Consortium of Services Innovation v. Microsoft Corporation

THE HONORABLE JOHN C. COUGHENOUR [6] UNITED STATES DISTRICT COURT [7] WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 CONSORTIUM OF SERVICES CASE NO. C19-0750-JCC INNOVATION A/K/A CSI, [10] ORDER 11 Plaintiff, v. [12] MICROSOFT CORPORATION, [13] Defendant. [15] 16 This matter comes before the Court on Defendant’s motion to dismiss Plaintiff’s second 17 amended complaint (Dkt. No. 32). Having thoroughly considered the parties’ briefing and the 18 relevant record, the Court finds oral argument unnecessary and hereby GRANTS the motion for 19 the reasons explained herein. 20 I. BACKGROUND 21 On October 30, 2019, the Court dismissed Plaintiff’s first amended complaint, finding 22 that the complaint and accompanying exhibits failed to establish that Defendant either directly 23 participated in the alleged underlying conduct or was liable under an alter ego theory of liability. 24 (See Dkt. No. 27 at 9–10.) The Court directed Plaintiff to file an amended complaint curing the 25 defects identified by the Court. (Id. at 10.) 26 On November 13, 2019, Plaintiff filed a second amended complaint. (Dkt. No. 28.) The 1 Court previously set forth an extensive recitation of the factual allegations contained in 2 Plaintiff’s first amended complaint, which largely mirror those in Plaintiff’s second amended 3 complaint. (See Dkt. No. 27 at 1–7; compare Dkt. No. 20 at 3–19, with Dkt. No. 28 at 3–19.) The 4 salient changes are Plaintiff’s new allegations that the actions underlying its claims were 5 undertaken by Defendant’s subsidiaries, acting as Defendant agents. (Compare Dkt. No. 28 at 3, 6 4–7, 9, 11, 15, with Dkt. No. 20).1 Defendant now moves to dismiss Plaintiff’s second amended 7 complaint. (Dkt. No. 32.) 8 II. DISCUSSION 9 A. Motion to Dismiss Legal Standard 10 A defendant may move for dismissal when a plaintiff “fails to state a claim upon which 11 relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, a complaint must 12 contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its 13 face. Ashcroft v. Iqbal, 556 U.S. 662 , 677–78 (2009). A claim has facial plausibility when the 14 plaintiff pleads factual content that allows the court to draw the reasonable inference that the 15 defendant is liable for the misconduct alleged. Id. at 678 . The plaintiff is obligated to provide 16 grounds for their entitlement to relief that amount to more than labels and conclusions or a 17 formulaic recitation of the elements of a cause of action. Bell Atl. Corp. v. Twombly, 550 U.S. 18 544, 545 (2007). “[T]he pleading standard Rule 8 announces does not require ‘detailed factual 19 allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me 20 accusation.” Iqbal, 556 U.S. at 678 . Dismissal under Rule 12(b)(6) “can [also] be based on the [21] 1 In its second amended complaint, Plaintiff describes its preexisting relationship with [22] Defendant, stating that the parties “worked together in various capacities including signing a Microsoft Academy Service Partner Agreement (the”MASP”) [sic].” (Dkt. No. 28 at 3; see Dkt. [23] Nos. 28-1–28-3.) But Plaintiff acknowledges that the MASPs are not at issue in this case, (see 24 Dkt. No. 28 at 3), and by their own terms the MASPs explicitly do not apply to sales of the goods at issue in this case or agreements between Plaintiff and third parties, (see Dkt. Nos. 28-1 25 at 2, 4; 28-2 at 2, 4; 28-3 at 2, 4). Similarly, Plaintiff cites an agreement between Defendant and Certiport Inc. but does not explain the relevancy of that agreement to this case. (See Dkt. No. 28 [26] at 3) (citing Dkt. No. 28-4) 1 lack of a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th 2 Cir. 1988). 