FILED: NEW YORK COUNTY CLERK 07/19/ :58 PM INDEX NO /2016 NYSCEF DOC. NO. 53 RECEIVED NYSCEF: 07/19/2016

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1 FILED: NEW YORK COUNTY CLERK 07/19/ :58 PM INDEX NO /2016 NYSCEF DOC. NO. 53 RECEIVED NYSCEF: 07/19/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK PERSEUS TELECOM LTD., v. Plaintiff, INDY RESEARCH LABS LLC Index No /2016 Motion Seq. No. 1 Defendant. REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANT INDY RESEARCH LABS LLC S MOTION TO DISMISS THE COMPLAINT CLARICK GUERON REISBAUM LLP Emily Reisbaum Sarah Louise Bishop 220 Fifth Avenue, 14th Floor New York, New York (212) Attorneys for Defendant Indy Research Labs LLC 1 of 11

2 Table of Contents Table of Authorities...ii Preliminary Statement... 1 Argument... 1 I. Perseus Has Abandoned the Theory of Contract Liability Actually Alleged in Its Complaint... 1 II. Perseus s New Theory of Contract Liability Is Once More Contradicted by the Agreement Itself... 3 III. The Master Services Agreement s Penalty Clause is Unenforceable... 5 IV. Perseus s Remaining Claim Is Unintelligible and Must Be Dismissed... 6 Conclusion... 8 i 2 of 11

3 Table of Authorities Cases 150 Broadway N.Y. Assocs., L.P. v. Bodner, 14 A.D.3d 1 (1st Dep t 2004)... 2, 3 Honeywell Int l Inc. v. Northshore Power Sys., LLC, 936 N.Y.S.2d 59 (N.Y. Sup. Ct. 2011)... 5, 6 Logan Advisors, LLC v. Patriarch Partners, LLC, 63 A.D.3d 440 (1st Dep t 2009)... 8 Oscar de la Renta, Ltd. v. Mulberry Thai Silks, Inc., No. 8 Civ. 4341, 2009 WL (S.D.N.Y. Apr. 17, 2009)... 5, 6 Rules C.P.L.R ii 3 of 11

4 Defendant Indy Research Labs LLC ( Indy ) respectfully submits this reply memorandum of law in further support of its motion to dismiss the Complaint filed by Perseus Telecom Limited ( Perseus ), pursuant to Section 3211 of the Civil Practice Law and Rules. PRELIMINARY STATEMENT Far from presenting any effective opposition to Indy s Motion To Dismiss, Perseus s Opposition and supporting papers merely provide further reason to dismiss Perseus s claims with prejudice. Effectively conceding that its original story was fatally refuted by the documents and arguments presented in Indy s Motion, Perseus has abandoned the narrative alleged in its Complaint. Instead, Perseus now presents a new, but equally fictional, explanation of how Indy can be bound by a contract it did not enter into but that new story is belied (once more) by the contract documents themselves, and, tellingly, even by Perseus s representative s own sworn statement. Perseus s Complaint has been revealed for the sham that it is, and should be dismissed in its entirety, with prejudice. ARGUMENT I. Perseus Has Abandoned the Theory of Contract Liability Actually Alleged in Its Complaint As set out in Indy s Motion, the theory of contract formation that Perseus actually alleged in its Complaint is directly contradicted by the contract documents themselves. (See Defendant s Memorandum of Law in Support of Motion To Dismiss, Dkt. No. 12 ( Def. Mem. ) at 8-11.) Perseus alleged that the Service Order Form and the Master Services Agreement constituted a single Agreement subject to the terms of the Master Services Agreement (Compl. 1, 20); that the Service Order Form created a binding commitment to purchase the services pursuant to the terms of the Agreement (id. 12); and that Indy executed the Agreement (id. 13). This fiction cannot be sustained, however, in light of the contract documents, which show that Indy 1 4 of 11

5 executed only the Service Order Form, and that the Service Order Form contained a clause explicitly carving out any incorporation of the terms set out in the Master Services Agreement. (Affidavit of Mitch Sonies, Dkt. No. 14 ( Sonies Aff. ) Ex. G-1; see Def. Mem. at 8-11.) Moreover, Indy presented with its Motion the history between the parties up to and including the execution of the Services Order Form, which showed that the parties expressly negotiated the language of the Service Order Form so that it would not encompass the terms set out in the Master Services Agreement. (Sonies Aff. Exs. D-I; see Def. Mem. at 2-5, ) In sum, the theory of liability that Perseus presented in its Complaint is simply false. In its Opposition, Perseus does not even attempt to deny that its initial allegations were specious. Instead, it seeks to present an entirely new theory of how Indy supposedly came to be bound by the terms of the Master Services Agreement. Perseus now maintains that, rather than having entered into the Master Services Agreement from the beginning (cf. Compl. 5, 9, 12-14), Indy only became bound by the terms and conditions set out in the Master Services Agreement when it supposedly failed to terminate the Services Order Form after 60 days had passed (see Plaintiff s Memorandum of Law in Opposition to Motion To Dismiss, Dkt. No. 48 ( Opp. ) at 2-3; id. at 5 (... the Service Order Form would become binding on October 30 th and subject to Standard Perseus Terms and Conditions ); id. at 11 ( [defendant] would ultimately be bound by the Perseus Standard Terms and Conditions if it did not... timely terminate the Service Order Form ); id. at 12 (... Perseus Standard Terms and Conditions would govern... after a sixty day period.... Ultimately, Standard Perseus Terms and Conditions became applicable as Defendant... failed to terminate the Service Order Form. ) (emphases added).) The Court should not be distracted by Perseus s transparent attempt to avoid dismissal. Since the allegations actually in the Complaint are belied by the contract documents themselves, the Complaint should be dismissed. See, e.g., 150 Broadway N.Y. Assocs., L.P. v. Bodner, of 11

