March 23
IPsmarx
11710 Plaza America Dr., Ste 2000
Reston, VA 20190
[email protected]; [email protected]; [email protected]; [email protected]
SENT VIA EMAIL AND FEDEX
RE: xxxxxxxxxxxxxx Purchase Order,
Product Purchase and Services Agreement
Dear Sir or Madam,
This letter is sent to notify you of my representation of xxxxxxxxxxxxx (hereinafterxxxxxx) as its general legal counsel. It has been brought to my attention by my client that based on various problems that have occurred regarding the above listed Agreement, they have notified you of their repudiation and termination of said Agreement. Additionally, xxxxx has requested a complete refund of the funds paid in the amount of $14,320.00. It is my understanding that this request was denied, with the explanation that IPsmarx does not ever refund any money.
This letter will serve as additional request that IPsmarx refund the entire amount of $14,320.00 within ten (10) days from the date of this letter. I have spoken with xxxxxxxxxxxxx, who have been the primary contacts through the process with
IPsmarx, regarding the details of why the Agreement was terminated and repudiated. Below is a timeline of events, which occurred during the process. I welcome your input as well, if you dispute any of the dates or other facts.
It is my legal conclusion and argument that: (1) xxxx demanded adequate assurances of performance under the Agreement, which IPsmarx failed to provide, thus constituting a repudiation; (2) because of the repudiation/termination, IPsmarx must refund the entire $14,320.00 for failure to timely perform its obligations under the Agreement; and (3) certain provisions, if not the entire Agreement, are so substantively unconscionable that a judge would very likely not enforce the Agreement, ruling in my clients favor if litigation regarding this matter is pursued.
I. Background/timeline
On or about October 24, Now and IPsmarx (hereinafter referred to collectively as the parties) started communicating about the product and services offered by IPsmarx;
On or about October 25, Now did a demo of the IPsmarx product;
On or about December 19, Now did a test of the IPsmarx product;
On December 20, Carrie Fedders, Sales Manager of IPsmarx USA, located at 11710 Plaza America Drive, Suite Reston, VA 20190, emailed Mr. Pearce the price chart he requested in a phone conversation
between the parties; On December 27, Carrie emailed to Mr. Pearce the price quote;
On December 29, Mr. Pearce informed Ms. Fedders that he was ready to move forward based on
the quote she had sent over; Mr. Pearce and/or Mr. Hadley informed IPsmarx of the time sensitive nature of
delivering and installing the equipment;
Later that same day, Ms. Fedders informed Mr. Pearce that once payment had been received, IPsmarx would proceed with installation and finalize it within 2 weeks; On December 29, Now made payment in the amount of $14,320.00 to IPSmarx; On December 30, IPsmarx provided the terms and conditions to Mr. Pearce;
On January 11, Now signed the Agreement;
On January 19, installation process was supposedly initiated, but no product was delivered;
On January 26, Ipsmarx provided Hostgator Logins.
On January 26, Ipsmarx sent the following message regarding installation to Now:
We have received your signed agreement. I have processed your installation work order and activated your support package.installation usually takes between 7-10 business days once we are able to gain access to
your server. You will be sent for a thorough training once everything is installed.
On January 28, server login was provided a second time via the ticketing system;
On February 15, Now was informed they needed admin access to the hostgator sever;
Frustrated about the product and service, Mr. Hadley called Maryam Farrahi (installation manager) and left message about needing to get on a 3 way call with IPSMARX, and Hostgator to solve the problem; however, no response was given (until the first week of March); Subsequently, Mr. Hadley called Ms Fedders left her a message demanding adequate assurances of performance, to call him back about canceling the project and sent her a email letting her know that Now was frustrated with their lack of response; IPSmarx never replied with a phone call; however, they did send an email dated March 5 with the following message:
Joshua, I spoke with Maryam this morning and she confirmed that the cause of the delay on our side is that we wanted to provide the latest version of our software to you, rather than installing our current version and applying an
update shortly after. Your installation is currently our teams priority so it will be completed very soon.
