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BVS, Inc. v. CDW Direct, LLC

United States District Court, N.D. Iowa, Cedar Rapids Division

March 28, 2013

BVS, INC., Plaintiff,
v.
CDW DIRECT, LLC, Defendant and Third-Party Plaintiff,
v.
ARROW ELECTRONICS, INC., TSSLINK, INC. and NET APP, INC., Third-Party Defendants. NET APP, INC., Counter Claimant,
v.
CDW DIRECT, LLC, Counter Defendant

Page 1014

For BVS, Inc, Plaintiff: Vernon Pellett Squires, LEAD ATTORNEY, Bradley & Riley, Cedar Rapids, IA; Natalie K Ditmars, Bradley and Riley PC, Cedar Rapids, IA.

For CDW Direct, LLC, Defendant: Dana L Oxley, Shuttleworth & Ingersoll, PLC, Cedar Rapids, IA; Kevin J Caster, Theresa C Davis, Shuttleworth & Ingersoll, Cedar Rapids, IA.

For CDW Direct, LLC, ThirdParty Plaintiff: Dana L Oxley, Shuttleworth & Ingersoll, PLC, Cedar Rapids, IA; Kevin J Caster, Theresa C Davis, Shuttleworth & Ingersoll, Cedar Rapids, IA.

For Net App, Inc, ThirdParty Defendant: Donald G Heeman, Matthew D Schwandt, LEAD ATTORNEYS, PRO HAC VICE, Felhaber, Larson, Fenlon & Vogt, PA, Minneapolis, MN; Richard A Stefani, Gray, Stefani & Mitvalsky, PLC, Cedar Rapids, IA.

For Arrow Electronics, Inc, ThirdParty Defendant: Gregory M Lederer, LEAD ATTORNEY, Brenda K Wallrichs, Lederer Weston Craig PLC, Cedar Rapids, IA.

For TSSLINK, Inc, ThirdParty Defendant: Daniel L Casas, LEAD ATTORNEY, Casas Riley & Simonian LLP, Los Altos, CA.

For Net App, Inc, Counter Claimant: Donald G Heeman, Matthew D Schwandt, LEAD ATTORNEYS, PRO HAC VICE, Felhaber, Larson, Fenlon & Vogt, PA, Minneapolis, MN; Richard A Stefani, Gray, Stefani & Mitvalsky, PLC, Cedar Rapids, IA.

For CDW Direct, LLC, Counter Defendant: Dana L Oxley, Shuttleworth & Ingersoll, PLC, Cedar Rapids, IA; Kevin J Caster, Theresa C Davis, Shuttleworth & Ingersoll, Cedar Rapids, IA.

OPINION

Page 1015

LINDA R. READE, CHIEF UNITED STATES DISTRICT JUDGE.

ORDER

TABLE OF CONTENTS

I. INTRODUCTION

II. PROCEDURAL HISTORY

A. Arrow Motion

B. CDW Motion

C. Net App Motion

D. TSSLink Motion

III. SUBJECT MATTER JURISDICTION

IV. SUMMARY JUDGMENT STANDARD

V. RELEVANT FACTUAL BACKGROUND

A. Parties

B. Course of Dealing Between BVS and CDW

C. SAN Project Design

D. Contract Formation

E. Installation and Implementation

VI. CDW MOTION

A. Breach of Contract Claim

1. What are the terms of the contract

a. Are the Terms and Conditions part of the contract?

i. Parties' arguments

ii. Applicable law

iii. Application

b. Are oral promises part of the contract?

i. Parties' arguments

ii. Applicable law

iii. Application

2. Did CDW breach the contract?

B. Unjust Enrichment Claim

C. Breach of Warranty Claims

1. Parties' arguments

2. Application

D. Fraud and Fraudulent Nondisclosure Claims

1. Parties' arguments

2. Applicable law

a. Effect of integration clause

b. Fraud pleading requirements

3. Fraud claim

a. Timing of installation and implementation

b. CDW's technical competency

c. Replication

d. World-class solution

4. Fraudulent nondisclosure claim

a. Applicable law

b. Application

i. No-return policy

ii. Lack of technical aptitude

VII. REMAINING MOTIONS FOR SUMMARY JUDGMENT

VIII. CONCLUSION

Page 1016

I. INTRODUCTION

The matters before the court are Defendant CDW Direct, LLC's (" CDW" ) " Motion for Summary Judgment" (" CDW Motion" ) (docket no. 70), Third-Party Defendant Arrow Electronics, Inc.'s (" Arrow" ) " Motion for Summary Judgment" (" Arrow Motion" ) (docket no. 66), Third-Party Defendant Net App, Inc.'s. (" Net App" ) " Motion for Summary Judgment" (" Net App Motion" ) (docket no. 67) and Third-Party Defendant TSSLink, Inc.'s (" TSSLink" ) " Motion for Summary Judgment" (" TSSLink Motion" ) (docket no. 68).

