Challenge Printing Company, Inc. v. Electronics For Imaging Inc.

Background

Challenge Printing alleged that it agreed to buy EFI’s iQuote estimating software and related professional services for $175,000. It claimed that EFI had represented before the agreement that the software would address its business needs, integrate with its existing systems, and improve efficiency. After installation began, Challenge Printing alleged that the software did not meet EFI’s specifications, was not fit for the purpose for which it was purchased, and did not perform as represented. Challenge Printing later sent EFI a letter terminating the agreement and seeking $226,000, including the purchase price and $51,000 in incidental damages.

Challenge Printing brought claims for breach of contract, intentional misrepresentation, negligent misrepresentation, fraud, and unfair competition under California law. Although the complaint’s caption referred to declaratory relief, Challenge Printing stated that it was not pursuing that claim. EFI moved to dismiss all of the causes of action under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legally recognized claim.

Breach-of-Contract Claim

The court denied EFI’s motion to dismiss the first cause of action. The alleged agreement included EFI’s investment summary and terms and conditions, as well as Challenge Printing’s purchase order and terms and conditions. The court concluded at this stage that the transaction primarily involved the sale of standardized software, so the Uniform Commercial Code applied. Under the Code’s rule for exchanged forms, the parties had formed a binding contract even though their documents contained separate terms and conditions.

The court could not determine from the complaint which party’s document was sent first or which terms ultimately governed. Because that issue presented a factual question, the court declined to dismiss the portion of the contract claim based on Challenge Printing’s terms and conditions. The court also found that Challenge Printing had adequately alleged breaches of duties appearing in EFI’s terms and conditions, including duties concerning software performance, professional services, and repair, replacement, re-performance, or refund.

The court did not strike the claim for $51,000 in incidental damages. However, because the complaint gave no facts explaining what caused those damages, the court ruled that Challenge Printing could not pursue special damages at trial unless it amended the complaint to comply with Federal Rule of Civil Procedure 9(g), which requires special damages to be specifically stated.

Fraud-Based Claims

The court applied Federal Rule of Civil Procedure 9(b), which requires fraud allegations to identify the basic details of the alleged misconduct, including who made the statement, what was said, when and where it was said, and how it was misleading. The court found that Challenge Printing adequately pleaded those details for alleged misrepresentations numbered 2 through 12, but did not adequately identify what product those statements concerned. The complaint did not clearly show whether the statements referred to the Radius Suite or the iQuote software that Challenge Printing purchased.

The court therefore granted EFI’s motion to dismiss the second, third, and fifth causes of action—intentional misrepresentation, negligent misrepresentation, and fraud—for failure to satisfy Rule 9(b). The court did not decide EFI’s additional arguments that the statements were merely promotional opinions or that the negligent-misrepresentation claim was barred by the economic-loss rule.

Unfair-Competition Claim and Disposition

The court granted dismissal of the fourth cause of action for unfair competition under California Business and Professions Code section 17200. That claim was based entirely on the alleged misrepresentations, which the court had dismissed for failure to meet Rule 9(b)’s pleading standard. The court concluded that the unfair-competition claim was therefore not legally cognizable as pleaded.

The court granted in part and denied in part EFI’s motion to dismiss. Specifically, it denied the motion as to the first cause of action and granted the motion as to the second, third, fourth, and fifth causes of action, ordering those claims dismissed. The court found that amendment would not be futile and granted Challenge Printing leave to amend its complaint by December 4, 2020. It also continued the initial case-management conference to January 28, 2021.