Xerox Corp. v. Lantronix, Inc.

• Decision Date: 31 October 2018
• Docket Number: 6:17-CV-06845 EAW
• Citation: 342 F.Supp.3d 362
• Parties: XEROX CORPORATION, Plaintiff, v. LANTRONIX, INC., Defendant.
• Court: U.S. District Court — Western District of New York

342 F.Supp.3d 362

XEROX CORPORATION, Plaintiff,

v.LANTRONIX, INC., Defendant.

6:17-CV-06845 EAW

United States District Court, W.D. New York.

Signed October 31, 2018

Eric J. Ward, William R. Leinen, Ward Greenberg Heller & Reidy LLP, Rochester, NY, for Plaintiff.

David Rothenberg, Michael Evan Rothenberg, Rothenberg Law, Rochester, NY, for Defendant.

DECISION AND ORDER

ELIZABETH A. WOLFORD, United States District Judge

INTRODUCTION

Plaintiff Xerox Corporation ("Plaintiff") commenced this action on December 8, 2017, seeking damages for defendant Lantronix, Inc.'s ("Defendant") alleged breach of its obligations under an indemnification clause to the parties' "Multinational Master Purchase Agreement for Design, Manufacture, and Supply of Wireless Print Adapter" (the "Agreement"). (Dkt. 1). Plaintiff also seeks a declaratory judgment that the Agreement requires Defendant to defend and indemnify Plaintiff in a separate lawsuit filed in the United States District Court for the Eastern District of Texas. (Id. ). On January 29, 2018, Defendant answered Plaintiff's Complaint and asserted three counterclaims. (Dkt. 8).

On February 19, 2018, Plaintiff filed a motion to dismiss the counterclaims on the ground that Defendant failed to satisfy the prelitigation requirements set forth in the Agreement's "Dispute Resolution" clause. (Dkt. 12). On March 9, 2018, Defendant opposed Plaintiff's motion, and, alternatively, cross-moved to stay the resolution of the motion to dismiss. (Dkt. 18). On June 5, 2018, Defendant filed a motion to amend/correct its counterclaims to allege that it had since engaged in good faith negotiations with Plaintiff in full satisfaction of the Dispute Resolution clause. (Dkt. 25; see Dkt. 27-1).

On June 27, 2018, the Court heard argument on each motion. After considering the arguments presented by both sides, the Court ruled from the bench that it granted Defendant's motion to amend/correct its counterclaims, denied Plaintiff's motion to dismiss, and denied as moot Defendant's cross-motion to stay the resolution of the motion to dismiss. (See Dkt. 30). The Court informed the parties that a decision explaining the basis for its determinations would be issued in due course. This Decision and Order is intended to memorialize the Court's analysis in written form.

BACKGROUND ¹

Plaintiff alleges that it and Defendant are parties to the Agreement. (Dkt. 1 at ¶ 8; see Dkt. 12-3 (the Agreement) ). The Agreement requires Defendant to provide wireless print adapters for Plaintiff to use within its "multifunction printers." (Dkt. 1 at ¶ 9). Plaintiff claims that the Agreement requires Defendant to "indemnify and hold harmless [Plaintiff] ... from all Claims whatsoever resulting from any alleged or actual infringement of any third party's [intellectual property] Rights" that may arise from the wireless print adapters. (Id. at ¶ 10). The Agreement also requires Defendant to "intervene in or defend any such proceedings" for the violation of a third party's intellectual property rights at Plaintiff's "option and [Defendant]'s expense ... upon notice by [Plaintiff] to [Defendant]." (Id. ).

On March 9, 2017, several non-party individuals filed a complaint against Plaintiff in the United States District Court for the Eastern District of Texas (the "Texas Action"). (Id. at ¶ 12). The Texas Action alleged that Plaintiff infringed upon certain registered federal patents, and that these patent violations involved the wireless print adapters supplied by Defendant under the Agreement. (Id. at ¶¶ 13-14).

By letter dated March 29, 2017, Plaintiff demanded that Defendant "fulfill its defense and indemnification obligations under the Agreement." (Id. at ¶ 15). Defendant refused to do so, and, as a result, Plaintiff incurred attorneys' fees and litigation costs in defending the Texas Action. (Id. at ¶¶ 16-17).

PROCEDURAL HISTORY

On December 8, 2017, Plaintiff filed this action against Defendant seeking damages for the alleged breach of the Agreement's indemnification clause and a declaratory judgment ordering that Defendant defend and indemnify Plaintiff in the Texas Action. (Id. at ¶¶ 1-2). On January 29, 2018, Defendant answered the Complaint and filed three counterclaims against Plaintiff. (Dkt. 8). Defendant's first counterclaim seeks damages from Plaintiff based upon its alleged violation of the Agreement by failing to purchase 890 wireless print adapters. (Id. at 4-5). Defendant's second counterclaim alleges that Plaintiff breached the jurisdictional and venue provisions of the Agreement by initially filing a complaint requesting indemnification in the United States District Court for the Eastern District of Texas instead of the United States District Court for the Western District of New York, or "a New York state court sitting in Monroe County, New York." (Id. at 6). That prior complaint was "voluntarily dismissed" before Plaintiff filed the instant action in this District. (Id. ). The third counterclaim seeks costs and attorneys' fees incurred in defending the instant action. (Id. at 7).

