Avazpour Networking Services, Inc. et al v. Falconstor Software, Inc.

Filing 46

AMENDED MEMORANDUM AND ORDER; For the reasons set forth herein, the court grants Defendant's motion to the extent that it orders dismissal of all claims based in tort. The Court therefore dismisses the claims for grossnegligence and negligent mi srepresentation. The court construes the claim alleging grossly negligent breach of contract as a claim asserting breach of contract. The court dismisses the claim alleging breach of the implied covenant of good faith and fair dealing as redundant in light of the claim for breach of contract. The Clerk of the Court is directed to terminate the motionappearing as docket entry number 21 in this matter and the parties are directed to continue with discovery with respect to the breach of contract claim that remains. (Ordered by Judge Leonard D. Wexler on 4/3/2013.) (Fagan, Linda)

US

*

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

--------------------------------------------------------------)(
A VAZPOUR NETWORKING SERVICES, INC.,
JIM AVAZPOUR AND KIM A V AZPOUR,

IN/

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Disrk~~'bS OFFiCE:

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OURTED.Ny

APR -3zot3

LONG ISLAND

*

OFFiCE

AMENDED MEMORANDUM
AND ORDER'

Plaintiff,

cv 12-3574
-against(Wexler, J.)
FALCONSTOR SOFTWARE, INC.

Defendants.

--------------------------------------------------------------)(
APPEARANCES:
LIEFF, CAB RASER, HEIMANN &
BERNSTEIN, LLP
BY: JONATHAN D. SELBIN, ESQ.
MICHAEL JOSEPH MIARMI, ESQ.
DOUGLAS IAN CUTHBERTSON, ESQ.
Attorneys for Plaintiffs
250 Hudson Street, gth Floor
New York, New York 10013-1413
LIEFF, CABRASER, HEIMANN &
BERNSTEIN, LLP
BY: ERIC B. FASTIFF
Attorneys for Plaintiffs
275 Battery Street 30th Floor
San Francisco, California 94111
WILSON, ELSER, MOSKOWITZ,
EDELMAN & DICKER, LLP
BY: ADAM BIALEK, ESQ.
RICHARD LYLE REITER, ESQ.
Attorneys for Defendant

This Amended Memorandum and Order is intended to replace the memorandum
and order dated March II, 2013 and filed as docket entry number 38 in this matter.
I

!50 East 42"d Street
3 Gannett Drive
White Plains, New York I 0604
WEXLER, District Judge
In this diversity action, Plaintiffs assert causes of action arising out of their business
relationship with Defendant. The complaint sets forth four causes of action pursuant to the laws
of the State ofNew York, as follows: (1) gross negligence; (2) negligent misrepresentation; (3)
breach of contract "(due to gross negligence)," and (4) breach of the implied covenant of good
faith and fair dealing. Plaintiffs are Avazpour Networking Services, Inc., ("Avazpour" or
"ANS"), Jim Avazpour and Kristy Avazpour (collectively the "Individual Plaintiffs"). The
Individual Plaintiffs are the founders of ANS. Jim Avazpour is the President and former CEO of
ANS. Kristy Avazpour served as the company's Vice President of Marketing from 2006 through
October of2010. Defendant is F<Vconstor Software, Inc. ("Falconstor").
The facts supporting all of Plaintiffs' claims arise out of Defendant's performance in
connection with an upgrade it performed to Avazpour' s storage area network, i.e. the system that
allows ANS to remotely store and protect client data. Plaintiffs' complaint alleges, inter alia, that
the analysis of an expert with whom they have consulted demonstrates that when conducting the
upgrade Falconstor "recklessly disregarded appropriate practices in the data-security and storage
virtualization industry."
Presently before the court is Defendant's motion, pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure, to dismiss. Defendant seeks dismissal of all claims asserted on
behalf of the Individual Plaintiffs on the ground that they lack standing. Additionally, Defendant
seeks dismissal of Plaintiffs' first, second and third causes of action on the grounds that those
2

claims, sounding in tort, are not viable under New York's economic loss doctrine, and fail to
allege the existence of any duty separate and apart from Defendant's contractual obligations.
BACKGROUND

I.

