Mtivity Inc. v. Office Depot, Inc.
1:19-cv-05094
| E.D.N.Y | Mar 16, 2021Background
- Mtivity, a marketing‑software firm, provided proprietary software, support and hosting to Office Depot under a negotiated five‑year service agreement (unsigned) with confidentiality provisions that survive termination.
- The agreement permitted termination by mutual written agreement and for breach; Office Depot allegedly promised to be bound despite no signature, and Mtivity reduced price and invested in infrastructure in reliance.
- Office Depot paid for services for ~2.5 years, then switched to eLynxx and stopped paying; Mtivity sued for breach, quantum meruit, and DTSA misappropriation.
- Office Depot moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing the contract is barred by NY Statute of Frauds, estoppel/partial‑performance doctrines fail, quantum meruit is foreclosed, and DTSA allegations are conclusory or fail to plead recoverable damages.
- The Court accepted Mtivity’s factual allegations for purposes of the motion and resolved legal questions: Statute of Frauds application, equitable estoppel, partial performance, quantum meruit viability, and DTSA sufficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of Frauds: Is unsigned 5‑year agreement enforceable? | Mutual termination clause allows performance within one year, so § 5‑701 doesn't apply. | Five‑year term (unsigned) falls squarely under NY Gen. Oblig. Law § 5‑701 and is unenforceable. | Court: Statute of Frauds applies; mutual termination clause does not remove § 5‑701 protection. |
| Equitable estoppel: Can Mtivity overcome statute? | Office Depot’s agent said signature unnecessary; Mtivity relied, lowered price and invested—estoppel should bar Statute of Frauds defense. | Estoppel unavailable; Mtivity has only expectation (lost profits) damages, not unconscionable injury. | Court: Elements mostly pled but estoppel denied—alleged harm is expectation damages, not the extraordinary/unconscionable injury required. |
| Partial performance: Does plaintiff’s performance remove statute? | Mtivity rendered services, was paid partly, and incurred costs—doctrine should apply. | Partial performance is not an exception to § 5‑701 (or elements not met). | Court: Predicts NY Court of Appeals would not extend partial‑performance to § 5‑701; alternatively plaintiff fails to plead substantial injury. |
| Quantum meruit: Can Mtivity recover for reasonable value? | Contract unenforceable; Mtivity alleges services valued at contract payments plus at least $201,600 shortfall—quantum meruit available. | Office Depot paid the contract price; no separate reasonable‑value allegation. | Court: Denies dismissal of quantum meruit; plaintiff alleged reasonable value (payment + ≥$201,600) so claim may proceed. |
| DTSA: Has Mtivity pled trade‑secret misappropriation and recoverable harm? | Mtivity alleges Office Depot disclosed proprietary software/structure/data to eLynxx and took measures to keep it secret. | Allegations lack specificity about the secret and damages alleged are not recoverable under DTSA. | Court: Trade secret and misappropriation pled with sufficient specificity; remedy/ damages pleading defective—dismissed without prejudice as to damages but claim may be repleaded. |
Key Cases Cited
- Guilbert v. Gardner, 480 F.3d 140 (2d Cir. 2007) (Statute of Frauds: contract void if no possibility of full performance within one year)
- Radio Corp. of Am. v. Cable Radio Tube Corp., 66 F.2d 778 (2d Cir. 1933) (termination clauses triggered by outside contingencies do not avoid the statute)
- North Shore Bottling Co. v. C. Schmidt & Sons Inc., 22 N.Y.2d 171 (N.Y. 1968) (termination by an act within a party’s control can render agreement performable within a year)
- Messner Vetere Berger McNamee Schmetterer Euro RSCG, Inc. v. Aegis Group, PLC, 93 N.Y.2d 229 (N.Y. 1999) (Court of Appeals disavowed adopting a part‑performance exception to § 5‑701)
- Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821 (2d Cir. 1994) (expectation damages are not available as equitable relief to avoid the Statute of Frauds)
- Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171 (2d Cir. 1990) (non‑exclusive factors for identifying trade secrets)