Summary
In Revonate, the court found that the declarations made under a remanufacturing contract that some products were beyond economic repair, when they were salvageable, did not constitute a separate fraud claim.
Summary of this case from Capital One, N.A. v. Auto Gallery Motors, LLCOpinion
12 Civ. 6017 (KBF)
01-18-2013
REVONATE MANUFACTURING, LLC, and SENECA DATA DISTRIBUTORS, INC., Plaintiffs, v. ACER AMERICA CORP., Defendant. ACER AMERICA CORP., Defendant/Counterclaimant, -and- GATEWAY MANUFACTURING, LLC, Counterclaimant, v. RENOVATE MANUFACTURING, LLC and SENECA DATA DISTRIBUTORS, INC., Plaintiffs/Counter-Defendants.
MEMORANDUM DECISION & ORDER
:
Plaintiffs Revonate Manufacturing, LLC ("Revonate") and Seneca Data Distributors, Inc. ("Seneca") filed the instant action in Supreme Court, New York County, on April 25, 2012, raising various breach of contract claims against defendant Acer America Corp. ("Acer") under New York law. (Notice of Removal Ex. A ("Compl.") ¶ 6, ECF No. 1.)
The gravamen of plaintiffs' complaint is that Acer breached a Remanufacture Services Agreement effective December 1, 2010 ("2010 Revonate Remanufacture Services Agreement") by which plaintiff Revonate was to provide remanufacture and recycling services relating to computer products originally manufactured by defendant, which plaintiff Seneca (Revonate's parent company) would then resell. (Id.) Plaintiffs allege that defendant undercut the price at which they could resell the remanufactured goods, failed to give Revonate the right of first refusal to purchase all computer products returned to Acer, and ignored its obligation to negotiate the price of defective Acer products in good faith. (Id. ¶¶ 13, 21-22, 26-28, 41.) They allege defendant's behavior violated several provisions of the 2010 Revonate Remanufacture Services Agreement and a 2011 Addendum meant to normalize fluctuations in market prices of remanufactured computer products caused by changes in Acer's pricing of new computers. (Id.)
Defendant removed the action to this Court on August 6, 2012, invoking 28 U.S.C. §§ 1441 and 1446 jurisdiction. (Notice of Removal, ECF No. 1.) Shortly after removing the action, defendant answered and asserted counterclaims for breach and declaratory relief related to two sets of contracts—the "2008 Turnkey Agreement" (in reality, five separate contracts) and the "2010 Turnkey Agreement" (which included the 2010 Revonate Remanufacture Services Agreement between Revonate and Acer, and a 2010 Seneca-Acer retail distribution agreement) —and for common law fraud. (See Pls.' Mem. of L. in Opp. to Mot. to Dismiss Countercl. ("Pls.' Br.") at 4, ECF No. 30; Countercl., ECF No. 23.) The counterclaims add Acer subsidiary Gateway Manufacturing, LLC as a counterclaim plaintiff.
Defendant alleges the "2008 Turnkey Agreement" consisted of the following: (1) 1999 Seneca-Acer authorized service provider contract, (2) 2008 Seneca-Acer remanufactured products contract, (3) 2008 Revonate-Acer remanufactured products service contract, (4) 2008 Revonate-Gateway remanufacture services agreement, and (5) 2008 Seneca guarantee of service letter. (Countercl. ¶ 42.) These agreements are incorporated by reference into the Counterclaim. (Countercl. Exs. A-E.)
The Court will treat Acer's naming of Gateway, an LLC with citizenship in Delaware and California, as a motion for permissive joinder of parties under Fed. R. Civ, P. 20. As Gateway is a party to several of the agreements at issue in this case and joins in the counterclaim assertions, the Court finds that it asserts rights to relief jointly with Acer, with respect to the same transaction or occurrence as the Acer complaint. Fed. R. Civ. P. 20(a)(1)(A). There are common questions of contract and tort law common to Gateway's and Acer's counterclaims; accordingly, the Court grants the motion to join Gateway. Fed. R. Civ. P. 20(a)(1)(B).
Plaintiffs now move to dismiss the counterclaims for breach of contract (Count I) arising out of the 2008 Turnkey Agreement and fraud (Count IV) in full. They seek to dismiss the counterclaims alleging breach of contract arising out of the 2010 Turnkey Agreement (Count II) and seeking declaratory relief (Count III) insofar as they relate to agreements superseded by the 2010 Revonate Remanufacture Services Agreement. For the reasons set forth below, plaintiffs' motion is GRANTED IN PART.
