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Integrated Communications & Technologies, Inc. v. Hewlett-Packard Financial Services Co.

United States District Court, D. Massachusetts

January 24, 2017

INTEGRATED COMMUNICATIONS & TECHNOLOGIES, INC., et al., Plaintiffs,
v.
HEWLETT-PACKARD FINANCIAL SERVICES COMPANY, et al., Defendants.

          ORDER ON MOTIONS TO DISMISS (DOCS. 46, 57) AND MOTION FOR RECONSIDERATION (DOC. 68)

          LEO T. SOROKIN, UNITED STATES DISTRICT JUDGE

         For the reasons that follow, the Court: (1) ALLOWS IN PART AND DENIES IN PART, WITHOUT PREJUDICE, Defendant Hewlett-Packard Financial Services Company's (“HPFS”) Motion to Dismiss (Doc. 46); (2) DENIES WITHOUT PREJUDICE Defendant Hewlett-Packard Financial Services (India) Private Limited's (“HPFS India”) Motion to Dismiss (Doc. 57); and (3) DENIES Plaintiffs' Motion for Reconsideration (Doc. 68). Plaintiffs have until February 8, 2017, to file a motion for leave to amend, with a proposed amended complaint, if they wish. Defendants may file any opposition to that motion within 14 days of its filing. Alternatively, if Plaintiffs do not file a timely motion for leave to amend, Defendants may renew arguments from the instant Motions to Dismiss that the Court has not decided..

         I. BACKGROUND

         On December 9, 2015, Plaintiffs Integrated Communications & Technologies, Inc. (“Integrated”), and its employees Jade Cheng, Jason Yuyi, and Cathy Yu (“Individual Plaintiffs”) commenced this action in Massachusetts Superior Court. Doc. 1-1 at 7. Plaintiffs essentially allege Defendants knowingly or negligently sold counterfeit information-technology equipment to Integrated, which led Chinese authorities to take various hostile actions toward Integrated and the Individual Plaintiffs. Doc. 41 at 1-2.

         On February 23, 2016, Defendants removed the action to this Court. Doc. 1. On March 31, 2016, HPFS filed a motion to dismiss. Doc. 19. On July 8, 2016, the Court allowed a request by Plaintiffs to amend the complaint and found HPFS's motion moot. Doc. 40.

         On July 18, 2016, Plaintiffs filed the instant Amended Complaint (“Complaint”). Doc. 41. On August 18, 2016, HPFS filed its Motion to Dismiss (Doc. 46), and on October 5, 2016, HPFS India filed its Motion to Dismiss (Doc. 57).[1]

         On January 4, 2017, Plaintiffs filed a motion for leave to file a second amended complaint. Doc. 64. The Court denied the motion without prejudice, and Plaintiffs have filed the instant Motion for Reconsideration (Doc. 68).

         II. THE COMPLAINT'S ALLEGATIONS

         A. FACTUAL ALLEGATIONS[2]

         1. Integrated Agrees to Buy and Resell Used Equipment from HPFS India.

         In 2010, HPFS India, a wholly owned subsidiary of HPFS, purchased new information-technology equipment manufactured by Hewlett-Packard Company (“HP”) and H3C Technologies Co., Ltd. (“H3C”).[3] Doc. 41 at 5. HPFS India purchased the equipment from “an authorized HP distributor in India” called Inspira. Id. HPFS India leased the equipment it purchased to another company. Id.

         At the end of the leases, in 2011, HPFS India received the equipment back. Id. It hired a company, TT Global, to process equipment returns. Id. Pursuant to HPFS's standard operating procedures, TT Global “or other persons acting on behalf of HPFS India inspected the returned equipment (the ‘2011 Inspection').” Id. at 6. HPFS India “would have become aware that the equipment was counterfeit as a result of that inspection.” Id.

         On or about June 14, 2011, an HPFS manager offered the used equipment to a representative from Integrated, a Massachusetts corporation, specifically “for remarketing purposes.” Id. The HPFS manager, JT Silvestri, explained to the representative, Alexander Pekar, that the equipment was manufactured by H3C Technologies Co., Ltd. (“H3C”), and was “coming off a short-term lease from HPFS's Asia region.” Id. at 7. Silvestri provided Pekar with a preliminary list of the equipment. Id. Integrated then forwarded the list to its office in China to determine its market value there, since H3C “was a China-based brand” and “China presented the best resale market” for the equipment. Id. Silvestri “concealed and did not disclose to Mr. Pekar that the equipment was counterfeit.” Id.

