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Coca-Cola North America, A Division of the Coca-Cola Company, and v. Crawley Juice

May 17, 2011

COCA-COLA NORTH AMERICA, A DIVISION OF THE COCA-COLA COMPANY, AND ODWALLA, INC., PLAINTIFFS,
v.
CRAWLEY JUICE, INC. AND HOWARD W. CRAWLEY, JR., DEFENDANTS. COCA-COLA NORTH AMERICA, A DIVISION OF THE COCA-COLA COMPANY, AND ODWALLA, INC., PLAINTIFFS,
v.
PREMIERE ROUTES, INC., AND LEE REGENBOGEN, DEFENDANTS. COCA-COLA NORTH AMERICA, A DIVISION OF THE COCA-COLA COMPANY, AND ODWALLA, INC., PLAINTIFFS,
v.
HELLENIC JUICES, INC. AND JOHN LASKARIS, DEFENDANTS.



The opinion of the court was delivered by: Levy, United States Magistrate Judge:

MEMORANDUM AND ORDER

Plaintiffs Coca-Cola North America and Odwalla, Inc. ("Coca-Cola" or the "Coke plaintiffs") move to dismiss defendants' counterclaims. The motion is before me on consent of the parties. (See Consent in 09 CV 3259, dated Apr. 23, 2010; Consent in 09 CV 3260, dated Apr. 23, 2010; Consent in 09 CV 3279, dated Apr. 23, 2010.) I heard oral argument on August 17, 2010 (see Transcript of Oral Argument, dated Aug. 17, 2010 ("Tr.")), after which defendants amended their counterclaims and the parties filed supplemental submissions. For the reasons stated below, Coca-Cola's motion is granted.

BACKGROUNDAND FACTS

The Coke plaintiffs commenced these three nearly identical actions simultaneously in July 2009, and they have been consolidated for discovery purposes. Defendants Crawley Juice, Inc. ("Crawley"), Premiere Routes, Inc. ("Premiere"), and Hellenic Juices, Inc. ("Hellenic"), and their principals (collectively, "defendants") are former distributers of the Coke plaintiffs' Minute Maid brand fruit juices, juice drinks, and other products. Defendants entered into one-year Distributer Agreements with Coca-Cola, effective August 1, 2007 to July 31, 2008, granting them non-exclusive rights to sell the Coke plaintiffs' products in defined geographic territories in New York and New Jersey. (See Complaint in 09 CV 3259, dated July 28, 2009 ("Crawley Compl."), Ex. A; Complaint in 09 CV 3260, dated July 28, 2009 ("Premiere Compl."), Ex. A; Complaint in 09 CV 3279, dated July 28, 2009 ("Hellenic Compl."), Ex. A.*fn1 ) In the complaints, the Coke plaintiffs seek monies they claim are due and owing under the Distributor Agreements for products allegedly ordered by and delivered to defendants. (See Crawley Compl. ¶ 15 (seeking $161,604.88 in damages); Premiere Compl. ¶ 15 (seeking $90,459.25 in damages); Hellenic Compl. ¶ 16 (seeking $494,192.25 in damages).)

Defendants' nearly-identical answers deny Coca-Cola's allegations, and defendants claim that they paid in full for the products they ordered and received. (See Answer with Second Amended Counterclaim in 09 CV 3259, dated Sept. 10, 2010 ("Crawley Counterclaim"); Answer with Second Amended Counterclaim in 09 CV 3260, dated Sept. 10, 2010 ("Premiere Counterclaim"); Answer with Second Amended Counterclaim in 09 CV 3279, dated Sept. 10, 2010 ("Hellenic Counterclaim").) Defendants also assert numerous counterclaims, which the Coke plaintiffs now move to dismiss for failure to state a claim upon which relief can be granted under Fed. R. Civ. P. 12(b)(6) and failure to satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). (See Memorandum of Law in Support of Plaintiffs' Motion to Dismiss Defendants' Counterclaims, dated Apr. 29, 1010 ("Pls.' Mem.").) Those counterclaims seek relief against Coca-Cola for fraud, deceptive business practices, unfair competition, tortious interference with prospective economic advantage, misappropriation of goodwill/unjust enrichment, breach of the covenant of good faith and fair dealing, and misappropriation of inventory/unjust enrichment.*fn2 (See Crawley Counterclaim ¶¶ 30-73; Premiere Counterclaim ¶¶ 31-73; Hellenic Counterclaim ¶¶ 29-71.)

