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De Lage Landen Financial Services, Inc. v. Rasa Floors

March 31, 2009

DE LAGE LANDEN FINANCIAL SERVICES, INC., PLAINTIFF,
v.
RASA FLOORS, LP, DEFENDANT,
v.
3COM CORP., AND CAPITAL 4, INC., THIRD PARTY DEFENDANTS AND DEFENDANTS ON THE COUNTERCLAIM.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: MOTION TO DISMISS

Presently before this Court is Third Party Defendant and Defendant on the Counterclaim 3Com Corporation's (hereinafter "3Com") Motion to Dismiss the Counterclaim of Defendant Rasa Floors, LP (hereinafter "Rasa" or "Defendant") for failure to state a claim under Fed. R. Civ. P. 12(b)(6). This dispute arises from a series of contracts entered into by Plaintiff De Lage Landen Financial Services (hereinafter "DLL" or "Plaintiff"), Rasa, and third parties Capital 4, Inc. (hereinafter "Capital 4"), and 3Com for the provision of telephone services and equipment. For the following reasons, this Court will deny in part and grant in part, with leave to amend.

I. Factual Background

A. Allegations Relevant to All Parties

The facts of this case were previously outlined in some detail in the Memorandum and Order of this Court (Doc. No. 58), which granted in part and denied in part DLL's motion to dismiss Rasa's Counterclaim. See De Lage Landen Fin. Servs. v. Rasa Floors, LP, 2009 WL 564627, at *1-3 (E.D. Pa. March 5, 2009). Therefore this Court will only review the specific facts relevant to 3Com's Motion at issue here. In summary, DLL initially sued Rasa for breach of a "Rental Agreement,"*fn1 entered into on December 5, 2005 by DLL and Rasa, under which DLL allegedly agreed to lease telephone equipment to Rasa. (Compl. ¶¶ 6, 18; Countercl. ¶¶ 95-96, 108, Ex. 1 pp. 18-20). At the same time, Rasa also contracted for the provision of telephone services with Capital 4 pursuant to a "Customer Agreement." (Compl. ¶ 9; Countercl. ¶¶ 95-97, 101, Ex. 1 p. 9). Rasa alleges that these Agreements were part of a program called the Power of $Zero, which provided telecommunication services at a fixed rate for a number of years. (Countercl. ¶¶ 55-56).

Under these Agreements, Rasa only made payments to DLL, which would then "pass through" part of the payments to Capital 4 for the services Capital 4 provided to Rasa. (Compl. ¶¶ 10-11; Countercl. ¶¶ 55(g)-(k)). Rasa alleges that Capital 4 did not itself provide the telecommunications services but instead contracted with licensed service providers through Public Access Service Agreements. (Countercl. ¶¶ 55(l), 101(l)). Rasa also alleges that it did not actually receive telephone equipment from DLL but instead obtained a cash rebate, offered as an alternative to equipment under the Power of $Zero program. (Countercl. ¶¶ 55(b), 56(c)).

However, by letter dated September 15, 2007, Capital 4 informed its customers that it could no longer meet its obligations under the Customer Agreement, including the provision of telecommunications services. (Countercl. ¶ 136, Ex. 16). Rasa then stopped making any payments to DLL. (Compl. ¶ 14). Rasa alleges that the letter "effectively canceled Defendants' obligations under the contract . . . 'for good cause'-telephone services would no longer be provided by Capital 4 Inc., or the 'Power of $Zero Partnership.'" (Countercl. ¶ 138). DLL sued for breach of contract and unjust enrichment, asserting that Rasa was obligated to make its payments to DLL despite the loss of services provided by Capital 4. (Compl. ¶¶ 17-22).

In response to DLL's Complaint, Rasa filed an Amended Answer, Affirmative Defenses, Amended Counterclaim, and Third Party Complaint (hereinafter "Counterclaim") and joined Capital 4 and 3Com as parties to the litigation. (Doc. 34). Rasa's central allegation is that its Rental Agreement with DLL was only one of a complex series of contracts between itself and the Power of $Zero Partnership (hereinafter "Partnership"), which is comprised of DLL, Capital 4, and 3Com. Based on both the language of the Customer Agreement and on the relationships and contracts among members of the Partnership, Rasa argues that its obligation to pay DLL was extinguished when the Partnership stopped providing telecommunications services.*fn2 Rasa also asserts that members of the Partnership made fraudulent misrepresentations regarding the relationship of the Customer and Rental Agreements and Rasa's obligations under those contracts. (Countercl. ¶¶ 212-18, 221-27).

