MPI TECH A/S v. International Business Machines (IBM)
ORDER AND OPINION: re: 168 MOTION for Summary Judgment filed by International Business Machine Corporation. For the foregoing reasons, IBM's motion for summary judgment is GRANTED, and MPI's Objection to Judge Freeman's N ovember 14, 2016, Order is OVERRULED. The Clerk of Court is directed to close the motions at Docket No. 168 and Docket No. 240. SO ORDERED. (Signed by Judge Lorna G. Schofield on 2/06/2017) (ama) (Main Document 263 replaced on 2/6/2017) (jcs). Modified on 2/6/2017 (jcs).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MPI TECH A/S,
INTERNATIONAL BUSINESS MACHINES
DATE FILED: 2/06/2017
15 Civ. 4891 (LGS) (DCF)
ORDER AND OPINION
LORNA G. SCHOFIELD, District Judge:
Plaintiff MPI Tech A/S (“MPI”) brings this action against Defendant International
Business Machines Corporation (“IBM”) seeking declaratory and equitable relief and money
damages relating to the payment of royalties arising from a software vending relationship
between the parties. Plaintiff asserts claims for breach of contract, unjust enrichment,
declaratory judgment and breach of the duty of good faith and fair dealing. Two matters are
before the Court -- IBM’s motion for summary judgment on all of MPI’s claims, and MPI’s
objection to Magistrate Judge Debra C. Freeman’s November 14, 2016, Order denying MPI’s
motion to amend its pleadings to add copyright infringement claims (the “Order”). For the
following reasons, IBM’s motion is granted, and MPI’s objection is overruled.
The following facts are taken from the parties’ submissions and are undisputed unless
MPI manufactures and licenses proprietary document management software. IBM
manufactures and sells mainframe computers and related software and services. This dispute
concerns an agreement pursuant to which MPI provided IBM with software that allowed files
stored on IBM mainframe computers to be printed on certain printers and copiers.
In 1990, IBM and MPI’s predecessor, i-data Inc. (“i-data”), entered into a Master Work
Agreement (the “MWA”). Section 1.1 of the MWA states that it “shall be implemented through
one or more Statements of Work” and “provides basic terms applicable to all such Statements of
Work.” The Statement of Work relevant to this dispute was referred to as “SOW-P.” SOW-P
was executed by IBM and i-data in March 2000. MPI became a party to the MWA and SOW-P
when MPI acquired i-data in 2002.
SOW-P governs MPI’s provision of software known as “transforms.” The transforms
convert data from the format native to IBM’s mainframe computers to one of the formats used by
printers and copiers. Pursuant to SOW-P, the transforms, “includ[ing] Code, associated
Documentation, Externals, Error Corrections and Enhancements,” are “Licensed Work” which
IBM may incorporate into its “Products” and offer to its customers. In return, SOW-P provides
that MPI shall receive royalties for a maximum of ten years after “GA” of the Product. GA
stands for “General Availability” and means “the time when a product and all ship group
materials are available for shipment from IBM to all customers.” Prior to 2010, there were two
GA dates under SOW-P: June 2000, for what the parties refer to as “Version 1” of the
transforms, and June 2005, for “Version 2.”
In 2009, one of IBM’s customers requested an update to the transforms that would allow
it to print multiple copies of a document such that each copy would be horizontally offset from
the others in the printer tray for easier handling, a functionality called “jogging.” MPI initially
offered to provide jogging on the condition that IBM would eliminate the ten-year limit on
royalties, but IBM refused.
In March 2010, MPI raised a concern that Version 2 updates had been delivered to some
Version 1 customers. If this concern was well-founded, MPI noted in its email to IBM, it “would
explain the lack of movement, over the past years, in migration from Version 1 to 2 and the
resultant anomalies in Royalties.” IBM responded that some Version 2 updates “were made
available for the ‘old’ [Version 1] Transform” because a number of customer service requests
remained open past the “End of Service” date for Version 1, which was August 2, 2006. IBM
reassured MPI that, with one agreed upon exception in 2009, other Version 1 customers “have
not received new product features in the new [Version 2] Transform product via the service
stream” updates. IBM subsequently conducted an investigation and determined that only two
Version 1 customers had downloaded the Version 2 updates. According to MPI, IBM never
disclosed to MPI how many Version 1 customers obtained Version 2 updates.
