Tower Ipco Company Limited v. Ecointeriors Corp.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
TOWER IPCO COMPANY )
LIMITED, )
)
Plaintiff, )
) C.A. No. N20C-10-133 ALR
v. )
)
ECOINTERIORS CORP., )
)
Defendant. )
Submitted: February 2, 2021
Decided: March 29, 2021
Upon Defendant’s Motion to Dismiss the Complaint
DENIED
MEMORANDUM OPINION
Joanna J. Cline, Esquire, Emily L. Wheatley, Esquire, Troutman Pepper Hamilton
Sanders LLP, Wilmington Delaware, David E. Meadows, Esquire, Alexandra S.
Peurach, Troutman Pepper Hamilton Sanders LLP, Atlanta, Georgia, Attorneys
Plaintiff Tower IPCO Company Limited.
Andrea S. Brooks, Esquire, Wilks Law, LLC, Wilmington, Delaware, Attorney for
Defendant EcoInteriors Corp.
Rocanelli, J.
This is a breach of contract case involving a licensing agreement for a patented
floor covering product. Defendant EcoInteriors Corp. (“Licensor”) is the owner,
developer and manufacturer of SetaGrip—which uses a unique micro-suction
system for installation of flooring. According to the Complaint, Licensor and
Plaintiff Tower IPCO Company Limited (“Licensee”) entered into a License
Agreement (“Agreement”) granting Licensee the exclusive right to manufacture,
market, use and sell the Seta-Grip flooring system in certain defined markets,
including the Home Center Market within the United States and its territories,
expressly including The Home Depot.1
Licensee contends in the Complaint that Licensor has breached the Agreement
by marketing and/or selling Seta-Grip to The Home Depot. Licensee also alleges
that Licensor is actively attempting to sell SetaGrip on its website, both within the
United States and abroad, without any attempt to exclude the Home Center Market
1
See Compl. Ex. A [hereinafter “License Agreement”]. Section 1.3 of the
Agreement defines Home Center Market as:
Stores a) that are comparable to The Home Depot, Lowes, Menards or
Floor and Décor stores and b) that sell a wide range of home building
and construction materials, home maintenance and repair products,
home appliances, and a variety of household electrical products. As
such, the term “Home Center Market” shall include, without limitation,
The Home Depot, Lowes, Menards or Floor and Décor stores.
Id. § 1.3
1
from its online sale efforts.2 In response to Licensee’s Complaint stating one count
of breach of contract, Licensor filed a Motion to Dismiss pursuant to Superior Court
Civil Rule 12(b)(6) on the grounds that Licensor retained all its rights under the
Agreement, including the right to sell to The Home Depot. According to Licensor,
Licensee’s “exclusive license” is “subject to” Licensor’s ownership rights. Thus,
according to Licensor, Licensee’s right to sell to The Home Depot is only exclusive
vis-à-vis third parties but Licensee does not have an exclusive license with respect
to Licensor itself. Licensee opposes the motion to dismiss on the grounds that the
Agreement granted Licensee an exclusive right to sell Seta-Grip to the Home Center
Market, including to The Home Depot and including as to Licensor.
LEGAL STANDARDS
A. Standard of Review
On a motion to dismiss for failure to state a claim upon which relief can be
granted,3 the Court must read the complaint generously, accept all well-pleaded
allegations contained therein as true, and draw all reasonable inferences in a light
most favorable to the non-moving party.4 Although the Court’s review is generally
limited to the factual allegations contained in the complaint, under certain
2
At oral argument on February 2, 2021, Licensee clarified that its breach of contract
allegation with respect to Licensor’s website is limited to Licensor’s failure to
exclude the Home Center Market from its website-based sale efforts.
3
Super. Ct. Civil R. 12(b)(6).