Factual Background
The facts set forth below are derived from the complaint, as well as documents properly

before the court of which both parties have notice. Chambers v. Time Warner. Inc., 282 F.3d
147, 153 (2d Cir. 2002) (on motion to dismiss court may consider pleadings as well as all
documents incorporated therein by reference). At this stage in the proceedings, the facts are
presumed true and construed in the light most favorable to Plaintiffs, the non-moving parties.
Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009).
A.

The Parties and Their Business Relationship

ANS is a company located in Overland Park, Kansas that has been engaged, since 1997,
in the business of providing information technology services. The Individual Plaintiffs are the
founders of ANS and were, at relevant times, officers of that company. Each of the Individual
Plaintiffs acted as personal guarantors of loans made to ANS in the course of its business
operations.
Falconstor is a company located in this state that is engaged in the business, inter alia, of
providing systems for storing and protecting client data. Prior to the incident forming the basis of
Plaintiffs' complaint, ANS had been a client ofFalconstor for approximately six years. At some
point prior to July 13, 2010, ANS entered into an agreement pursuant to which Falconstor was to
upgrade ANS's storage area network (the "Upgrade"). A storage area network, referred to as a
"SAN'' is defined in the complaint as "a collection of computers and storage devices that are

3

connected over a high-speed optical network and are dedicated to storing and protecting data."
The Upgrade was to be performed on a Falconstar system that was then in use by ANS.
The parties' intentions and agreement with respect to the Upgrade are memorialized in
two agreements- an "Evaluation Agreement," entered into on April22, 2010, and a "Statement
of Work," dated July 8, 2010. Both agreements are referenced in the complaint and have been
provided to the court. The Evaluation Agreement allowed ANS to consider Falconstor software
products and to borrow its hardware during an "Evaluation Period," which could last as long as
180 days. After the Evaluation Period, ANS was to either license the evaluated programs and
purchase the hardware, or return both to Falconstor.
The Statement of Work, dated July 8, 2010, followed the Evaluation Agreement and
reflects the parties' commitment to go forward with the Upgrade. In addition to setting forth and
describing particular tasks to be performed by Falconstor, the Statement of Work states the
estimated time frame for performance of each task. Tasks performed pursuant to the Statement of
Work were estimated to be performed between July 13 and 17,2010. Falconstor was to provide
the hardware and memory upgrade to be used in the Upgrade. The Statement of Work also sets
forth the responsibilities of ANS in connection with performance of the Upgrade. ANS was
responsible for, inter alia, acquisition of certain hardware, software and cables, making key staff
available, and providing access to computer systems and devices necessary to support the
Upgrade. Falconstor was to install the hardware and perform the transition from the existing SAN
to the new system.
The Statement of Work contains an appendix setting forth specific contractual terms.
Those terms include a broad limitation of liability provision stating that Falconstor shall have no
4

liability for, inter alia;
consequential, exemplary, special, indirect, incidental or punitive damages or any other
loss or expense (including lost profits) even if it has been advised of the possibility of
such damage Joss or expense.
The limitation of liability provision further states that it applies to:
all causes of action or claims in the aggregate, including without limitation to breach of
contract, breach of warranty, negligence, strict liability, misrepresentations, claims for
failure to exercise due care in the performance of services hereunder and any other torts.

The Statement of Work also addresses the issue ofFalconstor's warranty. Specifically, it
states that Falconstor warrants that its services will be performed in "a good and workmanlike
manner," and further "disclaims all other warranties, express or implied, including any implied
warranties of fitness for a particular purpose, merchantability or otherwise."2
B.