On its face, the Counterclaim in Counts II and III addresses only alleged wrongdoing arising out of the 2010 Turnkey Agreement. (Countercl. ¶¶ 81-96.) The Court need not engage in further analysis of those counts since they do not appear to allege any relief arising out of the 2008 Turnkey Agreement.
FACTUAL BACKGROUND
The remanufacture services relationship between plaintiff Seneca and defendant Acer stretches back to 2008, when Acer entered into the 2008 Remanufacture Services Agreement to shift remanufacturing of returned and defective Acer computers (so-called "B Product") to Seneca (and the special purpose LLC, Revonate, that Seneca established to handle Acer goods). (Id. ¶ 42.) Acer chose to outsource these functions in order to focus on its core business of manufacture and sale of new computers (known as "A Product"). (Id.) Plaintiffs agreed to provide a single-source solution for the remanufacture and resale of Acer's "B Product". (Id. ¶ 41.) The 2008 Turnkey Agreement was renewed by the 2010 Revonate Remanufacture Services Agreement. (Id. ¶ 43.)
Defendant alleges four ways in which Seneca's performance was deficient: (Id. ¶ 54.) First, defendant alleges Seneca could not "keep up" with its remanufacturing obligations with respect to the volume of returned Acer products it received. This, in turn, delayed the resale of those products. (Id. ¶¶ 54, 55.) According to defendant, any delay in the processing of "B Product" rapidly reduced the retail price for that product as the cost of new and improved technology declined. (Id. ¶¶ 30, 48.)
Second, Seneca allegedly improperly declared over $1 million in what are asserted to have been salvageable Acer products as "beyond economic repair" (BER). In reality, Seneca is alleged to have declared the product unsalvageable only because it could not profitably remanufacture it or its technicians did not want the extra work. (Id. ¶ 55-57, 61.) Under the 2008 and 2010 Revonate Remanufacture Services Agreements, Acer was required to repurchase any scrapped product and thus bore the loss of any improper BER determinations. (Id. ¶ 58.)
Third, defendant alleges that plaintiffs incorrectly categorized some "B Product" goods as lower-priced "C Product." This allegedly forced defendant to take a greater loss on those products. (Id. ¶ 59, 62.)
Fourth, plaintiffs allegedly harvested parts from returned product and resold those parts without remitting the proceeds to defendant, as was required under the Turnkey Agreements. (Id. ¶¶ 63-64.)
Defendant alleges damages in excess of $1 million for the each of the losses attributable to scrap, delay, and "C Products" loss; it alleges more than $900,000 for losses related to harvested parts. (Id. ¶¶ 60-62, 66.)
STANDARD OF REVIEW
"A motion to dismiss a counterclaim is evaluated under the same standard as a motion to dismiss a complaint," Netrix Leasing, LLC v. K.S. Telecom, Inc., 00-CIV-3375(KMW), 2001 WL 228362 (S.D.N.Y. Mar. 7, 2001). On a motion to dismiss, this Court accepts as true all well-pleaded factual allegations. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). This Court therefore accepts as true counterclaim plaintiff's factual allegations and draws all reasonable inferences in its favor. See Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir.2010). To withstand dismissal, "a [counterclaim] must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.
DISCUSSION
In its counterclaims, defendant alleges breaches of the 2008 and 2010 Turnkey Agreements, seeks declaratory relief related to the 2010 Turnkey Agreement, and asserts fraud related to plaintiffs' misrepresentations regarding the quality and volume of Acer products it handled.
Plaintiffs argue that the breach of contract counterclaim with respect to the 2008 Turnkey Agreement (Count I) fails to state a claim because—on its face—the 2010 Revonate Remanufacture Services Agreement superseded the earlier agreements between the parties. They further argue that the fraud counterclaim is duplicative of the breach of contract claims and must be dismissed as well. The Court agrees. A. Fraud Count
First, defendant's fraud count (Count IV) is duplicative of its contract claim and must be dismissed.
To state a claim for fraud under New York law, a party must allege material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages. See Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (N.Y. 2009). A fraud claim that merely alleges that "intentionally false statements" were made by a party "indicating his intent to perform under [a particular] contract" is duplicative of the underlying breach of contract claim, however, and must be dismissed as a matter of law. Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13 (2d Cir. 1996). For an existing contract, it does not matter whether the alleged misrepresentation was a statement of present fact or future intent to perform.
