## Facts

- Gregory Funding LLC (Gregory), a residential-loan servicing company, contracted with Saksoft, Inc. (Saksoft), a software-development and information-management services provider, to build custom software.
- The parties’ relationship was governed by a “Master Software Services Agreement” (MSSA) and two statements of work (SOWs).
- The MSSA labeled Saksoft a “Service Provider” responsible for developing the software “from concept to completion.”
- Saksoft had discretion to staff a four-person project team, including an onsite project manager.
- Saksoft represented that its staffing model would save Gregory approximately 30–40% compared to staffing the project internally.
- Gregory paid Saksoft on a time-and-materials basis, tied to the hours worked by Saksoft’s team members.
- About six months into the project, Gregory became dissatisfied with Saksoft’s onsite project manager and requested a replacement.
- Saksoft engaged a recruiter to locate a replacement, but the replacement process took about two months.
- Saksoft agreed to add a business analyst to the team, but Gregory rejected each of three analysts Saksoft proposed.
- After nearly three years, Gregory deemed the project a failure, hired its own analyst, and refused to pay roughly four months of Saksoft’s invoices.
- Gregory sued in the U.S. District Court for the District of Oregon, asserting breach of contract based on alleged lack of software-development skill and allegedly incompetent staffing that increased costs beyond what internal development would have cost.
- Gregory also asserted breach-of-warranty claims that depended on Oregon’s UCC Article 2 (sales of goods).
- Saksoft moved under Rule 12(b)(6) to dismiss the UCC-based warranty claims, arguing the transaction was primarily for services, not goods, and also sought other pleading relief, including a more definite statement.

## Issues

1. Whether the MSSA and SOWs were predominantly a contract for services rather than a sale of goods, such that Oregon UCC Article 2 warranties did not apply.
2. Whether Gregory’s UCC-based breach-of-warranty claims therefore failed as a matter of law on a Rule 12(b)(6) motion.
3. Whether, apart from the UCC warranty theory, parts of the complaint required dismissal or clarification through a more definite statement.

## Decision

- The court (Judge Michael H. Simon) granted Saksoft’s motion in part and denied it in part.
- Applying the predominant-purpose analysis to the mixed goods-and-services relationship, the court concluded the MSSA and SOWs were primarily for services—staffing, project management, and development work billed by the hour—rather than for the sale of goods.
- Because Article 2 did not govern this transaction, the court dismissed Gregory’s UCC-based breach-of-warranty claims.
- The court did not end the case; it allowed Gregory’s non-UCC contract theory to proceed, subject to the court’s rulings on the challenged pleadings.
- The court granted Gregory leave to file an amended complaint by a set deadline.

## Legal Principles

- For a transaction involving both goods and services, courts apply a predominant-purpose (predominant-factor) test to decide whether UCC Article 2 applies.
- Article 2 warranty remedies are available only if the sale of goods is the main thrust of the deal; they are unavailable when services are the main thrust and any deliverable product is incidental to the service work.
- Contract language and performance terms may show the transaction’s primary character, including describing a party as a “service provider,” focusing on staffing and management obligations, and using time-and-materials billing.
- On a Rule 12(b)(6) motion, a court may dismiss a legal theory that is unavailable as a matter of law (such as UCC Article 2 warranties when the contract is primarily for services) while leaving other theories in place.
- A court may require clarification of vague allegations through Rule 12(e) relief and may grant leave to amend so the plaintiff can replead consistent with the court’s rulings.

## Conclusion

In *Gregory Funding LLC v. Saksoft, Inc.*, the District of Oregon treated an hourly billed, staff-centered custom software-development engagement as a services contract and held Oregon’s UCC Article 2 did not apply; the court therefore dismissed Gregory’s UCC warranty claims while allowing the remaining contract dispute to continue subject to amendment and pleading clarification.


Gregory Funding LLC v. Saksoft, Inc., 2016 WL 4480693 (2016)