Copywatch, Inc. v. Cross
Copywatch, Inc. v. Cross
Opinion of the Court
Plaintiff CopyWatch, Inc. ("CopyWatch") is a consulting firm that advises businesses how they can reduce their copying and printing expenses. CopyWatch claims that it provided such advice to Defendant American National Red Cross ("Red Cross"). According to CopyWatch, Red Cross improperly and unjustly used that advice without paying for it, in breach of express and implied agreements between the parties.
Red Cross has moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that CopyWatch has failed to state a claim. ECF No. 15; see also ECF No. 15-1 ("Def.'s Br."); ECF No. 17 ("Pl.'s Opp'n"); ECF No. 18 ("Def.'s Reply"). For the reasons explained below, the motion is DENIED .
*193I. Factual and Procedural Background
CopyWatch, a corporation headquartered and incorporated in New York, alleges that it is "an industry leader in document expense auditing and reduction services." ECF No. 13 ("Am. Compl.") ¶¶ 5, 11. It claims to have developed a "confidential and proprietary audit and document management process" that allows its clients to reduce their document-related expenses, including through its expertise in negotiating with vendors. Id. ¶¶ 13-15. CopyWatch asserts that its customary fee is 30% of the cost savings achieved, which clients often prefer because "it does not require any new expenditures on their part." Id. ¶ 17.
Red Cross is a corporation chartered by Congress and headquartered in the District of Columbia. Id. ¶ 6; see
According to CopyWatch's Amended Complaint, Red Cross agreed during the June 2015 meeting that CopyWatch "would provide its services to [Red Cross], including auditing [Red Cross's] document expense costs for all copiers ..., multi-functional devices, and printers." Am. Compl. ¶ 28. The parties also agreed that CopyWatch would prepare a written audit report detailing Red Cross's costs and proposing strategies for reducing them.
After the June 2015 meeting, Macon allegedly "sent correspondence to CopyWatch reflecting that [Red Cross] understood that CopyWatch expected to be compensated for its services" and "confirming that CopyWatch would begin work while the parties worked out payment terms."
CopyWatch's original complaint described the interactions between the parties in the summer of 2015 somewhat differently. As set forth in the original complaint, the parties reached their understanding that CopyWatch would perform the audit not at the June 2015 meeting, but on "August 10, 2015." See ECF No. 1 ("Orig. Compl.") ¶ 25. According to Red Cross, this was an implicit reference to a Memorandum of Understanding (the "MOU") executed by the parties on that same date. See Def.'s Br. at 5. Red Cross has now attached *194the MOU to its motion to dismiss. Wright Decl. App. 2, at 8-10.
According to its terms, the MOU was "an expressly non-binding set of understandings" between CopyWatch and Red Cross.
This MOU simply memorializes the Parties' current intent and does not constitute a legally binding agreement of the Parties to consummate any transaction outlined herein nor does it create any legal obligations on or provide any rights in favor of the Parties. If further discussions and negotiations occur, neither Party to the proposed transactions will be under any legal obligation with respect to the proposed transactions or any similar transactions unless and until the final, written agreements providing for the transaction have been executed and delivered by all Parties intending to be bound. No offer, commitment, estoppel, undertaking or obligation of any nature whatsoever shall be implied in fact, law or equity until such final written agreements have been executed and delivered.
The Red Cross in its sole discretion shall decide whether or not to pursue any recommendations made by CopyWatch.
The Amended Complaint claims that, on October 16, 2015, CopyWatch delivered its audit report, which explicitly stated that it was "confidential." Am. Compl. ¶ 38. The report, by applying CopyWatch's "unique and proprietary industry expertise and know-how," allegedly told Red Cross how it could "substantially reduce its document expenses."
After delivering the report, CopyWatch claims, it provided Red Cross with further helpful advice. Red Cross's Chief Information Officer allegedly "thanked CopyWatch for the 'great' report" and asked several follow-up questions "concerning how CopyWatch would execute its plan." Am. Compl. ¶ 44. In response, CopyWatch provided additional "details concerning execution of the strategies outlined in the Report."
CopyWatch alleges that Red Cross subsequently "us[ed] and rel[ied] on CopyWatch's audit analysis and findings to seek reduced copying and document expenses."
