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TRECOM BUS. SYS. v. PRASAD

October 6, 1997

TRECOM BUSINESS SYSTEMS, INC., Plaintiff,
v.
NALLUR PRASAD, Defendant.



The opinion of the court was delivered by: WALLS

 Walls, District Judge

 Complaint was filed by Trecom Business Systems, Inc., now known as DMR Trecom, Inc., ("Trecom") against defendant, Nallur Prasad ("Prasad"), a former employee, for damages sustained as a result of the alleged breach of an agreement wherein Trecom purchased the rights, title, and interest to computer software developed by Prasad. Defendant has filed a Counterclaim alleging that Trecom breached this agreement by failing to adequately modify, enhance, and market the software, essentially rendering it obsolete and unprofitable.

 Currently before the Court is Trecom's motion for summary judgment dismissing the Counterclaim pursuant to Rule 56(b) of the Federal Rules of Civil Procedure. Pursuant to Rule 78 of the Federal Rules, the Court decides this motion without oral argument. For the following reasons, this Court grants Trecom's motion for summary judgment.

 I. FACTUAL BACKGROUND

 Trecom is a Delaware corporation in the business of, among other things, providing computer consulting services. Prasad is a New York resident who works as a computer consultant and software developer. The Court has jurisdiction over this controversy under 28 U.S.C. ยง 1332.

 In the Summer of 1990, Richard Hourihan, then Vice President of Trecom's Management Science Group, contacted Prasad to discuss whether he was interested in joining Trecom as a senior manager for the science management group. At that time, Prasad was employed as a consultant with the Berylesmann Music Group in Lyndhurst, New Jersey. Prasad had been working for the past two years on developing a set of computer programs known as GURU ("GURU" or "the software"). The function of GURU was the optimization (also known as "tuning for performance") of computer programs which run on the International Business Corporation ("IBM") mainframe and access data using DB2, IBM's major database management system.

 During the course of their conversations, Prasad referred to GURU and its functions. The parties dispute the content of these discussions. Trecom asserts that Prasad represented that there was a substantial market for GURU, that the product was state of art, that further development and marketing of the software would be profitable to Trecom, and that IBM United Kingdom Limited ("IBM UK") and others intended to purchase licenses for GURU. See Compl. P 6; Hourihan Dep. at 35-39. Prasad disputes that he ever specifically stated that the software was "state of the art" or that IBM UK had already definitively decided to purchase GURU. In any event, Mr. Prasad accepted the job and began working at Trecom in October 1990.

 During the following months, Prasad continued to discuss GURU and its potential marketability with Mr. Hourihan and other executives at Trecom. In April 1991, the parties entered into a contract ("Agreement") providing that Prasad would convey his rights, title, and interest in GURU to Trecom in consideration for $ 100 up-front and future royalty payments calculated in accordance with the provisions of the Agreement. See GURU Agreement annexed to Compl. The Agreement stated that Prasad would receive fifteen percent of all future sales of the software up to a maximum of $ 6,000,000. See id. P 3(a). The Agreement required Prasad to render technical assistance with respect to efforts to enhance, modify, or add to the software if Trecom so requested. See id. P 5(a). At issue in this motion is a prefatory "Whereas" clause in the Agreement that provides: "WHEREAS, Trecom intends to modify and enhance the Software, and further make derivative works therefrom[.]"

 Trecom, in collaboration with Prasad, proceeded to attempt to improve, develop, and market the software. Trecom established committees and a special GURU Project Team to plan the marketing strategy for GURU. There were monthly meetings that Prasad regularly attended. See Minutes of Products Development Steering Committee, Exh. G(1)-(6) annexed to Kathleen Gengaro Certification ("Gengaro Cert."). The committee planned marketing and sales strategies, proposed technical improvements to the software, performed a competitive analysis, and prepared and implemented strategic plans of action. See Gengaro Cert., Exh. G(1)-(7), (11), (12). Trecom established the Products Division to market GURU and two of Trecom's own internally developed products. See Nallur Prasad Certification ("Prasad Cert.") P 15. Trecom created a Product Marketing Plan, Product Brief, and a manual for GURU. See Gengaro Cert., Exh. G(8), G(9); Def.'s Response to Admission No. 40. Trecom also replatformed GURU from a mainframe version to a version that could run on a PC. This required approximately six months of work by Abe Salzman, a technical specialist at Trecom. See Prasad Dep. at 114-17. Prasad does not dispute that Trecom made the above efforts to market, develop, and improve the software. Trecom contends that it expended hundreds of thousands of dollars and devoted substantial resources and experienced personnel to this project.

 In order to increase exposure of the software, Trecom exhibited GURU at an international trade conference in New York. In addition, personnel at Trecom contacted third party vendors to pursue potential sales or licensing agreements for the software. The vendors included Allen Systems, Relational Data Services, Programmart Corporation, and Landmark Systems. See Prasad Dep. at 195-96, 209-10, 249, 257-58. Trecom failed to enter into any deal with these prospective vendors. According to Trecom, it did not finalize any negotiations with these companies because they were unwilling to pay any money up-front and because they refused to agree to indemnify Trecom should any user sue based upon a defect in the program. See Hourihan Dep. at 143-48, 173-77. The plaintiff refers to a provision in the Agreement granting it the "sole, absolute and unconditional right to establish . . . the terms, conditions, prices, rates, and payments to be made under any License" to support its argument that it was totally within its discretion to determine whether to enter such deals.

 Despite Trecom's efforts during the following eighteen or so months, it only realized one sale of GURU. NYNEX purchased two PC GURU licenses for $ 100,000; Trecom promptly provided the appropriate royalty payment due to Prasad for this sale. IBM (USA), which had originally requested that a PC version of GURU be developed, and IBM UK withdrew their interest in the software. In late 1992 or early 1993, Trecom concluded that the project was doomed to failure and made a business decision to abandon its efforts to market and further develop the software. Prasad admits that at that time Trecom offered him back the rights and title to GURU although it is disputed whether such a conveyance was ever formally executed. See Prasad Dep. at 142. Prasad asserts that at that time he asked Trecom for financial assistance to allow him to make GURU compatible with the recent upgraded versions of DB2 but that this request was denied. See Prasad Cert. P 26.

 Prasad continued to work for Trecom for close to three more years until his employment was terminated by the company in November 1995. In January 1996, Prasad's attorney for the first time contacted Trecom threatening to bring suit for breach of contract if Trecom failed to pay him a substantial sum of money. See Gengaro Cert., Exh. K. Trecom responded by filing the present action against Prasad in state court seeking damages for the alleged misrepresentation that Prasad made concerning the marketability and development of GURU and for Prasad's purported failure to render adequate assistance in the company's effort to produce a marketable version of the program. Trecom also seeks a declaratory judgment that it satisfied its obligations under the Agreement. Prasad responded by removing the case to this Court and by filing a Counterclaim seeking damages in excess of $ 6 million for Trecom's alleged breach of the Agreement. Prasad asserts that Trecom breached the Agreement by failing to modify and enhance GURU as stated in the "Whereas" clause, by failing to market GURU, and by not availing itself of numerous opportunities to sell the software to interested customers. See Counterclaim P 58. Prasad specifically refers to Trecom's failure to update GURU to make it ...


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