3e Mobile, LLC v. Global Cellular, Inc. ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
________________________________
)
3E Mobile, LLC, )
)
Plaintiff, )
) Civil Action No. 14-1975-EGS
v. )
)
Global Cellular, Inc., )
)
Defendant. )
________________________________)
MEMORANDUM OPINION
3E Mobile, LLC, (“3E”) commenced this lawsuit in November
2014 based on Global Cellular, Inc.’s (“Global”) alleged breach
of the parties’ 2013 Manufacturing Agreement (“Agreement”).
Compl., ECF No. 1. In January 2015, Global asserted
counterclaims against 3E for breach of contract, breach of
implied covenant of good faith, unjust enrichment, and
attorneys’ fees. Answer and Countercl. (“Countercl.”), ECF No.
5. 3E moves to dismiss Global’s counterclaims for failure to
state a claim and to strike Global’s demand for attorneys’ fees.
Pl.’s Mot. Dismiss, ECF No. 11. Upon consideration of the
motion, the response and reply thereto, the applicable law, and
the entire record, 3E’s motion is DENIED.
1
I. Background
3E is a manufacturer of cell phone protective cases.
Countercl. at 9-10. Global is a provider of cell phone
accessories, including protective cases. Id. In 2013, 3E and
Global settled an intellectual property lawsuit in which 3E’s
predecessor Crystal Icing, Inc. (“Crystal”) alleged that Global
infringed on several registered copyrights by marketing,
manufacturing, copying, and selling certain items, including
cellphone accessories. 1 Compl. at ¶ 7. The intellectual property
lawsuit settlement resulted in a multi-million dollar Agreement,
the terms and obligations of which give rise to the parties’
current dispute.
A. The Agreement
Pursuant to the Agreement, 3E agreed to manufacture certain
items at Global’s request, and Global agreed to sell those items
to designated retailers at a specified price. Agreement, See
Compl., Ex. A. The Agreement states that 3E “shall” provide the
products ordered by Global within a specified amount of time,
but that if 3E cannot provide the Product requested by Global
for “any reason,” 3E “may arrange to have the Product produced
1 Crystal commenced the intellectual property lawsuit against
Global in 2012 in the United States District Court for the
Western District of New York. Compl. at ¶ 6. In May 2013,
Crystal assigned all rights, title, and interest in the
copyright registrations at issue to 3E. Id. at ¶ 8. As a result,
3E was substituted for Crystal in that lawsuit. Id. at ¶ 10.
2
by one of Global’s current manufacturers.” Agreement at Section
2.C. The Agreement anticipates Global purchasing at least $3.9
million worth of product from 3E. Id. at Section 4.A. Under the
Agreement, Global is obligated to make monthly advance payments
of $25,000 per month to 3E for thirty-six (36) months. Id. at
Sections 4.B and 4.C. The advance payments were to be applied as
credit to orders placed by Global. Id. at Section 4.D. Any
unused credit at the end of the Agreement’s term would become
“the sole and exclusive property” of 3E. Id. Section 4.F.
During the first six months of the Agreement’s term, Global
allegedly made more than 250 manufacturing requests and paid
more than $150,000.00 in monthly advance payments. 3E did not
produce any of the products ordered by Global. Def.’s Mem. Opp.,
ECF No. 12 at 1. After Global expressed concern about 3E’s
failure to source its orders, 3E executives advised Global to
stop making the monthly payments. Id. 2 When Global stopped making
payments, 3E filed this lawsuit, alleging breach of contract.
Compl. at 2.
2 Attached to Global’s Memorandum in Opposition to 3E’s Motion
to Dismiss is an email exchange with 3E executives wherein the
executives pledge to “personally see to it that Global’s
concerns [are] addressed and resolved” and that “Global need not
make payments under the Manufacturing Agreement until 3E’s
failure to source products for Global had been resolved.” Def.’s
Mem. Opp., ECF No. 12, Ex. A.
