Opinion
CIVIL ACTION NO. 3:02-CV-2202-R.
July 14, 2003.
MEMORANDUM OPINION AND ORDER
Now before this Court is Defendant i2 Technologies, Inc.'s ("i2") Motion to Dismiss (filed December 10, 2002). For the reasons discussed below, Defendant's Motion is GRANTED.
I. INTRODUCTION
This case concerns the consideration allegedly owed Plaintiff for the assignment of certain computer software and related technologies to Defendant.As alleged in the Complaint, beginning in late 1997, Plaintiff, William Stover ("Stover"), working with a partner, developed a computer software application for the steel industry (the "Mill Scheduler Software"). The Mill Scheduler Software uses mathematical algorithms to increase the efficiency of the steel production process. When Stover began employment with i2 in April 1998, the Mill Scheduler Software and related technologies were excluded from a general assignment to i2 of all inventions or discoveries made while employed, and i2 acknowledged that Stover maintained full rights to the Mill Scheduler Software and related technologies. Subsequently, in late 1999, i2 and Stover began negotiations for an assignment of Stover's software and related technology. In January 2000, the parties reached "a definitive agreement" for the assignment of the Mill Scheduler Software and related technologies to i2.
According to the Complaint, in exchange for the assignment of the Mill Scheduler Software, i2 was obligated to pay Plaintiff (1) $50,000 and (2) grant him guaranteed stock options which would bring the total value of consideration paid to Plaintiff to $1.5 million. The two aspects of the agreement were separately memorialized in an assignment agreement (attached to the Complaint as Exhibit A) and an option grant agreement. After the initial grant of options in April 2000 (notice of option grant attached to the Complaint as Exhibit B), the value of i2 stock fell sharply. Thus, Plaintiff was given an additional grant of options (notice of option grant attached to the Complaint as Exhibit C). The options, although issued for "administrative convenience" pursuant to i2's 1995 Stock Option Plan (the "Plan"), were fully vested at the time of issue and did not require continuance of Plaintiff s employment.
The $50,000 was paid to Plaintiff in March or April of 2000, and is thus not at issue in this case. However, the stock options were not granted to the satisfaction of Plaintiff. Moreover, in August 2001, Plaintiff's employment at i2 was terminated. Included in the severance package Plaintiff received at the time of his termination was a notice that he would not receive those stock options which had not vested as of his termination date.
On July 9, 2002, Plaintiff filed suit alleging: (1) breach of contract, (2) tortious denial of existence of contract, (3) breach of the implied covenant of good faith and fair dealing, and (4) conversion. Plaintiff also seeks the imposition of a constructive trust. The Complaint was originally filed in Illinois state court, was then removed to the U.S. District Court for the Northern District of Illinois, and, subsequently, was transferred to this Court.
II. ANALYSIS
A. DISMISSAL UNDER RULE 12(b)(6)
A district court, acting under Rule 12(b)(6), may dismiss a complaint only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In applying this standard, a court "accepts as true the well-pled factual allegations in the complaint, and construes them in the light most favorable to the plaintiff." Taylor v. Books a Million, Inc., 296 F.3d 376, 378 (5th Cir. 2002). However, a complaint containing mere conclusory allegations or unwarranted deductions of fact may be insufficient to survive a motion to dismiss. U.S. v. Human Health Plan of Tx., ___ F.3d ___, 2003 WL 21467963, at *2 (5th Cir. Jun. 26, 2003). As the Fifth Circuit has stated:
Conclusory allegations and unwarranted deductions of fact are not admitted as true . . . especially when such conclusions are contradicted by facts disclosed by a document amended to the complaint. If the appended document . . . reveals facts which foreclose recovery as a matter of law, dismissal is appropriate.Assoc. Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974) (emphasis added); see also Tuchman v. DSC Communications Corp., 14 F.3d 1061 ("We will thus not accept as true conclusory allegations or unwarranted deductions of fact.").
B. APPLICATION TO THIS CASE
1. Breach of Contract and Conversion Claims
In this case, Plaintiff's claims of breach of contract and conversion are both foreclosed by the documents Plaintiff has attached to the Complaint. Recovery under these two claims is barred by the express terms of the Assignment of Software Agreement (the "Agreement") attached as Exhibit A to the Complaint, and the two option grant notices (the "Notices") attached as Exhibits B and C to the Complaint.
