ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al.

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

Tentative Ruling

*** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the causes of action that will be addressed at the hearing. The parties are also reminded that pursuant to local court rules, only limited oral argument is permitted on law and motion matters. ***

Defendants California Department of Technology (“CDT”) and California Department of Motor Vehicles’ (“DMV”) (collectively, “Defendants”) demurrer to Plaintiff Aspen Technologies Group LLC’s (“Plaintiff”) complaint is ruled upon as follows.

Overview

This action arises out of a contract between Plaintiff and Defendants. Plaintiff alleges that Defendants contracted with it for the development, deployment and hosting of a cloud-based contact center and automation services for DMV. (Complaint, ¶ 10.) Plaintiff alleges that it entered into a General Provisions Contract (“General Provisions Contract”) with CDT in 2019, and a Standard Agreement in December 2020. (Ibid.) It alleges that DMV is an intended beneficiary of both contracts. (Ibid.)

Plaintiff alleges that in March 2021, it continuously delivered platforms, automation, bots and provided services under the subject contracts. (Complaint, ¶ 11.) It further alleges that:

In September of 2022, DMV sent proper notice via a Form 20 to cancel one of the bot services, which was the bot service for the DMV website. In December 2022, Aspen accidentally failed to remove the fees related to the website bot services from the DMV bill and the DMV informed Aspen that they would be short- paying the website bot services. At the same time, Aspen learned and immediately informed the DMV that it had failed to bill for monthly services for the call center bot services since the beginning of the service period, of [sic] which uses the same CALNET catalog bot services SKU.

In January 2023, Aspen informed the DMV Deputy Director and an individual in the DMV accounting department for [sic] the lack of monthly recurring billing for call center bot services, where Aspen gained alignment [sic] from the DMV that the DMV should pay at or about the equivalent monthly amount of the website bot services for the missing call center bot services moving forward until such time Aspen could complete an audit for the usage of the call center bot services consumed by the DMV for the appropriate contract period.

In February 2023, the DMV followed through by reversing the short-pay from the December 2022 invoice and paid for call center bot services at or about the equivalent monthly amount of the website bot services prior to the Aspen audit being complete. In February 2023, Aspen completed its

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

audit for DMV’s usage of call center bot services, of [sic] which usage exceeded the average monthly cost of the website bot services, reviewed the audit findings with CDT prior to reviewing with DMV in order to ensured [sic] that Aspen was following the CALNET catalog for the agreed upon bot services SKU per unit price, and then presented the audit findings, usage, and price in a separate meeting in February 2023 with the DMV Deputy Director and DMV accounting individual.

(Ibid.)

Plaintiff alleges that DMV disputed that the call center bot services charges were not being charged “at or below market rate,” and that despite Plaintiff’s performance, Defendants improperly declined to pay its properly submitted bills and terminated the contracts with Plaintiff. (Complaint, ¶ 12.) It alleges that Section 54.d of the General Provisions Contract required Aspen to continue running services that were in dispute, which forced Aspen to provide its platforms and services without being paid. (Complaint, ¶ 13.)

Defendants previously filed a lawsuit against Plaintiff in 2023. (Complaint, ¶ 16.) The parties entered into a Settlement and Release Agreement (“Settlement”) whereby Defendants agreed that Plaintiff could submit its disputed billing for administrative adjudication pursuant to Section 54 of the General Provisions Contract. (Ibid.) Plaintiff alleges that on May 3, 2024, CDT denied its appeal reasoning that the charges were not at or below market rate. (Id., ¶ 23.)

The complaint asserts causes of action for: (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) unjust enrichment, and (4) common count (goods and services rendered).

Defendants demur to each cause of action on the ground that Plaintiff fails to state facts sufficient to constitute a cause of action.

Plaintiff’s request for judicial notice is granted. In taking judicial notice of these documents, the court accepts the fact of their existence, not the truth of their contents. (See Professional Engineers v. Dep’t of Transp. (1997) 15 Cal.4th 543, 590; Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120-121.)

Legal Standard

The function of a demurrer is to test the sufficiency of the pleading it challenges by raising questions of law. (Salimi v. State Comp. Ins. Fund (1997) 54 Cal.App.4th 216, 219; Nordlinger v. Lynch (1990) 225 Cal.App.3d 1259, 1271.)

