ANITA B. BRODY, District Judge.
This case addresses a dispute between Defendant International Business Machines Corporation ("IBM") and Plaintiff GlassHouse Systems, Inc. ("GlassHouse"), a company authorized to sell IBM products. GlassHouse alleges that IBM broke its promise to give exclusive favorable pricing when IBM gave a competing business favorable pricing for a major sales opportunity that GlassHouse had spent time developing. On March 16, 2009, 607 F.Supp.2d 709 (E.D.Pa.2009), the Court dismissed four of GlassHouse's six claims under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. IBM now requests summary judgment with respect to GlassHouse's two remaining claims: promissory and equitable estoppel. I will grant this motion in part; IBM is entitled to judgment as a matter of law on the equitable estoppel claim, but not on the promissory estoppel claim.
IBM is a major technology company that manufactures computer products and offers services related to those products. IBM contracts with thousands of independent businesses (business partners or "BPs") to market IBM services and products to end-user customers ("end-users"). The contract that IBM uses to authorize these BPs to market on its behalf is known as a Business Partner Agreement.
GlassHouse has been an IBM-authorized BP since 1998, and the companies have periodically renewed their Business Partner Agreement ("the Agreement"). The Agreement describes IBM's relationship with a BP and explains the terms under which BPs may market IBM products to end-users. The Agreement does not describe protocols for how BPs should interact with each other. Some material provisions of the Agreement are:
Pl.'s Opp. Mot. Dismiss Ex. A at 19, 25, ECF No. 10.
GlassHouse is one of only thirteen BPs ("z-BPs") that markets IBM's System z products and services.
The central component of the ODP program is the discount itself. The program provides that when a z-BP performs significant, sustained sales and marketing activities to successfully develop an opportunity with an end-user, IBM will give it a reduced wholesale price on System z products. In August 2007, the ODP discount for z-BPs was generally 21% below list price.
The ODP program includes rules that IBM requires z-BPs to follow and promises about how IBM will treat the z-BPs. Together, these protocols enable z-BPs to notify IBM of competition amongst the z-BPs so that IBM can regulate the competition when necessary. IBM communicated the protocols to z-BPs at advisory council meetings, but the protocols were not written terms of the Business Partner Agreements. After the events that gave rise to this lawsuit, IBM distributed a written description of the ODP program protocols.
One ODP program rule is that the thirteen z-BPs must engage in a process called "self-policing" amongst themselves. If a z-BP suspects that another z-BP might be discussing a sales opportunity with the same end-user, the first z-BP must contact the second z-BP directly to ask whether the second z-BP intends to request an ODP discount from IBM. If the second z-BP answers that it will seek ODP, and this leads to disagreement as to who qualifies for ODP on the opportunity, then the z-BPs must contact IBM to resolve the conflict by conducting a review. In an ODP review, IBM considers both z-BPs' documentation reflecting their marketing activities to determine whether one, both, or neither z-BP qualifies for the ODP discount. If a z-BP is not awarded ODP, it is permitted to continue to negotiate with the end-user using a non-discounted price; however, a losing z-BP is unlikely to try to compete with a z-BP that has been rewarded the substantial 21% discount. The protocols for self-policing and ODP reviews that IBM created for z-BPs allow z-BPs to discover and resolve conflicts before multiple z-BPs spend considerable time and resources to develop the same sales opportunity.
In contrast, in a noncompetitive situation, a z-BP does not seek official confirmation of its ODP discount on an opportunity until it submits a special bid form for the project to IBM. If more than one z-BP requests ODP on their bid forms for an opportunity, IBM conducts a certification review at that time to determine whether one, both, or neither z-BP qualifies for the ODP discount. The certification review is similar in substance to the ODP review, except that it is conducted by different IBM employees.