In the meantime, to expedite the process, we can go ahead and schedule your training. Also, to compensate for the delay, we can offer to refund the installation & training fees of US$ 1,600.
Please understand that this is not our normal process and our team made the decision to postpone your installation for what they thought would be to your benefit. I apologize for the inconvenience and I know that once installation is complete you will be pleased with our solutions and support.
Best Regards,
Carrie Fedders
Sales Manager, IPsmarx USA
On March 5, Now also received a call from a certain Andrew, the customer service manager for IPSmarx, asking what the issues were. Mr. Hadley informed him that Now wanted to cancel the project due to non-responsiveness of their team during the installation phase, and Mr. Hadley requested a refund of the $14,320.00 because of non-delivery of the product. Andrew said their policy was to never refund money to anyone for any reason; To date, no equipment has been delivered to Now, as promised by IPsmarx, and no date of installation has been given.
After speaking with my clients and reviewing the correspondence, it appears that IPsmarx, to resolve the problems
and communicate with Now, tried to use the Ticketing system, which, in my opinion, is not applicable to the original deal. The ticketing system is only applicable to problems which is defined as any program defect, error, bug or other failure
of all or part of the IPsmarx Software that results in the IPsmarx Software not conforming to, or performing in accordance with, its published specifications or documentation. The ticketing system is not applicable to problems regarding
timely performance of IPsmarxs obligations under the Agreement.
During the entire process, IPsmarx was completely aware that Now was on a tight timeline, and that it needed IPsmarx
to perform its obligations under the Agreement so that the product and services were up and running quickly, allowing Now to start training salespersons and preparing for the summer 2012.
Although not a complete analysis or breakdown of the legal issues surrounding the transaction, I have attempted to
highlight some of the arguments below, which my client would make in litigation, if necessary.
Ii. Now demanded adequate assurances, which ipsmarx failed to provide, thereby repudiating the agreement
Because the parties Agreement is one for goods, the Uniform Commercial Code (the UCC) applies in this setting. Arizona has adopted the UCC, specifically Article 2 Sales.[1] Regarding adequate assurances, the UCC states
the following:
A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may
if commercially reasonable suspend any performance for which he has not already received the agreed return.[2]
Here, reasonable grounds for insecurity arose with respect to the performance of IPsmarx due the delay in delivery of the product to Now. Ms. Fedders promised in her email dated December 29th that installation would occur within two weeks after payment. IPsmarx again promised Now on January 26 that installation would occur between 7-10 business days after gaining access to Nows server. Now provided login information to IPsmarx on two occasions. When IPsmarx failed to keep these promises, its performance of the terms of the Agreement became very suspect, having the appearance of a bait and switch scheme where IPsmarx promised a product that never existed.
As such, Now, through xxxxxxxx, notified IPsmarx via email and on the phone of the problems and requested
adequate assurance of IPsmarxs performance under the terms of the Agreement on or about February 15th. My client feels it took way too long for IPsmarx to respond to their concerns after demanding adequate assurances of performance. It appears to me that it took almost three weeks to respond to the demand. Finally, Ms. Fedders did respond to xxxxxxxxxx email and voicemail, but did not provide any sort of adequate assurance of performance.instead the email only offered to credit the cost of installation, apologized and certainly never offered a date by which the product would be delivered and installed.
Accordingly, IPsmarx failed to provide assurance of its due performance under the terms of the Agreement. Thus, in accordance with the UCC, [a]fter receipt of a justified demand failure to provide within a reasonable time not
exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.[3] Therefore, IPsmarx repudiated the Agreement, by its failure to provide assurance of due performance in a timely and reasonable manner.
I understand that IPsmarx may have informed Now that Now contributed to the problems to begin with and may have
caused the problems with delivery by not providing server logins. However, it is my clients contention that this
is simply untrue because Now provided the logins at least twice through the ticketing system.interestingly, IPsmarx
appears to have since recanted and changed its story to the fact that it was waiting for the newest version of their software before delivery. The decision to install new software and delay delivery of the product was never communicated to Now, until it decided to demand adequate assurance of performance of the Agreement. Certainly, IPsmarx had a duty to communicate to Now such a material change of terms to the Agreement.
