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COMMERCIAL DATA SERVERS v. INTERNATIONAL BUSINESS

April 4, 2003

COMMERCIAL DATA SERVERS, INC., D/B/A XBRIDGE SYSTEMS, INC. PLAINTIFF,
v.
INTERNATIONAL BUSINESS MACHINES CORPORATION DEFENDANT.



The opinion of the court was delivered by: Mcmahon, District Judge.

MEMORANDUM DECISION AND ORDER DENYING DEFENDANT'S MOTION TO STRIKE THE DECLARATIONS OF RONALD S. ALEPIN AND BRETT L. REED, OVERRULING PLAINTIFF'S OBJECTIONS TO DEFENDANT'S EVIDENCE, AND GRANTING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGEMENT

Plaintiff, Commercial Data Servers, Inc. ("CDS") alleges that Defendant International Business Machines Corporation ("IBM") committed federal and state antitrust violations under the Sherman Act §§ 1, 2 (15 U.S.C.A. §§ 1, 2), the Clayton Act § 3 (15 U.S.C.A. § 14), and the Donnelly Act (N.Y. Gen. Bus. Law § 340). Plaintiff also brings claims for tortious interference with its relations with two vendors. Defendant denies these allegations, and counterclaims for breach of two contracts and copyright infringement.

Defendant has moved for summary judgment under Fed.R.Civ.P. 56, on all of the plaintiffs claims except one claim of tortious interference. Defendant also moves for summary judgment on one of its breach of contract counterclaims.

Both the plaintiff and the defendant have also made separate motions regarding the admissibility of evidence submitted by the other. Plaintiff objects to the exhibits submitted by defendant with its Motion for Summary Judgment, on the grounds that the exhibits were not properly authenticated. Defendant moves to strike two expert affidavits submitted by plaintiff with its Motion in Opposition to Summary Judgment, on the grounds that the affidavits are unsubstantiated and speculative, and untimely under Fed.R.Civ.P. 26.

The motions are disposed of as follows: (1) I overrule plaintiff's objections to defendant's exhibits; (2) I deny defendant's motion to strike plaintiff's expert affidavits; (3) I grant defendant's motion for summary judgment on Counts II through VI of CDS's Second Amended Complaint, and deny summary judgement as to Count VII; and (4) I grant defendant's request for summary judgment on its breach of contract counterclaim.

FACTUAL BACKGROUND

IBM is a New York corporation that maintains its principal executive offices in Armonk, New York. (Plaintiff's Second Amended Complaint, ("Plaintiffs Sec. Amd. Cmplt."), ¶ 8.) IBM describes itself as a company that "uses advanced information technology to provide customer solutions through, inter alia, the sale of a variety of computer hardware and software products." (Defendant's Amended Answer and Counterclaims, p. 11.) CDS (which is currently doing business under the name "Xbridge Systems, Inc.") is a California corporation that maintains its principal executive offices in California. (Plaintiff's Sec. Amd. Cmplt., ¶¶ 7, 10.) CDS was formed in 1996 by three former IBM executives. Id. at ¶ 22. According to CDS's pleadings, CDS provided its founders with an "opportunity to compete with IBM."*fn1 Id. at ¶ 24.

Over a number of years, IBM developed the S/390 computing platform, "a component-based computer system consisting of hardware and software products that are compatible and interoperable with the platform's architecture." (Plaintiffs Second Amd. Cmplt., ¶ 13.) The primary hardware component of the S/390 system is a central processing unit ("CPU") board, referred to as the "P/390 Card." Id. at ¶¶ 13, 26. The P/390 card enables the computer to run OS/390 operating system software, and other predecessor IBM operating system software.*fn2 Other operating system software, such as software based on the UNIX or Windows NT operating systems, generally cannot run on S/390 platform computers. Likewise, S/390 operating system software and applications generally cannot be used on alternative platform computers.

IBM builds and markets its own S/390 computer systems and products. However, it also has agreements with other companies under which they incorporate IBM technology into their products. Plaintiff CDS was one of these companies.

