Petedge, Inc. v. Garg

• Decision Date: 10 February 2017
• Docket Number: 1:15–cv–9606–GHW
• Citation: 234 F.Supp.3d 477
• Parties: PETEDGE, INC., Plaintiff, v. Vijay GARG, Defendant.
• Court: U.S. District Court — Southern District of New York

234 F.Supp.3d 477

PETEDGE, INC., Plaintiff,

v.Vijay GARG, Defendant.

1:15–cv–9606–GHW

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

Signed February 10, 2017

Marcus Stephen Harris, Marcus Stephen Harris LLC, Chicago, IL, for Plaintiff.

Rishi Bhandari, Donald David Conklin, III, Evan Mandel, Mandel Bhandari, LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

GREGORY H. WOODS, United States District Judge:

In 2012, Plaintiff PetEdge, Inc. ("PetEdge"), a pet supply company, hired The Principal Consulting, Inc. ("TPC") to implement a new software system that it had licensed from SAP America, Inc. According to PetEdge, TPC's work on this project was a "train wreck," resulting in millions of dollars of damages. TPC is not currently a party to this action. Instead, PetEdge and TPC have agreed to resolve their dispute in binding arbitration. In this action, PetEdge seeks to hold TPC's CEO, Vijay Garg, liable for its injuries on theories of fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty. Mr. Garg has moved to dismiss PetEdge's second amended complaint. Because the second amended complaint strains to impose liability for acts in which Mr. Garg played no personal role and to impose duties on Garg where none are to be found, the motion to dismiss is GRANTED, and PetEdge's second amended complaint is DISMISSED in its entirety.

I. BACKGROUND¹

A. The Facts Alleged

PetEdge is a "small family owned pet supply company." ECF No. 37, Second Am. Compl. ("SAC") ¶ 1. In 2012, PetEdge embarked on a search for a new software system to replace its "aging and outdated legacy computer system." SAC ¶ 5. After reviewing a number of competing products, PetEdge selected SAP America, Inc. ("SAP") as its enterprise resource planning ("ERP") software vendor. Id. As a general matter, ERP software "consists of numerous ‘applications' designed to perform a variety of tasks, including financial accounting, human resources, distribution planning functions, online store functions and billing functions." SAC ¶ 5 n.1.

During its search for new software vendors, PetEdge also sought a consultant with "extensive experience and expertise in installing and implementing SAP's software for catalogue businesses like PetEdge's." Id. Included among the functionality set in the ERP software that PetEdge licensed from SAP were applications called Web Channel Experience Management ("WCEM") and Customer Relationship Management ("CRM"). SAC ¶ 5. According to the second amended complaint, "[i]t was important to PetEdge that any consultant not only be knowledgeable about the scope and the deliverables required in an implementation of the SAP software generally but that the consultant had successfully implemented the SAP CRM and WCEM functionality PetEdge was licensing from SAP." Id. PetEdge eventually engaged TPC—of which Defendant Vijay Garg is co-founder and CEO—to fill this consultant role. SAC ¶¶ 3, 13. This dispute arises out of TPC's efforts to secure this engagement, the negotiation of the contract and statement of work with PetEdge, and TPC's work for PetEdge.

1. TPC's Sales Pitch

Upon learning that PetEdge was seeking a third-party consultant to install and implement the SAP software, Garg "sent Brendon O'Malley and Mark Dooley to aggressively pitch TPC's services to PetEdge to induce PetEdge to purchase TPC's software consulting services." SAC ¶ 6. O'Malley and Dooley "conducted numerous site visits to learn about PetEdge's needs and concerns and were aware of these needs and concerns." Id. PetEdge alleges that it advised O'Malley and Dooley that it sought a consulting company that "had successfully implemented SAP's software generally and SAP WCEM and CRM in particular" and that "understood PetEdge's catalogue business model and the impact that unique business model would have on a software implementation." SAC ¶ 7. PetEdge also informed them that it "had not been involved with an ERP implementation since 1997 and therefore had very limited experience with software implementations, lacked the knowledge or experience necessary to perform such a project by itself and would be relying on TPC's expertise, experience, advice, and guidance on even the most basic software implementation issues." Id. "Throughout the pre-contract sales-cycle, Messrs. Dooley and O'Malley responded by representing that they understood each of PetEdge's concerns and touted the suitability of TPC's software consulting services for PetEdge's needs." Id.

PetEdge alleges that it made its specific business needs and requirements for the project clear during its pre-contract discussions with TPC and other potential vendors by providing a "Project Requirements" spreadsheet listing them in detail. SAC ¶ 12 & Ex. B–3. Examples of the requirements include: "Full integration of the CRM and WCEM functionality with the ERP system," "Implementing to match code functionality that would enable PetEdge to determine if a customer is new or duplicate," "Implementing ‘bounce-back’ email tracking functionality," and "Implementing credit card payment and ship-to functionality." SAC ¶ 12.

