Mtivity, Inc. v. Office Depot, Inc.

• Decision Date: 16 March 2021
• Docket Number: Case No. 1:19-cv-5094-FB-RML
• Citation: 525 F.Supp.3d 433
• Parties: MTIVITY, INC., Plaintiff, v. OFFICE DEPOT, INC. & John Does 1-35, Defendants.
• Court: U.S. District Court — Eastern District of New York

525 F.Supp.3d 433

MTIVITY, INC., Plaintiff,

v.OFFICE DEPOT, INC. & John Does 1-35, Defendants.

Case No. 1:19-cv-5094-FB-RML

United States District Court, E.D. New York.

Signed March 16, 2021

For the Plaintiff: DANIEL BERKO, Law Offices of Daniel Berko, 819 Eddy St., San Francisco, CA 94109.

For the Defendant: CHARLES CHEVALIER, Gibbons P.C., 1 Gateway Center, Newark, NJ 07102.

MEMORANDUM AND ORDER

BLOCK, Senior District Judge:

Plaintiff Mtivity, Inc. alleges that Defendant Office Depot, Inc. breached an agreement to purchase and use its marketing software for a five-year term ("Agreement").¹ Mtivity further alleges that Office Depot violated the Defend Trade Secrets Act of 2016 ("DTSA") by misappropriating and improperly disclosing the details of its proprietary software to its new service provider, eLynxx Solutions ("eLynxx"). Mtivity seeks damages for breach of the Agreement, recovery in quantum meruit for services rendered under the Agreement, and damages for the unlawful disclosure of its trade secrets.²

Office Depot moves to dismiss Mtivity's complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). It argues that (1) Mtivity's breach of contract claim is barred by the New York Statute of Frauds; (2) quantum meruit recovery is unwarranted because Office Depot paid the reasonable value of Mtivity's services; and (3) Mtivity's DTSA claim rests on conclusory allegations. For the reasons stated below, Office Depot's motion is granted in part.

I. Factual Background

The following facts are taken from the amended complaint and the documents to which it refers. See Brass v. Am. Film Technologies, Inc. , 987 F.2d 142, 150 (2d Cir. 1993). For purposes of this motion, the Court accepts Mtivity's well-pleaded facts as true and draws all permissible inferences in its favor. See Gamm v. Sanderson Farms, Inc. , 944 F.3d 455, 458 (2d Cir. 2019). Nothing in this section represents the Court's resolution of a disputed issue of fact.

Mtivity is a global marketing technology firm. In April of 2016, Mtivity entered into a five-year agreement with Office Depot, which gave Office Depot and its employees a license to use Mtivity's proprietary software and access to support and hosting services.³ In exchange, Office Depot paid an annual subscription fee, and both parties agreed not to disclose confidential information learned as a result of their business relationship.

The Agreement provides for a five-year term of service but allows the parties to terminate their arrangement early "by [mutual] written agreement." ECF No. 17, Ex. 2 at 11. It further provides that either party may terminate the Agreement if the other party fails to cure a breach, and that either party may terminate "for convenience" once the five-year term is complete if it gives "6 months written notice to the other party." Id. The confidentiality provisions remain in force even after the term of service and survive termination pursuant to the Agreement's termination clause. Id.

The Agreement states that it will be construed according to New York law. Id. at 15.

The parties never signed the Agreement. However, an unnamed Office Depot employee "represented to Mtivity that Office Depot would waive the right or need for Office Depot to sign the ... Agreement [and stated] that Office Depot would adhere to the ... Agreement the same as if it had signed the ... Agreement." ECF No. 13 at 3. Relying on these representations—and in particular on Office Depot's alleged promise to use its software for five years—Mtivity agreed to lower the subscription price. Mtivity cut the price of its services by "at least $201,600" because it believed Office Depot would use its software for at least five years. Mtivity also spent a little over $100,000 to create and maintain the infrastructure needed to meet Office Depot's needs.

Office Depot paid the subscription price for all years in which it received services. It stopped paying for services when it switched to a new provider (eLynxx) after 2.5 years.

II. Legal Standard

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible when "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ).