The Customer Agreement between Rasa and Capital 4 expressly incorporated an eBrochure found on the Power of $Zero website entitled "How does the 3Com Power of $Zero Solution Work?" (Countercl. ¶¶ 75-77, Ex. 1 pp. 11-14). Rasa alleges that the eBrochure more specifically describes the Power of $Zero Program (hereinafter "Program") and the Partnership. (Countercl. ¶¶ 75-77). One provision of the eBrochure relevant to the instant Motion described termination of the Customer Agreement by the customer as follows:

¶ 32: Can I cancel the 3Com Power of $Zero Customer Agreement in its entirety?

Yes. You have the option to cancel the Agreement at any time. If We fail to perform and good cause ("Good Cause") exists. You may cancel the 3Com Power of $Zero Customer Agreement. . . . .

¶ 34: What happens to my obligation under the Funding Agreement if the 3Com Power of Zero Customer Agreement is terminated for Good Cause?

If the Agreement is properly terminated for Good Cause, You grant Us Power of Attorney to pay, on a monthly basis, on Your behalf, damages in an amount sufficient to satisfy and discharge Your remaining payment obligations to any third-party funding source that has advanced funds under a Funding Agreement. We will pay these damages, even though You are not making Monthly Payments to Us.

(Countercl. Ex. 1 p. 13).

B. Allegations Concerning 3Com

Rasa claims that 3Com manufactures, wholesales, or delivers telephone systems targeted to be used by small businesses. (Countercl. ¶ 50). One of 3Com's alleged roles in the Power of $Zero Partnership was to provide new telephone equipment to Partnership customers if they chose the free equipment option. (Countercl. ¶ 55(h)). Rasa claims that on January 31, 2005, Capital 4 entered into a "Strategic Alliance Agreement" with 3Com, under which Capital 4 would promote and exclusively use 3Com communication equipment in the Program, and 3Com would assist Capital 4 in marketing and selling the Program. (Countercl. ¶ 59-60, Ex. 5).*fn3 Rasa asserts that 3Com and Capital 4 entered into additional contracts that furthered their involvement in the alleged Partnership and imposed on 3Com certain responsibilities with respect to Program customers. For the purposes of this Motion, three of these contracts are particularly important and are more fully described below.

1. Operations Agreement

First, on November 10, 2006, Capital 4 and 3Com entered into an "Operations Agreement." (Countercl. ¶ 128, Ex. 3). The Operations Agreement outlined the parties' rights and obligations related to the Program. This Agreement included a provision entitled the "Go Dark Solution," which addressed the possibility of Capital 4 being unable to honor its contractual obligations. The provision first states Capital 4's obligation to "make commercially reasonable efforts" to fulfill its obligations under the Customer Agreements "[i]n order to further protect the POZ Program by preventing the interruption, temporary suspension or cancellation of services provided by Public Access Assets Service*fn4 providers to POZ Customers." (Countercl. Ex. 3 p. 10). However, if Capital 4 is unable to meet the Customer Agreement obligations, the Operations Agreement contemplates the following:

¶ 4.3.3 3Com and Capital 4 shall cooperate with one another to implement the following actions immediately following commercially reasonable indications: (i) of Capital 4's intent to declare itself insolvent; or (ii) that Capital 4 is otherwise temporarily unable to honor its obligations under the existing POZTM Customer Agreements . . .

(d) 3Com shall assume all of the obligations of any and all Public Access Assets Service Agreements entered into by Capital 4 in connection with 3Com Power of $Zero Customer Agreements. . . .

(Countercl. Ex. 3 p. 12). Therefore, Rasa asserts that under the Operations Agreement, 3Com was obligated to assume the Public Access Service Agreements entered into by Capital 4 to provide telecommunications services to its customers if Capital 4 was unable to honor its obligations under those service agreements.As a result, Rasa alleges that it was a third party beneficiary of the Operations Agreement. (Countercl. ¶ 129).

