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Microsoft Corp. v. My Choice Software, LLC

United States District Court, W.D. Washington, Seattle

May 15, 2019




         This matter comes before the Court on Plaintiff Microsoft Corporation's first motion to strike or in the alternative dismiss for failure to state a claim (Dkt. No. 98), Plaintiff's second motion to strike or in the alternative dismiss for failure to state a claim (Dkt. No. 107), Defendant My Choice Software, LLC's (“MCS”) motion to file a third-party complaint (Dkt. No. 112), Defendant Nathan Mumme's (“Mr. Mumme”) motion to dismiss for lack of personal jurisdiction (Dkt. No. 115), and MCS and Mr. Mumme's (collectively “Defendants”) motion to strike Plaintiff's praecipe (Dkt. No. 129).


         The Court will provide a detailed summary of this action's factual and procedural background to give context to its rulings on the parties' pending motions.

         On December 9, 2016, Plaintiff initiated this lawsuit against Defendants in the Central District of California. (Dkt. No. 1.) Plaintiff alleges that Defendants “advertised, marketed, copied, offered and/or distributed unauthorized, infringing and/or illicit Microsoft software and components after being previously sued by Microsoft for the infringement of Microsoft's copyrights, trademarks and/or service mark and after entering into a permanent injunction.” (Id. at 7; see also Dkt. No. 34.) Plaintiff's initial complaint asserted eight causes of action against Defendants regarding their alleged trademark and copyright infringement of Plaintiff's software. (Dkt. No. 1 at 9-18.)

         On April 6, 2017, Plaintiff filed its first amended complaint, which added allegations and claims regarding Plaintiff's Managed Partner Network (“MPN”) in which MCS was a participant. (Dkt. No. 20.) Pursuant to the parties' MPN Agreement, Plaintiff made incentive payments to MCS for its sale of qualifying Microsoft software and licenses. (Id.; see also Dkt. No. 100-1 at 60-93.) In the first amended complaint, Plaintiff alleged that Defendants were selling Microsoft Office 365 subscriptions to customers without the customers' knowledge in order to “increase the amount of the MPN incentive payments they were receiving from Microsoft.” (Dkt. No. 20 at 14.) Plaintiff asserted that Defendants' conduct regarding the MPN agreement constituted unlawful, unfair, or fraudulent business practices in violation of California Business & Professions Code § 17200, and resulted in unjust enrichment. (Id. at 23-24.)[1]

         On May 12, 2017, Defendants moved to dismiss the first amended complaint or in the alternative to compel a more definite statement. (Dkt. No. 27.) On October 10, 2017, the Honorable David O. Carter, United States District Judge, granted in part and denied in part Defendants' motion, and dismissed one of Plaintiff's 11 causes of action without prejudice and with leave to amend. (Dkt. No. 33 at 14.)

         On October 30, 2017, Plaintiff timely filed a second amended complaint, which alleged the same causes of action as the first amended complaint. (Dkt. No. 34.) After filing their answer, Defendants filed counterclaims against Plaintiff. (Dkt. No. 39.)[2] Defendants alleged that Plaintiff wrongfully terminated them from the MPN and withheld incentive payments that were owing under the MPN Agreement. (See id.) Defendants additionally asserted that Plaintiff had misrepresented that its approved vendors sold authentic software, which MCS purchased had and re-sold. (Id.)

         On December 18, 2017, Plaintiff filed a motion to sever Defendants' counterclaims and transfer them to the Western District of Washington. (Dkt. No. 41 at 2.) Plaintiff argued that adjudicating the counterclaims required interpretation of the MPN Agreement, which contained a forum selection clause placing exclusive jurisdiction over such claims in the Western District of Washington. (Dkt. No. 41-1 at 16.) In the alternative, Plaintiff asked the Court to dismiss the counterclaims for failure to state a claim. (Dkt. No. 41 at 2.)

         While Plaintiff's motion was pending, Judge Carter issued a scheduling order, which established March 26, 2018 as the deadline for pleading amendments and third-party practice. (Dkt. No. 50 at 2.) On March 26, 2018, Defendants filed a motion for leave to file a third-party complaint against Flex-Tech Solutions, Inc., Southern Technology Solutions, Inc., Teri Reeves, Thomas Reeves, and 10 Doe defendants. (Dkt. No. 62.) Defendants asserted that the proposed third-party defendants sold them the allegedly infringing software and would therefore be liable to indemnify Defendants in the event a judgment was entered against them. (Dkt. No. 62-1 at 8.)[3]

         On April 23, 2018, Judge Carter held a hearing on Plaintiff's motion to sever and transfer Defendants' counterclaims. (Dkt. No. 70.) Judge Carter stated that he was “inclined to transfer the entire action” to the Western District of Washington and directed Plaintiff to file a request to transfer the entire action. (Id.) On April 25, 2018, Judge Carter issued an order transferring the case to the Western District of Washington. (Dkt. No. 72.)

