Realpage, Inc. v. Yardi Sys., Inc.

• Decision Date: 13 February 2012
• Docket Number: Case No. CV 11–00690–ODW (JEMx).
• Citation: 852 F.Supp.2d 1215,2012 Trade Cases P 77799
• Court: U.S. District Court — Central District of California
• Parties: REALPAGE, INC., Counter–Claimant, v. YARDI SYSTEMS, INC., Counter–Defendant.

852 F.Supp.2d 1215

2012-1 Trade Cases P 77,799

REALPAGE, INC., Counter–Claimant,

v.YARDI SYSTEMS, INC., Counter–Defendant.

Case No. CV 11–00690–ODW (JEMx).

United States District Court,

C.D. California,

Western Division.

Feb. 13, 2012.

Chad Russell, Bingham McCutchen LLP, San Francisco, CA, Chad Russell, Gabrielle Daneeka Hann, Geoffrey M. Howard, Bingham McCutchen LLP, San Francisco, CA, James B. Lewis, Bingham McCutchen, East Palo Alto, CA, Jessica Mahon Scoles, Bingham McCutchen LLP, Santa Monica, CA, for Counter–Defendant.

David R. Eberhart, James Michael Pearl, Sharon M. Bunzel, Mark Alan Samuels, O'Melveny and Myers LLP, San Francisco, CA, Allan Gabriel, Sidney Christopher Winter, Dykema Gossett LLP, Los Angeles, CA, for Counter–Claimant,

Order GRANTING IN PART and DENYING IN PART Counter–Defendant's Motion to Dismiss [141]

OTIS D. WRIGHT, II, District Judge.

I. INTRODUCTION

Pending before the Court is Counter–Defendant Yardi Systems, Inc.'s (“Yardi”) Motion to Dismiss Counter–Claimant RealPage, Inc.'s (“RealPage”) Second Amended Counterclaims (“SACC”) pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 141.) RealPage filed an Opposition to the instant Motion, to which Yardi filed a Reply. (Dkt. Nos. 146, 148.) Having carefully considered the papers filed in support of and in opposition to the instant Motion, the Court deems the matter appropriate for decision without oral argument. SeeFed.R.Civ.P. 78; C.D. Cal. L.R. 7–15. For the following reasons, Yardi's Motion to Dismiss is GRANTED in PART and DENIED in PART.

II. FACTUAL BACKGROUND

RealPage and Yardi are competitors in the real property management business. ( See SACC ¹ ¶ 2.) Perhaps Yardi's greatest success has been its popular property management back office accounting software, Voyager—a computer accounting program especially designed to meet the needs of property managers. (SACC ¶¶ 4, 17.) Yardi tailors its Voyager software to property managers that manage 1,000 or more individual apartment units, who typically have more complex and specialized needs. (SACC ¶¶ 21.) Once a property management customer adopts the Voyager software, it becomes especially difficult—and in some cases prohibitively expensive—for that customer to switch to an alternative back office accounting software because of the high switching costs associated with moving the customer's data to a new system, the cost of new licensing fees, and the disruption of day-to-day business attendant to re-aligning IT systems and transferring data. (SACC ¶ 4.)

Yardi and RealPage are currently the only two competitors in the market for supplying vertically integrated cloud computing services specifically designed to meet the needs of real property owners and managers. (SACC ¶ 1.) Vertically integrated cloud computing services (“vertical cloud services”) enable customers with multiple software applications—such as back office accounting (including Yardi's Voyager), maintenance, leasing, revenue management, payment processing, and background screening applications—to have those applications hosted and managed in an off-site data center. (SACC ¶ 2.) These applications are then accessible to the customer remotely via the Internet. ( Id.) Yardi and RealPage's cloud services differ from more generic cloud services in that their services are industry-specific. ( Id.)

RealPage was the first company to offer vertical cloud services (the “RealPage Cloud”). (SACC ¶ 3.) RealPage contends that Yardi was only able to offer its competing Yardi Cloud Services by misappropriating RealPage's trade secrets. (SACC ¶ 3.) RealPage further alleges that rather than innovate and invest in a superior cloud system, Yardi embarked on a campaign to leverage its powerful position in the property management back office accounting software market (the “Software Market”)—attained via its industry-leading Voyager software—to stifle competition in the vertical cloud market (the “Vertical Cloud Market”) through customer interference and intimidation. (SACC ¶¶ 39–42.)

