Xerox Corporation v. Graphic Management Services Inc. et al
Filing
48
ORDER granting in part and denying in part 40 Motion for Summary Judgment; denying 43 Motion for a Change in Venue and Cross Motion for Summary Judgment. Signed by Hon. Michael A. Telesca on July 17, 2013. (MES)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
________________________________________
XEROX CORPORATION,
Plaintiff,
11-CV-6397
DECISION AND ORDER
v.
GRAPHIC MANAGEMENT SERVICES INC.,
GRAPHIC MANAGEMENT SERVICES, INC.,
MHW, INC., AND DAVID TABAH
Defendants,
________________________________________
INTRODUCTION
Plaintiff, Xerox Corporation (“Xerox” or “Plaintiff”), brings
this action for damages relating to Defendants’ alleged breach of
two lease agreements (the “March and April 2010 Lease Agreements”)
and a purchase agreement (the “Purchase Agreement”) for printing
equipment, supplies and services (collectively, the “Agreements”).
(Docket No. 5.)
Defendants, MHW, Inc.1 (“MHW”) and David Tabah
(“Tabah”) (collectively, “Defendants”)
answered the complaint and
asserted nine counterclaims for breach of contract, fraudulent
inducement, revocation, rescission, negligent misrepresentation,
breach of the duty of good faith and fair dealing, breach of an
1
In their Amended Answer, Defendants assert that MHW, Inc. is doing business as
“Graphic Management Services” and that Plaintiff incorrectly sued Graphic Management
Services Inc. and Graphic Management Services, Inc. Xerox states in its memorandum of law
that these entities were named because of ambiguities as to who entered into the agreements at
issue. (Xerox Mem. of Law at 5, Docket No. 40-3.) In the instant motion, Xerox seeks summary
judgment against MHW, Inc. only. The Court assumes that during discovery the parties will
resolve any ambiguity relating to whether the defendants Graphic Management Services, Inc. and
Graphic Management Services Inc. are properly defendants in this case.
Page -1-
express warranty, breach of the implied warranty of fitness for a
particular
purpose
and
breach
of
the
implied
warranty
of
merchantability. (Docket No. 35.)
Xerox now moves for summary judgment on its claims against
MHW, Inc., to dismiss all of the Defendants’ counterclaims except
their breach of contract claim, and for an order limiting damages
pursuant to the limitation of damages provisions in the Agreements.
(Docket No. 40.)
Defendants oppose the motion and cross move for
summary judgment on Xerox’s claims against Tabah. (Docket No. 43.)
Defendants also request a change of venue to the Central District
of California.
For the reasons discussed herein, the Court grants
in part and denies in part Plaintiff’s motion for summary judgment
and grants in part and denies in part Plaintiff’s motion to dismiss
Defendants’ counterclaims, and denies Defendants’ cross-motion for
summary judgment and their motion to change venue. The parties may
proceed to discovery on the amount of damages, on Defendants’
counterclaim for breach of contract, Defendants’ counterclaim for
revocation of acceptance and on Plaintiff’s claims against Tabah.
BACKGROUND
Local Rule 56
Local Rule 56(a)(2) requires a party opposing a summary
judgment motion to respond to each fact as to which the moving
party contends there is no genuine issue, and “if necessary,
additional paragraphs containing a short and concise statement of
Page -2-
additional material facts as to which it is contended there exists
a genuine issue to be tried.”
The material facts in the moving
party’s statement “will be deemed admitted for purposes of the
motion unless [they are] specifically controverted” by the opposing
party.
Here, Defendants submitted a counter statement of material
facts, however, the responses are, for the most part, conclusory
statements regarding the enforceability of the contract based on
their alleged counterclaims for, inter alia, fraud and breach of
contract. (Def. Counter Statement of Material Facts, Docket No. 435.)
While, pursuant to Rule 56 of the Federal Rules of Civil
procedure, the court must draw all factual inferences in favor of
the party against whom summary judgment is sought and view the
factual assertions in materials such as affidavits, exhibits, and
depositions
in
the
light
most
favorable
to
the
nonmovant,
a
nonmovant benefits from such factual inferences “only if there is
a ‘genuine’ dispute as to those facts.” See Scott v. Harris, 550
U.S. 372, 127 S.Ct. 1769, 1776 (2007). The law is well established
that
“conclusory
statements,
conjecture,
or
speculation”
are
insufficient to defeat a motion for summary judgment. See Kulak v.
