Counselnow, LLC v. Deluxe Small Bus. Sales Inc., Case No. 2:19-cv-00284-DAK

• Decision Date: 20 December 2019
• Docket Number: Case No. 2:19-cv-00284-DAK
• Citation: 430 F.Supp.3d 1247
• Parties: COUNSELNOW, LLC, a Utah limited liability corporation, Plaintiff, v. DELUXE SMALL BUSINESS SALES INC., a Minnesota corporation and wholly owned subsidiary of Deluxe Corporation, and OrangeSoda, Inc., a Nevada corporation that merged with Deluxe Small Business Sales, Inc., Defendants.
• Court: U.S. District Court — District of Utah

430 F.Supp.3d 1247

COUNSELNOW, LLC, a Utah limited liability corporation, Plaintiff,

v.DELUXE SMALL BUSINESS SALES INC., a Minnesota corporation and wholly owned subsidiary of Deluxe Corporation, and OrangeSoda, Inc., a Nevada corporation that merged with Deluxe Small Business Sales, Inc., Defendants.

Case No. 2:19-cv-00284-DAK

United States District Court, D. Utah.

Signed December 20, 2019

Leah Jordana Aston, Lincoln Law, Orem, UT, Tessa Meyer Santiago, Provo, UT, for Plaintiff.

Peter J. Gleekel, Larson King LLP, St. Paul, MN, Stephen J. Trayner, Strong & Hanni, Salt Lake City, UT, for Defendants.

MEMORANDUM DECISION AND ORDER

DALE A. KIMBALL, United States District Judge

This matter is before the court on Defendants Deluxe Small Business Sales, Inc. and OrangeSoda, Inc.'s Motion to Dismiss Plaintiff CounselNow, LLC's Third Amended Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court held a hearing on the motion on November 26, 2019. At the hearing, Defendants were represented by Peter J. Gleekel and Stephen J. Trayner and Plaintiff was represented by Leah Jordana Aston. The court took the matter under advisement. The court considered carefully the memoranda and other materials submitted by the parties, as well as the law and facts relating to the motion. Now being fully advised, the court issues the following Memorandum Decision and Order.

BACKGROUND

Plaintiff CounselNow, LLC ("CounselNow") is a legal software development firm located in Orem, Utah. Defendant Deluxe Small Business Sales, Inc. ("DSBS") is a Minnesota corporation and a wholly owned subsidiary of Deluxe Corporation ("Deluxe"). Defendant OrangeSoda, Inc. ("OrangeSoda") was a Nevada corporation that was purchased by Deluxe in 2012 making it another wholly owned subsidiary of Deluxe. DSBS and OrangeSoda merged in 2015.

In 2011, CounselNow established relationships with four consumer rights law firms: Lincoln Law, Borowitz & Clark, Kirkpatrick and Associates, and The Law Offices of John T. Orcutt. These law firms are members of a larger group of consumer law firms from across the country called the American Consumer Bankruptcy College ("ACBC"). A few law firms from the ACBC, including Lincoln Law, hired CounselNow to create websites for their businesses. However, neither CounselNow nor the law firms had any expertise in digital marketing or search engine optimization¹ ("SEO") that would allow for potential customers to locate the websites. Accordingly, the firms appointed CounselNow to find an SEO company that could help with the law firms' websites.

As it began its search, CounselNow was adamant that any SEO company that it introduced to its client law firms use only acceptable SEO methods. More specifically, CounselNow would not do business with a company that utilized what major search engines call "black hat" or "gray hat" SEO strategies, i.e., strategies and practices that go against search engine guidelines and which violate search engine terms of service. Instead, CounselNow sought an SEO company that utilized only "white hat" SEO strategies, i.e., tactics that are approved by major search engines and comply with their terms and conditions.

In conducting its search, CounselNow came across OrangeSoda and began negotiating with it regarding the services that the law firms needed. Throughout the parties' negotiations, CounselNow represented that it would only bring its clients to OrangeSoda if OrangeSoda agreed that it would not use any black hat or gray hat SEO tactics. Eventually, OrangeSoda drafted a Memo of Understanding ("MoU") memorializing the terms that would govern CounselNow's and OrangeSoda's relationship. In the MoU, OrangeSoda represented that, among other things, (1) it was an expert in the SEO field and (2) it would not engage in any black hat or gray hat SEO tactics. Based on the parties' negotiations and OrangeSoda's representations in the MoU, CounselNow advised the law firms to retain OrangeSoda.