II. PROCEDURAL HISTORY

On July 19, 2011, BVS, Inc. (" BVS" ) filed a Complaint (docket no. 2) against CDW, Arrow and TSSLink, alleging breach of contract and unjust enrichment. On February 13, 2012, BVS moved the court to dismiss the claims against Arrow and TSSLink. See Motion to Dismiss (docket no. 27) at 2. On March 2, 2012, the court dismissed Arrow and TSSLink from

Page 1017

the instant action without prejudice. See March 2, 2012 Order (docket no. 31) at 1.

On April 16, 2012, BVS filed an Amended Complaint (docket no. 38) against CDW. In the Amended Complaint, BVS alleges breach of contract (Count I), unjust enrichment (Count II), breach of express warranty (Count III), breach of implied warranty of merchantability (Count IV), breach of implied warranty of fitness for a particular purpose (Count V), fraud (Count VI) and fraudulent nondisclosure (Count VII)[1] against CDW.

On April 17, 2012, CDW filed a Third-Party Complaint (docket no. 41) against Net App, Arrow and TSSLink. In the Third-Party Complaint, CDW alleges that Net App, Arrow and TSSLink are liable to CDW for contribution and indemnity if CDW is found liable to BVS (Count I), Net App is liable for contractual indemnity if CDW is found liable to BVS (Count II), Arrow is liable for contractual indemnity if CDW is found liable to BVS (Count III), Arrow breached its contract with CDW (Count IV) and TSSLink breached its contract with Arrow, which CDW can enforce as a third-party beneficiary of the contract (Count V).

On May 9, 2012, CDW filed an Answer (docket no. 45) to the Amended Complaint, denying BVS's claims and asserting affirmative defenses. On June 25, 2012, Arrow filed an Answer (docket no. 50) to the Third-Party Complaint, denying CDW's claims. On that same date, Net App filed an Answer (docket no. 49) to the Third-Party Complaint, denying CDW's claims, asserting affirmative defenses and asserting a counterclaim against CDW for attorneys' fees and expenses. Also on that same date, TSSLink filed an Answer (docket no. 48) to the Third-Party Complaint, denying CDW's claims and asserting affirmative defenses.

A. Arrow Motion

On December 13, 2012, Arrow filed the Arrow Motion. On January 7, 2013, CDW filed a Resistance (docket no. 77) to the Arrow Motion. On January 14, 2013, Arrow filed a Reply (docket no. 89) to CDW's Resistance to the Arrow Motion. The Arrow Motion is fully submitted and ready for decision.

B. CDW Motion

On December 14, 2012, CDW filed the CDW Motion. On January 8, 2013, BVS filed a Resistance (docket no. 84) to the CDW Motion. On January 17, 2013, CDW filed a Response (docket no. 92) to BVS's Statement of Additional Material Facts (docket no. 84-1). On January 18, 2013, CDW filed a Reply (docket no. 94) to BVS's Resistance to the CDW Motion. In the CDW Motion, CDW requests the opportunity to present oral argument. The court finds that oral argument is unnecessary. The CDW Motion is fully submitted and ready for decision.

C. Net App Motion

On December 14, 2012, Net App filed the Net App Motion. On January 7, 2013, BVS filed a Response (docket no. 75) to Net App's Statement of Undisputed Material Facts (docket no. 67-2). On that same date, CDW filed a Resistance (docket no. 76) to the Net App Motion. On January 14, 2013, Net App filed a Reply (docket no. 87) to CDW's Resistance to the Net App Motion. The Net App Motion is fully submitted and ready for decision.

