DCR Workforce, Inc. v. Coupa Software Incorporated

Background

DCR Workforce, Inc. and Coupa Software Incorporated entered into an Asset Purchase Agreement in 2018 concerning the sale and transfer of DCR’s vendor-management-system products. The agreement provided for cash consideration and possible additional stock, called contingent stock consideration, if the business met specified revenue targets.

The dispute focused mainly on the second earnout tranche. Under the agreement, DCR would qualify for that tranche if the products reached $10 million in annual recurring revenue during a measurement period between November 1, 2019, and February 28, 2021. Coupa issued a final earnout statement in March 2021 stating that the milestone had not been reached. DCR alleged that the highest calculated revenue was $717,472 below the milestone and claimed that Coupa had improperly calculated revenue and operated the business in ways that reduced revenue.

DCR filed eight claims in Florida state court, including breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, declaratory relief, equitable accounting, specific performance, fraud in the inducement, and negligent misrepresentation. Coupa removed the case to federal court, and the case was later transferred to the Northern District of California under the agreement’s forum-selection clause. The court determined that it had diversity jurisdiction because the parties were citizens of different states and the amount in controversy exceeded $75,000. The court also applied Delaware law under the agreement’s choice-of-law provision.

Motions concerning removal

DCR moved to compel Coupa to file the March 29, 2021 earnout letter in federal court or, alternatively, to remand the case to state court. DCR argued that Coupa’s notice of removal was procedurally defective because it did not include every state-court document.

The court denied the motion. It held that leaving one document out of a notice of removal was, even if a defect, a curable procedural error that did not require remand. The court also held that there was no basis to compel filing of the earnout letter because the letter had not been part of the state-court record. The court therefore denied DCR’s motion to compel filing or remand.

Motion to dismiss

The court granted Coupa’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court found that DCR’s allegations were largely conclusory and did not provide enough specific facts to make its claims plausible.

For the contract theories, the court held that DCR did not allege facts showing that it had reached the $10 million milestone or explaining how Coupa’s revenue calculation was wrong. DCR also did not identify a contractual obligation requiring Coupa to preserve DCR’s prior pricing model, continue selling the products as a standalone product, pursue DCR’s sales leads, or provide the alleged cooperation. The court further found insufficient facts showing that Coupa breached assumed customer contracts or that DCR was entitled to the withheld cash.

The court rejected the implied-covenant claim because the agreement expressly addressed the relevant subjects and allowed Coupa to use subscription-based and bundled sales models. It also held that the alleged implied obligations conflicted with the agreement’s express terms.

The fraud-in-the-inducement claim was dismissed because DCR could not reasonably rely on alleged oral promises that contradicted the written agreement. The court also dismissed the equitable claims because DCR did not adequately allege that money damages were insufficient or explain why equitable relief was necessary. The court stated that the declaratory-relief request depended on the unsuccessful underlying claims and lacked an independent actual controversy.

Disposition

The court granted Coupa’s motion to dismiss, denied DCR leave to amend because amendment would be futile, ordered the Clerk to enter judgment, and closed the file. The court stated that it was not deciding whether DCR could bring a different action seeking documents needed to use the agreement’s dispute-resolution process.