Arcsona Inc. v. Appirio Inc.

Background

Arcsona and Appirio entered into an Independent Contractor Agreement in June 2012. The agreement provided that Arcsona would provide professional services, either directly to Appirio or to Appirio’s customers, under statements of work signed by both parties. Daniel Lascell, who was Appirio’s Secretary and General Counsel at the time, signed the agreement for Appirio.

Arcsona alleged that it proposed many contract workers to Appirio, but Appirio approved only two. Arcsona said it learned in May 2019, during a deposition in another matter, that Lascell and Appirio had not intended to honor the agreement or honestly and fairly consider the contract workers Arcsona offered. Arcsona filed a state-court complaint on March 18, 2021, asserting one claim for promissory fraud against Appirio and Lascell. The action was later removed to federal court.

Motions and Legal Standards

Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 9(b), which requires fraud to be pleaded with particularity. Fraud allegations must identify the “who, what, when, where, and how” of the alleged misconduct.

Under California law, promissory fraud requires allegations that the defendant made a promise without intending to perform it when the promise was made, intended to deceive and induce reliance, induced reliance, and caused damages. The court also discussed the economic-loss rule, which generally bars a tort claim when the alleged duty is merely the failure to perform a contractual promise, absent harm beyond the economic loss from the broken promise.

Court’s Analysis

Arcsona characterized its claim as promissory fraud in the inducement. The court found that the complaint did not say what Arcsona was induced to do or identify the misrepresentations on which Arcsona allegedly relied. To the extent Arcsona claimed it was fraudulently induced to enter the agreement, the complaint contained no such allegations.

The court concluded that the complaint, at most, alleged that Appirio failed to perform its contractual obligations in good faith. It further found that Arcsona alleged no conduct by Appirio violating a duty independent of Appirio’s obligations under the agreement. The court therefore determined that the complaint failed to allege facts sufficient to state a viable claim for promissory fraud or fraudulent inducement, and that the existing allegations suggested the claim was barred by the economic-loss rule.

Disposition

The court granted defendants’ motions to dismiss. It gave Arcsona leave to amend because the court could not say that amendment would be futile. Arcsona could file an amended complaint by September 27, 2021.