The opinion
1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 INVENTEC CORPORATION, Case No. 26-cv-05145-WHO
8 Plaintiff,
ORDER ON MOTION TO DISMISS
9 v. AND MOTIONS TO SEAL
10 X CORP., Re: Dkt. Nos. 2, 13, 14
Defendant.
11
12
13 In this contract dispute, plaintiff Inventec Corporation (“Inventec”) alleges that defendant
14 X Corp. (“X”) failed to adhere to various contracts entered into by the parties that would require X
15 to purchase a number of non-standard server racks. X now moves to dismiss Inventec’s
16 complaint, as it believes the parties’ Master Purchase Agreement (“MPA”) did not affirmatively
17 require it to purchase the servers it forecasted to Inventec, and that the other “agreements”
18 Inventec alleges were breached were not contracts at all. X’s arguments are unpersuasive. For the
19 reasons set forth below, X’s motion to dismiss is DENIED in large part and GRANTED only with
20 respect to Counts VII and VIII, with leave to amend.
21 BACKGROUND
22 Inventec is a “leading global manufacturer of computers, telephones, notebooks, servers,
23 and products related to cloud computing, wireless communication, and intelligent devices.”
24 Complaint (“Compl.”) [Dkt. No. 1] ¶ 8. One product Inventec manufactures and designs are
25 “server racks, which are open frames or cabinets designed for organizing and securing information
26 technology (“IT”) equipment.” Id. ¶ 11. Server racks “often include specific network switches,
27 which are networking hardware that connect devices on a computer rack by forwarding data
1 On December 13, 2020, Inventec and X entered into a Master Purchase Agreement
2 (“MPA”) “pursuant to which Inventec agreed to sell and deliver various products to X Corp.,
3 including, as relevant here, non-standard server racks and switches.” Id. ¶ 14. These racks were
4 “custom manufactured by Inventec to X Corp.’s unique specifications.” Id. ¶ 15. Inventec alleges
5 that the MPA “holds X Corp. liable for cancellations of certain components.” Id. ¶ 17. This
6 includes Section 4.4 of the MPA, which provides:
7 4.4 Forecast. Forecast provided by Twitter for Supplier’s standard
Components are non-binding. For non-standard Components (any
8 components that are customized per Twitter’s request), Twitter
anticipates providing Supplier with a three-month rolling forecast.
9
Id.
10
Inventec alleges that the “course of performance and course of dealing between the parties
11
over the years further confirms their mutual understanding that X Corp.’s forecasts for non-
12
standard components were binding.” Id. ¶ 19. This relationship was amicable between December
13
2020 through early 2022, with “Inventec receiving and fulfilling multiple purchase orders from X
14
Corp. for non-standard racks, based on X Corp.’s anticipated order forecast.” Id. ¶ 21.
15
In November 2021, X indicated to Inventec that it should prepare the raw materials for 521
16
non-standard racks to meet X’s forecasted need for 2022. Id. ¶ 20. X then instructed Inventec to
17
issue orders for these switches on April 19, 2022. Id. ¶ 22. One day later, X Corp. revised its
18
forecast for the 2022 year through January 2023 to 505 non-standard server racks. Id. ¶ 23. That
19
number later dropped to 442 on June 15, 2022, and down to 215 on July 26, 2022—despite
20
Inventec having already moved forward with procuring the components necessary to build the 505
21
server racks. Id. ¶¶ 25–26. The parties met from August 2022 through October 2022 to discuss
22
the forecast decrease which “resulted in Inventec having excess inventory.” Id. ¶ 29. On October
23
4, 2022, “X Corp. proposed, and ultimately agreed, that it would purchase 168 non-standard server
24
racks from Inventec, with delivery no later than December 2022.” Id. X Corp. made such a
25
proposal to “resolve[] . . . without any further obligation or liability to X Corp.” claims related to
26
the “2022 forecasts.” Id.
27
The parties memorialized their amended agreement (the “Rack Forecast Agreement”) on
1 October 18, 2022. Id. ¶ 30. Consistent with the Rack Forecast Agreement, Inventec shipped to X
2 Corp. thirty-three of the 168 racks. Id. ¶ 31. X Corp. took delivery and paid for them in
3 accordance with the terms of the Rack Forecast Agreement. Id.
4 On October 27, 2022, Elon Musk acquired X Corp. Id. ¶ 33. Inventec alleges that X Corp.
5 “did not formally execute the Rack Forecast Agreement after giving affirmative assent to its terms
6 because the intended signatory to the Rack Forecast Agreement was unexpectedly terminated at
7 Mr. Musk’s direction during the turmoil that occurred at X Corp. following Mr. Musk’s purchase
8 of X Corp.” Id. It also alleges that Musk “intentionally created a chaotic environment at X Corp.
9 following his acquisition (including by terminating key personnel who were involved in
10 commercial transactions with suppliers and vendors) in an attempt to refuse to honor X Corp.’s
11 contractual obligations with certain of X Corp.’s vendors, including Inventec.” Id. ¶ 34. X Corp.
12 then, “at Mr. Musk’s direction, attempted to renegotiate prices and contractual terms with certain
13 of its vendors and suppliers, refusing to pay what it owed without good cause to do so.” Id. ¶ 35.
