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McDowell Research Corp. v. Tactical Support Equipment

September 4, 2009


The opinion of the court was delivered by: Michael A. Telesca United States District Judge



Plaintiff McDowell Research Corporation ("McDowell"), brought this action in New York State Supreme Court, Wayne County seeking damages against defendant and counterclaimant Tactical Support Equipment, Inc. ("TSE"), for TSE's alleged breach of contract. By Notice dated November 5, 2008, TSE removed this action to federal court on grounds of diversity jurisdiction. Thereafter, TSE filed an answer and counterclaim against McDowell alleging nine causes of action. Less than one month later, McDowell filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) of TSE's Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth counterclaims. On the date its opposition to McDowell's motion to dismiss was due, TSE filed an Amended Answer and Counterclaim ("Am. Counterclaim") pursuant to Fed.R.Civ.P 15(a)(1).*fn1 In its Am. Counterclaim, TSE has withdrawn its claim for unjust enrichment and negligent misrepresentation. Accordingly, those claims will no longer be addressed in this motion. Thus the only counterclaims now pending for determination by this court are as follows: (1) Fraud (Count II); (2) Unfair and Deceptive Trade Practices (Count III); (3) Breach of the Covenant of Good Faith and Fair Dealing (Count IV); (4) Tortious Interference with Contract (Count V); (5) Tortious Interference with Prospective Economic Advantage (Count VI). I discuss these claims seriatim.


Unless otherwise noted, the following facts are taken from TSE's Am. Counterclaim, including documents incorporated by reference or upon which TSE relied in drafting the Am. Counterclaim. TSE entered into a contract with McDowell to supply TSE's RAMP-75 brand amplifiers ("RAMP-75") as a component part of a U.S. defense contract.*fn2 TSE accepted three Purchase Orders with McDowell to deliver thousands of RAMP-75 brand amplifiers to McDowell to be sold to McDowell's ultimate customer. TSE was not able to perform pursuant to the Purchase Orders. For instance, there were delivery delays and McDowell rejected a number of defective amplifiers which had "abnormally high failure rate during testing and use." See Am. Counterclaim, ¶ 33. TSE's issues concerning failure rates and late deliveries required McDowell to demand adequate assurances of TSE's ability to perform on two separate occasions.

According to TSE, McDowell encouraged TSE to continue producing and shipping RAMP-75s to McDowell throughout the summer of 2008 and kept assuring TSE that it would be paid in full for all RAMP-75s that were accepted, in part by sending payment schedules. The payment schedules specified the dates that each TSE invoice would be paid in full by McDowell. The Am. Counterclaim alleges that on September 28, 2009, McDowell sent the last payment schedule knowing that TSE intended to rely on it in a pending settlement with Tricom Research, Inc. ("Tricom").*fn3 Indeed, the next day, the TSE-Tricom settlement was finalized in reliance on the McDowell payment schedule. On October 13, 2008, McDowell failed to pay TSE the amounts due according to the September 29, 2008 payment schedule.

DISCUSSION I. Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6)

A. Standard of Review

Rule 8(a) (2) of the Federal Rules of Civil Procedure requires "a short and plain statement of the claim showing that the pleader is entitled to relief [.]" Fed.R.Civ.P. 8(a)(2). Although "a formulaic recitation of the elements of a cause of action will not do," see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955 (2007) (citation omitted), a complaint is sufficient, under Rule 8(a)(2), so long as it "'give[s] the defendant fair notice of what the...claim is and the grounds upon which it rests[.]'" Id. (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)) (second alteration in original).

Rule 12(b) permits a party, prior to filing a responsive pleading, to assert certain defenses by motion, including the defense that the party seeking relief has failed to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). In deciding a motion to dismiss a counterclaim pursuant to Rule 12(b)(6), the allegations in the claimant's pleadings are accepted as true and all reasonable inferences must be drawn in the claimant's favor. See McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007); Arista Records LLC v. Lime Group LLC, 2007 WL 4267190, at *4-5 (S.D.N.Y.2007). However, mere "'conclusions of law or unwarranted deductions'" need not be accepted. See First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir.1994) (quoting 2A Moore, James William & Jo Desha Lucas, Moore's Federal Practice ¶ 12.08, at 2266-69 (2d ed.1984)). Conclusory allegations "'will not suffice to prevent a motion to dismiss.'" See Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir.2002) (quotation omitted). In addition, the Court should not dismiss the counterclaim if the counterclaimant has stated "enough facts to state a claim to relief that is plausible on its face." See Twombly, 127 S.Ct. 1955, 1974 ; see also Katz v. Image Innovations Holdings, Inc., 2008 WL 762101, at *2 (S.D.N.Y.2008).