On February 19, 2018, Plaintiff filed a motion to dismiss Defendant's counterclaims on the ground that Defendant failed to comply with the Agreement's Dispute Resolution clause. (Dkt. 12-1). That clause provides that Plaintiff and Defendant would "attempt in good faith to resolve any dispute arising out of or relating to [the] Agreement promptly by negotiation between the parties at the appropriate level of management." (Dkt. 12-3 at 9). If those negotiations failed, "then either party [would] provide written notice to the respective authorized representatives of the other party, which [would] be at the next level of management not directly involved in the dispute." (Id. ). If the dispute was not resolved within thirty days of the receipt of that notice, "then the dispute [would] be escalated to designated senior business executives of each party, who [would] have an additional [thirty] days to resolve the dispute." (Id. ). The parties could agree to extensions for these time periods, and nothing in the clause prevented "either party from applying for any interim, interlocutory or preliminary injunctive or declaratory relief; from bringing any claim for contribution or indemnity; or from exercising any rights it has, if any, to cancel [the] Agreement." (Id. ). However, if the dispute remained unresolved "within the timeframes set out above, then either party may bring a legal action or proceeding against any other party arising out of or relating to [the] Agreement" in the Western District of New York, or any New York State court sitting in Monroe County. (Id. ).

On March 9, 2018, Defendant filed its response in opposition to Plaintiff's motion to dismiss, and, alternatively, cross-moved for a stay of Plaintiff's motion. (Dkt. 18). Defendant opposed Plaintiff's motion on three grounds: (1) the Dispute Resolution clause did not apply to compulsory counterclaims; (2) the Dispute Resolution clause did not set forth a condition precedent to asserting a counterclaim in a "legal action or proceeding" that had already been commenced; and (3) the Dispute Resolution clause was unenforceable because it was indefinite and ambiguous. (Id. at 4; see Dkt. 18-5 at 3-9). In the alternative, Defendant cross-moved to stay the resolution of Plaintiff's motion to dismiss in order to permit Defendant time to comply with the provisions of the Dispute Resolution clause and to seek leave to replead the counterclaims once those requirements had been satisfied. (Dkt. 18 at 10-13; see Dkt. 18-5 at 10-12).

On March 29, 2018, Plaintiff filed a memorandum of law in support of its motion to dismiss and in opposition to Defendant's cross-motion for a stay. (Dkt. 21). On June 5, 2018, Defendant filed a motion to amend/correct its counterclaims. (Dkt. 25). Without conceding any of the arguments previously asserted in its opposition to Plaintiff's motion (id. at 5 n.1), Defendant argued that it had made several good faith efforts to satisfy the requirements of the Dispute Resolution clause and requested leave to amend its counterclaims to allege that it had done so (id. at 5-12). Plaintiff opposed Defendant's motion for leave to amend. (Dkt. 29). Specifically, Plaintiff argued that the Court should deny Defendant's motion for leave to amend/correct because Defendant failed to demonstrate its compliance with the Dispute Resolution clause. (Id. at 2-7).

On June 27, 2018, the Court heard oral argument, after which the Court granted Defendant's motion to amend/correct its counterclaims, denied Plaintiff's motion to dismiss, and denied as moot Defendant's cross-motion to stay the resolution of the motion to dismiss. (Dkt. 30). The following analysis is intended to explain the rationale underlying the Court's determinations.

DISCUSSION

I. Plaintiff's Motion to Dismiss is Denied Because the Dispute Resolution Clause Does Not Apply to Counterclaims

A. Legal Standard for Rule 12(b)(6)

" Federal Rule of Civil Procedure 12(b) applies equally to claims and counterclaims; therefore, a motion to dismiss a counterclaim is evaluated under the same standard as a motion to dismiss a complaint." Gerdau Ameristeel US Inc. v. Ameron Int'l Corp. , No. 13 Civ. 07169 (LGS), 2014 WL 3639176, at *2 (S.D.N.Y. July 22, 2014) ; see MTV Networks, a Div. of Viacom Int'l, Inc. v. Curry , 867 F.Supp. 202, 203 (S.D.N.Y. 1994) ("The standards for dismissing claims under Rule 12(b)(6) are identical to the standards for dismissing counterclaims."). "In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the [pleading], documents attached to the [pleading] as exhibits, and documents incorporated by reference in the [pleading]." DiFolco v. MSNBC Cable L.L.C. , 622 F.3d 104, 111 (2d Cir. 2010). A court should consider the motion by "accepting all factual allegations as true and drawing all reasonable inferences in favor of the [claimant]."...