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Xerox Corp. v. Arizona Digital Products

September 14, 2009

XEROX CORPORATION, A NEW YORK CORPORATION, PLAINTIFF,
v.
ARIZONA DIGITAL PRODUCTS, INC., DEFENDANT.



The opinion of the court was delivered by: Charles J. Siragusa United States District Judge

DECISION AND ORDER

INTRODUCTION

In this action, Xerox Corporation ("Plaintiff") is suing its former authorized sales agent, Arizona Digital Products, Inc. ("Defendant") for breach of contract, conversion, trademark infringement, trademark dilution, and unfair competition. Now before the Court is Defendant's motion to dismiss this action, or alternatively, to transfer venue. (Docket No. [#4]). For the reasons that follow, the application is granted in part and denied in part.

BACKGROUND

Unless otherwise noted the following facts are taken from Plaintiffs' Complaint and from affidavits submitted in connection with the subject motion. Plaintiff manufactures a wide variety of products, including copiers, printers, and supplies. Plaintiff is a New York corporation with its principal place of business in Connecticut, and with offices around the world, including in Rochester, New York. Plaintiff is a Fortune 500 company with over fifty-thousand employees.

Defendant provides copier and printer services to businesses in the vicinity of Phoenix, Arizona. Defendant is an Arizona corporation with its sole place of business in Scottsdale, Arizona. Defendant is a small business with seven employees, two of whom account for over ninety percent of Defendant's sales revenue.

In 2002 the parties entered into a Business Relationship Agreement ("the Agreement") and a Sales Agent Schedule ("the Schedule"). The Agreement established Defendant as an authorized dealer of Plaintiff's products in a designated "Dealer Territory," specified as the Arizona Counties of Maricopa and Pinal.*fn1 The Agreement further stated that Defendant would have a single authorized business location, in Scottsdale, Arizona. The Schedule authorized Defendant to service Plaintiff's equipment in a specific territory consisting of the Arizona Counties of Cochise, Gila, Graham, Greenlee, La Paz, Maricopa, Pima, Pinal, Santa Cruz, and Yuma. Under the Agreement and the Schedule, Defendant became an authorized Xerox Sales Agent for Maricopa County, Arizona. As a sales agent, Defendant was authorized to sell and lease Plaintiff's products to third-party customers in the aforementioned territory. Defendant was not permitted to solicit business outside the territory.

The Agreement specified that Defendant was required to "pay all amounts owed to Xerox as they become due, whether these payments are owed pursuant to this Agreement or any other transaction between the parties." (Agreement § 5.4). The Agreement also described Defendant's right to market "Products," defined as "products marketed by Xerox that Business Associate is authorized to market under the Schedules." (Agreement § 1.2). The Agreement stated that Defendant had "no distribution or other right to any Xerox-marketed products, accessories, or supplies, either presently available or that become available, other than the Products." Id. § 2.5. The Agreement further provided that if it was terminated, Defendant was required to "return to Xerox in a commercially reasonable manner all associated Xerox property and materials . . . in its possession or control." Id. § 6.8.

The Agreement further contained provisions regarding the use of the Xerox name and trademark. In relevant part, the Agreement prohibited Defendant from using the Xerox name "in any manner that is inconsistent with Business Associate's true status or which may be misleading to End Users," and stated that Defendant's permission to use Xerox's trademark would "terminate upon the expiration or termination of [the] Agreement." Id. § § 3.1, 3.3.1.

The Agreement also contained an arbitration clause that states, in relevant part, "[i]n the event the parties are unable to informally resolve a Covered Dispute, they hereby agree that it will be decided through arbitration as the sole and exclusive remedy for resolving such Covered Dispute." (Agreement § 7.3). In that regard, "Covered Disputes" were defined as any and all claims, actions, and suits other than the excepted disputes listed below arising out of or in any way relating to this Agreement or any previous Business Relationship, Authorized Sales Agent, or Authorized Dealer Agreements between the parties, regardless of whether the claim alleges or is based upon tortious conduct (including negligence) or any other theory at law or in equity ("Covered Disputes"). By way of example, and not restriction, Covered Disputes shall expressly include (a) any matters in which one party names one or more employees of the other as individual defendants . . . and (b) any matters arising out of or related to the undertaking, breach, non-renewal, or termination of this Agreement or any previous Business Relationship, Authorized Sales Agent, or Authorized Dealer Agreements between the parties. The only disputes that shall be excepted from this limitation . . . are disputes regarding: (a) liabilities to third parties arising out of indemnified matters; (b) transactions involving the acquisition of products and/or services by Business Associate from Xerox; and (c) the use or retention of either party's intellectual property or confidential, proprietary, or sensitive information.

