United States District Court, S.D. New York
OPINION AND ORDER
FRANK MAAS, Magistrate Judge.
In this diversity contract action, plaintiff The Nielsen Company ("Nielsen") seeks to recover the damages allegedly arising out of its failed business relationship with defendant Success Systems, Inc. ("Success"). Nielsen had retained Success to help automate its collection of data from a statistically-representative sample of independent and small-chain convenience stores. Nielsen's Amended Complaint contains three claims for relief sounding in breach of contract and fraud. (ECF No. 53 ("Am. Compl.") ¶¶ 90-111). Success, in turn, has asserted fourteen counterclaims, including claims for breach of contract, of an oral amendment, and of the duty of good faith and fair dealing, fraud, tortious inference with contract and economic advantage, trade defamation, breach of a court order, aiding and abetting the breach of a fiduciary duty, and violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn. Gen. Stat. § 42-110a, et seq. (ECF No. 58 at 20-84 ("Countercls.")).
The parties have cross-moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure with respect to most of the claims. For the reasons set forth below (and as I previously indicated in an Order dated March 31, 2015 (ECF No. 166)), both Nielsen's motion, (ECF No. 123), and Success' motion, (ECF No. 126), are granted in part and denied in part.
Success also has moved to modify a protective order that I entered on November 9, 2011, (ECF No. 33), in order to be able to use information obtained in this case in connection with a proposed lawsuit in Connecticut state court against certain Nielsen employees. Nielsen opposes modification of the protective order and has moved to enjoin Success from bringing any state court claim that would have constituted a compulsory counterclaim in this action. For the reasons set forth below, both those motions, (ECF Nos. 154, 158), are denied.
Nielsen is a Delaware limited liability company that provides numerous services, including "a broad range of analytics and market data to the consumer packaged goods... industry." (ECF No. 139 (Pl.'s Stmt. of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 ("Pl.'s 56.1 Stmt.")) ¶ 1). In furtherance of this business, Nielsen collects, aggregates, and analyzes sales data from independent and small-chain convenience stores in order to produce market research reports that are licensed to various manufacturing and retail clients. (Id. ¶¶ 2-4).
Success is a Connecticut corporation that "supplies software and web-based applications" to retail stores seeking to improve business operations. (Countercls. ¶¶ 1, 7).
B. Automation Project
1. Demand for Automation
In 2010, Nielsen was collecting sales data manually from a pool of 1, 222 convenience stores across the United States. (Pl.'s 56.1 Stmt. ¶ 5). Nielsen used the data collected from these statistically-representative stores, selected to fill specific geographic slots (the "Original Pool"), to produce monthly market research reports. (Id. ¶¶ 6-7, 9). Because the manual collection process was inefficient, Nielsen began to explore automating its data collection from the Original Pool so that it could produce more frequent weekly research reports. (Id. ¶¶ 8, 10-11).
In the latter half of 2010, Nielsen surveyed the stores comprising the Original Pool to assess their willingness to automate their data collection mechanisms. (Id. ¶ 14). The survey sought to determine whether the Original Pool stores were willing to automate "without any offer by Nielsen to fund the stores' cost of automation." (Id. ¶ 15; ECF No. 134 (Aff. of Brian Moran, sworn to on Apr. 1, 2014 ("Moran Aff.")), Ex. 5 ("LeClair Dep. I") at 40). Approximately one-third of the stores responding expressed some interest in automating. (Pl.'s 56.1 Stmt. ¶ 15; LeClair Dep. I at 41). Bouyed by these results, Christopher LeClair, Nielsen's Vice President of Professional Services, concluded that as many as fifty to seventy percent of stores might be willing to automate their data reporting if the costs of doing so were subsidized by Nielsen. (Pl.'s 56.1 Stmt. ¶ 16; LeClair Dep. I at 108).
2. General Services Agreement
In August 2010, Nielsen circulated a "Request For Proposal" seeking a contractor to assist the company in converting "1, 222 [i]ndependent and [s]mall [c]hain convenience stores from manual inventory audit to quality scanned inventory." (See ECF No. 137 (Aff. of Christopher LeClair, sworn to on Mar. 29, 2014 ("LeClair Aff.")), Ex. 1 ("RFP") at 7). Although the RFP for this project (the "Automation Project") identified several distinct sources from which the contractor could recruit stores, (id.), Nielsen's analytics department had articulated to LeClair the importance of retaining as many Original Pool stores as possible to maintain "validity and historical consistency... from a statistical, demographic and scientific standpoint." (LeClair Aff. ¶ 17).