The July 2013 Upgrade and The Consequences of its Failure

In July of2010, Falconstor was to begin the Upgrade, as set forth in the Statement of
Work. Prior to July of20 10, ANS informed its clients of the impending Upgrade, assuring them
that with the exception of previously scheduled maintenance periods, the transition would be
seamless. The complaint alleges, in great detail, a series of mishaps that occurred during the
Upgrade which took place between July 13 and 22, 2010. The Court describes those mishaps
below, and for the purpose of this motion, accepts Plaintiffs' version of the facts as true.
During the first phase of the Upgrade, which began on July 13, 2010, Falconstor copied
data from the existing SAN to the new storage system. An inconsistency was revealed between

2

The Evaluation Agreement contains a similarly broad limitation of liability
provision.
5

the old system's transfer control protocol ("MTCP version 1")and that of the new system
("MTCP version 2"). For data replication to proceed, a Falconstar engineer rolled back both of
ANS 's near storage server controllers to the older version of the MTCP, and the Upgrade
proceeded.
The second phase of the Upgrade, the attachment of all production servers to the new
storage system, was completed on July 18,2010. Plaintiffs take issue with Falconstor's
performance on that date, noting that the process disabled many of its normal back-up and
redundancy measures, leaving ANS's system in what is referred to as a "fragile" state. The
Upgrade resumed on July 20,2010, and continued through July 22,2010. The Complaint refers
to a series of problems that occurred during that time period, most of which were addressed
though not, according to Plaintiffs, pursuant to the appropriate standard of care.
The phase of the Upgrade that occurred on July 22, 2010, is described as leading to
disastrous consequences. On that date, after twice successfully and properly shutting down and
re-booting ANS's system, Falconstor is alleged to have re-booted the system without first
properly shutting it down. This is alleged to have resulted in the corruption of nearly all e-mail
databases and file servers. Plaintiffs further allege that as a result of this re-boot, ANS was left
with corrupted client data, outdated tape backups, and a complete and irretrievable loss of certain
other client data. Plaintiffs alleged that the extended system downtime associated with the
Upgrade resulted in the loss of client trust as well as a week's worth of their data. Although the
new system was eventually up and running, it was operating in a crippled state until the
replacement of a component part, a month after the Upgrade. Even then, the new SAN is alleged
not to have achieved the expected high availability state.

6

Plaintiffs' complaint includes allegations regarding conclusions reached by a consulting
expert specializing in computer networking, computer security, virtualization and file systems.
Plaintiffs' expert concludes that Falconstor treated ANS's data with reckless disregard for the
appropriate practices in the data security and storage virtualization industries. In particular,
Defendant's performance of the Upgrade is alleged to have been improper because Falconstor
failed to inform ANS that the recommended hardware did not support nearline mirroring
("NLM") - a process of contemporaneous writing of data to both the "production" SAN and the
"backup" SAN, alleged to have been a critical feature of ANS's network capabilities. Plaintiffs
allege that despite Falconstor's knowledge of ANS's requirements, the network storage server
("NSS") used by Falconstor did not support the requested NLM. It is further alleged that
Falconstor failed to prepare ANS for the Upgrade, and also failed to minimize the vulnerability of
its systems during the Upgrade process. In short, Falconstor is alleged to have failed to adhere to
the appropriate standards of its industry, to the detriment of ANS and its clients.
Plaintiffs allege more specifically that Falconstor's reckless conduct in carrying out the
Upgrade corrupted, and made it impossible for ANS's clients to access their data. This is alleged
to have caused a "crisis in confidence," that led to the loss of clients and devastation of ANS's
business. Plaintiffs allege that because ANS was required to divert its resources to rehabilitation
of its SAN, it was impossible to service existing clients and to cultivate new clients. The
"calamitous" performance of the Upgrade is stated to have prevented ANS from pursuing a
lucrative partnership it entered into with a major regional telecommunications provider. The
downturn in business and revenue is alleged to have caused ANS to default on its credit
obligations. That default is stated to have resulted in the financial ruin of the Individual Plaintiffs,

7

who were personally liable on those financial instruments.
II.