3 Although the court must accept as true a complaint’s well-pleaded facts, conclusory 4 allegations of law and unwarranted inferences will not defeat an otherwise proper Rule 12(b)(6) 5 motion. Vasquez v. L.A. Cty., 487 F.3d 1246, 1249 (9th Cir. 2007); Sprewell v. Golden State 6 Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Moreover, the court may consider documents 7 attached to the complaint, see United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003), and 8 need not “accept as true conclusory allegations which are contradicted by documents referred to 9 in the complaint.” Steckman v. Hart Brewing, Inc., 143 F.3d 1293 , 1295–96 (9th Cir. 1998). 10 B. Defendant as Proper Party 11 Plaintiff has asserted several grounds it contends establish Defendant’s liability for the 12 underlying events in this case, (see Dkt. No. 28 at 19–26), which Defendant argues do not 13 establish that Defendant is a proper party to this suit, (see Dkt. No. 32 at 13–17). The Court 14 examines each asserted ground in turn. 15 1. Sale of Defendant’s Goods or Services 16 Plaintiff alleges that Defendant’s subsidiaries acted as Defendant’s agents to conduct 17 business related to Defendant’s products and services, emphasizing that Defendant’s subsidiaries 18 do not “produce any products or services separate from those offered by Defendant and therefore 19 are acting as agents of Defendant to further Defendant’s own business purposes.” (Id. at 19, 22, 20 24.) 21 “It is a general principle of corporate law deeply ingrained in our economic and legal 22 systems that a parent corporation (so called because of control through ownership of another 23 corporation’s stock) is not liable for the acts of its subsidiaries.” United States v. Bestfoods, 524 24 U.S. 51, 61 (1998). But a parent corporation may be liable for the acts of a subsidiary when “the 25 parent exercise[s] total control over the subsidiary, well beyond the normal control exercised by 26 parents over subsidiaries,” and thereby renders the subsidiary an agent of the parent. 1 Campagnolo S.R.L. v. Full Speed Ahead, Inc., Case No. C08-1372-RSM, Dkt. No. 331 at 12 2 (W.D. Wash. 2010), aff’d, 447 F. App’x 814 (9th Cir. 2011). To evaluate whether a subsidiary is 3 properly considered an agent of its parent corporation, the court looks to whether the parent 4 exercises “complete domination,” the subsidiary is a shell corporation, or the parent uses its 5 ownership interest to “command rather than merely cajole” the subsidiary. Id. (quoting Japan 6 Petroleum v. Ashland Oil, Inc., 456 F. Supp. 831, 845 (D.Del. 1978); Esmark, Inc. v. Nat’l Labor 7 Relations Bd., 887 F.2d 739, 757 (7th Cir. 1989)). Alternatively, a parent may be liable under a 8 direct participant theory if a plaintiff establishes the “parent’s specific direction or authorization 9 of the manner in which an activity is undertaken and [the] foreseeability” of any resultant injury. 10 Forsythe v. Clark USA, Inc., 224 Ill.2d 274, 289 (Ill. 2007) (reviewing and synthesizing state and 11 federal case law analyzing when a parent corporation may be held liable for the actions of its 12 subsidiary). 13 Plaintiff’s allegation that Defendant’s subsidiaries sold Defendant’s products and 14 services, standing alone, is insufficient to establish a plausible claim that Defendant’s 15 subsidiaries were thus acting as Defendant’s agents during the events at issue. See, e.g., 16 whiteCryption Corp. v. Arxan Techs., Inc., 2016 WL 3275944 , slip op. at 1, 11 (N.D. Cal. 2016) 17 (concluding that plaintiff’s factual allegations as to subsidiary’s status as parent corporation’s 18 agent, including subsidiary’s sale of parent corporation’s software technology and use of internet 19 addresses with parent corporation’s name, and the substantial roles of the parent corporation’s 20 officers in the subsidiary’s business dealings, were insufficient to establish plausible claim of 21 agency liability); (see Dkt. No. 28 at 19, 22, 24). Plaintiff has not otherwise asserted specific 22 factual allegations that Defendant exercised “complete domination” over its subsidiaries, that 23 Defendant’s subsidiaries are shell corporations, that Defendant used its ownership interest to 24 “command” its subsidiaries, or