In 1995, CDS entered into an Original Equipment Manufacturer ("OEM") Agreement with IBM, under which CDS was able to purchase the P/390 card and S/390 operating software. Id. at ¶ 26. CDS purchased the software at the entry system level ("ESL"), which was IBM's most favorable software pricing level. Id. ¶¶ 4, 20. The OEM Agreement allowed CDS to incorporate the P/390 Card into its own product, and licensed CDS to "preload" S/390 operating system software onto these CDS systems. Pursuant to this agreement, in 1997 CDS introduced the CDS 104 system (later renamed CDS 2000). Id. at ¶ 26.

In 1997, CDS entered into another agreement with IBM, an Original Provider Agreement ("OPA"), pursuant to which CDS invested in IBM's efforts to create an improved P/390 card—the "P/390e" card, Id. at ¶ 29. In 1998, the OEM Agreement was amended to allow CDS to purchase the P/390e card. ("OEM" Agreement and amendments, Ex. 23 to Burke Dec.) CDS then developed a product incorporating the P/390e card and the OS/390 operating system, which it marketed as the "CDS 2000e." (Plaintiff's Sec. Amd. Cmplt. at ¶ 29.)

In May 1998, IBM "pre-announced" a new product, the S/390 Integrated Server (also referred to as the "Planter"), scheduled for release in November 1998. Id. at ¶¶ 6, 69. At the same time, IBM also preannounced an additional S/390 product, with higher processing power (estimated to be two times as fast). Id. Both products was based on the P/390E, and were designed to compete with CDS's computers. Id. at ¶ 51, 52. IBM released the integrated server in November 1998, as scheduled. In September 1999, IBM released the "Multiprise 3000" servers, which provided processing power approximately six times greater than CDS's product. IBM stopped offering the S/390 Integrated Server in February 2000. Id. at ¶ 71. The Multiprise products are still on the market.

CDS alleges that IBM viewed CDS as a competitive threat and sought to "eliminate" them. Id. at ¶ 6. CDS alleges that the introduction of the S/390 Integrated Server, and subsequent decision to "drop[]" the server from the market, was intended to destroy the CDS market opportunity. Id. CDS also alleges that IBM refused to provide CDS with ESL pricing qualification except under anti-competitive terms and conditions which limited the marketing claims that CDS could make regarding its product. Id. at ¶¶ 44-45. IBM also allegedly "threatened" and/or "coerced" two value added resellers ("VARs"), Information Technology Co. ("ITC") and Intelliware, in an effort to "prevent CDS from distributing the CDS 2000" through certain distribution channels. Id. at ¶¶ 56-66.

PROCEDURAL HISTORY

Plaintiff's original complaint in this action was filed on July 7, 2000. Counts I through VI of the original complaint alleged various antitrust violations, Count VII alleged tortious interference with prospective business relations, Counts VIII and IX alleged misappropriation of plaintiff's technology, and Count X alleged breech of the OPA Agreement. Defendant moved to dismiss Counts VIII through X and the Hon. Louis Stanton granted defendant's motion, albeit with leave to replead. Commercial Data Servers, Inc. v. International Business Machines Corp., 2001 WL 277303 (S.D.N.Y. March 21, 2001)("CDS I"). Pursuant to the Court's Rules for the Division of Business, the case was sent to White Plains and reassigned to me.

On May 8, 2001, plaintiff filed its first amended complaint, which repeated the original Counts I through VII and repleaded Counts VIII and IX, the misappropriation claims dismissed by Judge Stanton. Defendant moved to dismiss the complaint in its entirety. This Court granted defendant's motion on October 9, 2001. Commercial Data Servers, Inc. v. International Business Machines Corp., 166 F. Supp.2d 891 (S.D.N.Y. 2001)("CDS II"). The misappropriation claims previously dismissed by Judge Stanton, Counts VIII and IX, were dismissed with prejudice. The antitrust claims, Counts I through VI, were dismissed without prejudice, due to plaintiff's failure to properly allege a relevant market. Id. at 896. The tortious interference claim, Count VII, was dismissed without prejudice, due to plaintiff' failure to identify any particular "VARs" that plaintiff had a relationship with who were intimidated by defendant. Id. at 898.