City of New York, 88 F.3d 63, 71 (2d Cir.1996).
Therefore, because the Defendants have failed to sufficiently
controvert the facts contained in the Plaintiff’s statement of
material facts, those facts are deemed admitted for the purposes of
Plaintiff’s motion for summary judgment.
Page -3-
Although Defendants have
requested that the motion be postponed so that the parties may
conduct discovery pursuant to Rule 56 (d) of the Federal Rules of
Civil Procedure, the Court’s decision rests largely on the legal
effect of the unambiguous terms of the Agreements, of which both
parties are in possession.
Accordingly, for the issues decided in
this Decision and Order, discovery is not necessary.
However, as
discussed herein, the parties will have the opportunity to conduct
discovery on several claims that remain pending as well as on the
amount of Plaintiff’s damages.
The Agreements
In March 2010, the parties entered into a lease agreement for
the lease of an iGen4PFC printing press and related equipment. The
March
2010
Lease
Agreement
lists
the
customer
as
“Graphic
Management Services Inc.” and the lease was signed by Tabah.
The
parties also entered into a lease agreement in April 2010 and a
purchase
agreement
equipment.
documents,
in
January
2011
for
additional
printing
Although not listed as the customer on any of the
the
parties
agree
that
MHW
was
a
party
to
the
contain
the
Agreements.
The
March
and
April
2010
Lease
Agreements
following language: “Your obligation to make all payments, and to
pay any other amounts due or to become due, is absolute and
unconditional
and
not
subject
to
delay,
reduction,
set-off,
defense, counterclaim or recoupment for any reason whatsoever,
Page -4-
irrespective of Xerox’s performance of its obligations hereunder.”
The March and April 2010 Lease Agreements also state that each
lease “constitutes the entire agreement as to its subject matter”
and “supercedes all prior oral and written agreements.”
Agreements,
Defendants
also
agreed
that
“Xerox
Under the
disclaims
the
implied warranties of non-infringement and fitness for a particular
purpose.”
Further, the March and April 2010 Lease agreements each
state: “[t]his Agreement is a ‘finance lease’ under Article 2A of
the Uniform Commercial Code.”
The Agreements contain “Default & Remedies” provisions whereby
Defendants agreed to pay liquidated damages in the event of a
default.
The Agreements also provide that if the equipment fails
to perform as provided in the contracts, Defendants could request
that the equipment be repaired or replaced. Lastly, in a limitation
of liability clause, in the event of a default on Plaintiff’s part,
Defendants are limited to seeking direct damages in the amount of
$10,000, and they are prohibited from seeking “special, indirect,
incidental, consequential or punitive damages.”
The leased and purchased equipment was installed, but since
early 2011, Defendants have failed to make payments under the
Agreements.
There is no dispute that Defendants defaulted under
the Agreements.
In their counter complaint, Defendants claim that during the
negotiations of the Agreements, Plaintiff made certain statements
Page -5-
that induced
them
into
entering
the
equipment did not perform as promised.
agreements
and
that the
Defendants raise several
defenses and counterclaims relating to these alleged statements.
Defendants further allege that they notified Plaintiff of the
alleged deficiencies in the product and they were “forced to ...
lease additional equipment” to conduct their business.
However,
they allege that Plaintiff did not remove the leased equipment
until August 2011.
DISCUSSION
I. Venue
Defendants request a change of venue to the Central District
of
California.
28
U.S.C.
Section
1404
provides,
“[f]or
the
convenience of parties and witnesses, in the interest of justice,
a district court may transfer any civil action to any other
district or division where it might have been brought or to any
district or division to which all parties have consented.”
