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Superior Edge, Inc. v. Monsanto Co.

United States District Court, D. Minnesota

September 8, 2014

SUPERIOR EDGE, INC., Plaintiff,
v.
MONSANTO COMPANY and SITE-SPECIFIC TECHNOLOGY DEVELOPMENT GROUP, INC., Defendants

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[Copyrighted Material Omitted]

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Walter Joseph Gates, III, WALTER J. GATES, Mankato, MN; and William G. Osborne, WILLIAM G. OSBORNE, P.A., Orlando, FL, for plaintiff.

James F. Bennett, Jennifer S. Kingston, and Robert F. Epperson, Jr., DOWD BENNETT LLP, St. Louis, MO; and Dean B. Thomson, Lucas Clayton, and Richard G. Jensen, FABYANSKE WESTRA HART & THOMSON, P.A., Minneapolis, MN, for defendants.

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MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIMS

JOHN R. TUNHEIM, United States District Judge.

This case arises out of a software development and license agreement between Plaintiff Superior Edge, Inc. (" SEI" ) and Defendant Monsanto Company (" Monsanto" ). Pursuant to the agreement, SEI was to develop software for Monsanto to assist in Monsanto's seed sales initiatives. Monsanto brings counterclaims for breach of contract, money had and received, fraudulent and negligent inducement, conversion, and professional negligence, based primarily on its allegation that SEI represented that it had the infrastructure and capacity to develop software satisfying Monsanto's objectives but failed to develop and deliver that promised software under the agreement. SEI moves to dismiss all but the breach of contract counterclaim alleged in Count I. Because the Court finds that Monsanto has stated plausible claims for relief with respect to its counterclaims for breach of contract, money had and received, fraudulent and negligent inducement, and conversion, the Court will deny SEI's motion as to those counterclaims. The Court will, however, grant SEI's motion as to the claim for professional negligence, because neither Minnesota nor Missouri courts recognize such a cause of action against computer professionals.

BACKGROUND[1]

I. THE RELATIONSHIP BETWEEN THE PARTIES

Monsanto is a global company that produces and sells commercial seeds and other agricultural products. (Answer to Am. Compl. & Countercls. (" Countercls." ), ¶ 1 Jan. 10, 2014, Docket No. 108.)[2] SEI

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describes itself as a software and data company that specializes in creating customized technology-based solutions for businesses. ( Id. ¶ 2.) In 2008, Monsanto began a software development effort aimed at " enhanc[ing] execution of sales by helping farmers make more educated decisions about their purchases of seed products." ( Id. ¶ 8.) Monsanto hoped to obtain a software product that would (1) enable its personnel and dealers in the field to generate a field guide about the general conditions and history of a growing location and recommend a specific seed prescription for that location; and (2) obtain, organize, and present information about the unique attributes of individual farms and farmers to allow Monsanto sales representatives to make customized recommendations for products. ( Id. ¶ 9.)

In late 2008, Monsanto met the founder and chief executive officer of SEI who represented that SEI had the engineers and infrastructure to deliver complex, innovative technology, and had considerable experience in the agricultural industry. ( Id. ¶ 13.) In a series of meetings that took place throughout 2009, SEI represented that it had the infrastructure and capability to develop software that would meet Monsanto's objectives. ( Id. ¶ ¶ 15-18.) In particular, SEI represented that it had a software system for creating personalized sales proposals known as SalesEdge that could be adapted to fit Monsanto's needs. ( Id. ¶ 15.)

II. THE AGREEMENT

On August 7, 2009, Monsanto and SEI executed a Software Development and License Agreement (" the Agreement" ) with an effective date of March 1, 2009. ( Id. ¶ 19.) The Agreement required SEI to " tailor and/or customize SEI's SalesEdge . . . software, develop new capabilities, and provide services for the purpose of enhancing Monsanto's sales execution." (Compl., Ex. B at 11, Oct. 19, 2012, Docket No. 1.)[3]

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The Agreement contained a Development Plan which included " initial requirements, specifications, features, and functionalities" of the software SEI was to develop as well as " a general overview and timetable for development and implementation of the SEI schedule for deliverables, test protocols and procedures, development objectives, and assumptions regarding ongoing contributions and research activities." ( Id., Ex. B at 19.) The Development Plan set forth in detail the deliverables -- the proposed features and functionality of the software -- that SEI was responsible for developing. ( Id., Ex. B at 42-49.) The Agreement provided that Monsanto would pay SEI exclusivity payments, development fees, and user fees. ( Id., Ex. B at 23-24.) The Agreement also contained various provisions governing the intellectual property rights of the parties with respect to the software developments. ( Id., Ex. B at 11, 15, 21-22, 25.)

III. SEI'S DEVELOPMENT ACTIVITIES

In the initial phases of the Agreement's implementation Monsanto and SEI met frequently to discuss the software development. (Countercls. ¶ 36.) In early 2010 Monsanto and SEI continued to discuss ideas for the production of customized sales proposals for customers in the field. ( Id. ¶ 37.) Because SEI's software did not yet have this capability, SEI was manually producing the proposals. ( Id. ¶ 38) Although this was not a commercially viable approach for Monsanto long-term, it used the manually produced proposals for a period of time during which SEI was to be developing the software that would allow their production to be automated. ( Id. ) In January 2011 Monsanto informed SEI that it would require software with specific features to be completed by May 2011 in order to ensure that automated production of the sales proposals could be demonstrated to Monsanto personnel at its June and July 2011 national sales meetings. ( Id. ¶ ¶ 41-42.)

