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Tangible Value, LLC v. Town Sports International Holdings

February 28, 2011

TANGIBLE VALUE, LLC PLAINTIFF,
v.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Pisano, District Judge.

OPINION

This action arises out of a project to develop a computer system for the management of fitness clubs. Plaintiff Tangible Value LLC ("TV") alleges that it provided software development services as part of this project to Defendants Town Sports International Holdings, Inc. ("Holdings") and Town Sports International LLC ("International," together with Holdings, "Town Sports") for which TV was not paid. TV brings this action against Town Sports and Radcliff Group, LLC ("Radcliff") alleging breach of contract, promissory estoppel, unjust enrichment, and fraud. Presently before the Court are motions by Defendants to dismiss the First Amended Complaint (the "Complaint"). For the reasons below, Town Sports' motion to dismiss pursuant to Federal Rule of 12(b)(6) is granted as to Counts V and VI and denied in all other respects. Radcliff's motion to dismiss for lack of personal jurisdiction is granted.

I. BACKGROUND

The following is a summary of the allegations in the Complaint, which the Court must accept as true when addressing a motion under Rule 12(b)(6):

Defendant Holdings is an operator of fitness clubs in the United States and abroad. Defendant International is one of its subsidiaries. In March of 2008, Holdings and International (collectively referred to herein as "Town Sports") entered into a Master Services Agreement ("MSA") with non-party Ajilon Solutions ("Ajilon") for the development of a new enterprise management system or Global Management System ("GMS"). Ajilon then hired non-party Orion Ventures, Inc. ("Orion") who in turn entered into an oral subcontract with TV by which TV would provide software developers for the GMS project.

In 2009, having become dissatisfied with Ajilon's performance, Town Sports halted the project. As a result, Ajilon instructed TV to stop working on the project. However, Town Sports "requested that TV 'keep working' . with a promise to the effect that 'we will get you paid as you did through Ajilon.'" Complaint ¶ 40. TV alleges that Town Sports, in part through Defendant Radcliff (who acted as an agent of Town Sports at all relevant times) solicited TV to work directly for Town Sports on the completion of the GMS project as well as other software development projects. It is alleged that an agreement was reached "both verbally and by informal writings," Complaint ¶ 43, under which Town Sport would (1) pay TV a $50,000 per month maintenance fee; (2) pay TV's outstanding invoices due from Ajilon for work performed prior to the termination of the project in the amount of $200,000; (3) pay TV $2.5 million for services for the period October 1, 2009 through January 1, 2010; (4) extend to TV advances on the $2.5 million for payment of expenses; (5) hire TV for future services valued at over $2.5 million after January 1, 2010; (6) indemnify TV for claims made by Ajilon resulting from TV's direct dealings with Town Sports. As a result of the parties' agreement, TV provided services to Town Sports and incurred approximately $622,000 in expenses to meet the requirements of the agreement.

Plaintiff attempted to memorialize the parties agreement through counsel, but Town Sports refused to memorialize in the written document certain of the terms that had been agreed upon. In October 2009, TV presented invoices to Town Sports for the services provided by TV. Town Sports denied any monies were due and owing.

II. ANALYSIS

There are two motions before the Court. Defendant Radcliff moves to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, Rule 9(b) for failure to plead fraud claims with the requisite specificity and under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Town Sports similarly moves to dismiss the Complaint under Rule 12(b)(6) as well as under Rule 9(b).

Rule 12(b)(6) Standard

Under Federal Rule of Civil Procedure 12(b)(6), a court may grant a motion to dismiss if the complaint fails to state a claim upon which relief can be granted. The Supreme Court set forth the standard for addressing a motion to dismiss under Rule 12(b)(6) in Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 562, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Twombly Court stated that, "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ... a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do[.]" Id. at 555 (internal citations omitted); see also Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir.2007) (stating that standard of review for motion to dismiss does not require courts to accept as true "unsupported conclusions and unwarranted inferences" or "legal conclusion[s] couched as factual allegation[s]." (internal quotation marks omitted)). Therefore, for a complaint to withstand a motion to dismiss under Rule 12(b)(6), the "[f]actual allegations must be enough to raise a right to relief above the speculative level, ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact) ..." Twombly, 550 U.S. at 555 (internal citations and footnote omitted). More recently, the Supreme Court has emphasized that, when assessing the sufficiency of a civil complaint, a court must distinguish factual contentions and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). A complaint will be dismissed unless it "contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. at 1949 (quoting Twombly, 550 U.S. at 570). This "plausibility" determination will be "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Fowler v. UPMC Shadyside, 578 F.3d 203, 2009 WL 2501662, *5 (3d Cir. August 18, 2009) (citations omitted).