III. Breach of Contract

A. The Agreement is Unenforceable under the Statute of Frauds

Office Depot argues that the Agreement is void under the New York Statute of Frauds, which states:

Every Agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed [i.e. signed] by the party to be charged therewith ... if such agreement ... by its terms is not to be performed within one year from the making thereof. N.Y. Gen. Oblig. Law § 5-701.⁴

Specifically, Office Depot contends that the Agreement is void under the plain language of the statute because it contemplates a five-year term and is unsigned. Mtivity responds that the Statute of Frauds does not apply because the parties can theoretically "fully perform" the Agreement in less than a year if they invoke the mutual termination clause, and the Statute of Frauds invalidates "only those contracts which, by their terms, have absolutely no possibility in fact and law of full performance within one year." Guilbert v. Gardner , 480 F.3d 140, 151 (2d Cir. 2007) ; see also BPP Wealth, Inc. v. Weiser Capital Mgmt., LLC , 623 F. App'x 7, 12-3 (2d Cir. 2015) (noting that "[m]ost agreements terminable at will are not subject to the Statute of Frauds because performance could be completed in less than one year if either party were to exercise its termination option").

1. The Mutual Termination Clause is not a Nullity

As a preliminary matter, the Court rejects Office Depot's argument that "logic" renders the mutual termination clause a legal nullity because, "[as] a practical matter, any contract can be cancelled at any time by mutual assent of the parties." ECF No. 17, Ex. 1 at 13. While this statement is usually true, it ceases to be true "under New York law," where, as here, "the parties agree that a written contract can be terminated on written notice." Bulldog New York, LLC v. Pepsico, Inc. et al. , 8 F. Supp. 3d 152, 167 (D. Conn. 2014) (citing Israel v. Chabra , 12 N.Y.3d 158, 878 N.Y.S.2d 646, 906 N.E.2d 374, 379 (2009) ). In such a situation, the parties’ consent is only effective if they execute another "writing signed by the party against whom the termination ... is sought to be enforced," a requirement that may not be satisfied "at any time" by an act of will. Id.

Moreover, the legal effects of a common law "recission by abandonment" and termination pursuant to a termination clause are subtly different. Under New York law, "assent to abandonment dissolves the contract so that a [a party] can neither sue for a breach nor compel specific performance," whereas termination pursuant to a termination clause is usually treated as alternate performance. EMF Gen. Contracting Corp. v. Bisbee , 6 A.D.3d 45, 774 N.Y.S.2d 39, 43 (1st Dept. 2004) (emphasis added); see also Blake v. Voight , 134 N.Y. 69, 72, 31 N.E. 256 (1892) (holding that invoking termination clause "advanced the period of fulfillment"). This distinction is significant because certain clauses of the Agreement are intended to endure even after performance is complete. See ECF No. 17, Ex. 2 at 11 (listing sections of the Agreement that survive termination). These clauses would be rendered null and void if the parties "dissolve" the contract by common law abandonment but, per the Agreement's terms, would not be affected by termination pursuant to the mutual termination clause. Bisbee , 774 N.Y.S.2d at 43. The Court therefore rejects Office Depot's argument that the mutual termination clause is a legal nullity with no relevance to the Agreement's construction. Instead, it reaches a novel and important question of state law: Does the inclusion of a "mutual termination clause" in a contract transform that contract into one that can be performed in a year or less?

2. The Mutual Termination Clause does not Remove the Agreement from the Statute of Frauds

When determining the "length" of a contract for Statute of Frauds purposes, New York courts distinguish between termination clauses triggered by events outside the parties’ control, and those triggered by events within their control. The first type of termination clause usually will not exempt an agreement from the Statute of Frauds, while the latter will. Compare Radio Corp. of Am. v. Cable Radio Tube Corp. , 66 F.2d 778, 785 (2d Cir. 1933) (concluding that options to terminate in case of "breach, bankruptcy, insolvency or the appointment of a receiver" do not exempt a contract from the Statute of Frauds because they are "contingencies over which [the parties] had no control") and Dundee Wine and Spirits, Ltd. v. Glenmore Distilleries Co. , 238 F.Supp. 283, 288 (E.D.N.Y. 1965) (holding that termination based on "outside circumstances and the will of a third party" did not exempt a contract from the Statute of Frauds) with North Shore Bottling Co. v. C. Schmidt & Sons Inc. , 22 N.Y. 2d 171, 177, 292 N.Y.S.2d 86, 239 N.E. 2d 189 (1968) (concluding that an agreement was not subject to Statute of Frauds where "an action ... unquestionably within the defendant's power to take" would terminate it before a year had elapsed) and Voight , 134 N.Y. at 72, 31 N.E. 256 (holding that the statute of frauds did not apply to a contract that either party could terminate after seven months because invoking the termination provision "did not defeat the contract, but simply advanced the period of...