Music Dealers, LLC v. Sierra Bravo Corp.
| Decision Date | 10 September 2012 |
| Docket Number | Case No. 1:12-cv-00712 |
| Parties | MUSIC DEALERS, LLC, Plaintiff, v. SIERRA BRAVO CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Plaintiff, Music Dealers, LLC ("Music Dealers"), a music licensing company, brings forth this matter against Defendant, Sierra Bravo Corporation d/b/a The Nerdery ("Defendant" or "The Nerdery"), a software development company, alleging breach of contract and fraud. Defendant moves to dismiss Plaintiff's breach of contract claim for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Additionally, Defendant moves to dismiss Plaintiff's fraud claim for failure to meet the heightened pleading standards required pursuant to Fed. R. Civ. P. 9(b) and, in the alternative, for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Defendant further argues against the consequential damages sought by Plaintiff as barred by the limited liability provision of the parties' agreement. For the foregoing reasons Defendant's motion to dismiss Plaintiff's breach of contract and fraud claims is denied. Defendant's motion to limit the damages sought by Plaintiff in accordance with the limited liability provision found in the parties' contract agreement is granted.
The following facts are taken from the pleadings and all inferences have been drawn in favor of the non-movant, Plaintiff, Music Dealers. Music Dealers is a music licensing company based in Illinois that operates a website where users can search and download music from unsigned artists. The key component of this website is the "discovery tool application," which allows users to search for music on the site. In early 2011, Music Dealers entered into discussions with Defendant, The Nerdery, a Minnesota software development company, about developing an upgrade to the discovery tool application.
On April 8, 2011, at a meeting in Chicago, Defendant, through its agents, Matthew Yonan, Rose Lannin, and Melanie Griffin Pugh, told Music Dealers' agents that The Nerdery possessed expertise in a software application called Drupal that was necessary in order to complete the project. Defendant's agents also gave assurances to Music Dealers that The Nerdery would "have no difficulty meeting [Music Dealers] needs" in regards to the project. Subsequently, Music Dealers agreed to utilize The Nerdery's services for the project. Music Dealers contends that it would not have entered into such an agreement were it not for Defendant's assurances about The Nerdery's expertise with Drupal and capability to complete the project successfully.
Attached to the complaint are two documents, a "Master Services Agreement" ("MSA") and "Scope of Work," ("SOW") (collectively, "the writings") which were executed by the parties on July 19, 2011. The SOW states an "estimated" project cost of $115,768, of which fifty-percent (50%) was due in order for the project to begin. (Compl., Ex. B, p.13). The SOW also includes a list of the "project's features and development tasks," including "design integration" and "functionality" of several different components. (Id. at p.14). Next to each of the specific functionalities listed on page two of the SOW is a parenthetical stating "flow detailed in wireframe." (Id.) "Wireframe" refers to separate documents that show how each of the specific functionalities of the program operates within the framework of the website. (Comp. ¶5, 7). Music Dealers alleges that Defendant stated "in numerous conferences and planning sessions" that the SOW was only intended to serve as a general outline of the services to be provided and that the wireframe documents would describe the work to be performed in more detail. (Id. ¶7).
The project was not completed by September 8, 2011, the projected completion date provided for in the parties' agreement. (Id. ¶8, 10). On September 15, 2011, Simon Banks of The Nerdery stated to Joshua Burke of Music Dealers that "upon completion of the project we will have to have a post morten (sic) review why this project failed in such a manner." Banks apologized and stated that "[The Nerdery] did not normally work in such a manner." (Id. ¶11). Following completion of the contract and payments in excess of $115,000 made by Music Dealers to The Nerdery, Music Dealers discovered that various aspects of the final product were either not working properly or missing altogether. (Id. ¶10).
On December 13, 2011, Music Dealers filed a Complaint in the Law Division of the Circuit Court of Cook County, Illinois. On February 1, 2012, Defendant removed that case to this Court. On February 8, 2012, Defendant filed a Motion to Dismiss Music Dealers' two-count Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). Count I of the Complaint alleges breach of contract based on various allegations regarding defective and missing functions in the final product and Defendant's failure to meet the agreed upon deadline for its completion. Count II alleges fraud regarding the statements made by The Nerdery's agents at the April, 2011 meeting regarding The Nerdery's expertise and capability to meet Music Dealers' needs.
Defendant argues that Count I should be dismissed because the alleged breaches were not part of the contract. Defendant contends that the contract was only an "estimate or projection" and that the limited warranty clause defeats Music Dealers' breach of contract claim. Additionally, Defendant argues that Count II should be dismissed because Music Dealers failed to plead fraud with the specificity required pursuant to Fed. R. Civ. P. 9(b). In the alternative, Defendant advances a 12(b)(6) argument, contending that the alleged fraudulent statement is insufficient to support a fraud claim as a matter of law and that the statement itself is barred by the contract's integration clause.
In response to Defendant's motion, Music Dealers argues that the contract is facially ambiguous and that the Court should consider extrinsic documents, specifically the "wireframe" documents, in order to ascertain the parties' intent and the scope of the agreement. In particular, Music Dealers contends that the writings are ambiguous as to whether the parties intended toincorporate the wireframe documents into their agreement, and further, assert that the wireframe documents are incorporated into the SOW by reference.
A complaint must set forth sufficient factual material, taken as true, to raise the plaintiff's right to relief "above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In order to survive a motion to dismiss, the complaint must, on its face, contain sufficient factual material for the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, U.S., 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations stated in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007). A Rule 12(b)(6) motion must be decided solely on the face of the complaint and any attachments that accompanied its filing. Miller v. Herman, 600 F.3d 726, 733 (7th Cir. 2010) (citing Fed. R. Civ. P. 10(c)). Documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim. McCready v. EBay, Inc., 453 F.3d 882 (7th Cir. 2006) (citing Fed. R. Civ. P. 12(b)(6)). When a document contradicts a complaint to which it is attached, the document controls. Flannery v. Recording Indus. Assoc. of Am., 354 F.3d 632, 638 (7th Cir. 2004).
The heightened pleading standard set forth in Rule 9(b) requires that in all allegations of fraud, "a party must state with particularity the circumstances constituting fraud." Fed. R. Civ . P. 9(b). This heightened pleading standard for claims involving fraud requires a party to plead "the who, what, when where, and how: the first paragraph of any newspaper story." U.S. ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009). The particularity requirement of Rule 9(b) is designed to discourage a "sue first, ask questions later" philosophy. PirelliArmstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011).
As an initial matter, the parties have agreed that Illinois law governs this dispute, therefore this Court will apply Illinois law to the substantive issues in this case. (Compl., ¶ 3; Ex. A at ¶18). Under Illinois law, the elements for breach of contract are: "(1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of the contract by the defendant; and (4) resultant injury to the plaintiff." Nielsen v. United Servs. Auto. Ass'n, 244 Ill.App.3d 658, 662, 612 N.E.2d 526, 529 (2d Dist.1993). Defendant argues that the MSA and SOW constitute the entire contractual agreement between the parties and Music Dealers has failed to allege that Defendant breached any contractual duty contained in these documents. Music Dealers responds that Defendant's breached certain provisions included in the wireframe documents and that these documents were incorporated by reference into the SOW, resulting in the Defendants liability for breach of contract. Based on the arguments made by both parties, the initial issue before the Court is whether the wireframe documents can be considered part of the parties' contractual agreement.
To determine what constitutes a contract, Illinois applies the four corners rule, which bars consideration of extrinsic evidence when the contract is facially unambiguous and fully integrated. TAS...
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