4
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
2
circumstances, “it is proper for the trial judge to consider a document attached to the
complaint when the document is integral to a plaintiff’s claim.” 5 Dismissal is
warranted only when the “plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof.”6 “Allegations
that are merely conclusory and lacking factual basis, however, will not survive a
motion to dismiss.”7
To survive a motion to dismiss for failure to state a claim for breach of
contract the plaintiff must demonstrate: (1) existence of the contract, whether
express or implied; (2) breach by the defendant of an obligation imposed by that
contract; and (3) resulting damages to the plaintiff.8 “In alleging a breach of
contract, a plaintiff need not plead specific facts to state an actionable claim.”9
Rather, a complaint for breach of contract is sufficient if it contains “a short and
plain statement of the claim showing that the [plaintiff] is entitled to relief.”10
5
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003).
6
Ridley v. Bayhealth Med. Ctr., Inc., 2018 WL 1567609, at *3 (Del. Super. Mar. 20,
2018) (internal quotation marks omitted) (quoting In re Gen. Motors (Hughes)
S’holder Litig., 897 A.2d at 168).
7
Cornell Glasgow, LLC v. La Grange Props., LLC, 2012 WL 2106945, at *7 (Del.
Super. June 6, 2012) (quoting Criden v. Steinberg, 2000 WL 354390, at *2 (Del. Ch.
Mar. 23, 2000)).
8
VLIW Tech., LLC, 840 A.2d at 612.
9
Id. at 611.
10
Super. Ct. Civ. R. 8(a)(1).
3
“Dismissal, pursuant to Rule 12(b)(6), is proper only if the defendants’ interpretation
is the only reasonable construction as a matter of law.”11
B. Contract Interpretation
Under Delaware law, clear and unambiguous contract terms are interpreted
according to their ordinary and usual meaning.12 Delaware law adheres to the
objective theory of contracts, meaning this Court “‘will give priority to the parties’
intentions as reflected in the four corners of the agreement,’ construing the
agreement as a whole and giving effect to all its provisions.”13 “Contracts are to be
interpreted in a way that does not render any provisions ‘illusory or meaningless.’”14
Thus, “[c]ontract terms themselves will be controlling when they establish []
common meaning so that a reasonable person in the position of either party would
have no expectations inconsistent with the contract language.”15 Only where a
contract is ambiguous must the interpreting court “look beyond the language of the
contract to ascertain the parties’ intentions.”16 However, “[a] contract is not
11
VLIW Tech., LLC, 840 A.2d at 615.
12
La Grange Communities, LLC v. Cornell Glasgow, LLC, 2013 WL 4816813, at
*3 (Del. Sept. 9, 2013) (TABLE); GMG Cap. Invs., LLC v. Athenian Venture
Partners I, L.P., 36 A.3d 776, 780 (Del. 2012).
13
Salamone v. Gorman, 106 A.3d 354, 368 (Del. 2014) (quoting GMG Cap. Inv.,
LLC, 36 A.3d at 779).
14
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001).
15
Salamone, 106 A.3d at 368 (quoting Eagle Indus., Inc. v. DeVilbiss Health Care,
Inc., 702 A.2d 1228, 1232 (Del. 1997)).
16
GMG Cap. Invs., 36 A.3d at 780 (quoting Eagle Indus., Inc., 702 A.2d at 1232).
4
rendered ambiguous simply because the parties do not agree upon its proper
construction.”17 Rather, contractual ambiguity exists “[w]hen the provisions in
controversy are fairly susceptible of different interpretations or may have two or
more different meanings.”18
DISCUSSION
The central question of this litigation is whether Licensor retained an
unlimited right to exploit its own patent for SetaGrip, including the right to sell to
The Home Depot in direct competition with its Licensee. Licensor argues that a
plain reading of Section 2.1 of the Agreement reveals that Licensor retained the right
to utilize its own patent without any limitations. By contrast, Licensee argues that a
plain reading of Section 2.1 means that Licensee, and no one else including Licensor,
has the right to sell SetaGrip to The Home Depot.