3
II. Discussion 3
A. Standard of Review
A motion to dismiss under Rule 12(b)(6) tests the legal
sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235,
242 (D.C. Cir. 2002). A complaint must contain “a short and
plain statement of the claim showing that the pleader is
entitled to relief, in order to give the defendant fair notice
of what the . . . claim is and the grounds upon which it rests.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks and citations omitted). The plaintiff need not
plead all of the elements of a prima facie case in the
complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511–14,
122 S.Ct. 992, 152 L.Ed.2d 1 (2002), nor must the plaintiff
plead facts or law that match every element of a legal theory.
Krieger v. Fadely, 211 F.3d 134, 136 (D.C.Cir.2000).
However, despite these liberal pleading standards, to
survive a motion to dismiss, “a complaint must contain
sufficient factual matter, accepted as true, to state a claim
for relief that is plausible on its face.” Ashcroft v. Iqbal,
3 As indicated by the Agreement, the parties agree that the
United States District Court for the District of Columbia “will
have sole and exclusive jurisdiction over disputes regarding the
Manufacturing Agreement” and that “Pennsylvania law will govern
. . .” Agreement at ¶ 20.
4
556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)
(internal quotation marks omitted); Twombly, 550 U.S. at 562,
127 S.Ct. 1955. A claim is facially plausible when the facts
pled in the complaint allow the Court “to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at
556, 127 S.Ct. 1955). While this standard does not amount to a
“probability requirement,” it does require more than a “sheer
possibility that a defendant has acted unlawfully.” Id. (citing
Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
“[W]hen ruling on a defendant's motion to dismiss, a judge
must accept as true all of the factual allegations contained in
the complaint.” Atherton v. D.C. Office of the Mayor, 567 F.3d
672, 681 (D.C.Cir.2009) (quoting Erickson v. Pardus, 551 U.S.
89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007)). The court must
also give the plaintiff “the benefit of all inferences that can
be derived from the facts alleged.” Kowal v. MCI Commc'ns Corp.,
16 F.3d 1271, 1276 (D.C.Cir.1994) (internal citations omitted).
Nevertheless, a court need not “accept inferences drawn by
plaintiff [ ] if such inferences are unsupported by the facts
set out in the complaint.” Id. Further, “[t]hreadbare recitals
of elements of a cause of action, supported by mere conclusory
statements” are not sufficient to state a claim. Iqbal, 129
S.Ct. at 1949.
5
B. Global states a counterclaim for breach of contract and
breach of implied duty of good faith and fair dealing.
Global argues that 3E’s failure to fulfill the more than
250 orders it placed during the first six months of the
Agreement’s term constitutes a breach of both the plain language
of the contract and 3E’s implied duties of good faith and fair
dealing. Def.’s Mem. Opp. at 9-14. 3E contends that the plain
language of the Agreement provides 3E with a choice——not an
obligation——to fulfill Global’s orders. Pl.’s Mem. Supp. at 11.
Global’s breach of contract counterclaim rests on whether
the plain language of the agreement obligates 3E to produce the
Products ordered by Global. The relevant portion of the
Agreement states:
If Global provides Manufacturer a Product to
manufacture, Manufacturer shall have thirty (30) days
to create a mold and provide a sample of such Product
for approval by Global. . . . After the date of
approval, Manufacturer shall provide the Product to
Global within a mass product time equivalent to that
of Global’s then current manufactures of equivalent
products. In the event that Manufacturer cannot
provide the Product requested for any reason,
Manufacturer may arrange to have the Product produced
by one of Global’s current manufacturers.
Agreement, Section 2.C(emphasis added). 4
4 Section 2.C of the Agreement is quoted in its entirety in
Global’s Answer and Counterclaim, and the text of the full
Agreement is attached to 3E’s Complaint. See Countercl. at 10-
11; Compl., Ex. A.
6
Global argues the Agreement obligates 3E to provide the
product ordered by Global (“ . . . Manufacture shall provide the
Product . . .”) and that only under some circumstances, 3E “may”
arrange to have the product produced by another manufacturer.
