Hadami, S.A. v. Xerox Corp.

272 F. Supp. 3d 587
CourtDistrict Court, S.D. New York
DecidedJuly 19, 2017
Docket16 Civ. 5726 (PAE)
StatusPublished
Cited by34 cases

This text of 272 F. Supp. 3d 587 (Hadami, S.A. v. Xerox Corp.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hadami, S.A. v. Xerox Corp., 272 F. Supp. 3d 587 (S.D.N.Y. 2017).

Opinion

OPINION & ORDER

Paul A. Engelmayer, United States District Judge

Plaintiff Hadami, S.A. (“Hadami”) brings this lawsuit against defendant Xerox Corporation (“Xerox”) for breach of contract, breach of the implied covenant of good faith and fair dealing, gross negligence, fraud, and tortious interference with prospective economic advantage. Ha-dami, a Paraguayan corporation, claims that it entered into an agreement with Xerox, a New York corporation, under which Hadami would be one of two exclusive resellers of Xerox light office machines in Paraguay. However, Hadami claims that Xerox breached their agreement, committed fraud, and injured Ha-dami when it supported Hadami’s competitors operating in Paraguay’s “grey market.”

Xerox now moves to dismiss. It argues, under Federal Rule of Civil Procedure 12(b)(6), that Hadami’s allegations fail as a matter of law and that Hadami fails to allege fraud with the required level of particularity. For the following reasons, the motion is granted in part and denied in part.

I. Background

A. Factual Background1

1. Relationship between Hadami and Xerox

In or about 2009, Fabian Portilla, then Director of Xerox’s General Market Operations Supply & Paper Division, approached Won Ki Chung about a, business opportunity in Paraguay. FAC ¶¶ 6-7. For the prior 16 years, Chung had owned Don Lorenzo, a Paraguayan company that resold computer components and light office machines made By various manufacturers. Id. ¶5. Portilla, impressed with Chung’s operations, asked Chung if he would be interested in starting a new company focused on reselling Xerox products. Id. ¶ 7. Chung initially saw no reason to limit his [592]*592products to Xerox. Id. But he became convinced to do so after Portilla orally promised that Chung’s new company would be the exclusive Paraguayan reseller of certain Xerox products. Id. ¶8. Portilla explained that Xerox already had one authorized reseller, a company called Docunet, S.A. (“Docunet”), but that Docunet distributed only high-volume photocopiers. Id. Hadami alleges that Portilla represented to Chung that if Chung closed Don Lorenzo and started a new company focused solely on Xerox products, then Chung’s new company would be the exclusive reseller in Paraguay of low-volume office machines and parts — photocopiers, toner, and spare parts. Chung agreed and formed Hadami to be that new company. Id. ¶ 9. Chung then ceased operating Don Lorenzo. Id.

Hadami spent the next five years working to sell Xei-ox products in Paraguay. Id. ¶ 10. Hadami mainly purchased Xerox products from a Xerox-authorized distributor called Global Products Alliance (“GPA”), but negotiated incentives and rebates with Xerox directly. Id. ¶ 11. Hada-mi’s business strategy was focused on winning bids for government contracts. See id. ¶¶ 14-17. To prevent against smuggling, the Paraguayan government requires bidders to submit letters of authorization from their products’ manufacturers. Id. ¶ 12. From August 2009 to June 2014, Xerox issued approximately 12 such letters confirming that Hadami was an authorized dealer. Id. ¶ 13. Several námed Hadami as an “authorized reseller.” See, e.g., Entin Aff. at 21, 79. Others stated that Hadami and Docunet were the only authorized resellers of Xerox goods in Paraguay. See, e.g., id. at 47, 69.

2. Grey Market Competitors

At some point, Hadami learned that other entities placing bids with the government were furnishing letters of authorization purporting to be from Xerox or its agents. FAC ¶ 15. These “grey market” entities included Alternativa, S.A. (“Alter-nativa”) and Estilo de Artes Gráficas (“EAG”). Id. ¶ 14. Hadami alleges that these companies’ bids were so low that they must have been importing their products into Paraguay illegally. Id. As a result of their lower prices, the Paraguayan government began awarding contracts to these entities over Hadami. Id. ¶ 16.

Hadami notified Xerox that these entities were submitting inauthentic letters of authorization and requested that Xerox notify the Paraguayan authorities. Id. ¶ 17. In response, Xerox assured Hadami that it had not issued these letters and reiterated that Docunet and Hadami were its only authorized resellers. Id, ¶ 18. In a February 11, 2013 email, Xerox assured Hadami that it was “ready to intercede” with the government of Paraguay. Id. ¶ 19. On July 9, 2013, Hadami again wrote to Xerox to inform it that EAG had won several recent bids despite never declaring any legal imports to Paraguayan customs. Id. ¶ 20. Xerox wrote back that it would take care of Hadami “like a son.” Id. ¶ 21. On July 30, 2013, Hadami again wrote to Xerox, seeking a “serious investigation,” and stating that otherwise “legal suppliers [such as Hadami] are going to disappear.” Id. ¶ 22. Xerox’s Open Market MD Manager, Daniel Delepiani, allegedly again stated to Chung that “¡Xerox had] not issued any letter authorizing these companies you mention.” Id. ¶ 23.

On September 10 and 18, 2013, Xerox further assured Hadami via email that it was not doing and would not do business with any entities that engaged in illegal practices. Id. ¶ 24. On September 19, 2013, Xerox sent Hadami an email terming these entities “pirates” and stating that it was presenting to the Paraguayan government a letter “supporting Hadami and Docunet [593]*593as our Authorized Reseller [sic] for the country letting them know that [Xerox] products would only be guaranteed” if they bought from those two companies. Id. ¶ 25. Xerox asked Hadami to furnish copies of the purportedly fake authorization letters to it, to help Xerox identify the source. Id. ¶26. Throughout 2013 and 2014, Hadami provided import and sales records to Xerox demonstrating that Alternativa and EAG were selling more Xerox goods than they had declared to the authorities. Id. ¶ 28.

Eventually, Hadami told Xerox that it had no choice but to begin putting in bids below their costs in order to preserve market share. Id. ¶ 29. Xerox allegedly encouraged Hadami to do this, as well as to bring legal challenges against the grey market bidders. Id. ¶¶ 29-80. Hadami spent approximately $215,000 on such litigation, winning some challenges. Id. ¶¶ 30-31. Xerox congratulated Hadami on one victory. Id. ¶ 32.

3. Xerox Deceives Hadami By Supporting the Grey Market Dealers

Hadami alleges that from early on in its relationship with Xerox, Xerox was dishonest about the relationship it had with various grey market entities in Paraguay. In September 2014, Hadami allegedly became aware of Xerox’s relationship with the grey market entities. Id. ¶ 50. Hadami alleges that the letters of authorization submitted to the government by the grey market entities, which Hadami had assumed were forged, were actually authentic. Id. ¶ 35. It alleges Xerox itself issued such letters on behalf, of Alternativa in August and September 2014, id. ¶ 36, and that Xerox wholesalers issued such letters beginning in August 2012, id. ¶ 37.

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272 F. Supp. 3d 587, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hadami-sa-v-xerox-corp-nysd-2017.