Pierry, Inc. v. Thirty-One Gifts, LLC
3:17-cv-03074
N.D. Cal.Sep 25, 2017Background
- Pierry and Thirty-One Gifts entered an MSA (Sept. 1, 2016) and multiple SOWs under which Pierry provided a Salesforce Marketing Cloud (SFMC) implementation/support platform and prepaid SFMC access; the MSA defined Services and contained a 30-day notice-and-cure warranty remedy and broad liability limitations/exclusions.
- Disputes arose after Pierry allegedly degraded performance (poor account knowledge, missed email sends during an April 2017 flash sale) and Thirty-One Gifts claimed substantial lost revenue; Thirty-One Gifts sent a May 12, 2017 termination/notice letter.
- Pierry invoiced ~$289,772 for alleged overages; Thirty-One Gifts refused payment and (allegedly) was thereafter locked out of its SFMC account by Pierry on May 19, 2017. Thirty-One Gifts alleges continuing loss and inability to access its data.
- Pierry sued for breach of contract, implied covenant, and declaratory relief; Thirty-One Gifts counterclaimed for breach of contract, declaratory relief, violation of Cal. Penal Code § 502, conversion, intentional interference with prospective economic advantage, breach of the implied covenant, and violation of the UCL.
- The court addressed two Rule 12(b)(6) motions: Thirty-One Gifts moved to dismiss Pierry’s implied-covenant claim; Pierry moved to dismiss most of Thirty-One Gifts’ counterclaims and to strike the termination letter exhibit.
- Rulings in brief: the court dismissed Pierry’s implied-covenant claim as duplicative (with leave to amend); denied dismissal of Thirty-One Gifts’ § 502, conversion, and interference claims; dismissed Thirty-One Gifts’ UCL claim for lack of alleged public injury (with leave to amend); partly dismissed contract-based counterclaims for failure to plead compliance with the MSA’s notice-and-cure condition (leave to amend); denied motion to strike the termination letter.
Issues
| Issue | Pierry's Argument | Thirty-One Gifts' Argument | Held |
|---|---|---|---|
| Whether Pierry’s claim for breach of the implied covenant is viable | Implied-covenant claim is distinct from contract breach because noncontractual duties (e.g., on-site support) can violate covenant | Claim duplicates breach of contract because it alleges the same acts and seeks same damages | Dismissed as superfluous with leave to amend |
| Whether Thirty-One Gifts stated a claim under Cal. Penal Code § 502 | MSA authorized Pierry’s access and suspension for nonpayment, so no §502 liability | Pierry exceeded any permitted suspension by locking out access and using access as leverage for payment not owed | §502 claim survives 12(b)(6); dismissal denied |
| Whether Thirty-One Gifts’ UCL claim pleads injury to the public/consumers | Conduct injured consumers/consultants by preventing communications about sales and enrollment | UCL requires impact on public/consumers, not merely bilateral business harm | UCL claim dismissed for failure to allege public injury, with leave to amend |
| Whether Thirty-One Gifts’ contract-based counterclaims are barred by failure to give notice and cure under MSA §§5.2/7.1 | MSA required notice and 30-day cure for service-warranty breaches; Thirty-One Gifts failed to plead compliance or excuse | Some alleged breaches (lockout, refusal to return property, ransom demand) fall outside Services/warranty and need no notice; TOG gave a termination letter that asserted inability to reperform | Breach-of-Services claims dismissed for failure to plead the notice-and-cure condition (leave to amend); claims about lockout/unauthorized use survive |
| Whether MSA’s limitations of liability and exclusion of consequential damages bar recovery beyond contractual caps | Limitations enforceable; parties agreed to cap damages and exclude consequential damages | Limitations may be unenforceable to the extent plaintiff pleads willful injury or statutory violations (Cal. Civ. Code § 1668) | Court: limits may apply to negligence/Services-related damages but may not bar recovery for willful statutory violations (e.g., §502); denial of dismissal on damages ground |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard applies to complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must contain factual content supporting plausible liability)
- Careau v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371 (implied covenant cannot duplicate breach-of-contract claim)
- Guz v. Bechtel Nat'l Inc., 24 Cal. 4th 317 (implied covenant exists to protect contract benefits; duplicative claims are superfluous)
- United States v. Christensen, 828 F.3d 763 (Section 502 liability can arise from knowing access with valid credentials followed by improper use)