Section 2.1 of the Agreement provides:
For duration of the Initial Term and subject to [Licensor’s] rights and the
terms and conditions of this Agreement, [Licensor] hereby grants to
[Licensee] the exclusive right, except as otherwise limited in this Agreement,
under the Intellectual Property Rights to make, have made, use, import, offer
to sell and sell Licensed Products, but only in the Field of Use as defined in
Section 1.2 and in the Territory of Use defined in Section 1.13. For the
avoidance of doubt during the Initial Term no party other than [Licensor] and
[Licensee] shall be permitted to make or have made products similar to or
competitive with the Licensed Products and utilizing the Licensed Patents or
Licensed Know-How. The right granted to [Licensee] herein shall continue
17
Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d
1192, 1195 (Del. 1992)).
18
Salamone, 106 A.3d at 369 (quoting GMG Cap. Invs., 36 A.3d at 780).
5
to apply to any Extension Period (unless terminated earlier by either Party
pursuant to Article 6 of this Agreement), but only on a non-exclusive basis.19
Licensor asserts that, according to Martin Marietta Materials, Inc. v. Vulcan
Materials Co.,20 Delaware courts have construed the phrase “subject to” as meaning
“subordinate.” Therefore, Licensor argues that a plain reading of Section 2.1 of the
Agreement is that Licensor retained the right to utilize its own patent per the “subject
to [Licensor’s] rights” language in Section 2.1.21
Licensee argues that, under Delaware law, courts construe contracts as a
whole and give effect to all provisions. Section 2.1 of the Agreement states that
“[Licensor] hereby grants to [Licensee] the exclusive right . . . to make, have made,
use, import, offer to sell and sell Licensed Products.”22 Licensee argues that the term
“exclusive” means that Licensee, and no one else—including Licensor, has the right
to sell SetaGrip to the Home Center Market, including to The Home Depot.
Reading the Agreement as a whole,23 this Court agrees that Licensee’s
interpretation of the contract is reasonable. The Agreement enumerates specific
rights retained by Licensor; for example, Licensor retains the right to sell SetaGrip
19
License Agreement § 2.1.
20
56 A.3d 1072, 1124 (Del. Ch.), aff’d, 45 A.3d 148 (Del. 2012), and aff’d, 68 A.3d
1208 (Del. 2012), as corrected (July 12, 2012).
21
License Agreement § 2.1 (emphasis added).
22
Id. (emphasis added).
23
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159–60 (Del. 2010)
(acknowledging that Delaware reads contracts as a whole, giving each provision and
term effect, so that any part of the contract is not rendered mere surplusage).
6
outside the floor covering industry,24 as well as outside the Home Center Market,25
including the US healthcare market,26 the US educational market,27 US flooring
distributors including specialty stores,28 and the US OEM manufacturing market.29
In addition, Licensor retains ownership of its trademark30 and patent, as well as the
right of quality control. Furthermore, the Agreement specifies that Licensee is not
granted exclusive use of the trademark31 and requires Licensee to note the
trademark32 and patent in Licensee’s sales and marketing materials.33 The
Agreement specifies that Licensee agrees not to challenge the Licensor’s
trademark34 and agrees to certain quality control standards.35 Accordingly,
24
Section 1.2 of the Agreement defines “Field of Use” as “[t]he floor covering
industry.” License Agreement § 1.2.
25
See Id. § 1.3.
26
Id. “The term ‘Home Center Market’ shall not include (a) the U.S. healthcare
market.” Id.
27
Id. “The term ‘Home Center Market’ shall not include . . . (b) the U.S. educational
market.” Id.
28
Id. “The term ‘Home Center Market’ shall not include . . . (c) U.S. flooring
distributors, including without limitation specialty flooring retail stores.” Id.
29
Id. “The term ‘Home Center Market’ shall not include . . . (d) the US OEM
manufacturing market.” Id.
30
Agreement Section 3.2 provides “Licensor shall be the sole and exclusive owner
of all right, title and interest throughout the entire world in and to the Licensed
trademark . . . .” Id. § 3.2.
31
Section 2.2 specifies that use of trademark by Licensee is “on a non-exclusive
basis . . . .” Id. § 2.2.
32
Id. § 3.1.
33
Id. § 2.3.
34
Id. § 3.2.
35
Id. § 3.3.
7
Licensee’s exclusive license is subject to these specifically enumerated rights which
were retained by Licensor.