         Following transfer, the case was assigned to the Honorable Richard A. Jones, United States District Judge. (Dkt. No. 76.) The parties then filed a stipulation to re-note Plaintiff's motion to dismiss Defendants' counterclaims and Defendants' motion for leave to file a third-party complaint, which Judge Jones adopted on May 3, 2018. (See Dkt. No. 82.) On June 6, 2018, Mr. Mumme voluntarily dismissed his counterclaims against Plaintiff pursuant to Federal Rule of Civil Procedure 41(a)(1). (Dkt. No. 94.)

         On September 12, 2018, Judge Jones denied Defendants' motion for leave to file a third-party complaint. (Dkt. No. 95.) Judge Jones ruled that Defendants' proposed third-party complaint would “complicate an already dense record, further prolong trial and pretrial proceedings, and introduce extraneous claims and potential cross claims.” (Id. at 3.) Judge Jones concluded that there was “no reason to inject further delays by adding a host of out-of-state defendants and separate claims that are not germane to the present dispute.” (Id. at 4.)

         On September 26, 2018, Judge Jones granted Plaintiff's motion to dismiss MCS's counterclaims. (Dkt. No. 96.) Judge Jones ruled that the counterclaims failed to state a claim upon which relief could be granted. (Id. at 5.) Although expressing skepticism that MCS could “overcome certain factual and legal deficiencies, ” Judge Jones granted MCS “one opportunity to amend” its counterclaims to cure the identified deficiencies. (Id. at 20.)

         On October 12, 2018, MCS timely filed its first amended counterclaim. (Dkt. No. 97.) The first amended counterclaim asserted several new theories of liability against Plaintiff. (See generally id.) In addition to its initial claims related to the MPN Agreement, MCS asserted that it had entered into a “Microsoft Cloud Solution Reseller Agreement” (the “Reseller Agreement”) with Synnex Corporation (“Synnex”), who is Microsoft's “preferred and only cost-effective distributor for Office 365 to small businesses like [My Choice].” (Id. at 3-5.) MCS asserted that the Reseller Agreement enabled it “to order Office 365 licenses from Synnex, ” and that it entered into the Reseller Agreement because its sales of Office 365 licenses qualified “for incentive payments from Microsoft through the MPN.” (Id. at 5.) MCS further stated that “[t]he wrongful distribution practices allegations in [Plaintiff's] Second Amended Complaint are based on MCS's sales of Office 365 licenses made pursuant to and in accordance with the [Reseller Agreement].” (Id.)

         Pursuant to the Reseller Agreement, MCS alleges that it “registered approximately 35, 000 Office 365 license seats with Synnex.” (Id. at 6.) MCS further alleges that Synnex charged it for all registered Office 365 licenses, regardless of whether they were activated or cancelled prior to expiration of a 30-day trial period. (Id.) As a result, MCS asserted that Synnex overbilled it for the licenses, in an amount estimated to exceed two million dollars. (Id. at 7.) MCS alleged that Synnex was acting as Plaintiff's agent in entering into and performing under the Reseller Agreement. (See generally id.) MCS also alleged that Plaintiff terminated the MPN agreement while still owing MCS approximately $140, 000 in incentive payments. (Id. at 8.) The first amended counterclaim asserted the following causes of action against Plaintiff: (1) breach of the Reseller Agreement and the MPN Agreement, (2) violation of the duty of good faith and fair dealing with regard to the Reseller Agreement and the MPN Agreement, (3) unjust enrichment, (4) conversion, (5) an accounting, and (6) imposition of a constructive trust. (Id. at 9-13.)

         On October 25, 2018, Plaintiff filed a motion to strike or in the alternative dismiss MCS's amended counterclaim. (Dkt. No. 98.) Plaintiff asserts that the amended counterclaim should be struck because MCS exceeded the leave that Judge Jones granted to amend. (Id. at 5.) Alternatively, Plaintiff asserts that MCS's counterclaims fail to state a claim upon which relief can be granted because ...

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