14 Around the time that Musk acquired X Corp., “Inventec was notified that the Rack
15 Forecast Agreement was cancelled.” Id. ¶ 36. When Inventec replied asking for the status of the
16 Rack Forecast Agreement, a representative for X Corp. noted that the CFO of X Corp., the “key
17 person in [the] agreement and PO process,” was let go, and that employees were “waiting on
18 further instructions from [X Corp’s] management team.” Id. ¶ 36. X Corp. ultimately “failed
19 and/or refused to issue any purchase orders for the other 135 of the 168 racks agreed to in the
20 Rack Forecast Agreement (the “Agreed Upon Racks”) in order to consume excess non-standard
21 components.” Id. ¶ 37. Inventec sent an invoice to X. Corp for the remaining racks in the amount
22 of $31,735,789. Id. X Corp. refused—and continues to refuse—to pay. Id. ¶¶ 37–39.
23 Inventec also sent X Corp. an invoice (“Invoice No. U320001889”) in the amount of
24 $1,729,954 in January 2023 for “the switches X Corp. had specifically instructed Inventec to
25 purchase because of the approximate 1-year lead time associated with procuring those
26 components.” Id. ¶ 40. While Inventec acquired and procured the Switches in reliance of X
27 Corp.’s instructions, X Corp. similarly refuses to pay. Id. ¶¶ 40–41. While Inventec has been able
1 that were intended to be used in products for X Corp.,” due to the nature of the components,
2 “Inventec has been and continues to be limited in its ability to resell or reuse a substantial amount
3 of components—which hold a significant total value—despite Inventec’s best efforts.” Id. ¶ 44.
4 LEGAL STANDARD
5 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint
6 if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to
7 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its
8 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when
9 the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant
10 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation
11 omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id.
12 While courts do not require “heightened fact pleading of specifics,” a plaintiff must allege facts
13 sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570.
14 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the
15 Court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the
16 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court
17 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of
18 fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.
19 2008).
20 If the court dismisses the complaint, it “should grant leave to amend even if no request to
21 amend the pleading was made, unless it determines that the pleading could not possibly be cured
22 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000), overruled
23 on other grounds, Singleton v. Gates, No. 25-743, 2026 WL 1494029 (9th Cir. May 28, 2026). In
24 making this determination, the court should consider factors such as “the presence or absence of
25 undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous
26 amendments, undue prejudice to the opposing party and futility of the proposed amendment.”
27 Moore v. Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989).
1 DISCUSSION
2 I. BREACH OF CONTRACT
3 Inventec’s first cause of action asserts that X Corp. breached the terms of the MPA (Count
4 I), see Compl. ¶¶ 47–53, the Rack Forecast Agreement (Count II), see id. ¶¶ 54–63, an oral
5 agreement with respect to the Rack Forecast Agreement (Count III), see id. ¶¶ 64–73, as well as
6 the Written Confirmation and Inventec Invoice No. U320001889 (Count IV), see id. ¶¶ 74–80. To
7 plead a breach of contract claim under California law, a plaintiff must allege “(1) the [existence of
8 a] contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and
9 (4) the resulting damages to plaintiff.” Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d 822, 830
10 (1968). I address each count below.
11 A. MPA (Count I)
12 X argues that the “MPA is straightforward: Inventec gets paid after receiving a Purchase
13 Order and delivering a Product.” Mot. at 6 (citing MPA §§ 2.1, 2.2, 2.4). To this end, X
14 maintains that it has a duty to pay “only if two conditions are satisfied: (1) X issues a formal
15 Purchase Order, and (2) X accepts delivery of a finished Product.” Mot. at 6. The MPA defines a
16 Purchase Order as a “written order to [Inventec] to purchase Products, which might include (but
17 not limited to) Product descriptions, quantities, price, delivery dates and shipment methods.”
18 MPA at 2. A Product is similarly defined as “the items identified on Purchase Orders issued by
19 [X].” Id. Taken together, X argues that because the complaint recognizes that X “refused to issue
20 any purchase orders,” Inventec “pleads its way out of court.” Mot. at 6–7 (quoting Compl. ¶ 37).
21 X Corp. also argues that “Inventec hangs its claim on forecasts,” ultimately oscillating
22 between two theories: “[i]n one, X’s forecasts are claimed to be binding; in the other, X is
23 allegedly bound by emails approving Inventec’s component purchases.” Mot. at 7. X believes
24 that these are “incompatible” theories, and “neither remedies the fatal flaw in Inventec’s case: No
25 plausible reading of the MPA puts X on the hook for finished Products without a Purchase Order,
26 much less unassembled components.” Id. To this point, X Corp. makes three arguments: (1)
27 Inventec’s interpretation of the contract is incompatible with the terms of the MPA, see Mot. at 8–
1 an alleged course of performance cannot overrule the clear terms of the contract, see id. at 11–12.