Specifically, defendants allege that former Coca-Cola employees David Weisberg and Chris Kirby ("Weisberg" and "Kirby") fraudulently induced them to purchase and invest in underdeveloped or vacant territories, in exchange for oral promises of marketing and other support from Coca-Cola, as well as verbal assurances that defendants would be able to extend the Distributor Agreements beyond their one-year terms and ultimately sell the routes once they were fully developed. (Crawley Counterclaim, ¶¶ 2, 11-16, 21; Premiere Counterclaim ¶¶ 2, 11-16, 21; Hellenic Counterclaim ¶¶ 2, 11-16, 21.) Defendants contend that, after they purchased and cultivated the routes in those territories, Coca-Cola threatened them with termination if they refused to purchase excess inventory that they "did not need, did not want, and could ill afford." (Crawley Counterclaim ¶ 22; Premiere Counterclaim ¶ 23; Hellenic Counterclaim ¶ 21.) Defendants also allege that Coca-Cola failed to reimburse them for promised marketing support, hurt their ability to compete in the marketplace by charging them higher prices than a competing distributor for the same products, and failed to properly secure defendants' inventory upon delivery to the warehouse. (Crawley Counterclaim ¶¶ 23-25, 27; Premiere Counterclaim ¶¶ 24-25, 28; Hellenic Counterclaim ¶¶ 22-23, 26.) Finally, defendants claim that on March 16, 2009, Coca-Cola improperly terminated their agreements and granted distribution rights to a competitor, White Rose, Inc. (Crawley Counterclaim ¶ 28; Premiere Counterclaim ¶ 29; Hellenic Counterclaim ¶ 27.)

DISCUSSION

A. Standard for Motion to Dismiss In considering a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all the facts alleged in the complaint and must liberally construe the complaint in the light most favorable to the plaintiff (or, in this case, the counterclaimants). In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). A complaint should be dismissed only if it fails to set forth sufficient allegations of fact to state a claim for relief that is "plausible on its face." Id. at 1949; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Facts that assert merely conceivable conclusions will not survive a motion to dismiss. See Twombly, 550 U.S. at 570. Using this standard, I will address each of defendants' counterclaims in turn.

B. Counterclaim for Fraud Defendants' first amended counterclaims assert a cause of action for fraud. (See Crawley Counterclaim ¶¶ 30-36; Premiere Counterclaim ¶¶ 31-37; Hellenic Counterclaim ¶¶ 29-35.) Under New York law, a party alleging fraud must state five elements: (i) a material misrepresentation; (ii) made by a defendant knowing that it was false when made; (iii) with the intent to defraud; (iv) upon which plaintiff reasonably relies; and (v) which causes plaintiff injury. See Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001) (citing Lama Holding Co. v. Smith Barney, Inc., 668 N.E.2d 1370 (N.Y. 1996)). Moreover, under Fed. R. Civ. P. 9(b), allegations of fraud must be pleaded with particularity. The purpose of such specificity is to give the defendant notice of the allegations against it. See Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir. 1985).

The Coke plaintiffs argue that defendants' fraud counterclaims are deficient in a number of respects. (See Letter of Thomas J. Goodwin, Esq., dated Oct. 8, 2010 ("Goodwin Ltr."), at 2-7.) First, they point out that the express language of the Distributor Agreements contradicts defendants' allegations concerning Weisberg's and Kirby's oral representations. (Id. at 5; see also Tr. at 9--10.) For example, despite defendants' claims that Weisberg and Kirby promised them "marketing support," including "point of sale" items and free product giveaways (see Crawley Counterclaim ¶ 14; Premiere Counterclaim ¶ 14; Hellenic Counterclaim ¶ 14), there is no provision in any of the Distributor Agreements for the reimbursement of marketing expenses.*fn3 In addition, although defendants claim that they relied on representations that they would be able to "sell all or a portion" of their routes after developing them "over many years" (see Crawley Counterclaim ¶ 13; Premiere Counterclaim ¶ 13; Hellenic Counterclaim ¶ 13), the Distributor Agreements (a) were in effect for a specific one-year term, renewable only "for additional one-year periods upon the mutual written agreement of the parties" (Distributor Agreement ¶ 2), (b) provide for termination by either party, with or without cause, upon thirty days' notice (id. ¶ 8(a)), and (c) prohibit defendants from assigning the Distributor Agreement without Coca-Cola's express, written consent (id. ¶ 9(d)). The Distributor Agreements also state explicitly that they "contain the entire and only agreement between the parties respecting the sale to and the purchase and distribution by the Distributor of the Products" and that "any representation, promise, or condition in connection therewith not expressly incorporated herein shall not be binding upon either party." (Id. ¶ 9(e).)