that Defendant directed or authorized the subsidiaries’ actions in 25 this case. See Japan Petroleum, 456 F. Supp. at 845 ; Esmark, Inc., 887 F.2d at 757 ; Forsythe, [26] 224 Ill.2d at 289 ; (see generally Dkt. No. 28). Plaintiff’s response to Defendant’s motion does 1 not direct the Court to additional relevant factual allegations in the second amended complaint or 2 provide legal authority demonstrating that the mere sale of a parent corporation’s goods or 3 services establishes a subsidiary as an agent of the parent corporation. (See Dkt. No. 35 at 2, 5– 4 6.) Therefore, Plaintiff has not established a plausible claim that Defendant may be held liable 5 for its subsidiaries’ actions based on its subsidiaries’ sale of Defendant’s goods or services. 6 2. Vicarious Liability – Actual Authority 7 Plaintiff asserts that Defendant conferred actual authority on its subsidiaries Microsoft 8 Arabia, Microsoft Ireland, and Microsoft Germany and thus is vicariously liable for those 9 entities’ relevant actions, citing a cooperation agreement between Plaintiff and Microsoft Arabia 10 which provides that Microsoft Arabia “represents Global Microsoft . . . in” Saudi Arabia. (See 11 Dkt. Nos. 28 at 19–20, 22–25; 28-12 at 2.) 12 A principal may be liable for its agent’s actions when the agent has either express or 13 implied actual authority to act on the principal’s behalf. See Salyers v. Metro. Life Ins. Co., 871 14 F.3d 934 , 940 (9th Cir. 2017) (citing Restatement (Third) of Agency § 2 intro. Note (2006)); 15 accord King v. Riveland, 886 P.2d 160, 165 (Wash. 1994). “Express actual authority derives 16 from an act specifically mentioned to be done in a written or oral communication,” whereas 17 “[i]mplied actual authority comes from a general statement of what the agent is supposed to do; 18 an agent is said to have the implied authority to do acts consistent with that direction.” Salyers, 19 871 F.3d at 940 (quoting NLRB v. District Council of Iron Workers of the State of California and 20 Vicinity, 124 F.3d 1094 , 1098 (9th Cir. 1997)). Both forms of actual authority depend “on the 21 objective manifestations made by the principal to the agent.” Revitalization Partners, LLC v. 22 Equinix, Inc., Case No. C16-1367-JLR, Dkt. No. 22 at 9 (W.D. Wash. 2017). 23 The document cited by Plaintiff contains, at best, Microsoft Arabia’s representation that it 24 was acting on Defendant’s behalf. (See Dkt. Nos. 28 at 20, 23–25; 28-12 at 2.) It does not 25 evidence an objective manifestation by Defendant to Microsoft Arabia regarding Microsoft 26 Arabia’s express or implied actual authority to act on Defendant’s behalf. (See Dkt. No. 28-12.) 1 The second amended complaint does not allege any other objective manifestation made by 2 Defendant to its subsidiaries sufficient to confer expressed or implied actual authority upon 3 them. (See generally Dkt. No. 28.) And Plaintiff’s response to Defendant’s motion again fails to 4 direct the Court to relevant factual allegations or legal authority. (See Dkt. No. 35 at 5.) 5 Therefore, Plaintiff has not established a plausible claim that Defendant conferred actual 6 authority upon its subsidiaries and thus may be held liable for the actions underlying Plaintiff’s 7 claims. 8 3. Vicarious Liability – Apparent Authority 9 Plaintiff asserts that Defendant conferred apparent authority upon its subsidiaries and 10 thus is vicariously liable for those subsidiaries’ relevant actions. (See Dkt. No. 28 at 20, 23, 25.) 