Importantly, a motion to dismiss a complaint for failure to state a claim upon which relief can be granted does not attack the merits of the case, but merely tests the legal sufficiency of the complaint. Sturm v. Clark, 835 F.2d 1009, 1011 (3d Cir. 1987). When considering a motion to dismiss under Rule 12(b)(6), the Court must construe the complaint liberally and accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. University of Md. v. Peat, Marwick, Main & Co., 996

F.2d 1534, 1537-38 (3d Cir. 1993).

Town Sports's and Radcliff's 12(b)(6) Motion

The Complaint contains six counts against Town Sports: breach of contract, promissory estoppel, unjust enrichment, intentional misrepresentation, legal fraud and equitable fraud. All claims are asserted against Town Sports, and only the three fraud claims are asserted against Radcliff.

Turning first to the breach of contract claim, Town Sports argues that the alleged oral contract is unenforceable under the Uniform Commercial Code's statute of frauds. See

N.J.S.A. § 12A:2-201(1).*fn1 Town Sports contends that the oral contract is one for the sale of goods (i.e., software) in excess of $500, and therefore, it is not enforceable under the statute. Plaintiff, on the other hand, argues that the contract is one for software development services, not "goods," or, at least, is one that is predominately for services, and therefore the UCC does not apply. Indeed, courts have noted that "a contract for the development of a software system is not identical to a contract for the sale of a software system. KSM Associates, Inc. v. ACS State Healthcare, LLC 2006 WL 847786, *5 (E.D. Pa. 2006) (emphasis in original) (citing Pearl Invs., LLC v. Standard I/O, Inc., 257 F.Supp.2d 326, 353 (D. Me. 2003) (distinguishing between creation of software from scratch and sale of pre-existing software and holding that UCC does not apply to former).

The Court finds that Defendants' argument fails. An affirmative defense such as the statute of frauds may be raised on a motion to dismiss under 12(b)(6) only if the defense appears on the face of the complaint. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994). This is simply not the case here. As pled in the Complaint, under the alleged contract TV was to "work directly for Defendants Town Sports on the completion of [GMS] and on other software development projects." Compl. ¶ 41. It is impossible for the Court to discern merely from the face of the Complaint whether the contract is one for goods or on one for services or whether, if mixed, which predominates. Defendants' statute of frauds argument, properly supported, would be more appropriately raised in the context of a summary judgment motion.

Defendants' next argument for dismissal of the breach of contract claim similarly fails. Defendants, pointing to an email that is relied upon by Plaintiff in the Complaint, contend that no enforceable contract was formed because Town Sports did not intend to be bound to a contract with TV until the parties had a signed writing. Specifically, the email from Mike Radcliff of Radcliff to Ed Soesman of TV attaches a work plan for several information technology projects, indicates that TV would be involved along with several others in "Project 1," and notes that "[o]ur mutual legal beagles are preparing the contract to get project 1 launched ASAP." Stern Decl. Ex. B. According to Town Sports, this email evinces Defendants' intent not to be bound to an agreement with TV absent a written agreement.

The email in question is not as conclusive on the question of Defendants' intent as Defendants argue and as would be required to grant a motion under Rule 12(b)(6). Indeed, under New Jersey law, parties may bind themselves to an informal agreement even though they contemplate the later execution of a formal agreement. See Morales v. Santiago, 217 N.J. Super. 496, 502, 526 A.2d 266 (App. Div. 1987); Comerata v. Chaumont, Inc., 52 N.J. Super. 299, 305, 145 A.2d 471, (App. Div. 1956). While the email does indicate that a contract was being prepared in connection with "Project 1," Town Sports (through its agent, Radcliff) does not express in the email an intent to be bound only upon the execution of the signed writing with TV. Indeed, far too ...


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