In February 2011, OrangeSoda entered into an Advertiser Insertion Order ("AIO") with Lincoln Law and two other law firms wherein it agreed to market the law firms' websites. Importantly, Andrew Gustafson ("Gustafson"), the Manager of CounselNow, signed the agreement on behalf of the law firms. The first five pages of the AIO contain boilerplate language. The sixth page consists of a fee schedule that is referenced in the first five pages. The seventh page is a revenue sharing and partnership agreement between OrangeSoda and CounselNow in which OrangeSoda agreed to pay CounselNow 40% of all net revenue that it received from any contracts of advertisers that engaged OrangeSoda through CounselNow. CounselNow intended to use the revenue it received under the agreement to develop a software program for bankruptcy law firms called CounselKit and an associated product called SiteKit.

To fulfill its contractual obligations to the law firms, OrangeSoda hired third-party SEO providers, one of which was called BuildMyRank. Unbeknownst to CounselNow or the law firms, however, both BuildMyRank and OrangeSoda engaged in prohibited black hat tactics in the work that they performed for the law firms. Eventually, in early 2012, Google punished BuildMyRank by deindexing the networks that it had created and maintained. In other words, Google removed the networks created by BuildMyRank from the search engine index used by Google to find and list websites in search engine results. Consequently, many of the websites using BuildMyRank networks would no longer appear on any search engine results. And for the websites that did appear, they would not appear until the fourth, fifth, or even tenth page of the search results. Shortly thereafter, BuildMyRank went out of business.

Because the law firms' websites were heavily connected to BuildMyRank networks and because OrangeSoda directed and paid BuildMyRank to attach low quality links that it created to those websites, the web presence and prominence of the law firms plummeted after Google deindexed BuildMyRank. During the subsequent months, OrangeSoda was unable to restore any of the law firms' websites to the traffic position and keyword ranking that they had been prior to hiring OrangeSoda. Given the precipitous fall of the websites' search result rankings, one of the law firms cancelled its contract with OrangeSoda in December 2012. Eventually, all the law firms followed suit and cancelled their agreements with OrangeSoda, and in 2016, Lincoln Law and Borowitz & Clark sued OrangeSoda for breach of contract. While the cancellation of the contracts obviously resulted in a rapid decline in the revenue that CounselNow received pursuant to the revenue sharing agreement, OrangeSoda still made at least thirty-seven payments to CounselNow over the course of their relationship, totaling $155,701.91.

When the law firm websites' search result rankings plummeted, CounselNow initiated an investigation to ascertain the cause behind the drop. As part of the investigation, CounselNow had various conversations with employees of OrangeSoda, each of which reassured CounselNow that it had only utilized permissible SEO strategies. Thus, after concluding the investigation, CounselNow determined that OrangeSoda may have used black hat tactics on the law firms' websites, but that it had done so unknowingly. Then, years later, in January 2019, several OrangeSoda employees were deposed. In those depositions, CounselNow learned that despite its original representations, OrangeSoda paid little attention to major search engine guidelines, implemented whatever SEO strategies it desired, and directed its employees to attach low-quality weblinks to the law firms' websites.

CounselNow instituted the present suit in November 2018 in Utah state court. After being served with a summons and second amended complaint in April 2019, Defendants removed the case to this court. Following removal, CounselNow filed a third amended complaint wherein it asserts five causes of action: (1) breach of contract as a party to the contract; (2) breach of contract as a third-party beneficiary to the contract; (3) fraud; (4) negligent misrepresentation; and (5) tortious interference with prospective business relations. CounselNow contends that by using black hat and gray hat SEO strategies, OrangeSoda breached its agreement to use only white hat SEO strategies for the law firms' websites. Moreover, CounselNow avers that OrangeSoda fraudulently and negligently misrepresented to CounselNow and the law firms that it would not use black hat or gray hat tactics. Lastly, CounselNow claims that OrangeSoda knew that CounselNow anticipated securing SEO business from other law firms and developing CounselKit, but OrangeSoda intentionally interfered with those prospective business relationships by utilizing improper SEO tactics.

DISCUSSION

Defendants now move to dismiss each of CounselNow's five causes of action for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face." Bixler v. Foster , 596 F.3d 751, 756 (10th Cir. 2010) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ) (quotation marks omitted). "[A]ll well-pleaded factual allegations in the complaint are accepted as true and viewed in the light most favorable to the nonmoving party." Acosta v. Jani-King of Oklahoma, Inc. , 905 F.3d 1156, 1158 (10th Cir. 2018) (quoting Moore v. Guthrie , 438 F.3d 1036, 1039 (10th Cir. 2006) ). "[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim." Kansas Penn Gaming, LLC v. Collins , 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Bell Atl. Corp. v. Twombly , 550 U.S....