As a result of a telephone conversation between the parties on May 27, 2010, and
assurances made by IBM, MPI dropped its demand to eliminate the ten-year limit on royalties
and agreed to provide jogging at a cost of €10,000, which it did the next day on May 28, 2010.
The parties dispute the intended scope of this jogging update. MPI asserts that it meant to
provide jogging only for the customer who had requested it, and IBM disputes that limitation.
IBM released an update to its transform software including the jogging feature on December 14,
On June 30, 2010, the parties executed Amendment 4 to SOW-P (“Amendment 4”),
which memorialized the jogging update for “Cost: EUR10,000” due “May 28, 2010.” Among
the other terms included in Amendment 4 was the parties’ agreement “to make best efforts to
work on releasing a new Product at the same time as the next z/OS system release.”
On July 23, 2010, the parties executed an Interim Negotiation Letter Agreement
(“INLA”) to govern their discussions regarding a potential new product. The INLA provided:
“Either company can end these discussions at any time, for any reason, and without liability to
the other. Each company remains free to negotiate or enter into similar relationships with
On December 20, 2010, after the parties failed to reach agreement on a new product, IBM
notified MPI that IBM would allow SOW-P to expire on December 31, 2010. IBM also
announced that, as of January 1, 2011, it would stop selling MPI’s Version 2 product. IBM
continued to pay MPI royalties on SOW-P until July 1, 2015, the expiration of the ten-year
royalty period for Version 2 under SOW-P. IBM engaged Crawford Technologies, Inc.
(“Crawford”) as its new transforms technology vendor, based on discussions IBM had
commenced with Crawford in early 2010. IBM released the next version of the z/OS system in
MPI commenced this action on June 23, 2015. The deadline to file amended pleadings or
join additional parties was September 1, 2015. MPI amended its pleadings once before the
September 1 deadline and twice afterward. The operative complaint is the Third Amended
Complaint (hereafter, the “Complaint”). Discovery was completed on April 15, 2016, and IBM
moved for summary judgment on May 20, 2016.
On May 23, 2016, MPI moved for an order either (a) clarifying that the protective order
in this action should be construed to allow MPI to use confidential discovery material to assert
new claims in this action or a new action or (b) modifying the protective order to allow MPI to
make such use of the confidential discovery material. On October 13, 2016, Judge Freeman
denied MPI’s motion in its entirety. Judge Freeman concluded that the plain language of the
protective order prohibits MPI’s proposed use of the confidential discovery material and that it
would be unfair to modify the protective order because IBM had reasonably relied on it in
producing documents to MPI.
On October 24, 2016, MPI moved for leave to amend the Complaint and file a fourth
amended complaint adding copyright infringement claims and, apparently, new defendants based
on the confidential discovery material. On November 14, 2016, Judge Freeman denied MPI’s
motion. MPI filed the present objection to the Order.
A. Summary Judgment
The standard for summary judgment is well established. Summary judgment is
appropriate where the record before the Court shows that there is “no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
Wright v. New York State Dep’t of Corrections, 831 F.3d 64, 72 (2d Cir. 2016). “The same
standard applies whether summary judgment is granted on the merits or on an affirmative
defense such as the statute of limitations.” Giordano v. Mkt. Am., Inc., 599 F.3d 87, 93 (2d Cir.
