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Integrated Storage Consulting Services, Inc. v. Netapp, Inc.

United States District Court, N.D. California, San Jose Division

July 9, 2014

INTEGRATED STORAGE CONSULTING SERVICES, INC., a Colorado corporation, Plaintiff,
v.
NETAPP, INC., a Delaware corporation, Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [RE: DKT NO. 51]

EDWARD J. DAVILA, District Judge.

Presently before the Court is NetApp, Inc.'s ("Defendant" or "NetApp") Motion to Dismiss Integrated Storage Consulting Services, Inc.'s ("Plaintiff" or "ISCSI") First Amended Complaint. The Court found this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and previously vacated the hearing. The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Having fully reviewed the parties' briefings, and for the following reasons, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion.

I. BACKGROUND

Plaintiff ISCSI is a Colorado corporation with its principal place of business in Colorado. Docket No. 44, First Amended Complaint ("FAC") ¶ 2. Defendant NetApp is a Delaware corporation with its principal place of business in California. Id . ¶ 4.

Plaintiff markets data center and IT services on behalf of Defendant. Id . ¶ 3. Defendant does not typically sell directly to end users. Id . ¶ 11. Instead, in most cases, NetApp sells its products to NetApp distributors, who then sell NetApp products to resellers such as ISCSI, which then sell NetApp products to end user businesses. Id . However, NetApp works directly to promote sales to end users to ensure satisfactory sales of its products. Id . ISCSI invests hundreds of thousands of dollars in its sales representatives and systems engineers through payment of wages, funding training, and paying for certification tests, to be able to meet NetApp's required guidelines. Id . ¶ 12.

ISCSI has been a NetApp reseller/partner since June 2, 2004. Id . ¶ 13. On or about April 16, 2008, Plaintiff ISCSI and NetApp entered into a revised Reseller Authorization Agreement ("2008 Agreement"). Id . The most recent ISCSI-NetApp written Reseller Authorization Agreement became effective on January 19, 2011 ("2011 Agreement"). Id . In order to become a NetApp partner/reseller, a business must accept the terms and conditions of NetApp's Reseller Authorization Agreement. Id . ¶ 14. The Reseller Authorization Agreement is a standardized agreement that has been prepared by NetApp. Id.

Sometime between December 2010 and January 2011, Plaintiff attempted to negotiate the terms of the 2011 Agreement. See id. ¶¶ 17-18. Bob Voydat of ISCSI reached out to Sam Sears of NetApp numerous times to attempt to edit the limitation of liability and other provisions of the reseller agreement because NetApp's website would not accept contract edits. Id . ¶ 18. In mid-January, 2011, Sam Sears told Mr. Voydat that NetApp would not amend the contract and he said that ISCSI was free to accept the agreement and remain a NetApp partner or not accept the agreement and ISCSI would no longer be a NetApp partner. Id . ¶ 19.

A number of other documents are alleged to be incorporated by reference into the Agreements, including NetApp's Partner Program Professional Services Certification Program Guide, 2013 North America Commercial USPS Reseller Guide, 2008 VIP Partner Guide, and 2010 Reseller Guide. Id . ¶¶ 20, 24, 25, 26. These documents are alleged by Plaintiff to contain certain contractual terms, which the Court discusses in more detail below.

From time to time NetApp and a partner may decide to complete an Account Teaming Agreement, which further describes NetApp's and ISCSI's obligations for each registered opportunity. Id . ¶ 43. For example, in reliance on its right to payments on all revenues from the sale of NetApp products and services, on or about December 14, 2009, ISCSI and NetApp entered into a Teaming Agreement ("CaridianBCT Teaming Agreement") for the provision of services to CaridianBCT, an ISCSI-procured customer. The CaridianBCT Teaming Agreement provides in relevant part that the parties, ISCSI and NetApp, will act in accordance with the terms and conditions set forth in the CaridianBCT Teaming Agreement. Id . NetApp and ISCSI entered into a similar Teaming Agreement for Xilinx. Id . ¶ 44.

On or about March 2007, Plaintiff and customer Tri-State entered into a Supplier Alliance Agreement, as amended May, 2009, in which Plaintiff ISCSI agreed to provide to Tri-State, and Tri-State agreed to pay Plaintiff for, NetApp products and services at a specified discount for a two year term per each Supplier Alliance Agreement, subject to renewal. Id . ¶ 49.

On or about September 27, 2010, Plaintiff and Xilinx entered into a Master Service Agreement, in which Plaintiff ISCSI agreed to provide to Xilinx, and Xilinx agreed to pay ISCSI, for ISCSI's sale of NetApp services to Xilinx. Id . ¶ 50.

During the term of the Agreements, ISCSI was one of NetApp's lead sales agents, receiving numerous awards and recognition from NetApp for the quality of its performance and volume of its sales. Id . ¶ 51.

