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Insight Public Sector Inc. v. Proteam Solutions Inc.

United States District Court, D. Arizona

November 10, 2016

INSIGHT PUBLIC SECTOR, INC., Plaintiff,
v.
PROTEAM SOLUTIONS, INC., Defendant.

          ORDER CROSS-MOTIONS FOR SUMMARY JUDGMENT

          H. Russel Holland United States District Judge

         Plaintiff moves for summary judgment.[1] This motion is opposed[2] and defendant cross-moves for partial summary judgment.[3] Defendant's cross-motion is opposed.[4] Oral argument was requested and has been heard.

         Procedural History

         Plaintiff Insight Public Sector, Inc. (IPS) is an Illinois-based subsidiary of Insight Enterprises, Inc. which sells computer hardware, software and related products to government agencies. Defendant Proteam Solutions, Inc. is a qualified Minority Business Enterprise (MBE) contractor which has conducted business with the state government in Ohio formanyyears. "Pursuant to regulations adopted by the State of Ohio, departments and agencies of the State government are required to purchase a portion of all goods and services from Minority Business Enterprises."[5] "MBEs are required to offer goods and services to State agencies in conformity with State Term Schedules (STSs), which establish ceiling prices at which specified goods can be offered for sale."[6]

         Keith Stevens, Proteam's president, avers that he was contacted by IPS in early 2010 because IPS "wanted to 'partner' with Proteam for the purpose of selling computer products through the Ohio MBE program."[7] In March 2010, the parties entered into an agreement under which "Proteam agree[d] to provide IPS with information about specific sales opportunities from public entities within the State of Ohio that Proteam believes may have a need for or interest in procuring information technology products."[8] The 2010 Agreement provided that "Proteam will take no further action on IPS' behalf with respect to such sales opportunities unless IPS authorizes Proteam to do so in writing."[9] The 2010 Agreement further provided that

[a]ny sales opportunities identified by Proteam and selected by IPS in writing pursuant to this Section 1 shall be referred to herein as "Designated Opportunity" or "Designated Opportunities." Proteam will introduce IPS to Designated Opportunities and facilitate initial communications between the Designated Opportunities and IPS for the sole purpose of bringing about the sale of information technology products.[10]

         The 2010 Agreement provided that

IPS agree[d] to pay Proteam by the 30th working day following the end of each calendar quarter during the term of this Agreement, a royalty in the amount of fifty percent (50%) of the gross profit .... for closed sales, net of returns, fees, and shipping, generated by orders specifically identified as Designated Opportunities for which IPS received timely payment in full during that calendar quarter....[11]

         The 2010 Agreement further provided that "[t]his royalty shall apply only to purchase orders that reference Proteam in the body of the order document. IPS will not be obligated to compensate Proteam for orders that are not appropriately designated by the Designated Opportunity at the time of order entry."[12]

         The 2010 Agreement also provided that IPS was to "provide a quarterly report to Proteam of all closed sales, net of returns, generated by orders specifically identified as Designated Opportunities for which IPS received timely payment in full during that calendar quarter...."[13]

         The 2010 Agreement provided that it would "continue for a period of one year" and that the Agreement would "automatically renew for successive one year periods unless either party provides written notice of its decision to terminate the agreement in accordance with Section 18...."[14] Section 18 provided, in relevant part, that "[e]ither party may terminate this Agreement without cause upon sixty (60) days prior written notice to the other party."[15]

         At the same time the parties entered into the 2010 Agreement, they executed First and Second Addendums to the 2010 Agreement. The First Addendum provided that "Proteam shall ensure that all orders received by it under this contract will be made out to IPS. The end users will order all products directly through IPS."[16] The First Addendum also provided that it would be a material breach if "Proteam takes an order directly from a Public Sector Agency against the IPS STS for products or services" and if "Proteam accepts payments from [a]

         Public Sector Agency for an order against the IPS STS."[17] The Second Addendum provided that "Proteam shall ensure that all orders received by it under this contract will be made out to IPS. The end users will order all products directly through IPS."[18]

         There is no dispute that the parties never followed the sales procedure laid out in the 2010 Agreement because Ohio's MBE program required that state agency purchase orders be made out to the MBE. Instead, Proteam would receive requests for quotes (RFQs) from Ohio state agencies and then it would forward the RFQs to IPS, which would quote a price. Proteam would then add a certain percentage to that price and submit the quotes to the State agencies. Proteam could decide what that percentage was although IPS provided input as to what the mark-up should be.[19] If the State agencies accepted the quotes, then Proteam submitted purchase orders to IPS for products to be shipped directly to Ohio governmental agencies. After the orders were filled by IPS, the Ohio governmental agencies paid Proteam for the products pursuant to invoices issued to them by Proteam. And Proteam paid IPS pursuant to invoices issued to Proteam by IPS.