Defendants do not contend that their Distributor Agreements were invalid or unenforceable, and generally, if a contract states that all of the parties' agreements are merged in the written document, parol evidence is not admissible to vary, or permit escape from, the terms of the integrated contract. See Mfrs. Hanover Trust Co. v. Yanakas, 7 F.3d 310, 315 (2d Cir.1993) (citing Fogelson v. Rackfay Constr. Co., 90 N.E.2d 881, 884 (N.Y. 1950)); see also W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) ("When parties set down their agreement in a clear, complete document their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or to vary the writing.") It is true that a general merger clause is ineffective to preclude parol evidence that a party was induced to enter the contract by means of fraud. Mfrs. Hanover Trust Co., 7 F.3d at 315 (citing Sabo v. Delman,143 N.E.2d 906 (N.Y. 1957); Bridger v. Goldsmith, 38 N.E. 458 (N.Y. 1894)); see also Wall v. CSX Transp., Inc., 471 F.3d 410, 416 (2d Cir. 2006) ("New York . . . permits the use of parol evidence to prove a claim of fraud in the inducement, even where the written contract contains an integration, or merger, clause."). However, "a claim of fraudulent inducement fails when the alleged misrepresentations conflict with unambiguous terms of the contract at issue." Gen. Elec. Co. v. Compagnie Euralair, S.A., 945 F. Supp. 527, 537 (S.D.N.Y. 1996), aff'd, 164 F.3d 617 (2d Cir. 1998); see also Danann Realty Corp. v. Harris, 157 N.E.2d 597, 599 (N.Y. 1959) (specific term of contract "destroy[ed] the allegations" that "agreement was executed in reliance upon . . . contrary oral representations") (citation omitted); Citibank, N.A. v. Plapinger, 485 N.E.2d 974, 977 (N.Y. 1985) (guarantee to bank that was expressly "absolute and unconditional" could not be avoided by claim that guarantee was fraudulently induced through bank's alleged oral promise to supply additional line of credit).

In other words, having signed the Distributor Agreements acknowledging that their contracts could be terminated with or without cause on thirty days' notice, and that any assignment would require Coca-Cola's express, written consent, defendants "cannot now be heard to assert reliance upon any alleged representations to the contrary." Warner Theatre Assocs. Ltd. P'ship v. Metro. Life Ins. Co., No. 97 Civ. 4914, 1997 WL 685334, at *3 (S.D.N.Y. Nov. 4, 1997) (Sotomayor, J.), aff'd, 149 F.3d 134 (2d Cir. 1998).

Moreover, defendants' claims concerning Weisberg's and Kirby's promises of "marketing support" do not meet Rule 9(b)'s particularity requirements. The Second Circuit has held that "[t]o satisfy the particularity requirement of 9(b), a complainant must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); see also Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (explaining that Rule 9(b) requires a plaintiff to "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent").

In addition to stating the "where, when, who or how" of the allegedly fraudulent statements, a plaintiff alleging fraudulent inducement must show that the defendant exhibited scienter, or fraudulent intent. Although a party need not plead scienter with great specificity, see Fed. R. Civ. P. 9(b), "there must be some factual basis for conclusory allegations of intent." Ouknine v. MacFarlane, 897 F.2d 75, 80 (2d Cir. 1990). Thus, "plaintiffs must allege facts that give rise to a strong inference of fraudulent intent." Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995); see also Bangkok Crafts Corp. v. Capitolo Di San Pietro in Vaticano, 331 F. Supp. 2d 247, 253 (S.D.N.Y. 2004). To qualify as "strong" an inference "must be more than merely 'reasonable' or 'permissible'-it must be cogent and compelling, thus strong in light of other explanations." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). The requisite "strong inference" of fraud may be satisfied by alleging either (1) facts to show that the defendant had both motive and opportunity to commit fraud, or (2) facts constituting strong circumstantial evidence of conscious misbehavior or recklessness. Shields v. Citytrust Bancorp. Inc., 25 F.3d 1124, 1128 (2d Cir. 1994); see also ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 198 ...


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