B. Documents Properly Considered on a Motion to Dismiss

The Court may consider documents that are referenced in the counterclaim, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); see also Taylor v. Vermont Dep't of Educ., 313 F.3d 768, 776 (2d Cir.2002); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir.1991); Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir.1991); VTech Holdings Ltd. v. Lucent Techs., Inc., 172 F.Supp.2d 435, 437 (S.D.N.Y.2001) (In deciding motion to dismiss for failure to state claim, court may consider documents referenced in complaint and documents that are in plaintiff's possession or that plaintiff knew of and relied on in bringing suit); Weston Funding, LLC v. Consorcio G Grupo Dina, S.A. de C.V., 451 F. Supp. 2d 585, 587 (S.D.N.Y.2006) (on a motion to dismiss, a court is entitled to consider the terms of any documents attached to or referenced in the complaint); Frontier-Kemper Constructors, Inc. v. American Rock Salt Co., 224 F. Supp. 2d 520, 525 (W.D.N.Y.2002) (Court's consideration of motion to dismiss for failure to state a claim is limited to the factual allegations in plaintiff's complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit).

When deciding a motion to dismiss, the court's "review is limited to the facts as asserted within the four corners of the complaint, the documents attached to the complaint as exhibits, and any documents incorporated in the complaint by reference." See McCarthy, 482 F.3d at 191; accord Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.2006). Accordingly, there are circumstances under which it is appropriate for a court to consider documents outside of the complaint on a motion to dismiss. For example, documents that are integral to the complaint, are partially quoted in the complaint, or were relied upon by plaintiff in drafting the complaint may be properly considered on a motion to dismiss. See Faulkner, 463 F.3d at 134. The court may also consider on a motion to dismiss documents of which it may take judicial notice. See Kramer, 937 F.2d at 771.

Here, the Am. Counterclaim expressly references the letters attached as exhibits A, C and D by McDowell in the affidavit in support of its motion to dismiss. In addition, McDowell attached exhibits E and F which were communications relied on by TSE in ¶¶ 52 and 56 of the Am. Counterclaim. Further, McDowell attached a complete copy of a complaint filed in a different action, which was referred to by TSE in this action. The Court finds that the Am. Counterclaim does incorporate these documents since they relate to the very issues referred to in the cited paragraphs and characterized in various paragraphs of the Am. Counterclaim. See Am. Counterclaim at ¶¶ 35, 40, 41, 46, 52 and 57. Thus, the Court finds that the documents attached to the affidavit in support of McDowell's motion to dismiss were documents relied upon by TSE and were "documents that [TSE] either possessed or knew about and upon which they relied in bringing the suit." See Rothman v. Gregor, 220 F.3d 81, 99-89 (2d Cir.2000) (citations omitted); see also Cosmas v. Hassett, 886 F.2d 8, 13 (2d Cir.1989). Accordingly, the Court will consider McDowell's exhibits for purposes of deciding this motion.

After the motion to dismiss filed by McDowell was fully briefed, TSE filed a Motion For Leave to Submit Additional Evidence in Opposition to Motion to Dismiss. See Docket #22. In its brief in support of its motion, TSE contends that the additional documents supporting its counterclaims were obtained "in discovery." See Br. at 1. "When matters outside the pleadings are presented in response to a 12(b)(6) motion, a district court must either exclude the additional material and decide the motion on the complaint alone or convert the motion to one for summary judgment under Fed.R.Civ.P. 56 and afford all parties the opportunity to present supporting material." Friedl v. City of New York, 210 F.3d 79, 83 (2d Cir.2000) (internal quotation marks omitted). Federal courts have complete discretion to determine whether or not to accept submission of any material beyond the pleadings offered in conjunction with a motion to dismiss, and thus complete discretion in determining whether to convert the motion to one for summary judgment. See Carione v. U.S., 368 F. Supp. 2d 186, 191 (E.D.N.Y.2005), reconsideration denied, 368 F. Supp. 2d 196 (E.D.N.Y.2005). The "mere attachment of affidavits or exhibits [however,]... is not sufficient to require conversion to a motion for summary judgment." See Salichs v. Tortorelli, 2004 WL 602784, at *1 (S.D.N.Y.2004) (citation omitted).

Here, the Court in its discretion finds that it is unnecessary to convert this motion to dismiss into a motion for summary judgment. In addition, the Court will not consider TSE's other submissions for purposes of deciding this motion, as those documents were not incorporated by reference or cited to in the Am. Counterclaim, and there is not sufficient indication that TSE relied upon the documents in commencing this action.*fn4 Accordingly, the Court excludes these documents attached to TSE's affidavit from consideration for purposes of deciding this motion and the motion for leave to submit additional documents is denied.

II. Choice of Law

TSE argues that North Carolina law most likely applies. See TSE Br. at 5. However, TSE claims that since McDowell only argued that the claims should be dismissed based on New York law and failed to argue that the claims should be dismissed pursuant to North Carolina law, that McDowell's motion must fail. See id. at 6. Moreover, TSE argues that because the choice of law decision is fact-specific, it is premature for the Court to make the determination at this time.

McDowell contends that there is no substantive difference between New York and North Carolina law on the basic tenets of fraud, the covenant of good faith and fair dealing, tortious interference with contract and tortious interference with prospective economic advantage. See McDowell Reply Br. at 2. Both parties are in agreement that at this stage of the proceedings the Court need not determine whether the laws of North Carolina or New York apply. This Court need not decide at this juncture whether New York or North Carolina ...

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