SAN FRANCISCO – Judge Joseph C. Spero of the U.S. District Court of the Northern District of California denied the motions in a dispute between two software companies in which both companies asked for judgment on the pleadings.
As quoted in the court’s ruling, both parties to the lawsuit, plaintiff MicroTechnologies LLC and defendants Autonomy, Inc. and Autonomy Systems Limited, “allege that the opposing party’s claims or counterclaims are barred by the doctrine of in pari delicto, or unclean hands.”
On Sept. 21, Spero denied the motions of both companies, “without prejudice to either party asserting this defense at trial,” the ruling states.
The basis of the lawsuit is that MicroTech alleges that Autonomy was paid for two software transactions that Autonomy did not complete after MicroTech had already paid Autonomy more than $16 million for the transactions. As a result of Autonomy allegedly not providing the software to the end users, MicroTech was not paid by the end users, resulting in a significant loss for that company.
In 2010, MicroTech contracted with the Vatican Library to furnish software in the amount of $11.5 million and also to Hewlett-Packard for $7.3 million. Autonomy did not produce the software for either transaction or return MicroTech’s payments.
As quoted in the court’s ruling, “Christopher 'Stouffer' Egan, Autonomy’s former chief executive officer and head of sales in the United States, entered a deferred prosecution agreement with federal prosecutors in which he admitted that Autonomy’s chief financial officer Sushovan Hussain had him sell a deal to MicroTech despite his and Hussain’s knowledge that HP was not interested in buying Autonomy’s software.”
In October 2011, HP acquired Autonomy’s parent company for more than $10 billion.
Shortly thereafter, shareholders sued HP concerning that acquisition, and HP declared that Autonomy’s Vatican Library transaction was "'fraudulent and fake,'" according to the ruling.
As stated in the court’s ruling, MicroTech made five claims against Autonomy. Two of the claims focus on breach of contract, two for unjust enrichment, and one for fraud related to the HP software transaction.
“Autonomy alleges in its counterclaims that MicroTech and Autonomy entered a series of sham transactions between 2009 and June 30, 2011, for the purpose of artificially inflating and accelerating the revenue and profit of Autonomy’s parent corporation, which caused the parent corporation’s stock value to rise and made it an attractive candidate for acquisition,” Spero wrote.
“MicroTech seeks judgment in its favor on Autonomy’s counterclaims, on the basis that 'Autonomy affirmatively alleges that its own, controlling officers and directors engaged in an elaborate fraud' in order to make Autonomy a more attractive candidate for acquisition, and thus to benefit Autonomy. ... While MicroTech denies that it knowingly participated in fraud, it contends that the claim that MicroTech assisted with Autonomy’s own fraudulent scheme 'is precisely the sort of unfairness that the unclean hands doctrine seeks to address.’”
The judge also stated that Autonomy alleged that because MicroTech’s present motion asserts that Autonomy’s counterclaims are barred by the doctrine of in pari delicto, MicroTech has effectively admitted that the parties were jointly engaged in wrongful conduct and should not be allowed to proceed on its own claims.
Spero ruled that Autonomy is not entitled to judgment on MicroTech’s claims.
“Nothing in MicroTech’s answer to Autonomy’s counterclaims admits that MicroTech knowingly participated in any misconduct," he wrote, denying Autonomy’s motion for judgment on the pleadings.
He also ruled that MicroTech is not entitled to judgment on autonomy’s claims.
“MicroTech’s motion for judgment on Autonomy’s claims is different in that Autonomy clearly alleges concerted misconduct involving both Autonomy and MicroTech," he wrote, denying the motion for judgment.