(Agreement § 7.2.1). And finally, the Agreement contains a New York State choice-oflaw provision. Id. § 8.8.

The Schedule likewise contains certain provisions that relate to the instant dispute. First, the Schedule states that

Xerox shall provide to Agent, at no charge, such demonstration equipment as Xerox deems reasonably necessary and shall maintain such equipment in good working order. . . . Demonstration units are the property of Xerox and shall be returned to Xerox upon request. Agent shall use such units exclusively for End User demonstration purposes in accordance with guidelines published by Xerox. (Schedule § 2.4-2.4.1). The Schedule also contains a "dispute resolution" provision, which refers to the Agreement's arbitration clause, Section 7.3, as being "required." (Schedule § 4.1).

Defendant negotiated the Agreement and Schedule with Plaintiff at a meeting held in Phoenix, Arizona. On September 18, 2002, Defendant's President, Judd Roland ("Roland"), signed the Agreement and Schedule in Arizona. On September 30, 2002, Plaintiff, by its Business Development Manager, Kelly Gervasi ("Gervasi"), signed the Agreement and Schedule in Arizona.

On or about October 11, 2002, the parties executed an Authorized Dealer Schedule ("the Dealer Schedule"). (Cole Declaration, Exhibit B). The Dealer Schedule established Defendant as "a non-exclusive, authorized reseller for the promotion, sale, and installation of" Xerox's products in the Arizona Counties of Cochise, Gila, Graham, Greenlee, La Paz, Maricopa, Pima, Pinal, Santa Cruz, and Yuma. The Dealer Schedule was signed on behalf of Defendant by Roland, in Arizona. The Dealer Schedule was signed on behalf of Plaintiff by Kenneth E. Sarvis ("Sarvis"), Director of Business Operations, who, "upon information and belief," was physically located in Rochester, New York, at the time. (Eychner Aff. ¶ 13).

Effective January 1, 2006, the parties entered into an Amended Business Relationship Agreement ("the Amended Agreement"). The Amended Agreement provided that upon termination of the agreement, Defendant was required to either disconnect its business telephone lines or add a message "providing callers with the new telephone numbers to reach their new local Xerox representative." (Amended Agreement § 1(A)). Otherwise, the Amended Agreement was essentially identical to the original Agreement in all material respects. The Amended Agreement was signed on behalf of Plaintiff by Gary Bishop, in California, and on behalf of Defendant by Roland, in Arizona.

The parties' business relationship continued for approximately six years. According to Plaintiff, "significant aspects" of the relationship were "managed from or by Xerox employees in Rochester, New York." (Eychner Affidavit ¶ 3). In that regard, a branch of Plaintiff's business known as the North American Agent Operations ("NAAO") oversaw Sales Agents and Authorized Dealers, including Defendant. Id. at ¶ 8. The NAAO was headquartered in Rochester. Defendant dealt directly primarily with NAAO "regional representatives," who were located outside of New York State. However, those regional representatives were subject to "direct or indirect supervision at times" by supervisors in Rochester, New York. Id. at ¶ 12. Plaintiff maintains that all form agreements were drafted in Rochester, New York, and had to be approved by supervisors in Rochester. Plaintiff further states that supervisors and other staff in Rochester determined Defendant's sales quotas, processed orders placed by Defendant, provided technical support, and remitted payments to Defendant.

Defendant, however, maintains that it dealt primarily with Xerox representatives in the Western U.S., not Rochester. In that regard, Defendant states that various business documents, such as an "Agent Analyst Addendum" and "Territory Amendment" were handled by Xerox employees in Arizona and California, respectively. (Roland Reply Aff. ¶ ¶ 2-4). Defendant further states that it received various types of assistance, including training support, equipment support, and sales assistance from Xerox employees in California, Arizona, Texas, Indiana, and Washington. Id. ¶ ¶ 5, 8-11. Defendant did receive email messages from Xerox personnel in New York, although such messages always included language advising Defendant to direct any questions to "Western region personnel." Id. at ¶ 6. Defendant maintains that the agreements it signed with Plaintiff were signed in Arizona, and Defendant was not aware that the agreements would later be sent to New York. Id. at ¶ 13. Plaintiff further states that it received monthly commission statements from an on-line source, which did not indicate that it originated in New York. Id. at ¶ 20. Additionally, Plaintiff indicates that it received agent payments by wire transfer to its bank account, and that such wire transfers did not indicate that they originated in New York. Id. at ¶ 21.

