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Storage Technology Corp. v. Trust Co.

argued: January 5, 1988.

STORAGE TECHNOLOGY CORPORATION
v.
THE TRUST COMPANY OF NEW JERSEY, APPELLANT



Appeal from the United States District Court for the District of New Jersey - Newark D.C. Docket No. Civil - 86-0861.

Seitz, Hutchinson, and Rosenn, Circuit Judges.

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge.

This appeal derives from an inartfully drawn provision in an agreement between two sophisticated corporations for the lease of peripheral computer equipment. The plaintiff-lessor, Storage Technology Corporation (STC), complaining that the defendant-lessee, The Trust Company of New Jersey (N.J. Trust), had defaulted on the lease, filed a diversity action in the United States District Court for the District of New Jersey seeking to enforce the terms of the agreement. After the filing of an answer and a counterclaim, the case was tried to the court. The court entered judgment for the plaintiff together with attorney's fees, costs, and other expenses aggregating $107,585.66, and dismissed N.J. Trust's counterclaim. The defendant appeals and we affirm.

I.

STC, a Delaware corporation with its principal place of business in Louisville, Colorado, is engaged in the design, manufacture, and marketing of high performance peripheral computer equipment such as tape drives, tape controllers, and related devices. These peripherals are commonly used in connection with the operation of commercial computers produced by major computer manufacturing companies.

On December 28, 1978, N.J. Trust, a New Jersey banking corporation with its principal place of business in Jersey City, leased equipment from STC for use with its Burroughs B 3900 computer system. When the lease agreement expired on December 29, 1982, the parties entered into a forty-eight month renewal lease effective December 30, 1982. This lease, which forms the basis of the present litigation, provided for the rental and maintenance of more modern peripheral equipment for use with the Burroughs B 4800 computer system acquired by N.J. Trust in 1979.

In December 1984, N.J. Trust unilaterally decided to upgrade its computer system and purchase two Burroughs Series B 4925 computers. Invoking paragraph 17 of the renewal lease, N.J. Trust requested STC, in December 1984, to make necessary upgrades in the tape controller and interface in order to render the peripheral equipment compatible with the new computers. Paragraph 17 provided:

Upon the Customer's written request, STC will make field installable model upgrades and feature additions to units during their Rental Terms. A model upgrade is defined as a model change in like devices which results in an increase in the Monthly Rental Payments.

STC, however, had an outstanding agreement with Burroughs (the OEM agreement) which provided in paragraph 24:

STC agrees not to sell to others or license others to manufacture Controllers designed for Burroughs under this Agreement or any other product with unique Burroughs interface specifications as described in attachment "B" unless Burroughs grants its specific written consent thereto.

Prior to N.J. Trust's purchase of the B 4925 computers, Burroughs informed it that the existing STC peripherals would be incompatible with the new system. Moreover, Burroughs stated that the OEM agreement precluded STC from selling or leasing the peripherals to N.J. Trust without Burroughs' written consent.

On January 11, 1985, N.J. Trust again wrote STC requesting that it make the necessary model upgrades. STC, however, replied that the OEM agreement barred it from complying with defendant's request. As a consequence, N.J. Trust found itself compelled to buy the compatible peripherals from Burroughs on February 21, 1985, at a cost of $318,974. On June 19, 1985, N.J. Trust terminated the lease with STC and requested it to remove its peripherals from defendant's computer center. STC, however, did not remove the system until six months ...


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