The Complaint
As noted, Plaintiffs' complaint sets forth four separate causes of action. The first two

causes of action - gross negligence and negligent misrepresentation- are asserted on behalf of
ANS as well as the Individual Plaintiffs. The gross negligence claim alleges that Falconstor
breached its duty to act with reasonable care by failing to recommend a SAN that was suitable for
ANS's business needs. In particular, this cause of action states that Falconstor failed to comply
with a representation in the Statement of Work regarding the configuration ofNLM, and the
alleged inability of the Upgrade hardware to support the promised feature. Plaintiffs' second
cause of action asserts a claim of negligent misrepresentation. That claim states that Falconstor
was engaged in a business relationship with ANS placing the parties in privity, or "so close as to
approach privity." That relationship is alleged to give rise to a specific duty to correctly inform
ANS as to whether the Upgrade would satisfY its business needs, and in particular, the need for
NLM. Plaintiffs are alleged to have reasonably relied, to their detriment, on Defendant's
misstatements and/or omissions.
Plaintiffs' third and fourth causes of action are asserted only on behalf of ANS. The third
claim alleges breach of contract "due to gross negligence." It refers specifically to the Statement
of Work, noting the requirement that Defendant configure NLM, and states that Falconstor
breached its contract with ANS when it failed, through gross negligence, to configure NLM on
ANS's SAN as part of the Upgrade. The fourth claim for relief asserts breach of the implied
covenant of good faith and fair dealing. This claim asserts that Falconstor acted in bad faith and
unfairly by using untested methods and code when attempting to resolve problems that arose
8

during the course of the Upgrade, and by re-booting the SAN prior to a clean shut down of ANS' s
systems.
As a result ofFalconstor's alleged tortious conduct and breach of its contractual
obligations, Plaintiffs seek economic, monetary, actual, consequential, compensatory and
punitive damages.
III.

The Motion to Dismiss
Falconstor moves to dismiss all claims asserted on behalf of the Individual Plaintiffs for

lack of standing. In particular, it is argued that Falconstar had neither a contractual relationship
nor a legal duty to the Individuals that can form the basis of any claim. Falconstar moves to
dismiss Plaintiffs' first, second and third causes of action on the ground that no claim is stated
pursuant to these tortious causes of action and that Plaintiff ANS is limited to pursuing only its
contractual remedies.
DISCUSSION
I.

Legal Principles
A.

Standards on a Motion To Dismiss

When considering a motion to dismiss under RuJe 12(b)(6), allegations in the complaint
are accepted as true and all reasonable inferences are drawn in the plaintiff's favor. Holmes v.
Grubman, 568 F.3d 329, 335 (2d Cir. 2009). To survive a motion to dismiss, a plaintiff must
allege "enough facts to state a claim to relief that is plausible on its face." Bell At!. Corn. v.
Twombly, 550 U.S. 544, 570 (2007). In meeting this standard, the complaint must set forth "more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action will
not do." Id. at 555.

9

B.

Economic Loss Doctrine: Contract vs. Tort Liability

Under New York's economic loss doctrine, a party to a contract that suffers economic
loss only (not personal injury) is, in most cases, limited to recovery pursuant to a claim for breach
of contract and cannot recover economic or consequential damages in tort. Archstone v. Tocci
Bldg. Com. ofNew Jersey. Inc., 101 A.D.3d 1059, 1060, 956 N.Y.S.2d 496,498 (2d Dep't.
2012); see Bristol Village. Inc. v. Louisiana-Pacific Com., 2013 WL 55698 *5 (W.D.N.Y. 2013).
This doctrine recognizes that when a plaintiff suffers only economic loss, "it loses part of its
bargain, and the parties are relegated to the contractual remedies they negotiated .... " Svracuse
Cablesystems v. Niagra Mohawk Power, 173 A.D.2d 138, 142, 578 N.Y.S.2d 770, 772 (4th
Dep't. 1991); see Shema Kolainu-Hear Our Voices v. ProviderSoft. LLC, 832 F. Supp.2d 194,
205 (E.D.N.Y. 201 0) (economic losses treated under contract law because parties "are in the best
position to allocate risk at the time of their sale and purchase"). As noted by the Second Circuit,
New York's economic loss doctrine prevents the recovery of"damages that are inappropriate
because they actually lie in the nature of breach of contract as opposed to tort." Hydro Investors,
Inc. v. Trafalgar Power Inc., 227 F.3d 8, 16 (2d Cir. 2000); see Prue v. Fiber Composites. LLC,
2012 WL 1314114 *4 (E.D.N.Y. 2012).
Applying the economic loss doctrine, New York courts have held that recovery of
damages in tort is generally not available in an action alleging the poor performance of a
contracted-for product.

