NCS Pearson, Inc. v. Savvas Learning Company LLC

Background

NCS Pearson alleged that it owns TestNav, online test-delivery software. Before a 2019 sale separated Savvas from NCS Pearson’s affiliated entities, Savvas used TestNav and other NCS Pearson software in products offered through certain digital-learning platforms. After the sale, NCS Pearson and Savvas entered into a license agreement allowing Savvas to use TestNav in limited ways tied to those platforms and to how the software was used on March 29, 2019. The agreement prohibited use of TestNav as a standalone assessment application or to deliver standalone assessment functionality.

NCS Pearson alleged that Savvas later launched the Savvas Math Screener and Diagnostic Assessments application, or MSDA. According to the complaint, MSDA was a standalone assessment product that used TestNav to deliver tests, even though that assessment function had not previously been available on the relevant platform. NCS Pearson alleged that Savvas continued this use after NCS Pearson objected.

The complaint asserted four claims: breach of contract; breach of the implied covenant of good faith and fair dealing, meaning the implied promise not to unfairly deprive the other party of the contract’s benefits; unjust enrichment; and violation of New York General Business Law § 349, which prohibits deceptive business practices affecting consumers. Savvas moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, to dismiss the last three claims.

Court’s analysis

For unjust enrichment, NCS Pearson alleged that Savvas benefited from using TestNav beyond the license’s limits and received compensation from third parties. The court held that the claim failed because the complaint did not allege, either expressly or as an alternative theory, that the validity or scope of the license agreement was disputed. A valid contract governing the subject ordinarily prevents recovery under an unjust-enrichment theory for the same subject matter. The court therefore dismissed the unjust-enrichment claim.

The court also dismissed the implied-covenant claim as duplicative of the breach-of-contract claim. Both claims relied on the same alleged conduct: Savvas’s use of TestNav beyond the way it had been used on or before March 29, 2019. When the same conduct allegedly violates an express contract provision, the court explained, a separate implied-covenant claim is redundant.

For the New York deceptive-practices claim, NCS Pearson alleged that Savvas offered products containing unauthorized versions of TestNav and that this conduct was likely to mislead consumers. The court held that the complaint did not provide enough facts to plausibly allege consumer-oriented conduct—conduct affecting consumers generally rather than a private dispute between the parties. In particular, the complaint did not identify clearly whether the alleged conduct was directed toward schools, parents, teachers, or other groups. Because this defect was sufficient for dismissal, the court did not decide the other grounds Savvas raised. The court also noted that it was not deciding whether the alleged conduct was materially misleading.

Disposition

The court granted Savvas’s motion to dismiss. NCS Pearson’s unjust-enrichment, implied-covenant, and New York Deceptive Practices Act claims were dismissed without prejudice to filing an amended complaint within 21 days of the order. The order did not dismiss NCS Pearson’s breach-of-contract claim.