D. TSSLink Motion

On December 14, 2012, TSSLink filed the TSSLink Motion. On January 7, 2013, CDW filed a Resistance (docket no. 78) to

Page 1018

the TSSLink Motion. On January 14, 2013, TSSLink filed a Reply (docket no. 90) to CDW's Resistance to the TSSLink Motion. In the TSSLink Motion, TSSLink requests the opportunity to present oral argument. The court finds that oral argument is unnecessary. The TSSLink Motion is fully submitted and ready for decision.

III. SUBJECT MATTER JURISDICTION

The court has diversity jurisdiction over this case because complete diversity exists between the parties and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332 (" The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is . . . between citizens of different States . . . ." ).

IV. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). " A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party; a fact is material if its resolution affects the outcome of the case." Amini v. City of Minneapolis, 643 F.3d 1068, 1074 (8th Cir. 2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)), cert. denied, 132 S.Ct. 1144, 181 L.Ed.2d 1018 (2012). " [S]elf-serving allegations and denials are insufficient to create a genuine issue of material fact." Anuforo v. Comm'r, 614 F.3d 799, 807 (8th Cir. 2010). " To survive a motion for summary judgment, the nonmoving party must substantiate [its] allegations with sufficient probative evidence [that] would permit a finding in [its] favor based on more than mere speculation, conjecture, or fantasy." Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782, 801 (8th Cir. 2011) (second alteration in original) (quoting Putman v. Unity Health Sys., 348 F.3d 732, 733-34 (8th Cir. 2003)) (internal quotation marks omitted). The court must view the record in the light most favorable to the nonmoving party and afford it all reasonable inferences. See Schmidt v. Des Moines Pub. Sch., 655 F.3d 811, 819 (8th Cir. 2011).

V. RELEVANT FACTUAL BACKGROUND

Viewing the evidence in the light most favorable to the nonmoving parties and affording them all reasonable inferences, the uncontested material facts are as follows.

A. Parties

BVS is an Iowa corporation with its principal place of business in Cedar Rapids, Iowa. BVS provides on-line training to banks and credit unions. BVS provides its training services over the internet through the BVS computer system. BVS's main computer system is located in Cedar Rapids, Iowa. BVS also has a disaster recovery system in Omaha, Nebraska. Roy Karon owns BVS. At times material to the instant action, Gary Praegitzer was the BVS information technology (" IT" ) manager and Sean Reinhard worked in the BVS IT department.

CDW is an Illinois limited liability company with its principal place of business in Vernon Hills, Illinois. CDW is a reseller of technology products and services. CDW sells products and services nationally through an internet-based retail business. CDW does not manufacture technology products. At times material to the instant action, Amer Harb was an account manager for CDW and was assigned to the BVS account. Samantha Aljets was a project coordinator for CDW.

Page 1019

Net App is a Delaware corporation with its principal place of business in Sunnyvale, California. Net App manufactures and sells technology products and services nationally. At times material to the instant action, Ben Knorr was a sales engineer with Net App and Michelle Schmidt was a customer service representative.

Arrow is a New York corporation with its principal place of business in Melville, New York. Arrow sells components, services and solutions to resellers. Arrow is authorized to sell and provide services related to Net App technology products. At times material to the instant action, Cynthia Clark was a project manager with Arrow.

TSSLink is a California corporation with its headquarters in Sunnyvale, California. TSSLink provides software implementation services and hardware services. TSSLink is authorized to provide services related to Net App technology products. At times material to the instant action, Matt Romo was a professional services engineer responsible for performing software-based implementations of Net App software as well as hardware-based installations of Net App hardware.

B. Course of Dealing Between BVS and CDW

Prior to the transaction at issue in the instant case, BVS had ordered products and services from CDW on numerous occasions. BVS had an account with CDW to make online purchases since at least 2006. BVS authorized Reinhard and Praegitzer to purchase items for BVS. Reinhard and Praegitzer purchased items on behalf of BVS from CDW in three different ways: (1) by placing online orders; (2) by requesting a quote from Harb for a discounted price on an item and then purchasing the item at that price online; and (3) by requesting a quote from Harb and then notifying Harb via telephone or email that BVS would like to purchase the item at the quoted price, at which point a CDW employee would access the BVS account and place the order. After BVS placed an order on the CDW ordering system, the system sent a confirmation to BVS.