See,~.

Bristol Village, 2013 WL 55698 *6; Hartford Fire Ins. Co. v.

Atlantic Handling Systems. LLC, 2011 WL 4463338 *5 (E.D.N.Y. 2011); Shema Kolainu-Hear
Our Voices, 832 F. Supp.2d at 205; see also Archstone, 101 A.D.3d at 1060, 956 N.Y.S.2d at 498
(negligence theory of recovery unavailable against a manufacturer where the claimed losses flow
10

from damage to the property that is the subject of the contract, and personal injury not at issue);
Weiss v Polvmer Plastics Com., 21 A.D.3d 1095, 1096, 802 N.Y.S.2d 174, 175-76 (1" Dep't.
2005) (same). This doctrine similarly precludes recovery in tort for the alleged negligent
installation of a product. Bristol-Myers Squibb. Indus. Div. v Delta Star, 206 A.D.2d 177, 179,
620 N.Y.S.2d 196, 198 (4th Dep't. 1994); Hartford Fire Ins. Co., 2011 WL 4463338 *5; Torres v.
Baum, 2011 WL 2532945 *5 (N.D.N.Y. 2011) (allegation that a defendant failed to exercise
proper care when performing contractual duties is insufficient to state a claim in tort).
On the other hand, even in the absence of personal injury, New York courts recognize a
claim in tort under circumstances where a party to a contract can properly allege the breach of a
duty owed to the plaintiff, that exists separate and apart from the contract. Ihg., Sommer v
Federal Signal Com., 79 N.Y.2d 540, 551-52, 583 N.Y.S.2d 957, 961 (1992); Nielsen Media
Research. Inc. v. Microsystems Software. Inc., 2002 WL 31175223 *7 (S.D.N.Y. 2002)
("well-established principle" ofNew York law "that a simple breach of contract is not to be
considered a tort unless a legal duty independent of the contract itself has been violated"),
quoting, Clark-Fitzpatrick. Inc. v Long Is. R.R. Co., 70 N.Y.2d 382, 389-90, 521 N.Y.S.2d 653,
656 (1987). While the duty forming the basis of a tort claim may be connected with and
dependant upon a contract, a claim is stated only where the duty alleged arises from
circumstances "extraneous" thereto to state a proper claim in tort. Clark-Fitzpatrick. Inc., 70
N.Y.2d at 389, 521 N.Y.S.2d at 656-57; see Bayerische Landesbank. New York Branch v.
Aladdin Capital Management LLC, 692 F.3d 42, 58 (2d Cir. 2012); Hydro Investors. Inc. v.
Trafalgar Power Inc., 227 F .3d 8, 17-18 (2d Cir. 2000).
Those cases allowing a p1aintiffto claim both breach of contract and tort arising out of the
11

same conduct note the different policies to be furthered by imposition of these different remedies.
Specifically, it is recognized that contractual duties are imposed so that the parties can obtain the
benefit of their bargain. Duties in tort are imposed apart from those imposed by contract, and are
aimed at avoiding injury to others. New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 316,
639 N.Y.S.2d 283,287 (1995) ("tort obligation is a duty imposed by law to avoid causing injury
to others"); Hartford Fire Ins. Co., 2011 WL 4463338 *5 (separate duty applies only to "limited
class of cases in which a strong public interest in the careful performance of particular contractual
obligations may give rise to a tort duty of due care") (citations omitted); Torres, 2011 WL
2532945 * 4. In such cases the duty is imposed not as a matter of contract, but as a matter of
social policy. Sommer, 79 N.Y.2d at 551-52,583 N.Y.S.2d at 961 (1992) (duty in tort imposed
because in such cases "it is policy, not the parties' contract, that gives rise to a duty of
care")(citations omitted).
A duty sufficient to support a claim in tort has been allowed, for example, in a case where