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

A demurrer and a motion to strike “tests the pleadings alone and not the evidence or other extrinsic matters.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) The purpose of a demurrer is to test the legal sufficiency of a claim. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) For the purpose of determining the effect of a complaint, its allegations are liberally construed, with a view toward substantial justice. (Code Civ. Proc. §452; Amarel v. Connell (1988) 202 Cal.App.3d 137, 140-141; Quelimane Co. v.

Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 43, fn. 7.) In this respect, the Court treats the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law, and considers matters which may be judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1111-1112.) A general demurrer does not admit contentions, deductions, or conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice. (Blank v.

Kirwan (1985) 39 Cal.3d 311, 318, William S. Hart Union High School Dist. v. Regional Planning Com. (1991) 226 Cal.App.3d 1612, 1616 n.2.) Extrinsic evidence may not properly be considered on demurrer or on a motion to strike. (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881; Hibernia Savings & Loan Soc. v. Thornton (1897) 117 Cal. 481, 482.)

A demurrer may be sustained only if the complaint lacks any sufficient allegations to entitle the plaintiff to relief. (Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778.) “Plaintiff need only plead facts showing that he may be entitled to some relief . . ., we are not concerned with plaintiff’s possible inability or difficulty in proving the allegations of the complaint.” (Highlanders, Inc. v. Olsan (1978) 77 Cal.App.3d 690, 696-697.) “[Courts] are required to construe the complaint liberally to determine whether a cause of action has been stated, given the assumed truth of the facts pleaded.” (Picton v.

Anderson Union High School Dist. (1996) 50 Cal.App.4th 726.) A demurrer admits the truth of all material facts properly pled and the sole issue raised by a general demurrer is whether the facts pled state a valid cause of action – not whether they are true. (Serrano v. Priest (1971) 5 Cal.3d 584, 591.)

Breach of Contract

In this cause of action, Plaintiff alleges that Defendants “materially breached the terms of the contracts by wrongfully failing to pay Aspen’s invoices which Aspen submitted in accordance with Section 39 of the General Provisions, and which DMV and CDT failed to pay pursuant to Section 40 of the General Provisions.” (Complaint ¶ 28.)

Section 39(d) of the General Provisions Contract states:

Acceptance procedures to initiate payments will be as set forth in the Customer's Scope of Work and/or Ordering Documents. A Customer shall be deemed to have

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

accepted each Service either (i) upon its issuance of written notice of such acceptance or (ii) thirty (30) calendar days after the Service activation date, excluding delays due to shipping time, or acceptance testing period (collectively Acceptance), unless otherwise specified in the Scope of Work or at or before the time the Customer gives the Contractor written notice of rejection or requests additional time. Any notice of rejection will explain how the Deliverable or Service fails to substantially conform to the functional and performance specifications of the Statement of Work and the Customer’s Scope of Work.

The Contractor will, upon receipt of such notice, investigate the reported deficiency and exercise reasonable best efforts to remedy it promptly. The Customer, in its sole discretion, will have the option to re-perform the acceptance test. If the Contractor is unable to remedy the deficiency within thirty (30) calendar days of notice of rejection, the Customer shall have the option of terminating for default the portion of the Contract that relates to such Deliverable or Service, or terminating this Contract in its entirety for default; and/or the State or the Customer shall have the option of terminating the Service order or accepting substitute Deliverables or Service or other remedy provided in the SOW Business Requirements.

No payment will be due before Acceptance thereof, except to the extent required by progress payment terms and/or progress payment requirements in the Scope of Work, if applicable.

(Complaint, Ex. A, ¶ 39.)

Section 40 of the General Provisions Contract states:

Payment will be made in accordance with the provisions of the California Prompt Payment Act, Government Code Section 927 et. seq. Unless expressly exempted by statute, the Act requires State agencies to pay properly submitted, undisputed invoices not more than 45 days after; (a) the date of acceptance of Deliverables or performance of services; or (b) receipt of an undisputed invoice, whichever is later.

(Complaint, Ex. A, ¶ 40.)

Defendants demur on the ground that Plaintiff fails to identify a breach of any contract term. According to Defendants, “Aspen does not allege a breach of any specific term of the Contract. Rather, the Complaint generally references Sections 39 and 40 of the General Provisions, but these provisions cannot be the source of Defendants’ alleged breach because the invoices at issue were disputed, and Section 40 only provides for payment of undisputed invoices. Indeed, Section 39 states that ‘[n]o payment will be due before Acceptance thereof,’ and Aspen does not allege that either defendant ‘accepted’ any of the thirty disputed invoices at issue.” (Demurrer, 10:17-

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

23.)

