Copart, Inc. v. Sparta Consulting, Inc.
| Decision Date | 25 September 2017 |
| Docket Number | No. 2:14–cv–00046–KJM–CKD,2:14–cv–00046–KJM–CKD |
| Citation | 277 F.Supp.3d 1127 |
| Court | U.S. District Court — Eastern District of California |
| Parties | COPART, INC., Plaintiff, v. SPARTA CONSULTING, INC., KPIT Infosystems, Inc., and KPIT Technologies, Ltd., Defendants. |
Jason Sanjuro Takenouchi, Margaret Ziemianek, Kasowitz, Benson, Torres & Friedman LLP, San Francisco, CA, Mark P. Ressler, PHV, R. Tali Epstein, PHV, Kasowitz, Benson, Torres & Friedman LLP, New York, NY, for Plaintiff.
Paul T. Llewellyn, Lewis & Llewellyn, LLP, Frederick A. Brown, Ian Thompson Long, Joseph R. Rose, Gibson Dunn & Crutcher LLP, San Francisco, CA, for Defendants.
An online vehicle auction company hired a software development company to design and build its new online system, but when the project did not go as planned the auction company terminated the contract and the parties sued each other. The auction company, plaintiff Copart, Inc. ("Copart"), moves for summary judgment on counter-claims brought by the software development company, defendant Sparta Consulting, Inc. ("Sparta"), and for partial summary judgment on elements of its own claims. Copart Mot., ECF No. 197. Sparta, along with its parent companies, defendants KPIT Infosystems, Inc. ("KPIT Infosystems") and India-based KPIT Technologies, Ltd. ("KPIT India"), move for summary judgment on Copart's claims. Sparta Mot., ECF No. 184; KPIT India Mot., ECF No. 185; KPIT Infosystems Mot., ECF No. 186. For the reasons explained below, the court GRANTS IN PART and DENIES IN PART each motion.
A. The Parties and the Project...1138
B. The Contract and Design Statement...1138
C. The Build Statement and Contract Amendment...1139
D. Termination and the Lawsuits...1139
A. The Implementation Services Agreement...1141
A. Fraud under California Law...1148
B. Trade Secrets Generally...1153
C. Copart's Trade Secrets...1153
B. Common Law Misappropriation...1158
D. Unfair Competition and Unjust Enrichment...1160
A. CFAA and CDAFA Generally...1161
A. Relation Back Generally...1163
The following facts are not disputed unless otherwise noted. See A.G. v. Paradise Valley Unified Sch. Dist. No. 69 , 815 F.3d 1195, 1202 (9th Cir. 2016).
A. The Parties and the Project
Copart is a publicly traded company that sells more than two million vehicles per year. Sparta's Statement of Undisputed Facts ("SSUF") 2, ECF No. 187. To auction vehicles online, Copart uses its self-developed Enterprise Resource Planning ("ERP") system called Copart Auction System (or "CAS"). SSUF 3. Copart began using CAS in 1997. SSUF 4; Takenouchi Decl. Ex. 173 at 19:3–21, ECF No. 222–8.
In 2011, Copart sought a software development company to help replace Copart Auction System with a different software language made by SAP.1 SSUF 5. The new system was to be called "AIMOS," for Auction Inventory Management and Operating System. After initially hiring Accenture, LLP ("Accenture") to design and build AIMOS, Copart fired Accenture and split the contract into two phases, a design phase and a build phase, with a bidding process for each phase. SSUF 6, 9.
B. The Contract and Design Statement
After considering bids from three firms, Copart selected Sparta, a California corporation that designs and implements SAP-based ERP software solutions, to design AIMOS. SSUF 1, 10. On October 6, 2011, Copart and Sparta signed the Implementation Services Agreement ("the Contract" or "ISA"). SSUF 13; see also Takenouchi Decl. Ex. 2 (ISA), ECF No. 198–2. Under the Contract, Sparta promised to complete work laid out in the Design Project Statement of Work ("Design Statement"), which the parties also signed on October 6. SSUF 26. The Design Statement outlines a twenty-week project and details three milestones for Sparta's design of AIMOS during that time. Takenouchi Decl. Ex. 3 (Design Statement), ECF No. 198–3; SSUF 27. Each milestone in the Design Statement includes technical requirements, a completion schedule, and a fixed fee conditioned on Copart's review and acceptance. SSUF 29. Copart agreed to pay $3,250,000 for the first three milestones and an additional $1,400,000 for a fourth milestone the parties later added. Design Statement at 26; ISA § 9.1; SSUF 28; Llewellyn Decl. Ex. I (Change Request Form), ECF No. 196–9.
Between December 2011 and March 2012, Copart accepted in writing and paid for the first four milestones (Milestones 1 through 4), all related to AIMOS's design. SSUF 31–41. Copart contends Sparta fraudulently induced Copart's acceptance of these milestones. See Opp'n to Sparta at 15–16, ECF No. 209 ().
