Crescent Point Energy Corp. v. Tachyus Corporation

Background

Crescent Point alleged that it entered a January 2018 agreement with Tachyus for access to Aqueon, powered by Data Physics, optimization software and related services for waterflooding operations. The agreement contemplated a Setup or Backtesting Phase followed by a software-as-a-service phase. Crescent Point was to pay $150,000 per month, but the agreement stated that no invoice would issue if the backtest showed no feasible opportunities.

Crescent Point alleged that Tachyus made false statements before the agreement was signed, failed to provide workable software and qualified personnel, breached several contract provisions, mishandled Crescent Point’s data, and improperly invoiced Crescent Point $1,050,000. The First Amended Complaint asserted five causes of action: fraud in the inducement, breach of written contract, breach of the duty of good faith and fair dealing, unfair competition under California Business and Professions Code § 17200, and unjust enrichment.

Tachyus moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint lacks a legally recognized claim or does not allege enough facts to make the claim plausible. The court had previously dismissed Crescent Point’s initial complaint with permission to amend.

Rulings on the Claims

First Cause of Action: Fraud in the Inducement

The court held that the fraud claim was subject to dismissal in its entirety. Rule 9(b) requires fraud allegations to identify the specific circumstances of the alleged misconduct, including who made the statement, what was said, when and where it was said, and how it was false.

The court concluded that the alleged statements in Tachyus’s Case Study were often paraphrases that did not identify the actual language in the document. In other instances, the Case Study did not make the statements Crescent Point attributed to it, or it described results achieved by particular customers without promising that all customers would obtain the same results. The court also found that allegations based on later performance did not sufficiently show that Tachyus’s statements were false when made or that Tachyus intended not to perform its promises at the time of contracting.

The court also rejected the fraud allegations based on statements that the proposed backtesting arrangement was “risk free,” because the agreement itself provided that Crescent Point could terminate without paying an early-termination fee, and that no invoice would issue, if the backtest produced no feasible opportunities. The later invoice, standing alone, did not establish fraud.

Second Cause of Action: Breach of Written Contract

The court rejected Tachyus’s argument that Crescent Point’s alleged failure to follow the agreement’s termination procedure barred the contract lawsuit. The termination provision required written notice identifying a material breach and allowed 30 days to cure, but it did not require notice and an opportunity to cure before filing a breach-of-contract action.

The court granted dismissal of the contract allegations based on the agreement’s requirement that the service be “free of any defects.” Reading that provision together with the agreement’s disclaimer, the court concluded that it did not promise software free from every imperfection or software that would produce financially beneficial results. The agreement instead contemplated that the backtest might produce no feasible opportunities.

The court denied dismissal of the allegations that Tachyus failed to tour Crescent Point’s oil fields. The court also denied dismissal of the allegations that Tachyus failed to provide qualified personnel, because Crescent Point alleged repeated errors and advice that, according to the complaint, would not have been given by someone with even a basic understanding of tight-oil production.

The court further denied dismissal of the allegation that Tachyus improperly sent an invoice. Accepting Crescent Point’s allegation that the backtest showed no feasible opportunities, the court concluded that Crescent Point would have owed no fee and Tachyus would have been prohibited from sending an invoice under the agreement.

The court granted dismissal of the allegation that Tachyus breached the confidentiality provision by failing to return Crescent Point’s data. The court concluded that Crescent Point had not adequately pleaded the required election to require return or destruction of the confidential material because the only reference to returning the data appeared as a condition in an unaccepted counterproposal.

Third Cause of Action: Breach of the Duty of Good Faith and Fair Dealing

The court granted dismissal of this claim. Crescent Point’s allegations concerned duties addressed by the agreement’s express terms, including the alleged use of Crescent Point’s data. Because those allegations could be pursued, if at all, as breaches of express contract provisions, the separate implied-duty claim was considered duplicative.

Fourth Cause of Action: Unfair Competition

The court granted dismissal of the unfair-competition claim in its entirety. The portion based on alleged fraudulent conduct was derivative of the dismissed fraud claim. The portion based on alleged unfair conduct rested entirely on the parties’ contract dispute, and the court held that California’s unfair-competition statute did not provide the requested relief for this corporate contract dispute.

Fifth Cause of Action: Unjust Enrichment

The court granted dismissal of the unjust-enrichment claim. The claim depended on the fraud and unfair-business-practices theories, both of which the court dismissed.

Disposition

The court expressly granted in part and denied in part Tachyus’s motion to dismiss. The motion was granted to dismiss the First, Third, Fourth, and Fifth Causes of Action. As to the Second Cause of Action, the motion was granted regarding the “free of any defects” and “Mutual Confidentiality Obligations” provisions and denied in all other respects.

The court afforded Crescent Point further leave to amend to cure the identified deficiencies. Crescent Point could file a Second Amended Complaint by February 28, 2022, but could not add new claims without the court’s permission. If it did not amend, the action would proceed on the remaining claims in the First Amended Complaint. Judge Maxine M. Chesney signed the order on February 10, 2022.