On or about December 12, 2008, NetApp referred ST Micro to competing reseller Agilysys and possibly other resellers, and granted Agilysys a dual registration - the very same kind of registration which NetApp had already granted to ISCSI. Id . ¶ 52. NetApp failed to notify ISCSI of this dual registration until after ST Micro placed approximately $1 million worth of orders for NetApp products and services. Id . NetApp employees Rick Congdon, Keith Macove, Tyler Beecher, Tim Maggs, and Sam Sears encouraged ISCSI to continue to work to win the business for NetApp, but had no intention of supporting ISCSI's efforts, which resulted in harming ISCSI's future business relationship with ST Micro. Id . Through no fault of ISCSI, ISCSI has not taken another order from ST Micro since the dual registration in December 2008. Id.

On or about June 30, 2010, NetApp employees Rick Congdon, Keith Macove, Tyler Beecher, Todd Donaldson, Michelle Lanuza and Sam Sears referred CaridianBCT to Trace3 and possibly other resellers through Lanuza's verbal dual registration, stating to Jed Summerton, Director IT of CaridianBCT, that CaridianBCT would get the same registered pricing regardless of which partner CaridianBCT selected in response to Request for Proposals ("RFP") issued by CaridianBCT, and for which NetApp had already granted the exact same registration to ISCSI. Id . ¶ 53. NetApp failed to notify ISCSI of Lanuza's verbal dual registration of CaridianBCT until after CaridianBCT awarded the RFP to Trace3. NetApp employees Congdon, Macove, Beecher, Donaldson, Lanuza, and Sears encouraged ISCSI to continue to work to win the business for NetApp, but had no intention of supporting ISCSI's efforts, which resulted in harming ISCSI's future business relationship with CaridianBCT. Id.

On or about March 30, 2011, NetApp disrupted the Tri-State bidding process by requiring Tri-State to negotiate a volume purchase agreement ("VPA") directly with NetApp so that Tri-State was free to select any partner. NetApp also informed Tri-State of the criteria that they should use to select the NetApp partner and did nothing to support ISCSI's existing registrations with Tri-State for numerous opportunities, as well as the actual bid process for Tri-State. Id . ¶ 54. Prior to the VPA, Tri-State had been denied VPAs in 2007 and 2009 because its annual sales volume did not meet the minimum NetApp criteria of $4 million. By requiring Tri-State to negotiate a VPA, NetApp refused to respect the price protection of registered opportunities described by the 2011 Reseller Authorization Agreement. Id.

On or about September 25, 2012, NetApp referred Xilinx to World Wide Tech, Longview, e-Plus, and possibly other resellers and instructed Xilinx that ISCSI will no longer be the NetApp partner covering Xilinx. Id . ¶ 55. NetApp declined or refused to extend several existing ISCSI registrations and thus ISCSI is no longer able to provide Xilinx with VPA pricing per the established NetApp VPA with Xilinx. Id.

In the months preceding NetApp's dual registration of the Customers and/or referral of the Customers to other resellers, authorized representatives of NetApp specifically encouraged ISCSI to continue to sign-up new customers. Id . ¶ 60. ISCSI continued its efforts to sell NetApp products and services to the Customers while NetApp decided which partner would actually get the deal from the Customers. Id . ¶ 62.

On or about June 2010, Ms. Lanuza told Jed Summerton, IT Director at CaridianBCT, that CaridianBCT would get the same registered pricing regardless of which partner CaridianBCT selected in response to a Request for Proposals ("RFP") issued by CaridianBCT. Id . ¶ 65. On or about July 2010, CaridianBCT selected Trace3 as its NetApp partner, resulting in no pricing disadvantage to CaridianBCT. Id . ¶ 66.

On or about June 30, 2010, Robert Voydat, President of ISCSI, sent an e-mail request to Tyler Beecher stating his concerns regarding Ms. Lanuza's conduct encompassing past and present engagements at CaridianBCT. Id . ¶ 68. Mr. Beecher never responded to Mr. Voydat's repeated requests to meet and discuss the CaridianBCT situation and RFP. Mr. Beecher did not schedule a meeting until September 2010, after ISCSI's competitor, Trace3, had been awarded the CaridianBCT RFP. Id.

On or about June 30, 2010, Robert Voydat of ISCSI repeatedly requested Messrs. Macove's and Sears' assistance to schedule a meeting with Mr. Beecher to discuss Michelle Lanuza's conduct concerning the CaridianBCT RFP registrations and pricing concerns, but Mr. Macove and Mr. Sears said that Mr. Beecher would not meet with ISCSI to discuss the matter. Id . ¶ 69.

In response to Robert Voydat's requests to Mr. Beecher for a meeting with Beecher, on or about June 30, 2010, Mr. Beecher left a voicemail for Bob Voydat stating that he [Mr. Beecher] would "support ISCSI 100%." Id . ¶ 70.