6 A.D.3d 1, 5 (1st Dep t 2004) (citation omitted). And since, as set out below, Perseus s new approach to the Master Services Agreement is contradicted both by the contract documents themselves and by Perseus s representative s sworn statement, that dismissal should be with prejudice. II. Perseus s New Theory of Contract Liability Is Once More Contradicted by the Agreement Itself Perseus now claims that Indy, although not originally bound by the terms set out in the Master Services Agreement, automatically became bound by them 60 days after executing the Services Order Form. (See Opp. at 2-3, 5, 8, 11, 12.) This new theory relies on a provision which Perseus added to the Service Order Form during negotiations (see Sonies Aff. Ex. E) but Perseus s new story cannot be reconciled with the language of that provision, which reads:... Provided, however that in the event that the Services Documents are not, in good faith, agreed to by the parties within [60 days] of execution of this Services Order Form and the Customer continues to use the Services, this Service Order Form shall automatically become a binding commitment to purchase the Services and shall be governed by the Perseus standard terms and conditions and applicable service schedules. (Sonies Aff. Ex. G-1 (emphasis added).) In other words, under this provision, Indy would become bound to purchase the colocation services subject to Perseus s standard terms and conditions if, and only if, all of the following conditions were met: (1) 60 days had passed, (2) a Master Services Agreement and other service documents were not in place, (3) Indy had violated its commitment to work in good faith to finalize those service agreements, (4) Perseus had begun providing the colocation services, and (5) Indy continue[d] to use the colocation services. (Id.) In fact, not even the first of these conditions was met; Indy ended the companies relationship before 60 days had passed, after Perseus proved unreliable and unresponsive and 3 6 of 11

7 repeatedly moved back its estimate of when it would be able to begin providing its services (Sonies Aff ). But even if Indy had not done so, and leaving aside whether Indy worked in good faith to negotiate other service documents (it did, but that is irrelevant here), Perseus s representative admits in his sworn statement that Perseus never began providing colocation services to Indy. The 60-day provision is therefore moot. Perseus s President of Global Sales, Anthony Gerace, states in his affidavit that on November 16, 2015, Perseus ed Mr. Sonies to confirm a call to coordinate delivery of the services but that Mr. Sonies refused to coordinate the delivery, alleging that Defendant [had] verbally terminated the Service Order Form on October 30 th. (Affidavit in Opposition of Anthony Gerace, Dkt. No. 37 ( Gerace Aff. ) 45 (emphases added).) In other words, the parties agree that Indy never accepted delivery of Perseus s services. Indy could not have continue[d] to use the Services under the 60-day provision, because it never started using them in the first place. The Service Order Form therefore by its own terms never became a binding commitment to purchase the Services, and never became governed by the Perseus standard terms and conditions. (See Sonies Aff. Ex. G-1.) Finally, Perseus spends much of its Opposition brief attempting to manufacture a factual dispute over whether Indy did or could orally terminate the Service Order Form on October 30, (See Opp. at 1-2, 4-8.) The Court should not be distracted by this red herring. The Services Order Form does not specify any requirements at all for terminating the contract. (See Sonies Aff. Ex. G-1.) But more importantly, whether or not Indy orally canceled the contract on October 30, 2015, is rendered entirely irrelevant both by Perseus s admission that it never actually began providing services to Indy (see supra), and by its admission that Indy stated that it had cancelled the companies relationship in writing on November 12, 2015 several days before Perseus even attempted to arrange delivery of its services. (Gerace Aff. 43.) 4 7 of 11