During early 2011 Monsanto became increasingly concerned with SEI's ability to timely deliver the promised software developments. ( Id. ¶ 43.) SEI would not allow Monsanto to review its source code which " heightened" Monsanto's concerns about the status of the software. ( Id. ¶ 45.) In light of these concerns, Monsanto implemented a backup plan and engaged Defendant Site-Specific Technology Development Group, Inc. (" SST" ) -- another software development company with whom Monsanto had previously contracted -- to also develop software with the desired functionality. ( Id. ¶ ¶ 12, 46.) In the spring of 2011 Monsanto " repeatedly tested SEI's software application [and] encountered a host of different difficulties and error messages." ( Id. ¶ ¶ 48-49.) In light of these issues, Monsanto could not present the software at its national sales meetings. ( Id. ¶ ¶ 50-52.)

IV. TERMINATION OF THE AGREEMENT

On August 16, 2011 Monsanto met with SEI to discuss " its disappointment with the numerous development and milestone failures." ( Id. ¶ 56.) At the meeting, SEI was still unable to present or deliver the

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software development code it had promised under the Agreement. ( Id. ) Monsanto repeated its concerns in writing on August 29, 2011. ( Id. ¶ 58.) SEI responded claiming that Monsanto had breached the Agreement in various ways. ( Id. ¶ 59.) Shortly thereafter, Monsanto provided formal notice of SEI's breach and notice that it was terminating SEI's development services effective 120 days from September 26, 2011 -- the date of the notice. ( Id. ¶ 60.) Between August 2009 and January 2012 Monsanto paid SEI a total of $6,716,665 " which it purportedly owed to SEI pursuant to the terms of the Agreement." ( Id. ¶ 83.)

Based on these allegations, Monsanto brings counterclaims against SEI for breach of the Agreement, money had and received, fraudulent and negligent inducement, conversion, and professional negligence.

ANALYSIS

I. STANDARD OF REVIEW

In reviewing a motion to dismiss brought under Rule 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states " 'a claim to relief that is plausible on its face.'" See Magee v. Trs. of Hamline Univ., Minn., 747 F.3d 532, 535 (8th Cir. 2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. " Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility" and therefore must be dismissed. Id. (internal quotation marks omitted). Although the Court accepts the complaint's factual allegations as true, it is " 'not bound to accept as true a legal conclusion couched as a factual allegation.'" Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). Therefore, to survive a motion to dismiss, a complaint must provide more than " 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).

II. INCORPORATION BY REFERENCE

SEI first argues that Counts II through VII of Monsanto's counterclaims should be dismissed without prejudice for failure to comply with Federal Rule of Civil Procedure 10, which requires parties to state claims or defenses " in numbered paragraphs, each limited as far as practicable to a single set of circumstances" and state " each claim founded on a separate transaction or occurrence . . . in a separate count" where " doing so would promote clarity." Fed.R.Civ.P. 10. SEI argues that Monsanto has violated this rule by unnecessarily incorporating in succeeding counts, the allegations of all prior counts. For example, Count VI alleges a claim for conversion, but incorporates by reference all previous paragraphs in the counterclaims -- including the background facts, two claims for breach of contract, a claim for money had and received, a claim for fraudulent inducement, and one for negligent inducement. (Countercls. ¶ 153 (" Monsanto repeats, adopts and incorporates herein by reference the allegations made in paragraphs 1 through 152 of these Counterclaims." ).) SEI contends that although " it is possible, with sufficient effort, to sort out which is which, that burden should not

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be placed on SEI." (Pl.'s Mem. in Supp. of Mot. to Dismiss at 3, Oct. 28, 2013, Docket No. 87.)

In resolving Monsanto's arguments based on Rule 10(b), the Court begins with the Federal Rules' pleading standards, which provide that a claim for relief need include only " a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). The purpose of the pleading requirements is simply to " give the [counterclaim] defendant fair notice of what the [counterclaim] plaintiff's claim is and the grounds upon which it rests." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (internal quotation marks omitted). " No technical form" is required for pleadings, and the Court construes pleadings " so as to do justice." Fed.R.Civ.P. 8(d)(1), (e). The Federal Rules also explicitly allow a party to incorporate earlier allegations in a pleading by reference. See Fed.R.Civ.P. 10(c) (" A statement in a pleading may be adopted by reference elsewhere in the same pleading or in any other pleading or motion." ). Rule 10(c) " was adopted to encourage pleadings that are short and free of unneeded repetition," Kramer & Frank, P.C. v. Wibbenmeyer, Civ. No. 05-2395, 2006 WL 3079097, at *2 (E.D. Mo. Oct. 27, 2006) (internal quotation marks omitted); see also Wright & Miller, 5A Federal Practice & Procedure § 1326 (3d ed.), and courts frequently allow parties to satisfy pleading requirements " by incorporating by reference other paragraphs within the same complaint or counterclaim" Empire Today, LLC v. Nat'l Floors Direct, Inc., 788 F.Supp.2d 7, 22 (D. Mass. 2011). The ultimate question regarding the sufficiency of pleadings under Rules 8 and 10 is " whether the theory and basis of the various counts are easily distinguishable." Iowa Health Sys. v. Trinity Health Corp., 177 F.Supp.2d 897, 906 (N.D. Iowa 2001) (internal quotation marks omitted).

Some courts have found violations of Rule 10(b), and required repleading of claims,[4] where " [e]xcessive incorporation by reference from one count to another" exists to such an extent that the other party " cannot reasonably be expected to respond" or where such incorporation " lead[s] to the introduction into ...


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