Paragon Digital Lifestyle Inc. v. Adaptive Micro-Ware, Inc.

Background

Paragon Digital Lifestyle Inc., referred to in the opinion as DigiValet, provides hotel products and services that allow guests to control room amenities and hotel services using electronic devices. In 2017, DigiValet hired Adaptive Micro-Ware, Inc. to develop technology for controlling televisions in North American hotels using a system involving Pro:Idiom encryption.

The parties signed an Engineering Agreement and later extensions covering three phases. Adaptive estimated that Phase I would take three to five weeks, Phase II four to six weeks, and Phase III four to five weeks. Adaptive completed the earlier work late, but it did not deliver the working product required by Phase III. After repeated requests for progress and a refund, DigiValet ended the project in September 2019. DigiValet then pursued breach-of-contract and unjust-enrichment claims.

Motions and Contract Breach

Both parties moved for summary judgment, a procedure allowing judgment without a trial when the evidence shows no genuine dispute over a fact that could affect the result. The court applied New York law because the parties relied on it in their filings.

The court found no dispute that the parties had a valid contract and that DigiValet had performed its obligations. Adaptive did not claim that DigiValet breached the agreement. The court held that Adaptive breached the contract by failing to deliver the Phase III product at all. It also held that, even if the issue were viewed only as delay, Adaptive’s performance was not completed within a reasonable time: Phase I took about six months instead of three to five weeks, Phase II took 11 weeks instead of four to six weeks, and Phase III still had not produced a working product about a year after the estimated four-to-five-week period.

The court rejected Adaptive’s arguments that DigiValet had not adequately communicated the project’s urgency and had prevented Adaptive from working with Zenith to address technical problems. The court found that DigiValet repeatedly communicated its deadlines and urged Adaptive to work with Zenith.

Damages

DigiValet sought a refund of the $100,000 paid to Adaptive, $172,486 for circuit boards manufactured in reliance on Adaptive’s design, and $81,443 spent on an alternative solution. The court concluded that expected profits were too speculative, but awarded the first two amounts as restitution and reliance damages. Restitution returns benefits provided under a failed contract, while reliance damages reimburse expenses incurred because of reliance on the other party’s performance.

The court denied the $81,443 request because DigiValet would have needed a solution for its hotel client even if it had never contracted with Adaptive. Awarding both a refund for the failed technology and the cost of the working alternative would have given DigiValet a windfall. The total award was therefore $272,486.

Disposition

The court denied Adaptive’s motion for summary judgment on the breach-of-contract claim and granted DigiValet’s cross-motion on that claim. It directed entry of judgment for DigiValet on Count One for $272,486. Because the contract was valid and enforceable, the court dismissed the alternative unjust-enrichment claim and directed entry of judgment for Adaptive on Count Two. The Clerk was directed to close the case.