United States District Court, S.D. New York
OPINION & ORDER
A. ENGELMAYER UNITED STATES DISTRICT JUDGE
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.
Relationship between Hadami and Xerox
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.
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.
Grey Market Competitors
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.
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.
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.
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.
Xerox Deceives Hadami By Supporting the Grey Market
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. ¶
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. ¶
The Three Letters
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.
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.
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.
Applicable Legal Standards
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).
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.