The Payroll Resource Group v. HealthEquity, Inc.

Background

The Payroll Resource Group entered a written agreement with MHM Business Services in April 2002 for a license to use MHM’s proprietary WinFlex125 payroll software. The agreement provided for a one-time setup fee and monthly fees for licensing privileges and technical support. MHM was acquired by WageWorks, and MHM and/or WageWorks provided services under the agreement until 2019. The agreement was then assigned to HealthEquity, Inc.

In 2020, HealthEquity told The Payroll Resource Group that it would no longer support the software. HealthEquity refused requests to allow continued unsupported access, provide the software for use on The Payroll Resource Group’s systems, or sell the software. The Payroll Resource Group alleged that HealthEquity stopped providing access and support on August 31, 2022.

The Payroll Resource Group brought claims for breach of contract under Missouri law and violation of California’s Unfair Competition Law. In an earlier ruling, the court granted HealthEquity judgment on the pleadings on both claims, allowed amendment of the unfair-competition claim, and denied leave to amend the contract claim. The court later allowed The Payroll Resource Group to file its first amended complaint, which again asserted both claims.

Motion to Dismiss Standard

HealthEquity moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court accepts well-pleaded factual allegations as true and views them favorably to the nonmoving party, but it does not accept bare legal conclusions. The court denied the motion.

Breach of Contract Claim

HealthEquity argued that the agreement’s license to use the software did not require HealthEquity to provide access to it, and that The Payroll Resource Group lacked permission to modify the software. The court rejected the argument that the perpetual license merely protected The Payroll Resource Group from an intellectual-property lawsuit. It reasoned that licensed use of software presupposes access to the software and noted that the agreement expressly required the software provider to make the software and documentation available after receiving the signed agreement and required payments.

The court also rejected HealthEquity’s argument that The Payroll Resource Group’s earlier description of the unsupported software as unusable defeated the amended complaint. Allegations in a superseded complaint could be evidence but were not conclusive admissions, and the court could not disregard the current allegations at the motion-to-dismiss stage.

The Payroll Resource Group alleged that simple workarounds could have allowed it to use the software for years without updates or support. HealthEquity argued that these workarounds would require an unauthorized derivative work, but the court found that the pleadings did not describe the workarounds in enough detail to resolve that issue. The court therefore declined to find that the workarounds necessarily violated the agreement.

HealthEquity further argued that The Payroll Resource Group sought WinFlexOne even though the agreement concerned WinFlex125. The court found that the pleadings did not establish whether WinFlexOne was a distinct software suite or an updated version still covered by the agreement. The court therefore denied the motion to dismiss the breach-of-contract claim.

Unfair-Competition Claim

The Payroll Resource Group limited its California Unfair Competition Law claim to the law’s unfairness prong. It alleged that HealthEquity cut off access to software used in The Payroll Resource Group’s payroll-related business to eliminate it as a competitor and take its customers. It also alleged that the conduct disrupted a twenty-year business relationship and that its impact outweighed HealthEquity’s justifications.

The court held that it could not determine as a matter of law that the alleged conduct was not unfair. The court distinguished its earlier ruling, which concerned ending support for old software where no contractual obligation to provide support existed. Because the amended complaint alleged a different contractual breach and related anticompetitive conduct, the court denied HealthEquity’s motion to dismiss the unfair-competition claim.

Requested Remedies

HealthEquity sought dismissal of requests for other economic damages, general damages, costs of suit, prejudgment interest, and restitutionary disgorgement. It relied on the agreement’s limitation-of-liability provision, which excluded liability for lost revenue, lost profits, loss of business, and consequential or special damages.

The court determined that the limitation-of-liability clause did not unambiguously foreclose all of the requested remedies. HealthEquity offered no authority showing that general damages, costs of suit, or prejudgment interest were consequential or special damages under Missouri law. The court also found that the complaint did not explain what “other economic damages” included and that HealthEquity did not explain how the clause barred restitutionary disgorgement.

The court rejected The Payroll Resource Group’s argument that the limitation did not survive an alleged breach. Reading the agreement as a whole, the court concluded that the relevant provisions survived the end of the contract, however that end occurred. But the court still found that the clause did not clearly bar the remedies at the pleading stage. It therefore denied HealthEquity’s motion as to the requested remedies.

Disposition

The court denied HealthEquity’s motion to dismiss the breach-of-contract claim, denied the motion as to The Payroll Resource Group’s unfair-competition claim, denied the motion as to the challenged remedies, and denied the motion to dismiss overall.