TENA Companies, Inc. v. Ellie Mae, Inc.

Background

TENA Companies, Inc. and AllRegs entered into a General Services Agreement in 2005. They later agreed to co-develop ReportBuilder, an online application that used TENA’s content about state laws and regulations. In 2014, Ellie Mae succeeded AllRegs in the business relationship and agreed to be bound by the agreement and its later amendment.

The amendment limited Ellie Mae’s ability, after termination, to offer a competing or similar ReportBuilder product under the AllRegs brand and to use certain existing AllRegs products or software code for three years. In 2020, Ellie Mae notified TENA that it was ending the relationship. In March 2021, Ellie Mae stopped offering ReportBuilder and began offering a similar product called the AllRegs Analysis & Commentary Reporting Tool.

TENA sued Ellie Mae for breach of contract and unjust enrichment. TENA sought damages, exemplary damages, and interest. Ellie Mae moved to dismiss the breach-of-contract claim and TENA’s claim for damages.

Breach-of-Contract Claim

The court applied the standard for a motion to dismiss under Rule 12(b)(6), which asks whether the complaint contains enough facts to make the claim plausible. At this stage, the court accepts the complaint’s factual allegations as true and draws reasonable inferences in TENA’s favor.

Ellie Mae argued that the noncompetition provisions were invalid and unenforceable. The court rejected Ellie Mae’s attempt to apply the standard used for employment-related noncompetition agreements because this dispute did not involve an employment relationship. Instead, the court found that the standard used for restrictions connected to business or property transactions was more relevant.

Under that standard, courts consider whether the restriction goes beyond what is needed to protect business goodwill, creates an undue hardship for the restricted party, or harms the public interest. The court found that TENA plausibly alleged that the restrictions protected the parties’ investments of expertise, time, and resources in ReportBuilder and the goodwill associated with the product. The complaint did not show at this stage that the restrictions exceeded the necessary protection, imposed an undue hardship on Ellie Mae, or harmed the public. The court therefore denied the motion to dismiss the breach-of-contract claim.

The court also found that Ellie Mae’s argument about modifying the restrictions under the so-called “blue pencil” doctrine was premature because that analysis depends on facts.

Damages Claim

Ellie Mae argued that Section 7 of the General Services Agreement barred TENA from recovering damages. That provision excluded consequential, incidental, indirect, special, punitive, and exemplary damages, including lost profits, arising from or related to the agreement or its schedules.

The court explained that prior cases enforcing similar damages exclusions considered facts such as the parties’ bargaining strength and whether enforcement would be unconscionable, meaning unfairly one-sided in a legally significant way. The court also noted that Section 7 did not specifically address direct damages or pre- and post-judgment interest, and that deciding whether particular damages fell within an excluded category could require fact-finding. The court therefore found the issue unsuitable for resolution on a motion to dismiss.

The court further held that Section 7 did not limit damages arising from TENA’s unjust-enrichment claim because the provision applied to damages arising from or relating to the contractual relationship. The court denied the motion to dismiss TENA’s damages claim.

Disposition

Judge Nancy E. Brasel ordered that Ellie Mae’s motion to dismiss was denied. The order did not decide the ultimate merits of TENA’s claims; it held that the claims could proceed past the motion-to-dismiss stage.