Arcsona Inc. v. Appirio Inc.

Background

Arcsona and Appirio entered into an Independent Contractor Agreement in June 2012. The agreement provided that Arcsona would supply independent contractors for professional services when Appirio requested them. Daniel Lascell, who was Appirio’s Secretary and General Counsel, signed the agreement for Appirio.

Arcsona alleged that Appirio induced it to sign the agreement by promising that Arcsona could provide contract workers for Appirio or its clients in the future. According to Arcsona, Appirio and Lascell had already decided to use Arcsona’s workers only if no other source was available and never intended to request workers or evaluate them in good faith. Arcsona alleged that it offered many contractors after the agreement was signed, but Appirio approved only two. It sought damages for lost time, expenses, and lost profits.

Motions and Legal Standards

Appirio and Lascell moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. They also relied on Rule 9(b), which requires fraud allegations to identify the essential details of the alleged misconduct, including who made the statement, what was said, when and where it was said, and how it was misleading. Lascell separately argued that the economic loss rule barred Arcsona’s claim.

Court’s Analysis

Under California law, promissory fraud requires allegations that the defendant made a promise without intending to perform it, intended to deceive and induce reliance, induced reliance, and caused damages through that reliance.

The court concluded that Arcsona’s claim depended on treating the agreement as containing a promise that Appirio would request or fairly evaluate Arcsona’s workers. But the agreement did not require Appirio to request or accept a particular number of workers, accept more than the two workers it hired, or make its decisions solely according to the workers’ qualifications. The court said that using Arcsona’s services only when no other workers were available would not violate the agreement. Arcsona’s expectations about the amount of business it would receive were not communicated to defendants or included in the agreement.

The court distinguished the California cases cited by Arcsona because those cases involved more specific promises or representations. The court also noted that Appirio did consider and hire two workers supplied by Arcsona. It therefore held that the first amended complaint did not state a claim for promissory fraud against Appirio or Lascell. The court expressly did not reach Lascell’s economic-loss-rule argument.

Leave to Amend and Disposition

Arcsona asked for another opportunity to amend. The court noted that Arcsona had already amended once and had not identified proposed new facts or legal theories that would cure the defects. During the hearing, Arcsona’s counsel also did not identify proposed amendments. The court denied Arcsona’s request for leave to amend.

The court granted defendants’ motions to dismiss Arcsona’s first amended complaint with prejudice. The order was signed by Virginia K. Demarchi, United States Magistrate Judge.