Once ODP is awarded in a competitive situation, a z-BP that did not qualify for ODP is "locked out" from ODP for a minimum period of time. A z-BP who loses in an ODP or certification review cannot challenge the decision for ninety days, effectively giving the other z-BP a period in which it enjoys exclusive favorable pricing for a given sales opportunity. Zozzaro Dep. 103:18-24, 377:1-379:3, Feb. 25, 2010; Osborn Dep. 137:3-12, March 4, 2010; Pl.'s Opp. Mot. Summ. J. Ex. 28; see Zozzaro Dep. 210:8-11; Pl.'s Opp. Mot. Summ. J. Exs. 11, 46. IBM promised that there were two other ways a z-BP would secure exclusive ODP without a formal ODP review decision from IBM. First, if a BP self-policed and the second z-BP answered that it would not seek ODP for the opportunity, then the second z-BP was locked out from claiming ODP for that opportunity for ninety days. Zozzaro Dep. 103:13-24, 377:1-379:3; see id. at 210:8-11; Pl.'s Opp. Mot. Summ. J. Exs. 11, 41. Second,
The principal impetus for creating the ODP program was incidents in which one z-BP spent considerable time developing a sales opportunity with an end-user and, just prior to finalizing the sale, another z-BP who had not performed comparable development activity entered with a lower bid to win the sale and take away the client's account. The ODP program ostensibly benefits IBM and z-BPs—it creates incentives for z-BPs to spend significant unpaid time developing opportunities, and protects z-BPs when they do so.
GlassHouse engaged in significant marketing activity to sell IBM products and services to a large financial services company, SEI Investments, Inc. ("SEI"). In March 2006, GlassHouse converted SEI to IBM technology. In late 2006, GlassHouse began discussing a significant upgrade with SEI. In early August 2007, GlassHouse submitted a series of special bid forms to IBM for the SEI upgrade.
Also in early August 2007, a GlassHouse employee told GlassHouse Senior Vice President Joseph Zozzaro that he had heard a rumor that competitor z-BP Mainline intended to pursue the SEI opportunity. On August 13, Zozzaro self-policed by e-mailing Mainline System z Director Santa Kraft. Zozzaro stated GlassHouse's intention to claim ODP pricing for the SEI opportunity and asked whether Mainline intended to provide SEI with ODP pricing.
After more than twenty-four hours passed without a response from Mainline, Zozzaro e-mailed GlassHouse's IBM representative, Steve Shiflett, and requested that IBM conduct an ODP review. Shiflett forwarded the request for an ODP review to IBM System z Business Partner Manager, John Dieker, to initiate a review. Before starting a review, Dieker asked Mainline's IBM representative, Jeff Rogers, to contact Mainline to see if they were assuming ODP on the opportunity. On August 15, 2007, Mainline told IBM that it would not request an ODP discount and that it declined to participate in a review.
On September 7, 2007, however, Mainline submitted a special bid form to IBM for the SEI opportunity and requested ODP. Because GlassHouse was also claiming ODP for the opportunity, IBM conducted a certification review of both z-BPs' activity. Six days later, IBM awarded both z-BPs the same ODP price. With the ODP discount, Mainline consummated the SEI deal.
GlassHouse asserts that IBM's awarding of ODP to Mainline breached IBM's promises about maintaining an exclusive period of discounted pricing. In particular, IBM's promises meant it should not have given an ODP discount to Mainline for a minimum of ninety days beginning in mid-August.
GlassHouse filed suit against IBM asserting claims of promissory estoppel,
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir.1997). "[T]he substantive law will identify which facts are material. 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The factual dispute is genuine if the evidence would allow a reasonable jury to return a verdict for the nonmoving party. Id.
The party moving for summary judgment bears the initial burden of demonstrating that there are no material facts supporting the nonmoving party's legal position. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party carries this initial burden, the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
GlassHouse's remaining claims are promissory estoppel and equitable estoppel. Both claims are based on protocols that IBM allegedly promised to follow in its ODP program. GlassHouse claims that IBM made two specific promises in the program relevant to the present case. First, if a z-BP performed significant and sustained sales and marketing activities to successfully develop an end-user's interest in System z technology, IBM would reward the z-BP by giving it the substantial ODP discount. See Compl. ¶¶ 44, 60. Second, if the z-BPs followed protocols to self-police and request ODP reviews, a z-BP who confirmed they were the only z-BP to receive ODP on a sales opportunity would have a ninety-day period of ODP exclusivity. Id. GlassHouse asserts that it reasonably relied on these promises in performing three years of significant and sustained sales activities with an end-user, SEI, and it reasonably relied on these promises in notifying competitor z-BP Mainline about the SEI opportunity. Id. ¶¶ 34, 45, 62, 63. When IBM awarded ODP to Mainline for
IBM moves for summary judgment on both claims under Fed.R.Civ.P. 56 and presents three arguments. First, IBM argues that there is insufficient evidence to support the existence of a clear and unambiguous promise necessary to establish a promissory estoppel claim. Second, IBM argues that GlassHouse has not identified facts necessary to prevail on an equitable estoppel claim. Third, IBM argues the parties' Agreement legally precludes GlassHouse from bringing both estoppel claims. I consider each argument in turn.