11 Plaintiff specifically asserts that Defendant affirmatively held out its subsidiaries as having 12 authority to act on its behalf, citing Defendant’s subsidiaries’ use of “@microsoft.com” email 13 addresses during their interactions with Plaintiff. (See id.) 14 “Apparent authority depends on the principal’s objective manifestations of the agent’s 15 authority to the third party claiming apparent authority.” Revitalization Partners, LLC, Case No. 16 C16-1367-JLR, Dkt. No. 22 at 9; accord D.L.S. v. Maybin, 121 P.3d 1210, 1214 (Wash. Ct. App. 17 2005). “Such manifestations much cause the third party to actually or subjectively believe that 18 the agent has the authority to act for the principal, and that belief must be objectively 19 reasonable.” Revitalization Partners, LLC, Case No. C16-1367-JLR, Dkt. No. 22 at 9. An 20 individual or entity’s use of a corporation’s email address is insufficient to convey apparent 21 authority upon that individual or entity. See, e.g., whiteCryption Corp., 2016 WL 3275944 , slip 22 op. at 1, 11; Spam Arrest, LLC v. Replacements, Ltd., Case No. C12-0481-RAJ, Dkt. No. 91-1 at 23 17 (W.D. Wash. 2013) (“As a matter of law, Sentient Jet’s authorization for its employees to use 24 its email addresses did not vest them with actual or apparent authority to enter the Sender 25 Agreement.”). 26 Defendant’s subsidiaries’ use of “@microsoft.com” email addresses is insufficient to 1 establish that they were acting with apparent authority during their interactions with Plaintiff. See 2 whiteCryption Corp., 2016 WL 3275944 , slip op. at 11l; Spam Arrest, LLC, Case No. C12-04813 RAJ, slip op. at 9. And while Plaintiff conclusively asserts that “Defendant affirmatively held 4 Defendant’s agents out as having authority to act on the Defendant’s behalf” during the 5 negotiations between Defendant’s subsidiaries and Plaintiff, (see Dkt. No. 28 at 20, 23, 25), the 6 second amended complaint does not set forth factual allegations supporting this assertion, (see [7] id. at 3–19). Similarly, the many exhibits attached to Plaintiff’s second amended complaint do 8 not evidence an objective manifestation by Defendant to Plaintiff regarding the authority of 9 Defendant’s subsidiaries to act on Defendant’s behalf. (See Dkt. Nos. 28-1–28-47.) Again, 10 Plaintiff’s response to Defendant’s motion does not direct the Court to relevant factual 11 allegations in the second amended complaint or applicable legal authority. (See Dkt. No. 35 at 12 6.)2 Therefore, Plaintiff has not established a plausible claim that Defendant conferred apparent 13 authority upon its subsidiaries and thus may be held liable for the actions underlying Plaintiff’s 14 claims.3 [15] 2 In its response, Plaintiff argues that “[t]hese email addresses were issued by Defendant, [16] to its subsidiaries, in an attempt to bestow an expectation of authority that derived from Defendant. That expectation of authority assuaged CSI into contacting [sic] with Defendant’s [17] subsidiaries. CSI would have no reason to uncover this deception given their previous working 18 relationships and interactions.” (Dkt. No. 35 at 6.) 3 Plaintiff’s second amended complaint periodically alleges that Defendant’s subsidiaries [19] acted as its agents in the events underlying Plaintiff’s claims. (See, e.g., Dkt. No. 28 at 7) 20 (“Microsoft Arabia, acting as agent for Defendant, signed a Memorandum of Understanding . . . with TVTC.”). But as discussed above, Plaintiff has not established a plausible claim that 21 Defendant’s subsidiaries were in fact acting as Defendant’s agents during the events at issue. See supra Sections II.B.1–II.B.3. Plaintiff’s conclusory allegations are insufficient to establish a [22] plausible claim as to an agency relationship between Defendant and its subsidiaries such that Defendant may be held liable for its subsidiaries’ actions. See Iqbal, 556 U.S. at 678 ; Balistreri, [23] 901 F.2d at 699 . 