On November 13, 2001, plaintiff filed a second amended complaint, realleging with greater specificity the claims that were dismissed without prejudice. Defendant moved a third time under Fed.R.Civ.P. 12(b)(6), this time seeking to dismiss the antitrust claims, Counts I through VI. On March 15, 2002, this Court dismissed Count I for failure to state a claim for per se violation of Section 1 of the Sherman Act. Commercial Data Servers, Inc. v. International Business Machines Corp., 2002 WL 1205740 (S.D.N.Y. March 15, 2002)("CDS III"). I denied the motion as to the other claims. Thereafter, defendant answered the second amended complaint and asserted three counterclaims: (1) breach of the OPA; (2) breach of the OEM Agreement; and (3) copyright infringement.

Discovery in this matter began in the summer of 2001, while the motion to dismiss the first amended complaint was pending. After accommodating the parties by twice extending the close of discovery, I finally ordered that all discovery must be completed on or before February 28, 2002. At the conclusion of discovery, the parties had deposed fourteen individuals and exchanged numerous documentary evidence, including contracts, copies of internal emails, marketing and sales materials, and internal strategy documents. CDS also provided IBM with responses to two sets of Requests for Admission and two sets of Interrogatories.

Two days after I ruled on the final motion to dismiss, defendant filed a motion for summary judgment pursuant to Fed. R.Civ.P. 56, seeking judgment in its favor as to the plaintiff's surviving claims against it (Counts II through VII) and as to its counterclaim for breech of the OPA.

In addition to IBM's summary judgment motion, each side has submitted motions challenging the admissibility oF. Supp.rting documents submitted by its opponent with its summary judgment motion papers. I deal with the evidentiary motions first, and then turn to the merits.

DISCUSSION

I. Discovery Motions

When ruling on a motion for summary judgment, courts need only consider evidence that would be admissible at trial. Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997). Each side asserts that materials submitted by the other are not admissible under the Federal Rules of Evidence and/or the Federal Rules of Civil Procedure, and thus should not be considered by this Court in deciding the summary judgment motion. In considering the admissibility of documents, the court appropriately draws all reasonable inferences in favor of the opposing party, as it is the burden of the moving party to prove that there is no genuine issue of material fact. See Wright & A. Miller, Federal Practice and Procedure § 2738, p. 342-45; see also U.S. v. Bell, 27 F. Supp.2d 1191, 1194 (E.D.Cal. 1998); Western Land Corp. v. Crawford-Merz Co., 62 F.R.D. 550 (D.Minn. 1973).

A. CDS's Objection to Exhibits Submitted by IBM

Local Civil Rule 56.1 requires a party seeking summary judgment under Fed.R.Civ.Pro. 56 to include a statement of the material facts as to which the moving party contends there is no genuine issue to be tried. Each statement of material fact must be followed by a "citation to evidence which would be admissible, set forth as required by the Federal Rule of Civil Procedure 56(e)." Accordingly, IBM's Motion for Summary Judgment is supported by a Statement of Material Facts Pursuant to Local Rule 56.1 ("Statement of Material Facts") and four volumes of exhibits attached to the Declaration of Kevin A. Burke, Esq., an attorney for IBM ("Burke Declaration"). The Burke Declaration states that true and complete copies of the following documents, all of which are referenced in the Statement of Material Facts, are attached: (1) excerpts of CDS's Responses to Interrogatories and Requests for Admission; (2) excerpts of deposition transcripts; (3) the expert report of Carl Shapiro; and (4) other documents produced during discovery and referenced in the Statement of Material Facts, some of which were produced by IBM and some of which were produced by CDS. In total, there are eighty exhibits contained in the four volumes attached to the Burke Declaration.

