Opinion
02891/2006.
Decided December 3, 2007.
Justine Clare Moran, Esq., Co-Counsel for Plaintiff.
Coggan Tarlow, Co-Counsel for Plaintiff.
Cravath, Swaine Moore LLP, Attorneys for Defendant/Counterclaim Plaintiff.
Defendant/Counterclaim-Plaintiff International Business Machines Corporation ("IBM"or "Defendant") brings two separate motions. It first moves for an order, pursuant to CPLR 3212, granting summary judgment to IBM as to First, Second, Third and Fourth Causes of Action contained in the Amended Complaint (Seq. #
6). IBM's motion for summary judgment is opposed by Plaintiff Technical Support Services, Inc. ("TSSI" or "Plaintiff") which cross-moves for an order, pursuant to CPLR 3212, granting it summary judgment on its declaratory judgment claim (Sixth Cause of Action) and granting dismissal of IBM's counterclaims (Seq. #
The motion does not challenge the viability of the Fifth and Sixth Causes of Action.
7). Separately, IBM moves for an order striking Plaintiff's jury demand (Seq. #
8). Plaintiff opposes the motion.
The motions and cross-motion are consolidated for purposes of decision and disposition.
THE FACTS
A. Relevant Background
This case was commenced in May, 2006. Thereafter, a Verified Complaint and an Amended Verified Complaint were interposed. The Amended Verified Complaint asserts six causes of action, to wit: (1) breach of contract; (2) negligence; (3) gross negligence; (4) fraud; (5) work, labor and services performed, and (6) declaratory relief. On or about July 17, 2006, Defendant asserted an Answer to the Amended Complaint with Affirmative Defenses and Counterclaims sounding in breach of contract and breach of implied covenant of good faith and fair dealing. Upon the completion of discovery, Plaintiff served and filed a note of issue demanding a jury trial with respect to all of its claims except for the claim for declaratory relief.
The action arises out of TSSI's work under, and subsequent withdrawal from, a subcontract with IBM for information technology work to be rendered as part of a technology services project that IBM had with Schering Corporation ("Schering").
TSSI has been in the business of providing information technology infrastructure management services to corporate and institutional clients. It had a business relationship with IBM since at least 1995, whereby TSSI acted as IBM's subcontractor on several information technology infrastructure projects. TSSI performed tasks on IBM's behalf, including, but not limited to hardware and software installation, removal, maintenance and repair. Plaintiff alleges it was one of a small group of subcontractors who had been pre-qualified under IBM's procedures and contracted with IBM to hold itself available for IBM subcontracting work.
TSSI alleges that, prior to January, 2005, IBM was invited by Schering to submit a proposal to expand its then existing support of Schering main frame equipment and become Schering's technical support services contractor. IBM would be responsible, inter alia, for the installation, removal, maintenance and repair of all of Schering's information systems, including all hardware and software systems, as well as for technical support concerning Schering's software systems and the provision of a Help Desk to assist Schering's employees with computer-related problems.
When this action was initially commenced, Schering was joined as a co-defendant with IBM. By stipulation dated March 26, 2007, the action was discontinued as against Schering, with prejudice.
IBM's decided to sub-contract out the deskside support services portion of the anticipated contract with Schering. Thus, in or about January 2005, IBM forwarded TSSI and other companies a Request for Proposal ("First IBM RFP") to become its subcontractor. Deskside support services includes two categories of work: "break/fix" work, which involves visiting a user's location to repair hardware or software problems with the user's computer, monitor or printer, and "installs, moves, adds and changes", which involves installing, moving, adding or changing computer equipment at customer various locations (referred to as "IMAC" work).
The First IBM RFP included information regarding the estimated number and location of Schering employees who required services; the estimated number of computers, printers and monitors within the scope of the subcontract; and the estimated number of deskside support events per year. TSSI submitted a responsive bid on January 25, 2005.
On January 27, 2005, IBM asked its potential subcontractors to refine their bids based upon the availability of "ThinkVantage tools" and a "Level 1.5 help desk." These resources were to be provided at IBM's expense. A "Level 1.5 help desk" "is a help desk that has higher skilled people staffed on it that can assist in resolving the more difficult [service] calls [remotely] without a deskside visit." The term "ThinkVantage tools" generally refers to software that facilitates remote repair of a user's computer. The primary such tool used on the Schering Project is called "Rapid Restore."
IBM's January 27, 2005 e-mail to TSSI stated that:
. . . [IBM's] assertion is that in a traditional environment we should see [ REDACTED] [software] break fix calls per user per year and the level 1.5 help desk will solve a certain percent of those calls resulting in the quantities of a visit deskside that I have calculated below. With the staged implementation of Rapid Restore [a Think Vantage tool] these deskside events will further decrease due to the end user, the level 1 and level 1.5 help desk becoming more proficient at fixing the problem themselves using the tool.
On January 29, 2005, TSSI submitted an updated offer in response to IBM's January 27 e-mail. In updating the pricing, TSSI projected that each successive year of the subcontract would see increasing cost savings. TSSI acknowledged, in a deposition of Gregory Woodward ("Woodward"), TSSI's former Vice President for Operations, that if Think Vantage tools were subject to a staged implementation, the effectiveness of the Level 1.5 help desk would also be affected, because Think Vantage is one of the tools used by a Level 1.5 technician to solve software problems remotely. On these motions, Woodward submits an affidavit in which he claims that he then believed that there would be immediate implementation. (Woodward Aff., ¶¶ 4-14). IBM claims that TSSI was not told that the 1.5 Help Desk and Think Vantage Tools would be available immediately.
In a March 18, 2005 "update" Document of Understanding, TSSI said:
As referenced in a 1/27/2005 email, IBM will implement a Level 1.5 helpdesk to reduce the annual number of software calls and implement Think Vantage tools to reduce the overall quantity of hardware calls. Based upon this tssi has assumed the following deskside software visits + 5%:
Year 1: 10800; Year 2: 8100; Year 3: 5400; Year 4: 3600; Year 5: 1800.
IBM asserts that, over the next few months, TSSI worked with IBM further to refine its bids as new information concerning the scope of the project was learned. TSSI disputes that it worked with IBM on this process, and asserts instead that IBM gave TSSI different parameters and asked TSSI to reprice to bring the cost of the bid down.
On May 5, 2005, IBM and Schering entered into an Information and Technology Services Agreement, which provided, among other things, that "IBM would be responsible for the installation, removal, maintenance and repair of Schering's information systems for a five-year period." In the meantime, Schering had decided to exclude some work from the scope of its arrangement with IBM. Accordingly, IBM issued a second RFP (the "Second IBM RFP") to its vendors to reflect the omission of the work that Schering decided to omit. Except for those exclusions, and changes to section numbering, the data in the Second IBM RFP was identical to the First IBM RFP. TSSI submitted its response to the Second IBM RFP shortly thereafter.
On May 26, 2005, IBM officially selected TSSI as its "vendor of choice" ("VOC"), for the Schering deskside support services subcontract. This enabled the parties to begin negotiating a Statement of Work ("SOW") that would define TSSI's specific duties on the Schering Project.
B. Customer Solutions Agreement and Statements of Work
TSSI and IBM entered into "Customer Solutions Agreement 4900CS0268" (sometimes referred to as the Base Agreement or Master Agreement in the documents submitted), effective March 13, 2000. The Agreement "establishes the basis for a multinational procurement relationship under which [TSSI] will provide [IBM] the Deliverables and Services described in SOWs issued under this Agreement."The Agreement was signed by George DeMaria, TSSI's Chief Financial Officer and Treasurer at the time, on behalf of TSSI on March 24, 2000. It also was signed by a representative of IBM, Alex M. Sansky, on April 12, 2000.
In his deposition, Mr. DeMaria admitted signing the Agreement and stated he understood that the purpose of the Agreement was to permit the parties to conduct business with each other. He acknowledged that the document was required in order to do business with IBM and that it ". . . looks like it's an encompassing agreement". (Buterman Aff., Ex. 1, De Maria Tr. 89:17-91:7; 91:10-92:17). There is no evidence indicating that the Agreement ever was terminated or modified by the parties. In fact, the undisputed past history of dealing between TSSI and IBM shows that a Customer Solutions Agreement served as a master or template for the contractual relationship between them, with the relevant CSA establishing general terms and conditions and the particular, technical detail as to the actual work to be done being set forth in statements of work, work authorizations, and other documentation issued with respect to particular projects. For example, TSSI performed information technology services as an IBM subcontractor for Washington Mutual, Inc., a bank with locations nationwide. That work was performed pursuant to a Customer Solutions Agreement.
In Section 1.0 of the Customer Solutions Agreement applicable in this case ("CSA"), the term "Agreement" is defined to mean "this agreement and any relevant Statements of Work ("SOW"), Work Authorizations ("WA"), and other attachments or appendices specifically referenced in this Agreement." A purchase order issued by IBM is a Work Authorization under the CSA, as provided in the Definition section of the CSA as follows:
"Work Authorization" or "WA"means Buyer's authorization in either electronic or tangible form for Supplier to conduct transactions under this Agreement (i.e., a purchase order, bill of lading, or other Buyer designated document). A SOW is a WA only if designated as such in writing by Buyer.
Section 3.3 of the CSA provides that IBM may terminate any subcontract subject to the CSA without cause on sixty days' notice.
Section 11.0 of the CSA provides, in pertinent part, that "[e]xcept for liability under the Section entitled Indemnification, in no event will either party be liable to the other for any lost revenues, lost profits, incidental, indirect, consequential, special or punitive damages."
Section 12.0 of the CSA provides that TSSI would be considered an "independent contractor" to IBM, and that entering into the CSA did not "create an agency, partnership, or joint venture relationship" between the companies.
The parties began negotiating the Statement of Work 4905AT0056 (the "SOW") for the Schering Project in June 2005. Although IBM alleges that "every draft of the SOW begins by stating that [t]his Statement of Work ["SOW"] # 4905AT0056 adopts and incorporates by reference the terms and conditions of the CSA', which the SOW defines as the Base Agreement', the support cited for this assertion is Exhibit 21 to the movant's affidavit. This exhibit includes an unauthenticated e-mail from Mike Klobe at IBM dated June 7, 2004 to George DeMaria and Tom McLaughlin of TSSI indicating that enclosed is a "first draft of the SOW for Schering Plough". The exhibit also includes the first page of a "Solutions Engagement Agreement", with a sub-heading "Statement of Work" and with a further heading indicating "Agreement #
The purported e-mail is included in an exhibit to an affirmation submitted by counsel to IBM. While the attorney contends this is a true and complete copy of the document, the Court has not been furnished with anything that would indicate either that the sender testified to having sent it or that the recipient acknowledged receipt of it.
4900CS0268, SOW #
4905AT0056". The Agreement, in relevant part, reads as follows:
This Statement of Work ("SOW") #
4905AT0056 adopts and incorporates by reference the terms and conditions of Solutions Engagement Agreement #
4900CS0268 ("Base Agreement") between International Business Machines Corporation and TSSI. This SOW is effective beginning on 6/2/2005 and will remain in effect until 5/31/2008. . . .
(Buterman Aff., Ex. 21).
Although TSSI indicates in its statement of the facts at issue that "IBM has not produced any evidence whatsoever which shows that CSAs and SEAs are the same exact thing", neither has TSSI come forward with any evidence indicating that the CSA and SEA at issue here are not the same master or base agreement; indeed, they both contain the identifying reference number 4900CS0268. By way of explanation, IBM asserts the nomenclature used by IBM to refer to the base agreement changed over time, from Customer Solutions Agreement to Solutions Engagement Agreement. In support of this assertion, IBM cites the testimony of Michael Klobe of IBM, who stated as follows:
Q:I wanted to clarify it. As you define it what is a base master agreement then?