24 In its response to Defendant’s motion to dismiss, Plaintiff argues that it has pleaded that Defendant maintained a policy of only selling volume licenses to governmental or academic [25] institutions and that either Defendant or its agents listed TVTC as the customer to circumvent 26 this policy, thereby causing Plaintiff’s damages. (See Dkt. No. 35 at 6; see also Dkt. No. 28 at 6.) But the volume license agreement summary cited by Plaintiff was sent by Microsoft Ireland 1 In sum, while Plaintiff describes Defendant’s arguments as an “attempt to deflect and 2 shirk its responsibility through a highly sophisticated legal shell game whereby harmed parties 3 act in good faith, only to never see the shells turned over,” (see Dkt. No. 35 at 1), the second 4 amended complaint does not plausibly establish Defendant’s participation in or liability for the 5 underlying actions at issue in this case. See Iqbal, 556 U.S. at 678 . Therefore, Plaintiff has failed 6 to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6).4 7 C. Jurisdictional Discovery 8 In its response to Defendant’s motion to dismiss, Plaintiff asks the Court for leave to 9 conduct jurisdictional discovery. (See Dkt. No. 35 at 2, 10.) Generally, jurisdictional discovery 10 may be granted where a defendant challenges the court’s personal jurisdiction over it. See Puget 11 Sound Surgical Ctr., P.S. v. Aetna Life Ins. Co., Case No. C17-1190-JLR, Dkt. No. 61 at 17 12 (W.D. Wash. 2018). Accordingly, jurisdictional discovery is appropriate where “pertinent facts 13 bearing on the question of jurisdiction are controverted or whether a more satisfactory showing 14 of the facts is necessary.” Butcher’s Union Local No. 498, United Food and Commercial 15 Workers v. SDC Inv., Inc, 788 F.2d 535, 540 (9th Cir. 1986) (quoting Data Disc, Inc. v. Systems 16 Technology Associates, Inc., 557 F.2d 1280 , 1285 n.1 (9th Cir. 1977)). 17 Defendant has not challenged the Court’s jurisdiction. (See Dkt. No. 38 at 12.) And [18] Operations Limited, not Defendant. (See Dkt. No. 28-11 at 2–3.) Plaintiff’s bare assertion that it 19 was Defendant who listed TVTC as the customer on the volume license summary despite the document being sent by Microsoft Ireland, and who did so to circumvent Defendant’s own [20] policy and boost its earnings, is insufficient to establish a plausible claim against Defendant. See 21 Iqbal, 556 U.S. at 678 ; Steckman, 143 F.3d at 1295–96. And to the extent that Plaintiff is attempting to argue that Defendant exercised sufficient control over its subsidiaries to render 22 them its agents, the existence of a general policy set by a parent corporation is insufficient to establish an agency relationship between it and its subsidiaries. See Bestfoods, 524 U.S. at 72; 23 whiteCryption Corp., 2015 WL 3799585 , slip op. at 2; Bowoto v. Chevron Texaco Corp., 312 F. Supp. 2d 1229, 1235 (N.D. Cal. 2004). [24] 4 As Plaintiff has failed to establish that Defendant is a proper party to this action, the 25 Court does not address whether Plaintiff’s claims of fraud, breach of contract, or violation of the Washington Consumer Protection Act are subject to dismissal under Rule 12(b)(6). (See Dkt. No. [26] 28 at 19–26.) 1 Plaintiff’s request for leave to conduct jurisdictional discovery is bereft of any citation to the 2 record or substantive argument establishing either that facts pertinent to the question of 3 jurisdiction are controverted or that a more satisfactory showing of jurisdictional facts is 4 necessary. See Butcher’s Union Local No. 498, 788 F.2d at 540 ; (Dkt. No. 35 at 2, 10). 5 Therefore, Plaintiff’s request for leave to conduct jurisdictional discovery is DENIED. 6 III. CONCLUSION 7 For the foregoing reasons, Defendant’s motion to dismiss Plaintiff’s second amended 8 complaint (Dkt. No. 32) is GRANTED. Because Plaintiff’s claims against Defendant have now 9 been asserted three times and been dismissed twice for failure to state a claim upon which relief 10 may be granted as to Defendant, and because Plaintiff has not demonstrated that it will be able to 11 cure the deficiencies identified by the Court if granted further opportunities to amend its claims, 12 Plaintiff’s claims are DISMISSED with prejudice as to Defendant Microsoft Corporation. Callan 13 v. Motricity Inc., Case No. C11-1340-TSZ, Dkt. No. 124 at 16 (W.D. Wash. 2013), aff’d sub 14 nom. Mosco v. Motricity, Inc., 649 F. App’x 526 (9th Cir. 2016). 15 DATED this 24th day of February 2020. A [18] John C. Coughenour 19 UNITED STATES DISTRICT JUDGE