         From May 2010 through October 2013, the parties followed the foregoing procedure for the sales that IPS made to Proteam. For all of the sales prior to July 2013, Proteam timely paid IPS. However, when IPS invoiced Proteam for the July-October 2013 sales, which totaled $726, 498.07, Proteam did not pay the total amount due. After taking into consideration a credit that Proteam had, the total due under the July-October 2013 invoices was $702, 950.07, but Proteam only paid IPS $350, 000.

         Proteam contends that it withheld some of the payment for the July-October 2013 invoices because it had come to believe that IPS was not paying the correct royalty amount under the 2010 Agreement. Stevens avers that

[d]uring the second half of 2013, 1 obtained the SEC form 10-K shareholder reports of IPS parent corporation Insight Enterprises, Inc. Those reports state that during years 2010-2012, Insight Enterprises' gross profit margin on sales was 13.6%.[20]

         Given that "Proteam's gross compensation was 1.62% of total sales of IPS-supplied goods[, ]" Proteam believed it had not been properly paid its royalty pursuant to the 2010 Agreement and Stevens "delayed Proteam's remittance of the last State agency payments and requested that IPS substantiate Proteam's Contract royalties."[21]

         On November 18, 2013, Proteam gave IPS 60-day written notice that Proteam intended to terminate the 2010 Agreement without cause.[22] Proteam stated that it was "terminating [its] agreement with Insight Public Sector due to the diminishing profitability of our efforts. It is our hope that we can unwind our working relationship in a professional and organized manner."[23]

         The parties attempted to resolve the dispute over the remaining $350, 000 that IPS believed Proteam owed, but they were unable to reach a resolution. On October 16, 2014, IPS commenced this action in state court. The matter was subsequently removed to this court on the basis of diversity jurisdiction. In its complaint, IPS asserts a breach of contract claim and an unjust enrichment claim. IPS alleges that Proteam still owes it $352, 950.07.[24]

         Proteam has asserted three counterclaims against IPS: 1) breach of contract, 2) breach of the implied covenant of good faith and fair dealing, and 3) intentional misrepresentation. Proteam alleges that IPS has breached the 2010 Agreement and the duty of good faith and fair dealing by not paying Proteam all of the royalties it is due and that IPS has concealed the gross profits realized from the Proteam-brokered sales.[25]

         IPS now moves for summary judgment on its breach of contract claim and on each of Proteam's counterclaims. Proteam cross-moves for summary judgment on IPS's breach of contract and unjust enrichment claims.

         Discussion

         Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The initial burden is on the moving party to show that there is an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party meets its initial burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In deciding a motion for summary judgment, the court views the evidence of the non-mo vant in the light most favorable to that party, and all justifiable inferences are also to be drawn in its favor. Id. at 255. "[T]he court's ultimate inquiry is to determine whether the 'specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987).

         IPS's Breach of Contract Claim

         IPS contends that each of the July-October 2013 Proteam purchase orders and corresponding IPS invoices constituted a separate contract, contracts which Proteam breached by not paying IPS the full amount due under the invoices. Under Arizona law, [26]"[t]o bring an action for [a] breach of [a] contract, the plaintiff has the burden of proving the existence of the contract, its breach and the resulting damages." Graham v. Asbury, 540 P.2d 656, 657 (Ariz. 1975). "For an enforceable contract to exist, there must be an offer, an acceptance, consideration, and sufficient specification of terms so that obligations involved can be ascertained." K-Line Builders, Inc. v. First Federal Sav. & Loan Ass'n, 677 P.2d 1317, 1320 (Ariz.Ct.App. 1983). A purchase order can constitute a contract. Koenen v. Royal Buick Co., 783 P.2d 822, 826 (Ariz.Ct.App. 1989).

         IPS argues that the July-October 2013 purchase orders and corresponding invoices can constitute enforceable contracts because by submitting the purchase orders, Proteam offered to purchase goods for certain prices and requested that IPS send the goods to Proteam's clients. IPS accepted Proteam's offer by sending the requested goods to Proteam's customers and then sent invoices to Proteam which contained sufficient terms and conditions. If the July-October 2013 purchase orders and corresponding invoices are enforceable contracts, then IPS argues that there is no dispute that Proteam has not paid the full amount due under those contracts and thus Proteam has breached its contracts with IPS.

         Proteam argues, however, that the 2010 Agreement governs the parties' transactions. This argument is based on Proteam's contention that the parties orally modified the sales procedure portion of the 2010 Agreement. The court is mindful that Proteam's answer and amended counterclaim are devoid of any reference to an oral modification, but the court is not prepared to conclude that Proteam cannot advance an oral modification argument.

         Although the 2010 Agreement contained a provision that any amendments had to be in writing, "[u]nder Illinois law, [27] parties to a written contract may alter or modify its terms by a subsequent oral agreement, even though the terms of the contract preclude oral modification." A.W. Wendell and Sons, Inc. v. Qazi,626 N.E.2d 280, 287 (111. Ct. App. 1993).[28] "The existence of an oral modification-as well as its terms, conditions, and the intent of the parties-are all questions of fact that must be determined by a trier ...


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