2 None of these arguments has merit.
3 1. Interpretation of the MPA
4 The parties first dispute how to interpret the MPA. Section 4.4 of the MPA states:
5 “Forecast provided by [X] for [Inventec’s] standard components are non-binding. For non-
6 standard components (any components that are customized per [X’s] request), [X] anticipates
7 providing [Inventec] with a three-month rolling forecast.” In X’s view, this language only refers
8 to “non-binding” forecasts for standard components but contains no binding language with respect
9 to custom components. Mot. at 8. Even so, X notes that the Product Exhibit, which “supplements
10 the MPA,” states that for all components, “[X] shall provide [Inventec] with a rolling non-binding
11 four (4) month forecast.” Id. (quoting Product Exhibit at 14 § (E)(1); see also Product Exhibit at 1
12 (“In the event of any conflict or inconsistency between the terms of this Product Exhibit and the
13 MPA, the Product Exhibit shall control.”).
14 Neither argument has merit. First, Section 4.4 notes that only standard component
15 forecasts are non-binding. Oppo. at 5; see Compl. ¶ 17. “This phrasing suggests that the parties
16 intended to treat forecasts for standard and customized components differently,” as in contract
17 interpretation, the “mention of one matter implies the exclusion of all others.” Wiwynn Corp. v. X
18 Corp., 2025 WL 409388, at *1 (N.D. Cal. Jan. 31, 2025); Murphy v. DirecTV, Inc., 724 F.3d 1218,
19 1234 (9th Cir. 2013) (quoting Steven v. Fid. & Cas. Co. of N.Y., 58 Cal. 2d 862, 871 (1962)
20 (applying the maxim of expressio unius est exclusion alterius in contract interpretation). In other
21 words, that the standard component forecasts are nonbinding “implies the exclusion of all other
22 forecasts as non-binding, meaning forecasts for custom components are plausibly binding.”
23 Wiwynn, 2025 WL 409388, at *1 (cleaned up).
24 X’s reliance on the Product Exhibit is also unpersuasive. As Inventec notes in its
25 opposition, the Product Exhibit includes language indicating that X “will not have liability for
26 excess common materials that [Inventec] also sources for its other customer projects.” Oppo. at 6.
27 Like Section 4.4 of the MPA, the reference to “common” or standard components reasonably
1 and non-standard components (which X could be liable for). At a minimum, Inventec’s reading of
2 the text of the MPA and Product Exhibits are reasonable and do not support dismissal at the
3 pleadings stage.
4 2. Risk of Loss
5 X also argues that it did not assume any risk of loss, as various provisions of the MPA and
6 Product Exhibit “place[] the onus on Inventec, not its customer, to recognize and solve shortages
7 of forecasted components.” Mot. at 10; see MPA § 6.2 (Inventec must inform X of any “materials
8 or manufacturing capacity constraint that could adversely affect [Inventec’s] ability to meet [X’s]
9 requirements.”); Product Exhibit at 14 § E(n)(iii) (“If [Inventec] becomes aware that it may
10 encounter difficulty meeting any forecast quantity of products, it shall immediately notify [X],
11 providing details of the expected shortfall, causes of the shortfall and proposed solution.”); id. at
12 14 § E(n)(ii) (Inventec “will maintain an inventory of raw materials and components necessary to
13 manufacture products in accordance with the forecasts.”). X maintains that the “single, narrow
14 deviation to Inventec’s acceptance of risk” was the “cancellation provision” in Section 4.3 of the
15 MPA, where “the parties agreed that X may have liability for excess components when Products
16 are ordered through a Purchase Order that is later canceled[.]” Id. (citing MPA § 4.3). Taken
17 together, X believes that if the parties “meant to shift even more risk to X, they would have,” as
18 “Section 4.3 shows they knew how.” Id. at 11. And given the lack of express terms noting that
19 forecasts are binding, X concludes that it cannot bear the risk of loss here. See id.
20 Inventec responds by arguing that X’s “reliance on Section 4.3 does not eliminate its
21 separate liability under Section 4.4.” Oppo. at 8. It argues that “Section 4.3 governs a specific
22 circumstance: X’s cancellation or termination of Purchase Orders and the liability that flows from
23 that cancellation.” Id. Section 4.4, by contrast, “addresses a different subject: forecasts and the
24 Parties’ allocation of risk for standard versus non-standard components procured to meet those
25 forecasts.” Id. “If Section 4.3 were the only provision governing liability for custom
26 components,” it continues, “Section 4.4’s separate treatment of non-standard components would
27 have no work to do.” Inventec encourages me to “reject [this] interpretation that [would] render[]
1 Inventec’s interpretation of Sections 4.3 and 4.4 is reasonable and supports its breach of
2 contract claim under the MPA. That other provisions in the MPA suggest the risk of loss falls
3 with Inventec, not X, is a question that will be better addressed after the pleadings stage and
4 discovery are complete. X’s motion to dismiss under this theory is DENIED.
5 3. Course of Performance
6 Next, X argues that Inventec cannot rely on previous course of performance evidence to
7 overcome the clear terms of the MPA. Mot. at 11. X notes that the MPA is a fully integrated
8 contract, which “constitutes the complete and exclusive understanding and agreement of the
9 parties,” and “supersedes all prior understandings and agreements, whether written or oral.” Id.
10 (quoting MPA § 15.11). Because the MPA contains these terms, X concludes that Inventec
11 “cannot rely on post-contract implied terms.” Id. at 12 (quoting Stanley v. Univ. of S. Cal., 178
12 F.3d 1069, 1078 (9th Cir. 1999)). Inventec responds by arguing that it is not utilizing course of
13 performance evidence to “contradict the MPA or to manufacture a new obligation out of whole
14 cloth.” Oppo. at 9. Instead, it purports to use such evidence to “confirm the meaning of Section
15 4.4 [of the MPA]—namely, that X bore responsibility for non-standard components procured for
16 X-specific products in response to X’s forecasts, directions, confirmations, and approvals.” Id.
17 Under California law, for cases involving integrated contracts, “the use of parol evidence is
18 always subject to the limitation that parol evidence may not be used to vary or contradict the
19 words the parties agreed upon, since an integrated writing must be taken as the best and final
20 expression of their intent.” Thompson v. Asimos, 6 Cal. App. 5th 970, 987 (2016) (citing Cal. Civ.