parties are in a contractual relationship, and plaintiff can also make a claim for the violation of a
"professional duty." Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000).
Where such a duty exists, a plaintiff may maintain both tort and contract claims arising out of the
same allegedly wrongful conduct. See Hargrave v. Oki Nurserv. Inc., 636 F.2d 897, 899 (2d
Cir.1980). However, where a plaintiff is seeking merely to obtain the benefit of a contractual
bargain through an action in tort, the tort claim is precluded as duplicative. Bayerische
Landesbank, 692 F.3d at 58;~, New York Univ., 87 N.Y.2d 308, 317-18; see Hargrave, 636
F.2d at 899 (where "the only interest at stake is that of holding the defendant to a promise ... the
plaintiff may not transmogrify the contract claim into one for tort"); Torres, 2011 WL 2532945
12

*5 (same).
The New York Court of Appeals has set forth certain factors to consider when
detennining whether a plaintiff can state a claim for breach of contract alongside a claim in tort.
Sommer, 79 N. Y.2d 540, 552, 583 N. Y.S.2d 957. First, courts are to consider the nature of the
injury alleged. Id. at 552, 583 N.Y.S.2d at 962. Where "the nature of the harm" alleged is
"catastrophic," the behavior involved may give rise to a duty of care that exists outside of the
contract. E.g., Sommer. 79 N.Y.2d at 552-53, 583 N.Y.S.2d at 962. Next, courts consider the
way in which the injury occurred, and the harm that followed. Id. at 552, 583 N.Y.S.2d at 961.
Courts look to whether the injury resulted from "an abrupt, cataclysmic occurrence," or "a
process of failure of the product to perfonn as anticipated under nonnal business conditions."
Sommer, 79 N.Y.2d at 552, 583 N.Y.S.2d at 961. Finally, courts consider the nature of the relief
sought. Where plaintiff seeks "enforcement of the bargain, the action should proceed under a
contract theory." Sommer, 79 N.Y.2d at 552, 583 N.Y.S.2d at 961.
Applying these principles in Sommers, the New York Court of Appeals held that a claim
in tort was properly alleged. There, the court held that the defendant, a provider of central station
fire alarm monitoring services, could be held liable in tort where it failed to timely report a fire
signal to the local fire department. The delay was alleged to have resulted in $7 million in
damages. The duty identified in Sommers was the duty arising from the nature of the defendant's
services, i.e., that ofinfonning firefighters that an alarm had been sounded. The court noted that
the central station monitoring business was franchised and regulated by the City of New York.
Additionally the Court of Appeals noted that defendant perfonned "a service affected with a
significant public interest," and that the "failure to perfonn the service carefully and
13

competently" could result in "catastrophic consequences." Sommers, 790 N.Y.2d at 552-53. The
nature of the defendant's services was therefore held to gives rise to a separate duty of reasonable
care to support an independent claim in tort.
The Second Circuit recognized the existence of a duty independent of a contract in Hydro
Investors. Inc. v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000), and, more recently in
Bayerische Landesbank. New York Branch v. Aladdin Capital Management LLC, 692 F .3d 42,
58 (2d Cir. 2012). In Hvdro Investors, the Second Circuit affirmed the lower court's award of tort
damages based upon the defendant's alleged professional malpractice. There, the independent
duty identified was that of the defendant engineering firm to properly express its professional
opinion as to the functionality of a proposed hydroelectric plant. The firm's overly optimistic
opinion as to energy output was held to be a sufficient basis upon which to proceed on a tort
claim of professional malpractice. Hydro Investors, 227 F.3d at 18. Noting the professional
nature of the defendant's opinion, the Second Circuit commented that tort recovery is reserved
for that "limited class of cases involving liability for the violation of a professional duty." Id. at
18; see also 17 Vista Fee Associates v. Teachers Ins. and Annuity Ass'n of America, 259 A.D.2d
75, 82-83, 693 N.Y.S.2d 554, 560 (1 '' Dep't. 1999) (economic loss doctrine not applicable to
malpractice claim against engineering firm).
More recently, in Bayerische Landesbank. New York Branch v. Aladdin Capital
Management LLC, 692 F.3d 42, 58 (2d Cir. 2012), the Second Circuit again noted the general
rule that a breach of contract will not give rise to a tort claim in the absence of a showing of the
violation of a legal duty that exists independently of the contract. Bayerische, 692 F.3d at 58. The
court went on to hold that the plaintiff, a non-party to the contract at issue, plausibly alleged the
14