Red Cross refused to pay. According to CopyWatch, Red Cross had in fact schemed to avoid payment starting shortly after it began using CopyWatch's work product. Macon left Red Cross around that time, and CopyWatch asserts on "information and belief" that Red Cross "fired Mr. Macon as part of [Red Cross's] attempt to use CopyWatch's audit, analysis, and recommendations without compensating CopyWatch." Am. Compl. ¶ 50. CopyWatch claims it sought to "finalize payment terms" with other Red Cross employees,
In the Amended Complaint, CopyWatch has brought three claims for relief under District of Columbia law. In Count I, it claims that Red Cross violated the NDA by "exploit[ing] CopyWatch's confidential and proprietary know-how, analysis, work product, and strategies for its own personal gain ... without permission from CopyWatch."
Red Cross has moved to dismiss all three claims. ECF No. 15. Red Cross argues that CopyWatch's allegations that it breached the NDA are too conclusory to survive a motion to dismiss. See Def.'s Br. at 8-11. Red Cross further argues that CopyWatch's claims for breach of an implied-in-fact contract and unjust enrichment are untenable because express contracts (the NDA and the MOU) govern the parties' relationship. See id at 11-13. Finally, Red Cross argues that Counts II and III each fail to state a claim. See
II. Legal Standard
A motion to dismiss under Rule 12(b)(6)"tests whether a plaintiff has properly stated a claim." BEG Invs., LLC v. Alberti ,
"District courts may refer to materials outside the pleadings in resolving a 12(b)(6) motion" only if they "convert the motion to dismiss into one for summary judgment." Kim v. United States ,
III. Analysis
Because CopyWatch has adequately stated its claims, Red Cross's motion to dismiss will be denied. The Court will begin by considering which documents are within the pleadings and thus properly considered on this 12(b)(6) motion. It will then analyze each count of CopyWatch's Amended Complaint in turn.
A. Documents Within the Pleadings
Red Cross has submitted five documents in connection with its motion to dismiss. The first, the NDA, is properly before the Court on this motion. "The prototypical incorporation by reference occurs where a complaint claims breach of contract, and either party attaches to its pleading an authentic copy of the contract itself." Banneker Ventures, LLC v. Graham ,
Red Cross has also submitted a copy of the MOU. That document, however, is not within CopyWatch's pleadings. It is not "referred to" in the Amended Complaint, nor is it "integral" to CopyWatch's claims.
Red Cross contends that the MOU was referenced in CopyWatch's original complaint and therefore can be considered on this motion. Red Cross's argument proceeds in two steps. First, it argues, the Amended Complaint "directly contradicts the facts set forth in [CopyWatch's] original complaint" with respect to the MOU, and so the Court should strike the discredited allegations in the Amended Complaint and look to the original complaint instead. Def.'s Br. at 5 (quoting Hourani v. Mirtchev ,
Red Cross's argument founders at the first step. While the Court may strike "sham" allegations that represent a "180 degree change" from the original complaint, the amendments in this case are not so extreme. Clay v. Howard Univ. ,
For that reason, the Court must follow the "hornbook law that an amended complaint supersedes the prior complaint and renders it of no legal effect." Halldorson v. Sandi Grp. ,
The remaining three documents consist of an email from Macon to CopyWatch dated July 6, 2015, Wright Decl. App. 3, at 12; the Audit Report (which has been filed under seal); and an invoice that CopyWatch sent to Red Cross in May 2016, Wright Decl. App. 5, at 16-17. The Court will assume, without deciding, that those documents are within the pleadings, because they do not compel dismissal of CopyWatch's claims, as explained below.