A
district court may consider, inter alia, the following factors when
determining whether to grant a motion to transfer venue: “(1) the
plaintiff's choice of forum, (2) the convenience of witnesses, (3)
the location of relevant documents and relative ease of access to
sources of proof, (4) the convenience of parties, (5) the locus of
operative facts, (6) the availability of process to compel the
attendance of unwilling witnesses, and (7) the relative means of
the parties.” New York Marine and General Ins. Co. v. Lafarge North
Page -6-
America, 599 F.3d 102, 112 (2d Cir. 2010)(quoting D.H. Blair & Co.,
Inc. v. Gottdiener, 462 F.3d 95, 106-7)). Plaintiff’s choice of
forum is generally entitled to substantial deference. See Gross v.
British Broadcasting Corp.,386 F.3d 224, 230 (2d Cir.2004). The
party moving
for
transfer must
show
by
clear
and
convincing
evidence that the factors favor the transfer. N.Y. Marine, 599 F.3d
at 113-114.
Further, where the parties have
contractually agreed
to litigate a dispute in a particular forum, the party seeking to
litigate in a different forum must “demonstrate exceptional facts
why the forum-selection clause should not be enforced.” Beatie and
Osborn, LLP v. Patriot Scientific Corp., 431 F.Supp.2d 367, 397
(S.D.N.Y.2006).
Here, the Agreements contain a forum-selection clause naming
the federal and state courts in Monroe County, New York as the
forum of choice. (Pl. Exhibits A and E at ¶ 31, and H at ¶ 24.)
Xerox chose to bring this lawsuit in the Western District of New
York pursuant to the Agreements and because it is a New York
corporation doing business in Monroe County.
after the
filing
of the
instant
lawsuit,
More than a year
Defendants
seek
to
transfer this case to the Central District of California contending
that the witnesses reside is California and that California is the
locus of operative facts. Further, they contend that MHW is a small
business and litigating this case in the Western District of New
York would be burdensome.
Page -7-
Considering all of the relevant factors and giving substantial
deference to Plaintiff’s choice of forum and the forum-selection
clause, this Court finds that Defendants have not shown by clear
and convincing evidence that venue is more appropriate in the
Central District of California or that the forum-selection clause
should be disturbed. Therefore, Defendants’ motion for a change in
venue is denied.
II. Claims against Tabah
Defendants seek summary judgment on Plaintiff’s claims against
Tabah contending that Tabah was not a party to the Agreements and
that the Agreements do not contain a personal guarantee by Tabah.
(Def. Mem. of Law at 3.) Tabah asserts that he signed the documents
in his capacity as President of MHW. (Tabah Dec. at ¶¶ 5-6.) Xerox
contends that material issues of fact preclude Tabah’s motion for
summary judgment as “it [is] unclear on whose behalf he executed”
the Agreements as the customer is listed as Graphic Management
Services, Inc. on the Purchase Agreement and the March 2010 Lease
Agreement and Tabah states, “If there is a Graphic Management
Services, Inc., it is not an organization with which I am familiar,
and it is not affiliated with MHW, Inc. or me.” (Pl. Mem. of Law at
11; Tabah Dec. at ¶ 1.)
It appears that the Agreements may contain
typographical errors - listing Graphic Management Services, Inc. as
the customer, where the customer was actually MHW, which does
business as “Graphic Management Services.”
Page -8-
See supra note 1.
However, at this stage in the litigation, it is not for the Court
to resolve this dispute.
Xerox also contends that Tabah may be individually liable
under the Agreements.
At this stage in the litigation, prior to
any discovery, the Court finds that Tabah has not adequately
established that he is entitled to judgment as a matter of law on
the claims against him as an individual.
Neither party has
articulated its position as to Tabah’s potential liability as an
individual on the Agreements, and the record has not been fully
developed with respect to this issue.
Accordingly, the Court
denies Tabah’s motion for summary judgment without prejudice to
renew following discovery.
III. Xerox’s Motion for Summary Judgement against MHW for
Breach of the Agreements
Xerox moves for summary judgment on its claims against MHW for
breach of the Agreements.
A party is entitled to summary judgment
if it can demonstrate “that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of
law.” See Fed.R.Civ.P. 56(a). Where a contract is “unambiguous”
summary judgment is appropriate. See MBIA Inc. v. Federal Ins. Co.,
652 F.3d 152, 171 (2d Cir. 2011). “Contracts are construed to give
the intention of the parties effect, so an unambiguous contract
‘must be enforced according to the plain meaning of its terms.’” Id
(quoting Continental Ins. Co. v. Atlantic Cas. Ins. Co., 603 F.3d
Page -9-
169, 180 (2d Cir. 2010)). Whether the contract is ambiguous is a
question of law. Cont'l Ins. Co., 603 F.3d at 180.