“The moving party bears the burden of establishing the absence of any genuine issue of
material fact.” Zalaski v. City of Bridgeport Police Dep’t, 613 F.3d 336, 340 (2d Cir. 2010)
(citation omitted). Not every disputed factual issue is material in light of the substantive law that
governs the case. “Only disputes over facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
However, the party opposing summary judgment must come forward with materials
setting forth specific facts showing that there is a genuine issue of material fact; he cannot defeat
summary judgment by relying on the allegations in the complaint, conclusory statements or mere
assertions that affidavits supporting the motion are not credible. See Gottlieb v. Cty. of Orange,
84 F.3d 511, 518 (2d Cir. 1996). Furthermore, a non-movant must produce more than “a
scintilla of evidence” in support of his position. See Anderson, 477 U.S. at 252. Essentially, at
the summary judgment stage, a nonmoving party “must offer some hard evidence showing that
its version of the events is not wholly fanciful.” D’Amico v. City of New York, 132 F.3d 145, 149
(2d Cir. 1998) (citations omitted).
B. Objections to Denial of Motion to Amend Complaint
For objections to a magistrate judge’s ruling on nondispositive matters, Rule 72(a)
provides that district courts must “modify or set aside any part of the order that is clearly
erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); accord 28 U.S.C. § 636(b)(1)(A);
Fielding v. Tollaksen, 510 F.3d 175, 178 (2d Cir. 2007). When reviewing a magistrate judge’s
order regarding a dispositive motion, a district court “shall make a de novo determination of
those portions of the report or specified proposed findings or recommendations to which
objection is made.” 28 U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b).
Judge Freeman’s denial of Plaintiff’s motion to amend is treated as a nondispositive
matter. In Fielding, the Second Circuit stated in dicta that “a district judge may refer
nondispositive motions, such as a motion to amend the complaint, to a magistrate judge for [a]
decision,” subject to review under the “clearly erroneous” standard. 510 F.3d at 178 (internal
quotation marks omitted). Since Fielding, the courts in this district appear to have consistently
applied the “clearly erroneous” standard to evaluate the denial of leave to amend by a magistrate
judge, regardless of whether the denial foreclosed potential claims. See, e.g., Levy v. Young
Adult Inst., Inc., No. 13 Civ. 2861, 2016 WL 4402038, at *1–2 (S.D.N.Y. Aug. 18, 2016)
(overruling objection to denial of leave to amend to add counterclaims); Tardif v. City of New
York, No. 13 Civ. 4056, 2016 WL 2343861, at *1 (S.D.N.Y. May 3, 2016) (overruling objection
to denial of leave to amend to add, among other things, new claims); Sokol Holdings, Inc. v.
BMB Munai, Inc., No. 05 Civ. 3749, 2009 WL 3467756, at *1 (S.D.N.Y. Oct. 28, 2009) (same).
“A finding is ‘clearly erroneous’ when although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite and firm conviction that a mistake
has been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). A ruling is
contrary to law if it “fails to apply or misapplies relevant statutes, case law or rules of
procedure.” Lifeguard Licensing Corp. v. Ann Arbor T-shirt Co., LLC, No. 15 Civ. 8459, 2016
WL 5936887, at *1 (S.D.N.Y. Oct. 11, 2016) (internal quotation marks and citation omitted).
“It is well-settled that a magistrate judge’s resolution of a nondispositive matter should be
afforded substantial deference and may be overturned only if found to have been an abuse of
discretion.” McAllan v. Von Essen, 517 F. Supp. 2d 672, 678 (S.D.N.Y. 2007) (internal
quotation marks omitted).
Four of MPI’s Claims are Time Barred
Four of MPI’s five claims are barred by the contractual limitations period set forth in the
MWA because the claims accrued more than three years before MPI commenced this action.
Under New York law, contract claims ordinarily are governed by a six-year statute of
limitations. 1 C.P.L.R. § 213(2); Hahn Auto. Warehouse, Inc. v. Am. Zurich Ins. Co., 967 N.E.2d
1187, 1190 (N.Y. 2012). Unjust enrichment claims are governed by a six-year statute of
limitations where the plaintiff seeks an equitable remedy, see Loengard v. Santa Fe Indus., Inc.,
514 N.E.2d 113, 114–15 (N.Y. 1987) (unjust enrichment claim from breach of fiduciary
obligation is an equitable claim governed by the six-year statute of limitations) (citing C.P.L.R. §
213(1)), and by a three-year statute of limitations where the plaintiff seeks monetary damages,
IDT Corp. v. Morgan Stanley Dean Witter & Co., 907 N.E.2d 268, 272 (N.Y. 2009) (citing
C.P.L.R. § 214(4)). The statute of limitations is an affirmative defense and usually will be
enforced unless equitable estoppel applies to prevent the defendant from asserting it. Zumpano
v. Quinn, 849 N.E.2d 926, 929 (N.Y. 2006). The New York Court of Appeals has held that
equitable estoppel will apply “where plaintiff was induced by fraud, misrepresentations or
deception to refrain from filing a timely action” and plaintiff “demonstrate[s] reasonable reliance
on the defendant’s misrepresentations.” Id. (citing Simcuski v. Saeli, 377 N.E.2d 713, 716 (N.Y.