existence of a duty sufficient to survive a motion to dismiss a claim in tort. There, the duty
identified was that of a portfolio investment manager to act "in good faith" as a "reasonable and
prudent institutional managers of national standing ...." Id. at 59.
On the other hand, the mere use oflanguage "familiar to tort law," does not transform a
breach of contract action into a tort claim. Torres, 2011 WL 2532945 *4, quoting, ClarkFitzpatrick, 521 N.Y.S.2d 653. Thus, a separate duty of care sufficient to support a claim in tort
among contracting parties has not been found where, for example, a claim for professional
malpractice does not lie. E.g., Nielsen, 2002 WL 31175223 (refusing to recognize cause of action
in professional malpractice against computer consultants). Nor has a tort claim been allowed to
proceed where the nature of the damages alleged, however significant to the parties, do not
implicate a larger public interest. E.g., Hartford Fire Ins. Co., 2011 WL 4463338 *8; Vitolo v.
Mentor HIS. Inc., 426 F. Supp.2d 28,35-36 (E.D.N.Y. 2006) ("imposition of an independent duty
of care in an arms-length business transaction is reserved for the most serious of situations
directly affecting the public at large, and not sophisticated parties"), aft" d. mem., Vitolo v.
Mentor HIS. Inc., 2007 WL 28302 *2 (2d Cir. 2007).
Based upon the foregoing legal principles, Plaintiffs' claims sounding in tort can survive
this motion only if they plausibly allege the existence of a duty, separate and apart from the
parties' contracts, that is properly alleged to have been breached. The court turns to the merits of
the motion and, first, to that issue in particular.

II.

Disposition of the Motion
A.

The Claims Sounding in Tort are Dismissed

A review of the detailed factual allegations of the complaint, as well as the parties'

15

agreements, leads the court to conclude that Plaintiffs set forth no plausible allegation of the
breach of duty necessary to state a claim in tort. As noted, ANS and Falconstor entered into two
agreements. Those agreements provided for ANS to evaluate and to thereafter purchase, an
upgrade to its existing SAN. Pursuant to its agreement with ANS, Falconstor was required, with
the cooperation of ANS, to properly install the purchased system. For the reasons set forth below,
the court holds that any duty arising from this contractual obligation arises directly from the
contracts at issue, and does not form a separate and independent duty, the breach of which can
support a claim in tort.
As discussed above, New York law is clear in limiting imposition of a duty, the breach of
which can support a claim in tort, to a limited class of professionals and circumstances.
Falconstar is a provider of computer software, hardware and related installation services. While
such goods and services require specialized knowledge, New York State law does not "recognize
a cause of action for professional malpractice by computer consultants." Nielsen, 2002 WL
31175223 *7, quoting, Richard A. Rosenblatt & Co. v. Davidge Data Sys. Com., 295 A.D.2d
168, 169, 743 N.Y.S.2d 471, 472 (1st Dept. 2002); see also Columbus McKinnon Com. v. China
Semiconductor Co., 867 F. Supp. 1173, 1182 (W.D.N.Y.1994) ("no basis in law for extending
the doctrine of professional malpractice to cover independent computer consultants."); RKB
Enters. Inc v. Ernst & Young. 182 A.D.2d 971,971-72, 582 N.Y.S.2d 814, 816 (3d Dep't. 1992)
("no cause of action for professional malpractice in the field of computer consulting").
Moreover, application of the factors set forth by the New York Court of Appeals in
Sommers, construed in the light most favorable to Plaintiffs, does not support imposition of a
duty. While the failure of the Upgrade may have resulted in damage to certain data, such damage
16