Here, Xerox contends that the Agreements are unambiguous and,
based on the contents of the Agreements and the undisputed fact
that MHW defaulted under the Agreements, it is entitled to summary
judgment
against
MHW.
Defendants
do
not
contend
that
the
Agreements are ambiguous or that they did not default; rather, they
argue, inter alia, that they were fraudulently induced into signing
the Lease Agreements, that the Lease Agreements are unenforceable
for various
reasons,
Agreements.
They
and
also
that
Xerox
request
also
discovery
breached
on
the
their
Lease
various
affirmative defenses and counterclaims.
For the reasons discussed herein, the Court grants in part and
denies
in
part
Plaintiff’s
motion
for
summary
judgment.
Plaintiff’s motion is granted as to MHW’s liability under the
Agreements, but denied with respect to the amount of damages.
Plaintiff’s motion to dismiss Defendants’ counterclaims, other than
their claims for breach of contract and revocation of acceptance,
is granted.
Plaintiff’s motion to limit Defendants’ potential
damages on their breach of contract claim is also granted.
A. The “Hell or High Water” Clause
The March 2010 and April 2010 Lease Agreements contain the
following language: “Your obligation to make all payments, and to
pay any other amounts due or to become due, is absolute and
Page -10-
unconditional
and
not
subject
to
delay,
reduction,
set-off,
defense, counterclaim or recoupment for any reason whatsoever,
irrespective of Xerox’s performance of its obligations hereunder.”
(Pl. Exhibits A and E at ¶21.)
This clause, known as a “hell or
high water clause” is unambiguous and, under New York Law, is
generally enforceable.
See Wells Fargo Bank Northwest, N.A. v.
Taca Intern. Airlines, S.A., 247 F.Supp.2d 352, 360-361 (S.D.N.Y.
2002)(citing cases).
MHW does not contend that this language is
ambiguous or that, in general, it is an enforceable provision in a
contract.
payments
Further, MHW does not dispute that it failed to make all
under
the
March
and
April
2010
Lease
Agreements.
Accordingly, based on these undisputed facts and the clear and
unambiguous language of the March and April 2010 Lease Agreements,
Xerox is entitled to summary judgment on its claims for nonpayment, regardless of any claim by MHW that Xerox breached the
March and April 2010 Lease Agreements.
See id.
The Court also notes that in the March and April 2010 Lease
Agreements the parties agreed that the leases were finance leases
under Article 2A of the New York Uniform Commercial Code (“ New
York UCC”). (Pl. Exhibits A and E at ¶27.) While a transaction may
not qualify as a finance lease under the New York UCC definition of
a finance lease, the parties may agree that a lease be treated as
a finance lease, as the parties have here. See N.Y. U.C.C. § 2-A103(g) Off. Cmt. (“If a transaction does not qualify as a finance
Page -11-
lease, the parties may achieve the same result by agreement; no
negative implications are to be drawn if the transaction does not
qualify.”); see also CN Funding, LC v. Ensig Group, Ltd., 52 A.D.3d
273 (1st Dep’t 2008). Here, the parties clearly and unambiguously
agreed to treat the March and April 2010 leases as finance leases.
Under the New York UCC, a finance lease “is not subject to
cancellation, termination, modification, repudiation, excuse, or
substitution without the consent of the party to whom the promise
runs.” N.Y. U.C.C. §2-A-407(b); N.Y. U.C.C. §2-A-407(b) Off. Cmt.
2 (“The section requires the lessee to perform even if the lessor's
performance after the lessee's acceptance is not in accordance with
the lease contract.”).
Accordingly, whether the Court looks to the “hell or high
water clause” or the fact that the parties agreed that the March
and April 2010 Lease Agreements were finance leases, MHW was
obligated to make all payments under the March and April 2010 Lease
Agreements regardless of Xerox’s alleged breach.