Success submitted a proposal to Nielsen in response to the RFP. (See LeClair Aff. Ex. 2). Nielsen selected the Success proposal, in part, because of a preexisting business relationship between the two companies. (LeClair Aff. ¶ 69; LeClair Dep. I at 59). That relationship dated back to a February 2009 Cooperation Agreement, pursuant to which approximately thirty stores affiliated with Success had been providing sales data to Nielsen. (Pl.'s 56.1 Stmt. ¶ 68; see ECF No. 141 (Aff. of Brian Moran, sworn to on May 2, 2014 ("Moran Aff. II")), Ex. 4 ("Cooperation Agreement")).
In early October 2010, Nielsen and Success entered into a General Services Agreement ("GSA") in connection with the Automation Project. Both parties' contractual obligations were further delineated in an attached Statement of Work ("SOW"). (See LeClair Aff. Ex. 3 (GSA) § 2.1; GSA Ex. A (SOW)). Section 2.2 of the GSA, captioned "Change in the Statement of Work, " authorized Nielsen to "make changes... to the [SOW], including the right to make changes in the method or manner of performance, " but required Nielsen to provide an equitable adjustment and modify the GSA if "the change in the scope of [s]ervices significantly increase[d] or decrease[d] the cost of or the time for performance." (Id. § 2.2). Section 12.6 of the GSA provided that the GSA could "not be modified, changed or amended, except by written agreement signed by authorized representatives of both [Nielsen and Success]." (Id. § 12.6).
The SOW identified three sources from which Success could recruit stores for the Automation Project: (a) Original Pool stores, also referred to as "Existing Store[s];" (b) stores outside the Original Pool, also referred to as "New Store[s];" and (c) a "Farm System" of approximately 5, 000 stores that Nielsen had pre-approved to replace stores within the Original Pool. (SOW at 1; Pl.'s 56.1 Stmt. ¶ 105). The SOW required Success to approach recruitment by "[c]apitaliz[ing] on Existing Stores with [the] desire to convert to scanning, " incentivizing stores otherwise unwilling to do so, and "[i]mplement[ing] New Stores within the defined segment parameters and geographical dispersement [sic]." (SOW at 2). Additionally, the SOW required Success to collect data on a weekly basis from the automated stores and provide Nielsen with "100% accurate" data. (Id. at 1-3, 10).
The SOW obligated Nielsen to provide Success with a $999, 000 advance upon execution of the GSA, in anticipation of the successful automation of 333 stores. A subsequent payment of $999, 000 was contingent upon the successful automation of an additional 333 stores by December 31, 2010, and a final payment of $1, 229, 800 was contingent upon the successful automation of the remaining 556 stores by January 3, 2011. Additionally, Success was entitled to receive payments after the Automation Project was completed for collecting and providing data from the automated stores on an ongoing basis. (Id. at 8-9).
3. Alleged Modifications
Before the ink on the GSA was dry, the parties began to disagree about their respective contractual obligations. On October 8, 2010, in an email challenging Nielsen's summary of a conference call held earlier that day, Scott Tarlow, the president of Success, indicated that Success could not guarantee that stores in the Original Pool would be "chosen over" any alternative store if the alternative store "express[ed an] ability to accept [an] offer [first]." (ECF No. 132 (Def.'s Stmt. of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 ("Def.'s 56.1 Stmt.")), Ex. 34 at 1). Tarlow explained that the Original Pool stores could not be "worked or prioritized sequentially" because of the tight three-month time frame for the Automation Project. (Id.).
In response, LeClair expressed concern that Success' approach did not conform to the GSA, observing that "Nielsen ha[d] stated multiple times the importance of [stores in the Original Pool] being converted, " and that "priority must be given to the [Original Pool]." (Id.). LeClair emphasized that giving the Original Pool stores "priority" required that Success make "every possible attempt" to have an Original Pool store say yes to converting. LeClair explained - and suggested that Tarlow had agreed - that this required "three valid attempts." LeClair also indicated that Nielsen was willing to "put additional steps into the process to ensure these attempts." (Id.). Additionally, according to LeClair, if the three attempts to recruit an Original Pool store were unsuccessful, Success still could not recruit simply any alternative store, but instead had to follow a "priority order" that ranked Nielsen's Farm System stores over other nonaligned alternative stores. (Id.).