Parties may agree to “modif[y] the Statute of Limitations by specifying a shorter, but
reasonable, period within which to commence an action.” Exec. Plaza, LLC v. Peerless Ins. Co.,
5 N.E.3d 989, 991 (N.Y. 2014) (quoting John J. Kassner & Co. v. City of New York, 389 N.E.2d
99, 103 (N.Y. 1979)); see also C.P.L.R. § 201 (“An action . . . must be commenced within the
time specified in this article unless . . . a shorter time is prescribed by written agreement.”).
Whether a contractual limitations period is reasonable depends on “whether the plaintiff had a
This Opinion applies New York law because the parties do. See Arch Ins. Co. v. Precision
Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (“The parties’ briefs assume that New York
substantive law governs the issues . . . presented here, and such implied consent is, of course,
sufficient to establish the applicable choice of law.”) (internal quotation marks omitted).
reasonable opportunity to commence its action within the period of limitation.” Exec. Plaza, 5
N.E.3d at 992 (internal quotation marks and citation omitted). “In making this determination of
whether the contractual period of time is reasonable, consideration must be given to all
provisions of the contract, the circumstances of its performance, and the relative abilities and
bargaining positions of the parties.” USA United Holdings, Inc. v Tse-Peo, Inc., 886 N.Y.S.2d
69, at *7 (Sup. Ct. Kings Cty. 2009). New York courts have enforced contractual limitations
periods as short as six months but conversely have also found a limitations period of two years to
be unreasonable, where a condition precedent to the suit could not be completed within the twoyear period. Exec. Plaza, 5 N.E.3d at 991–92.
Here, the MWA provides that “no actions, regardless of form, arising out of or in
connection with the transactions covered by any Contract Document may be brought by either
party more than three (3) years after the cause of action has accrued.” The definition of
“Contract Document” includes “all Statements of Work issued hereunder.” It is undisputed that
all of the claims in this action arise out of SOW-P, which is a Statement of Work under the
MWA. Contrary to MPI’s argument, IBM adequately raised this defense by pleading “the
applicable statute of limitations” as its Eleventh Affirmative Defense in its Answer to Third
Amended Complaint, the operative complaint. See Gun Hill Rd. Serv. Station, Inc. v.
ExxonMobil Oil Corp., No. 08 Civ. 7956, 2013 WL 1804493, at *5 (S.D.N.Y. Apr. 18, 2013)
(rejecting identical argument).
The MWA’s three-year contractual limitations period is reasonable in the circumstances
of this case. Unlike the insurance policy at issue in Executive Plaza, which “require[d] a suit
within two years from the date of the loss, while imposing a condition precedent to the suit . . .
that cannot be met within that two-year period,” the MWA does not impose requirements that
would make a timely lawsuit impossible. 5 N.E.3d at 992. Additionally, the MWA is a
negotiated agreement between sophisticated business entities; it is not a “contract . . . of adhesion
or the product of overreaching.” Timberline Elec. Supply Corp. v. Ins. Co. of N. Am., 421
N.Y.S.2d 987, 988 (4th Dep’t 1979) (enforcing one-year contractual limitations period), aff’d,
417 N.E.2d 1248 (N.Y. 1980). Finally, the MWA’s limitations period is significantly longer
than many other contractual limitations periods that have been found reasonable. See Wechsler
v. HSBC Bank USA, N.A., --- F. App’x ----, No. 16-1620, 2017 WL 66586, at *1 (2d Cir. Jan. 6,
2017) (summary order) (“In general, New York courts have found one-year limitations clauses to
be reasonable.”); Exec. Plaza, 5 N.E.3d at 991 (“[W]e have enforced contractual limitations
periods of one year and six months.” (citations omitted)).