21 Proc. Code § 1856(a); Cal. Comm. Code § 2202). If there is no ambiguity, the court’s “inquiry
22 into meaning has been completed and the one reasonable interpretation applies to the facts.” Id.
23 (citing Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1264 (1992)).
24 While the parties agree about the language of the MPA, they disagree about how to
25 interpret it. Inventec argues that it is utilizing this parol evidence to give meaning to the terms of
26 the MPA, including the “practical significance” between distinctions in wording in the MPA and
27 Product Exhibit. That is plausible at this juncture. X’s motion to dismiss on parol evidence
4. Wrongful Termination
1
X’s final argument on the MPA concerns the allegation that it breached Section 13.3 of the
2
MPA by “wrongful termination,” “impairing Inventec’s ability to mitigate procurement risks.”
3
Mot. at 12 (quoting Compl. ¶ 51). Section 13.3 states:
4 13.3 Termination for Convenience. Twitter may immediately
terminate this Agreement and/or any open Purchase Orders at any
5 time, for any reason or no reason, by providing thirty (30) days prior
written notice to Supplier of its election to terminate.
6
MPA § 13.3. X Corp. argues this allegation is “conclusory,” as Inventec never alleges “when,
7
how, or with what type of notice X terminated the contract.” Mot. at 12. Moreover, it points out
8
that there is no allegation by Inventec that “if given 30 days’ written notice, [Inventec] would not
9
have suffered its purported damages,” giving rise to causation issues. Id.
10
In response, Inventec argues that the complaint alleges that “X wrongfully terminated the
11
MPA in violation of Section 13.3,” including by X “refus[ing] to pay the combined balance owed
12
to Inventec and declin[ing] to cure despite repeated demands.” Oppo. at 10 (citing Compl. ¶¶ 32–
13
43, 52). In its view, such allegations “plausibly plead that X effectively terminated or abandoned
14
the Parties’ relationship without providing the required notice.” Id.
15
I agree with Inventec. X’s demand for a more specific pleading, including descriptions of
16
“when, how, or with what type of notice X terminated the contract,” appears to require more than
17
what Federal Rule 8 requires. The allegations in the complaint “allow the court to draw the
18
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
19
678. Taken as true, they are also sufficient to “raise a right to relief above the speculative level.”
20
Twombly, 550 U.S. at 555, 570. X’s motion to dismiss on grounds of the termination clause of the
21
MPA is DENIED.
22
B. Rack Forecast Agreement – Written Agreement (Count II)
23
X also moves to dismiss Inventec’s claim that it breached the parties’ Rack Forecast
24
Agreement. Mot. at 13–14; see Compl. ¶¶ 54–63. The draft Rack Forecast Agreement noted that
25
the agreement was “legally binding . . . effective upon both parties signing below.” Id.; Compl.
26
Ex. C at 4. Inventec admits in its complaint, however, that “X Corp. did not formally execute the
27
Rack Forecast Agreement after giving affirmative assent to its terms.” Id. ¶ 55. X takes this
1 concession to assert that the Rack Forecast Agreement cannot constitute a binding contract as both
2 parties’ signatures were an “essential requirement of the deal according to the proposed agreement
3 itself.” Mot. at 13. It also argues that because the Rack Forecast Agreement “expressly refers to
4 and incorporates the MPA,” which requires that any “waiver, modification, or amendment” of its
5 terms be “in writing and signed by the parties,” dismissal is proper under the terms of the MPA.
6 Id.
7 Inventec counters by arguing that the complaint “alleges objective assent, written approval,
8 and partial performance” to survive the pleading stage. Oppo. at 13. In its view, California law
9 does not require a formal signature “unless the parties objectively manifested an intent not to be
10 bound until execution.” Id. (citing Banner Ent’mt, Inc. v. Superior Court, 62 Cal. App. 4th 348,
11 358 (1998) (“Whether it was the parties’ mutual intention that their oral agreement to the terms
12 contained in a proposed written agreement should be binding immediately is to be determined
13 from the surrounding facts and circumstances of a particular case and is a question of fact for the
14 trial court.”). And because the question of whether the parties intended execution as a condition
15 precedent to contract formation is a “factual question inappropriate for resolution on a motion to
16 dismiss,” Inventec concludes that dismissal is improper. Id.
