937 F. Supp. 2d 355
E.D.N.Y2013Background
- ANS and its founders (Individual Plaintiffs) contracted with Falconstor to upgrade ANS’s SAN; two agreements govern the upgrade: Evaluation Agreement (Apr 22, 2010) and the July 8, 2010 Statement of Work.
- The upgrade commenced July 13–22, 2010; a series of mishaps occurred, including data transfer issues, a problematic phase with backup/redundancy, and a catastrophic reboot on July 22, 2010.
- Plaintiffs allege Falconstor acted with reckless disregard for data-security and storage-virtualization industry standards, causing data corruption and client losses.
- The Statement of Work contains a broad liability waiver and a warranty that services be performed in a good and workmanlike manner, disclaiming implied warranties.
- Plaintiffs assert four NY law claims: gross negligence, negligent misrepresentation (against ANS and individuals), and breach of contract due to gross negligence, plus breach of the implied covenant of good faith and fair dealing (against ANS).
- Falconstor moves to dismiss: claims by Individual Plaintiffs for lack of standing and tort claims under the economic loss doctrine; seeks dismissal of certain contract-based claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether tort claims survive economic loss doctrine | Plaintiffs allege independent duty from non-contractual conduct. | Economic loss doctrine bars tort for purely contractual-relationship damages. | Tort claims dismissed for lack of independent duty |
| Standing of Individual Plaintiffs to sue | Individual Plaintiffs seek tort recovery alongside ANS. | No standing to sue individually for tort in this contract-based dispute. | Individual Plaintiffs’ tort claims dismissed (standing not established) |
| viability of negligent misrepresentation and gross negligence | Torts arise from duties independent of contract and reliance by ANS and individuals. | No independent duty; claims duplicative of contract. | Dismissed due to lack of separate duty |
| Breach of contract claim viability | Contract breach due to failure to configure NLM and perform upgrade properly. | No tort, only contract; negligence-based breach not cognizable. | Remains as a breach-of-contract claim; tort claims dismissed |
| Implied covenant of good faith and fair dealing | Bad-faith actions during upgrade breached implied covenant. | Redundant to contract claim; no independent breach. | Dismissed as duplicative of breach-of-contract claim |
Key Cases Cited
- Sommer v. Federal Signal Corp., 79 N.Y.2d 540 (N.Y. 1992) (duty outside contract when harm is catastrophic or public-interest)
- Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8 (2d Cir. 2000) (professional duty exception to no-tort-contract rule)
- Bayerische Landesbank, New York Branch v. Aladdin Capital Management LLC, 692 F.3d 42 (2d Cir. 2012) (independent-duty theory can permit tort alongside contract)
- Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382 (N.Y. 1987) (limits on tort for breaches of contract absent independent duty)
- New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308 (N.Y. 1995) (tort claims require independent legal duty beyond contract)
- Archstone v. Tocci Bldg. Corp. of New Jersey, Inc., 101 A.D.3d 1059 (N.Y. App. Div. 2d Dep’t 2012) (economic loss doctrine limits tort recovery for contract-related damages)