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CRAWFORD v. SAP AMERICA

March 2, 2004.

MICHAEL CRAWFORD, STEVEN BELLI, DIRK FLOTE AND RAECO INVESTMENT PARTNERSHIP
v.
SAP AMERICA, INC., SAP AG and HASSO PLATTNER.



The opinion of the court was delivered by: JOHN FULLAM, Senior District Judge

MEMORANDUM AND ORDER

Plaintiffs are RAECO Investment Partnership, Michael Crawford, Steven Belli and Dirk Flote, who owned Data Dynamics, Inc., and its successor-in-interest, Titan Technologies Group, LLC ("Titan"). Defendants are SAP AG, a large German software concern, its wholly-owned subsidiary SAP America, Inc., and Hasso Plattner, a German citizen who is co-Chairman and CEO of SAP AG and Chairman of SAP America.

In March 1997, Data Dynamics entered into a "Provider Agreement" with SAP America to act as SAP's exclusive sales agent for computer software in a specified territory. A couple of months later, before any significant sales had occurred, plaintiffs decided to form a new company, Titan, to carry out the contract, independently from Data Dynamics' other activities, and SAP thereupon consented to the assignment of the Provider Agreement to Titan. SAP had previously been very successful in marketing its software program to large companies ("Fortune 500 companies"); its Provider Agreement was part of an effort by SAP America to market its software program to smaller end-users, (i.e., those having less than $200 million in annual revenues). Titan enjoyed considerable success in marketing SAP's program, and the "Provider Agreement" was proving quite profitable to both Titan and SAP. In late 1998, however, plaintiffs sought to sell their ownership interests in Titan to another company, Modis. Defendants objected to the proposed sale, and Modis decided not to go through with the purchase. A few months later, in mid-1999, plaintiffs did sell their ownership interests in Titan to another firm, Condor. Plaintiffs then brought this action, asserting numerous claims arising out of their former relationship with SAP.

  In its final form plaintiffs' (fourth) amended complaint asserts claims for negligent misrepresentation, fraud and misrepresentation, interference with contract, interference with prospective advantage, violation of the New Jersey Franchise Practices Act, breach of contract, breach of contract — implied covenant of faith and fair dealing, promissory estoppel, equitable estoppel and breach of fiduciary duty. Defendants have moved for summary judgment on all counts.

  Most of plaintiffs' claims require little discussion. Since the plaintiffs were not parties to the Provider Agreement, they cannot successfully assert claims for breach of that contract. Neither can they successfully contend that they were fraudulently induced to enter into the Provider Agreement. Moreover, the summary judgment record is conspicuously lacking in any evidence to support any claim of fraud or misrepresentation by anyone in connection with the Provider Agreement.

  If anyone was induced to enter into the Provider Agreement, it was Titan. If there was a breach of the Provider Agreement, only Titan has standing to complain. It is reasonably well settled that a corporate shareholder does not have "standing to maintain an action in his own right, as a shareholder, when the alleged injury is inflicted upon the corporation and the only injury to the shareholder is the indirect harm which consists in the diminution of value of his corporate shares resulting from the impairment of corporate assets." Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 732 (3d Cir. 1970), cert. denied, 401 U.S. 974 (1971). See also eds Adjusters, Inc. v. Computer Sciences Corp., 818 F. Supp. 120 (E.D. Pa. 1993).

  If, however, the Provider Agreement constituted a franchise within the ambit of the New Jersey Franchise Practices Act, NJSA 56:10-1 et seq., plaintiffs would, at least under some circumstances, have standing to complain about violations of that statute, since it protects not only corporate franchisees, but "the individual officers, directors and other persons in active control of the activities of each such entity," NJSA 56:10-3(b). And plaintiffs undoubtedly have standing to pursue claims that their individual rights were infringed because defendants tortiously interfered with their contacts — actual or prospective — to sell their shares in Titan to the Modis firm. These two sets of potential claims will now be discussed.

  I. Claims under the New Jersey Franchise Practices Act

  A. Does the Act apply?

  Read literally, it would seem that the statute is sufficiently broad to encompass the Provider Agreement arrangements. The statute defines "franchise" as follows:
"A written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristics, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise." (§ 10-3).
The statute applies to any such arrangement where it is contemplated that the franchisee will establish or maintain a place of business in the State of New Jersey, and where the gross sales exceed $35,000 per year and more than 20 percent of revenues are generated by the franchise.

  The Provider Agreement with Titan may very well not have been the type of arrangement contemplated by the Legislature in enacting the franchise statute: Although Titan maintained a place of business in New Jersey, most of its sales and other activities took place at its customers' establishments; and the computer software industry differs markedly from the kinds of businesses which typically involve franchises, such as fast-food chains or automobile dealerships.

  The Provider Agreement between Titan and SAP included the following provision:
"¶ 18.9 Relationship. This Agreement shall not be construed as creating a partnership, joint venture, agency relationship, or granting a franchise under any applicable laws."
For reasons not immediately apparent, the parties' briefs do not focus upon the import of this language. The contract provision may have been viewed as running afoul of a provision in the New Jersey Franchise Practices Act which makes it a violation of the statute for any franchisor:
"(a) To require a franchisee at the time of entering into a franchise arrangement to assent to a release, assignment, novation, waiver or estoppel which would relieve any person from liability imposed by this act."
An argument can be made that when sophisticated businessmen, after prolonged negotiations, agree that they are not entering into a franchise, the Act simply has no application. There is also room for argument that an agreement not to enter into franchise arrangement cannot plausibly be regarded as "a release, assignment, novation, waiver or estoppel which would relieve any person from liability imposed by [the act]."

  For present purposes, I will assume that plaintiffs may be able to demonstrate at trial that they were "required" to accept that provision in the contract, and that they were pressured into surrendering their rights under the franchise statute.

  Since the Provider Agreement can be regarded as fitting the definition of a franchise, I shall assume that the Act does apply, ...


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