A:The CSA or an SEA, it's a customer solutions agreement. And then the SEA is a solutions engagement agreement. They're one in the same. IBM changed the acronym like later on.
Contracts, I don't know the difference. I don't think there is a difference. I think it just changed into a the acronym changed. So from now on we're very seldom do you see CSAs anymore, but I believe the TSSI one was doe at the time as a CSA. (Dep. Michael Klobe, 1/11/07, 14:15 to 15:3).
Accordingly, IBM asserts the SOW initially referred to the base agreement between IBM and TSSI as "SEA 4900CS0268", though the actual base agreement was entitled "CSA 4900CS0268". The SOW also states that "[t]ransactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the Base Agreement, and any applicable Work Authorizations ("WA") . . ."
IBM issued a Purchase Order ("PO") to TSSI for the Schering Project on August 15, 2005. (Buterman Aff., Ex. 24). The PO provides, in relevant part, that "[t]he terms and conditions of IBM Customer Solutions Agreement Number 4900CS0268 [and] SOW 4905AT0056 apply to this order." The PO also states that TSSI
accept[s] the terms of this Statement of Work by either:
1) signing the purchase order and returning a copy to us, or
2) providing the Service/Deliverable.
In the event of a conflict between the terms and conditions of the referenced agreement and the terms and conditions of IBM's Standard Terms and Conditions dated January 14, 2000, the terms and conditions of the referenced agreement shall apply.
IBM asserts the PO is a "Work Authorization" within the meaning of the CSA, [which provides that a Work Authorization means "Buyer's authorization in either electronic or tangible form for Supplier to conduct transactions under this Agreement (i.e., a purchase order, etc.) A SOW is a WA only if designated as such in writing by Buyer]". TSSI disagrees. Instead, TSSI argues that while the purchase order states on its face that the terms and conditions of IBM Customer Solutions Agreement Number 4900CS0268 and SOW 4905AT0056 apply to this order, the PO is not a WA within the meaning of the CSA.
TSSI's assertion that the PO is not a WA within the meaning of the CSA is based upon the language of the Purchase Order quoted above which indicates that "[i]n the event of a conflict between the terms and conditions of the referenced agreement and the terms and conditions of IBM's Standard Terms and Conditions dated January 14, 2000, the terms and conditions of the referenced agreement shall apply." Taking this language out of context, TSSI asserts that the PO must not be referring to the CSA because the aforementioned language references an agreement dated January 14, 2000 and the CSA was not signed by TSSI until March 24, 2000. This is not convincing. Indeed, it seems apparent to the Court that in the event of a conflict, the language of the base agreement, CSA #
4900CS0268 will control and not a separate agreement known as "IBM's Standard Terms and Conditions" which was dated January 14, 2000 and annexed to the movant's affidavit as Exhibit 60. In any event, the reference to the January 14th agreement applies only in the event of a claimed conflict of terms, which does not seem to be the case here. Indeed, the January 14th Agreement is not part of the contract between IBM and TSSI.
IBM asserts TSSI accepted the PO electronically through IBM's Work Order Interface ("WOI") system, and that in so doing, TSSI accepted the then-existing Statement of Work draft. In support of these assertions, IBM cites the Purchase Order, which indicates on page 1 that it was "Viewed, Accepted" (Buterman Aff., Ex. 24) and the deposition testimony of George DeMaria of TSSI, in the following exchange:
Q:Well, as far as you know, IBM preferred to exchange invoices and other documents of that sort electronically, rather than through paper, right?
A:As far as I know, we would bill IBM through this system that they called WOI and receive purchase orders from this system which we would print out, and other information.
Q:And IBM would accept TSSI's invoices electronically?
A:We would enter the documents onto we would enter the numbers on their system electronically.
Q:And they would accept it electronically, right?
A:Yes.
Q:And then when they issued purchase orders you would accept them electronically? You meaning TSSI.
A:Yes, we would go into their system and see it and print it out, if we would like.
Q:And you could also accept it on line, right?
A:Right. There is a process that they would say accept, reject, review.
Q:You had become familiar with these processes of IBM by talking to IBM? How did you become familiar with it?
A:I was part of I guess when we when IBM was I guess wanted TSSI to use their WOI system I was part of the setup.
Q:So you were the one who has having the communication with IBM to get TSSI into the WOI system?
A:Yes.
Q:And did you receive documentation on the WOI system? How did you learn about it?
A:From what I remember I was just informed by IBM that they have this system and they wanted us to register, enroll in the system.
Q:And you did?
A:And we did.
(Buterman Aff., Ex. 1, DeMaria Tr., 410:15-412:9).
TSSI argues that the above-cited testimony does not reference the particular PO at issue, and in no way represents TSSI's acceptance of the PO dated August 15, 2005. Additionally, TSSI submits there never was an existing Statement of Work as of August 17, 2005; all that existed with respect to the Statement of Work was a draft of a document that was in the process of negotiation. Moreover, both the PO, and an e-mail which purports to be from George DeMaria to Mike Klobe of IBM dated August 16, 2005 indicating that TSSI ". . . received the PO and accepted it on WOI . . ." are unauthenticated and, as such, are not in proper evidentiary form for consideration on a motion for summary judgment.
As noted previously, the Court has not been provided with any evidence that the sender actually sent these documents or that the recipient acknowledged receiving them.
Nevertheless, this dispute is inconsequential given the admissions by TSSI. In an affidavit submitted by George DeMaria, formerly of TSSI, he admits he accepted the Purchase Order on IBM's electronic payment system on August 15, 2005. The PO provides that "[t]he terms and conditions of IBM Customer Solutions Agreement Number 4900CS0268 [and] SOW 4905AT0056 apply to this order." (Buterman Aff., Ex. 24 at 1, 3-4). Accordingly, there is no issue of fact as to whether the PO was accepted by TSSI.
On August 17, 2005, the PO was amended to change TSSI's payment terms from forty-five to sixty days.
TSSI could not receive payment for its work without accepting the PO, as agreed to by George DeMaria in his deposition testimony. (Buterman Aff. Ex. 1, De Maria Tr. at 99:10-14). Mr. DeMaria also acknowledged that TSSI was "looking to receive some advance payment" before TSSI started working. IBM agreed to pay, and did pay, TSSI's first three months' worth of revenue for "maintenance" or "break/fix" work, which was approximately $477,000. ( Id., at 412:25-414:8; 443:21-444:10); see also Buterman Aff. Ex. 3, McLaughlin Tr. at 405:10-406:14).
C. TSSI Hires Transnet Technicians
Before IBM and TSSI began providing deskside support services to Schering on August 31, 2005, that function was primarily performed by technicians from a company known as TransNet. (Buterman Aff. Ex. 10, Tingo Tr. at 16:5-13; see also, Buterman Aff. Ex. 4, Mulhearn Tr. at 15:11-18). TSSI decided it would try to retain most of the deskside support technicians already working at Schering. For example, in a February 2, 2005 "Document of Understanding" sent by TSSI to IBM, TSSI states that it "will make every reasonable effort to retain original staff members from the prior service organization to ensure the best transition possible". (Buterman Aff. Ex. 30). Mr. Woodward testified that he, not IBM, first raised the possibility of hiring TransNet technicians with IBM, in keeping with standard industry practice to employ technicians familiar with the customer's environment:
Q:When you bid on the first RFP or what I'll call the first and second RFP, the January 2005 RFPs, at that time were you anticipating that you would hire — I believe you called it the legacy techs?
A:Yes, I anticipated hiring a certain number, whether it would be one or 100 of them, you know, percentage-wise, definitely.
Q:Any why did you in that January time frame anticipate that that would be the plan?
A:Just from a knowledge transfer and a transition type into the environment. They bring the knowledge of the inner workings that you can't know until you've worked in the environment. So they have some insight into — and contacts, specifically contacts within an organization that you can leverage to help you perform.
Q:Was the idea of hiring the legacy techs originally your idea?
A:I would — I would say yes. Like I said, it was just — it was — I don't want to say routine, but it was common in any large engagement that we would transition to. And it worked the other way, too. When we would — if we lost a deal that we had, a customer decided to move into another direction for whatever reason, they transitioned from us to them in cases.
Q:So this was just typical industry practice that you were accustomed to?
A:Yes.
(Buterman Aff., Ex. 2, Woodward Tr. at 70:22-72:3; see also, id. at 73:15-75-14; Buterman Aff., Ex. 11, Panaccione Tr. at 84:25-85:9).
Mr. Woodward also testified that IBM never "insisted" that TransNet technicians be hired:
Q:To your knowledge, did IBM insist that TSSI hire the legacy techs?
A:I wouldn't use the term insist, but there was — I'm trying to use the right word. Insist would not be correct.
Q:Would it be fair to say they supported your idea of hiring the TransNet techs?
A:Yes.
(Buterman Aff., Ex. 2, Woodward Tr., at 75:15-22).
Both sides agree the TransNet Technicians were subject to noncompete agreements with TransNet, intended to prevent the technicians from joining a competitor such as TSSI. It further is agreed that TSSI interviewed the TransNet technicians beginning in or about early August 2005. TSSI's Chief Information Officer, Gail Ferguson, who interviewed many of the TransNet technicians for TSSI, testified as follows:
Q:During the course of work on the IBM/Schering-Plough contract you interviewed a number of TransNet employees, do you recall that?
A:Yes.
Q:And you hired a bunch of them?
A:Yes.
Q:Okay. Did you ever question any of them when you were interviewing them whether they were subject to noncompete agreements?
A:I don't recall asking them that, no.
Q:Why not?
A:I just didn't.
Q:You were certainly aware of the possibility that they could be subject to noncompete agreements?
A:Is it possible that they could have signed a noncompete agreement with TransNet? Yes, it's certainly possible.
Q:But you didn't bother to ask?
A:I don't recall asking them that, no.
(Buterman Aff. Ex. 12, Ferguson Tr. at 48:16-49:11; see also id. at 114:17-116:9).
TSSI representatives did not ask these questions despite the fact that it customarily required its own technicians to sign employment agreements including non-compete clauses. After TransNet threatened litigation against TSSI in late July 2005 (Buterman Aff., Ex. 29), TSSI continued to conduct interviews of TransNet technicians, based on legal advice, given by its own attorneys, that TransNet's non-compete clauses were unenforceable. Mr. Woodward testified that, shortly after TransNet's threat of litigation, he participated in discussions with Mr. McLaughlin and Ms. Ferguson about whether TransNet "can enforce [the non-compete clauses]" or not. (Buterman Aff. Ex. 2, Woodward Tr. at 92:22-93:14). Woodward also testified that "[e]ssentially it was TSSI's opinion that it wasn't enforceable and — because we weren't jeopardizing the agreement." Woodward Tr., at 93:15-19. He also testified:
Q:And I think you previously stated, but I just wanted to make sure it's clear, that TSSI reached that conclusion on its own and with the help of its counsel, correct?
A:I believe that's true.
Q:Did anybody else help TSSI reach that conclusion?
A:Not to my knowledge."
(Woodward Tr., at 93:20-94:3; see also, Id. at 86:14-87:23.)
On August 3, 2005, TSSI's counsel (who represents TSSI in this litigation as well) responded to TransNet's lawsuit threat. In this letter, Ms. Moran stated, in relevant part, that "the proposed action by TransNet would constitute frivolous litigation and should such an action be instituted, [TSSI] would seek an award of attorney[s]' fees and costs as sanctions, in addition to asserting a cross-claim for TransNet's tortious interference with [TSSI's] business. (Buterman Aff., Ex. 32, at IBM 9310011150).