On the other hand, nowhere in the Agreement is the right to sell to The Home
Depot reserved for or retained by Licensor. The contract term “exclusive” as applied
to Licensee’s rights would be rendered meaningless if it was not afforded its
customary meaning. While the Agreement uses the term “exclusive” it does not
define the term. “The Court interprets clear and unambiguous terms according to
their plain and ordinary meaning.”36 As the term “exclusive” is not ambiguous,
“exclusive” is assigned its plain meaning, and the Court turns to the dictionary
definition for guidance.37 Merriam-Webster defines “exclusive” as “excluding or
having power to exclude” “limiting or limited in possession, control, or use by a
36
MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V., 2020 WL
5554161, at *5 (Del. Super. Sept. 16, 2020).
37
Courts often look to dictionary definitions for guidance. See Murfey v. WHC
Ventures, LLC, 236 A.3d 337, 346 n.32–33 (Del. 2020) (defining terms appearing in
both a partnership agreement as well as a books-and-records statute); Spintz v. Div.
of Fam. Servs., 228 A.3d 691, 700 (Del. 2020) (using Black’s Law Dictionary,
Merriam-Webster’s Dictionary, and Oxford’s Dictionary to define the word “notice”
in the Child Protection Registry Statute); USAA Cas. Ins. Co. v. Carr, 225 A.3d 357,
360 (Del. 2020) (citing to Merriam-Webster’s Dictionary, Cambridge’s Dictionary
and Black’s Law Dictionary to define the term “accident” that appears in an
insurance policy); but see Daniels v. State, 2021 WL 248232, at *4 (Del. Jan. 26,
2021) (noting that dictionary definitions are helpful, but that “dictionaries may also
reveal a linguistic pluralism”—inferring that definitions having a broad range of
possible meanings should be used with caution).
8
single individual or group” and “excluding others from participation.”38 Thus, it is
a reasonable to interpret the Agreement as granting a right that limits others from
possession or control.
Here, consistent with the ordinary meaning of exclusivity and in consideration
of the other specific rights retained by Licensor, it is reasonable to interpret the
Agreement as providing that Licensee would be the only entity selling to the Home
Center Market, including to The Home Depot. Moreover, because the Agreement
specifies numerous rights retained by Licensor, it is reasonable to interpret the term
“subject to” without using the phrase to qualify Licensee’s exclusive license to sell
to the Home Center Market, including to The Home Depot.
“In deciding a motion to dismiss, the trial court cannot choose between two
differing reasonable interpretations of ambiguous provisions.”39 Especially in the
context of the entire Agreement, it is reasonable to reasonable interpret Licensee’s
exclusive license to mean that Licensee would not have to compete with Licensor in
the marketing and sale of SetaGrip to the Home Center Market, including to The
Home Depot. “Dismissal, pursuant to Rule 12(b)(6), is proper only if the
38
Exclusive, MERRIAM-WEBSTER,
https://www.merriamwebster.com/dictionary/exclusive (last visited Mar. 8, 2021).
39
VLIW Tech., LLC, 840 A.2d at 615 (footnotes omitted) (citing Vanderbilt Income
& Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del.
1996)).
9
defendants’ interpretation is the only reasonable construction as a matter of law.”40
Where, as here, Licensee’s interpretation that it had an exclusive license to sell to
The Home Dept including as to Licensor is reasonable, Defendant’s motion to
dismiss must be denied.
CONCLUSION
Licensor’s interpretation of the contract is not the only reasonable
interpretation. Considering the well-pleaded facts in the light most favorable to
Licensee, sufficient facts have been pled by Licensee to support a claim for breach
of contract based on a notice pleading standard.
NOW, THEREFORE, this 29th day of March 2021, the Motion to Dismiss
the Complaint is hereby DENIED.
IT IS SO ORDERED.
Andrea L. Rocanelli
________ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ___ ________ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ____
The Honorable Andrea L. Rocanelli
40
VLIW Tech., LLC, 840 A.2d at 615 (footnotes omitted) (citing Vanderbilt Income
& Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del.
1996)).
10