OPINION AND ORDER
Conner, Senior D.J.
Plaintiff PC Com, Inc. ("PC COM") has sued Defendant Proteon, Inc. ("Proteon") for breach of contract and Defendant Jack Dutzy ("Dutzy") for tortious interference with contract. Proteon has counterclaimed for breach of contract and payment of $ 347,867.37 allegedly due under the contract. PC COM has moved for partial summary judgment on the issue of liability; Proteon has moved for partial summary judgment on damages. This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332 (a)(1).
For the sake of convenience, the summary of the facts and this Court's determination that Massachusetts law shall apply (as per the parties' choice of law provision), are reproduced from the earlier summary judgment ruling in this matter. See PC COM v. Proteon, Inc., 906 F. Supp. 894 (S.D.N.Y. 1995).
Plaintiff PC COM is a Florida corporation maintaining a principal place of business in Elmsford, New York. Defendant Proteon is a Massachusetts corporation maintaining its principal place of business in Westborough, Massachusetts, and is duly qualified and licensed to do business in New York. Defendant Dutzy is an individual residing in New Hampshire employed by Proteon during all times relevant in this case.
Defendant Proteon has been in the business of manufacturing and selling electronic devices known as token ring adapter network interface cards ("NICs") and networking equipment, enabling the contemporaneous use by many computers of a central computer containing a central memory and programs (called a "file server"). This aggregation is known as a "network," and the network within a company is called a "local area network" ("LAN").
Proteon has sold LAN products through traditional channels, namely, through its own LAN Products Division sales personnel and sales offices. Traditional channel sales are principally to national distributors who, in turn, resell the products through intermediate dealers to ultimate consumers. Proteon also has had original equipment manufacturer ("OEM") arrangements with other companies to whom Proteon sells its LAN products bearing the Proteon trade name and logo for use, as well as for resale.
While at a computer trade show in November 1992, Proteon's then Director of OEM Sales, Robert Otten, approached PC COM to inquire whether PC COM was interested in becoming an OEM purchaser and reseller of Proteon products. Thereafter, Proteon and PC COM entered into an OEM Purchase Agreement, dated March 17, 1993 (the "Agreement"), for the purchase and sale of Proteon products to PC COM.
The parties operated amicably under the first year of the Agreement, which ended March 15, 1994. Both parties realized profit from the relationship, and no major disputes are on record.
Early in the second year, however, a disagreement arose regarding pricing. PC COM alleges that, on June 16, 1994, one of Proteon's sales support personnel telephoned PC COM to advise that defendant Dutzy, then Director of LAN Product Sales, had placed a "pricing hold" on PC COM orders.
On June 17, 1994, Lisa Huber, a Proteon sales support person, sent a memo by fax to PC COM advising that Proteon would not honor an order received from PC COM due to the pricing dispute. Specifically, the memo indicated that Proteon would not honor the purchase order unless PC COM agreed to pay $ 432.25 per ISA NIC instead of the "agreed upon price" of $ 215.00 per card,
which had been the price paid during the first year of the Agreement.
As a result of this pricing dispute, PC COM withheld payments on several orders already received, with the first of these payments becoming due on June 20, 1994, pursuant to a 30-day credit arrangement. PC COM claims that Proteon's actions on June 16-17, 1994 constituted a breach and termination of the Agreement, thus warranting discontinued performance (i.e., payment) by PC COM. Proteon denies that its actions constituted a breach, and counters that PC COM's refusal to pay for the past orders already received and overdue (as of June 20, 1994) constituted a breach of the Agreement. Proteon and PC COM exchanged numerous letters attempting to resolve their differences, all to no avail.
On July 5, 1994, PC COM filed its complaint in the Supreme Court for the State of New York, Westchester County. PC COM sought compensatory damages of no less that $ 5 million from Proteon for its alleged breach of the Agreement and compensatory damages of no less than $ 5 million and punitive damages in the sum of $ 500,000 from Dutzy for his alleged intentional interference with PC COM's contractual advantages.
Since the dispute, PC COM was able to link up with a competitor of Proteon, namely Olicom Corp. ("Olicom"), a Danish manufacturer of LAN products similar to those manufactured by Proteon. On July 11, 1994, Friedman wrote a memorandum addressed to PC COM's existing customers "to coax them to continue to do business with PC COM, and to now buy Olicom manufactured token ring adapter products instead of Proteon manufactured products." Friedman Aff., p. 18, P 56. The letter reads:
As you may know, PC COM does not manufacture its Token Ring products. We have relied on Proteon to provide us with industry leading products. Our value added includes an overwhelming commitment to Unparalleled Customers Support . . . of its products that carry the PC COM name. The recent chaos at Proteon has impacted our ability to provide these functions at the high level we insist on. . . . In light of these daunting facts, I have elected to terminate PC COM's OEM agreement with Proteon. Quite frankly, I cannot in good conscious [sic] continue to recommend products manufactured by this company nor can I ask our salespeople to. I am concerned that Proteon's woes would reflect poorly on PC COM. . . . That is why, we've negotiated and signed an OEM agreement with Olicom to provide the industry's highest performing NIC card. Olicom's sentiments towards Customer Satisfaction reflect our own. . . . I now ask you to consider this same dilemma. It seems a perfect time to switch. All trends indicate you and your clients may be forced into such a decision soon anyway. . . .