On October 11, 2010, Tarlow requested 14, 000 additional store names for AnswerNet, a telemarketing contractor that Success had retained to assist in the recruitment of stores. (Ex. 33 at 9; see Moran Aff. Ex. 7 ("AnswerNet Contract")). This request exacerbated LeClair's concern that stores in the Original Pool and Farm System were not being prioritized sufficiently and were "going to be missed, skipped over, [and] not given full attempts to convert." (Id. at 7-8; see LeClair Dep. I at 96-97). Although Tarlow acknowledged that "all of these things may happen, " he explained that to have "1, 222 stores delivering... data by [December 31, 2010], " Success needed to approach the list "in parallel [and] not sequentially." (Ex. 33 at 7). Tarlow further insisted that Success had always described their approach as "first come first serve, " or "parallel, " and that an approach focused on ensuring that each store in the Original Pool received as many opportunities as necessary to decide whether to convert before any other stores were approached would "slow down the deliverables." (Id.).
On October 12, 2010, LeClair insisted that Success make "[six] calls to the 1, 222 Nielsen Stores and [six] calls to [the] 5, 000 backups." (Ex. 35 at 1; see id. at 2 ("[I]f it takes 3, 4, 5, 6 calls to [reach a store] then so be it.")). In response, Tarlow contacted Thad Taylor ("Taylor"), another Nielsen official involved in the Automation Project, to inform him that the GSA would have to be modified, and that LeClair's request would "have a negative impact on the deliverable dates." (Id. at 1; see also Ex. 23 at 1 ("[T]he requested modification certainly extends the project.")). On October 21, 2010, Tarlow reiterated that Nielsen's request had "significantly delayed/impeded [Success'] ability to perform under the current timelines, " and that "there has to be some understanding as to the repercussions/impact on the deliverables by making these changes." (Ex. 22 at 1). The delay, Tarlow explained, was the result of requiring AnswerNet's operators to keep calling seemingly uninterested stores, rather than reaching out to potential replacement stores. (Ex. 35 at 4; see id. at 3 ("If I have to wait a month to exhaust 1, 222 and they are all touched, ' game over... Do the math... [i]f you need the 1, 222 exhausted you need to push the date, if you want us to have 1, 222 running by [December 31] then you need to let us run our show.") (first ellipsis in original).
b. Subsequent Developments
Based on Nielsen's alleged modifications, Success estimated that the Automation Project could not be completed until March 31, 2011, and then only if Nielsen was willing to infuse the Automation Project with more cash. (See Ex. 26 at 12-13; Moran Aff. Ex. 1 at 15-38 ("Tarlow Dep. I") at 59). Accordingly, Tarlow indicated to both LeClair and Taylor on multiple occasions that the GSA needed to be amended to reflect the changes mandated by Nielsen. (See, e.g., Ex. 22 at 1; Ex. 23 at 1).
On October 26, 2010, LeClair responded that, while he "still d[id] not agree that [Nielsen] added any costs besides Nielsen internal costs to this agreement, " Nielsen would "provided an updated agreement." (Ex. 15 at 1). That updated agreement, LeClair elaborated, would focus primarily on extending the time for Success to perform its obligations under the GSA. (Id.). Two days later on October 28, LeClair acknowledged the "dynamic" nature of the Automation Project, and recognized that, inasmuch as "every SOW has give and take and this one appears to have more, " Nielsen was willing to "work/change the SOW." (Ex. 40 at 1). LeClair therefore suggested that Tarlow "relax" insofar as he feared that Nielsen would impose "contract penalties" for delay. (Id.).
In December 2010, Nielsen added an additional seventy slots to its statistical sample, bringing the number of stores that required automation to 1, 292. (Ex. 18 at 1; Pl.'s 56.1 Stmt. ¶ 189). Success agreed to incorporate these seventy slots into the Automation Project. (Pl.'s 56.1 Stmt. ¶¶ 190-94). Nielsen also identified approximately 100-150 stores in the Original Pool that already were automated, but preferred to send their data directly to Nielsen, bypassing Success during both the automation and data reporting stages. (Id. ¶¶ 170-71). Nielsen directed those stores to report directly, but gave Success "full credit" for the stores both in connection with the GSA deadlines and with respect to progress payments. (Id. ¶¶ 172-73; see Ex. 41 at 1). Nielsen's statistics department also determined that only 111 of the 299 stores historically affiliated with Success ("Success Stores") were suitable to fill a slot in Nielsen's sample, although they all had been pre-approved for participation in the Automation Project. (Pl.'s 56.1 Stmt. ¶ 175). This required Success to automate 188 more slots than had been anticipated when the GSA was executed. (Id. ¶ 176). As a result, Nielsen agreed to pay Success an additional $50, 000 to purchase more hardware, and $100, 000 for financial incentives for the additional stores. (LeClair Aff. ¶ 120; Pl.'s 56.1 Stmt. ¶ 179). Nielsen also agreed to extend the deadline by which Success was required to complete the Automation Project to February 28, 2011, advanced an additional $691, 000 (which included the $150, 000 previously promised), and agreed not to pursue delay penalties authorized by the GSA. (Pl.'s 56.1 Stmt. ¶¶ 181-83).