Specifically, RealPage avers that Yardi began forcing its Voyager clients, through express and implied threats, into anti-competitive exclusionary amendments to their Voyager licensing agreements. (SACC ¶ 40.) The amendments to the licensing agreements prohibited Yardi's Voyager licensees from using any “contractor” to implement or host the Yardi software, and defined “contractor” broadly to include both the RealPage Cloud and any other potential vertical cloud services providers. (SACC ¶ 47.) While many Voyager customers either already hosted their Voyager software in the RealPage Cloud or desired to do so, Yardi coerced customer acquiescence to the prohibitive amendments by threatening to terminate its customers' Voyager software licenses. (SACC ¶¶ 40–41.) Because of the prohibitively high costs associated with switching away from the Voyager software, Yardi's Voyager customers were effectively locked into the software and faced no choice but to succumb to Yardi's threats. (SACC ¶ 41.) Examples of this misconduct were allegedly manifested in relation to five RealPage clients, three of which—Client 1, Client 2, and Client 3—are relevant for the purposes of Yardi's instant Motion.

Client 1, a large property management firm and user of Voyager, entered into a Letter Agreement for Interim Services with RealPage (the “Letter Agreement”). (SACC ¶ 49.) The Letter Agreement indicated that RealPage would provide transition and migration services, as well as hosting and other services, during an interim term for all non-Yardi applications until RealPage and Client 1 entered into an additional agreement at a later date. ( Id.) RealPage alleges that when Yardi learned of the Letter Agreement, it set out to interfere with RealPage's new client relationship by advising Client 1 that Client 1 could not continue to work with RealPage under this agreement. ( Id.) Yardi further amended Client 1's Voyager software license agreement to prohibit Client 1 from hosting its Yardi Voyager software in the RealPage Cloud, as contemplated by an existing but unexecuted plan. (SACC ¶ 50.) As a result, RealPage was deprived of over $100,000 annually. (SACC ¶ 51.)

Client 2, a top-ten property management firm and user of Voyager, entered into a five-year agreement with RealPage for RealPage to host Client 2's software applications—including Voyager. (FACC ¶ 55.) As a result of the agreement, several Client 2 employees transitioned to RealPage to help facilitate the hosting of Client 2's software on the RealPage Cloud. ( Id.) At that time, Yardi assured Client 2 that so long as Client 2 allowed Yardi to compete for Client 2's vertical cloud services business, Yardi would respect Client 2's decision. ( Id.) When Client 2 ultimately chose to host its applications in the RealPage Cloud following head-to-head competition between Yardi and RealPage, Yardi again indicated that it would respect Client 2's decision. ( Id.) More than a year later, however, Yardi repudiated its prior representations and informed Client 2 that its hosting of the Voyager software in the RealPage Cloud violated Client 2's Voyager license agreement. ( Id.) As a result of Yardi's continued assertions that Client 2 is in breach of its Voyager license agreement and will therefore forfeit its license to use the Voyager software, Client 2 is left with no option other than to recall its employees who migrated to RealPage. ( Id.) This will result in a significant cost to RealPage. ( Id.)

Client 3, a multifamily and commercial real estate owner, had agreed with RealPage to move its data center to the RealPage Cloud and was in the process of doing so. (SACC ¶ 57.) During the data-transfer process, however, Yardi demanded that Client 3 not use the RealPage Cloud or even publicly associate itself with RealPage. ( Id.) As a result of Yardi's interference, Client 3 decided not to use the RealPage Cloud to host its Voyager software, thereby causing damages to RealPage in the form of lost revenue and reputational benefit associated with Client 3's business. ( Id.)

On January 24, 2011, Yardi filed a Complaint against RealPage. (Dkt. No. 1.) In response, RealPage filed a Counterclaim on March 28, 2011 (Dkt. No. 23), followed by its First Amended Counterclaims (“FACC”) on May 18, 2011 (Dkt. No. 34). On August 11, 2011, 2011 WL 3565112, this Court granted in part and denied in part Yardi's June 16, 2011 Motion to Dismiss RealPage's FACC. (Dkt. No. 83.) The Court granted RealPage leave to amend, and RealPage filed its SACC on September 2, 2011. (Dkt. No. 114.) The SACC proceeds on six counterclaims: (1) misappropriation of trade secrets; (2) violation of Section 1 of the Sherman Antitrust Act; (3) violation of Section 2 of the Sherman Antitrust Act; (4) violation of the California Cartwright Act, Cal. Bus. & Prof.Code §§ 16720, 16722, 16726 & 16727; (5) intentional interference with contract; (6) intentional interference with prospective economic advantage; and (7) unfair competition in violation of the California Business and Professions Code section 17200, also known as the Unfair Competition Law (“UCL”). Subsequently, Yardi filed the instant Motion to Dismiss on September 30, 2011. (Dkt. No. 141.)

III. LEGAL STANDARD

“To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), a complaint generally must satisfy only the minimal notice pleading requirements of Rule 8(a)(2).” Porter v. Jones, 319 F.3d 483, 494 (9th Cir.2003). Rule 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). For a complaint to sufficiently state a claim, its “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Dismissal under Rule 12(b)(6) can be based on “the lack of a cognizable legal theory” or “the absence of...