Def.’s Mem. Opp. at 8. 3E maintains that because the Agreement
states that if 3E cannot produce the Product for “any reason”
and that it “may” (not “shall”) arrange for an alternative
manufacturer to fill Global’s orders, the Agreement “clearly and
unambiguously expressed their intention to create a right and
not an obligation.” Pl.’s Mem. Supp. Mot. Dismiss, ECF No. 11-2
at 11.
“The fundamental rule in interpreting the meaning of a
contract is to ascertain and give effect to the intent of the
contracting parties.” Salem Preferred Partners, LLC. V. Diamond
Heavy Vehicle Solutions, LLC, 1:12-CV-1202, 2012 WL 5905027, at
*3 (M.D. Pa. Oct. 31, 2012) (citing Great Am. Ins. Co. v. Norwin
Sch. Dist., 544 F. 3d 229, 243 (3d Cir. 2008)). “Courts have the
responsibility to determine as a matter of law whether contract
terms are clear or ambiguous.” Haywood v. Univ. Of Pittsburgh,
976 F. Supp. 2d 606, 640 (W.D. Pa. 2013) (citing Baldwin v.
Univ. of Pgh. Med. Ctr., 636 F.3d 69, 75 (3d Cir. 2011)). “A
contract contains an ambiguity if it is reasonably susceptible
to different constructions and capable of being understood in
more than one sense.” Great Am. Ins., 544 F. 3d at 243.
7
“Interpretation of an ambiguous contract is for the trier of
fact; a judge may interpret a contract as a matter of law where
it is only susceptible to one reasonable interpretation.” Forum
Ins. Co. v. Allied Sec., Inc., CIV. A. 87-1186, 1987 WL 26508,
at *1 (E.D. Pa. Dec. 3, 1987) (citing Mellon Bank, N.A. of Aetna
Business Credit, Inc., 619 F.2d 1001 (3d Cir. 1980)).
Here, the terms of the Agreement are ambiguous and subject
to more than one interpretation. The Agreement states that 3E
“shall provide the product,” but that if 3E cannot produce the
product “for any reason,” 3E “may” arrange for another
Manufacturer to fill Global’s orders. Agreement, Section 2.C.
The legal distinction between “shall” and “may” is both critical
and elementary. Shall is defined as a duty in “the mandatory
sense that drafters typically intend and that courts typically
uphold” whereas “may” is defined as “a possibility.” Black's Law
Dictionary (8th Ed. 2004) at 1407 and 1000. A superb example of
inartful drafting, the Agreement’s ambiguity is expressed by its
plain language: 3E cannot be both obligated, in a mandatory
sense, to produce products for Global while also having the
option to identify alternative manufacturers, if, for “any
reason”, it cannot fulfill Global’s orders.
3E insists that the Agreement unambiguously provides that
it “may manufacture products for Global, it may have the
products produced by another manufacturer, and in the event the
8
products are manufactured, they must be provided to Global
within a certain amount of time.” Pl.’s Rep. Br., ECF No. 13 at
3. 3E’s reading of the Agreement is as untenable as it is
unreasonable because it allows 3E to collect Global’s advance
payments absent any obligation to produce any product ordered by
Global. Such an agreement is nonsensical on its face, and
unfathomable in a context such as this where the parties
expressly anticipated doing nearly $4 million worth of business
with each other. See Agreement Section 4.A. For all of these
reasons, the terms of the Agreement are ambiguous and Global has
sufficiently pled a breach of contract counterclaim.
Furthermore, Global argues that even if 3E had the
discretion under the Agreement to decide which orders to fill,
3E’s refusal to source all 250 orders placed by Global in the
first six months of the Agreement’s term constitutes a violation
of 3E’s implied duty of good faith and fair dealing. Def.’s Mem.
Opp. at 11.
Under Pennsylvania law, all contracts impose on each party
a duty of good faith and fair dealing in the performance and
enforcement of a contract. Bedrock Stone & Stuff, Inc. v. Mfrs.