The Agreement was entered into by Stover, his partner (Kizhanatham Srikanth) ("Srikanth"), and i2 in March 2000, and provides that:
The copy of the Agreement attached as Exhibit A to the Complaint is neither signed nor dated. However, the preamble of the Agreement states that it is "entered into as of March ___, 2000 (effective date)" and Plaintiff states, in his response brief, that "Stover assigned the software tool pursuan to the Assignment document (Complaint Exh. [sic] A) in March 2000)." See Complaint, Ex. A, at 1; Plaintiff's Response, at 2. The Complaint refers to the software at issue as the "Mill Scheduler Software"; however, the Agreement covers the transfer of rights to the "Caster Blank Heat Formation software." Plaintiff does not dispute that the Caster Blank Heat Formation software was the software developed by Plaintiff (and his partner). Plaintiff's contention that the Caster Blank Formation softwares was a subset of the Mill Scheduler Software is addressed above in the body of the Opinion.
2.1 Subject to Assignor's receipt of the consideration specified in Section 2.3, Assignor [Stover and Srikanth] hereby assigns, grants, conveys, and transfers all world-wide rights, title, and interest in the Transferred Intellectual Property, including all associated goodwill and world-wide rights to sue and recover damages for past infringement or misappropriation to Assignee [i2] . . .
2.3 Assignee agrees to pay Stover $50,000 (fifty thousand dollars) within thirty days in consideration of the assignments and other provisions of this Agreement. Assignee agrees to pay Srikanth $50,000 (fifty thousand dollars) within thirty days in consideration of the assignments and other provisions of this Agreement.
Complaint, Ex. A., at 3 (Agreement §§ 2.1, 2.3).
Pursuant to these two provisions, in exchange for a one-time payment of $50,000, Stover transferred "all world-wide rights, title, and interest" in the "Transferred Intellectual Property" to i2. Plaintiff alleges that the Agreement referred only to one version of software he had developed, rather than to all his rights in the software and related technologies, particularly the underlying algorithms and mathematical logic. However, the Agreement itself precludes such an unwarranted factual assertion. In the Agreement, Transferred Intellectual Property is defined broadly to include, inter alia, the "processes, techniques, algorithms", "formulas", and any "novel devices, processes . . . methods, techniques . . . designs, expressions, theories and ideas, whether or not patentable" which were "related to" the assigned software.
Due to the multiple layers of defined terms, the following defined terms all contribute to determining the scope of "Transferred Intellectual Property" in the Agreement:
1.13 "Transferred Intellectual Property" shall mean all Intellectual Property related to the Software, other than Intellectual Property rights in the Commercially Available Software.
1.10 "Software" shall mean all existing versions of the Caster Blank Heat Formation software developed by Assignor, including the expressions of an organized set of instructions in a natural or coded language, in whatever form such as source code, object code, or executable code, including but not limited to code generated by the Commercially Available Software, which are contained on physical media of any nature (e.g. written, magnetic, optical, or otherwise) and which may be used with a computer or other processor, as well as all written documentation, including design documentation, user documentation, and program documentation, which relates to the use distribution, and/or maintenance of the Caster Blank Heat Formation Software, and any of the following which is contained on a physical media of any nature and which is used in the design, development, modification, enhancement, testing, installation, maintenance, diagnosis, or assurance of the performance of the Caster Blank Heat Formation Software: data mode Is, use case descriptions, processes, techniques, algorithms, symbologies, architectures, interfaces, calculations, models, narrative descriptions, notes, specifications, designs, flow charts, parameters, logic flow diagrams, masks, input and output formats, file layouts, data base formats, test programs, test or other data, user guidelines, manuals, installation, an operating instructions, diagnostic and maintenance instructions, source code, object code, and other similar materials and information.
1.3 "Intellectual Property" shall mean and include (a) Patent Rights, (b) Trademark Rights, (c) Copyrights[,] (d) Inventions, (e) Know-How, and (f) Trade Secrets.
1.4 "Inventions" shall mean and include novel devices, processes, compositions of matter, methods, techniques, observations, discoveries, apparatuses, designs, expressions, theories and ideas, whether or not patentable.
1.4 "Know-How" shall mean scientific, engineering, mechanical, electrical, or practical knowledge or experience.
1.11 "Trade Secrets" shall mean any formula, design, device or compilation of information which gives the holder thereof an advantage or opportunity for advantage over competitors which do not have or use the same, and which is not generally known by the public and which is maintained in confidence. Trade Secrets can include, by way of example, formulas, algorithms, source code, flowcharts, information contained in drawings and other documents, and information relating to research, development or testing.
1.1 "Commercially Available Software" means software available for license and/or purchase that was license or required to be licensed (a) for development of the Software; or (b) for use of the Software by a third party.
(emphasis added).