Notably, the Operations Agreement contained a non-assignability clause as well as an inurement clause. (Countercl. Ex. 3 p. 14 ¶ 7.1). Furthermore, the Operations Agreement provided for mutual indemnification and limited liability between the parties to the Agreement. (Countercl Ex. 3 p. 13 ¶¶ 5.1, 5.2). The Operations Agreement contained a New York choice-oflaw clause. (Countercl. Ex. 3 p. 14 ¶ 7.2). These clauses survived expiration or termination of the Operations Agreement. (Countercl. Ex. 3 p. 12 ¶ 4.5).

2. Promissory Notes

Beginning on August 6, 2007, 3Com lent Capital 4 certain sums of money through the issuance of promissory notes. (Countercl. ¶ 133, Ex. 15). Between August 6 and August 16, 2007, 3Com issued seven notes totaling $600,000 to Capital 4. Each note stated: "Use of Proceeds. Borrower has informed Lender that it intends to use the proceeds of this Note to pay the dial-tone connection fees it owes to third party providers on behalf of its customers." (Countercl. Ex. 15 pp. 4, 9, 14, 19, 24, 29, 34 ¶ 10).

Rasa alleges that these promissory notes in part constitute "commercially reasonable indications" that Capital 4 was unable to honor its existing Customer Agreements, thereby triggering the Go Dark Solution provision in the Operations Agreement. (Def.'s Memo. Law Opp'n 3Com's Mot. Dismiss 9).

3. First Contract Amendment to Operations Agreement

One day after issuing the first promissory note, on August 7, 2007, Capital 4 and 3Com entered into another agreement, called the First Contract Amendment, revising the Operations Agreement's Go Dark Solution provision. (Countercl. ¶ 130, Ex. 19). The Amendment made the following relevant changes to ¶ 4.3:

¶ 4.3.3 3Com and Capital 4 shall cooperate with one another to implement the following actions immediately, and without opportunity to cure, following commercially reasonable indications: (i) of Capital 4's intent to declare itself insolvent; or (ii) that Capital 4 is otherwise temporarily unable to honor its obligations under the existing POZTM Customer Agreements . . .

(c) Upon request by 3Com, Capital 4 shall assign to 3Com all rights and obligations of Capital under those Capital 4 POZ Customer Agreements which 3Com, in its sole discretion, believe may have a Material Adverse Effect on 3Com if such Customer Agreements are not assigned to 3Com.

(e) 3Com shall assume all of the obligations of any and all Public Access Service commitments entered into by Capital 4 in connection with those Capital 4 Power of $Zero Customer Agreements assigned to 3Com pursuant to Section 4.3.3(c) above. . . .

(Countercl. Ex. 19 pp. 2-3).These provisions appear to give 3Com discretion in assuming Capital 4's Customer Agreements and also provide that 3Com will assume the Public Access Service Agreements if it elects to assume the Customer Agreements. In contrast, the original Go Dark Solution provision in the Operations Agreement provided that 3Com "shall assume" the Public Access Service Agreements if certain conditions occurred; it did not mention assumption or assignment of the Customer Agreements.

Rasa alleges that it was a third party beneficiary of this modified contract as well. (Countercl. ¶ 132). Rasa claims that 3Com modified the Operations Agreement after learning of the "dire financial condition" of Capital 4. (Countercl. ¶ 130). Rasa further alleges that on August 20, 2007, 3Com invoked the Go Dark Solution provision of the First Contract Amendment but failed to pay the telecommunications service providers, thereby jeopardizing Rasa's telephone and internet service. (Countercl. ¶ 135).

C. Lawsuit Between 3Com and Capital 4

On October 9, 2007, 3Com filed suit against Capital 4 in the Southern District of New York. See 3Com Corp. v. Capital 4, Inc., et al., S.D.N.Y. 07-cv-8707. Rasa asserts that in that suit 3Com alleged that it became aware in late 2005 or early 2006 that Capital 4 had cash flow problems "'based on Capital 4's prior need to have 3Com extend it credit.'" (Countercl. ¶ 147, Def.'s Memo. 9 n.6 (quoting 3Com v. Capital 4, Compl. ¶¶ 31, 32)). Rasa further alleges that 3Com alleged in that suit that it learned in late July 2007 that Capital 4 was delinquent in paying its Public Access Service providers. (Id.) Notably, Rasa relies on these allegations, which alleged that ...


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