Provisions To Watch Out For In Oracle's Cloud Agreements

We have previously reported on the Barrett Business Services v. Oracle America, Inc. case pending in San Francisco Superior Court. In Barrett, Oracle and KBACE (Oracle's platinum implementation partner) are accused of over promising and failing to deliver a viable cloud-based system involving payroll and billing processing at the price point and within the time frame promised. The original complaint alleged claims against Oracle for breach of contract, negligent misrepresentation and rescission related to Oracle's Cloud Services Agreement, but the pleading did not include a fraud claim. Oracle filed a demurrer on a number of grounds only a few of which we will discuss in this and future blog posts.

Procedural Posture

For its part, Barrett Business Services, Inc. (“BBSI”) did not oppose the demurrer but instead filed an amended complaint, which cleaned up several of the issues that Oracle had raised in its demurrer, thereby mooting much of the demurrer. BBSI's amended complaint (the “FAC”) added several new claims including ones for intentional misrepresentation (i.e. fraud) and negligence and sought rescission of the Oracle Cloud Services Agreement. BBSI added additional detailed factual allegations pleading the fraud with specificity. Rather than attacking the pleading again with a demurrer, Oracle apparently learned its lesson and answered instead. Unfortunately for Oracle by attacking the complaint with a demurrer, Oracle educated its opponent. Oracle's demurrer is instructive and should be required reading for those companies thinking about entering into a cloud agreement with Oracle, as the demurrer provides a road map to especially problematic clauses that the customer may want to negotiate.

The FAC Added Key Facts and Claims Regarding Oracle's Fraud in the Inducement

Oracle argued that the express provisions of the contract provided only that Oracle must (1) make the ordered services available; and (2) provide the cloud services as described in the Service Specifications. Oracle contended that it fulfilled both of these promises. Oracle also argued that Barrett failed to allege that Oracle breached either of these provisions, and therefore had failed to state a contract claim. Oracle's goal was therefore to limit the focus to the four corners of its cloud agreement, and use the integration clause of the agreement to exclude evidence of the parties pre-contract negotiations and discussions.

For its part, by amending the Complaint to...