D. TSSI's Withdrawal From the Schering Project
Transition meetings with IBM began on May 31, 2005. On August 31, 2005 (the "go-live" date), TSSI began providing deskside support services on the Schering Project. In the first few days after the go-live date, the volume of deskside support work to be performed was greater than anticipated by either TSSI or IBM based on data provided by Schering in the Schering RFP. (Buterman Aff., Ex. 11, Panaccione Tr. at 89:2-7). Once its performance began, TSSI admitted that it "was unable to cover a large percentage of the work at [Schering] within the time provided in the subcontract, as the workload was far in excess of that set forth in the second RFP." (Complaint, ¶ 17, at 14-15).
Citing the draft SOW, IBM asserts that when TSSI accepted the SOW, TSSI promised to "provide the Services [set forth in the Agreement] to Buyer [IBM], Customer [Schering], and Buyer's teaming partners and/or subcontractors subject to the terms and conditions contained in th[e] Statement of Work (the "Services")"; IBM alleges TSSI also agreed "that its performance shall meet or exceed the Service requirements specified in this SOW." As indicated earlier, TSSI claims that no SOW ever was accepted by TSSI. This, as previously discussed, is belied by Mr. DeMaria's affidavit in which he admitted accepting the Purchase Order, and, of course, by accepting the Purchase Order, TSSI accepted the then-extant SOW. (Buterman Aff., Ex. 24 at 1, 3-4).
It is clear that as early as September 15, 2005, IBM informed TSSI of its concerns regarding TSSI's ability to handle the deskside support tasks at Schering. On September 15, 2005, Ginny Telesca, Service Delivery Manager for IBM, sent an e-mail to TSSI employees indicating that she was "very concerned about the way we are handling deskside support at Schering. Our backlog is growing and I don't get the feeling TSSI has this under control or has any plans to get this back on track. If am [sic] wrong, pls [sic] let me know." Additionally, the e-mail states that "[w]e are failing our SLAs miserably" and asks for daily stats from TSSI on its progress. (Buterman Aff., Ex. 43; see, also Ex. 7, Ellmore Tr. at 153:11-155:6).
It is undisputed that almost immediately after the go-live date, the backlog of deskside support work grew to unsatisfactory levels. As explained by Mr. Ellmore of IBM, "[m]y customer had significant satisfaction issues because of the backlog of [deskside support] tickets." (Buterman Aff., Ex. 7, Ellmore Tr. at 151:20-22, see also, Id., at 152:4-154:4). Mr. Ellmore testified as follows:
Q:Other than hearing that TSSI had provides services for prior IBM contracts had you heard anything negative about them?
A:No.
Q:Did you ever wonder why [doing its job] was such a problem for them?
A:Well, yes.
Q:And what did you come up with?
A:That they could not perform the services.
Q:Did you come up with — did you ever give a thought as to why?
A:No. It was — no.
Q:Did it matter to you one way or the other as to why?
A:Well, yeah. The service that they were providing was reflecting poorly on IBM and on me personally, so, yes, I wondered.
Q:And what did you do to try to discover what the problem was?
A:We met with them to find out what — you know, the things that we already talked about, scheduled meetings, provided additional resources, tried to help them through it.
(Buterman Aff., Ex. 7, Ellmore Tr. at 201:8-202:7).
TSSI sought to withdraw from its subcontract with IBM in early October, 2005. Although the parties present differing versions of the reasons for the withdrawal, the testimony of Mr. McLaughlin of TSSI on the subject was, in relevant part, is as follows:
Q:Early October of 2005 you made a decision that TSSI should seek alternatives in terms of going forward in the Schering project, right?
A:Yes.
Q:And what were the alternatives that you were considering at the time?
A:Well, the very first thing prior to that was to attempt to have the Schering management team — the IBM/Schering management team understand what the problems were and to try and reconcile them. And absent any apparent success that I fell back on the ongoing negotiations — discussions rather, with Halifax.
(Buterman Aff., Ex. 3, McLaughlin Tr., at 479:15-480:4).
The reference is to Halifax is to Halifax Corporation. TSSI alleges that, at or about this time, it began negotiations with Halifax to assume TSSI's responsibilities under the its subcontract with IBM. (Complaint, ¶ 19, p. 10, ln. 1-2).
Mr. McLaughlin further testified as follows:
Q:And can you tell me — Well, you don't need to look at the letter. Let's do it this way. In early October or sometime in October you said you began to have conversations about TSSI exiting the contract —
A:Yes.
Q: with IBM. Tell me the start of those discussions and how they progressed to finally the execution of this November 30th, 05 letter.
A:I think it was really straightforward. I approached Bill Ellmore and told him that we're looking to transition out of the service business. I have a company of — who was an IBM partner who might be interested in picking up the Schering-Plough project and I'd like to pursue that.
Q:Okay. What was Mr. Ellmore's reaction?
A:Tell me more.
Q:Was this on a face-to-face conversation?
A:Face to face, yes.
Q:So this one, there's no tape recording of this conversation?
A:No, there's no tape recording.
Q:And as best you can recall, when was this conversation with Mr. Ellmore?
A:Early October.
***
Q:So you told [Mr. Ellmore] you would like to transition out of the service business, meaning TSSI wanted to get out of the service business?
A:Right.
Q:And you wanted to focus on theQ?
"The Q" is a software product TSSI had developed and wanted to focus on selling.
A:That's correct.
(Buterman Aff., Ex. 3, McLaughlin Tr., at 486:12-487:16; 487:25-488:6).
IBM and TSSI terminated their relationship in connection with the Schering project on November 30, 2005, when Halifax replaced TSSI. In connection with the termination, Thomas McLaughlin, President of TSSI, sent a letter dated November 30, 2005 to William Ellmore of IBM which indicated as follows:
This letter shall serve as notice of the termination of tssi's support obligations relating to providing services as a sub-contractor to IBM Global Services for the Schering Plough account effective today, November 30, 2005. I hereby release IBM from all contract obligations relating to the contract effective today.
This termination does not preclude tssi from being appropriately compensated for services already rendered in the course of providing services from
August 31, 2005 through November 30, 2005.
A dispute exists with regard to the damages allegedly owed to each party on account of the Schering contract.
E. Evidence Relating to TSSI's Claims of Gross Negligence and Fraud
Mr. Woodward, TSSI's former Vice President, testified in his deposition that commencing on May 31, 2005, he was not on-site at Schering every day, "but [he] was down there very frequently. Less right in the beginning in June and it certainly progressed more and more as it got closer . . . as it got tighter I spent more time on site." (Buterman Aff., Ex. 2, Woodward Tr. 54:8-12). It is undisputed that Mr. Woodward was IBM's primary point of contact with TSSI and that he was responsible for working on the RFP. If Mr. Woodward required assistance, such assistance would be provided by Mr. DeMaria. (Buterman Aff., Ex. 1, DeMaria Tr. at 325:12-23).
Between January 2005 and May, 2005, Mr. Woodward testified that IBM would go to TSSI with changes, or different requirements regarding the scope of the Schering project, and TSSI would respond to those requirements by altering its bid on the project. (Buterman Aff., Ex. 2, Woodward Tr., 363:15-21). In the course of these discussions, Mr. Woodward testified that he asked questions of IBM to clarify information he received from IBM. ( Id., at 364:8-15). He further testified as follows:
Q:Was IBM receptive to responding to your questions?
A:Absolutely.
Q:Did you get the sense IBM was trying to deceive you?
A:No.
( Id., at 364:16-21; 365:13-15).
Mr. Woodward testified that he was kept informed by IBM when IBM learned of a material change in the Schering Project parameters from Schering. For example, he testified that he was kept informed of changes to the estimated number of Schering machines to be serviced (i.e., the "asset count"):
Q:With respect to the asset count, do you have an understanding of where that information came from?
A:For purposes of developing, you know, responding to the RFP, my understanding it (sic) came of the Schering information to IBM. And I will add that that did change, you know, during those pricing — I think the initial one had 13,700. It might have moved to 12 at one point. It was a kind of moving target. It didn't change 5,000 units. But id did kind of move around a bit.
Q:As it would change IBM would inform you there had been a change; correct?
A:Correct.
( Id., at 364:22-365:12).
Mr. McLaughlin testified that, when the volume of deskside support work to be performed initially exceeded estimates in the days after the go-live date, IBM employees expressed surprise:
Q:So you were being told by members of your staff that the volumes were higher than expected?
A:Yes.
Q:And then you raised that with IBM?
A:I certainly did.
Q:And in your discussions with IBM what was their reaction to the increased volumes?
A:The initial reaction
Q:Uh-huh.
A: was that the whole project that had been represented to us was misrepresented. It wasn't correct.
Q:And was that IBM saying that the project that was represented to IBM and TSSI collectively had been misrepresented by Schering?
A:The response from IBM was that they felt that there should be adjustments and they were going to go to Schering to get that done. They thought it was wacky.
Q:The IBM people were as surprised as you were about the increased volumes?
A:That's correct.
Q:And who were the IBM people who expressed that surprise to you?
A:Specifically Jim Panaccione.
Q:Anyone else?
A:I think that — what was her name — Ginny Telesca. The numbers were crazy. She was worried about reporting. There was no — no real reporting. We jumped in and helped them with the reporting, but there was nothing. It was incredible.
(Buterman Aff., Ex. 3, McLaughlin Tr. at 472:14-473:22).
Mr. McLaughlin expressed his belief that the data concerning the Schering Project originally set forth in the First and Second IBM RFPs (such as the number of machines and customers to be serviced, and the estimated number of IMACs to be performed) came directly from Schering:
Q:And you understood that IBM had received the asset count and IMACs from Schering, right?
A:That would be the only source, would be from Schering.
( Id., at 473:23-474:3).
Both IBM and TSSI witnesses have stated that between January and May 2005 when the IBM-Schering contract was being negotiated, IBM kept TSSI apprised of changes to the criteria for the project ordered by Schering. Specifically, when Schering's "numbers chang[ed]" with respect to, for example, the number of computers to be serviced, these changes would be passed along by IBM to Mr. Woodward, so that Mr. Woodward could adjust TSSI's price accordingly "[t]o match the new criteria sent from Schering-Plough." (Buterman Aff., Ex. 8, (Foeller Tr. at 54:15-56:7).
Although TSSI expressed its concerns that it did not receive current equipment lists ( i.e., a detailed asset count) in a timely fashion, it is clear from Mr. Woodward's testimony that TSSI received the most current asset information in IBM's possession prior to the go-live date of August 31, 2005. Indeed, Mr. Woodward testified as follows:
A: . . . I don't believe we received any type of asset feed with respect to equipment types and quantities at certain sites until the last week of August.
Q:Do you have an understanding of why you didn't receive that?
A:As far as I know it wasn't provided to IBM.
Q:IBM was trying to get it for you; were they not?
A:We were asking IBM for it. I assume they were asking Schering.
Q:You have no reason to believe that IBM was not asking Schering?
A:Correct.
(Buterman Aff., Woodward Tr., at 374:15-375:5).
When TSSI complained about the high volume of calls in September, 2005, IBM convened meetings for the purpose of understanding the problems TSSI was experiencing and providing additional resources to address those problems, although no evidence of additional resources was provided by IBM on this motion. William Ellmore of IBM testified that in late September of 2005 he had conversations with IBM employee Ray Harrison to see if IBM could pay TSSI on a monthly basis, instead of every 60 days.
Beginning in October, 2005, IBM assigned its own technicians and Schering hired TransNet technicians to help reduce the backlog of deskside support work that had built up beginning in September 2005.