Therefore, Xerox
is entitled to summary judgement on its claim of non-payment under
the leases against MHW.
B. Defendants’ Claims of Fraudulent Inducement and Negligent
Misrepresentation
MHW argues that its allegations of fraudulent inducement and
negligent misrepresentation are sufficient to defeat Xerox’s motion
for summary judgment on the March and April 2010 Lease Agreements
and that Xerox’s motion for summary judgment is premature as
Page -12-
Defendants have not had the opportunity to conduct discovery on
these claims. (Def. Mem. of Law at 3-5.)
In addition to the fact that Defendants specifically agreed
that their obligation to perform under the leases was “absolute and
unconditional
and
not
subject
to
delay,
reduction,
set-off,
defense, counterclaim or recoupment for any reason whatsoever,
irrespective
of
Xerox’s
performance
of
its
obligations
hereunder[,]” the March 2010 and April 2010 Lease Agreements also
provide that each lease “constitutes the entire agreement as to its
subject
matter”
agreements.”
and
“supercedes
all
prior
oral
(Pl. Exhibits A and E at ¶31.)
and
written
Based on this
language, the Court finds that MHW is foreclosed from asserting a
claim for fraudulent inducement or negligent misrepresentation and
that discovery is not necessary on these claims, because the Court
need only look to the plain language of the leases to decide this
issue. See Marine Midland Bank, N.A. v. CES/Compu-Tech, Inc., 147
A.D.2d 396, 397-98 (1st Dep’t 1989)(granting summary judgment on
claim of fraudulent inducement based on the following language:
“this Agreement set[s] forth the entire understanding of the
parties hereto with respect to the subject matter thereof and may
be modified only by a written instrument” and the signatory “waives
... the right to assert defenses, setoffs and counterclaims ... in
any action or proceeding in any court arising on, out of, under, by
virtue of, or in any way relating to this Note or the transactions
Page -13-
contemplated hereby”); see also Frankel v. ICD Holdings S.A., 930
F.Supp.54, 61-63 (S.D.N.Y. 1996); cf. Manufacturers Hanover Trust
Company v. Yanakas, 7 F.3d 310, 317 (2d Cir. 1993)(holding that a
“generalized boilerplate” merger clause was insufficient to waive
a claim for fraudulent inducement because the contract “contains no
disclaimer as to the validity, regularity, or enforceability of the
[contract] itself.”).
While a fraudulent inducement claim would not be foreclosed
by a boilerplate merger clause, the language in the March and April
2010 Lease Agreements is sufficiently specific as to MHW’s waiver
of defenses and counterclaims and the prohibition of relying on
prior statements, to preclude MHW from reasonably relying on
representations made prior to the execution of the March and April
2010 Lease Agreements as the basis for any counterclaim. See
Marine
Midland
Bank,
147
A.D.2d
at
397-98.
Accordingly,
Defendants’ counterclaims for fraudulent inducement and negligent
misrepresentation are dismissed.
C. The Purchase Agreement
Xerox also seeks summary judgment on its claim that MHW
defaulted under the Purchase Agreement.
MHW has not raised any
material issues of fact with respect to the Purchase Agreement and
it has not addressed the Purchase Agreement in its opposition to
the instant motion. Further, Defendants’ counterclaims relate only
to the March and April 2010 Lease Agreements.
Page -14-
Accordingly, as MHW
has failed to address Xerox’s contention that it is entitled to
summary judgment on this claim and it has not raised any material
issues of fact relating to its default on the Purchase Agreement,
the Court grants Xerox’s motion for summary judgment on its claim
that MHW defaulted under the Purchase Agreement.
IV. Damages
Xerox also seeks summary judgment on the issue of damages
relating to MHW’s default under the Agreements and it seeks to
dismiss that portion of Defendants’ breach of contract claim which
seeks
damages
that
are
not
specifically
authorized
limitation of liability provisions in the Agreements.
by
the
Defendants
oppose the motion, contending that there are material issues of
fact relating to several of their defenses regarding damages and as
to Xerox’s calculation of damages.