17 I agree with Inventec that the intent of the parties is a question of fact improper for
18 resolution at the pleadings stage. Inventec has plausibly alleged that the parties intended for the
19 Rack Forecast Agreement to constitute a binding contract, notwithstanding the lack of signatures.
20 X Corp.’s motion to dismiss is DENIED.
21 C. Oral Contract – Rack Forecast Agreement (Count III)
22 Count III of the complaint asserts that “[t]o the extent that the Rack Forecast Agreement is
23 not deemed an enforceable written agreement . . . then Inventec alleges in the alternative that it
24 and X Corp. entered into an enforceable oral agreement, the terms of which are memorialized in
25 the Rack Forecast Agreement.” Compl. ¶ 67. X moves to dismiss Count III on the theory that
26 Inventec’s claim is untimely. Mot. at 14. I disagree.
27 Both parties agree that X’s alleged breach of the oral contract occurred in late 2022. X
1 two-year statute of limitations for any “contract, obligation or liability not founded upon an
2 instrument of writing.” Cal. Civ. Proc. Code § 339; see Mot. at 14. Inventec responds by arguing
3 that because the alleged oral agreement concerned the sale of goods—the 168 non-standard server
4 racks—California Commercial Code 2725 governs, which sets forth a four-year statute of
5 limitations for the sale of goods. Cal. Com. Code § 2725(1).
6 Inventec has the stronger argument. The breach of oral contract claim is pleaded as an
7 alternative to the enforceability of the written terms of the Rack Forecast Agreement. The Rack
8 Forecast Agreement focused on X Corp.’s purchase of the 168 non-standard server racks. Such
9 racks clearly qualify as goods under California law, as they are tangible, movable objects. See
10 Cal. Comm. Code § 2105. Because Section 2725(1) of the California Commercial Code governs
11 this transaction, a four-year statute of limitations applies, and Inventec’s claims are timely. X
12 Corp.’s motion to dismiss Count III is DENIED.
13 D. Inventec Invoice No. U320001889 (Count IV)
14 Count IV of the complaint focuses specifically on Inventec’s January 2023 invoice for “the
15 switches X Corp. had specifically instructed Inventec to purchase because of the approximate 1-
16 year lead time associated with procuring those components.” Compl. ¶ 40. Inventec alleges that
17 X’s “written confirmation that Inventec should order the Switches, and resulting Inventec Invoice
18 No. U320001889, are a contract between Inventec and X Corp. for the order and delivery of the
19 Switches.” Id. ¶ 75. And because X had a “contractual duty to pay for the Switches,” but
20 ultimately failed to pay, Inventec concludes that X breached the terms of the Invoice agreement.
21 Id. ¶¶ 76–80.
22 Inventec counters by arguing that X misconstrues its claim. Inventec “does not allege that
23 Invoice No. U320001889, standing alone, created a contract,” it argues; instead, it “alleges that X
24 specifically instructed Inventec to order long-lead-time Switches, confirmed that Inventec had
25 placed those purchase orders, and then refused to reimburse or pay Inventec after Inventec
26 acquired the Switches in reliance on X’s written direction.” Oppo. at 15. This procurement issue
27 also spanned well beyond the MPA’s contemplated rolling forecast period. Id. Accordingly,
1 purchase order after directing, confirming, and benefiting from Inventec’s procurement. See id.
2 While discovery and summary judgment may prove that the parties did not intend for the
3 Inventec Invoice to serve as a binding contract on the parties, Inventec sufficiently pleads the
4 claim to survive the pleadings stage. X’s motion to dismiss Count IV is DENIED.
5 II. Promissory Estoppel (Count V)
6 Count V of the complaint alleges that “to the extent that the Rack Forecast Agreement is
7 deemed not to be a valid and enforceable written or oral contract for any reasons, then Inventec
8 asserts this claim for Promissory Estoppel in the alternative.” Compl. ¶ 82. Under California law,
9 the elements of a claim for promissory estoppel are: “(1) a promise clear and unambiguous in its
10 terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both
11 reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his
12 reliance.” B & O Mfg., Inc. v. Home Depot U.S.A., Inc., No. 07-cv-02864-JSW, 2007 WL
13 3232276, at *6 (N.D. Cal. Nov. 1, 2007) (quoting Laks v. Coast Fed. Sav. & Loan Ass’n, 60 Cal.
14 App. 3d 885, 890 (1976)).
15 X maintains that Inventec’s promissory estoppel claim “relies upon obligations arising out
16 of a written agreement for which there was bargained-for consideration,” meaning that the claim
17 “instead must be pleaded as one for breach of the bargained-for contract.” Mot. at 15–16 (quoting
18 Singelyn v. PNC Bank Nat’l Ass’n, No. EDCV 22-02026-CJC (SPX), 2024 WL 1601857, at *4
19 (C.D. Cal. Jan. 12, 2024)). It again focuses on the MPA, alleging that because this agreement was
20 the “complete and exclusive understanding” of the parties, Inventec’s promissory estoppel claim
21 fails. Id. Moreover, X argues that the MPA precludes any finding of reliance, as the “only alleged
22 act of reliance—‘purchasing and delivering’ other servers, for which X issued Purchase Orders
23 and paid invoices—was contractually bargained for.” Id. (citing Compl. ¶ 85). In other words,
24 because there was bargained-for consideration stemming out of the MPA, X concludes that there
25 can be no promissory estoppel claim here, as Inventec was “already contractually obligated” to
26 perform the acts it now alleges as reliance. Id.; see Morgan v. Aurora Loan Servs., LLC, No.
