Customers of Oracle who believe they have been victimized by predatory software audits, VMware overreaches or NetSuite SuiteSuccess failures may have a new tool in their toolbox to combat Oracle and certain of its alleged unfair trade practices.A recent ruling by the California Supreme Court makes it clear that civil litigants in certain cases involving a theft of money or property may be able to sue Oracle under California Penal Code 496.Successful litigants bringing claims under the statute are entitled to treble damages and an award of attorneys' fees.It is a powerful potential weapon that should be assessed by every company contemplating suing Oracle for damages caused by predatory audits or failed ERP implementations.
InSiry Inv. v. Farkhondehpour, 13 Cal.5th 333 (2022), a case involving the fraudulent diversion of partnership funds, the California Supreme Court definitively ruled that treble damages and attorneys' fees can be awarded pursuant to California Penal Code section 496(c) in theft-related business tort cases.The ruling can apply to a broad range of business disputes but would require a knowing violation. The Court held that "section 496(c) is unambiguous" and a plaintiff "may recover treble damages and attorney's fees under section 496(c) when property has been obtained in any manner constituting theft. .The unambiguous relevant language covers fraudulent diversion of partnership funds." The Supreme Court cautioned that "not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft.To prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond mere proof of nonperformance or actual falsity. . . . This requirement prevents ordinary commercial defaults from being transformed into a theft."Siry, 13 Cal. 5th at 361-362.
As a result, "innocent" or "inadvertent" misrepresentations or unfulfilled promises would not qualify as theft under Section 496.It is very interesting to consider in the Oracle audit context what actions potentially could be considered "theft" under the statute?For example, if you are a business that suffered through a predatory audit by Oracle and paid money or entered into an expensive ULA based on Oracle's non-contractual VMware argument, could that qualify as a theft under the statute?Perhaps, but the claim has not yet been tested in a court of law in a case involving an Oracle software audit.But certainly, companies in disputes with Oracle arising out of software audits should seriously consider the claim in evaluating their legal strategies.The fact that Oracle has never to our knowledge sued any company who refused to pay on Oracle's expansive and we believe non-contractual interpretation for what it means for Oracle software to be "installed and/or running" in a VMware environment could indicate that Oracle does not believe that its legal argument is sound and that it would prevail in court.The fact that Oracle appears to have quickly settled theMars v. Oraclelawsuit, the only case to date challenging Oracle's interpretation of the meaning of the processor definition and how it relates to virtualization technology, may be another indicator that Oracle does not think much of the strength of its legal argument.Nonetheless, Oracle continues to raise such arguments routinely during its software audits.Unfortunately, some companies may be misled into believing such arguments and may be paying large settlements involving the use of VMware in order to get out from under the audit.
Likewise, Oracle/NetSuite SuiteSuccess customers may very well want to consider such claims in disputes with Oracle arising out of failed cloud ERP subscriptions and implementations, where a plaintiff was fraudulently induced by Oracle into entering into the contract.In fact, even before the California Supreme Court decidedSiry,the Ninth Circuit reversed a ruling dismissing such a claim in theGrouse River v. Oraclecase, which involved NetSuite's SuiteCommerce product.The Ninth Circuit in remanding the case to the Northern District for a new trial reasoned that:
"[T]he elements required to show a violation of section 496(a) are simply that (i) property was stolen or obtained in a manner constituting theft, (ii) the defendant knew the property was so stolen or obtained, and (iii) the defendant received or had possession of the stolen property."Switzer v. Wood, 35 Cal. App. 5th 116, 247 Cal. Rptr. 3d 114, 121 (Ct. App. 2019).Here, because the district court held that Grouse River had adequately pleaded its fraud claims, it follows that Grouse River adequately pleaded theft by false pretense (which satisfies the first element of a§ 496violation) because the elements of a civil fraud claim closely track those of theft by false pretense.[. . . ]In addition, because theft by false pretense is a specific-intent crime and requires that the perpetrator have acted "knowingly and designedly,"seeCal. Penal Code § 532(a), Grouse River also adequately pleaded the second element required toshow a violation of§ 496,seeSwitzer, 247 Cal. Rptr. 3d at 121.Finally, because it is not disputed that Grouse River paid Oracle for the software, the third required element is also met."Grouse River Outfitters, Ltd. v. Oracle Corp., 848 F. App'x 238, 242-43 (9th Cir. 2021).
If you are a company that contracted with Oracle for its SuiteSuccess solution and believe that you were sold a bill of goods by Oracle, a claim under California Penal Code Section 496 should be evaluated.Success in litigating such a claim could lead to an award of treble damages and attorneys' fees and costs against Oracle should you prevail.
We advise companies under audit by Oracle and Oracle/NetSuite SuiteSuccess customers who are dissatisfied with Oracle's performance and believe they have been defrauded.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