To the extent MPI argues that it could not bring some of its claims within the limitations
period because it only later discovered their factual basis, that hardship is not unique to the
MWA’s limitations period. Under New York law, “knowledge of the occurrence of the wrong
on the part of the plaintiff is not necessary to start the Statute of Limitations running in a contract
action.” Ely-Cruikshank Co. v. Bank of Montreal, 615 N.E.2d 985, 987 (N.Y. 1993) (internal
quotation marks and citation omitted). Also, since any limitations period may “sometimes
impose hardship on a plaintiff with a meritorious claim,” a statute of limitations “cannot be
deemed arbitrary or unreasonable solely on the basis of a harsh effect.” Zumpano, 849 N.E.2d at
The three-year limitations period set forth in the MWA is reasonable and enforceable. To
the extent any of MPI’s claims accrued more than three years before MPI commenced this action
on June 23, 2015, that claim is time barred.
1. Breach of Contract – Count I
MPI’s breach of contract claim is time barred. The claim is based on IBM’s alleged
breach of the “best efforts” clause of Amendment 4, specifically that “IBM failed and refused to
make best efforts to establish a new Product under SOW-P.” Amendment 4 is dated June 30,
2010. Plaintiff seeks “specific performance” in the form of a declaration that IBM’s products
based on the enhanced MPI transform including jogging constitute a new Product under SOW-P
with a GA date of March 2011, so that MPI would be entitled to royalties on that Product until
A breach of contract claim accrues at the time of the breach. Hahn Auto. Warehouse, 967
N.E.2d at 1190. If IBM breached the “best efforts” clause -- which terminated by its terms upon
IBM’s next release of the z/OS operating system -- that breach occurred no later than September
2011, when IBM released the next version of z/OS without a new Product under SOW-P.
Because the claim was not filed before September 2014, it is time barred.
MPI is incorrect that its breach of contract claim did not accrue until July 2015 because
IBM’s failure to make best efforts was an anticipatory breach until then. An anticipatory breach
“occurs when, before the time for performance has arisen, a party to a contract declares his
intention not to fulfill a contractual duty.” Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243, 258
(2d Cir. 2002) (applying New York law). Here, the time for performance of the best efforts
clause could not have been later than the time when IBM released the next version of the z/OS
system. Any anticipatory breach would have occurred earlier, and thus would not delay the
accrual of MPI’s claim.
MPI is also incorrect that the accrual date or limitations period should be relaxed because
“the essence of the breach was concealment of the Crawford facts,” namely, that IBM began
discussions with Crawford about supplying transforms technology no later than June 2010. First,
the essence of the claim is that IBM engaged in discussions with Crawford to replace MPI,
contrary to IBM’s “best efforts” commitment to MPI; that claim does not depend on whether
IBM concealed those discussions. Second, IBM’s refusal to use “best efforts” was obvious in
December 2010 when IBM gave MPI notice that it would allow SOW-P to expire. Third, even if
MPI were somehow unaware of the claim when it accrued, “New York does not apply the
‘discovery’ rule to statutes of limitations in contract actions.” ACE Sec. Corp. v. DB Structured
Prods., Inc., 36 N.E.3d 623, 628 (N.Y. 2015). Finally, the allegedly concealed fact -- that IBM
was in talks with another transforms vendor during 2010 -- was expressly contemplated in the
parties’ June 2010 INLA, which allowed the parties “to negotiate or enter into similar
relationships with others.” Because the breach of contract claim accrued no later than September
2011 and is subject to the three-year contractual limitations period, the claim is untimely.