Traditionally, "promissory estoppel" is used to enforce a promise in the absence of bargained-for consideration. Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821, 824 (2d Cir.1994). Promissory estoppel may also be used to provide relief to a party whose contract is unenforceable under the Statute of Frauds.
IBM argues that there is insufficient evidence to support the first element of GlassHouse's claim: the existence of a clear and unambiguous promise. IBM admits that the key components of its ODP program have existed since 2002. IBM admits: (1) it told z-BPs it would award an ODP discount for significant and sustained marketing activities; (2) z-BPs were required to engage in self-policing with other z-BPs; and (3) it conducted reviews to determine which z-BPs deserved ODP when self-policing led a z-BP to request an ODP review. The only material facts that the parties dispute relate to when a z-BP became entitled to exclusive ODP pricing because the competing z-BP was "locked out." IBM argues an ODP lock-out period did not exist in August 2007 or, in the alternative, the lock-out period was not a clear and unambiguous promise communicated to GlassHouse. This factual dispute is critical because it determines whether IBM promised GlassHouse exclusive ODP pricing on the SEI opportunity through September 2007.
GlassHouse has submitted evidence to show that the ODP program included a lock-out period prior to and in August 2007. GlassHouse Senior Vice President Joseph Zozzaro testified that the lock-out period was communicated to z-BPs "in advisory council meetings." Zozzaro Dep.
Statements by IBM employees support Zozzaro's testimony about the existence of a lockout. In a 2007 e-mail to a coworker, IBM representative Clint Osborn wrote: "[I]t is Pre-sales practice that if [a BP] withdraws from an ODP Review or if ODP pricing is not granted the [BP] must wait 90 days or until the opportunity becomes redefined." Pl.'s Opp. Mot. Summ. J. Ex. 54. In 2010, Osborn's testimony is still that "[o]nce you ... fail or you withdraw [from the ODP process], you're locked out for 90 days or until the definition of the project changes, something like that." Osborn Dep. 137:5-8.
More specifically, one could infer from contemporaneous e-mails that the IBM employees responsible for z-BP relations believed that Mainline was locked out from requesting ODP in September 2007. On September 7, IBM client manager Steve Shiflett appeared confused by the certification review initiated for the SEI opportunity and e-mailed IBM System z Business Partner Manager John Dieker: "not sure what changed but if Mainline is the other partner—they say they didn't qualify for ODP on 8/14." Pl.'s Opp. Mot. Summ. J. Ex. 41. That evening, Dieker wrote to another coworker:
Id. (ellipses in original). Dieker e-mailed again three days later: "We do need to cancel the CERT REVIEW for System z... due to the fact that they went to kick off a ODP review back in AUG. And Mainline declined." Id. at Ex. 43.
Statements by IBM employees after Mainline was given ODP also suggest that IBM employees familiar with promises made to z-BPs believed Mainline had been locked out. After the September review decision was announced, IBM representative Jim Homer e-mailed a coworker requesting that the decision to award Mainline ODP be reviewed because "the `self-policing' policy System z brand channels has promoted has been directly subverted." Id. at Ex. 51. IBM launched an internal investigation into the matter. Notes suggest that IBM representatives that oversee z-BPs such as Jeff Rogers, John Dieker, and Steve Shifflett may have stated to investigators that they believed "when Mainline declined, they were locked out for 90 days." Id. at Ex. 27.
September 2007 e-mails from the z-BPs themselves also suggest the z-BPs believed IBM had promised to apply a lock-out period to Mainline. Before Mainline attempted to request ODP from IBM, Mainline representative Santa Kraft emailed his coworkers: "Keep in mind that IBM's stance will probably be that we responded we did not have ODP, and will say that response applies to the opportunity until fulfilled." Id. at Ex. 31. After ODP was awarded to Mainline, GlassHouse representative Zozzaro e-mailed IBM representative Jim Homer emphatically stating: "We clearly were the only BP to qualify for ODP pricing as a result of Mainline backing out, withdrawing, declining from an ODP review on 8/14." Id. at Ex. 53.