is not the type of widespread catastrophic harm envisioned by the Court of Appeals in Sommer.
Similarly, any harm that occurred was not the result of an "abrupt, cataclysmic occurrence," but
due to installation and re-booting issues. Nor does the harm alleged to have been caused by the
failed Upgrade begin to implicate the type of public interest found to exist in Sommers. While the
damage to ANS's system may have been substantial, such harm involves private, and not the
public interest. In sum, the court holds that while Plaintiffs' complaint adequately alleges facts
supporting its claim that Falconstor botched the Upgrade, it does not plausibly allege any facts,
even if construed in the light most favorable to Plaintiffs, that can be relied upon to support any
claim in tort.
B.

Remaining Claims

The court's holding regarding the lack of any extra-contractual duty requires dismissal of
Plaintiffs' first and second causes of action alleging gross negligence and negligent
misrepresentation. See RKB Entemrises Inc.,l82 A.D.2d at 972, 582 N.Y.S.2d at 816 (lack of
duty sufficient to impose professional malpractice duty also precludes claim of negligent
misrepresentation). Plaintiffs' third claim alleges breach of contract "due to gross negligence."
New York law does not recognize a cause of action for a "negligent" breach of contract. Hartford
Fire Ins. Co., 2011 WL 4463338 *5; Tevdorachvili v. Chase Manhattan Bank, 103 F. Supp.2d
632, 644 (E.D.N.Y. 2000). It follows then that no claim can be stated for a "grossly" negligent
beach of contract. Tevdorachvili, 103 F. Supp.2d at 644; City ofNew York v. 611 West 152nd
Street. Inc., 273 A.D.2d 125, 126, 710 N.Y.S.2d 36, 38 (I" Dep't. 2000) ("claims based on
negligent or grossly negligent performance of a contract are not cognizable").
Rather than outright dismissal of the third cause of action, the court will construe that
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cause of action as setting forth a claim of breach of contract. The fourth cause of action seeks
recovery for breach of the implied covenant of good faith and fair dealing. Breach of an implied
duty of good faith "is merely breach of the underlying contract." Giller y. Oracle USA. Inc., 2013
WL 646153*2 (2d Cir. 2013), quoting, Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961
F .2d 1052, I 056 (2d Cir.!992) Thus, where, as here, the parties have an express contract, such a
cause of action is properly dismissed as redundant. Quail Ridge Assocs. v. Chemical Bank, 162
A.D.2d 917, 919, 558 N.Y.S.2d 655, 657 (3d Dep't 1990) (plaintiff"may allege bad faith as part
of its contract claim, but bad faith does not provide an independent basis for recovery"); see also
City ofNew York, 273 A.D.2d at 125, 710 N.Y.S.2d at 38 (breach of contract defense renders
"assertion of a separate defense for breach of the implied covenant of good faith and fair dealing"
"improperly duplicative").
The court expresses no opinion as to the merits of the breach of contract claim that
remains. The parties are directed to continue to engage in discovery according to the schedule
ordered by the assigned Magistrate Judge.
CONCLUSION
For the foregoing reasons, the court grants Defendant's motion to the extent that it orders
dismissal of all claims based in tort. The Court therefore dismisses the claims for gross
negligence and negligent misrepresentation. The court construes the claim alleging grossly
negligent breach of contract as a claim asserting breach of contract. The court dismisses the
claim alleging breach of the implied covenant of good faith and fair dealing as redundant in light
of the claim for breach of contract. The Clerk of the Court is directed to terminate the motion
appearing as docket entry number 21 in this matter and the parties are directed to continue with
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discovery with respect to the breach of contract claim that remains.
SO ORDERED.

V

I

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/

LEONARI3 D. WEXLER /
UNITED STATES DISTRICT JUDGE

Central Islip, New York
April 3, 2013

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