         In September 2011, Pekar met with another HPFS employee, by the name of Mr. O'Grady, who “was in charge of the H3C project, ” to discuss the purchase of the equipment. Id. at 8. Mr. O'Grady also “concealed and did not disclose to Mr. Pekar that the equipment was counterfeit.” Id.

         On or about November 21, 2011, HPFS's in-house counsel, David Gill, sent a draft contract to Integrated for the equipment purchase. Id. Gill “concealed and did not disclose to [Integrated] that the equipment was not ‘H3C equipment' as stated in the draft but counterfeit.” Id.

         On or about December 6, 2011, HPFS India entered into a Referral and Revenue Share Agreement (“RRSA”) with Integrated.[4] Id. at 9. In the RRSA, HPFS India “agreed to sell the equipment ‘AS IS' to an Indian broker, Shinto Creative Elements Private Limited (‘Shinto').” Id. Integrated agreed to acquire the equipment from Shinto for the purposes of reselling it, and to share fifty percent of any net profit from the resale with HPFS India. Id. at 9, 11. Integrated was required to remarket the equipment without identifying HPFS as the source of the equipment. Id. at 9.

         On the same date that HPFS India and Integrated entered into the RRSA, HPFS India and Shinto entered into a Wholesale Sale Agreement (“WSA”). Id. at 10. In the WSA, Shinto agreed to purchase the equipment from HPFS India, specifically for the purpose of reselling it to Integrated. Id.

         Both the RRSA and WSA “specifically identified the equipment as HPFS/H3C-manufactured equipment, ” and Integrated “had no reason to believe otherwise.” Id. However, “the equipment was not H3C-manufactured equipment but a counterfeit.” Id. at 11. “Defendant HPFS, which conducted the sales negotiations, and Defendant HPFS India, the party named in the contracts as the seller of the equipment, both concealed the fact that the equipment was counterfeit.” Id. Had Defendants “told the truth, [Integrated] would not have agreed to purchase and remarket the equipment because counterfeit equipment is unlawful to sell.” Id.

         At the end of December 2011, Integrated received, in China, the first shipping installment of the equipment from Shinto. Id. That installment consisted of approximately 3, 000 transceivers purportedly manufactured by H3C. Id. Upon receiving the first installment, Integrated representatives “realized that the equipment was in a substandard condition . . . and not marketable as anticipated.” Id. at 12. Integrated's “originally arranged customers, who expected the equipment in an ‘AS IS' but relatively new condition, backed out and refused to buy the equipment.” Id. “[T]he condition would have become apparent to Defendants during the 2011 Inspection, ” and “should have raised a red flag for the Defendants indicating potential substitution of the equipment with a counterfeit.” Id. Integrated's sales team in China “started to develop new resale channels, which . . . produced lower gross sales receipts.” Id.

         In “October/November 2012, ” Pekar and an HPFS representative “conducted a joint inspection of the remaining three installments” of the equipment (“2012 Inspection”). Id. They agreed that the remaining equipment “was likewise in a substandard” condition and “determined not to go through with the remaining installments.” Id. Unlike Integrated, “[D]efendants had the knowledge, expertise and technical means to determine that the equipment was counterfeit during the 2012 Inspection.” Id. at 13. However, at no point did “any of Defendants' representatives inform [Integrated] that the equipment was counterfeit.” Id.

         Plaintiffs continued to try to resell the first installment of equipment. Id.

         2. H3C Complains that Integrated Is Selling Counterfeit H3C Equipment, Which Leads to Action by the Chinese Police.

         In December 2012, “representatives of H3C lodged a complaint with the local police accusing Plaintiffs [of] marketing counterfeit H3C products because the transceivers contained counterfeit H3C trademark logos.” Id. However, those representatives did not disclose to the police that Integrated bought the equipment from HPFS and HPFS India, which are ...


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