27 CV124350CASMRWX, 2012 WL 12952304, at *6 (C.D. Cal. Aug. 13, 2012).
1 Forecast Agreement, not the MPA. Oppo. at 16. Moreover, while X takes issue with the potential
2 inconsistencies between the breach of contract and promissory estoppel claims, Inventec argues
3 that it has the right to plead in the alternative or to plead inconsistent theories at the pleadings
4 stage. Id. at 16–17; see Fed. R. Civ. P. 8(d)(3) (allowing parties to “state as many separate claims
5 or defenses as it has, regardless of consistency”); Fleet v. Bank of Am., N.A., 229 Cal. App. 4th
6 1403, 1413 (2014) (“Although a cause of action for promissory estoppel is inconsistent with a
7 cause of action for breach of contract based on the same facts, when a pleader is in doubt about
8 what actually occurred or what can be established by the evidence, the modern practice allows that
9 party to plead in the alternative and make inconsistent allegations.”) (internal citations and
10 quotations omitted). Finally, with respect to reliance, Inventec asserts that X’s position “cannot be
11 reconciled” with its other arguments that Inventec has not established an enforceable contract for
12 the non-standard racks. Oppo. at 17.
13 X adds in reply that even if the promissory estoppel claim was based on the Rack Forecast
14 Agreement, dismissal would be appropriate because “Inventec’s alleged damages must have
15 accrued after the Rack Forecast agreement was negotiated” but the complaint “seeks the same
16 damages as Inventec’s other causes of action—the cost of the components Inventec had already
17 purchased and sought to find a use for.” Repl. at 12. (emphasis in original) (citing Compl. ¶¶ 23–
18 29, 88).
19 X’s motion to dismiss is DENIED. “When, as here, parties execute an agreement and
20 exchange consideration, ‘traditional contract principles govern.’” Morgan v. Aurora Loan Servs.,
21 LLC, 2012 WL 12952304, at *6 (C.D. Cal. Aug. 13, 2012) (citing Fontenot v. Wells Fargo Bank,
22 N.A., 198 Cal. App. 4th 256, 275 (2011)). But “when the existence of a contract is in dispute, the
23 plaintiff may plead contract and promissory estoppel claims in the alternative.” Wiwynn Corp.,
24 2025 WL 409388, at *2 (citing KST Data, Inc. v. Northrop Grumman Sys. Corp., 2017 WL
25 10519638, at *4-5 (C.D. Cal. Nov. 16, 2017). Unlike in Wiwynn, where X “concede[d] that the
26 MPA exist[ed],” but ultimately “read[] the MPA different from [the plaintiff],” here, Inventec’s
27 promissory estoppel claim is based on the Rack Forecast Agreement, which X argues is not even a
1 entitled to plead promissory estoppel in the alternative.
2 III. Breach of Covenant and Fair Dealing (Count VI)
3 Inventec’s sixth cause of action asserts that X breached the implied covenant of good faith
4 and fair dealing. Compl. ¶¶ 89–94. Under California law, “[e]very contract imposes upon each
5 party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Devs.
6 (Cal.), Inc. v. Marathon Dev. California, Inc., 2 Cal.4th 342, 371 (1992) (internal quotations
7 omitted). “A breach of the implied duty of good faith and fair dealing goes beyond a breach of
8 contract and involves ‘a failure or refusal to discharge contractual responsibilities, prompted not
9 by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act,
10 which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations
11 of the other party, thereby depriving that party of the benefits of the agreement.’” Schertzer v.
12 Bank of Am., 109 F.4th 1200, 1213 (9th Cir. 2024) (quoting Careau & Co. v. Sec. Pac. Bus.
13 Credit, Inc., 222 Cal. App. 3d 1371, 1394 (1990)). “The covenant of good faith finds particular
14 application in situations where one party is invested with a discretionary power affecting the rights
15 of another. Such power must be exercised in good faith.” Carma, 2 Cal.4th at 372.
16 Inventec alleges that “[i]mplied in the MPA and Rack Forecast Agreement, as well as the
17 longstanding course of performance between the parties, was a covenant that X Corp. would act in
18 good faith and deal fairly with Inventec, that X Corp. would do nothing to interfere with
19 Inventec’s interests and commitments, and that X Corp. would give at least the same level of
20 consideration to the interests of Inventec as X Corp. would give its own interests.” Compl. ¶ 92.
21 It then alleges that X Corp. breached this duty by “consciously depriving Inventec from the rights
22 and benefits to which [it] was entitled under the MPA, the Rack Forecast Agreement, as well as
23 the longstanding course of performance between the parties.” Id. ¶¶ 92–93.
24 X Corp. moves to dismiss this claim on two grounds. First, it argues that “a plaintiff
25 alleging breach of the implied covenant must plead the specific contractual provisions that the
26 defendant allegedly frustrated, which Inventec has failed to do.” Mot. at 17. It also argues that the
27 “implied covenant may not create any new duties, as Inventec’s claim requires.” Id. I address
A. Failure to Ground Claim
1
X Corp. first claims that “Inventec’s claim for breach of the covenant of good faith and fair
2
dealing does not refer to any specific contractual provision and fails for this reason alone.” Mot.
3
at 18; see W. Am. Ins. v. Shaghal Ltd., No. CV2107751CJCJPRX, 2022 WL 17370532, at *3
4
(C.D. Cal. June 23, 2022) (the implied covenant of good faith and fair dealing “functions as a
5
supplement to the express contractual covenants,” meaning the “precise nature and extent of the
6
duty imposed by the implied covenant depends upon the contours of the underlying contract”)
7
(quoting Thrifty Payless, Inc. v. The Americana at Brand, LLC, 218 Cal. App. 4th 1230, 1244
8
(2013)) (emphasis original) (cleaned up); Day v. GEICO Cas. Co., No. 21-CV-02103-BLF, 2022
9
WL 2135746, at *2 (N.D. Cal. June 14, 2022) (“To allow a party to plead a breach of contract
10
claim based on a violation of the covenant of good faith and fair dealing untethered from a specific
11
contractual provision would undermine the certainty a contract provides, especially in light of later
12
changed circumstances favorable to one party over the other.”).
