Cnty. of Marin v. Deloitte Consulting LLP

• Decision Date: 27 December 2011
• Docket Number: No. C 11–00381 SI.,C 11–00381 SI.
• Citation: 836 F.Supp.2d 1030
• Parties: COUNTY OF MARIN, Plaintiff, v. DELOITTE CONSULTING LLP, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

836 F.Supp.2d 1030

COUNTY OF MARIN, Plaintiff,

v.DELOITTE CONSULTING LLP, et al., Defendants.

No. C 11–00381 SI.

United States District Court, N.D. California.

Dec. 27, 2011.

Patrick Key Faulkner, Sheila Shah Lichtblau, San Rafael, CA, Mark P. Ressler, Michael Hanin, R. Tali Epstein, Ronald R. Rossi, Kasowitz Benson Torres & Friedman LLP, New York, NY, for Plaintiff.

Robert Arthur Lewis, David Carter Beach, Donn P. Pickett, Elizabeth Margaret Kennedy, Geoffrey T. Holtz, Bingham McCutchen LLP, Stephen Holbrook Sutro, Jennifer Briggs Fisher, Duane Morris LLP, Thomas B. Mayhew, Christina Rose Hollander, Farella Braun and Martel LLP, San Francisco, CA, Matthew A. Taylor, Patrick J. Loftus, Duane Morris LLP, Philadelphia, PA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

SUSAN ILLSTON, District Judge.

Currently before the Court are defendants' SAP America, Inc., SAP Public Services, Inc. (collectively “SAP”) and Ernest Culver's motions to dismiss plaintiff's Amended Complaint. For the reasons discussed below, the Court GRANTS in part and DENIES in part SAP's motion to dismiss and GRANTS in part and DENIES in part Culver's motion to dismiss.

BACKGROUND

In May 2010, Marin County filed suit in Marin County Superior Court against Deloitte Consulting LLP. That complaint asserted causes of action against Deloitte for breach of contract as well as various torts related to the formation and performance of the parties' Implementation Services Agreement (“ISA”). Deloitte and Marin entered into the ISA in 2005 based on the County's desire to implement enterprise resource planning (“ERP”) software produced by SAP America, Inc. to support the County's financial and human resources management. In its state court complaint against Deloitte, the County alleged that Deloitte made misrepresentations to induce Marin to enter the ISA, failed to properly implement the SAP system, and covered up its failures.¹

On December 16, 2010, Marin County filed a second action in Marin County Superior Court, alleging causes of action for violation of and conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against Deloitte and SAP America, Inc. and SAP Public Services, Inc. (“SAP”); fraud against Ernest Culver, a former Marin County official who worked with Deloitte and SAP on the ISA; aiding and abetting fraud, against Deloitte and SAP; breach of fiduciary duty, against Culver; aiding and abetting breach of fiduciary duty, against Deloitte and SAP; common law civil conspiracy, against Deloitte and SAP; violation of California Government Code section 1090, against Culver; and return of monies in violation of Government Code section 1090, against all three defendants. On January 26, 2011, defendants removed the second action to this Court and on April 6, 2011, plaintiff filed an Amended Complaint (“AC”).²

SAP now moves to dismiss the action as against it, arguing that Marin has failed to adequately plead its causes of action. Culver has likewise moved to dismiss arguing that he is immune from suit and, in the alternative, that Marin has failed to adequately allege its causes of action against him. Marin opposes both motions.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This “facial plausibility” standard requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). While courts do not require “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 544, 555, 127 S.Ct. 1955.

In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). However, the court is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.2008).

Moreover, as a number of the allegations against SAP and Culver sound in fraud, Marin must meet the heightened pleading standard of Rule 9(b) which requires a plaintiff to “state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). The Ninth Circuit has interpreted this rule to require pleadings to specify “the time, place, and nature of the alleged fraudulent activities.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir.1989). This heightened pleading standard applies to RICO claims alleging fraud. See id. (dismissing the RICO claim for failure to specify the time, place, and content of the alleged mail and securities fraud).