Thus, for the above reasons, IPsmarx must refund the entire $14,320.00. Failure to do so constitutes a huge windfall, unjust enrichment and breach of contract.
Ii. Despite contractual terms to the contrary, ipsmarx must refund the money now paid
I realize that IPsmarx may argue that it is not obligated to return any money to Now because of clauses numbered
six and eight in the Agreement. These state:
6. Cancellation
/ Delay by Buyer: Customer may not cancel orders for Products. Customer may not delay scheduled delivery of Products without IPsmarxs written consent.
8. Returns: All payments are non-refundable.
Customer must accept all Products tendered under this Agreement. Under no circumstances is Customer permitted to reject Products tendered or to return Products without IPsmarxs prior written consent.
In my opinion, these clauses are clearly substantively unconscionable and a judge would refuse to enforce the
contract.[4] The UCC allows for such a result:
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without
the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.[5]
Arizona caselaw has defined substantive unconscionability as concerning the actual terms of the contract and undertakes
an examination of the relative fairness of the obligations assumed. Maxwell v. Fidelity Financial Services, Inc., 184 Ariz. 82,89, 907 p. 2d 51,58 (Ariz., 1995) citing Resource Management Co. V. Weston Ranch & Livestock Co., 706 P. 2d 1028,1041 (Utah 1985).indicative of substantive unconscionability are contract terms so one-sided as to oppress or unfairly
surprise an innocent party, an overall imbalance in the obligations and rights imposed by the bargain, and significant cost-price disparity. Id.
Here, clauses numbered six and eight, respectively are so one-sided as to oppress Now, were not provided until
after xxxx paid the $14,320.00, cause an overall imbalance in the obligations and rights imposed by the bargain and cause a significant cost-price disparity. Such terms are simply unreasonable. A merchant that collects
money up front for a product and service, but then fails to deliver certainly causes a significant cost-price disparity and windfall. To never have the ability to demand a return or cancel the Agreement flies in the face of contract law regarding remedies for non-performance.
Accordingly, if litigation is pursued, a judge would most likely find the agreement to be unenforceable regarding these provisions. Despite the contractual terms to the contrary, IPsmarx must refund the $14,320.00.
Iii. Choice of law and venue clause will be unenforceable due to unconscionability
In the event that the matter cannot be settled before expensive litigation is commenced, my client will certainly
file a complaint in Maricopa County, Arizona, notwithstanding clause 29 entitled Governing Law. Such a clause is also arguable unconscionable utilizing the same factors discussed above. During negotiations and the formation
of the contract, xxxxx never had any dealings with representatives from Ontario, Canada only those from Virginia. Thus, in the event litigation is necessary, after filing its initial complaint, Now would object to any motion to transfer venue and application of Canadian law based on the foregoing.
Iv. Conclusion
In conclusion, xxxxx simply requests that IPsmarx refund the $14,320.00 within 10 days of the date of this
letter. As a matter of course, this firm is always anxious to see if the matter can be resolved through pre-litigation
methods or alternative dispute resolution. Of course, I am sure that IPsmarx would prefer to avoid any negative
publicity or press that may occur through a lawsuit. If we can resolve the matter before filing the lawsuit, additional costs and attorneys fees can be avoided. However, after that time, such expenses will dramatically increase. If we are not able to resolve this matter, we will retain local counsel for filing a lawsuit for the purpose of preserving my clients legal rights.
Please feel free to call if you have any questions or concerns. We would like to avoid the costs of fees and litigation.
We look forward to working with you and amicably resolving this matter if you are so inclined.
Sincerely,
Benjamin Ruesch, Esq.
Cc: client; Joshua Hadley; Chris Pearce
[1] A.R.S. 47-2101 et seq.
[2] A.R.S. 47-2609
[3] Id.
[4] The entire agreement may even be entirely substantively unconscionable, but I wont take the time to discuss the rationale in this letter.
[5] a.R.S. 47-2302
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