Every order confirmation, shipping confirmation, invoice and CDW packing list referred to the CDW Terms and Policies or Terms and Conditions. Between 2007 and 2010, BVS received 269 order confirmations, 363 shipping confirmations and 363 invoices from CDW. Every invoice had the Terms and Conditions printed on the back. In addition, every time BVS went to the CDW web site to place an order, BVS could have seen a link to the Terms and Conditions that is included at the bottom of every CDW web page. The online Terms and Conditions contain all of the Terms and Conditions listed on the back of the invoice, as well as additional terms.

C. SAN Project Design

In late 2010, BVS was looking to update several components of its computer system, including its storage area network (" SAN" ). BVS was unhappy with its existing SAN from manufacturer ECM due to the poor customer service that BVS thought ECM provided. BVS began looking for a new SAN solution that would store electronic data from BVS's Cedar Rapids location and regularly copy the data to BVS's disaster recovery site in Omaha.

At the time, Harb was the CDW account manager responsible for the BVS account. BVS contacted CDW in the fall of 2010 to discuss options for a SAN solution. After discussing options with Praegitzer, Harb set up a conference call with Knorr and Schmidt of Net App to begin developing the SAN solution. Knorr and Schmidt also traveled to Cedar Rapids to meet with BVS employees. Knorr was responsible for managing the Net App hardware and software for the SAN solution, although he

Page 1020

was not responsible for managing the installation and implementation services. Arrow was responsible for providing installation and implementation services. CDW did not rely on its own solution architects but instead relied on Net App and Arrow to architect and implement BVS's SAN solution.

D. Contract Formation

On December 3, 2010, CDW sent BVS a quote for hardware, software and services for the SAN solution. On December 20, 2010, BVS sent CDW a purchase order for the SAN solution, which incorporated the December 3, 2010 quote. The December 20, 2010 purchase order included hardware, software, training and support services, including six " Arrow Provisioned Services." Purchase Order, CDW's Appendix (" CDW App'x" ) (docket nos. 70-2 through 70-8) at 209. The December 20, 2010 purchase order listed a total purchase price of $225,000.33. Once CDW received the December 20, 2010 purchase order, Harb submitted the purchase order for credit approval. On December 21, 2010, CDW sent a purchase order to Arrow to fulfill the December 20, 2010 BVS purchase order. On January 3, 2011, CDW sent BVS an invoice for the same hardware, software and services listed in the December 3, 2010 quote and December 20, 2010 purchase order.[2] The invoice listed a price of $225,000.24 for the Net App goods and services and the Arrow provisioned services, plus an additional $733.67 in shipping costs, amounting to a total purchase price of $225,733.91. Invoice, CDW App'x at 233-34.

On the back of the invoice, CDW listed several terms and conditions that were not included in the December 3, 2010 quote or December 20, 2010 purchase order. Specifically, the Terms and Conditions included the following:

THE TERMS AND CONDITIONS ARE LIMITED TO THOSE CONTAINED HEREIN AND THE ADDITIONAL TERMS AND CONDITIONS CONTAINED IN THE " TERMS AND CONDITIONS" LINK AT WWW.CDW.COM INCORPORATED HEREIN BY REFERENCE. ANY TERMS NOT DEFINED HEREIN ARE DEFINED AT WWW.CDW.COM. . . .
. . . .
Warranties Customer understands that Seller is not the manufacturer of the Products purchased by Customer hereunder and the only warranties offered are those of the manufacturer, not Seller or its Affiliates. In purchasing the Products, Customer is relying on the manufacturer's specifications only and is not relying on any statements, specifications, photographs or other illustrations representing the Products that may be provided by Seller or its Affiliates. SELLER AND ITS AFFILIATES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES EITHER EXPRESS OR IMPLIED, RELATED TO PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF TITLE, ACCURACY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WARRANTY OF NON-INFRINGEMENT, OR ANY WARRANTY RELATING TO THIRD PARTY SERVICES. THE DISCLAIMER CONTAINED IN THIS PARAGRAPH DOES NOT AFFECT THE TERMS OF ANY MANUFACTURER'S WARRANTY. Customer expressly waives any claim that it may