Plaintiff objects that the exhibits attached to the Burke Declaration have not been properly authenticated as required under Fed.R.Evid. 901(a). (Plaintiff's Objection to Defendant's Evidence in Support of its Motion for Summary Judgment, submitted April 12, 2002, p. 1.) Plaintiff argues that Mr. Burke is not someone through whom the documents could be admitted into evidence at trial. Id.

Defendant responds that plaintiff's general objection to the exhibits as a whole is improper under Fed.R.Civ.P. 7(b)(1), which requires that motions "shall state with particularity the grounds therefor." (Defendant's Response to Plaintiff's Objection to Defendant's Evidence, submitted April 29, 2002, p. 1.) Defendant further responds that the documents are sufficiently authenticated because their form, their appearance, the circumstances through which they were acquired, and the record evidence indicate reliability. Id. In support of these assertions, defendant submits the Declaration of Keith R. Hummel ("Hummel Declaration"), an attorney for IBM, which attaches portions of deposition transcripts in which CDS witnesses discuss various CDS documents which were attached to the Burke Declaration. Defendant also submits the Declaration of Joanne Richardson ("Richardson Declaration"). Ms. Richardson, an IBM Legal Analyst employed by the company for twenty two years, attests that twenty five of the exhibits are IBM documents maintained in the ordinary course of business that were produced to CDS pursuant to document requests in this litigation. Finally, defendant submits a table, attached as an exhibit to its response to plaintiffs motion, which describes each exhibit in the Burke Declaration and provides the basis for the authentication of the exhibit. ("Authentication Table").

Plaintiff replies that it is unfair for IBM to attempt to authenticate documents in its opposition papers that it did not initially authenticate, and maintains that the exhibits are still are not properly authenticated. (Plaintiffs Reply to Defendant's Response to Plaintiff's Objection to Evidence, submitted May 16, 2002, p. 2.) As a preliminary matter, I reject Plaintiff's contention that it is "unfair" for IBM to submit, and for the court to consider, the Richardson Declaration. I consider both the Richardson and Hummel Declarations to be supplemental affidavits to the Burke Declaration, and under F.R.Civ.P. 56(e), the Court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits.*fn3

While I agree with defendant that plaintiffs motion is very broad, the grounds are stated with sufficient particularity—plaintiff is objecting to my considering the documents attached to the Burke affidavit on the grounds that they have not been properly authenticated. However, since plaintiff has not objected on a document-bydocument basis, I shall respond by discussing the admissibility of categories of documents. See Kendrick v. Sullivan. 766 F. Supp. 1180, 1192 n. 1 (D.D.C. 1991) (noting that defendant's arguments against plaintiffs documentary evidence in opposition to summary judgment were overly broad and concluding that the court was compelled to respond to the motion in general terms).

1) CDS's Responses to Interrogatories and Requests for Admission

The Burke Declaration states that Exhibits 1 through 5 are true and complete copies of CDS's Responses to Interrogatories and Requests for Admission. Mr. Burke, as an attorney for the firm representing IBM, has personal knowledge that the documents attached were obtained during discovery by the firm.*fn4

Generally, under Fed.R.Civ.P. 56(c), pleadings, depositions, answers to interrogatories, and admissions on file can be utilized by the court in considering a summary judgment motion. Under F.R.Evid. 901(a), the requirement that documents be authenticated "is satisfied by evidence sufficient to support a finding that the matter in question is what the proponent claims." Under F.R.Evid. 901(b), testimony of a witness with knowledge provides appropriate authentication. Mr. Burke's declaration that these documents are true and correct copies of CDS's responses constitutes testimony by a witness with knowledge of what the firm received from its opponent in response to legitimate discovery requests. In addition, under F.R.Evid. 901(b)(4), authentication is provided by "appearance, contents, substance, internal patterns, or other distinctive characteristics, taken in conjunction with the circumstances." Each of the challenged documents contains the caption of the instant case, is signed by the plaintiff's attorney, is available to both parties in the action, and is being submitted to the Court by the defendant's attorney with a declaration that it is a true copy. Plaintiff, who is clearly in the position to know if the exhibits are not authentic copies of its Responses to Interrogatories and Requests for Admission, has not objected that the exhibits are not authentic, just that they are not authenticated. The characteristics of Exhibits 1-5, and the surrounding circumstances, indicate that these are authentic documents.

