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

937 F. Supp. 2d 355, 2013 WL 1386264
CourtDistrict Court, E.D. New York
DecidedApril 3, 2013
DocketNo. CV 12-3574
StatusPublished
Cited by15 cases

This text of 937 F. Supp. 2d 355 (Avazpour Networking Services, Inc. v. Falconstor Software, Inc.) is published on Counsel Stack Legal Research, covering District Court, E.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Avazpour Networking Services, Inc. v. Falconstor Software, Inc., 937 F. Supp. 2d 355, 2013 WL 1386264 (E.D.N.Y. 2013).

Opinion

MEMORANDUM AND ORDER1

WEXLER, District Judge.

In this diversity action, Plaintiffs assert causes of action arising out of their business- relationship with Defendant. The complaint sets forth four causes of action pursuant to the laws of the State of New York, as follows: (1) gross negligence; (2) negligent misrepresentation; (3) breach of contract “(due to gross negligence),” and (4) breach of the implied covenant of good faith and fair dealing. Plaintiffs are Avazpour Networking Services, Inc., (“Avazpour” or “ANS”), Jim Avazpour and [357]*357Kristy Avazpour (collectively the “Individual Plaintiffs”). The Individual Plaintiffs are the founders of ANS. Jim Avazpour is the President and former CEO of ANS. Kristy Avazpour served as the company’s Vice President of Marketing from 2006 through October of 2010. Defendant is Falconstor Software, Inc. (“Falconstor”).

The facts supporting all of Plaintiffs’ claims arise out of Defendant’s performance in connection with an upgrade it performed to Avazpour’s storage area network, i.e. the system that allows ANS to remotely store and protect client data. Plaintiffs’ complaint alleges, inter alia, that the analysis of an expert with whom they have consulted demonstrates that when conducting the upgrade Falconstor “recklessly disregarded appropriate practices in the data-security and storage virtualization industry.”

Presently before the court is Defendant’s motion, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss. Defendant seeks dismissal of all claims asserted on behalf of the Individual Plaintiffs on the ground that they lack standing. Additionally, Defendant seeks dismissal of Plaintiffs’ first, second and third causes of action on the grounds that those claims, sounding in tort, are not viable under New York’s economic loss doctrine, and fail to allege the existence of any duty separate and apart from Defendant’s contractual obligations.

BACKGROUND

I. Factual Background

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

A. The Parties and Their Business Relationship

ANS.is- a company located.in Overland Park, Kansas that has been engaged, since 1997, in the business of providing information technology services. The Individual Plaintiffs are the founders of ANS and were, at relevant times, officers of that company. Each of the Individual Plaintiffs acted as personal guarantors of loans made to ANS in the course of its business operations.

Falconstor is a company located in this state that is engaged in the business, inter alia, of providing systems for storing and protecting client data. Prior to the incident forming the basis of Plaintiffs’ complaint, ANS had been a client of Falconstor for approximately six years. At some point prior to July 13, 2010, ANS entered into an agreement pursuant to which Falconstor was to upgrade ANS’s storage area network (the “Upgrade”). A storage area network, referred to as a “SAN” is defined in the complaint as “a collection of computers and storage devices that are connected over a high-speed optical network and are dedicated to storing and protecting data.” The Upgrade was to be performed on a Falconstor system that was then in use by ANS.

, The parties’ intentions and agreement with respect to the Upgrade are memorialized in two agreements — an “Evaluation Agreement,” entered into on April 22, 2010, and a “Statement of Work,” dated July 8, 2010. Both agreements are referenced in the complaint and have been provided to the court. The Evaluation Agree[358]*358ment allowed ANS to consider Falconstor software products and to borrow its hardware during an “Evaluation Period,” which could last as long as 180 days. After the Evaluation Period, ANS was to either license the evaluated programs and purchase the hardware, or return both to Falconstor.

The Statement of Work, dated July 8, 2010, followed the Evaluation Agreement and reflects the parties’ commitment to go forward with the Upgrade. In addition to setting forth and describing particular tasks to be performed by Falconstor, the Statement of Work states the estimated time frame for performance of each task. Tasks performed pursuant to the Statement of Work were estimated to be performed between July 13 and 17, 2010. Falconstor was to provide the hardware and memory upgrade to be used in the Upgrade. The Statement of Work also sets forth the responsibilities of ANS in connection with performance of the Upgrade. ANS was responsible for, inter alia, acquisition of certain hardware, software and cables, making key staff available, and providing access to computer systems and devices necessary to support the Upgrade. Falconstor was to install the hardware and perform the transition from the existing SAN to the new system.

The Statement of Work contains an appendix setting forth specific contractual terms. Those terms include a broad limitation of liability provision stating that Falconstor shall have no liability for, inter alia;

consequential, exemplary, special, indirect, incidental or punitivé damages or any other loss or expense (including lost profits) even if it has been advised of the possibility of such damage loss or expense.

The 'limitation of liability provision further states that it applies to:

all causes of acfion or claims in the aggregate, including without limitation to breach of contract, breach of warranty, negligence, strict liability, misrepresentations, claims for failure to exercise due care in the performance of services hereunder and any other torts.

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

B. The July 2013 Upgrade and The Consequences of its Failure

In July of 2010, Falconstor was to begin the Upgrade, as set forth in the Statement of Work. Prior to July of 2010, ANS informed its clients of the ■ impending Upgrade, assuring them that with the exception of previously scheduled maintenance periods, the transition would be seamless. The complaint alleges, in great detail, a series of mishaps that occurred during the Upgrade which took place between July 13 and 22, 2010. The Court describes those mishaps below, and for the purpose of this motion, accepts Plaintiffs’ version of the facts as true.

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Bluebook (online)
937 F. Supp. 2d 355, 2013 WL 1386264, Counsel Stack Legal Research, https://law.counselstack.com/opinion/avazpour-networking-services-inc-v-falconstor-software-inc-nyed-2013.