Defendant argues that under the "present fact" doctrine, misrepresentations regarding a present fact—in contrast to a statement of intent regarding future performance—are not duplicative of breach of contract claims regarding those facts. (Defs.' Mem. of L. at 6-7.) The case law does not support such a proposition; rather, the "present fact" doctrine applies to material misstatements that induce a party to enter into a contract, rather than those statements regarding obligations under an existing contract. See Great Earth Int'l Franchising Corp. v. Milks Dev., 311 F.Supp.2d 419, 429 (S.D.N.Y, 2004)(dismissing fraud claim on grounds that "present fact" exception did not apply to pre-existing contract); Pfizer, Inc. v. Stryker Corp., 2003 WL 21660339 (applying "present fact" to defendant's allegedly fraudulent statement, at the time of the contract, that it was in compliance with all applicable laws). Defendant points to no authority that applies the "present fact" exception to statements regarding an obligation under an existing contract.
The alleged misrepresentations by plaintiffs in defendant's fraud counterclaim are duplicative of the breach of contract counts implicating plaintiffs' intent to perform under the contracts. Defendant's sole allegation in the fraud count is that plaintiffs misrepresented in their monthly reports that certain returned products were beyond economic repair and had to be scrapped. (Countercl. ¶¶ 98-101.) Plaintiffs were undisputedly under an obligation to classify returned products, to scrap only genuinely BER products, and to periodically report to defendant. See 2010 Revonate Remanufacture Services Agreement § 3.C ("Revonate agrees to notify Acer of [torndown] parts"); Id. § 3.E ("through the course of remanufacturing Product, Revonate may be forced to liquidate or recycle Products or parts that are not repairable or beyond economic repair ('BER')"); Id. § 3.8 ("Revonate will provide to Acer on a monthly basis . . . reports that 'provide information relating to NTF rates [and] failure types"). Further, Revonate specifically warranted that it "will not make any misrepresentations regarding the Products." Id. § 10.B.ii. Any misrepresentation made as to the condition of the products plaintiffs received was thus intrinsic to its contractual obligations and cannot separately support a plausible fraud claim. See Bear, Sterns Funding, Inc. v. Interface Group-Nevada, Inc., 361 F.Supp.2d 283, 311 (S.D.N.Y.2005)(dismissing fraud claim where "alleged misrepresentation was neither collateral nor extraneous to the agreements; rather it was related and intrinsic").
This conclusion is strengthened by the fact that the language of the fraud and contract claims is nearly identical.
Nor do defendant's allegations of fraud meet any of three exceptions—as articulated in Bridgestone—to the rule that duplicative fraud claims must be dismissed. 98 F.3d at 20. Under Bridgestone, a claim alleging fraud regarding an alleged breach of contract is not actionable unless it will (1) "demonstrate a legal duty separate from the duty to perform under the contract," (2) "demonstrate a fraudulent misrepresentation collateral or extraneous to the contract," or (3) "seek special damages that are caused by the misrepresentation and unrecoverable as contract damages." Id. (citations omitted).
Defendant does not allege that plaintiffs had a "separate legal duty" outside the bounds of the contracts between the parties to properly classify the returned products. Bridgestone, 98 F.3d at 20. The instant case is unlike those in which courts in this district found a separate legal duty arose, basing such findings on health, safety or other regulations. See, e.g., Great Earth In'tl Franchising Corp. V. Milks Dev., 311 F.Supp.2d 419, 425 (S.D.N.Y. 2004)(finding duty arising from Canadian drug regulations). No such factors are alleged here.
The second Bridgestone factor—that the misrepresentation is "collateral or extraneous" to the contract—is clearly not met. Defendant argues that plaintiffs' misrepresentations were made "to further [their] own extra-contractual motives" and were thus "collateral and extraneous." (Def.'s Br. at 6.) The contracts at issue fail to support defendant's view. Rather, as outlined above, the 2010 Revonate Remanufacture Services Agreement includes specific provisions requiring plaintiffs to classify product as BER, to report on the reasons for those classifications, and not to misrepresent those classifications. See 2010 Revonate Remanufacture Services Agreement ¶¶ 3.C, 3.E, 3.H, 10.B.ii.
Finally, no special damages are alleged; defendant makes no request for damages beyond the equivalent of normal expectation damages for breach of contract. (Countercl. ¶ 110 (requesting $75 million—the cost of product defendant alleges was wrongfully scrapped and equal to expectation damage measure).) That Seneca was not a party to the 2010 Revonate Remanufacture Services Agreement is irrelevant since the Counterclaim alleges misrepresentations by Revonate, not Seneca. Without alleging a misrepresentation by Seneca, the parent company, there is no fraud claim independent of the contract claims against Revonate.
