Intern. Business Machines v. MEDLANTIC HEALTHCARE

• Decision Date: 16 March 1989
• Docket Number: Civ. A. No. 87-2897.
• Citation: 708 F. Supp. 417
• Parties: INTERNATIONAL BUSINESS MACHINES, CORP., Plaintiff, v. MEDLANTIC HEALTHCARE GROUP, Defendant.
• Court: U.S. District Court — District of Columbia

708 F. Supp. 417

INTERNATIONAL BUSINESS MACHINES, CORP., Plaintiff, v. MEDLANTIC HEALTHCARE GROUP, Defendant.

Civ. A. No. 87-2897.

United States District Court, District of Columbia.

March 16, 1989.

Duane D. Morse, Judith S. Sapir, Wilmer, Cutler & Pickering, Washington, D.C., for plaintiff.

Thomas A. Schmutz, Jane A. Ryan, Charles C. Thebaud, Jr., Newman & Holtzinger, P.C., Washington, D.C., for defendant.

CHARLES R. RICHEY, District Judge.

The parties have filed cross motions for summary judgment in this contract action, which arises out of the sale of a large business computer. Because the Court finds an absence of genuine issues of material fact, and because the Court finds that the plaintiff is entitled to judgment as a matter of law, the Court grants the plaintiff's motion and denies that of the defendant.

FACTS

The plaintiff, International Business Machines ("IBM") requires little introduction. IBM is a massive, multinational corporation which distributes, among other things, large business computers. The defendant, Medlantic Healthcare Group ("Medlantic") is the non-profit parent corporation of several health care organizations located in the metropolitan Washington, D.C. area.¹

In early 1986, Medlantic decided to expand its facilities beyond those available at its then location on the campus of the Washington Hospital Center in downtown Washington. Specifically, by 1986 Medlantic had become concerned with the inadequacies of the data processing facility at the Washington Hospital Center, and sought a larger location which would allow for the use of more sophisticated equipment. To this end, in December of 1986 Medlantic approved the relocation of its data processing facilities to a location in Silver Spring, Maryland (the "Data Center").

1. The Computer Order

In November of 1986, anticipating the move to the Data Center, and the purchase of at least one mainframe computer in connection with the move, Medlantic placed an order with IBM for a 3090-180 central processing unit (a "CPU") and peripheral equipment.² Medlantic made the order pursuant to an "Agreement for Purchase of IBM Machines" that had been executed by Medlantic's subsidiary, Washington Hospital Center, in 1984 (the "1984 Agreement").³ On the same day that Medlantic ordered the 3090-180 CPU, Washington Hospital Center entered into an amendment of the 1984 Agreement that provided for a 25% educational discount on the purchase of the 3090-180 CPU.

Approximately two months later, on January 26, 1987, IBM began to market the 3090-18E CPU, an enhanced version of the 3090-180 CPU that Medlantic had ordered. Shortly thereafter, Medlantic's order was upgraded to an order for the 3090-18E CPU at no additional cost.

During this period, from December of 1986 to approximately March of 1987, Medlantic also undertook discussions with computer distributors other than IBM. Medlantic was able to do so, notwithstanding its outstanding order with IBM, by virtue of IBM's sales method.

The purchase of a major IBM computer implicates two separate agreements. The first agreement memorializes the relationship between IBM and the purchaser through execution of an "Agreement for Purchase of IBM Machines" (an "Agreement for Purchase").⁴ The Agreement for Purchase is a standard, master agreement which establishes the general terms and procedures by which IBM computers may be acquired. It relates to no specific product, but instead sets forth general terms applicable to a broad class of IBM products. It contains no price provisions, and does not set forth any discounts which might apply to a purchase. The Agreement for Purchase places a purchaser under no obligation to actually purchase an IBM product. However, an order placed pursuant to an Agreement for Purchase enjoys priority as against orders not placed under an Agreement for Purchase.⁵

Although an Agreement for Purchase contains no precise pricing information as to a specific purchase, it does contain a general "Price Protection Provision." As will be shown, under the circumstances of this case Medlantic attaches some significance to the Price Protection Provision. It provides as follows:

The Purchase Price for each on-order Machine shall be IBM's generally available single unit purchase price and shall be subject to all price increases, except that increases effective during the three-month period immediately prior to the date of Machine shipment shall not apply if the Customer's order was received by IBM prior to the date of announcement of the price increase.

