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Hadami v. Xerox Corporation

United States District Court, S.D. New York

July 19, 2017

HADAMI, S.A., Plaintiff,
v.
XEROX CORPORATION, Defendant.

          OPINION & ORDER

          PAUL A. ENGELMAYER UNITED STATES DISTRICT JUDGE

         Plaintiff Hadami, S A. ("Hadami") brings this lawsuit against defendant Xerox Corporation ("Xerox") for breach of contract, breach of the implied covenant of good faith and fair dealing, gross negligence, fraud, and tortious interference with prospective economic advantage. Hadami, a Paraguayan corporation, claims that it entered into an agreement with Xerox, a New York corporation, under which Hadami would be one of two exclusive resellers of Xerox light office machines in Paraguay. However, Hadami claims that Xerox breached their agreement, committed fraud, and injured Hadami when it supported Hadami's competitors operating in Paraguay's "grey market." Xerox now moves to dismiss. It argues, under Federal Rule of Civil Procedure 12(b)(6), that Hadami's allegations fail as a matter of law and that Hadami fails to allege fraud with the required level of particularity. For the following reasons, the motion is granted in part and denied in part.

         I. Background

         A. Factual Background[1]

         1. Relationship between Hadami and Xerox

         In or about 2009, Fabian Portilla, then Director of Xerox's General Market Operations Supply & Paper Division, approached Won Ki Chung about a business opportunity in Paraguay. FAC ¶¶ 6-7. For the prior 15 years, Chung had owned Don Lorenzo, a Paraguayan company that resold computer components and light office machines made by various manufacturers. Id. ¶ 5. Portilla, impressed with Chung's operations, asked Chung if he would be interested in starting a new company focused on reselling Xerox products. Id. ¶ 7. Chung initially saw no reason to limit his products to Xerox. Id. But he became convinced to do so after Portilla orally promised that Chung's new company would be the exclusive Paraguayan reseller of certain Xerox products. Id. ¶ 8. Portilla explained that Xerox already had one authorized reseller, a company called Docunet, S.A. (“Docunet”), but that Docunet distributed only high-volume photocopiers. Id. Hadami alleges that Portilla represented to Chung that if Chung closed Don Lorenzo and started a new company focused solely on Xerox products, then Chung's new company would be the exclusive reseller in Paraguay of low-volume office machines and parts- photocopiers, toner, and spare parts. Chung agreed and formed Hadami to be that new company. Id. ¶ 9. Chung then ceased operating Don Lorenzo. Id.

         Hadami spent the next five years working to sell Xerox products in Paraguay. Id. ¶ 10. Hadami mainly purchased Xerox products from a Xerox-authorized distributor called Global Products Alliance (“GPA”), but negotiated incentives and rebates with Xerox directly. Id. ¶ 11. Hadami's business strategy was focused on winning bids for government contracts. See Id. ¶¶ 14-17. To prevent against smuggling, the Paraguayan government requires bidders to submit letters of authorization from their products' manufacturers. Id. ¶ 12. From August 2009 to June 2014, Xerox issued approximately 12 such letters confirming that Hadami was an authorized dealer. Id. ¶ 13. Several named Hadami as an “authorized reseller.” See, e.g., Entin Aff. at 21, 79. Others stated that Hadami and Docunet were the only authorized resellers of Xerox goods in Paraguay. See, e.g., id. at 47, 69.

         2. Grey Market Competitors

         At some point, Hadami learned that other entities placing bids with the government were furnishing letters of authorization purporting to be from Xerox or its agents. FAC ¶ 15. These “grey market” entities included Alternativa, S.A. (“Alternativa”) and Estilo de Artes Graficas (“EAG”). Id. ¶ 14. Hadami alleges that these companies' bids were so low that they must have been importing their products into Paraguay illegally. Id. As a result of their lower prices, the Paraguayan government began awarding contracts to these entities over Hadami. Id. ¶ 16.

         Hadami notified Xerox that these entities were submitting inauthentic letters of authorization and requested that Xerox notify the Paraguayan authorities. Id. ¶ 17. In response, Xerox assured Hadami that it had not issued these letters and reiterated that Docunet and Hadami were its only authorized resellers. Id. ¶ 18. In a February 11, 2013 email, Xerox assured Hadami that it was “ready to intercede” with the government of Paraguay. Id. ¶ 19. On July 9, 2013, Hadami again wrote to Xerox to inform it that EAG had won several recent bids despite never declaring any legal imports to Paraguayan customs. Id. ¶ 20. Xerox wrote back that it would take care of Hadami “like a son.” Id. ¶ 21. On July 30, 2013, Hadami again wrote to Xerox, seeking a “serious investigation, ” and stating that otherwise “legal suppliers [such as Hadami] are going to disappear.” Id. ¶ 22. Xerox's Open Market MD Manager, Daniel Delepiani, allegedly again stated to Chung that “[Xerox had] not issued any letter authorizing these companies you mention.” Id. ¶ 23.

         On September 10 and 18, 2013, Xerox further assured Hadami via email that it was not doing and would not do business with any entities that engaged in illegal practices. Id. ¶ 24. On September 19, 2013, Xerox sent Hadami an email terming these entities “pirates” and stating that it was presenting to the Paraguayan government a letter “supporting Hadami and Docunet as our Authorized Reseller [sic] for the country letting them know that [Xerox] products would only be guaranteed” if they bought from those two companies. Id. ¶ 25. Xerox asked Hadami to furnish copies of the purportedly fake authorization letters to it, to help Xerox identify the source. Id. ¶ 26. Throughout 2013 and 2014, Hadami provided import and sales records to Xerox demonstrating that Alternativa and EAG were selling more Xerox goods than they had declared to the authorities. Id. ¶ 28.