A. Limitation of Liability
The Agreements each contain a limitation of liability clause
which limits Defendants’ recovery for any breach of the Agreements
to $10,000 or the amounts paid under the Agreements, whichever is
greater, and also precludes recovery of any “special, indirect,
incidental, consequential or punitive damages.” (Pl. Exhibits A and
E at ¶23, and H at ¶17.)
The Agreements also provide that the
leased or purchased equipment could be repaired or replaced if it
did not meet performance expectations. (PL. Exhibits A, E and H at
¶1.)
Page -15-
Defendants argue that the imitation of liability clause “fails
of its essential purpose,” and should not be enforced.
Parties to
a
generally,
contract
may
limit
the
available
remedies
and,
limitation of liability clauses are enforced “unless the specified
remedy ‘fails of its essential purpose.’” Maltz v. Union Carbide
Chems. & Plastics Co., Inc., 992 F.Supp. 286, 304 (S.D.N.Y. 1998)
(citing N.Y.U.C.C. § 2-719(2); Scott v. Palermo, 233 A.D.2d 869,
649 N.Y.S.2d 289, 290 (4th Dep't 1996); Rubin v. Telemet America,
Inc., 698 F.Supp. 447, 449-50 (S.D.N.Y.1988); Matco Elec. Co. v.
American Dist. Telegraph Co., 156 A.D.2d 840, 843, (3d Dep't
1989)).
“A
remedy
fails
of
its
essential
purpose
if
“the
circumstances existing at the time of the agreement have changed so
that enforcement of the limited remedy would essentially leave
plaintiff with no remedy at all.” Id (emphasis added).
Generally,
this is a question of fact for the jury, however, Courts have found
that
where
the
contract
provides
for
either
the
option
of
replacement of the goods or the contract price, and where the nonbreaching party has not alleged that the limited remedy provision
would “effectively deprive them of a remedy,” the limitation of
liability clause does not fail of its essential purpose. Id.
Here, Defendants allege that the limited remedy fails of its
essential purpose because they “lost the substantial benefit of
[the] lease of the iGen4 and purchase of ancillary equipment.”
However, Defendants do not plausibly allege that they were deprived
Page -16-
of any remedy at all, merely that the equipment failed to meet
their expectations. Accordingly, the Court finds that they have not
alleged that the limited remedy “fails of its essential purpose,”
because they could have requested replacement equipment or sued
Xerox, as they have here, for either the payments it made under the
Agreements or $10,000, whichever is greater. See id. Under these
circumstances, the Court finds that limitation of liability clause
is enforceable.
“Where a contract contains both an exclusive remedy provision
and a provision limiting consequential damages, the provision
limiting consequential damages will be enforced so long as it is
found not to be unconscionable[.]” Palermo, 233 A.D.2d at 290.
Whether a contract
provision is unconscionable is a question of
law for the court. Id. at 291. “[T]here is a presumption of
conscionability when the contract is between businessmen in a
commercial setting.” American Dredging Co. v. Plaza Petroleum Inc.,
799 F.Supp. 1335, 1339 (E.D.N.Y. 1992); see N.Y.U.C.C. § 2–719(3).
Defendants do not present any facts from which this Court could
conclude that the limitation of consequential damages clause is
unconscionable, and it is undisputed that the Agreements are
commercial
in
nature
and
businesses or businessmen.
that
the
parties
are
sophisticated
Accordingly, the Court finds that
Defendants may not recover consequential damages for any breach of
Page -17-
the Agreements by Xerox and its claims for consequential damages
are dismissed.
B. Mitigation of Damages
Defendants also argue that Xerox’s damages should be limited
because it failed to mitigate its damages. However, as Xerox
correctly points out, where a contract contains a valid liquidated
damages
provision,
“mitigation
of
damages
is
not
relevant.”
Delvecchio v. Bayside Chrysler Plymouth Jeep Eagle, Inc., 271 A.D.
2d 636, 639 (2nd Dep’t, 2000).