13
X Corp. is incorrect. Inventec has sufficiently alleged facts that show that X Corp. derived
14
Inventec of the benefit of its bargain, even if no contract provision was expressly violated. In any
15
event, the complaint sufficiently highlights numerous provisions that show Inventec was induced
16
by X Corp. to build customized racks, but was ultimately burdened with unexpected costs after X
17
Corp. drastically reduced its 2022 orders. Oppo. at 18–19; see Compl. 17 (“Section 4.4 of the
18
Master Purchase Agreement holds X Corp. liable for cancellations of certain components.”); id. ¶
19
38 (“X Corp. required Inventec to build non-standard racks with specific switches . . . [but] failed
20
to provide appropriate notice or good cause for significantly decreasing the quantity of non-
21
standard product it required.”).
22
On this record, Inventec has sufficiently established that the breach of implied covenant
23
claim is grounded in the terms of the MPA, which is laid out in the complaint. The motion to
24
dismiss is DENIED on the failure to ground claim argument.
25
B. New Duties
26
X Corp. also argues that “Inventec alleges that the MPA and unexecuted Rack Forecast
27
Agreement implied a covenant that X ‘would act in good faith and deal fairly,’ ‘do nothing to
1 interfere with Inventec’s interests and commitments,’ and ‘give at least the same level of
2 consideration to the interests of Inventec’ as its own.” Mot. at 18 (quoting Compl. ¶ 91). X
3 believes the MPA “says nothing of the sort.” Id.
4 X Corp. believes that this case is akin to Openshaw v. FedEx Ground Package Sys., Inc.,
5 576 F. App’x 685 (9th Cir. 2014). In Openshaw, plaintiff claimed that FedEx breached the
6 implied covenant of good faith and fair dealing by “not offering [him] a spare truck when he
7 needed it” or “telling Openshaw about a spare driver when he needed one.” Id. at 688. The
8 contract, however, “obligated Openshaw to provide trucks and drivers and to operate at a national
9 standard.” Id. Recognizing that the implied covenant of good faith and fair dealing could not
10 “impose a substantive duty on FedEx to help Openshaw provide trucks and drivers or to meet
11 delivery standards,” the Ninth Circuit panel ruled in favor of FedEx. Id. (emphasis in original).
12 Applying the reasoning of Openshaw, X Corp. argues that Inventec seeks to “convert their
13 counterparties’ rights to have their needs met (X’s demand for servers and FedEx’s for drivers)
14 into an extra-contractual duty to make it easier to meet them (by requiring X to pay for Inventec’s
15 inventory and FedEx to provide Openshaw with trucks and drivers).” Mot. at 18–19. It argues
16 that this is “beyond the implied covenant’s reach.” Id. at 19.
17 Inventec responds by arguing that it is “not seeking to impose obligations beyond the MPA
18 and Rack Forecast Agreement.” Oppo. at 19. Instead, it contends that “X exercised the discretion
19 afforded by the MPA and the Rack Forecast Agreement in bad faith to deprive Inventec of the
20 benefits for which it bargained,” which it believes distinguishes this case from Openshaw. See id.
21 Put differently, “Inventec has already purchased non-standard components based on X’s forecasts
22 (see Compl. at ¶¶ 20, 25) but it is X who did not fulfill its own obligations arising from the MPA
23 or Rack Forecast Agreement by refusing to issue all necessary purchase orders or otherwise
24 recognizing its liability for the costs of the non-standard components.” Id. at 20. Inventec argues
25 that the Rack Forecast Agreement and MPA both recognize X’s obligation to consume the cost of
26 these non-standard components. Id. Its refusal to accept liability, therefore, “frustrates Inventec’s
27 rights to the benefits” under the agreements. Id.
1 “consciously” failed to discharge its responsibilities under the MPA and Rack Forecast Agreement
2 due to its “improper objective . . . [to avoid] payment of Inventec’s legitimate claims.” Compl. ¶¶
3 92–93. Because this decision “unfairly frustrate[d] the agreed common purposes and . . .
4 reasonable expectations” of Inventec, X Corp.’s motion to dismiss is DENIED. See Schertzer v.
5 Bank of Am., 109 F.4th at 1213.
6 IV. Intentional and Negligent Misrepresentation (Counts VII and VIII)
7 Inventec’s final causes of action assert that X engaged in intentional misrepresentation
8 (Count VII) and negligent misrepresentation (Count VIII). See Compl. ¶¶ 95–105. Both claims
9 allege that X represented to Inventec that it would “assume liability of the Agreed Upon Racks,”
10 but ultimately had “no intention of fully compensating Inventec for the procurement of such non-
11 standard components.” Id. ¶¶ 95–96. Instead, it made those representations to fraudulently induce
12 Inventec to sign the Rack Forecast Agreement. Id. ¶ 98.
13 X argues that both claims must be dismissed because they are barred by the statute of
14 limitations and the economic loss rule. Mot. at 19–20. I agree with respect to the statute of
15 limitations. X argues that California law applies a three-year statute of limitations for a fraud or
16 intentional misrepresentation claim, and two years for a negligent misrepresentation claim. Id. at
17 19 (citing Graebner v. James, No. C 12-01694 WHA, 2012 WL 6156729, at *5 (N.D. Cal., Dec.