2. Declaratory Judgment – Count III
The Complaint seeks a declaration that a new GA date occurred in 2010 or 2011, when
IBM made the jogging enhancement available to its customers, triggering a new ten-year
royalties period. This claim is time barred. “A cause of action for declaratory relief accrues
when there is a bona fide, justiciable controversy between the parties. . . . A dispute matures into
a justiciable controversy when a plaintiff receives direct, definitive notice that the defendant is
repudiating his or her rights.” Zwarycz v. Marnia Const., Inc., 958 N.Y.S.2d 440, 442–43 (2d
Dep’t 2013). According to the Complaint, “[a]t all relevant times since 2011, MPI has asserted
to IBM that a new GA date occurred in 2011,” and “IBM has asserted, to the contrary, that the
one and only new GA date . . . that occurred after the initial 2000 GA date was the GA date in
June 2005.” Thus, by its own admission, MPI had direct and definitive notice in 2011 that IBM
was repudiating MPI’s position regarding a new GA date, and a justiciable controversy on that
issue has existed since that time. See Zwarycz, 958 N.Y.S.2d at 442–43 (holding that cause of
action for declaratory judgment regarding plaintiff’s ownership interests in defendant
corporations accrued when plaintiff received letter denying him access to the corporations’
records); Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 757 F.2d 523, 528 (2d Cir. 1985) (“A
party’s assertion of fact in a pleading is a judicial admission by which it normally is bound
throughout the course of the proceeding.”).
MPI is incorrect that its declaratory judgment claim did not accrue until July 2015
because IBM’s failure to recognize a new GA date was an anticipatory breach until then. “The
primary purpose of declaratory judgments is to adjudicate the parties’ rights before a ‘wrong’
actually occurs in the hope that later litigation will be unnecessary.” Klostermann v. Cuomo, 463
N.E.2d 588, 595 (N.Y. 1984). Thus, a declaratory judgment claim accrues “when a plaintiff
receives direct, definitive notice that the defendant is repudiating his or her rights,” not when the
plaintiff’s rights are actually injured. See Zwarycz, 958 N.Y.S.2d at 442–43.
MPI asserts, incorrectly, that the accrual date of this claim should be delayed because
MPI was unaware of the three-year contractual limitations period in the contract, which its
predecessor i-data negotiated, and because “the breach is derived from unknown facts the nonbreaching party had no reason to unearth.” First, MPI admits that it is bound by the contract as idata’s successor in interest. Second, MPI’s assertion that it was unaware of the claim is
contradicted by the Complaint as explained above. Finally, “New York does not apply the
‘discovery’ rule to statutes of limitations in contract actions.” ACE Sec. Corp, 36 N.E.3d at 628.
The declaratory judgment claim is therefore untimely.
3. Breach of Covenant of Good Faith – Count IV
The Complaint alleges in Count Four that IBM breached the implied covenant of good
faith and fair dealing on May 27, 2010, during a telephone conversation when IBM persuaded
MPI to deliver the enhanced transforms product with jogging for Boeing. The claim is that the
breach arose from IBM’s failure to disclose in that conversation (1) that IBM had been in
discussions with Crawford since February 2010 about Crawford replacing MPI; and (2) the
conclusions that IBM had reached in its investigation about the non-migration of Version 1
customers to Version 2. As noted above, a breach of contract claim accrues at the time of the
breach. Hahn Auto. Warehouse, 967 N.E.2d at 1190. Applying the contractual three-year statute
of limitations to the May 27, 2010, accrual date, Count Four is time barred.
4. Breach of Covenant of Good Faith – Count V
Count Five alleges that IBM breached the implied duty of good faith and fair dealing by
providing certain features of Version 2 to customers owning Version 1 free of any additional
charge, thus depriving MPI of royalties. The Complaint states that this conduct began in 2005,
and IBM admits that it first issued a Version 1 software update containing Version 2 features in
January 2007, and last did so no later than 2009. Plaintiff does not dispute these dates.
Measured from either date, Count Five is time barred.