2.) Excerpts of Deposition Transcripts

The Burke Declaration states that Exhibits 6 through 22 are true and complere copies of excerpts of transcripts from depositions taken in this action. Depositions are expressly recognized by Fed.R.Civ.P. 56(c) as relevant to consideration of a summary judgment motion.

Mr. Burke has personal knowledge that the documents are deposition transcripts taken during the discovery period of this action. In fact, either Mr. Burke himself or one of his colleagues from Cravath, Swain & Moore personally attended each of these depositions. Therefore, his declaration that the exhibits are true and correct copies of discovery materials is testimony of a witness with knowledge, which provides authentication under F.R.Evid. 901(b). In addition, I find that the appearance of the documents, each of which includes a cover and the title page, and the circumstances through which they are presented to the Court in this action, authenticates them under F.R.Evid. 901(b)(4). Finally, I note that according to the cover page of each transcript, plaintiff's counsel appeared at each of these depositions. Plaintiff never claims that the cover is a fabrication (that plaintiff's counsel was not there) or asserts that its counsel was there and that the transcripts are not accurate depictions of what took place. Again, plaintiff is in a position to know if the documents are not authentic, but makes no such claim.

3.) The Expert Report of Carl Shapiro

The Burke Declaration states that Exhibit 80 is a true and complete copy of the Expert Report of Carl Shapiro, referenced in IBM's Statement of Material Facts. Plaintiff does not challenge the admissibility of the defendant's expert report based on its substance, only for lack of any authentication. Mr. Burke is competent to testify that Exhibit 80 is a true and complete copy of IBM's expert's report. At trail, the expert could be expected to testify as to the contents of the report.

Further, I note that CDS has itself submitted Mr. Shapiro's expert report into evidence, as Exhibit 15 to the Declaration of Steven N. Williams. CDS thus challenges a document for lack of authentication, while at the same time submitting an identical copy of the document. Such tactics unnecessarily occupy the Court's time on matters not touching the merits of this case.

4.) Additional Documents Produced by IBM and CDS

Over two thirds of the exhibits attached to the Burke Declaration are documents produced during discovery by IBM or CDS, including letters, contractual agreements between the parties, and marketing materials. The Authentication Table, attached as an exhibit to defendant's response to plaintiffs objection motion, provides the basis for authentication of each of these documents.

As to the CDS documents, the Authentication Table notes that all of these documents were produced by CDS in the course of discovery, and bear CDS production numbers. In addition, the Table notes that many of the CDS documents are also authenticated by CDS's Response to IBM's Second Set of RFAs, or by CDS employees during their depositions. The Hummel Declaration, cross-referenced by the Authentication Table, includes as exhibits the specific deposition excerpts in which certain documents were discussed.

It is disingenuous and wasteful for plaintiff to object that its own documents are not authenticated, and thus inadmissible at trial and on summary judgment. The appearance of these documents and the circumstances surrounding this motion—most importantly the fact that the plaintiff is in the best position to know if they are authentic and that they have never claimed that they are not—show that these are authentic documents. See F.R.Evid. 901(b)(4)

The IBM documents are authenticated by the sworn Declaration of Joanne Richardson, an IBM employee for over twenty two years, who attests that each of the documents is a true and complete copy of an IBM document maintained by IBM employees in the regular course of business. As discussed above, under F.R.Evid. 901(b), testimony of a witness with knowledge provides appropriate authentication for documents. Ms. Richardson is a witness with knowledge, and her sworn affidavit provides authentication for the IBM documents.