B. Count I: Breach of the NDA
Under District of Columbia law, CopyWatch must establish four elements to prevail on its claim for breach of contract: "(1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by breach." Tsintolas Realty Co. v. Mendez ,
First, Red Cross argues, the Audit Report does not constitute confidential information protected by the NDA because the report was not proprietary and amounted to nothing more than a "sales pitch." Id. at 10. But the NDA does not clearly exclude nonproprietary information or "sales pitches" from "Confidential Information," which is defined as "certain confidential information relating to copier and printer cost recovery service." Wright Decl. App. 1, at 5. CopyWatch alleges that the Audit Report met that definition: the report was marked as "confidential" and explained how Red Cross could reduce its copying *198and printing costs. See Am. Compl. ¶¶ 38-41. The Court has also examined the Audit Report itself, which Red Cross has filed under seal, and its contents do not make those allegations implausible. See Audit Report. Plausibility is enough at this stage. See Council on Am.-Islamic Relations Action Network, Inc. v. Gaubatz ,
Red Cross next argues that CopyWatch has not adequately alleged that Red Cross actually used any confidential information in violation of the agreement. Def.'s Br. at 8-9, 10-11. CopyWatch's allegations, Red Cross argues, are too conclusory to "nudge[ ] [its] claims across the line from conceivable to plausible." Bell Atl. Corp. v. Twombly ,
Finally, Red Cross argues, CopyWatch has not adequately pleaded damages caused by the breach. Def.'s Br. at 10-11. In Red Cross's view, because the NDA disclaimed "any expectation of a business relationship," CopyWatch has no right to the profits that it expected to earn from a future business relationship as damages. See
"The damages recoverable in a breach of contract action include those damages which 'arise directly from the breach itself, or could reasonably have been in contemplation of both parties when they made the contract.' " Mercer Mgmt. Consulting, Inc. v. Wilde ,
C. Count II: Breach of Implied-in-Fact Contract
An implied-in-fact contract, as is alleged in Count II, "is a true contract that contains all the required elements of a binding agreement." See New Econ. Capital, LLC v. New Markets Capital Grp. ,
(1) valuable services being rendered; (2) for the person sought to be charged; (3) which services were accepted by the person sought to be charged, used and enjoyed by him or her; and (4) under such circumstances as reasonably notified the person sought to be charged that the [person rendering the services] expected to be paid by him or her.
Jordan Keys & Jessamy, LLP v. St. Paul Fire & Marine Ins. Co. ,
Red Cross argues that Count II runs afoul of the principle that "a plaintiff may not obtain extra-contractual remedies through equitable claims when an actual contract governs the subject matter of a dispute." Def.'s Br. at 12 (emphasis omitted). Red Cross further argues that CopyWatch has failed to plead the elements required to prove an implied-in-fact contract. See id. at 14-17. The Court will consider each argument in turn.
1. Effect of Written Contracts
According to Red Cross, two written contracts preclude Count II of the complaint: the NDA and the MOU. As an initial matter, a written agreement does not always preclude the formation of an implied-in-fact contract. Cases are legion holding that "where the parties have a contract governing an aspect of the relation between themselves, a court will not displace the terms of that contract and impose some other duties not chosen by the parties." Emerine v. Yancey ,
Even if it applies, the principle that Red Cross invokes here does not preclude *200Count II. It is generally true that "a claim for quantum meruit cannot stand where there is an express written agreement between the parties," but only if the agreement concerns "the same subject matter." Cobell v. Jewell ,
If CopyWatch is able to prove damages for breaches of both the NDA and the alleged implied-in-fact contract, those damages may overlap to some extent-but not necessarily completely. For example, CopyWatch alleges that it prepared "a draft lease buyout letter for [Red Cross] to send to its current vendor," and provided contact information for the vendor's "Vice President of Sales." Am. Compl. ¶ 44. If CopyWatch in fact authorized Red Cross to send the agreement to the vendor, as one could infer from the facts alleged in the Amended Complaint, then it presumably would not have constituted confidential information within the scope of the NDA. Nonetheless, CopyWatch's work on the letter could potentially constitute services compensable under Count II. As that example shows, "without the benefit of discovery, it is not yet clear whether the activities at issue in the [implied-in-fact contract and] unjust enrichment claim[s] against [Red Cross] overlap entirely with the breach of contract claim" in Count I. Dist. Title v. Warren , No. 14-cv-1808 (ABJ),
Red Cross also invokes the MOU as a written agreement barring Count II. As explained above, the MOU is not properly before the Court on this motion to dismiss. Moreover, even if it were before the Court, Red Cross's argument would have no purchase because it is not at all clear that the MOU is an agreement. This is so because the document, on its face, does not unambiguously evince a key element of contract formation: "intention of the parties to be bound" by at least some of its terms. United House of Prayer for All People v. Therrien Waddell, Inc. ,
Therefore, at this stage the Court cannot conclude that any written agreement between the parties compels dismissal of Count II of the Amended Complaint. For the same reasons, this argument must be rejected as to Count III as well.