The reasonableness of Zozzaro's testimony about the general protocols that IBM had communicated to GlassHouse
Id. at Ex. 11. While not direct evidence of the protocols that existed in and prior to August 2007, the written policy could lend circumstantial support to Zozzaro's testimony. A reasonable jury could believe that if IBM admits it adopted these protocols in writing in 2008, it had done so verbally years earlier.
In sum, GlassHouse has produced sufficient evidence to show a genuine issue of fact exists regarding whether IBM clearly promised it would apply a lock-out period to a competing z-BP when a competing z-BP declined to participate in an ODP review. GlassHouse presents evidence from which a reasonable factfinder could conclude that both GlassHouse and System z IBM employees recognized that a lock-out period had been clearly promised in August 2007. Testimony and e-mails from both GlassHouse and IBM employees could support a factual finding that, pursuant to IBM's promises, Mainline should have been denied ODP on the SEI opportunity. The weight and credibility of the various submissions is not an appropriate matter to consider on this motion. Accordingly, I will not grant summary judgment on the promissory estoppel claim on this ground.
While promissory estoppel is based on a promise regarding the promisor's future conduct, equitable estoppel is based on a misrepresentation of an existing fact. 80 Nassau Assocs. v. Crossland Fed. Sav. Bank, 169 B.R. 832, 842 (S.D.N.Y.1994); Triology Variety Stores, Ltd. v. City Prods. Corp., 523 F.Supp. 691, 697 n. 3 (S.D.N.Y.1981). In New York, equitable estoppel requires: "`(1) conduct which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent that such conduct (representation) will be acted upon; and (3) knowledge, actual or constructive, of the true facts.'" Health-Loom Corp. v. Soho Plaza Corp., 272 A.D.2d 179, 709 N.Y.S.2d 165, 167 (2000) (quoting Holm v. C.M.P. Sheet Metal, 89 A.D.2d 229, 455 N.Y.S.2d 429, 433 (1980)). IBM argues that GlassHouse has not identified facts to support the elements of an equitable estoppel claim; I agree.
IBM also asks that I reconsider whether the parties' contract ("the Agreement") legally precludes GlassHouse from bringing estoppel claims.
In Clark-Fitzpatrick, Inc. v. Long Island Rail Road Company, New York's highest court explained two doctrines its courts developed to determine if a plaintiff is precluded from asserting claims based on events that occur in a contractual relationship: one for tort claims and one for quasi-contract claims.
To apply the appropriate doctrine described in Clark-Fitzpatrick, a court must first identify a claim as based in tort or quasi contract. Quasi contracts "give rise to obligations more akin to those stemming from contract than from tort" and the obligations are imposed by law "to assure a just and equitable result." Bradkin v. Leverton, 26 N.Y.2d 192, 196, 309 N.Y.S.2d 192, 257 N.E.2d 643 (1970). Torts, in contrast, involve duties imposed "by law as a matter of social policy." Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 550, 583 N.Y.S.2d 957, 593 N.E.2d 1365 (1992). "In disentangling tort and contract claims," courts also consider "the nature of the injury, the manner in which the injury occurred and the resulting harm." Id. at 552, 583 N.Y.S.2d 957, 593 N.E.2d 1365.
Promissory estoppel claims do not fall easily into either category of tort or quasi contract. Litigants have brought claims in contract and tort, law and equity, all under the guise of promissory estoppel.
This kind of promissory estoppel is more akin to quasi contract than tort because it concerns the enforcement of a promise rather than an independent duty created by tort law. A promissory estoppel claim is also more quasi contractual than tortious if the injury to be remedied is like that suffered from a breach of contract, as opposed to the type of harm that a tort duty seeks to prevent such as a personal injury or property damage. Numerous New York courts have found the quasi-contract doctrine more appropriate than the tort doctrine for promissory estoppel. See, e.g., Reckson Operating P'ship, L.P. v. N.Y. State Urban Dev. Corp., 300 A.D.2d 291, 751 N.Y.S.2d 279, 280 (2002); Air Atlanta Aero Eng'g Ltd. v. SP Aircraft Owner I, LLC, 637 F.Supp.2d 185, 195-97 (S.D.N.Y.2009); Kwon v. Yun, 606 F.Supp.2d 344, 368 (S.D.N.Y.2009); Crowley v. VisionMaker, LLC, 512 F.Supp.2d 144, 154 (S.D.N.Y.2007); Spherenomics Global Contact Ctrs. v. vCustomer Corp., 427 F.Supp.2d 236, 253 (E.D.N.Y. 2006).