During this time, Taylor and Tarlow discussed the contours of a possible amendment to the GSA, floating the possibility of "amending the payment schedule [and] formula" and "re-establish[ing] expectations as they relate... [to contractual] penalties." (See Ex. 16 at 2). That same month, Taylor and LeClair agreed to "work up an amendment document" reflecting a target completion date of February 28, 2011, for the successful automation of all 1, 292 stores. (Ex. 20 at 1-2).
In February 2011, Taylor reaffirmed to Tarlow that drafting an amendment to the GSA was a "priority." (Ex. 21 at 1). A proposed amendment was drafted and circulated among Nielsen officials, but was not provided to Success. (See LeClair Dep. I at 137-39; Ex. 8 ("Taylor Dep.") at 239-41). The proposed amendment would have reflected the increase in the number of slots requiring automation from 1, 222 to 1, 292, acknowledged Nielsen's promise to pay Success an additional $150, 000 for hardware costs and incentives, and extended Success' time to complete the Automation Project from January 3 to February 28, 2011. (See ECF No. 144 (Aff. of Brian Moran, sworn to on May 21, 2014), Ex. 1 ("Proposed Amendment")).
4. Death of the Automation Project
By February 2011, the Automation Project was in trouble: only 66 of the 1, 292 stores requiring automation were successfully reporting data. (Pl.'s 56.1 Stmt. ¶ 217). On February 12, 2011, Tarlow indicated that the Automation Project could continue "well into 2012, " and requested an additional $2 million to "reengineer" the project. (Tarlow Dep. I at 58-59; Pl.'s 56.1 Stmt. ¶¶ 204-208). This exacerbated Nielsens' already considerable angst. As a consequence, during an internal management meeting on February 15, 2011, Nielsen determined that it was necessary to scale back Success' role in the Automation Projection. (LeClair. Aff. ¶ 166; Pl.'s 56.1 Stmt. ¶¶ 247-48).
Nielsen decided to limit Success' role in the Automation Project to completing the automation of the 488 stores it had successfully recruited, thereby eliminating Success' further recruitment efforts. (Pl.'s 56.1 Stmt. ¶¶ 249-50, 252, 255). On March 25, 2011, Nielsen's counsel provided Success' counsel with a written proposal for modification reflecting this revised course. (See LeClair Aff. Ex. 12). Further proposals were exchanged on April 5 and 14, 2011. (LeClair Aff. Exs. 13-14). Despite these attempts, the parties never executed any written amendment to the GSA. (Pl.'s 56.1 Stmt. ¶ 257). Instead, on April 26, 2011, Success terminated the GSA, citing Nielsen's alleged failure to cure its breach of the GSA. (Ex. 9). By the time it took this action, fewer than ninety of the 488 stores Success had recruited were generating weekly data feeds. (Pl.'s 56.1 Stmt. ¶ 278).
C. Sottile Correspondence
Unbeknownst to Success, during the pendency of the parties' business relationship, an anonymous Success employee, later revealed to be Scott Sottile ("Sottile"), had communicated with numerous Nielsen employees, claiming that Success had engaged in ongoing fraudulent practices at Nielsen's expense. (See Ex. 7). These communications began on December 3, 2010, when James Cuminale ("Cuminale"), Nielsen's Chief Legal Officer, received an email sent from the email address "email@example.com." The sender stated that he worked "at one of [Nielsen's] contractors, " and that "[e]very day, week, [and] month" the contractor was committing "fraud... against Nielsen by faking data and submitting it to Nielsen as actual data." (Ex. 50 at 3-4). Nielsen employees exchanged emails with John Doe through mid-January, but the sender's and contractor's identities were not disclosed. (Id. at 1-4).
