Polar Pro Filters Inc. v. Frogslayer, LLC

          MEMORANDUM AND OPINION

          Lee H. Rosenthal Chief United States District Judge.

         Polar Pro Filters Inc. sued FrogSlayer, LLC, alleging that FrogSlayer failed to work on a video-editing computer program within the time and budget set out in the parties' October 2017 Software Consulting Agreement. (Docket Entry No. 1). Polar Pro asserts claims for contract breach, negligent misrepresentation, fraud, and violations of the Texas Deceptive Trade Practices Act. (Id.).

         FrogSlayer moved to dismiss for failure to state a claim, arguing that Polar Pro's allegations are facially implausible and do not meet the federal pleading standard for fraud. (Docket Entry No. 19). Polar Pro replied, arguing that FrogSlayer's motion is untimely and that the complaint sufficiently raises the claims, and FrogSlayer replied. (Docket Entry Nos. 22, 23).

         Based on the pleadings, the motions and responses, and the applicable law, the court: (1) grants FrogSlayer's motion to dismiss the fraud-based claims relating to statements made before the parties entered the Agreement, about FrogSlayer's ability to do the work, and the statement made later about the software's functionalities, without prejudice; (2) denies the motion to dismiss the fraud-based claims relating to FrogSlayer CEO Ross Morel's statements and contract-breach claim; and (3) grants Polar Pro leave to amend, no later than November 11, 2019. The reasons are explained below.

         I. Background

         The background is drawn from Polar Pro's complaint and the documents referred to and central to the complaint. Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 635 (5th Cir. 2014).

         Polar Pro develops and sells camera software for various devices, including drones and cellphones. (Docket Entry No. 1 at ¶ 6). In August 2017, Polar Pro contacted FrogSlayer, a software developer, about “the possibility of developing a proprietary, computer-based video editing program.” (Id. at ¶¶ 7-8). FrogSlayer represented that it had experience in video-editing and media management. (Id. at ¶ 9). On August 29, after “preliminary market research, ” FrogSlayer employees told Polar Pro that “there's a good opportunity, and need, in this space” and that “we really think this is a project we can knock out of the park.” (Id. at ¶ 10). Polar Pro allegedly told FrogSlayer that it liked the “design and style” of Apple's iMovie and some of the features of Adobe's Premiere Pro. (Id. at ¶ 11). Polar Pro and FrogSlayer discussed the program's specifications and features throughout September 2017. (Id. at ¶ 12). On October 7, they “entered into a Software Consulting Agreement where FrogSlayer agreed to provide consulting and software development services described in Statements of Work.” (Id. at ¶ 13; Docket Entry No. 19-1).

         FrogSlayer sent Polar Pro a “Project Charter” on December 13, 2017, naming the project “The Ripper, ” and detailing “approximately eight months of work for a total cost of $262, 520.” (Docket Entry No. 1 at ¶¶ 14-15; Docket Entry No. 19-2). “Polar Pro agreed that FrogSlayer could proceed working on the video editing program based on the estimate laid out in the Project Charter.” (Docket Entry No. 1 at ¶ 16). The charter summarized the project purpose and scope, noting that the goal is for “PolarPro customers [to] easily create video compositions and feel like they are using a ‘pro level' piece of software.” (Docket Entry No. 19-2 at 3). The charter specified that the project was not to create software that would “attempt to compete with Adobe Premier, FinalCut Pro and other professional level video editing applications.” (Id. at 4). The charter also included a list of key processes, project requirements, and technical design elements. (Id. at 5- 11). On January 25, 2018, FrogSlayer sent Polar Pro a “Roadmap” listing “the features the program would have.” (Docket Entry No. 1 at ¶ 17).

         On June 12, 2018, Polar Pro told FrogSlayer that “version one of The Ripper project was not close to working, ” even though “$235, 000 had already been paid of the $262, 520 cost estimate.” (Id. at ¶ 19). On June 17, Ross Morel, FrogSlayer's Chief Executive Officer, admitted to Polar Pro that “hard facts” had not initially been “presented” and “sincerely apologize[d] for the delay.” (Id. at ¶ 20). Morel stated that “version one . . . would most likely cost [an additional] $106, 785 to complete with approximately eleven weeks of schedule remaining, ” as long as the scope and requested features were not changed, and that “FrogSlayer will agree to cover all costs exceeding our likely estimate [of $106, 785].” (Id.). Relying on Morel's statements and estimate, Polar Pro instructed FrogSlayer to continue working on The Ripper, thanking FrogSlayer for “ensuring [Polar Pro's] cost to complete [version one] does not exceed: $106, 785.” (Id. at ¶ 21).

         FrogSlayer sent Polar Pro an updated Roadmap on July 9, 2018. (Id. at ¶ 22). The updated Roadmap color-coded various features, indicating the features that would (green), could (yellow), and would not (red) be in version one. (Id. at ¶ 23). That same day, Jeff Overall, Polar Pro's Chief Executive Officer, demanded that many features in the yellow and red categories be in version one, and FrogSlayer agreed. (Id. at ¶¶ 23-24). On October 2, “FrogSlayer communicated to Polar Pro that it would waive any further payments regarding its work on version one of The Ripper project because ‘as per the agreement sent by Mr. Morel on June 18, 2019[, ]' the $106, 785 budget estimate had already been fulfilled and paid by Polar Pro.” (Id. at ¶ 25 (alterations omitted)).

         On January 18, 2019, Polar Pro asked FrogSlayer how the “performance (e.g.[, ] speed)” of version one “would be judged.” (Id. at ¶ 26). FrogSlayer responded on January 30, “for the first time since The Ripper project had been commenced, ” that OpenShot, a “free, open-source, video editing program” would be the benchmark. (Id. at ¶ 27). Polar Pro responded that this program “was not a viable product or benchmark to The Ripper Project.” (Id. at ¶ 28). In Polar Pro's view, “iMovie and DaVinci Resolve” were the proper benchmarks, and FrogSlayer agreed. (Id. at ¶ 29).

         In February 2019, FrogSlayer “refused to perform any further work on The Ripper project without additional pay-contrary to its June 17, 2018 communication.” (Id. at ¶ 30). FrogSlayer told Polar Pro that the “additional costs necessary to complete version one of The Ripper Project would be another $210, 000-$390, 000 and an additional six to nine months of work.” (Id.). Morel told Polar Pro that FrogSlayer “had ‘failed to navigate the risks upfront'” and that “mistakes were made early-on in the project.” (Id. (alterations omitted)). According to the complaint:

The last version one demo of The Ripper Project provided to Polar Pro fails to provide nearly every feature in the ‘in scope' section of the Roadmap and also fails to provide most of the features in the ‘maybe in scope' section of the Roadmap. The last version one demo of the Ripper Project failed to meet the requirements and functionalities set out by the Roadmap. The last version one demo runs at a slower rate than industry standards and also crashes when certain functions are activated. . . .

The last version one demo of The Ripper Project has no commercial value and there is no market in which Polar Pro can sell a defective software program to recoup any cost. It cannot be sold to customers and would not even be able to be given away due to its speed, the program crashing and lack of functionalities. Polar ...