The Emmes Co. v. Sap Am. Inc.

THE EMMES COMPANY, LLC, Plaintiff, v. SAP AMERICA, INC., Defendant.

Civil Action No. 21-0019

United States District Court, E.D. Pennsylvania

July 29, 2021

MEMORANDUM

GERALD J. PAPPERT, J.

The Emmes Company seeks leave to amend its Complaint after missing a Court-ordered deadline to do so. The Court grants the Motion in part and denies it in part for the reasons that follow.

I

A

The Court recounted the facts of this case in its April 28, 2021 Memorandum (ECF 28). In short, Emmes sued SAP America after it paid over $85, 0000 to use SAP's Cloud Service pursuant to a written Agreement. (Id. at 1.) Emmes claims the Cloud Service is defective and unusable for its business purposes. (Id. at 1-2.) It further claims it received deficient implementation services from SAP's third party partner AltaFlux, and it seeks to hold SAP liable for AltaFlux's actions. (Id. at 2-3.)

B

The Court recently dismissed most of Emmes's claims after SAP moved to dismiss the initial Complaint. See generally (Mot. to Dismiss, ECF 11); (Apr. 28, 2021 Mem.). The Complaint alleged SAP (1) breached the Agreement by failing to deliver the Cloud Service “in a manner that conforms to the expectations set forth in the Agreement;” (2) negligently selected AltaFlux as Emmes's Cloud Service implementation partner; (3) negligently misrepresented its Cloud Service; and (4) was vicariously liable for AltaFlux's performance. See generally (Compl. ¶¶ 31-52, ECF 11). It further requested declaratory judgment finding, inter alia, that SAP breached the Agreement and owed Emmes a duty of care in selecting its implementation partner. (Id. at ¶ 55.)

The Court dismissed the declaratory judgment and negligent misrepresentation claims with prejudice because the declaratory judgment request was duplicative of Emmes's breach of contract and negligence claims and Emmes acknowledged the gist of the action doctrine barred it from alleging negligent misrepresentation. (Apr. 28, 2021 Mem. 4 n.4, 13.) The Court also dismissed without prejudice the negligence and vicarious liability claims.

With respect to the negligence claim, Emmes did not plausibly demonstrate SAP owed it any duty of care in selecting AltaFlux as Emmes's implementation partner. (Id. at 10-11.) Emmes alleged SAP had a “contractual duty to use reasonable and ordinary care in selecting [its] implementation partner, ” (Compl. ¶ 36), but SAP brought Emmes and AltaFlux together before contracting with Emmes. (Apr. 28, 2021 Mem. 10.) Moreover, the Agreement does not mention AltaFlux's selection, and its plain language says “SAP makes no representations or warranties related to the performance of the products or service” of third parties. (Id. at 10.) While the Complaint conclusorily asserted that AltaFlux acted as SAP's agent Emmes did not plausibly allege a duty arising from an agency relationship because no alleged facts established that such a relationship existed. (Id. at 10-11.) Emmes's allegations were particularly insufficient in light of the Agreement provision saying “Partner (AltaFlux) is not an agent of SAP.” (Id. at 2, 10-11.)

Emmes's vicarious liability claim failed both because Emmes did not adequately allege SAP and AltaFlux had an agency relationship and because Emmes did not allege any underlying theory of liability that could be imputed to a purported agent. (Id. at 12.) The Court made clear that vicarious liability claims cannot stand under Pennsylvania law unless a claimant first establishes an underlying theory of liability. (Id.)

i

The only claim that survived SAP's Motion was for breach of contract. There, the Court found Emmes plausibly alleged SAP breached the Agreement, but acknowledged a possibility that Emmes intended to plead breach of warranty instead. (Id. at 6-8.) Because the Court dismissed some of Emmes's other claims without prejudice, the Court instructed Emmes that if it chose to amend its Complaint, and if it wished to allege breach of warranty, it should do so in lieu of the breach of contract claim. (Id. at 7 n.5 (Emmes “cannot simultaneously pursue breach of contract and breach of warranty claims premised on the same harm”) (citing Pansini v. Trane Co., No 17-3948, 2019 WL 1299036, at *8 (E.D. Pa. Mar. 21, 2019)).

ii

The Court allowed Emmes to amend its negligence and vicarious liability claims, as well as its breach of contract claim as necessary, on or before May 12. (Id. at 14); (Apr 28, 2021 Order ECF 29.) Emmes missed that deadline.

C

Emmes now seeks leave to file an Amended Complaint. See (Mot. for Leave to Amend, ECF 36-3). It blames miscommunications among counsel for missing the Court's deadline and argues granting leave is appropriate because “[t]his case remains in its infancy, and no party will be prejudiced” by amendment. (Id. at 1-2, 4.)