On February 16, 2011, Taylor received an anonymous email from Sottile, who was using the address "firstname.lastname@example.org." (Ex. 37 at 3-4). In that communication, Sottile identified Success as the vendor engaged in fraud. Sottile also indicated that he had "information you need to know about Success Systems." (Id. at 4). Taylor initially rebuffed Sottile, responding that "[t]his is not how Nielsen does business, " but he eventually agreed to keep the identity of the sender anonymous, and not to use any information provided by Sottile in a way which would reveal to Success that one of its employees was communicating with Nielsen. (Id. at 2-3). With this assurance, Sottile explained that the data Success was sending to Nielsen from the automated stores was partially fabricated. Specifically, Sottile accused Tarlow of forcing Success to fabricate any data that was missing in order to make it "look perfect" to Nielsen. (Id. at 1-2).
On February 24, 2011, Robert Messemer ("Messemer"), Nielsen's Chief of Security, contacted Sottile to express his interest in receiving additional information. (Ex. 49 at 2). Messemer promised that Nielsen "would not disclose the scope of [the sender's] cooperation to [his] employer." (Id.). Eventually, Sottile provided Messemer with a seven-page summary of Success' purportedly fraudulent activities, as well as a "Data Fabrication Code" program that Success allegedly had used to fabricate missing data. (Ex. 47 at 1; Ex. 48 at 1-3). A subsequent email detailed the specific sales data that Sottile thought had been fabricated. (See Ex. 54).
In mid-March, Nielsen used the Data Fabrication Code provided by Sottile to conduct an audit. Nielsen concluded that there was "no evidence of widespread fabrication of data that is easily detectable, " but that some of the Success data was "smoother than expected indicating [that] some imputation may be occurring (against [Nielsen's] requirement)." (Ex. 43 at 1-2; ECF No. 142 (Affidavit of Christopher LeClair, sworn to on May 1, 2014 ("LeClair Aff. II)) ¶¶ 6-10). Aside from this internal audit, Nielsen did not make any use of the information provided by Sottile. (LeClair Aff. II ¶ 11).
D. Post-Termination Contact With Stores
Following Success' notice of termination, Nielsen initiated this lawsuit. Thereafter on May 7, 2011, Judge Barbara S. Jones entered a stipulated injunction intended to protect both Nielsen and Success from poaching. (ECF No. 3 ("Stipulated Injunction")). Pursuant to the Stipulated Injunction, Nielsen was required to release the Success Stores from their contracts with Nielsen and was prohibited from soliciting any Success Stores. Nielsen was, however, permitted to solicit any unaffiliated stores that had been recruited to participate in the Automation Project so long as it did not interfere with any contracts between those stores and Success. (Id. at 2-3). Success, in turn, was required to release the Original Pool stores from their contracts with Success and was prohibited from soliciting both Nielsen Stores and unaffiliated stores for a "period of one year from the date of the respective individual [contract]." (Id. at 2).
On May 16, 2011, Nielsen sent form letters to each of the 488 stores that had been recruited to participate in the Automation Project. The text of the letters varied depending on the status of the store, but each letter included contact information for Nielsen's Automation Project team. (See LeClair Aff. Exs. 15-17).
Insofar as relevant, the letter to the Original Pool stores stated: Nielsen is no longer using Success to help with the hardware and software upgrade and/or installation and training. In fact, Nielsen has initiated a lawsuit against Success.
Success, as part of that lawsuit has agreed (1) not to solicit you for a year for the purpose of seeking to have you report data to a competitor of Nielsen for inclusion in an aggregated market research report and (2) to release you from your Web Services Agreement With Success."
(Id. Ex. 17).
The letter to the Success Stores stated:
We know you signed up for the [Automation Project] and signed a Web Services Agreement with Success and a Vendor Cooperation Agreement with Nielsen. [A]s part of the lawsuit with Success, Nielsen is willing to release you, without any further obligations or restrictions, from your... Vendor Cooperation Agreement if you so choose.
(Id. Ex. 16).
Finally, in its letter to the unaffiliated stores, Nielsen stated:
Nielsen is no longer using Success to help with the hardware and software upgrade and/or installation and training. In fact, Nielsen has initiated a lawsuit against Success.
Success, as part of that lawsuit, has agreed not to solicit you for a year for the purpose of seeking to have you report data to a competitor of Nielsen for ...