In his deposition, Mark Murrell, the IBM employee responsible for supervising the pricing of the solution for the Schering Project, stated that it was part of his responsibility to ensure that the "solution" contained a profit margin for IBM that conformed to the targets IBM had established, [ REDACTED]
Mr. Murrell testified that IBM asked TSSI to lower its price because of efficiencies that would be realized on the project through the introduction of a Level 1.5 Help Desk and Think Vantage tools. In asking TSSI to reduce its price, IBM intended pass a portion of the reductions on to Schering, and to take some of it in profit. As Mr. Murrell aptly stated, "[w]ell, that's the name of the game." ( Id. at 79:15-80:3). Mr. Murrell further indicated that he did not know what percentage of the reductions were going to be taken by IBM as profit. Specifically, he said: ". . . I don't think it was a conscious decision at that point as to what was going to be profit and what was going to be cost reduction. You know, throughout these engagements, you know, it's a constant give and take, in terms of reducing cost and trying to keep your profit where you want it to be." Id., at 80:4-12.
It is clear that not all changes in the scope of the Schering Project which would affect TSSI's pricing were immediately conveyed to TSSI. In an e-mail exchange among employees of IBM, Bill Ellmore notified Jane Baird that IBM had gotten Schering to agree to handle a certain portion of its work on its own. When Ms. Baird responded by asking if they should "validate what impact, if any, this has on TSSI's pricing and then adjust . . . [IBM's] rates accordingly? . . ." Mr. Ellmore responded as follows:
This one works in our favor. We will uncover other issues that go the other way. Therefore, we will wait until we have critical mass before we ask TSSI to reprice. I would rather queue these up and ask for a turn of the solution once verses many smaller requests.
(TSSI Cross-Motion Ex. G; Buterman Reply Aff., Ex. 61)
While TSSI imputes a sinister motive to IBM as a result of this e-mail exchange, IBM asserts the failure to immediately notify TSSI of the change was simply was a matter of convenience. To that end, Mr. Ellmore testified that "instead of going to TSSI for every single change that impacts them, let's queue these things up and go back once." (Buterman Aff., Ex. 49, Ellmore Tr., 239:7-240:6).
TSSI contends that IBM did not do anything to confirm the accuracy of the data for the Schering Project, either prior to May, 2005 or during the transition period, despite the fact that TSSI was basing its bid for a five to seven year period. It submits that IBM did not check the asset count it received from Schering. IBM counters that both companies had contractual protections in the event the RFP data was inaccurate. Mr. Murrell testified that, as here, in the event a customer refuses to allow IBM to conduct its due diligence prior to entering into a contract, IBM protects itself by negotiating "terms and conditions", such that "you could correct those numbers and make the necessary adjustments to the solution and the price if they're inaccurate." (Buterman Reply Aff. Ex., 48, Murrell Tr. at 47:12-48:9). TSSI's
subcontract contains similar protections, as several TSSI witnesses acknowledged. (Buterman Aff. Ex. 22 § 7.3 at TSSIE000360-361 ("Discovery Clause"); Ex. 2, Woodward Tr. at 156:16-157:22; Ex. 1, DeMaria Tr. at 244:18-247:16, Ex. 3, McLaughlin Tr. at 465:24-468:19).
TSSI was not entitled to receive additional payments if the number of hardware and/or software break fix calls exceeded the baseline in the contract; however, TSSI could and did receive retroactive compensation for additional machines it serviced. TSSI was also entitled to additional payment for the number of IMACS it performed which exceeded the baseline in the contract. IBM asserts TSSI received $52,389.38 in such additional payments during its three-month tenure on the Schering project.
Under the terms of the SOW, TSSI is liable for SLA penalties based on a failure to close a certain percentage of all break-fix or IMAC calls within the allotted time, not based upon its failure to complete individual IMACs (or break-fix calls) as asserted by TSSI. (Buterman Aff., Ex. 22 at TSSIE000375-376 [entries for "Time to Respond/Time to Resolve — Break-fix Call"; and "Time to Respond/Time to Complete — IMAC"]).
TSSI asserts, and IBM agrees, that James Panaccione acknowledged that he told TSSI in the September 12, 2005 meeting that IBM would renegotiate with Schering and he testified that he was trying to appease TSSI. He stated in the meeting that IBM would go to Schering and renegotiate. (Panaccione Tr. 155:25-158:13; 170:25-171:9). It further is not disputed that IBM chose to supply additional technicians to the Schering Project, but that TSSI did not agree to pay for them.
F. TransNet Issues
TSSI asserts there is evidence that IBM withheld information concerning TransNet. Specifically, TSSI alleges IBM had a prior existing service contract at Schering and had been onsite at Schering since 2003; it is further alleged that TransNet was at Schering at the same time. Karl Salnoske, the CIO of Schering, testified that the TransNet non-compete issue was discussed during the transition planning phase in joint meetings with IBM and that IBM was aware of the issue. Mr. Salnoske identified the "transition planning phase" as "the period from contract signing to go-live."
G. Help Desk and Think Vantage Tools
IBM asserts that a portion of its request for a refined bid, TSSI's response thereto, and a revised document of understanding prove that TSSI was advised from the inception that a Level 1.5 Help Desk and Think Vantage tools would not be supplied to the project on the go-live date. TSSI argues that these documents do not support IBM's position, citing Mr. Woodward's affidavit and testimony. Specifically, TSSI points to Mr. Woodward's testimony that the reduction in calls and in TSSI's pricing over five years is based on efficiencies in the environment and not on an understanding that Think Vantage tools and a Level 1.5 Help Desk would be implemented over time. IBM rejoins that such assertions are at odds with Mr. Woodward's deposition testimony on this topic. IBM also asserts that Mr. Woodward's affidavit stating that IBM represented that there would be a "staged implementation" of Think Vantage tools directly contradicts his deposition testimony that no IBM employee ever made such a representation to him. (Buterman Reply Aff., Ex. 50, Woodward Tr. at 352:25-353:18). In addition, IBM points out that Mr. Woodward could not explain why, if TSSI's price reductions were based on factors other than a staged implementation of a Level 1.5 help desk and Think Vantage tools, his original price quote to IBM did not include any reductions in price from years one through five based on "efficiencies in the environment." (See Buterman Reply Aff. Ex. 50, Woodward Tr. at 350:10-352:13).
Additionally, although TSSI asserts that Mark Murrell testified that the Level 1.5 Help Desk should have been available on August 31, 2005, Mr. Murrell also testified that he had no specific knowledge of the implementation date for the Level 1.5 help desk and that there is a "phase-in period for anything". (Buterman Reply Aff. Ex. 48, Murrell, Tr. at 90:21-25; 91:3-6). Additionally, Mr. Murrell indicated that the installation of Think Vantage tools could have been done during the 120-day transition period, but that he didn't ". . . believe that's what we proposed to do". Id. at 91:9-92:2. As IBM witnesses make clear, Think Vantage tools were scheduled to be installed over a three-year period. (See Buterman Aff. Ex. 8, Foeller Tr. at 66:19-69:12; Buterman Reply Aff., Ex. 49, Ellmore Tr. at 61:14-21, 73:23-74:12).
TSSI claims that an e-mail attached to the Buterman Affidavit as Exhibit 15, dated January 27, 2005, indicates that the Level 1.5 Help Desk will be available subsequent to the first day of the project, and not at the go-live date as allegedly previously indicated. IBM disputes this assertion. Instead, IBM avers that the referenced e-mail to TSSI makes clear that the effectiveness of the Level 1.5 help desk is related to the progress of the "staged implementation" of Rapid Restore, a Think Vantage tool. Moreover, IBM points to the testimony of its Delivery Project Executive, James Panaccione, who oversaw delivery of services on the Schering Project. IBM quotes Mr. Panaccione's testimony that "you can call things 1.5 or 1.0. [but] they don't become effective until you've got experience in an environment you're supporting. You need to understand what [Schering's] desktop environment is, how things work in conjunction with each other . . . All the information that you get from Schering over the course of time, you start to become experienced at supporting their combination of software and hardware." (Buterman Aff., Ex. 11, Panaccione Tr., 59:20-60:5; see also, Buterman Aff., Ex. 49, Ellmore Tr. at 54:9-24 [effectiveness of a Level 1.5 help desk comes from a "knowledge base that's developed over time"]. IBM asserts the evidence establishes that the gradual reduction in TSSI's projected call volumes over a five-year period was premised on a staged introduction of a Level 1.5 Help Desk and Think Vantage tools into the Schering environment. (IBM Br. at 23-23; see also Buterman Aff. 33 at IBM 9410000027).
TSSI further points to the testimony of Mark Murrell in which he states as follows:
Q:How many 1.5 level help desk technicians did you envision working in order to — working at a single time in order to reduce the MACs?
MR. BUTERMAN: Objection.
It is not clear to the Court what was the basis of this objection and it is not now apparent to the Court that the question was objectionable. Accordingly, the Court will consider the testimony for present purposes.
A:Three, four.
Q:Did they know where they were going to be working from?
A:They could either work at wherever we had the help desk or sometimes they could be set up in an ancillary desk that would actually be at the customer location. In this case I can't recall where it finally ended up.
Q:Now originally, before increasing the efficiency by going with the 1.5 help desk, what did the solution call for?
A:I don't understand your question. I mean, if we didn't have the 1.5 help desk what would be called for is more people performing deskside support, more physical people performing software break/fix and handling MACs.
(Buterman Reply Aff, Ex. 48, Murrell Tr., 82:5-25).
In response, IBM points out that Mr. Murrell testified that he had no specific knowledge of the implementation date for the Level 1.5 help desk and that "[t]ypically there's a phase-in period for anything". ( Id., at 90:21-25; 91:3-4). Moreover, IBM witnesses testified that the Level 1.5 help desk gains effectiveness over time as the relevant help desk technicians gain familiarity with the environment they are servicing. (Buterman Aff., Ex. 11, Panaccione Tr., 59:20-60:5; see also, Buterman Aff., Ex. 49, Ellmore Tr. at 54:9-24 [effectiveness of a Level 1.5 help desk comes from a "knowledge base that's developed over time"].
TSSI next points to the testimony of Mike Foeller to the extent he testified he told Mr. Woodward of TSSI that Think Vantage tools would be rolled out over three years and to Mr. Woodward's sworn denial that this conversation took place. (See, Foeller Tr. 56:19-57; 67:23; Woodward Affidavit, ¶ 11). Additionally, Mr. Foeller testified that he included Think Vantage tools in IBM's cost case and that they were part of the solution he created. (See, Foeller tr. 62:5-6). IBM responds that Think Vantage tools were scheduled to be installed over a three year period, based on the refresh cycle of Schering's computers. (Buterman Aff. Ex. 8, Foeller Tr., 66:19-16:12; Buterman Reply Aff., Ex. 49, Ellmore Tr. at 61:14-62:13, 73:23-74:12; Buterman Reply Aff. Ex. 56, Panaccione Tr. at 53:7-13). IBM asserts that "as part of the process of [formulating] the bid and in [TSSI's] RFP responses, Mr. Woodward assumed Think Vantage tools would be introduced into the Schering environment as part of a gradual effort to install new "images" or software packages, on Schering's computers. (Buterman Reply Aff. Ex. 50, Woodward Tr. at 163:10-165:22). Mr. Woodward testified:
Q:Just so I'm clear, to your knowledge, did IBM ever represent to TSSI that it was going to give new images to every user before the go live date?
A:No.
Q:So when you say that IBM told you that they were going to put these tools into the new images it would be a phased process?
A:I assumed that it would be, yeah.
( Id., at 165:23-166:7, 182:24-186:18).
H. Valuation Issues
As part of its tort damages, TSSI seeks to recover $15 million from IBM, representing the value of TSSI's business which was allegedly "complete[ly] shut down" and "los[t]" as a result of IBM's conduct. (Buterman Aff., Ex. 26, ¶ 4). Mr. McLaughlin, who verified TSSI's interrogatory responses, valued TSSI at $15 million in Interrogatory Response No. 4 based on the anticipated "growth of the company over the next number of years, and I'm not sure what that number of years was." (Buterman Aff., Ex. 3, McLaughlin Dep. Tr., 176:4-6). The two components that were to have provided that growth are "[t]he maintenance business that we had and lost", as well as anticipated sales of a software product TSSI developed, known as theQ. ( Id., at 176:11-16).