Here, the March and April 2010 Lease
Agreements contain liquidated damages provisions permitting Xerox
to recover, upon default, “all amounts then due, plus interest; the
minimum
monthly
payments
remaining
through
the
term
of
the
applicable lease agreement, subject to setoff” after notice of
default, and the amount due pursuant to the applicable leases’
purchase option and taxes, costs and attorneys’ fees. (Pl. Mem. of
Law at 3; Pl. Exhibits A and E ¶20.) The Purchase agreement
contains a similar liquidated damages provision. Defendants have
not alleged that the liquidated damages provisions are ambiguous,
unreasonable or invalid for any reason, or that there are material
issues of fact that preclude a determination of the enforceability
of this provision; and this Court finds that they are enforceable
as a matter of law. See Wells Fargo Bank Northwest, N.A. v. Taca
Intern.
Airlines,
S.A.,
315
F.Supp.2d
347,
349-352
(S.D.N.Y.
2003)(finding a liquidated damages provision was enforceable as
Page -18-
“reasonable in light of the then anticipated harm caused by the
default” under Article 2 of the New York Uniform Commercial Code
because it permitted liquidated damages after a demand and required
a set off for the fair market rental value.)
Accordingly, the
Court finds that Xerox was not required to mitigate its damages,
and Defendants’ claim to the contrary is dismissed.
C. Calculation of Damages
Defendants
also
contend
that
Xerox
has
not
adequately
explained its calculation of the fair market value of the leased
equipment and therefore there are material issues of fact with
respect to the amount of damages.
This Court agrees.
While Xerox
has submitted invoices for the equipment and the affidavit of an
employee at Xerox who attests to the fair market value of the
leased equipment, Xerox has not explained how this figure was
calculated.
Accordingly, Defendants are permitted to conduct
discovery on this issue to determine the proper amount of damages.
V. Defendants’ Other Counterclaims
A. Rescission and Breach of Express Warranty
Defendants’ counterclaims for rescission and breach of an
express warranty rest on its allegations that it was fraudulently
induced into the Agreements and that the Agreements fail of their
essential purpose.
As the Court has already determined that
Defendants are foreclosed from claiming fraudulent inducement based
on the plain meaning of the Agreements and that the Agreements do
Page -19-
not fail of their essential purpose, Defendants’ counterclaims for
rescission and breach of express warranty are dismissed.
B. Breach of the Implied Duty of Good Faith and Fair Dealing
Xerox contends that Defendants’ allegations of a breach of the
implied duty of good faith and fair dealing should be dismissed as
duplicative of their breach of contract claim. Defendants have not
responded
to
this
argument,
and
the
Court
finds
that
this
counterclaim is duplicative of Defendants’ breach of contract
claim. See Hall v. Earthlink Network, Inc., 396 F.3d 500, 508 (2nd
Cir.2005).
Accordingly, this counterclaim is dismissed.
C. Revocation
Defendants’ counterclaim for revocation of acceptance relates
to the March 2010 Lease of the iGen4PFC printing press. Under New
York U.C.C. § 2-A-517, “Revocation of acceptance must occur within
a
reasonable
time
after
the
lessee discovers
or
should
have
discovered the ground for it and before any substantial change in
condition of the goods which is not caused by the nonconformity.
Revocation is not effective until the lessee notifies the lessor.”
Defendants allege that they received the iGen4PFC printing press in
March 2010 and soon thereafter they notified Plaintiff of the
deficiencies in the product, thereby revoking their acceptance of
the product.
Xerox contends that because MHW alleges that it received the
iGen4PFC printing press in March 2010 and “continued using it”
Page -20-
until Xerox removed it in August 2011, it has not plausibly alleged
a claim for revocation of acceptance.
They further contend that
Defendants have failed to allege that they notified Xerox in
writing, withing a reasonable amount of time, as is required by the
contract.
However, the counter complaint does not allege that the
Defendants continued to use the iGen4PFC printing press, rather,
they allege that they leased other equipment to continue their
printing operations.
Based on the allegations in the counter complaint, viewed in
the light most favorable to the Defendants, the Court finds that
Defendants have plausibly alleged revocation of acceptance.
Defendants
have
not
alleged
the
exact
timing
of
the
While
alleged
revocation, nor have they alleged that they notified Xerox in
writing or that they actually discontinued used of the iGen4PFC
printing press within a reasonable amount of time, “heightened fact
pleading of specifics [is not required], but only enough facts to
state a claim to relief that is plausible on its face.” See Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
The cases cited
by the Defendants were all decided after discovery. At this stage,
the Court finds that Defendants may proceed to discovery on their
claim for a revocation of acceptance.
