Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Technical Support Services, Inc. v. International Business Machines Corp.

Other Lower Courts

December 3, 2007

Technical Support Services, Inc., Plaintiff,
v.
International Business Machines Corporation, Defendant. International Business Machines Corporation, Counterclaim-Plaintiff,

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

COUNSEL

Justine Clare Moran, Esq. Co-Counsel for Plaintiff

Coggan Tarlow Co-Counsel for Plaintiff

Cravath, Swaine Moore LLP Attorneys for Defendant/Counterclaim Plaintiff

OPINION

Alan D. Scheinkman, J.

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). [1]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. # 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. [2] 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.

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 k 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 ". [3] 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 # 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"). . ."

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. [4]

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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.