At his deposition, Mr. McLaughlin could not remember any basis for his $15 million valuation. Specifically, he could not identify a single spreadsheet projecting TSSI's growth or the valuation methodology (if any) TSSI employed. In fact, Mr. McLaughlin testified that he performed his valuation solely in cooperation with his attorney, who to his knowledge is not an "expert in valuation". ( Id., at 173:22-186:13; 176:7-10; 176:19-180:2; 176:10-177:10).
THE SUMMARY JUDGMENT STANDARD
The proponent of a motion for summary judgment carries the initial burden of production of evidence as well as the burden of persuasion. Alvarez v. Prospect]Hospital, 68 NY2d 320 (1986). Thus, the moving party must tender sufficient evidence to demonstrate as a matter of law the absence of a material issue of fact. Once that initial burden has been satisfied, the "burden of production" (not the burden of persuasion) shifts to the opponent, who must now go forward and produce sufficient evidence in admissible form to establish the existence of a triable issue of fact. The burden of persuasion, however, always remains where It began, i.e., with the proponent of the issue. Thus "if the evidence on the issue is evenly balanced, the party that bears the burden must lose." Director, Office of Workers Compensation Programs v. Greenwich Collieries, 512 U.S. 267, 272; 300 East 34th Street Co. v. Habeeb, 248 AD2d 50 (1st Dept. 1997).
There is no requirement that proof be submitted in the form of affidavit, as opposed to other acceptable forms, such as deposition testimony. Muniz v. Bacchus, 282 AD2d. 387 (1st Dept. 2001).
The court's function on this motion for summary judgment is issue finding rather than issue determination. Sillman v. Twentieth Century Fox Film Corp., 3 NY2d 395 (1957). Since summary judgment is a drastic remedy, it should not be granted where there is any doubt as to the existence of a triable issue. Rotuba Extruders v. Ceppos, 46 NY2d 223 (1978). Thus, when the existence of an issue of fact is even arguable or debatable, summary judgment should be denied. Stone v. Goodson, 8 NY2d 8 (1960); Sillman v. Twentieth Century Fox Film Corp., supra .
The role of the Court is to determine if bona fide issues of fact exist, and not to resolve issues of credibility. As the Court stated in Knepka v. Tallman ( 287 AD2d 811, 718 NYS2d 541 [4th Dept. 2000]):
Supreme Court erred in resolving issues of credibility in granting defendants' motion for summary judgment dismissing the complaint (see, Mickelson v. Babcock, 190 AD2d 1037, 593 N.Y.S.657; see generally Black v. Chittenden, 69 NY2d 665, 669, 511 NYS2d 833, 503 NE2d 1370; Capelin Assocs. v. Globe Mfg. Corp., 34 NY2d 338, 341, 357 NYS2d 478, 313 NE2d 776). Any inconsistencies between the deposition testimony of plaintiffs and their affidavits submitted in opposition to the motion present credibility issues for trial ( see, Schoen v. Rochester Gas Elec., 242 AD2d 928, 665 NYS2d 372; Mickelson v. Babcock, supra).
( See also, Yaziciyan v. Blancato, 267 AD2d 152 (1st Dept. 1999) ["The deponent's arguably inconsistent testimony elsewhere in his deposition merely presents a credibility issue properly left for the trier of fact.")
Nevertheless, summary judgment is properly granted when the opponent of the motion raises only feigned issues of fact. See, Perez v. Bronx Park South Associates, 285 AD2d 402 (1st Dept. 2001), in which the Court held that the submission of a one-page affidavit from a neighbor, which was in conflict with plaintiff's deposition testimony, was insufficient to raise an issue of fact; Glick Dullock v. Tri-Pac Export Corp., 22 NY2d 439 (1968) [plaintiff's expert opinion that illegally parked car was proximate cause of accident was a legal conclusion which was of no consequence, and could not defeat defendant's motion for summary judgment]; Phillips v. Bronx Lebanon Hospital, 268 AD2d 318 (1st Dept 2000) ["self-serving affidavits" submitted by plaintiff in opposition clearly contradict plaintiff's own deposition testimony and can only be considered to have been tailored to avoid the consequence of her earlier testimony . . .").
As previously noted, IBM seeks summary judgment on TSSI's claims for breach of contract (First Cause of Action), negligence (Second Cause of Action), gross negligence (Third Cause of Action), and fraud (Fourth Cause of Action). TSSI opposes the motion and cross moves for summary judgment on its declaratory judgment cause of action (Fifth Cause of Action). The Court will address each claim in turn.
BREACH OF CONTRACT (FIRST CAUSE OF ACTION)
A. The "Release"
IBM asserts that the breach of contract (First) cause of action must be dismissed because TSSI released IBM from all of its contractual obligations to TSSI. IBM maintains that the November 30, 2005 letter (quoted in full above), signed by Thomas McLaughlin as President of TSSI, constitutes a valid release which should be enforced according to its terms, in that the letter indicates that Mr. McLaughlin released ". . . IBM from all contract obligations relating to the contract effective today." (Buterman Aff., Ex. 16)
It is well settled law that, while a broad general release will be given effect, "a release may not be read to cover matters which the parties did not desire or intend to dispose of." Rotondi v. Drewes, 31 AD3d 734, 735 (2nd Dept. 2006). "If from the recitals therein or otherwise, it appears that the release is to be limited to only particular claims, demands or obligations, the instrument will be operative to those matters alone." Hughes v. Long Island University, 305 AD2d 462 (2nd Dept. 2003). In deciding the meaning of a written instrument, "the natural and ordinary meaning of the language will be imparted to it." Carpenter v. Machold, 86 AD2d 727 (3rd Dept. 1982). Ambiguities in the alleged release should be interpreted contra proferentem, against the party that drafted the purported release language. 151 West Associates v. Printsiples Fabric Corp., 61 NY2d 732, 734 (1984). The parties' intent is determinative of the scope of the release. Gordon v. Vincent Youmans, Inc., 358 F.2d 261, 263 (2nd Cir. 1965).
IBM's motion to dismiss TSSI's breach of contract claim originally was denied by Hon. Kenneth W. Rudolph, the Justice previously assigned to this matter in a Decision and Order dated August 21, 2006. The Court reasoned that the release, which was ". . . executed in the context of TSSI's withdrawal from the [Schering] project, was clearly limited; and never contemplated the simultaneous interposition of claims by IBM with respect to potential liability for additional costs or penalties related to TSSI's performance between August 11, 2005 and November 30, 2005. . . ."
IBM reasserts its claim that Mr. McLaughlin's letter is a valid and binding release. This Court disagrees. The language of the letter indicates that Mr. McLaughlin, on behalf of TSSI, released IBM "from all contract obligations relating to the [Schering] contract, effective . . ." November 30, 2005. While the Court might have trouble with the assertion of claims by TSSI for alleged breaches of the contract after November 30, 2005, the Court does not read the aforementioned language as clearly and unequivocally releasing IBM from any and all claims for breach of the contract prior to November 30, 2005. Moreover, there is nothing in Mr. McLaughlin's deposition testimony, in which he states that in attempting to settle the dispute with IBM, TSSI asked for payment of its outstanding invoices, which suggests that TSSI intended to unequivocally release all claims against IBM by signing the November 30th letter. To the contrary, a portion of Mr. McLaughlin's testimony and the testimony of Bill Ellmore, the IBM employee who drafted the disputed language, suggest that the intent merely was to terminate services under the Schering contract. (Buterman Aff., Ex. 3, McLaughlin Tr. 506:5-8; Ex. 7, Ellmore Tr. 167:16-173:21). Accordingly, a material question of fact exists as to the effect of the letter signed by Mr. McLaughlin on November 30, 2005.
B. Application of the CSA and the SOW
IBM argues that the vast majority of TSSI's alleged contract damages are specifically barred by the parties' agreements.
As previously stated, in March, 2000, TSSI and IBM entered into the CSA, which sets forth the terms and conditions applicable to all projects between the companies. The CSA established "the basis for a multinational procurement relationship" under which TSSI would provide IBM with "Deliverables and Services" described in future SOWs. There is no evidence the CSA ever was rescinded or modified by either TSSI or IBM.
On August 15, 2005, TSSI accepted a PO for the Schering project providing that "[t]he terms and conditions of IBM Customer Solutions Agreement Number 4900CS0268 [and] SOW 4905AT0056 apply to this order." (Buterman Aff., Ex. 24 at 1, 3-4). From June 2005 through the middle of August 2005, TSSI negotiated an SOW with IBM, in which the drafts stated, "This Statement of Work ("SOW") #
4905AT0056 adopts and incorporates by reference the terms and conditions of the Solution Engagement Agreement #
4900CS0268." (Buterman Aff. Ex. 22 at TSSIE00354). TSSI admits that Exhibit 22 to the Buterman Affidavit is in fact the extant SOW as of August 15, 2005. (See, TSSI Br. at 9). Thus, it is clear that the parties' contractual relationship for the Schering Project is defined by the PO, CSA and the August 15, 2005 SOW.
TSSI's arguments that the terms of the CSA are not applicable to the PO and SOW are not convincing. First, TSSI submits that "in order to make an agreement that encompasses the terms and conditions of the CSA, there must be a SOW between the parties that is either specifically referenced' in the CSA or attached to' the CSA and a work authorization." Thus, according to TSSI, the CSA cannot apply to the Schering SOW, because the "CSA was executed more than five years prior to the commencement of the Schering project". This argument is contrary to the plain language of the CSA.
The CSA unambiguously applies to future SOWs, as indicated by the first sentence of the CSA, which reads:
This Agreement dated as of 03/13/2000 ("Effective Date"), between International Business Machines Corporation ("Buyer") and Technical Support Services Inc. (tssi) "("Supplier"), establishes the basis for a multinational procurement relationship under which Supplier will provide Buyer the Deliverables and Services described in SOWs issued under this Agreement.
The CSA further provides that such Deliverables and Services acquired by IBM "on or after the Effective Date" (of the CSA) (which TSSI would then provide pursuant to an SOW) are "covered by" the CSA. (CSA, § 3.1). TSSI's strained construction of the phrase "included in this Agreement" to restrict the CSA's scope also is not convincing. By this logic, the CSA would serve no purpose whatsoever because it did not attach or specifically reference any SOWs or WA's, such an interpretation would leave the aforementioned clauses meaningless — a result disfavored in the law.
TSSI's assertion that the SOW was not "finalized" is not relevant to the issues on this motion. The assertion by TSSI that "the parties never agreed upon a final SOW on the Schering project" references recordings of conversations with IBM personnel about the SOW after August 15, 2005.However, negotiations surrounding the form of what would have been a superceding SOW occurring subsequent to August 15 are irrelevant. The PO — which TSSI admits is part of the contract between the parties (Complaint, ¶ 23) unambiguously provides that by accepting the PO, TSSI also accepted the CSA and the then-extant SOW. (See, Buterman Aff., Ex. 24 at 1, 3-4; see also, Liberty Mgmt. Constr. Ltd. v. Fifth Ave. Sixty-Sixth St. Corp., 208 AD2d 73, 77-78 (1st Dept. 2005) (plaintiff accepted contract when it agreed to separate document incorporating contract by reference). In any event, because the PO explicitly incorporates the CSA by reference, TSSI agreed that the CSA's terms would apply to the Schering project when its accepted the PO, regardless of whether it agreed to an SOW.