The Counterclaim alleges that "[m]onthly Revonate made a representation that specific products had to be scrapped" and that "Revonate's statements . . . were a representation" that defendant believes to be false. (Countercl. ¶¶ 98-99). While the Counterclaim later alleges that "any instance Revonate or the Seneca Group represented a remanufactured [product] be scrapped when it could be made to function . . . was a false representation," it never specifically alleges that Seneca—rather than Revonate—made those representations. (Id. ¶ 101.)
The fraud count is thus DISMISSED. B. Contract and Declaratory Judgment Counts
Defendant's counterclaim for breach of the contracts comprising the 2008 Turnkey Agreement (Count I) is also defective. On its face, the 2010 Revonate Remanufacture Services Agreement superseded those prior contracts. See 2010 Revonate Remanufacture Services Agreement ¶ 17.A (emphases added).
In New York, it is "well settled that when parties enter into an agreement that expressly supersedes a prior agreement, the prior agreement shall be void." Banque Nationale de Paris v. Batmanghelidi, 108 F.3d 1369 (2d Cir. 1997)(citing Health-Chem Corp. v. Baker, 915 F.2d 805, 811 (2d Cir.1990)). "[A]n agreement that expressly supersedes earlier versions is dispositive even absent [an] . . . express release provision." BNP Paribas Mortg. Corp. v. Bank of America, N.A., 778 F.Supp.2d 375 (S.D.N.Y. 2011).
Defendant argues that the 2010 Revonate Remanufacture Services Agreement did not supersede the 2008 Turnkey Agreement. (Pls.' Br. at 7-9.) This argument is contradicted by the unambiguous language of the contract itself. The 2010 Revonate Remanufacture Services Agreement states that it is the:
entire understanding between Revonate and Acer and supercede[s] any prior agreements . . . regarding the subject matter hereof, specifically that certain Remanufacture Services Agreement executed between Gateway Manufacturing, LLC and Revonate Manufacturing, LLC dated June 16, 2008, that certain Remanufactured Products Service Agreement executed between that certain Remanufacture Services Agreement executed between Gateway Manufacturing, LLC and Revonate Manufacturing, LLC dated June 16, 2008, that certain Remanufactured Products Service Agreement executed between Seneca Data Distributors, Inc. and Acer America Corporation dated January 1, 2008, and that certain Remanufactured Products Service Agreement executed between Revonate Manufacturing, LLC and Acer America Corporation dated February 14, 2008.2010 Revonate Remanufacture Services Agreement ¶ 17.A (emphases added).
The plain language of the 2010 Revonate Remanufacture Services Agreement is clear that, with respect to the same "subject matter" of the Agreement—remanufacturing services—the contracts named in the Agreement (the only contracts dealing with remanufacture services) are superseded. (Id.) The term "superseded" indicates that the prior contract was extinguished, as if it never existed; any claims of breach related to remanufacture services must be treated as if they arose out of the new contract. See Health-Chem, 915 F.2d at 811.
The only two contracts named in the counterclaims but not specifically listed in the 2010 Revonate Remanufacture Services Agreement are the 1999 Seneca-Acer contract designating Seneca an "authorized service provider" and the 2010 Seneca-Acer contract for retail distribution of Acer "A Product"; neither has anything to do with remanufacturing services. (Countercl. Exs. A, F.) --------
Even though the 2010 Revonate Remanufacture Services Agreement contained no language expressly releasing claims under the prior agreements, such language is not necessary to extinguish claims under the prior contracts. See BNP Paribas Mortg. Corp., 778 F.Supp.2d at 401-02 (prior agreements rendered "void" by superseding contract). The one case defendant cites that holds otherwise, Air Support Intern., Inc. v. Atlas Air, Inc., 54 F.Supp.2d 158 (E.D.N.Y. 1999), is neither binding on this court, nor does it provide any rationale for its holding that an express release provision is required in addition to the word "supersede". If this Court were to adopt the Air Support view, it could result in parties with longstanding contractual relationships engaging in protracted battles regarding which of any number of past contracts applies to a particular claim.
Defendant's breach of contract count relating to the 2008 Turnkey Agreement (Count I) is dismissed.
CONCLUSION
For the reasons set forth above, plaintiffs' motion to dismiss defendant's counterclaims is GRANTED IN PART. Counts I (breach of contract relating to the 2008 Turnkey Agreement) and IV (fraud) are dismissed with prejudice. As, on their face, Counts II (breach of contract relating to the 2010 Turnkey Agreement) and III (for declaratory relief) relate only to alleged breaches of the 2010 Turnkey Agreement, those counts shall proceed.
The Clerk of Court is directed to close the motion at ECF No. 25.
SO ORDERED. Dated: New York, New York
January 18, 2013
/s/_________
KATHERINE B. FORREST
United States District Judge