DISCUSSION

I. SAP's Motion to Dismiss

A. Marin Fails to Allege a RICO Claim

To state a claim under 18 U.S.C. § 1962(c), a plaintiff must allege: “(1) conduct(2) of an enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts') (5) causing injury to plaintiff's business or property.” Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir.1996) (citing 18 U.S.C. §§ 1964(c), 1962(c)). “Racketeering activity” is any act indictable under one of several provisions of Title 18 of the United States Code. A RICO claim also requires a showing that “a pattern of racketeering activity” occurred. 18 U.S.C. § 1961; see Rothman v. Vedder Park Management, 912 F.2d 315, 316 (9th Cir.1990).

Marin alleges that Deloitte and SAP joined in an enterprise with the aim of securing contracts with public sector entities to implement SAP's Public Sector enterprise resource planning (“ERP”) software. This enterprise was fraudulent, Marin asserts, because SAP and Deloitte knew that Deloitte had an insufficient number of consultants to be able to implement the ERP software. AC, ¶¶ 1–5. Marin alleges that the enterprise benefitted from the racketeering scheme—even though defendants knew Deloitte was not able to competently implement the software—because the enterprise intended to use Marin as a reference for other public entities looking for ERP solutions, and if the implementation for Marin was successful more business would flow to Deloitte/SAP and if the implementation was not successful Deloitte/SAP would still earn fees for supplying additional consultants to attempt to salvage the Marin Project. See generally AC.

In moving to dismiss, SAP argues that Marin has failed to allege a number of necessary elements of a RICO claim, in particular that the predicate acts of mail fraud, wire fraud and bribery identified by Marin do not withstand scrutiny. SAP also argues that Marin's theory of the enterprise is implausible on its face, as it would make no economic sense for SAP to knowingly pursue a project with a partner who could not implement its software and, thereby, jeopardize its ability to secure new clients.

1. Racketeering Activity

a. Mail Fraud

“Wire or mail fraud consists of the following elements: (1) formation of a scheme or artifice to defraud; (2) use of the United States mails or wires, or causing such a use, in furtherance of the scheme; and (3) specific intent to deceive or defraud.” Sanford v. MemberWorks, Inc., 625 F.3d 550, 557 (9th Cir.2010). Claims for mail and wire fraud are subject to Rule 9(b)'s heightened pleading requirements. Id. at 557–58. As such, a complaint needs to state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation. Id. at 558.

Marin alleges that Deloitte and SAP committed mail fraud by inducing the County to enter into the ISA and the SAP software license agreement (“SLA”), by making fraudulent representations in Deloitte's June 7, 2004 Response to the County's Request for Proposal and Response to the County's Request for Clarification. AC ¶ 220(a). Marin identifies the following fraudulent representations made in the RFP response: that Deloitte is “uniquely qualified”; has “deep experience”; has “assembled a highly skilled and experienced” team; has “experienced consultants”; has a “seasoned team”; has a “breadth” of capability and “unmatched” understanding of the County's needs; has “[c]ommitment to dedicate our best resources”; has “deep bench strength”; has an “experienced team that has worked together before”; has “solid” references from every one of its North American installation clients; has great “strength” in integration of “all aspects of ERP implementations”; will “draw upon the experience of a full range of public sector specialists”; is “absolutely committed to the success of this project”; and that Deloitte and SAP have a “winning solution, a proven implementation approach, and the strong project team needed to meet” the County's requirements. AC ¶¶ 56(a)-(n).

The Court finds that the representations are highly subjective, generalized statements of the superiority of Deloitte's qualifications made in a sales context. As such, they are “puffery” and not quantifiable, actionable misstatements that can form the basis of a mail fraud claim. As the Ninth Circuit explained in Cook, Perkiss & Liehe, Inc. v. Northern California Collection Service, Inc., 911 F.2d 242 (9th Cir.1990), puffery or puffing has been recognized as vague, exaggerated, generalized or highly subjective statements regarding a product or business which do...