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Xcellence, Inc. D/B/A/ Xact Data Discovery v. Arkin Kaplan Rice Llp

March 15, 2011

XCELLENCE, INC. D/B/A/ XACT DATA DISCOVERY, PLAINTIFF,
v.
ARKIN KAPLAN RICE LLP, DEFENDANT.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., U.S. District Judge:

OPINION & ORDER

Plaintiff Xcellence, Inc., doing business as Xact Data Discovery, ("Xact") filed a Complaint (09 Civ. 9680) against Defendant Arkin Kaplan Rice LLP ("Arkin") in November of 2009. I dismissed that action without prejudice on December 31, 2009 because Xact's application to do business in New York had not been finalized, and therefore Xact could not avail itself of the New York courts.

Xact re-filed this dispute on April 19, 2010 and the case was assigned to Judge Rakoff. The Complaint alleges breach of contract, quantum meruit, and unjust enrichment. Arkin's Answer raises seventeen affirmative defenses and four counterclaims - fraudulent inducement, fraud, aiding and abetting a breach of fiduciary duty, and a request for declaratory judgment. On July 16, 2010 Xact moved to dismiss Arkin's counterclaims or in the alternative to strike impertinent and scandalous matters, and the matter was fully briefed on August 13, 2010.

On August 23, 2010 the case was reassigned to me as a matter related to the previously dismissed case. For the reasons that follow, Xact's motion to dismiss Arkin's counterclaims or in the alternative to strike impertinent and scandalous matters is GRANTED in part and DENIED in part.

I.FACTUAL BACKGROUND

Xact, an electronic discovery outside vendor, alleges that Arkin, a law firm, has failed to pay invoices. In the fall of 2008, Xact was retained by Arkin to process certain electronic data for production in connection with a legal dispute. Answer ¶ 137. Xact contends that the parties negotiated the rates to be charged, but that Arkin has refused to pay outstanding invoices in the amount of $467,695.34 after services had been rendered.

In September 2008, Daniel Feliciano ("Feliciano"), an account manager for Xact, contacted Chris O'Connor ("O'Connor"), a non-lawyer employee of Arkin. Id. ¶¶ 143--44. O'Connor had been an authorized contact on behalf of Arkin with respect to transactions with Xact in 2007 and 2008, but for much smaller invoices. Id. ¶ 143.

On September 30, 2008, O'Connor e-mailed Feliciano about potential new business but also informed Feliciano that "we don't have permission to proceed yet." Id. ¶ 145. In subsequent conversations O'Connor and Feliciano discussed the physical transfer of Backup Tapes to Xact and pricing, but Xact does not allege that O'Connor ever communicated to Feliciano that Xact should begin processing. Id. ¶¶ 148-59, 164-66.

On October 2, 2008, Feliciano e-mailed O'Connor a pricing schedule that included (1) "Pre EDD Processing" or "Culling" with a price range of between $100 and $350 per gigabyte, and (2) "EDD Processing for Review" or "TIFF Review" with a price range of between $1,150 and $1,600 per gigabyte. According to Arkin, the schedule, in conformity with industry standards, indicates that Xact would engage in a two step process: first, Xact would "cull" data to de-duplicate information, and second, Xact would process the de-duplicated data for "TIFF Review." Id. ¶ 160-62. This two-step process effectively reduces the amount of information to be processed via the more expensive "TIFF Review" stage by first identifying and excluding all duplicative data via the less expensive "culling" stage. According to Arkin, Xact subsequently confirmed that it would charge no more than $300 per gigabyte to cull or de-duplicate the data, and then process only the remaining data into "TIFF conversion" at $1,200 per gigabyte. Id. ¶ 167.

Arkin further alleges that Xact sent an invoice to Arkin purporting to apply the TIFF conversion rate to all data, including that data which had not been de-duplicated. Id. ¶ 174-76. After submitting a large invoice for the total charges, Xact sent a series of smaller invoices that Xact personnel believed would be more "palatable" to the client. Id. ¶ 182-84. Arkin alleges that Xact intended to mislead Arkin regarding the pricing schedule because it was "approaching insolvency or desperate for cash"*fn1 (Id. ¶ 139) and then attempted to "disguise its fraudulently inflated invoices" by subdividing them. Id. ¶ 182-83.

Xact filed its Complaint on April 20, 2010, alleging breach of contract, quantum meriut, and unjust enrichment. Arkin's Answer raises seventeen affirmative defenses and four counterclaims - fraudulent inducement, fraud, aiding and abetting a breach of fiduciary duty, and a request for declaratory judgment.

Xact contends that the counterclaims for fraudulent inducement, fraud, and aiding and abetting a breach of fiduciary duty do not state an injury nor do they seek relief beyond avoidance of liability to Xact on its claims for payment of the invoices. Xact asks this Court to treat them as defenses rather than counterclaims, thus relieving Xact of its obligation to respond. Arkin contends that it paid two invoices, Compl. ¶ 81, which constitute damages, and suffered consequential damages arising from the time spent reviewing the invoices and documents to understand and dispute the billing. Def. Mem. at 10-11. Arkin also contends that this is a case in which the assessment of attorney's fees is appropriate. Id. at 11. Xact now moves to dismiss Arkin's counterclaims or to strike "impertinent and scandalous matters."

II. DISCUSSION

A.Standard of ...


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