Plaintiff argues that the breach was continuous at least until July 2015, when MPI was no
longer entitled to receive royalties on Version 2, and that MPI is entitled to royalties for at least
the three years prior to the filing of the lawsuit in 2015. This argument is incorrect. First, it
confuses the breach with its damages. IBM’s alleged wrongful acts -- the breach -- occurred no
later than 2009 when it provided the transform updates to Version 1 customers without
committing them to pay additional royalties. The consequences of the alleged breach -- the
damages -- occurred over the years the additional royalties would have been payable had they
been secured. Second, even if IBM’s non-sharing of hypothetical royalties were to constitute a
continuing course of wrongful conduct, Plaintiff has not cited and research has not uncovered
any authority indicating that such conduct would toll or extend the statute of limitations under
New York law. Cf. West Haven v. Commercial Union Ins. Co., 894 F.2d 540, 545 (2d Cir.1990)
(applying Connecticut law course of conduct doctrine to an insurer’s contractual duty to defend,
such that the statute of limitations on claim of breach of that duty did not begin to run until the
duty had ended); RIDE, Inc. v. APS Tech., Inc., No. 11 Civ. 1721, 2015 WL 9581728, at *9 (D.
Conn. Dec. 30, 2015) (observing that under Connecticut law, the “continuing course of conduct
doctrine tolls the statute of limitations . . . [but] is unclear about whether the . . . doctrine applies
to cases . . . that sound in contract,” and concluding that it would not).
Plaintiff also argues that equitable estoppel saves this claim from being time barred. The
Complaint pleads that Defendant concealed its course of conduct and, therefore, the limitations
period was “tolled” 2 until October 2015 when Plaintiff learned about IBM’s provision of Version
2 features to Version 1 customers. This argument fails as a factual matter because MPI admits in
the Complaint that “MPI was not in fact deceived by IBM’s attempt at deception” and, prior to
May 2010, “was able to derive what it regarded as incontrovertible proof that version one
customers had been able to upgrade to version two.” See Bellefonte, 757 F.2d at 528 (“A party’s
assertion of fact in a pleading is a judicial admission by which it normally is bound throughout
New York courts do not use the term “equitable tolling.” Rather, “New York appears to use the
label ‘equitable estoppel’ to cover both the circumstances ‘where the defendant conceals from
the plaintiff the fact that he has a cause of action’” -- to which the Second Circuit and some state
courts apply equitable tolling -- and “where the plaintiff is aware of his cause of action, but the
defendant induces him to forego suit until after the period of limitations has expired.” Pearl v.
City of Long Beach, 296 F.3d 76, 82 (2d Cir. 2002) (quoting Joseph M. McLaughlin, Practice
Commentaries, N.Y. C.P.L.R. C201:6, at 63 (McKinney 1990)).
the course of the proceeding.”). The argument also fails as a matter of law because equitable
tolling applies only when a “plaintiff was induced by fraud, misrepresentations or deception to
refrain from filing a timely action.” Zumpano, 849 N.E.2d at 929. That condition is not satisfied
here. Additionally, “knowledge of the occurrence of the wrong on the part of the plaintiff is not
necessary to start the Statute of Limitations running in a contract action,” Ely-Cruikshank, 615
N.E.2d at 987 (internal quotation marks and citation omitted). Because the three-year limitations
period began running no later than 2009, Count Five is time barred.
B. The Unjust Enrichment Claim – Count II
IBM is granted summary judgment on the merits of MPI’s unjust enrichment claim. The
Complaint alleges that IBM was unjustly enriched from collecting royalties from its customers
for the 2010 transform with jogging after July 2015, without sharing that revenue with MPI.
MPI seeks the equitable remedy of, in effect, declaring the enhanced transform a new Product,
and awarding MPI royalties for ten years from the putative GA date of that new Product. MPI
alleges that IBM’s not sharing these royalties was unjust because IBM failed to make good on its
assurance to MPI that MPI’s concerns about royalty compensation would be addressed.
