The Payroll Resource Group v. HealthEquity, Inc.

Background

The Payroll Resource Group entered into a written agreement with MHM Business Services in April 2002 for a license to use payroll software. The agreement required a one-time setup fee and monthly fees for licensing privileges and technical support. MHM was acquired by WageWorks, which provided services under the agreement until 2019. MHM and/or WageWorks then assigned the agreement to HealthEquity, Inc.

HealthEquity informed The Payroll Resource Group in June 2020 that it would no longer support the software and stopped providing support services on August 31, 2022. The Payroll Resource Group filed suit in California Superior Court, asserting a breach-of-contract claim under Missouri law and a claim under California’s Unfair Competition Law. HealthEquity removed the case to federal court based on diversity jurisdiction.

Breach of Contract

HealthEquity moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court explained that this procedure tests whether the complaint legally states a claim, using essentially the same standard as a motion to dismiss for failure to state a claim.

The Payroll Resource Group argued that the agreement required HealthEquity to provide a perpetual software license and perpetual support, including maintenance and updates. The court agreed that Paragraph 1 granted a perpetual license to use the software. But the court found that the agreement did not clearly impose a perpetual obligation to provide support services or software updates.

Paragraph 3 described an initial one-year support period followed by automatic renewals for additional 12-month terms unless terminated by the licensee with 60 days’ notice. Under Missouri law, the court explained, an agreement must clearly require perpetual performance to create that obligation. The automatic-renewal language did not do so. The court also found that the agreement was for an indefinite period concerning support services and could be ended by either party with reasonable notice. Because HealthEquity gave adequate notice before stopping support, The Payroll Resource Group had not plausibly alleged a breach of contract.

The court granted HealthEquity’s motion for judgment on the pleadings as to the breach-of-contract claim without leave to amend, finding that Missouri law foreclosed the claim and that amendment would be futile.

Unfair Competition Law Claim

The Payroll Resource Group asserted that HealthEquity’s conduct was unlawful, fraudulent or deceptive, and unfair under California’s Unfair Competition Law. The court rejected each theory as inadequately pleaded.

For the unlawful prong, the court found that the complaint did not identify any violation of law. A breach of contract alone was not enough to establish an unlawful business practice under the statute.

For the fraudulent prong, the court found that The Payroll Resource Group did not allege that members of the public were deceived or likely to be deceived. The alleged statements were made to the company, and the company was not itself a member of the public for purposes of pursuing this theory based solely on those statements.

For the unfair prong, the court found that the allegations were largely duplicative of the contract claim. The complaint did not adequately allege that HealthEquity’s conduct was immoral, unethical, oppressive, unscrupulous, substantially injurious to consumers, or harmful to competition. It also did not allege that HealthEquity violated or threatened to violate antitrust law, or that The Payroll Resource Group had lost even one customer because of the alleged conduct.

The court granted HealthEquity’s motion for judgment on the pleadings as to the Unfair Competition Law claim, but granted The Payroll Resource Group leave to amend that claim because it was not yet clear that amendment could not state a claim.

Remedies and Disposition

The court found HealthEquity’s request to dismiss certain remedies moot because the contract and Unfair Competition Law claims had not been adequately stated at that stage. In its conclusion, the court granted HealthEquity’s motion, allowed The Payroll Resource Group to amend its Unfair Competition Law claim within 30 days, and did not allow amendment of the breach-of-contract claim.