Page 1021

have against Seller or its Affiliates based on any product liability or infringement or alleged infringement of any patent, copyright, trade secret or other intellectual property rights (each a " Claim" ) with respect to any Product and also waives any right to indemnification from Seller or its Affiliates against any such Claim made against Customer by a third party. Customer acknowledges that no employee of Seller or its Affiliates is authorized to make any representation or warranty on behalf of Seller or any of its Affiliates that is not in this Agreement.
Seller warrants that the Services will be performed in a good and workmanlike manner. Customer's sole and exclusive remedy and Seller's entire liability with respect to this warranty will be, at the sole option of Seller, to either (a) use its reasonable commercial efforts to reperform or cause to be reperformed any Services not in substantial compliance with this warranty or (b) refund amounts paid by Customer related to the portion of the Services not in substantial compliance; provided, in each case, Customer notifies Seller in writing within five (5) business days after performance of the applicable Services. EXCEPT AS SET FORTH HEREIN OR IN ANY STATEMENT OF WORK THAT EXPRESSLY AMENDS SELLER'S WARRANTY, AND SUBJECT TO APPLICABLE LAW, SELLER MAKES NO OTHER, AND EXPRESSLY DISCLAIMS ALL OTHER, REPRESENTATIONS, WARRANTIES, CONDITIONS OR COVENANTS, EITHER EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, DURABILITY, TITLE, ACCURACY OR NON-INFRINGEMENT) ARISING OUT OF OR RELATED TO THE PERFORMANCE OR NON-PERFORMANCE OF THE SERVICES, INCLUDING BUT NOT LIMITED TO ANY WARRANTY RELATING TO THIRD PARTY SERVICES, ANY WARRANTY WITH RESPECT TO THE PERFORMANCE OF ANY HARDWARE OR SOFTWARE USED IN PERFORMING SERVICES AND ANY WARRANTY CONCERNING THE RESULTS TO BE OBTAINED FROM THE SERVICES. THIS DISCLAIMER AND EXCLUSION SHALL APPLY EVEN IF THE EXPRESS WARRANTY AND LIMITED REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE. CUSTOMER ACKNOWLEDGES THAT NO REPRESENTATIVE OF SELLER OR OF ITS AFFILIATES IS AUTHORIZED TO MAKE ANY REPRESENTATION OR WARRANTY ON BEHALF OF SELLER OR ANY OF ITS AFFILIATES THAT IS NOT IN THIS AGREEMENT OR IN A STATEMENT OF WORK EXPRESSLY AMENDING SELLER'S WARRANTY.
. . . .
Limitation of Liability UNDER NO CIRCUMSTANCES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY SET FORTH HEREIN, WILL SELLER, ITS AFFILIATES OR ITS OR THEIR SUPPLIERS, SUBCONTRACTORS OR AGENTS BE LIABLE FOR: (A) ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, BUSINESS, REVENUES OR SAVINGS, EVEN IF SELLER HAS BEEN ADVISED OF THE POSSIBILITIES

Page 1022

OF SUCH DAMAGES OR IF SUCH DAMAGES ARE OTHERWISE FORESEEABLE, IN EACH CASE, WHETHER A CLAIM FOR ANY SUCH LIABILITY IS PREMISED UPON BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY OF LIABILITY; (B) ANY CLAIMS, DEMANDS OR ACTIONS AGAINST CUSTOMER BY ANY THIRD PARTY; (C) ANY LOSS OR CLAIM ARISING OUT OF OR IN CONNECTION WITH CUSTOMER'S IMPLEMENTATION OF ANY CONCLUSIONS OR RECOMMENDATIONS BY SELLER OR ITS AFFILIATES BASED ON, RESULTING FROM, ARISING OUT OF OR OTHERWISE RELATED TO THE PRODUCTS OR SERVICES; OR (D) ANY UNAVAILABILITY OF THE PRODUCT FOR USE OR ANY LOST, DAMAGED OR CORRUPTED DATA OR SOFTWARE. IN THE EVENT OF ANY LIABILITY INCURRED BY SELLER OR ANY OF ITS AFFILIATES, THE ENTIRE LIABILITY OF SELLER AND ITS AFFILIATES FOR DAMAGES FROM ANY CAUSE WHATSOEVER WILL NOT EXCEED THE LESSER OF: (A) THE DOLLAR AMOUNT PAID BY CUSTOMER FOR THE PRODUCT(S) GIVING RISE TO THE CLAIM OR THE SPECIFIC SERVICES GIVING RISE TO THE CLAIM; OR (B) $50,000.

Terms and Conditions, CDW App'x at 110.[3] The CDW website contains additional terms and conditions regarding warranties and limitation of ...


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