See Scheuer v. Rhodes, 416
U.S. 232, 236 (1974). (“The issue is not whether a plaintiff will
ultimately prevail but whether the claimant is entitled to offer
evidence to support the claims.” A court’s belief or disbelief in
Page -21-
a complaint’s factual allegations or its belief that a “recovery is
very remote and unlikely” does not factor into a decision under
Rule 12(b)(6).).
D. Breach of Implied Warranty of Fitness for a Particular
Purpose
Defendants’ counterclaim alleging a breach of the implied
warranty of fitness for a particular purpose also relates to the
March 2010 Lease of the iGen4PFC printing press. (Docket No. 35.)
The March 2010 Lease specifically states, “Xerox disclaims the
implied warranties of non-infringement and fitness for a particular
purpose.” (Pl. Exhibit A ¶27.) Defendants do not specifically
address this claim in their response to Plaintiff’s motion, and the
Court finds
that
the Defendants
cannot
now claim
that
Xerox
breached the implied warranty of fitness for a particular purpose
where
it
was
specifically
disclaimed
in
the
contract.
See Rochester-Genesee Regional Trans. Authority v. Cummins Inc.,
2010 WL 2998768, at *5 (W.D.N.Y. July 28, 2010)(citing Dallas
Aero., Inc. v. CIS Air Corp., 352 F.3d 775, 785 (2d Cir.2003) and
(Grumman Allied Indus. v. Rohr Indus., 748 F.2d 729, 735 (2d
Cir.1984)).
E. The Implied Warranty of Merchantability
Defendants Ninth Counterclaim alleges, without further factual
support, that the iGen4PFC printing press “was not fit for its
ordinary purpose and was unable to reliably support MHW’s printing
business.” They allege that the iGen4PFC printing press “failed to
Page -22-
operate
according
provided.”
The
to
the
Court
representations
finds
that
and
Defendants
specifications
have
failed
to
plausibly allege a claim for a breach of the implied warranty of
merchantability. “[A]t a bare minimum, the operative standard [on
a motion to dismiss] requires [a party] [to] provide the grounds
upon which his claim rests through factual allegations sufficient
to ‘raise a right to relief above the speculative level.’” See
Goldstein v. Pataki, 516 F.3d 50, 56-57 (2d Cir.2008) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “A formulaic
recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555.
defective
for
purposes
of
“To establish that a product is
a
breach
of
implied
warranty
of
merchantability claim, a plaintiff must show that the product was
not reasonably fit for its intended purpose, an inquiry that
focuses on the expectations for the performance of the product when
used
in
the
customary,
usual[,]
and
reasonably
foreseeable
manners.” Here, Defendants merely recite the elements of the cause
of action for breach of the implied warranty of merchantability
without providing any facts which could plausibly support the
claim.
For example, Defendants’ counter complaint does not allege
what were the actual expectations for performance of the iGen4PFC
printing press under ordinary circumstances or how their use of the
product fell within the range of its intended purpose.
Page -23-
Further, the New York UCC excludes finances leases from leases
which contain an implied warranty of merchantability.
§ 2-A-212(1).
N.Y. U.C.C.
Because the parties agreed to treat this lease as a
finance lease, no implied warranty of merchantability exists.
Accordingly, the Court finds that Defendants may not proceed with
their claim for a breach of the implied warranty of merchantability
and this counterclaim is dismissed.
CONCLUSION
For the reasons discussed herein, the Court grants in part and
denies in part Xerox’s motions for summary judgment and to dismiss
Defendants’ counterclaims.
The Court denies Defendants’ cross-
motion for summary judgment on the claims against Tabah and denies
their motion for a change in venue.
The parties may proceed to
discovery on the issue of damages, the claims against Tabah and
Defendants’ counterclaims for breach of contract and revocation of
acceptance.
ALL OF THE ABOVE IS SO ORDERED.
S/ MICHAEL A. TELESCA
HON. MICHAEL A. TELESCA
United States District Judge
Dated:
Rochester, New York
July 17, 2013
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