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Motorola Mobility, Inc v. Myriad France Sas and Myriad Group Ag

August 27, 2012

MOTOROLA MOBILITY, INC., PLAINTIFF,
v.
MYRIAD FRANCE SAS AND MYRIAD GROUP AG, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Motorola Mobility, Inc. has sued Myriad France SAS and Myriad Group AG for breach of contract, alleging that they failed to comply with their contractual obligations to indemnify Motorola Mobility for damages it sustained as a result of defective software they produced. Both defendants filed motions to dismiss, one of which the Court granted in part. Motorola Mobility, Inc. v. Myriad France SAS, __ F. Supp. 2d __, 11 C 7373, 2012 WL 367118 (N.D. Ill. Feb. 2, 2012).

Motorola Mobility has since filed a third amended complaint. Both defendants have moved to dismiss the third amended complaint in its entirety. Myriad France's motion incorporates part of a motion it previously filed seeking reconsideration of a part of the Court's previous decision. For the reasons stated below, the Court grants Myriad France's motions in part (thereby modifying the Court's February 2, 2012 decision) and terminates Myriad Group's motion as moot.

Background

The Court draws the following facts from the allegations in Motorola Mobility's complaint, which the Court accepts as true for purposes of the motions to dismiss. Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 853 (7th Cir. 2012).

As the Court explained in its previous decision, with which the Court assumes familiarity, Motorola, Inc. and Phone.com, Inc. entered into a Master License and Services Agreement (MSA) in October 1999. Phone.com agreed to license messaging and browser software for use in Motorola phones. Later, Motorola Mobility ("Motorola") was substituted for Motorola, Inc. Openwave Systems was substituted for Phone.com, and Myriad France was later substituted for Openwave. Myriad France does not dispute that it is bound to Phone.com's and Openwave's obligations under the MSA and several of its amendments. Myriad Group is Myriad France's parent corporation.

Motorola alleges that defendants breached the MSA by delivering defective software products on three occasions and failing to address the consequences adequately. First, Motorola claims that in 2005, Openwave designed, developed, and delivered a defective mobile phone Internet browser that Motorola included in a mobile phone it sold to Verizon. The software failed to promptly terminate browser sessions. This resulted in the overcharging of Verizon customers, who later sued Verizon in a class action. Motorola was contractually obligated to defend and indemnify Verizon for the damages arising out of this action, and Motorola in turn sought defense and indemnification from Openwave, which refused Motorola's request. Motorola ultimately paid a portion of the costs of settling the Verizon class action and alleges that it was thereby damaged "in excess of $500,000." Third Am. Compl. ¶ 29. In count one of its complaint, Motorola seeks indemnification from defendants for this amount.

Motorola also alleges that Openwave designed, developed, and delivered a second defective software product in late 2008 and early 2009. The defect caused mobile phone browsers to issue an erroneous message that rendered the browser unusable. Motorola included the software in phones it was developing for Tracfone, which discovered the defect during pre-release testing. "Motorola immediately notified Defendants of the defect and asked Defendants to remedy the defect." Id. ¶ 33. "Defendants failed to timely remedy the defect, and, as a result, [Tracfone] cancelled its purchase of the phone from Motorola." Id. This caused Motorola to be damaged "in excess of $5 million," id. ¶ 36, for which it sought indemnification but was refused. Motorola seeks damages for defendants' failure to indemnify (count two) and for defendants' breach of the warranties set out in the MSA (count three).

Finally, Motorola alleges that Openwave designed, developed, and delivered a defective software product in 2010 that rendered the browser unusable. Motorola included the software in phones it was developing for Tracfone, which again discovered the defect during pre-release testing. This delayed the release of the phone, damaging Motorola "in excess of $1.7 million." Id. ¶ 47. Motorola again notified defendants of the defect immediately, but they failed to remedy the problem, and they later rejected Motorola's request for indemnification. Motorola seeks damages for defendants' failure to indemnify (count four) and for breach of the software warranties (count five).

In Myriad France's previous motion to dismiss, it argued that section 14.1 of the MSA, on which Motorola bases its indemnification claims, did not provide a basis for relief. That provision states, in relevant part:

Scope of Indemnification. PHONE.COM agrees to defend, indemnify, and hold harmless Motorola from and against any claim, suit or proceeding and any damages, liability, or other expenses (including, but not limited to, reasonable attorneys' fees and court costs) which arise out of or result from: (I) gross negligence or wrongful acts of employees of PHONE.COM while performing PHONE.COM's obligations hereunder; and/or (ii) infringement of any third party patent, copyright, trade secret, or trademark rights.

Id. Ex. B. at 40. Myriad France contended that the MSA was an agreement to license software, not to design or develop it, and that its "obligations hereunder" did not include the provision of functioning software. The Court ruled that Motorola's allegations "that Openwave delivered defective software; the defect resulted in a class action against which Motorola was obligated to defend and indemnify Verizon; and Openwave then refused to defend and indemnify Motorola" constituted "allegations that, if proven, could establish that Myriad France has breached its indemnification obligations under the terms of the MSA, entitling Motorola to relief." Motorola Mobility, 2012 WL 367118, at *5. The Court also stated that if "Motorola could not bring a claim under section 14.1 of the MSA for lawsuits like this one, it is not clear what purpose that provision would serve." Id. Motorola now seeks reconsideration of this ruling.

Myriad Group has, throughout this litigation, contended that it cannot be held liable under the MSA because only Myriad France succeeded to Phone.com's and Openwave's obligations. Motorola contended that it could "pierce the corporate veil" to reach Myriad Group as Myriad France's parent company, but Myriad Group maintained in its motion to dismiss that Motorola had failed to allege a sufficiently close relationship between the companies for that doctrine to apply. After these motions were fully briefed, however, the parties filed a joint stipulation in which they ask the Court to hold Myriad France and Myriad Group "jointly and severally liable for any and all claims and damages for which one or the other entity is found to be liable in this case." Joint Mot. to Amend/Correct at 2. They also ask the Court to allow the filing of a fourth amended complaint alleging the same claims directly against both Myriad France and Myriad Group and to allow the withdrawal of Myriad Group's motion to dismiss the third amended complaint as moot.

The Court grants these requests. Although Motorola did not attach its proposed fourth amended complaint to the motion, the parties state that Myriad France's motion to dismiss the third amended complaint is "fully applicable to the Fourth Amended Complaint and ripe for decision by the Court." Id. at 3. The Court will therefore proceed to rule on Motorola's claims as they are alleged in the third amended complaint.

Discussion

On a motion to dismiss under Rule 12(b)(6), the Court accepts the facts stated in the complaint as true and draws reasonable inferences in favor of the plaintiff. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). To survive the motion, the complaint must include enough facts to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). A claim is plausible on its face "when the plaintiff pleads factual ...


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