GlassHouse's promissory estoppel claim is based on the ODP program protocols: IBM's promises as to how it will conduct its relationship with its z-BPs. Compl. ¶ 20. GlassHouse argues it detrimentally relied on the promises, performing "its marketing and sales activities with confidence that the accounts it developed through its efforts would not fall into the hands of a different, `free riding' BP that
GlassHouse asks the Court to enforce IBM's promises, using GlassHouse's detrimental reliance on those promises as a substitute for consideration. This is the type of promissory estoppel described in Restatement (Second) of Contracts § 90. See Compl. ¶¶ 43-48; Pl.'s Surreply Mem. Opp. Mot. Summ. J. 18. The Clark-Fitzpatrick quasi-contract standard is more appropriate than a tort standard for this claim because the alleged obligations are "more akin to those stemming from contract than from tort." Clark-Fitzpatrick, 521 N.Y.S.2d 653, 516 N.E.2d at 193. IBM's obligation exists because of its promise to GlassHouse. The injury in this case is also the kind of harm that contract law traditionally seeks to remedy: the loss of a sales opportunity.
Therefore, I revisit the promissory estoppel claim under the quasi-contract doctrine of Clark-Fitzpatrick.
Taking the facts most favorably to the Plaintiff and applying the appropriate doctrine, GlassHouse's promissory estoppel is still not precluded by the parties' Agreement because IBM's promises are beyond its scope.
According to GlassHouse, IBM made a set of clear and unambiguous promises independent from the terms stated in their Business Partner Agreement: the ODP program protocols for the thirteen z-BPs. The Agreement discusses the topic of how a BP will receive pricing and discounts from IBM, but it does not detail the ODP program for z-BPs. In contrast, the ODP program protocols includes promises regarding when a z-BP would be entitled to ODP from IBM, how z-BPs should interact with each other (i.e. self-policing), how IBM would regulate competition amongst its z-BPs, and when a competing z-BP would be "locked out" from claiming ODP for a sales opportunity.
GlassHouse alleges that in reliance on IBM's promises about ODP, it engaged in
GlassHouse's promissory estoppel claim is based on IBM's promises regarding how IBM would treat competing z-BPs. GlassHouse argues that the Agreement does not cover how either party should or will interact with other z-BPs. IBM has not identified a provision of the Agreement that shows these matters are covered by the Agreement. From the record before me, a factfinder could agree with GlassHouse that the scope of the Agreement is limited to defining obligations between IBM, GlassHouse, and end-users. GlassHouse's promissory estoppel claim is like others that courts have found to not be precluded by the parties' contract. See, e.g., Satellite Tracking of People, LLC v. G4S PLC, No. 08-cv-0126, 2009 WL 2983032, *5-6, 2009 U.S. Dist. LEXIS 83466, *18-21 (M.D.Tenn. Sept. 14, 2009) (business relied on another company's oral promise when it provided products beyond the geographical scope of the parties' written agreement); Cardonet, Inc. v. IBM Corp., No. C-06-06637, 2007 WL 3256204, *3-4, 2007 U.S. Dist. LEXIS 83654, *8-10 (N.D.Cal. Nov. 5, 2007) (business relied on another company's promise to pay for software use that exceeded the parties' written agreement).
In sum, a genuine factual dispute exists between the parties as to whether the Agreement "clearly covers the dispute between the parties." Clark-Fitzpatrick, 521 N.Y.S.2d 653, 516 N.E.2d at 193. I will deny Defendant's motion for summary judgment on the promissory estoppel claim on this ground as well. See IIG Capital LLC v. Archipelago, L.L.C., 36 A.D.3d 401, 829 N.Y.S.2d 10, 14 (2007) (reinstating a quasi-contract claim because the agreement did not clearly cover the dispute in issue).
Summary judgment will be granted on count IV because GlassHouse has not identified sufficient facts to support an equitable estoppel claim. The motion will be denied as to Count I because there is a genuine dispute regarding whether the promises were made and, if made, whether those promises were covered by the parties' existing Agreement.