Defendants further demur on the ground that Plaintiff fails to identify which Defendant allegedly breached the contract, and there appears to be no breach of contract by CDT since all the invoices were submitted to DMV.

Plaintiff opposes. It insists that Defendants’ argument flies in the face of Section 54 of the General Provisions and the Settlement Agreement, as well as the parties’ course of conduct, because the parties expressly agreed that Plaintiff may submit its disputed billing for administrative adjudication pursuant to Section 54 of the General Provisions. (Complaint, ¶ 16, RJN, ¶¶ D, 8 and 10.) Plaintiff explains that it followed the exact procedure set forth in the Settlement Agreement regarding the disputed billing and after CDT denied Aspen’s appeal of the denial of the disputed billing, Plaintiff timely filed the instant action. (Complaint, ¶ 23.) It adds that:

As alleged in the paragraph 11 of the Complaint, Defendants have acknowledged that Aspen provided bot services which should be paid for, but did not agree to the price. Likewise, there is simply no reason that Defendants would have negotiated of [sic] a settlement of a prior lawsuit which provided a process by which Aspen could requested payment of the invoices at issue here and which provided for the filing of a lawsuit for payment of said invoices, if they did not believe that they could potentially be sued for disputed invoices. The Complaint therefore, taken as a whole including the exhibits, along with the parties [sic] post-contract actions, clearly alleges a cause of action for breach of contract against Defendants

(Opposition, 11:26-12:6.)

Lastly, Plaintiff maintains that it sufficiently alleges that both DMV and CDT improperly declined to pay the invoices and terminated the contracts. (Complaint, ¶¶ 11-12.)

The Court agrees with Defendants the Plaintiff fails to sufficiently allege what term they purportedly breached. Plaintiffs’ reliance on the parties’ course of conduct is misplaced as course of conduct is used to interpret and ambiguous contract. (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 752.) Here, there is no argument that the General Provisions Contract is ambiguous such that the parties’ course of conduct should be considered. Additionally, although the Court agrees with Plaintiff that it has the option to allege the legal effect of a contract, it also attached a copy of the General Provisions Contract to its complaint. “Where a written contract is pleaded by attachment to and incorporation in a complaint, and where the complaint fails to allege that the terms of the contract have any special meaning, a court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

subject to a construction sufficient to sustain a cause of action for breach.” (Hillsman v. Sutter Cmty. Hosps. (1984) 153 Cal.App.3d 743, 749-750.) As Defendants note, Sections 39 and 40 cannot be the source of Defendants’ alleged breach because the invoices at issue were disputed, and Section 40 only provides for payment of undisputed invoices. Accordingly, the demurrer on this ground is SUSTAINED with leave to amend.

The demurrer on the ground that Plaintiff fails to identify which Defendant allegedly breached the contract, and there appears to be no breach of contract by CDT since all the invoices were submitted to DMV is OVERRULED. Plaintiff sufficiently alleges that both DMV and CDT improperly declined to pay the invoices and terminated the contracts. (Complaint, ¶¶ 11-12.)

Breach of Implied Covenant of Good Faith and Fair Dealing

In this cause of action, Plaintiff alleges that:

[i]mplied in the General Provisions Contract and the Standard Agreement, are covenants of good faith and fair dealing by DMV and CDT which owed Aspen the duty to deal honestly and fairly with it and not to engage in conduct that undermined the intent of these contracts. By virtue of the wrongful and willful acts and omissions described herein, DMV and CDT failed to act in good faith in performance of its obligations and duties to Aspen pursuant to the General Provisions Contract and the Standard Agreement, all of which constituted material breaches of the covenant of good faith and fair dealing in these contracts by DMV and CDT.

(Complaint, ¶ 32.)

Defendants contend that this cause of action is superfluous of the breach of contract cause of action because “Aspen alleges nothing more than that Defendants breached the Contract.” (Demurrer, 12:1-2.) It also suggests that “if Aspen seeks damages based on a breach of the covenant of good faith and fair dealing or some other tort, it is required to comply with Section 54 of the General Provisions as to that specific cause of action, which it failed to do.” (Id., 12:6- 8.) It lastly argues that tort damages for breach of covenant are only permitted in insurance disputes, and there is no recovery for breach of covenant in noninsurance contracts.

Plaintiff maintains that it has sufficiently alleged that Defendants breached the covenant of good faith and fair dealing that is implied in every contract as Defendants unfairly frustrated Plaintiff’s right to receive the benefits of the contract. It also adds that is sufficiently alleges the elements to this cause of action.