As the language makes clear, the Price Protection Provision is intended to serve as insurance for the purchaser against increases in a product's "generally available" price during the three months preceding delivery.

The second relevant document in IBM's sales procedure is the Supplement to Agreement for Purchase (a "Supplement"). A Supplement, which is delivered shortly after a product is delivered, specifies the precise product to be purchased, the price to be paid and any applicable discounts. The Supplement is a product-specific document which outlines the precise terms upon which IBM is willing to sell. According to IBM, the Supplement constitutes the actual offer to sell a computer. As outlined in the Agreement to Purchase, the Supplement can be accepted either by permitting installation of the product or by payment of the purchase price specified in the Supplement. If the product is accepted, or if payment for the product is made, IBM contends that the Supplement merges with the previously executed Agreement to Purchase to form a unitary contract.

The Agreement to Purchase contains an integration and merger clause, which provides as follows:

THIS AGREEMENT AND ANY OTHER APPLICABLE IBM AGREEMENTS, AMENDMENTS, SUPPLEMENTS, EXHIBITS AND CERTIFICATIONS, INCLUDING THOSE EFFECTIVE IN THE FUTURE, REFERENCING THIS AGREEMENT OR EXPRESSLY MADE A PART HEREOF, WILL BE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.

The Supplement reciprocates, stating that:

THIS SUPPLEMENT, THE REFERENCED AGREEMENT for Purchase, OTHER APPLICABLE IBM AGREEMENTS, AMENDMENTS, EXHIBITS, AND CERTIFICATIONS ARE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.

Because during the period between November 1986 to March 1987, Medlantic had executed only the 1984 Agreement to Purchase, and had not paid for or accepted installation of an mainframe computer, Medlantic was not bound to actually purchase an IBM computer. Thus, by way of comparative shopping, and notwithstanding the fact that it had already executed the 1984 Agreement, Medlantic sought quotes from various other dealers on a mainframe computer during this period.

As noted above, Medlantic upgraded its order on January 26, 1987 to include the new 3090-18E CPU at no additional cost. However, on February 17, 1987, Medlantic received a letter indicating that the educational discount on the 3090-18E CPU would only be 15%, rather than the 25% that Medlantic had previously been quoted on the previously ordered 3090-180 CPU.⁶

2. The Mistaken Price Quote

Notwithstanding the letter referred to in the preceding paragraph, at a meeting between Medlantic and local IBM sales representatives held on April 2, 1987, IBM orally informed Medlantic that the educational discount available on the 3090-18E CPU would be 25%, rather than the 15% quoted to Medlantic on February 17. The effect of the increase in the educational discount was to reduce the quoted price of the 3090-18E CPU by $233,140. During this period, Medlantic had been receiving quotes from other distributors that were approximately $300,000 below IBM's quoted price with the 15% educational discount. There is evidence in the record which suggests that IBM representatives were aware of Medlantic's discussions with other dealers, as well as the prices Medlantic had been quoted by the other dealers.⁷

At the April 2 meeting, Michael Putro, Medlantic's Director of Computer Services, apparently informed the IBM representatives that they had a "deal" as a result of the increased educational discount, and asked the IBM representatives for written confirmation.⁸ Mr. Putro testified that the following day, on April 3, he notified a representative of the leading competing dealer of his "final decision to go with IBM."⁹ On April 21, 1987, Mr. Putro received a written statement of the price of the 3090-18E CPU. The statement included the 25% educational discount, but also included the following language: "All prices are for your information only, and are subject to change without notice." At his deposition, Mr. Putro testified that he received subsequent assurances from IBM representatives that the 25% discount was "firm, fixed, in the bag, iron clad."¹⁰

On May 6, 1987, Medlantic executed a second Agreement for Purchase (the "1987 Agreement"). The 1987 Agreement was intended to, and did, supersede the 1984 Agreement. At the time the 1987 Agreement was signed, Medlantic appears to have been operating under the assumption — based upon the April 2 meeting and the April 21 letter — that a 25% educational discount would be available on the 3090-18E CPU.¹¹ At that point, on May 6, everything appeared to be rosey; Medlantic, at least, was prepared to proceed with the deal.

Things fell apart on May 19. On that date, IBM sales representatives met with Putro and informed him that the 25% educational discount quoted on April 2 had been a mistake. Instead of a 25% discount, the 3090-18E CPU would qualify only for a 15% discount.¹² IBM explained the erroneous April 2 quote as the product of internal crossed wires. Apparently,...