Radware, Inc. v. U.S. Telepacific Corp. d/b/a TPX Communications

Background

Radware sued U.S. Telepacific Corp. d/b/a TPX Communications, referred to in the opinion as TPx, over an agreement under which Radware was to provide hardware and services to help mitigate distributed denial-of-service attacks on TPx’s networks. Radware alleged that TPx paid $375,000 toward a $2 million purchase price. After the case was transferred to the Northern District of California, TPx answered and asserted six counterclaims against Radware: negligent misrepresentation, intentional misrepresentation, unfair competition based on fraudulent business practices, money had and received, unjust enrichment, and breach of contract.

Radware moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim. On such a motion, the court generally accepts well-pleaded factual allegations as true and views them favorably to the nonmoving party. The court declined to consider most of the outside documents Radware submitted with its motion, but considered documents attached to TPx’s countercomplaint.

Fraud-Based Counterclaims

TPx’s first three counterclaims were based on an October 1, 2016 email in which Brian Azevedo, identified as Radware’s Regional Sales Manager, allegedly stated that Radware was “proven to mitigate more attacks in bake-offs against Arbor.” Radware argued that this statement was nonactionable puffery—general and vague promotional language—and that TPx had not pleaded fraud with the particularity required by Rule 9(b).

The court rejected both arguments. It held that the statement was specific and measurable because it concerned Radware’s performance in head-to-head testing against a named competitor, Arbor Networks, and could be proven false. The court also held that TPx adequately pleaded falsity by alleging that Radware’s system underperformed Arbor’s system and that Arbor blocked attack traffic that Radware’s system did not. TPx adequately alleged reliance by claiming that it relied on the statement when deciding to purchase Radware’s services. The court therefore denied Radware’s motion to dismiss TPx’s counterclaims for negligent misrepresentation, intentional misrepresentation, and unfair competition based on fraudulent business practices.

Money Had and Received

The court granted Radware’s motion to dismiss TPx’s counterclaim for money had and received. That claim required TPx to allege, among other things, that Radware received money intended for TPx’s use. The court found TPx’s allegation that the $375,000 payment was intended for TPx’s benefit to be conclusory. The attached purchase order instead showed that TPx made the payment for goods and services from Radware. The court held that TPx had not plausibly pleaded the required element that the payment was for TPx’s use.

The court stated that amendment would be futile and, in its conclusion, granted the motion to dismiss this counterclaim with prejudice. The opinion’s discussion also states that the claim was dismissed without leave to amend.

Unjust Enrichment

The court denied Radware’s motion to dismiss TPx’s unjust-enrichment counterclaim. TPx alleged that Radware received a benefit through the $375,000 payment and that retaining the payment was unjust because the system was defective and failed at its intended function. The court held that these allegations were sufficient at the motion-to-dismiss stage. It did not resolve the factual dispute over whether the system provided some value.

Breach of Contract

TPx’s breach-of-contract counterclaim sought attorney’s fees that TPx incurred litigating the transfer of the case, based on an alleged forum-selection clause in the parties’ Master Purchase Agreement. TPx brought the claim in the alternative if a factfinder concluded that the agreement was valid and enforceable.

The court granted Radware’s motion to dismiss this counterclaim because TPx identified neither a contractual provision nor a statute authorizing recovery of those attorney’s fees. The court did not address Radware’s other arguments that TPx could not bring the claim while denying the contract’s existence and while admitting that it had not paid the full purchase price. The court found amendment futile and, in its conclusion, granted the motion to dismiss the breach-of-contract counterclaim with prejudice. The discussion states that the claim was dismissed without leave to amend.

Disposition

Judge Lucy Koh granted in part and denied in part Radware’s motion to dismiss TPx’s counterclaims. The court granted the motion with prejudice as to the money-had-and-received and breach-of-contract counterclaims. It denied the motion as to the negligent-misrepresentation, intentional-misrepresentation, unfair-competition, and unjust-enrichment counterclaims.