C. The Build Statement and Contract Amendment
On March 28, 2012, after considering bids from several firms to actually build AIMOS, Copart again selected Sparta. SSUF 42. Copart and Sparta signed the Statement of Work for the AIMOS SAP Implementation at Copart Realization Project ("Build Statement"). SSUF 45; Takenouchi Decl. Ex. 18 (Build Statement), ECF No. 198–18. The Statement includes eleven milestones (Milestones 5 through 15) for an agreed amount of $18,800,000. SSUF 48; Build Statement at 8–34.
In mid–2012, Copart accepted in writing and paid for the first three build phase milestones (Milestones 5 through 7). SSUF 49–57. As with the design phase milestones, Copart contends Sparta fraudulently induced its acceptance.
In August 2013, Copart and Sparta amended the Implementation Services Agreement ("the Contract Amendment" or "ISA Amendment"). SSUF 59; Takenouchi Decl. Ex. 69 (ISA Amendment), ECF No. 198–69. The Amendment sets forth requirements for Milestones 8 and 9 and revised the schedule for the remaining milestones (i.e., Milestones 10 through 15). See ISA Amendment §§ 1–2; id. Ex. B. Copart neither accepted nor paid for the remaining eight milestones, including the two the Amendment covered. SSUF 58.
D. Termination and Litigation
On September 17, 2013, Copart terminated its agreements with Sparta "for convenience" and asked Sparta to submit a request for payment for work completed to date. SSUF 60; Nadgauda Decl. Ex. L (Termination Letter), ECF No. 190–12. Sparta replied, detailing the work performed and requesting payment for approximately $12 million, a substantial remainder of the unpaid fees. SSUF 62; Llewellyn Decl. Ex. M (Request for Payment), ECF No. 196–13. Copart rejected Sparta's request and sued Sparta in Texas state court for its "unreasonable" position. Llewellyn Decl. Ex. M (Copart's Rejection Letter), ECF No. 196–14; SSUF 63 (complaint filed November 1, 2013). Sparta sued Copart in this court. Compl., ECF No. 1 (filed January 8, 2014). Copart's state action was removed to federal court and transferred here; the two actions are now consolidated. See Order Consolidating Cases at 1–2, ECF No. 30.
A. Procedural History
In this consolidated case, Copart is the plaintiff/counter-defendant and Sparta is the defendant/counter-claimant. Scheduling Order at 2, ECF No. 33 (). On June 8, 2016, Copart filed the operative Third Amended Complaint, which added Sparta's parent entities, KPIT Infosystems and KPIT India, as defendants. For simplicity, this order uses "plaintiff" to refer to Copart and "defendants" to refer to Sparta and its parent entities, collectively.
Sparta counterclaimed against Copart. Countercl., ECF No. 134. As discussed below, the parties move for summary judgment on both Copart's and Sparta's claims.
B. Copart's and Sparta's Claims
Copart brings the following claims against Sparta only: (1) Fraudulent Inducement; (2) Fraud; (3) Negligent Misrepresentation; (4) Breach of Contract; (5) Breach of the Implied Covenant of Good Faith and Fair Dealing; and (6) Request for Declaratory Relief. TAC ¶¶ 121–159. Copart brings the following claims against Sparta, KPIT Infosystems, and KPIT India: (7) Trade Secret Misappropriation; (8) Common Law Misappropriation; (9) Conversion; (10) Professional Negligence; (11) Violation of Computer Fraud and Abuse Act, 18 U.S.C. § 1030 ("CFAA"); (12) Violation of Comprehensive Computer Data Access And Fraud Act, Cal. Penal Code § 502 ("CDAFA"); (13) Unfair Competition; and (14) Unjust Enrichment. TAC ¶¶ 160–220.
Sparta counter-claims against Copart for: (1) Breach of Contract; (2) Promissory Estoppel; (3) Breach of the Implied Covenant of Good Faith and Fair Dealing; (4) Quantum Meruit; (5) Unjust Enrichment; and (6) Declaratory Relief. Countercl. ¶¶ 101–41.
Copart moves for summary judgment on Sparta's counter-claims and for partial summary judgment on elements of some of its own claims. See Copart Mot. Defendants jointly oppose. Opp'n to Copart, ECF No. 204. Copart has filed a reply. Copart Reply, ECF No. 224.
Defendants move for summary judgment on Copart's claims. Sparta Mot.; KPIT India Mot.; KPIT Infosystems Mot. Copart opposes. Opp'n to Sparta; Opp'n to KPIT India, ECF No. 210; Opp'n to KPIT Infosystems, ECF No. 212. Defendants have replied. KPIT India Reply, ECF No. 232; Sparta Reply, ECF No. 233; KPIT Infosystems Reply, ECF No. 234.
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