18 11, 2012) (Alsup, J.); Cal. Civ. Proc. Code §§ 338(d), 339). Neither party appears to dispute that
19 the “facts underlying Inventec’s intentional and negligent misrepresentation claims . . . date back
20 to October 2022, more than three years ago.” Mot. at 19 (citing Compl. ¶¶ 30, 96, 102). Under
21 California law, therefore, Inventec’s claims would be barred under the statute of limitations.
22 Inventec argues that the delayed discovery rule applies. See Oppo. at 21. “California’s
23 delayed discovery rule requires a plaintiff with a claim that would otherwise be barred by the
24 statute of limitations to plead and prove ‘(1) the time and manner of discovery and (2) the inability
25 to have made earlier discovery despite reasonable diligence.’” Landers v. Ford Motor Co., No. [],
26 2025 WL 1122397, at *1 (C.D. Cal. Mar. 4, 2025) (quoting Fox v. Ethicon Endo-Surgery, Inc., 35
27 Cal.4th 797, 808 (2005) (internal citations omitted). “Under the discovery rule, the statute of
1 by the wrongdoing, that someone has done something wrong to her.” Jolly v. Eli Lilly & Co., 44
2 Cal. 3d 1103, 1110 (1988). “The Ninth Circuit explained that this inquiry ordinarily cannot be
3 resolved as a matter of law.” Landers, 2025 WL 1122397, at *1; see People ex rel. Allstate Ins.
4 Co. v. Discovery Radiology Physicians, P.C., 94 Cal. App. 5th 521, 552 (2023) (“When a plaintiff
5 reasonably should have discovered facts for purposes of the accrual of a cause of action or
6 application of the delayed discovery rule is generally a question of fact, properly decided as a
7 matter of law only if the evidence (or, in the case of a demurrer, the allegations in the complaint
8 and facts properly subject to judicial notice) can support only one reasonable conclusion.”).
9 Inventec argues that X’s motion to dismiss is unwarranted because it “improperly equate[s]
10 the date on which the Parties allegedly entered into the Rack Forecast Agreement (Compl. at ¶
11 30), or the date on which the alleged misrepresentations were made (id. at ¶¶ 96, 102) with the
12 date on which Inventec’s causes of action accrued or were discovered.” Oppo. at 21. It also
13 provides other facts it believes shows the delayed discovery rule should apply:
14 For example, Inventec was uncertain about whether X would comply
with the terms of the Rack Forecast Agreement until on or around
15 August 15, 2023 when X’s counsel informed Inventec’s prior counsel
that X believed that there was no Rack Forecast Agreement and, thus,
16 X had no liability. Thus, at the earliest, Inventec discovered as of mid
August 2023 that X misrepresented its intention of fully
17 compensating Inventec for the procurement of non-standard
components in accordance with the Rack Forecast Agreement.
18
Id.
19
I agree with Inventec that these allegations, if pleaded, could plausibly establish a dispute
20
of fact that would allow this claim to survive the pleadings stage. The problem with Inventec’s
21
argument, however, is that these facts appear nowhere in the complaint. As currently pleaded,
22
Inventec does not plausibly allege that the delayed discovery rule factors are met. But
23
Accordingly, X’s motion to dismiss is GRANTED on these two causes of action with leave to
24
amend.
25
V. MOTIONS TO SEAL
26
In conjunction with its motion to dismiss, X seeks to file under seal a Product Exhibit
27
attached as Exhibit 1. See Dkt. No. 14. It argues that the Product Exhibit is “confidential
] information” as defined by the parties’ MPA and contains sensitive business and commercial
2 || information. See id. at 3-4. While the public has a legitimate interest in “understanding the
3 || judicial process,” Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006)
4 || (simplified), I agree with X that the “parties’ interest in protecting sensitive commercial
5 information . . . outweighs the public’s right of access.” Wiwynn Corp. v. X Corp., No. 24-cv-
6 || 05322-AGT, 2025 WL 409402, at *1 (N.D. Cal. Jan. 30, 2025) (Tse, M.J.). X’s motion to seal is
7 || GRANTED.
8 Inventec also filed an administrative motion to consider whether Exhibits A and C of its
9 || complaint should be sealed per X’s confidentiality designations. See Dkt. No. 2. X did not file a
10 || statement or declaration in support of sealing. Should X still wish for these exhibits to remain
11 under seal, it must file a statement in support of sealing within 7 days of this Order. I will decide
12 || then whether sealing is warranted.
13 CONCLUSION
14 For the reasons set forth above, X’s motion to dismiss the intentional and negligent
3 15 || misrepresentation claims (Counts VII and VII) is GRANTED with leave to amend and is
a 16 || DENIED as to the rest. Inventec shall have 20 days from this Order to file an amended complaint
17 || addressing the issues identified above. X’s motion to seal its Product Exhibit is GRANTED.
18 IT IS SO ORDERED.
19 || Dated: September 15, 2026
20 . \f
21
illiam H. Orrick
22 United States District Judge
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