breach of warranty against Navigator; (3) breach of warranty against N'Ware; (4) fraudulent misrepresentations against Navigator; (5) fraudulent misrepresentations against N'Ware; (6) violation of the Minnesota Unfair Trade Practices Act (UTPA) against Navigator; and (7) violation of the Minnesota UTPA against N'Ware.

Navigator filed a Motion to Dismiss Counts IV and VI of the Complaint on January 13, 2021. Navigator also filed a Motion for a More Definite Statement onthe same day. N'Ware filed a Motion to Dismiss Counts III, V, and VII on January 29, 2021.

STANDARD OF REVIEW

Failure to State a Claim Upon Which Relief Can be Granted

In a Rule 12(b)(6) Motion to Dismiss, the Court must determine whether the claimant "may recover under any reasonably conceivable set of circumstances susceptible of proof."³⁷ The Court must accept as true all well-pleaded allegations.³⁸ Every reasonable factual inference will be drawn in the non-moving party's favor.³⁹ If the claimant may recover under that standard of review, the Court must deny the Motion to Dismiss.⁴⁰

Failure to Provide Sufficient Information

In a Rule 12(e) Motion for a More Definite Statement, the Court must review the complaint and determine whether it provides sufficient information to the defendant. If the complaint "appear[s] to be so vague or ambiguous as to make it unreasonable to require the defendant to frame a responsive pleading, then a more definite statement will be required to correct its defects."⁴¹

ANALYSIS

MOTIONS TO DISMISS

Navigator and N'Ware have filed Motions to Dismiss. Navigator argues that: (1) the Utah choice-of-law provision in the Agreement governs all claims against it; (2) Count IV (fraudulent misrepresentation) is barred by Utah's economic loss doctrine; and (3) Count VI (violation of the Minnesota UTPA) does not present a claim that is cognizable under Utah law.

N'Ware argues that: (1) the Delaware choice-of-law provision contained in the License Agreement governs all claims against it; (2) Count V (fraudulent misrepresentation) must be dismissed because it is not properly pled and is barred by the economic loss doctrine or bootstrapping doctrine; (3) Count VII (violation of the Minnesota UTPA) should not be permitted because it attempts to apply the statute of another state; (4) Count III must be dismissed because ARKRAY failed to comply with certain contractual requirements prior to filing suit; (5) any potential damages are capped at $31,500; and (6) ARKRAY contractually waived its right to a trial by jury.

Choice of Law

The Agreement and the License Agreement include similar choice-of-law provisions. The Navigator Agreement states that "[t]his Base Agreement shall be governed by and construed under the laws of the State of Utah without reference toits conflicts of law principles."⁴² The N'Ware License Agreement provides that it "shall be governed by and construed in accordance with the laws of the State of Delaware, United States of America, without reference to its conflicts of laws principles."⁴³

It is undisputed that both choice-of-law provisions are valid and apply to contract-based claims. Utah law governs Counts I and II (breach of contract and breach of warranty against Navigator). Delaware law governs Count III (breach of warranty against N'Ware). However, the parties disagree over whether these provisions also apply to the tort and statutory claims. ARKRAY contends that these provisions are narrow. Navigator and N'Ware both urge the Court to apply the provisions broadly to all claims between the parties.

There is divergent precedent in Delaware on this issue. The argument for a broad application is supported by Abry Partners V., L.P. v. F & W Acquisition...