I thus find that all of the documents challenged by plaintiff as "unauthenticated" meet either the requirements of Fed.R.Evid. 901(b) or 901(b)(4). There is sufficient evidence of their authenticity for the court to consider these documents on this motion for summary judgment. See Bieda v. J.C. Penney Communications, Inc., 1995 WL 437689, *9 n. 2 (S.D.N.Y. July 25, 1995) (denying defendant's motion to strike plaintiffs documents from consideration in a summary judgment motion when defendants did not challenge the authenticity of the documents, but rather the plaintiffs ability to authenticate them, and finding that there was sufficient evidence of authenticity based on the appearance of the documents, the defendant's interrogatory responses regarding the documents, and the fact that defendant had produced the documents). The court deems the documents authenticated and considers them.

B. IBM'S Motion to Strike CDS Declarations

On April 12, 2002, plaintiff filed its opposition to defendant's motion for summary judgment, along with supporting documents, including the expert affidavits of Ronald S. Alepin and Brett L. Reed. On April 29, 2002, defendant submitted a motion to strike the expert affidavit of Mr. Alepin and a separate, yet very similar, motion to strike the expert affidavit of Mr. Reed. Both motions argue that the affidavits should be stricken on two grounds. First, defendant claims that the opinions expressed in each expert's affidavit are so different from the opinions expressed in his "Rule 26 Report" (report pursuant to Fed.R.Civ.Pro. 26) that the affidavit is, in essence a new and untimely expert report. Second, defendant claims that each expert's opinion is unsubstantiated and speculative, and argues that the affidavits should thus be disregarded as conclusory. Plaintiff argues that both declarations are consistent with the underlying expert reports and deposition testimony, and that both experts' opinions are properly supported. (Plaintiff's Opposition to Defendant's Motions to Strike Declarations of Ronald S. Alepin and Brett L. Reed, submitted May 16, 2002.)

I conclude that Mr. Alepin's Affidavit is entirely consistent with his timely Rule 26 Report. Mr. Reed's Affidavit goes well beyond his Rule 26 report. However, I will overlook that for purposes of this motion, because the failure is harmless. Neither affidavit is impermissibly speculative.

Fed.R.Civ.P. 26(a)(2)(B) ("Rule 26(a)(2)(B)") requires that an expert's report contain "a complete statement of all opinions to be expressed and the basis and reasons therefor . . ." It is essential that the expert's opinions be known to the other party, so that they may properly prepare their opposition. As a result, under Fed.R.Civ.P. 37(c)(1) ("Rule 37(c)(1)"), "a party that without substantial justification fails to disclose information required by Rule 26(a) . . . is not, unless such failure is harmless, permitted to use as evidence at trial, at a hearing, or on a motion any witness or information not so disclosed." Defendant provides examples of several cases where courts have held that affidavits containing opinions that were not disclosed in a Rule 26 report would be inadmissible at trial, and thus should not be considered on a motion for summary judgment. See Brumley v. Pfizer, Inc., 200 F.R.D. 596, 603-604 (S.D.Tex. 2001) (affidavit stricken to the extent that it went beyond opinions expressed in the Rule 26 report); Baker v. Indian Prairie Cmty. Unit, School Dist. No. 204, 1999 WL 988799, *2-*3 (N.D.Ill. Oct. 27, 1999) ("The Court will not allow [Plaintiffs] to ambush Defendants with new expert opinions after the expert disclosure deadline and after they filed or summary judgment."); Penland v. BIC Corp., 796 F. Supp. 877, 881 (W.D.N.C. 1992) (striking expert affidavits filed in opposition to summary judgment because they "contain[ed] purported expert opinion not previously disclosed . . . as required by the Federal Rules of Civil Procedure").

I have reviewed the Rule 26 Reports and expert affidavits of both Mr. Alepin and Mr. Reed. In the light most favorable to plaintiff, I find that Mr. Alepin's affidavit is substantially similar to his Rule 26 Report, that the opinions therein would be admissible at trial (albeit subject to ...


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