Emmes' proposed Amended Complaint asserts breach of contract, negligence and vicarious liability claims, but now also alleges breach of warranty “in the alternative” to breach of contract. (Proposed Am. Compl. ¶¶ 34-49, ECF 36-4.) It also renews the declaratory judgment request the Court dismissed with prejudice. (Id. at ¶¶ 50-52.) Emmes now contends that instead of SAP having a contractual duty with respect to AltaFlux's selection, SAP “affirmatively undertook” a duty of care to Emmes in selecting AltaFlux as an implementation partner when it “required customers to work with third party implementation partners . . . and introduced and cultivated the relationship between the partner and the customer.” (Id. at ¶¶ 39-40.) It further alleges SAP oversees and supports third party partners like AltaFlux through “formalized relationships.” (Id. at ¶¶ 12-13.)

i

SAP contends amendment would be futile because the proposed Amended Complaint “is substantively deficient as it fails to comply with this Court's April 2[8], 2021 Order and Opinion.” (Resp. to Mot. for Leave to Amend 1, ECF 38.) It points out Emmes is not entitled to renew its declaratory relief request and “Emmes has done nothing to fix the fact that its vicarious liability claim . . . fails because ‘there is no independent cause of action for respondeat superior under Pennsylvania law.'” (Id. at 4-6.) Moreover, Emmes's breach of contract and breach of warranty claims are premised on the same harm, so Emmes ignored the Court's instruction not to plead both. (Id. at 2.) It also claims Emmes's proposed allegations still fail to establish that SAP owed Emmes any duty of care in selecting AltaFlux as a partner or that AltaFlux is SAP's agent. (Id. at 3-4.)

II

Federal Rule of Civil Procedure 15(a) provides that “leave [to amend] shall be freely given when justice so requires.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (citations omitted). The decision to grant leave to amend is within the discretion of the district court. Id.

A court may deny leave to amend a complaint on grounds such as prejudice, undue delay, bad faith, dilatory motive and futility. Id; see also Alston v. Parker, 363 F.3d 229, 235 (3d Cir. 2004) (“[I]f a complaint is vulnerable to 12(b)(6) dismissal, a District Court must permit a curative amendment, unless an amendment would be inequitable or futile.”). “Futility ‘means that the complaint, as amended, would fail to state a claim upon which relief could be granted.'” Great W. Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 175 (3d Cir. 2010) (quoting In re Merck & Co. SSec., Derivative & ERISA Litig., 493 F.3d 393, 400 (3d Cir. 2007)). “A proposed amendment is futile ‘if the amendment will not cure the deficiency in the original complaint, or if the amended complaint cannot withstand a renewed motion to dismiss.'” Blake v. JPMorgan Chase Bank, N.A., 259 F.Supp.3d 249, 253-54 (E.D. Pa. 2017) (quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 292 (3d Cir. 1988)).

The standard for assessing futility “is the ‘same standard of legal sufficiency as applies under Federal Rule of Civil Procedure 12(b)(6).'” Great Western Mining & Mineral Co., 615 F.3d at 175 (quoting Shane v. Fauver, 213 F.3d 113, 115 (3d Cir. 2000)). When assessing whether amendment would be futile, the court must “tak[e] all pleaded allegations as true and view[] them in a light most favorable to the plaintiff.” Winer Family Trust v. Queen, 503 F.3d 319, 331 (3d Cir. 2007).

III

It would be futile to allow Emmes to amend some of its claims. Emmes will be allowed to amend the Complaint only as it pertains to either the breach of contract or breach of warranty claim, as well as the negligence claim.

A

The Court told Emmes it should not assert both breach of contract and breach of warranty claims if they are premised on the same harm, yet in pursuing both claims Emmes has nowhere argued they are premised on different harms. And as alleged the claims are indistinguishable-both assert SAP is liable to Emmes for failing to provide a Cloud Service that conformed with what was promised and described in the Agreement. Compare (Proposed Am. Compl. ¶ 37 (in support of breach of contract claim, alleging “SAP failed to perform as provided in the Agreement in a manner that conforms to the expectations set forth in the Agreement”)) with (id. at ¶ 58 (in support of breach of warranty claim, alleging “SAP . . . failed to meet its express remedial responsibilities by not correcting or replacing the nonconforming Cloud Service” or refunding Emmes “to reflect the noncomformance”).

The Court, however, cannot say that either claim, pled on its own, would be futile. The breach of contract claim is sufficiently pled for the reasons stated in the Court's April 28 Memorandum. See (Apr. 28, 2021 Mem. 6-8). And to support its breach of warranty claim, Emmes alleges the Agreement contains an express warranty that “the Cloud...