TSSI next asserts that the August 15th SOW is "ambiguous on its face, because it incorporates the terms of a Solutions Engagement Agreement' not a Customer Solutions Agreement', even though both formulations of the title are followed by the exact same ten-digit number. TSSI also ignores Mr. Klobe's uncontradicted testimony (cited above) that an SEA and CSA are "one and the same". TSSI also fails to mention that Mr. DeMaria provided the same agreement number to IBM on the very day TSSI accepted the PO, a document which references "Customer Solutions Agreement" #
4900CS0268". TSSI has advanced no evidence to suggest that any other agreement between IBM and TSSI existed with the exact same number. Nor has TSSI produced any such agreement. Accordingly, there is no material issue of fact surrounding the nomenclature of the master agreement between these parties.
Finally, TSSI argues that Section 11.0 of the CSA, entitled "Limitation of Liability" should not apply here. This section reads:
Except for liability under the Section entitled Indemnification, in no event will either party be liable to the other for any lost revenues, lost profits, incidental, indirect, consequential, special or punitive damages. In no event will either party be liable for the respective actions or omissions of its Affiliates under this Agreement.
First, TSSI alleges that Section 11.0 is invalid because it is "overbroad and ambiguous", "boilerplate" and contains language "which was never negotiated" by the parties. However, TSSI does not provide any legal ground for disregarding Section 11.0 on these bases. TSSI also asserts that the PO and SOW take precedence over the CSA in the event of a conflict, but TSSI never shows any conflict between the documents. And since neither the PO nor the SOW address limitations of liability at all, there is no "conflict" with Section 11.0. Finally, TSSI's suggestions that the CSA is unconscionable, and that IBM had an unfair advantage in bargaining power is belied by the rule that "[i]n cases involving transactions of a commercial nature, courts have rarely found unconscionability, and its has been held that when businessmen contract in a commercial setting, a presumption of conscionability arises." Lister Elec., Inc. v. Inc. Vill. of Cedarhurst, 108 AD2d 731, 734 (2nd Dept. 1985).
IBM's "Standard Terms and Conditions dated January 14, 2000", referenced in the PO and on page 11 of TSSI's brief are not part of the parties' agreement; the PO states that they apply only if a referenced agreement is not incorporated. Here, the CSA and the SOW specifically were incorporated into the PO.
TSSI also argues that Section 11.0 should not be enforced because "even if the Court accepts IBM's argument that the CSA was incorporated into the draft SOW, the parties continued to negotiate the SOW after performance had already begun, and TSSI may have been able to negotiate the limitations (presumably of the CSA) away, as the final SOW would have taken precedence." (TSSI Br. at 9). Unfortunately for TSSI, what it might have been able to accomplish hypothetically is of no relevance to the contractual provisions at issue.
In light of the foregoing, the motion for summary judgment with respect to TSSI's claim for breach of contract should be granted solely to the extent that TSSI's damages for any such breach shall be limited as indicated in Section 11.0 of the CSA.
NEGLIGENCE (SECOND CAUSE OF ACTION)
IBM asserts it is entitled to summary judgment on TSSI's negligence claims because TSSI's damages claims for this count are barred by the terms of the CSA and because TSSI did not have a "special relationship" with IBM.
A. Damages
Damages are a necessary element of a negligence claim and must be pleaded and proven. Siler v. Lutheran Social Servs. of Metro. NY, 10 AD3d 646, 648 (2nd Dept. 2004). Section 11.0 of the CSA limits the parties' liability for many categories of damages, including lost revenues, lost profits, incidental, indirect, consequential, special or punitive damages. In general, such limitation of liability causes are enforceable against negligence claims. See, e.g., Colnaghi, U.S.A. v. Jewelers Protection Servs., 81 NY2d 821, 823 (1993) (New York law generally enforces contractual provisions absolving a party from its own negligence); accord, L S Motors, Inc. v. Broadview Networks, Inc., 25 AD3d 767 (2nd Dept. 2006).
Here, the damages TSSI seeks under its negligence claim are all either lost revenues, lost profits, incidental, indirect, consequential or special damages which are barred under the CSA. Specifically, TSSI seeks damages including: (i) $25,000 for costs related to the TransNet litigation (Buterman Aff., Ex. 26, ¶ 4); (ii) "additional management and staff time of $150,000 ( id.); (iii) "costs related to the resultant shutdown of tssi of $175,000" ( id.); and (iv) $15,000,000 for the "complete shutdown and loss of [TSSI's] business. ( Id.). As such, it appears that TSSI's negligence claim is barred because the damages it seeks were expressly waived in the CSA.
TSSI's argument that Section 11.0 of the CSA cannot apply to negligence claims because the clause "does not contain the word negligence" is without merit. Damages are a necessary element of the claim, and if there are no recoverable damages, there is no viable claim. Siler v. Lutheran Social Servs. of Metro. NY, 10 AD3d 646, 648 (2nd Dept. 2004). TSSI's further argument that "the question of categorization of damages into direct or indirect is a jury question" is unsupported and contrary to the many cases categorizing certain damage claims and barring them as a matter of law. See, e.g., Suffolk Laundry Servs., Inc. v. Redux Corp., 238 AD2d 577, 578-79 (2nd Dept. 1997) (characterizing certain tort damages as "consequential damages" and barring them as a matter of law); Hemming v. Certainteed Corp., 97 AD2d 976 (4th Dept. 1983) (same). Here, even if TSSI had suffered tort damages, those damages would have been an indirect consequence of actions allegedly taken by IBM, and, as such, barred by the CSA.
B. Special Relationship
IBM argues that in order for TSSI to maintain a negligence claim against IBM, TSSI must establish a violation of "a legal duty independent of the contract itself." Clark-Fitzpatrick, Inc. v. L.I.R.R. Co., 70 NY2d 382, 389-90 (1987), often referred to as a "special relationship" between the parties giving rise to a duty of care. See, Atkins Nutritionals, Inc. v. Ernst Young, LLP, 301 AD2d 547, 548 (2nd Dept. 2003). In general, there is no duty of care between parties to an arm's-length business relationship. See, id. at 548-49. Here, the evidence shows that the parties' relationship was an arm's length business relationship. Indeed, TSSI became a sub-contractor to IBM via the CSA, which established the relationship under which the parties would work together. Indeed, Mr. DeMaria, who signed the CSA on behalf of TSSI stated his understanding that the purpose of the Agreement was to permit the parties to conduct business with each other and further indicated that the CSA ". . . looks like its's an encompassing agreement." (Buterman Aff., Ex. 1, De Maria Tr. 89:17-91:7; 91:10-92:17).
Moreover, the CSA expressly defines and limits the nature of the relationship between the parties, providing that TSSI is an "independent contractor", and that entering into the CSA did not "create an agency, partnership, or joint venture relationship" between it and IBM. (Buterman Aff., Ex. 17, § 12.0). The CSA, therefore, establishes that TSSI, as an independent contractor, was in a classic arm's-length relationship with IBM. Accordingly, summary judgment in IBM's favor as to the Second Cause of Action is appropriate. See, e.g., Gardianos v.Calpine Corp., 16 AD3d 456, 456 (2nd Dept. 2005) (affirming summary judgment for defendants as to negligent misrepresentation claim when "there was no evidence of a special relationship between the parties").
In attempting to defeat this argument, TSSI relies upon affidavits contending that TSSI and IBM had worked together for more than ten years and that TSSI relied on IBM to ensure that the operational data on the Schering project was accurate. ( See TSSI Br. at 16, citing McLaughlin Aff. ¶¶ 12-13; Woodward Aff. ¶ 10). However, even if true, this evidence does not, as a matter of law, show that the parties were in a special relationship. See Murphy v. Kuhn, 90 NY2d 266, 269 (1997) (rejecting plaintiff's argument that a "long, continuing course of business between plaintiffs and defendant" created a special relationship); Elghanian v. Harvey, 249 AD2d 206 (1st Dept. 1998) ("The requisite [special] relationship between the parties must have existed prior to the transaction from which the alleged wrong emanated, and not as a result of it.").
Accordingly, the negligence count of the Amended Complaint should be dismissed.
GROSS NEGLIGENCE (THIRD CAUSE OF ACTION)
AND FRAUD (FOURTH CAUSE OF ACTION)
The Third Cause of Action alleges that IBM acted with gross negligence, and the Fourth Cause of Action alleges IBM committed fraud, by recklessly or intentionally providing TSSI with allegedly inaccurate information regarding Schering's information technology requirements. (Complaint, ¶¶ 30, 36-37, 43). In opposition, IBM counters that there is no evidence that IBM acted with scienter or reckless indifference to TSSI's rights.
In order to establish a claim for gross negligence, a plaintiff must establish that defendant's conduct "evince[d] a reckless disregard for the rights of others" or that defendant's conduct "smacks of intentional wrongdoing". Aphrodite Jewelry, Inc. v. D W Central Station Alarm Co., Inc., 256 AD2d 288, 289 (2nd Dept. 1998); Federal Insurance Company v. Automatic Burglar Alarm Corp., 208 AD2d 495, 496 (2nd Dept. 1994); accord, Colnaghi, U.S.A. v. Jewelers Protection Servs., 81 NY2d 821, 823-824 (1993). Additionally, TSSI must establish a violation of "a legal duty independent of the contract itself." Clark-Fitzpatrick, Inc. v. L.I.R.R. Co., 70 NY2d 382, 389-90 (1987), often referred to as a "special relationship" between the parties giving rise to a duty of care. See, Atkins Nutritionals, Inc. v. Ernst Young, LLP, 301 AD2d 547, 548 (2nd Dept. 2003). As indicated above, TSSI has failed to refute IBM's evidence that no special relationship exists between the parties, thereby negating TSSI's claim of gross negligence.
To plead a prima facie case of fraud based upon misrepresentation, the complaint should set forth all the essential elements of fraud, i.e., (1) the making of a material representation by the defendant; (2) that the representation was false; (3) that the defendant knew it was false and made it with the intention of deceiving the plaintiff; (4) that the plaintiff believed the representation to be true and justifiably acted in reliance on it, and was deceived; and (5) that the plaintiff was damaged thereby. Small v. Lorillard Tobacco Co., Inc., 94 NY2d 43 (1999); 60A NY Jur. 2d Fraud and Deceit Sec. 232. Where the alleged misrepresentation relates to facts which would not appear to be exclusively within the defendant's knowledge, the complaint may be regarded as insufficient for failing to show why the plaintiff could not have ascertained such facts through the exercise of ordinary diligence. 320 Realty Management Co. v. 320 West 76 Corp., 221 AD2d 174 (1st Dept. 1995).
Here, IBM's witnesses, as well as TSSI's witnesses, testified that, between January and May 2005 when the IBM-Schering contract was being negotiated, IBM kept TSSI apprised of changes to the criteria of the project ordered by Schering. Specifically, when Schering's "numbers chang[ed]" with respect to, for example, the number of computers to be serviced, these changes would be passed along by IBM to Mr. Woodward, so that he could adjust TSSI's price "to match the new criteria sent from Schering-Plough." (Buterman, Ex. 8, Foeller Tr. at 54:15-56:7). Mr. Woodward of TSSI testified that IBM was responsive to his questions and promptly informed him of material changes in the project scope ordered by Schering. (Buterman Aff., Ex, 2, Woodward Tr. at 364:22-365:12). Mr. Woodward testified he never had the sense that IBM was "trying to deceive" TSSI; nor did he ever believe that IBM was "purposefully withholding information" from him. ( Id., at 364:16-21, 365:13-15).
Mr. McLaughlin testified that IBM employees "were as surprised as [Mr. McLaughlin] about the increased volumes" of work in the days after the go-live date, and that IBM suspected that Schering had perhaps misrepresented the amount of work to be performed to IBM and TSSI collectively. (Buterman Aff. Ex. 3, McLaughlin Tr. at 472:14-474:3). He also acknowledged that the "operational date" concerning the project (i.e., the number of machines and customers to be serviced) came from Schering, which would be the "only source" of such data. ( Id., at 473:23-474:3).