Notwithstanding Mr. Beecher's assurance to support ISCSI 100%, and on information and belief, NetApp employee Beecher intentionally allowed Ms. Lanuza to conduct a sales campaign at CaridianBCT. Id . ¶ 71.

By April 2011, ISCSI had been the established NetApp partner at Tri-State for the preceding seven years. Id . ¶ 73. Mr. Sears and Mr. Donaldson never met with ISCSI to discuss how they were going to support ISCSI at Tri-State when the Tri-State Bid selection process for the NetApp partner was issued in March of 2011. Id . Instead, on or about March 2011, Messrs. Donaldson and Sears met with Susan Bullwinkle at Trace3 to plan the "new policy that Tri-State has to sign a VPA (Volume Purchase Agreement) with NetApp." Id . ISCSI had several accepted registrations with Tri-State during the bid selection process that were not honored after Tri-State selected Trace3 as its NetApp partner. Id . The VPA was granted even though NetApp had refused to complete VPAs in 2007 and 2009 for Tri-State because Tri-State's annual sales volume was below the $4 million revenue requirement to qualify for a VPA. Id.

On or about June 2010, NetApp employee Sam Sears failed to extend the registration request for ISCSI for the CaridianBCT RFP for an additional 180 days. Id . ¶ 74.

On or about April 2011, Sam Sears informed Mark Musilek of ISCSI-procured customer Tri-State, that NetApp had instituted a "new policy" that required customers to sign a VPA (Volume Purchase Agreement) with NetApp, after which Tri-State could select the NetApp Partner that it wanted to use. Id . ¶ 75. Previously, in 2007 and again in 2009, NetApp refused to negotiate a VPA with Tri-State as Tri-State's annual NetApp Sales revenue did not meet the $4 Million Annual Sales requirement necessary to establish a NetApp VPA. Id.

On or about April, 2011, Mr. Sears informed Mark Musilek of Tri-State that Tri-State should base its partner selection on various criteria that Mr. Sears and NetApp provided to Tri-State, and thereby encouraged Tri-State to award bids to another reseller. Id . ¶ 76. The first bid process was to find a single supplier that would provide NetApp hardware, software and maintenance. Id . The second bid process that NetApp suggested to Tri-State was to find a single supplier that would not only provide NetApp hardware, software and maintenance, but also would provide the integration support for NetApp's Information Technology Department. Id.

On or about April 2011, Mr. Sears told Dick Shehan and Robert Voydat that it was Chris Thomas of NetApp, who instituted this new VPA policy. Id . ¶ 79. On or about April 2011, Chris Thomas refused to meet with Robert Voydat of ISCSI to discuss this "new VPA policy" nor would Mr. Thomas meet to discuss why NetApp would not authorize the return of $14, 000 worth of NetApp equipment that was unopened and in its original shipping boxes, costing ISCSI $14, 000 worth of NetApp products. Id . ¶ 80.

Keith Macove encouraged ISCSI as the registered partner to continue to sell the NetApp products and services to these customers knowing that a dual registration existed at ST Micro. Id . ¶ 81. On or about December 2008, Tim Maggs encouraged ST Micro representative Lonnie Phillips to state that ST Micro did not want to do business with ISCSI, the first registered partner for ST Micro. Id . ¶ 82.

On information and belief, on or about September 2012 Tunc Kirli informed Robert Voydat of ISCSI that NetApp Management wanted to introduce ISCSI-procured customer Xilinx to a new NetApp partner to work with Xilinx in San Jose and Colorado, and that ISCSI would no longer be the NetApp partner working with Xilinx. Id . ¶ 83. On or about September 2012, Mr. Kirli stated to Robert Voydat of ISCSI and Kevin Block, Tim Lentz, Bill Wong, and Dave Sims, and several other employees of Xilinx that NetApp's decision to change NetApp partners was made by NetApp management and Xilinx did not request it. Id . ¶ 84.

On or about October 2012, Bill Wong, Kevin Block, Tim Lentz, Dave Sims and Aaron Facey of Xilinx told Robert Voydat that Xilinx did not make any request to change NetApp partners, as it preferred to continue to work with ISCSI as Xilinx's exclusive NetApp partner. Id . ¶ 85. This same request was originally made on August 26, 2009, in the presence of Rick Congdon, Sam Sears, and Tim Tutag from NetApp, as Kevin Block and Michael Allen requested that ISCSI be the exclusive NetApp partner for all Xilinx domestic software and hardware engineering sites. Id.

On or about September 2012, NetApp's Tunc Kirli told Robert Voydat, that in discussions with NetApp management in California and with NetApp management in Denver, "it is clear that ISCSI is not being supported by NetApp Management in Denver and thus the request to introduce a new NetApp partner at Xilinx." Id . ¶ 86.

Xilinx of San Jose gave ISCSI the highest partner rankings in the most recent NetApp partner survey, which took place in September 2012. Id . ¶ 87. Xilinx wanted ISCSI to be able to take several Xilinx orders with annual ...


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