According to the second amended complaint, Garg directed O'Malley and Dooley to "bill[ ] TPC as being a go-to SAP partner for SAP CRM, having team members with 10+ years experience in SAP CRM, and having successfully upgraded nearly every combination and permutation of SAP CRM." SAC ¶ 8. "With Garg's knowledge and at his direction," PetEdge alleges, they "positioned TPC as a leading expert in CRM components, technology and integration, and as having extensive experience in implementing Web UI and integrating Web Services, e-Selling, and e-Service." Id.

On August 30 and 31, 2012, O'Malley, Dooley, and other unspecified TPC employees met via telephone with Trish Keller, PetEdge's Vice President of IT, and Mark Dow, PetEdge's CFO, to discuss "the implementation of the SAP software, the scope of the SAP implementation project, the deliverables that TPC would provide, PetEdge's catalogue business model and the impact that business model would have on the implementation." SAC ¶ 9. PetEdge alleges that this telephonic meeting was "part of Mr. Garg's scheme to defraud PetEdge." Id.

On October 3, 2012, O'Malley and Dooley traveled to PetEdge's Massachusetts office to meet with Keller and Dow in person. SAC ¶ 10. PetEdge alleges that, during this meeting, and "[a]t Mr. Garg's direction," they made mispresentations with respect to TPC's understanding of the SAP WCEM software PetEdge had licensed, TPC's understanding of the catalogue business model used by PetEdge, and the impact that business model would have on the deliverables, including modifications necessary to successfully implement the SAP software at PetEdge. Id.

On October 4, 2012 and October 12, 2012, O'Malley and Dooley met with Keller and Dow again via telephone to "aggressively pitch TPC's consulting services to PetEdge." Id. PetEdge again alleges that they did so "at Mr. Garg's direction." Id.

"Mr. Garg's representatives" also provided PetEdge with a budget for their services. According to the second amended complaint, however, PetEdge was unaware at the time that TPC's budget "was a wild guess that had no relation to the unique requirements of the implementation, the scope of the implementation or the deliverables that would need to be provided to meet PetEdge's business needs and requirements." SAC ¶ 11.

2. Negotiation of the Statement of Work and Signing of the Master Service Agreement

Based upon the above representations—which PetEdge characterizes as misrepresentations—PetEdge began negotiating a contract with TPC. Id. On October 17, 2012, during negotiations of the Statement of Work ("SOW"), Garg allegedly "modified § 8 of the SOW naming himself as the "Consultant/Supplier Project Manager" for the project. SAC ¶ 12 & Ex. A (showing replacement of "xxxxx" with "Vijay Garg" in a track-changes version of SOW). The "Project Requirements" spreadsheet that had been shared with potential vendors during the search process was also attached to the SOW. SAC ¶ 12 & Exs. B–2, B–3. The SOW, including the version allegedly showing changes made by Garg, also contains the following representation: "Consultant/Supplier acknowledges and agrees that it has read the PetEdge Requirements Document attached hereto as an Appendix and agrees that the Deliverables shall comply in all respects with the PetEdge Requirements and that these requirements are within scope." SAC ¶ 12 & Exs. A & B–2 (Art. 4).

On October 22, 2012, PetEdge signed TPC's Master Service Agreement (the "Agreement") and the associated SOW, with PetEdge's Requirements Document attached. SAC ¶ 13 & Ex. B.

3. The Project Begins, and Problems Arise

By December of 2012, it "became apparent to PetEdge that TPC was having difficulty implementing the SAP software and the SAP CRM and WCEM functionality," and PetEdge "became concerned with TPC's lack of competence." SAC ¶¶ 15–16. In mid-December, PetEdge's Keller had a "pointed discussion" with TPC's Project Leader, Sreedhar Sambatur, about issues that PetEdge was experiencing with the implementation project and with TPC's provision of consulting services. SAC ¶ 15. As the implementation progressed, PetEdge also became concerned about "the failure of ... Sambutar[ ] to even attend project meetings." SAC ¶ 16. On December 19, 2012, PetEdge's Project Manager, Don Bacon, emailed Sambutar to request that he attend the project meetings, even if only by phone. Id. On the same day, Keller also emailed Sambutar to express her concern and to request that TPC "look into its other implementations of WCEM and CRM to find someone on [its] staff that understood PetEdge's catalogue business model." Id. According the second amended complaint, TPC "was unable to do so." Id.

PetEdge alleges that TPC's failures continued, despite Keller's and Bacon's attempts to address the issues that had arisen. SAC ¶ 17. By February of 2013, Keller requested a call with TPC's Managing...