Although TSSI alleges that IBM attempted to deceive TSSI by understating the asset count in the IBM RFP's, this argument makes little sense. As TSSI's own witnesses have admitted, the contract between the parties allowed for alterations to the asset count, thereby allowing TSSI to be paid retroactively for any extra machines it serviced. (See Buterman Aff., Ex. 22 § 7.3; see also, Buterman Aff. Ex. 2, Woodward Tr. at 156:16-157:22; Buterman Aff. Ex. 1, DeMaria Tr. at 244:18-248:19; Buterman Af. Ex. 3, McLaughlin Tr. at 465:24-468:19). In fact, IBM asserts TSSI was paid over $100,000 in extra revenue as a result of such an adjustment. (See, IBM Facts ¶¶ 60-72). Because TSSI was compensated based on actual asset figures rather than the figures in the IBM RFPs, there was no reason or possible benefit to IBM in deceiving TSSI with regard to the asset count.
Moreover, there is evidence that IBM worked with TSSI, both before and after the go-live date, to ensure that TSSI could meet its obligations under the SOW. In mid-August 2005, at TSSI's request, IBM advanced TSSI approximately $477,000 to defray TSSI's start-up costs. (See IBM Facts ¶ 46; see also Buterman Aff. Ex. 1, DeMaria Tr. at 412:25-414:8). When TSSI complained about the high volume of calls in September 2005, IBM met with TSSI to identify causes of the problems and to propose solutions. (See, IBM Facts ¶¶ 63, 84). In late September, 2005, IBM offered to waive its normal payment terms so that TSSI's invoices would be paid in 30 days instead of 60 days, and, beginning in October 2005, IBM assigned its own technicians, third-party technicians, and TransNet technicians hired directly by Schering to assist in reducing the accumulated backlog of work. ( Id., ¶¶ 85, 86).
Additionally, to avoid summary judgment, TSSI must point to specific evidence supporting IBM's scienter, and not merely rely on "conclusory allegations" of an intent to deceive. However, TSSI has failed to present sufficient evidence to create an issue of material fact in this regard.
First, TSSI asserts that IBM employees were motivated to defraud TSSI to reduce its bid so those employees could get higher bonuses. This assertion, however, is little more than speculation, and, as such cannot create a triable issue as to IBM's intent. Indeed, "fraud must be established by clear and convincing factual proof . . . [and] not rest alone on conjecture or supposition." Thor Food Serv. Corp. v. Makofske, 28 Misc 2d 872, 874 (Sup.Ct. 1961) (internal citations omitted). Moreover, "[f]raud is established only were facts are proved from which it results as an unavoidable inference." Altman v. Casale, 25 AD2d 877, 878 (2nd Dept. 1966). The motive ascribed to IBM's employees here — a desire for higher compensation — is found in virtually all commercial transactions, making it an ill-suited motive from which to draw an inference of intent to defraud. See, e.g., In re Merrill Lynch Co. Research Reports Sec. Litig., 289 F.Supp.2d 416, 428 (S.D.NY 2003) (concluding that defendant's desire to increase bonus is not probative of intent to commit securities fraud: "If this Court were to accept the plaintiffs' allegations of scienter as adequate, it would essentially read the scienter element out of existence" because" all individuals are assumed to desire to increase their compensation").
Second, TSSI's reliance on the e-mail chain submitted as Exhibit G to its counsel's affirmation (and described at length earlier herein) to establish intentional fraud is without merit. Mr. Ellmore explained that IBM delayed notifying TSSI of this particular change in the project scope for TSSI's convenience "instead of going to TSSI for every single change that impacts them" he stated "let's queue these things us and go back once." (Buterman Reply Aff., Ex. 49, Ellmore Tr., at 239:7-240:6). Mr. Murrell and Mr. Ellmore both also explained that when Mr. Ellmore referred to the change as "work[ing] in our favor" (Ex. G at IBM 9410075355), he meant that it reduced costs for both IBM and TSSI in relation to Schering. (Buterman Reply Aff., Ex. 48, Murrell Tr. at 156:16-157:11; see also, Buterman Reply Aff. Ex. 49, Ellmore Tr. at 239:7-240:6). This e-mail does not evince an intent to defraud TSSI when taken in context of the other evidence presented.
As part of its fraud claim, TSSI submits there is evidence that IBM withheld information concerning TransNet. Specifically, TSSI asserts IBM had a prior existing service contract at Schering and had been onsite at the account since 2003 (concurrently with TransNet employees). Karl Salnoske, the CIO of Schering, testified that the TransNet non-compete issue was discussed during the transition planning phase in joint meetings with IBM and that IBM was aware of the issue. Mr. Salnoske identified the "transition, planning phase" as "the period from contract signing to go-live." TSSI asserts IBM knew TSSI would have to pay TransNet for hiring its technicians, but didn't tell TSSI, so that TSSI didn't include that cost in its pricing which would have the effect of decreasing IBM's profit.
In response, IBM asserts that TSSI has conceded the insufficiency of its fraud claim with respect to the TransNet issue, as TSSI does not dispute that "[a]fter TransNet threatened litigation against TSSI in late July 2005 . . . TSSI continued to conduct interviews of TransNet technicians, based on its own legal advice that TransNet's noncompete clauses were unenforceable." (IBM Facts ¶ 54, See, TSSI Facts ¶ 54). Detrimental reliance on defendant's misrepresentation is an element of both negligent misrepresentation and fraud claims. Because TSSI admits that it relied on its attorneys and not IBM, IBM submits, and the Court agrees, that IBM is entitled to judgment on TSSI's TransNet-related tort claims. See, Meyercord v. Curry, 38 AD3d 315, 316 (1st Dept. 2007) ("Plaintiff must show [inter alia] that defendant's misrepresentation induced plaintiff to engage in the transaction in question". (internal citation omitted). Zuyder Zee Land Corp. v. Broadmain Bldg. Co., 86 NYS2d 827, 829 (Sup.Ct. 1949) (dismissing negligent misrepresentation claim when "there was in fact no reliance by plaintiff upon [defendant's alleged misrepresentations], since the [contract] itself was [reviewed] by its officers and attorney, upon whose judgment plaintiff relied").
In sum, there is no evidence that IBM was aware of TransNet's employment policies before TSSI notified it of the threatened lawsuit on or about July 27, 2005 (see Buterman Aff. at Ex. 29), and further there is no evidence to suggest that IBM intentionally or recklessly withheld information concerning TransNet from TSSI.
Further, it is clear that hiring technicians from TransNet was TSSI's idea from the beginning. Mr. Woodward first raised the possibility of hiring TransNet technicians (See Buterman Aff., Ex. 2, Woodward Tr., at 70:22-72:3; 73:15-75:14; see also Buterman Aff. Ex. 30 at 2. This admission contradicts TSSI's allegation that IBM "insisted" that TransNet technicians be hired. Further evidence that TSSI's hiring of TransNet technicians had nothing to do with IBM is provided by an October 2005 e-mail from Mr. McLaughlin to Halifax in which he states that "[n]o matter who started the [Schering] account these people would have been needed and the same lawsuit would have prevailed." (Buterman Aff., Ex. 31 at 1).
Additionally, TSSI cannot justifiably have relied on IBM to provide information concerning TransNet because TSSI failed to exercise "ordinary intelligence" to make a "simple inquiry" into the relevant facts before it began hiring technicians. Jana L. v. West 129th St.Realty Corp., 22 AD3d 274, 278 (1st Dept. 2005). Gail Ferguson, who was responsible for interviewing TransNet technicians, testified that she never asked the TransNet employees she interviewed if they were subject to non-compete agreements, despite the fact that TSSI typically entered into similar noncompete agreements with its own technicians. (See Buterman Aff., Ex. 12, Ferguson Tr., at 48:16-49:11; 46:8-48:15). Moreover, TSSI admitted it had at least one direct meeting with a TransNet representative in July 2005 before it was first threatened with a lawsuit. (Buterman Aff., Ex. 26, ¶ 44). TSSI's failure to inquire mandates judgment as a matter of law for IBM on these claims. See, e.g., Shao v. 39 College Point Corp., 309 AD2d 850, 851 (2nd Dept. 2003) (granting summary judgment for defendant on fraud claim when "plaintiff's deposition testimony established that he failed to take any action . . . to ascertain [the allegedly misrepresented facts]").
As a further component of its fraud claim, TSSI asserts IBM made misrepresentations about the Level 1.5 HelpDesk and Think Vantage tools. Indeed, TSSI asserts for the first time in its Amended Complaint that it was fraudulently induced to enter into its agreement with IBM by IBM's alleged promises to implement, by the go-live date, a Level 1.5 help desk and Think Vantage tools in order to reduce the number of annual software deskside visits.
The evidence shows that when IBM asked TSSI for a refined bid on the assumption that IBM would provide Think Vantage tools and the Level 1.5 help desk in order to reduce the number of software-related deskside support calls, IBM indicated that there would be a "staged implementation of Rapid Restore (the primary Think Vantage tool to be used on the Schering project). (Buterman Aff., Ex. 15 at 1, 2). Similarly, the document makes clear that "the Level 1.5 [would] becom[e] more proficient at fixing . . . problem[s]" as Rapid Restore was implemented into the environment.
On March 18, 2005, TSSI prepared a Document of Understanding that read:
As referenced in a 1/27/2005 email, IBM will implement a Level 1.5 helpdesk to reduce the annual number of software calls and implement Think Vantage tools to reduce the overall quantity of hardware calls. Based upon this tssi has assumed the following deskside software visits + 5%:
Year 1: 10800; Year 2: 8100; Year 3: 5400; Year 4: 3600; Year 5:1800.
This reduction in calls is clearly based on a staged introduction of the Level 1.5 Help Desk and Think Vantage tools into the Schering environment. Even TSSI's Mr. Woodward admitted that, based on the assumptions communicated to IBM by TSSI, "someone could conclude" that TSSI understood that the Level 1.5 Help Desk and Think Vantage tools would be rolled out over time. (Buterman Aff., Ex. 2, Woodward Tr. at 352:6-13).
Because TSSI was made aware from the start that the reductions it would see in deskside visits would occur over time, TSSI's new fraud claim on this ground should be dismissed. Additionally, TSSI's fraud claims related to alleged promises to implement, by the go-live date, a Level 1.5 Help Desk and Think Vantage tools must be dismissed because they are duplicative of TSSI's contract claims covering the same alleged promises. It is well settled that a claim "for fraud arising out of a contractual relationship may be maintained only where the plaintiff alleges a breach of a duty separate from, or in addition to, a breach of contract." Levine v. American International Group, 16 AD3d 250, 251 (1st Dept. 2005).
In light of the foregoing, TSSI's gross negligence and fraud claims must be dismissed. Given, this fact, TSSI's argument that its damages with respect to these claims are not too speculative to survive summary judgment, are moot. Similarly, TSSI's request for punitive damages, given the dismissal of its claims for fraud, negligence and gross negligence, is likewise moot, as it cannot be established that IBM acted with the requisite high degree of moral turpitude and wanton dishonesty as to imply a criminal indifference to civil obligations. See Ross v. Louise Wise Servs., 8 NY3d 478, 489 (2007).