         Eventually, Hadami told Xerox that it had no choice but to begin putting in bids below their costs in order to preserve market share. Id. ¶ 29. Xerox allegedly encouraged Hadami to do this, as well as to bring legal challenges against the grey market bidders. Id. ¶¶ 29-30. Hadami spent approximately $215, 000 on such litigation, winning some challenges. Id. ¶¶ 30- 31. Xerox congratulated Hadami on one victory. Id. ¶ 32.

         3. Xerox Deceives Hadami By Supporting the Grey Market Dealers

         Hadami alleges that from early on in its relationship with Xerox, Xerox was dishonest about the relationship it had with various grey market entities in Paraguay. In September 2014, Hadami allegedly became aware of Xerox's relationship with the grey market entities. Id. ¶ 50. Hadami alleges that the letters of authorization submitted to the government by the grey market entities, which Hadami had assumed were forged, were actually authentic. Id. ¶ 35. It alleges Xerox itself issued such letters on behalf of Alternativa in August and September 2014, id. ¶ 36, and that Xerox wholesalers issued such letters beginning in August 2012, id. ¶ 37.

         Hadami also alleges that, in a March 15, 2013 email, Xerox “pledged its support” to several grey market dealers. Id. ¶ 38. Xerox allegedly knew these entities were violating Paraguayan law and undercutting Hadami's prices. Id. ¶ 39. On October 3, 2014, an employee of a Xerox distributor named Rodrigo Aguilar emailed Delepiani and warned him to be more careful about issuing authorization letters to grey and black market sellers. Id. ¶ 47. Later, Xerox entered into an agreement with Alternativa recognizing it as an authorized dealer. Id. ¶ 43. Hadami alleges that Alternativa obtained more than $650, 000 worth of government contract awards that, without Xerox's help, would have gone to Hadami. Id. ¶ 46. The “scheme could not have worked . . . without the direct [] support, coordination, economic power, and resources of Xerox.” Id. ¶ 48. Hadami alleges that if Xerox genuinely did not approve of what was happening, it could have easily shut down the grey market. Id. ¶ 48.

         4. The Three Letters

         Before late 2014, Hadami and Xerox did not memorialize their agreements in writing, instead reaching their alleged contracts orally. See Id. ¶ 52. On October 16, 2014, Xerox sent to Hadami the first of three letters purporting to appoint Hadami as an authorized reseller. See id. ¶ 52 & Ex. 1. Xerox sent another identical letter on December 2, 2014. See Id. ¶ 52 & Ex. 2. Hadami signed both of the letters. Id. ¶ 54.[2]

         Xerox also sent a different, undated letter, FAC, Ex. 3 (the “Undated Letter”), purporting to enroll Hadami in the “Bridge Program” as a “Xerox Business Partner.” Id. ¶ 52 & Ex. 3. By its terms, the letter “confirm[ed] the appointment of [Hadami] . . . as a non-exclusive authorized reseller of Xerox corporation. . . .” FAC, Ex. 3 at 1. The letter also provided that the agreement would be terminable at will with 90 days' prior written notice. Id. at 3. Hadami also signed this letter. FAC ¶ 54. In a supplemental filing with this Court after argument, Xerox submitted a copy of the same letter containing the signature of Eduardo Rodriguez, CFO of Xerox, dated July 2014. Dkt. 26.

         B. Procedural History

         On July 18, 2016, Hadami filed the original complaint, invoking diversity jurisdiction, see 28 U.S.C. § 1332. Dkt. 1. On October 7, 2016, Xerox moved to dismiss. Dkts. 5-7. On October 28, 2016, Hadami filed the FAC, the operative complaint here, and attached the three 2014 letters as exhibits. Dkt. 11. On November 29, 2016, Xerox filed the pending motion to dismiss, Dkt. 18, along with, in support, the Declaration of Carolyn G. Nussbaum attaching the email referenced in FAC ¶ 38 and a translation that had been provided to her by counsel for Hadami, along with a brief in support, Dkt. 20 (“Def. Br.”). On December 16, 2016, Hadami filed its brief in opposition, Dkt. 2, along with the Entin Affidavit, Dkt. 22, and its attached exhibits. On January 6, 2017, Xerox filed a reply brief. Dkt. 25 (“Def. Reply Br.”). On February 17, 2017, Xerox submitted an additional declaration by Nussbaum attaching a version of Exhibit 3 to the FAC-the 2014 “Bridge Program Agreement” letter-signed by a Xerox representative. Dkt. 26. On February 3, 2017, the Court heard argument. On February 21, 2017, counsel for Hadami filed a response to Nussbaum's second declaration, Dkt. 27, and, on February 21, 2017, counsel for Xerox submitted, in response to Hadami's submission, a response and a Declaration of Daniel D. Delepiani as to how Xerox discovered the signed letter in its files, Dkts. 28-29.

         II. Applicable Legal Standards

         A. Rule 12(b)(6)

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         In considering a motion to dismiss, a district court must “accept[] all factual claims in the complaint as true, and draw[] all reasonable inferences in the plaintiff's favor.” Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 403 (2d Cir. 2014) (quoting Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010) (internal quotation marks omitted)). However, this tenet is “inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “[R]ather, the complaint's [f]actual allegations must be enough to raise a right to relief above the speculative level, i.e., enough to make the claim plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 555, 570) (internal quotation marks omitted) (emphasis in Arista Records). A complaint is properly dismissed where, as a matter of law, “the allegations in [the] complaint, however true, could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558.

         B. ...


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