“[A] claim alleging unjust enrichment may not be maintained where there is a valid and
express agreement between the parties which explicitly covers the same specific subject matter
for which the implied agreement is sought.” MT Prop., Inc. v. Ira Weinstein & Larry Weinstein,
LLC, 855 N.Y.S.2d 627, 628 (2d Dep’t 2008). Here, the parties’ agreement specifically
prescribes MPI’s rights in exchange for providing the jogging feature to IBM. Amendment 4
provides that the “Cost” for “Support of Jogging in the Transforms” with a due date of May 28,
2010, is “EUR10,000, payable upon successful Customer acceptance.” Amendment 4 also
contains an integration clause stating that “this Amendment and the subject Agreement are the
complete and exclusive statement of the agreement between the parties, superseding all
proposals or other prior agreement, oral or written, and all other communications between the
parties relating to this subject.” The integration clause must be enforced according to its terms
and precludes the unjust enrichment claim. See Primex Int’l Corp. v. Wal-Mart Stores, Inc., 679
N.E.2d 624, 627 (N.Y. 1997) (an integration clause “require[s] full application of the parol
evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms
of the writing”).
Objection to Order Denying Leave to Amend
MPI seeks to amend the Complaint to add copyright infringement claims. Judge Freeman
concluded that “MPI has not shown good cause for its late proposed amendment, as required by
Rule 16,” and “even if Rule 16 were not to stand as a bar to amendment, the fact that the
amendment would cause undue prejudice to IBM and significant delay in the resolution of this
action militate against permitting the amendment under Rule 15.” MPI argues in its objection
that Judge Freeman misapplied the good cause standard under Rule 16 and erred in finding
undue delay by MPI and prejudice to IBM under Rule 15. Judge Freeman’s Order is not clearly
erroneous or contrary to law and is therefore affirmed.
“Where, as here, a scheduling order governs amendments to the complaint, the lenient
standard under Rule 15(a), which provides leave to amend shall be freely given, must be
balanced against the requirement under Rule 16(b) that the Court’s scheduling order shall not be
modified except upon a showing of good cause.” Holmes v. Grubman, 568 F.3d 329, 334–35
(2d Cir. 2009) (internal quotation marks and citations omitted). Good cause under Rule 16
depends on the moving party’s diligence and exists where the deadline to amend the pleadings
could not have been met despite the moving party’s efforts. Parker v. Columbia Pictures Indus.,
204 F.3d 326, 339–40 (2d Cir. 2000). Even under the more lenient standard of Rule 15, “a
district court has discretion to deny leave for good reason, including futility, bad faith, undue
delay, or undue prejudice to the opposing party.” Holmes, 568 F.3d at 334 (quoting McCarthy v.
Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007)).
MPI has not demonstrated diligence sufficient to warrant leave to file a Fourth Amended
Complaint at this late stage in the proceedings. MPI first discovered the “possible infringement
of copyright” in October 2015, when it obtained documents in discovery that turned out to be
privileged and inadvertently disclosed by IBM. MPI received other, non-privileged documents
supporting the proposed copyright claims in discovery on February 29, 2016. MPI argues that
had Judge Freeman managed the case differently, MPI could have filed as early as June 2016. In
any event, MPI did not seek leave to amend the Complaint until October 24, 2016, after
discovery had ended and after IBM had moved for summary judgment and that motion was fully
Allowing amendment now, when all of the existing claims are subject to dismissal on
summary judgment, would be akin to commencing a new lawsuit, subjecting IBM to another
round of discovery and motion practice regarding the proposed copyright claims after the past 18
months of litigation. See Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120, 126 (2d Cir. 2014)
(affirming denial of leave to amend filed after the defendant moved for summary judgment
because of the prejudice that would result from the “significant delay and expense associated
with further, belated discovery” on the proposed claims). Judge Freeman’s denial of leave to
amend was not clearly erroneous or contrary to law and the objection is therefore overruled. 3
To the extent that a de novo standard were held to apply, Judge Freemans’s denial of leave to
amend is affirmed for the reasons stated in the text above.
For the foregoing reasons, IBM’s motion for summary judgment is GRANTED, and
MPI’s Objection to Judge Freeman’s November 14, 2016, Order is OVERRULED.
The Clerk of Court is directed to close the motions at Docket No. 168 and Docket No.
Dated: February 6, 2017
New York, New York
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