THE CROSS MOTION (DECLARATORY JUDGMENT)
To the extent TSSI cross-moved for an order declaring that there was never any agreement to a Statement of Work between TSSI and IBM, and for dismissal of IBM's counterclaims on the grounds that there never was any agreement between TSSI and IBM whereby IBM was entitled to deduct from amounts owed to TSSI any amounts for alleged additional costs incurred by IBM in the Schering Project, such cross-motion is denied. In dealing with IBM's motion above, this Court already has found that TSSI accepted the then-extant August 15, 2005 Statement of Work when it accepted the Purchase Order. Thus, TSSI is not entitled to declaratory relief on this issue. Moreover, TSSI's brief provides no support for the relief sought in the motion. Finally, and perhaps most importantly, all summary judgment applications on this matter were ordered by this Court to be served and filed no later than June 29, 2007. The instant cross-motion was not served and filed until August 10, 2007 and TSSI never requested, much less received, leave of the Court to vary the briefing schedule which was established by the Court with the consent of counsel.
Accordingly, the cross-motion is denied in its entirety.
THE MOTION TO STRIKE THE JURY DEMAND
As previously discussed, in March of 2000, IBM and TSSI entered into the CSA. Section 14.3 of the CSA contains an express waiver of the parties' right to a jury trial, as follows: "The parties expressly waive any right to a jury trial regarding disputes related to this Agreement."
IBM asserts the jury waiver applies to all of TSSI's claims. The term "Agreement" is defined in section 1.0 of the CSA as follows:" Agreement' means this agreement [i.e. the CSA] and any relevant Statements of Work (SOW'), Work Authorizations (WA'), and other attachments or appendices specifically referenced in this Agreement." IBM contends that all of the work that TSSI performed as a subcontractor on the Schering Project was done pursuant to the CSA, a WA (the PO) and a SOW. IBM states that the drafts of the SOW made clear to TSSI that the terms and conditions of the CSA would apply to the work TSSI would perform on the Schering Project.
IBM also claims that all of TSSI's claims are subject to the CSA's jury waiver provision because all of the conduct TSSI has alleged IBM is liable for is conduct that IBM undertook as part of its contractor-subcontractor relationship with TSSI on the Schering Project and is, therefore, "related to" the Agreement as defined in the CSA. Whether it is IBM's alleged actions with respect to the Schering RFP, TransNet, a Level 1.5 help desk or Think Vantage tools, those actions were only undertaken because of the relationship formed by the CSA. Thus, IBM asserts that all of TSSI's claims have their roots in the relationship between the parties which was created by the contract — mandating that they be adjudicated in a bench trial. As a result, IBM asserts that this Court should strike TSSI' jury demand.
In opposing the motion, TSSI stresses the constitutional "inviolate" right to a jury trial found in the New York State Constitution and in relevant case law.
The Constitution of New York State, at Article I, § 2, provides that "trial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever." Indeed, ". . . [t]he right to trial by jury is zealously protected in our jurisprudence and yields only to the most compelling circumstances. John W. Cowper Co. v. Buffalo Hotel Dev. Venture, 99 AD2d 19, 21 (4th Dept. 1984); Matter of Schapira, 12 Misc 3d 1195 A (Sup.Ct. Bronx Co. 2006). Nevertheless, ". . . by written agreement parties may expressly waive their right to a jury trial on any claim." Tiffany At Westbury Condominium v. Marelli Development Corp., 34 AD2d 791, 791 (2nd Dept. 2006), citing Gunn v. Palmieri, 187 AD2d 485 (2nd Dept. 1995); Barclays Bank of NY v. Heady Elec. Co., 174 AD2d 963 (2nd Dept. 1991).
Here, the CSA provides, at Section 14.3, as follows:
This Agreement and the performance of transactions under this Agreement will be governed by the laws of the country where the Buyer entering into the relevant agreement or PA is located, except that the laws of the State of New York applicable to contracts executed in and performed entirely within that State will apply if any part of the transaction is performed within the United States. The United Nations Convention on Contracts for the International Sale of Goods does not apply. The parties expressly waive any right to a jury trial regarding disputes related to this Agreement. . . .
The waiver contained in Section 14.3 is a standard waiver routinely upheld by courts. See, e.g., Gunn v. Palmieri, 187 AD2d 485, 486 (2nd Dept. 1992) (finding provision stating "I waive my right to a trial by jury in any action, proceeding, or counterclaim in any way connected with this agreement or the plan" to be unambiguous and valid).
It is apparent that TSSI's own statements and actions demonstrate that the CSA, and its jury waiver apply in this case. Indeed, as previously stated in connection with IBM's motion for summary judgment, TSSI accepted a PO specifically incorporating the CSA on August 15, 2005, when TSSI's Chief Financial Officer, George DeMaria accepted a PO for the Schering Project explicitly incorporating the CSA and SOW by reference. At that same time, TSSI accepted the then-extant SOW, which also incorporated by reference the CSA — and is considered part of the Agreement under Section 1.0 of the CSA (defining an "Agreement" as the CSA and any relevant Statements of Work, Work Authorizations, and other attachments or appendices specifically referenced in this Agreement).
TSSI's contention that it never knew or intended that the CSA, and therefore the jury waiver, would apply to its work on the Schering project is not relevant in this instance, because the CSA applies regardless of TSI's claimed subjective intent. See, W.W.W. Assocs., Inc. v. Giancontieri, 77 NY2d 157, 162 (1990) (refusing to consider extrinsic evidence to interpret an unambiguous contract provision: "before looking to evidence of what was in the parties' minds, a court must give due weight to what was in their contract").
Even assuming, arguendo, that extrinsic evidence was pertinent, the evidence here demonstrates that TSSI knew all along that the CSA was applicable to the Schering project. TSSI's president, Mr. McLaughlin informed his employees, including Mr. DeMaria, on August 13, 2005, two days before TSSI accepted the Purchase Order ( see DeMaria Aff. ¶ 4) — that "[f]or everyone's info, the IBM SOW is superceded by another global agreement that we signed in the past and explicitly indicates that IBM can cancel without cause in 60 days." (Buterman Reply Aff. Ex. 59 at TSSIE034924). There can be no honest dispute that the document containing the termination provision Mr. McLaughlin referenced is the CSA. ( See, IBM Jury Br. Ex. A § 3.3). Moreover, Mr. DeMaria not only accepted a PO (DeMaria Aff. ¶ 4) which explicitly incorporated the CSA by reference, but contacted IBM on August 15, 2005 to ensure that the CSA would be correctly referenced in the PO. (See, Buterman Aff., Ex. 23 [DeMaria "thought that it would be a good idea to double check that the PO will be issued to the correct account number[s] for [TSSI]", including "CSA #
4900CS0268]).
The dispute over whether the CSA applies to TSSI's tort causes of action are no longer relevant, in light of this Court's granting summary judgment to IBM on those claims.
In Bonnie-Lassie Sportswear, Inc. v. Century Factors, Inc., 283 A.D. 702, 703 (1st Dept. 1954), a tort action, defendant argued that plaintiff had waived its right to a jury trial by entering into a master agreement establishing a relationship between the parties, in which the parties waived the right to a jury trial" in any action upon or claim arising under this agreement.'". The Appellate Division rejected plaintiff's argument that its tort suit did not arise out of the agreement. Specifically, the court held that "[w]hile it might be said that the action is not upon the agreement, it cannot realistically be held that the claim involved in the action does not arise under the agreement. Id. at 703.
It is well established under New York law that "[t]he phrase any controversy . . . arising out of or relating to this contract . . .' is broad enough to embrace tort as well as contractual liabilities so long as they have their roots in the relationship between the parties which was created by the contract." Litchfield Fabrics, Inc. v. Rosewood Fabrics, Inc., 79 AD2d 910, 912 (1st Dept. 1981).
In light of the foregoing, it is clear that the jury waiver of the CSA applies to the remaining claims in the case at bar.
CONCLUSION
The Court has considered the following papers in connection with this motion:
1)Notice of Motion for Summary Judgment dated June 29, 2007 and exhibits annexed thereto; Affidavit of Lawrence E. Buterman in Support, and the Exhibits annexed thereto;
2)IBM's Memorandum of Law in Support of Its Motion for Summary Judgment dated June 29, 2007;
3)Notice of Cross-Motion to Motion to Dismiss of Defendant International Business Machines Corporation dated July 27, 2007 and the Affidavit of Thomas McLaughlin, sworn to July 27, 2007; the Affidavit of Gregory Woodward sworn to July 27, 2007; the Affidavit of George DeMaria sworn to July 27, 2007; the Affirmation of Justine Clare Moran, Esq. dated July 27, 2007, and the exhibits annexed thereto;
4)Plaintiff's Memorandum of Law in Opposition to Motion for Summary Judgment and in Support of Cross Motion dated July 27, 2007;
5)Reply Affidavit of Lawrence E. Buterman, Esq. dated August 9, 2007 and the Exhibits annexed thereto; Affidavit of Michael N. Kennedy sworn to August 9, 2007.
6)IBM's Reply Memorandum of Law in Support of Its Motion for Summary Judgment dated August 10, 2007;
7)IBM's Statement of Undisputed Facts Pursuant to Rule 19-A in Support of its Motion for Summary Judgment dated June 29, 2007;
8)Plaintiff's Statement of Facts as to Which There Exist Genuine Issues to be Tried dated July 27, 2007; 9)IBM's Rule 19-A(B) Counter statement to Plaintiff's Statement of "Additional Facts at Issue" dated August 10, 2007;
10)Notice of Motion to Strike Jury Demand dated June 29, 2007 and IBM's Memorandum of Law in Support of Its Motion to Strike TSSI's Jury Demand dated June 29, 2007;
11)Plaintiff's Memorandum of Law in Opposition to Motion to Strike Jury Demand dated July 27, 2007;
12)IBM's Reply Memorandum of Law in Support of Its Motion to Strike TSSI's Jury Demand dated August 10, 2007.
13)Order dated September 14, 2007 finding that the parties demonstrated good cause for a sealing order pursuant to 22 N.Y.C.R.R., Section 216.1 (the "Sealing Order").
The Court will file the redacted versions of the papers upon which it relied in connection with this Decision and Order in light of the Sealing Order. In order to give counsel the opportunity to present to the Court reasons why any specific portion of this Decision and Order should be redacted prior to filing with the County Clerk, the Court will calendar this matter for a conference on December 7, 2007 at 9:30 a.m. This appearance is in addition to the final Pre-Trial Conference scheduled for January 25, 2008. The Court has previously scheduled the commencement of trial for February 11, 2008.
Based upon the foregoing papers, and for the reasons set forth above, it is hereby
ORDERED that IBM's motion for summary judgment (Seq. #
6), TSSI's cross-motion for summary judgment (Seq. #
7), and IBM's motion to strike the jury demand (Seq. #
8) are consolidated for purposes of decision and disposition; and it is further
ORDERED that IBM's motion for summary judgment as to the First, Second, Third and Fourth Causes of Action of the Amended Complaint is decided as hereinafter set forth (SEQ #
6); and it is further
ORDERED that the motion for summary judgment by IBM with respect to TSSI's First Cause of Action) (Breach of Contract) is granted solely to the extent that TSSI's damages for any such breach shall be limited as indicated in Section 11.0 of the CSA; and it is further
ORDERED that the motion for summary judgment by IBM with respect to TSSI's Second Cause of Action (Negligence), Third Cause of Action (Gross Negligence) and Fourth Cause of Action (Fraud) is granted and said Causes of Action are dismissed; and it is further
ORDERED that the motion for summary judgment by IBM with respect to TSSI's Claim for Gross Negligence (Count III) and Fraud (Count IV) is granted, and those causes of action are dismissed; and it is further
ORDERED that TSSI's cross-motion for summary judgment is denied in its entirety (SEQ #
7); and it is further
ORDERED that IBM's motion to Strike TSSI's jury demand (SEQ #
8) is granted and the jury demand is hereby vacated; and it is further
ORDERED that counsel for the parties shall appear for a conference before this Court on December 7, 2007 at 9:30 a.m.
The foregoing constitutes the Decision and Order of this Court.