The Agreement also includes a merger provision which states that:
5.2 This Agreement, contains the entire Agreement and understanding between the parties hereto, superseding and replacing all prior negotiations and agreements, written and oral as to the subject matter hereof, provided however, that this Agreement shall not in any way supercede any employment related agreements between Assignee and Srikanth and/or Stover.
Id. (§§ 2.2, 5.2).
Thus, the Agreement, by its own terms, "supersed[es] and replac[es] all prior negotiations and agreements, written and oral as to the subject matter hereof" (i.e. assignment of rights in the Mill Scheduler Software). Accordingly, allegations in the Complaint regarding a "definitive agreement" reached in January 2000, any negotiations or assurances made pertaining thereto, or any "greater agreement" allegedely entered into prior to the Agreement and of which the Agreement was just a part, are superseded by the express terms of the Agreement.
This conclusion is also supported by the hold-harmless provision of the Agreement, which states:
2.2 Assignor hereby releases, acquits, and forever discharges Assignee and its affiliates as well as Assignee's distributors, dealers, customers, and users from any and all claims or liability of any kind related to the Software with respect to any act or omission prior to the Effective Date.
(emphasis added).
There is no reference anywhere in the Agreement to a grant of stock options. Nor does the Complaint allege fraud on the part of Defendant. With the payment of the $50,000, i2 has met its obligations under the Agreement. Therefore, there has been no breach of contract, and, consequently, no conversion with respect to the Agreement.
Plaintiff's Complaint and response brief also allege that certain stock options were granted to Plaintiff subsequent to the Agreement. Again, the attached documents foreclose recovery on Plaintiff s claims for breach of contract and conversion. The Complaint asserts that the options were granted as part of "a definitive agreement" for the assignment of the software which was reached in January 2000, that this agreement was subsequently amended due to the decline in the price of i2 stock, and that the option grants were guaranteed irrespective of Stover's continuing employment at i2. However, the Notices clearly foreclose this possibility. Each Notice states that options are granted "subject to and in accordance with the terms of the i2 Technologies, Inc. 1995 Stock Option/Stock Issuance Plan," and that Stover "further agrees to be bound by the terms of the Plan." Plaintiff's Complaint states that "the terms of the Plan required an employee to remain employed by i2 Technologies for full vesting of ownership of the options." Thus, the express terms of the Notices preclude any assertion by Plaintiff that the Options were fully-vested and guaranteed at their time of issue. Plaintiff has no claim for any options which had not vested, pursuant to the schedules contained in the Notices, prior to his termination.
Complaint, Ex. B and C, at 2. The Notices also expressly state that they do not in any way affect the at-will employment status of the option recipients.
Complaint, at 7 (¶ 17).
In sum. Plaintiff has not stated a claim upon which relief can be granted for breach of contract, and, consequently, also has failed to state a claim upon which relief can be granted for conversion. Accordingly, Plaintiff's claims for breach of contract and conversion are hereby DISMISSED.
2. Other Claims.
Plaintiff's remaining claims are also not viable. Defendant cannot be held to have breached a duty of good faith in fair dealing as "there is no cause of action in Texas based on a duty of good faith and fair dealing in the context of an employer/employee relationship." Midland v. O'Bryant, 18 S.W.3d 209, 215 (Tex. 2000). Plaintiff's allegation of unequal bargaining power does not change the employee relationship. Texas does not appear to recognize a claim for tortious (or bad faith) denial of existence of contract outside of the area of insurance contracts. See, e.g., Universe Life Ins. Co., v. Giles, 950 S.W.2d 48, 50-54 (Tex. 1997). Even if such a claim were cognizable in Texas, the discussion above regarding the breach of contract claim forecloses any such claim. Finally, in light of the dismissal of Plaintiff's other claims, there is no basis for this Court to use its equitable powers to impose a constructive trust.
The Agreement also states that "Each party has had the opportunity to receive independent legal advice from its attorney with respect to this Agreement." Complaint, Ex. A, at 7 (§ 5.12).
Plaintiff s claims for tortious denial of existence of contract, breach of the implied covenant of good faith and fair dealing, and request for imposition of a constructive trust are hereby DISMISSED.
III. CONCLUSION
For the foregoing reasons, Defendant i2 Technologies, Inc.'s Motion to Dismiss is hereby GRANTED, and Plaintiff's complaint is hereby DISMISSED. See Whitaker v. City of Houston, Tx., 963 F.2d 831, 834-36 (5th Cir. 1992) (explaining distinction between dismissal of complaint and dismissal of entire action).It is so ORDERED.