650 F.Supp.3d 441
E.D. Va.2023Background
- NAC Consulting, LLC ("Cannovate") hired 3Advance, LLC under a July 10, 2019 Master Services Agreement (MSA) and Statement of Work (SOW) for development services (Sprints) to build an App; Cannovate paid $120,000.
- The SOW defined "deliverables" as work produced at the end of each Sprint "created for release" (demo to third parties, internal/beta testing, or deployment to web/app stores) and required access to source files on request.
- Cannovate alleges 3Advance delivered an App that could not be demoed, beta-tested, or deployed; assigned only one developer and failed to provide necessary materials/source code.
- Cannovate retained BizTransights to fix the App, paid $147,000, and alleges BizTransights had to reverse-engineer deliverables because 3Advance did not materially assist.
- 3Advance moved to dismiss. The Court denied dismissal of breach-of-contract and unjust-enrichment claims but held the contract is primarily for services (not goods) and dismissed all UCC-based warranty claims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cannovate stated a breach-of-contract claim | 3Advance failed to deliver App "created for release," failed to assign adequate personnel, and withheld materials/source code | Work was performed satisfactorily month-to-month; Plaintiff paused the agreement so no breach | Denied dismissal: Plaintiff plausibly alleged breach (deliverable not releasable; only one developer; no source access) |
| Whether unjust enrichment survives | Cannovate conferred $120,000 that 3Advance retained without providing value | 3Advance completed contractual obligations so unjust enrichment improper | Denied dismissal: unjust-enrichment plausibly pleaded and allowed in the alternative |
| Whether UCC warranty claims (express and implied) apply | Deliverables are "goods" (software) subject to VUCC warranties | Contract is a services contract; UCC does not apply; warranty claims fail | Granted dismissal with prejudice: contract predominantly for services; UCC inapplicable, so §§8.2-313–315 claims dismissed |
| Whether court may consider extrinsic emails and correspondence on 12(b)(6) review | (N/A) Plaintiff objects to extrinsic factual disputes at pleading stage | 3Advance cited emails to argue satisfaction and pause of work | Court will not consider collateral emails not integral to complaint; may consider MSA and SOW only |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (courts need not accept legal conclusions)
- Sec’y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700 (court may consider documents integral to the complaint)
- Princess Cruises, Inc. v. Gen. Elec. Co., 143 F.3d 828 (factors for deciding whether mixed contract is predominately services or goods)
- Bonebrake v. Cox, 499 F.2d 961 (predominant purpose test origin for mixed contracts)
- Ulloa v. QSP, Inc., 624 S.E.2d 43 (elements of breach of contract under Virginia law)
- James G. Davis Constr. Corp. v. FTJ, Inc., 841 S.E.2d 642 (elements of unjust enrichment in Virginia)
- Micro Data Base Sys., Inc. v. Dharma Sys., Inc., 148 F.3d 649 (software may be treated as goods under UCC in some contexts)
- RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543 (services may be incidental to sale of software; classification depends on predominance)