On June 26, 2008, Plaintiff terminated the Amended Agreement. The termination notice explained that Plaintiff was terminating the parties' business relationship because Defendant had breached the Amended Agreement in two respects. First, Plaintiff stated that Defendant was in breach of Section 2.4.1 of the Amended Agreement, because it was using Plaintiff's demo copier to run a print shop.*fn2

Second, Plaintiff stated that Defendant was in breach of Section 5.1 of the Amended Agreement, by engaging in unethical and dishonest acts, and specifically, by stealing Plaintiff's supplies. Id.*fn3 The termination notice was signed by "Scott A. Sanders, Regional Sales Manager, NAAO Western Region." (Complaint, Exhibit G).

On June 26, 2008, Plaintiff provided Defendant with a memo, entitled "Compliance with Contract Requirements."*fn4 (Complaint, Exhibit I, Attachment). The memo purported to remind Defendant of "some of [the] most significant obligations" under the Amended Agreement, in light of the termination of that contract. The memo directed Defendant to do the following: 1) protect Xerox's confidential information; 2) return all Xerox property and materials; 3) cease using Xerox's trademarks, logos, tradenames and slogans; 4) cease referring to itself as an authorized Xerox representative; and 5) either change or disconnect its business telephone lines or add a message providing callers with a new telephone number to reach the new local Xerox representative. Id.

On July 25, 2008, Plaintiff sent Defendant a "cease and desist" letter (Complaint, Exhibit I), which stated that Defendant was in breach of the Amended Agreement in several respects. First, the letter stated that Defendant was in violation of Section 3.1 of the Amended Agreement, by continuing to refer to itself as an authorized Xerox sales agent on its website. In that regard, the letter stated, in relevant part: "The continued use of the XEROX name and trademark on your signage and website violates the terms of the [Amended Agreement]. The XEROX name and mark are valuable intellectual property assets owned by Xerox[.]" Id. at 1. Further, the letter stated that Defendant was in breach of Section 6.8 of the Amended Agreement, since Defendant was continuing to use "confidential information and Xerox property," including software, customer lists, and promotional literature. Id. at 2. Lastly, the letter stated that Defendant was violating the Amended Agreement by refusing to either disconnect its business telephone lines or add a message providing callers with the new telephone number to reach the new local Xerox representative. Id. at 3.

On October 24, 2008, Plaintiff commenced this action, alleging claims for breach of contract, conversion, unfair competition, trademark infringement, and trademark dilution. The Complaint alleges that Defendant breached Section 5.4 of the Amended Agreement by failing to pay invoices for goods purchased from Plaintiff between April 2008 and July 2008. (Complaint ¶ ¶ 17-21). The Complaint further alleges that Defendant breached Section 2.4.1 of the Amended Agreement, and committed the tort of conversion, by using Plaintiff's demo copier to run a commercial print shop. (Complaint ¶ ¶ 30-37). Additionally, the Complaint alleges that Defendant converted Plaintiff's property, namely copier supplies, by taking the unpaid-for supplies from customers whom Defendant had "serviced as an authorized Xerox Sales Agent," and either selling them or using them in Defendant's print shop. (Complaint ¶ 38). The Complaint also alleges that Defendant breached its "trademark obligations under the [Amended Agreement]," and committed trademark infringement, trademark dilution, and unfair competition, by continuing to use the same telephone number as before, by identifying itself as a Xerox "partner" on its website, and by continuing to use the Xerox name. In that regard, the Complaint alleges, in relevant part, that Defendant's "obligations with respect to the Xerox Marks under its [Amended Agreement] survived termination of the [Amended Agreement]." (Complaint ¶ 87).

The Complaint states that this Court has both diversity subject-matter jurisdiction and federal question subject-matter jurisdiction. The Complaint also states that venue in this Court is proper pursuant to 28 U.S.C. § 1391 "because [Defendant] is subject to personal jurisdiction in this District." (Complaint ¶ 57). The Complaint further states that Defendant is subject to personal jurisdiction in this judicial district since it "transacted business in Rochester, New York," since Defendant committed a tortious act outside of the state that injured Plaintiff in Rochester, Defendant reasonably should have expected the tortious act to have consequences in New York , and since Defendant derives substantial revenue from interstate or international commerce. Id. at ¶ ¶ 58-59. With regard to Defendant's contacts with the State of New York, the Complaint alleges, inter alia, that Defendant entered into the Agreements and the Schedule "in Rochester, New York." Id. at ¶ ¶ 3, 4 & 7.

On December 15, 2008, Defendant filed the subject motion to dismiss or transfer venue. Defendant maintains that: 1) the Court lacks personal jurisdiction over Defendant; 2) the Court lacks subject-matter jurisdiction over some of Plaintiff's claims, specifically, those aspects of the dispute that are covered by the Agreement's arbitration clause; 3) venue in this District, or any district in New York, is improper; and 4) alternatively, this District is an inconvenient forum, and venue should be transferred to the District of Arizona for the conveniences of the parties. Defendant further maintains that the Court should award ...


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