2. Formation of an Implied-in-Fact Contract
Because no written agreement requires dismissal of Count II, the Court turns to consider whether CopyWatch has properly pleaded the existence of an implied-in-fact contract. According to Red Cross, CopyWatch has failed to plausibly allege three elements of an implied-in-fact contract: that CopyWatch rendered "valuable services"; that the Red Cross "accepted," "used" and "enjoyed" those services; and that Red Cross did so "under such circumstances as reasonably notified [Red Cross] that [CopyWatch] expected to be paid." Jordan Keys ,
Red Cross's argument, however, is largely grounded in the MOU. If that document were in fact within the pleadings, it might very well compel the dismissal of Count II. That is because the MOU, even if not a binding contract, clearly states that Red Cross did not intend to be bound to compensate CopyWatch for its work until the parties executed a final agreement. See Wright Decl. App. 3, at 9; Berry Law ,
Rather, the Amended Complaint plausibly alleges that Red Cross accepted CopyWatch's services with the understanding that it would have to pay for them. CopyWatch alleges that, starting in June 2015 when the parties first met, Red Cross understood that CopyWatch expected to be paid, although the parties had not yet agreed on "potential payment structures." Am. Compl. ¶ 31. Macon allegedly sent correspondence to CopyWatch reflecting that understanding. Id. ¶ 32. Moreover, just when CopyWatch was about to "finalize payment terms" with Macon, it discovered that Macon had mysteriously left Red Cross-from which CopyWatch infers that Red Cross had sought to avoid its commitments to pay CopyWatch by firing the person in the organization who had most clearly expressed those commitments. Id. ¶¶ 48-50. CopyWatch then reached out to other Red Cross employees, who allegedly "continued to seek and accept CopyWatch's services while stringing CopyWatch along with respect to payment terms." Id. ¶ 53. That alleged course of dealing makes this case similar to others in which the defendant provided " 'verbal assurances' that [the plaintiff] would be compensated for consulting services." New Econ. Capital ,
*202Red Cross points to the Macon email dated July 6, 2015, which it has attached to its motion to dismiss, as evidence that the Amended Complaint does not sufficiently allege that CopyWatch ever reasonably expected payment. Wright Decl. App. 3, at 12. In particular, it argues that the document suggests that Red Cross did not accept CopyWatch's customary 30% fee and wanted to "discuss different payment structures."
Red Cross suggests, in its reply, that the "agreement" to provide audit services in June 2015 failed to include the amount of compensation, a material term of a contract. See Def.'s Reply at 4. That argument is of no moment because CopyWatch does not allege that an oral contract formed at the June 2015 meeting, or ever. Rather, CopyWatch alleges that the meeting put Red Cross on notice that it would have to pay for CopyWatch's services, and that an implied-in-fact contract formed later when Red Cross actually accepted and benefitted from CopyWatch's services. CopyWatch will, however, ultimately have to show that discussions of payment terms were sufficiently advanced by then that Red Cross can be considered to have agreed to definite terms of compensation. See Queen v. Schultz ,
Red Cross also misses the mark when it argues that CopyWatch has failed to plausibly allege that it provided "valuable services." Def.'s Br. at 17. Red Cross relies primarily on the Audit Report, which it characterizes as "sales pitch efforts ... expended to earn Red Cross's eventual business."
Finally, Red Cross argues that it never used and benefitted from the services that CopyWatch provided. But for the same reasons explained above in connection with Count I, CopyWatch plausibly alleges just that. Therefore, Count II survives Red Cross's motion to dismiss.
D. Count III: Unjust Enrichment
Red Cross advances essentially the same arguments regarding CopyWatch's unjust enrichment claim. It first argues that written agreements preclude the claim. See Def.'s Br. at 11-13. That argument fails for the same reasons set forth above in connection with Count II. Nor is the Court convinced by Red Cross's argument that CopyWatch has failed to plead the elements of unjust enrichment, as explained below.
Count III is based on a theory of "quasi-contract," which "is not a contract at all" but rather a "duty thrust under certain conditions upon one party to requite *203another." New Econ. Capital ,
Count III is properly pleaded for the essentially same reasons as is Count II: CopyWatch plausibly alleges that it conferred a benefit (its audit report and other services) on Red Cross, that Red Cross retained that benefit (by using the services to reduce its copying and printing expenses), and that Red Cross's retention of the benefit is unjust (because it avoided paying for CopyWatch's services despite knowing that CopyWatch expected payment). Red Cross's primary arguments for dismissing this claim are that CopyWatch's audit report was nothing more than a sales pitch and that Red Cross never actually used the report for its own benefit. See Def.'s Br. at 18-20. Those arguments have already been discussed, and rejected, above.
IV. Conclusion and Order
For all of the above reasons, it is hereby ORDERED that Red Cross's Motion to Dismiss (ECF No. 15) is DENIED .
SO ORDERED.
Because the Wright Declaration filed in support of Red Cross's motion to dismiss encompasses several documents, all citations to the Declaration refer to the page numbers generated by ECF.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.