Plaintiff, however, does not address Defendants’ arguments that if Plaintiff was seeking damages

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

based on a breach of the covenant of good faith and fair dealing or some other tort, it was required to, and failed to comply with Section 54 of the General Provisions, and that tort damages for breach tort damages for breach of covenant are only permitted in insurance disputes. The Court construes Plaintiff’s failure to address these arguments as a concession on the merits. (D.I. Chadbourne, Inc. v. Superior Court (1964) 60 Cal.2d 723, 728, fn. 4 [where nonmoving party fails to oppose a ground for a motion “it is assumed that [nonmoving party] concedes” that ground].) Accordingly, the demurrer is SUSTAINED with leave to amend.

Unjust Enrichment

Defendants demur on the ground that unjust enrichment causes of action are inapplicable to public entities, and that Plaintiff has an adequate remedy of law such as its breach of contract cause of action. “[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.” (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203.)

Plaintiff rejoins that unjust enrichment causes of action are allowed for claims seeking restitution from public entities where the plaintiff can point to a contractual promise that was approved by the public entity, but later challenged by the entity. (See Russell City Energy Co., LLC v. City of Hayward (2017) 14 Cal.App.5th 54, 73 [allowing plaintiff an opportunity to amend its complaint against the City of Hayward to allege a quasi-contractual restitution claim in the unique set of circumstances where there was no dispute as to whether the parties entered into the contract, and the plaintiff was not attempting to imply the existence of an extra-contractual agreement or attempting to enforce an invalid provision of the agreement].)

Plaintiff suggests that its claims resulted from Defendants’ improper retention of funds that should have been paid to Aspen for services rendered, and it is not the case where government immunity is needed to protect public funds by shielding a public entity from tort damages because “the allegations reflect a misapplication of public funds, which were not used to pay for Aspen’s services, but instead were unjustly retained by Defendants to Aspen’s detriment.” (Opposition, 15:20-22 [italics in original].)

Yet, as noted above, Section 40 only provides for payment of undisputed invoices. Thus, to the extent the unjust enrichment cause of action is based on Defendants’ failure to pay the disputed invoices, Plaintiff’s argument is implying the existence of an extra-contractual agreement (e.g. the payment of disputed invoices.)

Plaintiff lastly suggests that it may plead a breach of contract and unjust enrichment as alternative theories of recovery. The Court notes, however, that these alternative theories may be plead where it is alleged that the express contract is void or was rescinded. (See Russell City Energy Co., LLC, supra, 14 Cal.App.5th 54, 70, fn. 8 quoting Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.) Here, there are no allegations that the contract is void or was rescinded.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

The demurrer is SUSTAINED with leave to amend.

Common Count (Goods and Services Rendered)

Defendants suggest that Plaintiff cannot assert a common counts theory because it has asserted an actual agreement covering the compensation. They further argue that “to the extent ‘[a] common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.’” (Demurrer, 13:8-11 quoting McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.)

The demurrer is OVERRULED. As Plaintiff notes “a plaintiff may plead inconsistent causes of action for breach of contract and common count.” (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1223.)

Where leave to amend is granted, the Court has granted leave since this is Defendants’ first challenge to the complaint. Plaintiff may file and serve a first amended complaint (“FAC”) by no later than January 24, 2025, Response to be filed and served within 30 days thereafter, 35 days if the FAC is served by mail. (Although not required by any statute or rule of court, Plaintiff is requested to attach a copy of the instant minute order to the FAC to facilitate the filing of the pleading.)

This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.)

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To request limited oral argument, on any matter on this calendar, you must call the Law and Motion Oral Argument Request Line at (916) 874-2615 by 4:00 p.m. the Court day before the hearing and advise opposing counsel. At the time of requesting oral argument, the requesting party shall leave a voice mail message: a) identifying themselves as the party requesting oral argument; b) indicating the specific matter/motion for which they are requesting oral argument; and c) confirming that it has notified the opposing party of its intention to appear and that opposing party may appear via Zoom using the Zoom link and Meeting ID indicated below. If no request for oral argument is made, the tentative ruling becomes the final order of the Court.

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SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV015294: ASPEN TECHNOLOGIES GROUP, LLC vs CALIFORNIA DEPARTMENT OF TECHNOLOGY, et al. 01/14/2025 Hearing on Demurrer to Plaintiff's Complaint in Department 54

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