8 Given the unambiguous language of the contract documents and Perseus s own sworn statements to the Court, Perseus cannot allege any set of facts that will rescue its breach of contract claims. This Court should not countenance any further waste of its time and resources, and should dismiss those claims with prejudice. III. The Master Services Agreement s Penalty Clause Is Unenforceable Perseus s opposition regarding enforceability of the Master Services Agreement s penalty clause relies heavily on inapposite case law regarding exclusive licenses for intellectual property. (See Opp. at (citing and discussing Honeywell Int l Inc. v. Northshore Power Sys., LLC, 936 N.Y.S.2d 59 (N.Y. Sup. Ct. 2011) (unpublished), aff d 96 A.D.3d 581 (1st Dep t 2012)). It is not clear why Perseus believes Indy s arguments are similar to those in Honeywell (Opp. at 13), since that case involved an entirely different type of agreement and liquidated damages clause, and Perseus offers no reasoning in support of its statement. Honeywell concerned an eight-year exclusive license for the defendant to use the plaintiff s Honeywell trademark to sell residential power generators. Honeywell, 936 N.Y.S.2d at *1. Under the agreement, the plaintiff was to receive three percent of the defendant s net sale proceeds of the generators, and in any event no less than a certain guaranteed minimum amount. Id. In concluding that the license agreement s liquidated damages clause was proper, the Honeywell court quoted and relied on Oscar de la Renta, Ltd. v. Mulberry Thai Silks, Inc., No. 8 Civ. 4341, 2009 WL (S.D.N.Y. Apr. 17, 2009), another case concerning an exclusive license to use a well-known trademark in exchange for either a set percentage of the defendant s sales proceeds or a set minimum amount. Cases concerning exclusive trademark licenses which involve obvious opportunity losses, see Honeywell, 936 N.Y.S.2d at *7, presumably varying [and] inherently uncertain profits represented by a percentage of royalties, see Oscar de la Renta, 2009 WL , at *6, 5 8 of 11

9 and the risk of unquantifiable potential damage to the licensor s business reputation and customer goodwill are simply not analogous here. The Services Order Form was neither an exclusive contract, nor one involving unpredictable business profits, nor one for use of Perseus s name or trademarks that might affect Perseus s goodwill or reputation. This was, as Perseus itself alleged, a simple, nonexclusive contract for goods and services with fixed nonrecurring and monthly recurring costs that were listed on the first page of the contract. (See Compl. 6-8.) In other words, the costs of a potential breach not only were easily determinable, but were in fact determined on the date the contract was executed. Cf. Oscar de la Renta, 2009 WL , at *6. Moreover, unlike in Honeywell and Oscar de la Renta, the $1.6 million penalty payment Perseus seeks is not the minimum amount that Perseus could have received under the Master Services Agreement, but the maximum. Cf. id.; Honeywell, 936 N.Y.S.2d 59, at *7. The $1.6 million penalty is also grossly disproportionate to the fixed costs set out in the Services Order Form, and even to Perseus s own allegation of its damages. (See Compl. 58.) As set out in Indy s Motion papers, Perseus s penalty clause need only fail one prong of New York s test to be unenforceable, but in fact fails both. (See Def. Mem at ) It is therefore unenforceable as a matter of law. IV. Perseus s Remaining Claim Is Unintelligible and Must Be Dismissed Finally, Perseus s defenses of its third claim are as unintelligible as the claim itself. As Indy s Motion set out, a claim for breach of the implied covenant of good faith and fair dealing may not merely duplicate a breach of contract claim and must be dismissed if it merely pleads that the defendant did not act in good faith in performing its contractual obligations. (See Def. Mem. at 13 (collecting and citing case law).) In response, Perseus merely repeats its allegations that Indy failed to pay the amounts due under the parties agreement. (Opp. at 14.) 6 9 of 11

10 Perseus then asserts in another set of new factual allegations not reflected in its Complaint that Indy somehow deprived Plaintiff of the right to receive benefits under the Service Order Form by failing to negotiate the terms of the service documents and cancelling conference calls. (Id.) Perseus does not because it cannot explain how allegedly failing to negotiate further agreements could possibly deprive Perseus of its right to be paid under the parties existing agreement. Even under the Services Order Form, Indy maintained the right to decide not to go further with Perseus and not to enter into a Master Services Agreement, which is exactly what it did. Perseus s disappointment that Indy was unwilling to move forward does not give rise to a claim for breach of the covenant of good faith and fair dealing. Perseus also argues that its third claim is not duplicative of its breach of contract claims because Defendant is contesting the enforceability of the Standard Perseus Terms and Conditions. (Opp. at 14.) This is nonsensical. In its Third Cause of Action, Perseus seeks damages under theories of detrimental reliance and breach of the covenant of good faith and fair dealing for costs it purportedly incurred in connection with the Services Order Form. (Compl , 58; see Sonies Aff. Ex. G-1.) This third claim has nothing to do with what Perseus calls the Standard Perseus Terms and Conditions or any conduct that draft document allegedly covers. (See Compl ) Finally, though Perseus s Complaint alleges detrimental reliance to support this third cause of action, it seems to have abandoned that theory. (See Opp. at ) To the extent its Opposition refers to detrimental reliance, it does so in the context of its claim for breach of contract relating to the Services Order Form. (Id. at 12.) Perseus s Opposition does, however, try to slip in a new theory quantum meruit. (Id. at ) Again, Perseus is impermissibly trying to use its Opposition to re-write its Complaint. And again, such effort must fail as this theory, too, is duplicative of the breach of contract claims. The damages Perseus states in its 7 10 of 11

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