& Traders Trust Co., 2005 U.S. Dist. LEXIS 10218(E.D. Pa. May
25, 2005); Donahue v. Fed. Express Corp., 753 A.2d 238, 242 (Pa.
Super. Ct. 2000). Good faith is defined as “honesty in fact in
the conduct or transaction concerned.” Armstrong World Indus.,
9
Inc. v. Robert Levin Carpet Co., 1999 U.S. Dist. LEXIS 7743, *15
(E.D. Pa. May 19, 1999). An independent duty of good faith is
generally recognized when there is a dispute about the parties’
reasonable expectations. Id. “Good faith performance or
enforcement of a contract emphasized faithfulness to an agreed
common purpose and consistency with the justified expectations
of the other party . . . .” Pierce v. QVC, Inc., 555 F. Supp.2d
499, 503 (E.D. Pa. 2008)(citing Restatement (Second) of
Contracts § 205 Cmt. a.)
Here, the Agreement was clearly entered into for the
purpose of specifying the terms under which 3E and Global would
do business with each other. To that end, Global has pled
sufficient facts relating to its expectation that 3E would
fulfill its orders pursuant to the Agreement to state a claim
for breach of the implied covenants of good faith and fair
dealing.
C. The Agreement’s notice and cure provision does not bar
Global’s claims.
3E argues that the notice provision included in the
Agreement bars Global’s counterclaims because Global failed to
give 3E notice and an opportunity to cure its default. Pl.’s
Mem. Supp. at 4. 5 Global argues that the plain language of the
5 Notably, the notice provision is triggered by default, and 3E
could only be found to be in default if it was in fact obligated
to manufacture the products ordered by Global.
10
notice provision applies only to termination of the contract,
not claims designed to enforce the Agreement. The Agreement’s
notice provision states:
Upon a default of the Manufacturing Agreement, the non-
defaulting party will provide written notice to the
defaulting party within ten (10) days of the alleged
default. The alleged defaulting party will have thirty
(30) days from the date of notice to cure the default.
If the default is not cured within thirty (30) days from
the date of the default notice, the non­defaulting party
may terminate the Manufacturing Agreement.
Manufacturing Agreement, ¶ 15. The plain text of the notice
and cure provision indicates that it is triggered by
default (“[u]pon default of the Manufacturing Agreement”).
Global alleges that it “raised concerns” with 3E executives
about 3E’s failure to meet its obligations under the
Agreement, and thus it should be found to have sufficiently
complied with the Agreement’s notice provision. Countercl.
at 8, ¶3. Viewing the facts in a light most favorable to
Global on its counterclaims, 3E has at best raised a
question of fact in regard to whether Global complied with
the notice and cure provision of the Agreement prior to
alleging its counterclaims. 6
6 Based on Global’s plausible reading of the notice and cure
provision, there is also a question of fact in regard to whether
the notice and cure provision applies to any situation other
than termination of the contract. Def. Mem. Opp. at 12.
11
D. Attorneys’ fees
Finally, 3E moves under Federal Rule of Civil Procedure
12(f) to strike Global’s claim for attorneys’ fees. Pl.’s Mem.
Supp. at 15. Global argues that its claim for attorneys’ fees is
well founded under federal and Pennsylvania law, both of which
allow attorneys’ fees to be awarded where a party’s conduct is
arbitrary, vexatious or in bad faith. See 28 U.S.C. § 1927; 42
Pa. Cons. St. Ann. § 2503(7), (9). At this stage of the
litigation, the Court is unable to access whether a factual
basis exists for an award of attorney’s fees. Accordingly, it
would be premature to strike Global’s demand for attorneys’ fees
at this juncture. Therefore, 3E’s motion to strike attorneys’
fees is denied. 7
III. Conclusion
For the foregoing reasons 3E’s Motion to Dismiss is
DENIED.
Signed: August 11, 2015
Emmet G. Sullivan
United States District Court Judge
7 Because Global’s unjust enrichment claim was pled in the
alternative, it need not be addressed in this opinion.
12