The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
Defendant Compaq Computer Corporation ("Compaq") has moved under
Rule 56, Fed.R. Civ. P., to dismiss the amended complaint of plaintiff
Computech International, Inc. ("CTI") and for summary judgment on its
counter-claims against CTI. For the reasons set forth below, the motion
is granted in part and denied in part.
This dispute arises out of the effort of Compaq as supplier, and CTI as
buyer to establish a commercial relationship starting in late 1999 and
extending into the summer of 2001. During this period CTI purchased a
substantial quantity of Compaq products. The relationship was complicated
by Compaq's acronymically challenged sales policies and its desire to
develop a new market for its products. The failure to resolve these
competing policies terminated the relationship and generated this action.
In March 2002, CTI filed a complaint against Compaq seeking to enforce
an agreement with respect to purchasing Compaq products at discount,
damages for fraud, trade libel, negligent misrepresentation and a breach
of good faith and fair dealing in New York State Supreme Court, County of
New York. On April 5, 2002, Compaq removed the action to this Court. Thereafter, Compaq moved
to dismiss and by opinion of October 24, 2002 (the "October Opinion") CTI
was granted leave to file an amended complaint alleging fraud, libel and
breach of contract. The remaining causes of action were dismissed. See
Computech Int'l, Inc. v. Compaq Computer Corp., No. 02 Civ. 2628 (RWS),
2002 WL 31398933 (S.D.N.Y. Oct. 24, 2002).
Discovery proceeded and the instant motion was heard-and marked fully
submitted on February 4, 2004.
The facts as set forth below are contained in the parties' Local Civil
Rule 56.1 statements and affidavits, and are not in dispute except as
noted. They do not constitute findings of fact by the Court.
CTI is an integrator of video editing workstations and has sold its
products in the Digital Content Creation ("DCC") market. In and before
2000, CTI purchased equipment from IBM as a distributor, and that
relationship continues to this day. Since 1997, CTI has offered to both
resellers and end users preconfigured, "turnkey" video editing systems
using IBM computer work-stations. In 1998, Compaq lagged behind, among others, IBM and Intergraph in
terms of market share in the DCC market.
In the latter part of 1999, or the early part of 2000, CTI and Compaq
entered into discussions concerning sales of Compaq products in the DCC
market. CTI advised Compaq of the importance to CTI of establishing a
direct relationship between CTI and Compaq, which included CTI working
with Compaq technical employees to develop a turnkey product for the DCC
market, marketing of the product, and purchasing Compaq products.
According to Eric Vainu ("Vainu"), a Reseller Sales Consultant for
Compaq, direct purchases through Compaq were limited to end users for
their immediate, direct use and were not for resellers. These direct
purchase relationships were referred to by Compaq as "MAD" (Major Account
Direct). A "MAD" had to have a minimum of several thousand employees.
Compaq decided to permit CTI to purchase directly from Compaq rather
than from an authorized Compaq distributor referred to as an Authorized
Compaq Channel Partner. Under Compaq's pricing structure, an Authorized
Compaq Channel Partner received pricing referred to by Compaq as "US1."
The Compaq sales force undertook that the pricing afforded to CTI would
be lower than US1. On March 3, 2000, CTI signed the Compaq Authorized Reseller Agreement
(the "CAR Agreement" or the "Agreement") and obtained a Compaq
identification number. CTI signed the CAR Agreement in order to become
authorized to purchase and sell Compaq products.
The CAR Agreement provided that CTI, as a Compaq Authorized Reseller,
could only purchase through an Authorized Compaq Channel Partner. It was
terminable at will upon thirty days notice and terminable for cause upon
thirty days notice to cure. Under the terms of the CAR Agreement, CTI
could only resell to end users the Compaq products it bought, and CTI had
to provide Compaq with monthly sales figures. There was no mention of
pricing or discounts in the CAR Agreement. Members of the Compaq sales
force were aware that CTI would be selling Compaq products to other than
end users in addition to end users, and anticipated that the CAR
Agreement would be replaced by a different contractual relation-ship.
Compaq sales representatives tried to obtain management approval that
CTI be given a status that would enable it to continue to be eligible for
TOSS discounts. CTI requested an agreement with respect to discounts
because there was no written agreement that promised to CTI it would
receive TOSS discounts on a regular basis, rather than on the
then-existing ad hoc basis. On March 23, 2000, CTI became a Compaq Authorized Reseller and began
purchasing Compaq products directly from Compaq. The products made
available to CTI for purchase from Compaq included storage devices, PDAs,
hard drives, tape drives and servers.
CTI's purchases were made according to a special pricing arrangement,
which Compaq referred to internally as Targeted Opportunity Sales
Strategy ("TOSS"). Pursuant to Compaq's sales procedures, TOSS pricing
was available only to end users, on a case-by-case basis, based upon the
quantity of the purchase and the ability to compete.
CTI received TOSS pricing on all of its purchases. The CAR Agreement
contained no provision with respect to TOSS pricing, and there was no
written agreement between Compaq and CTI regarding TOSS discounts, which
were given on a case-by-case basis. CTI was the only Compaq Authorized
Reseller receiving TOSS discounts and purchasing directly from Compaq
through the MAD program.
On May 23, 2000, Molly Connolly, a Compaq salesperson in the New York
area, sent an e-mail (the "May 23 e-mail") stating that it was intended
"to have CTI become a Compaq customer and NOT be sold to as a reseller,"
and stating further:
CTI will require a lower than US1 price for guaranteed
500 units/quarter. In order for CTI to receive 21 day price guarantees, lower than US1 and direct purchasing
from Compaq, they need to become a Compaq customer,
since we cannot legally offer these to resellers. Then
again, not many resellers are willing to guarantee
moving 2,000 units of workstations!
(Affidavit of Eli Zvi, dated Nov. 18, 2003 (Zvi Aff."), Ex. 3.)
Eli Zvi ("Zvi"), CTI's director of sales and marketing, stated that the
CAR Agreement was a temporary expedient since the CAR Agreement
contemplated sales through an Authorized Compaq Channel Partner, a
provision which was not enforced by Compaq. Compaq also did not require
CTI to identify the end users to whom sales were to be made under the CAR
Certain of the "ship to" addresses contained on Compaq's invoices set
forth the names of customers that were resellers. The May 23 e-mail
stated that CTI would sell to resellers.
During the period from approximately March 2000 through June 2001, CTI
sought to integrate Pinnacle Systems or Matrox hardware and Adobe
software with the Compaq desktop in order to create a turnkey product for
an end user in the DCC market. During this time, CTI devoted key
employees, almost exclusively, to integration of the Compaq computer
products with component parts and software so that the integrated product
was suitable for marketing to the industry, rented additional space in
its premises, purchased equipment used for testing and supporting Compaq
based solutions, and attended trade shows with Compaq and other key software
vendors, such as Pinnacle Systems, Matrox and Avid, to promote the
solution integrated by CTI to Compaq hardware for the DCC market. CTI ...