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High Falls Brewing Company, LLC, High Falls Operating Co., LLC, North v. Boston Beer Corporation

August 2, 2011

HIGH FALLS BREWING COMPANY, LLC, HIGH FALLS OPERATING CO., LLC, NORTH AMERICAN BREWERIES, INC., AND KPS CAPITAL PARTNERS LP,
PLAINTIFF,
v.
BOSTON BEER CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Charles J. Siragusa United States District Judge

DECISION AND ORDER

INTRODUCTION

This is a diversity action arising from a contractual dispute, in which Plaintiffs seek permanent injunctive relief and a declaratory judgment that they are not required to arbitrate certain aspects of the dispute. Defendant asserted four counterclaims: 1) tortious interference with contract, 2) breach of the implied covenant of good faith and fair dealing; 3) "immediate possession or foreclosure"; and 4) conversion. High Falls Operating Company ("OpCo"), KPS Capital Partners, LP ("KPS"), and North American Breweries, Inc. ("NAB") (collectively "Movants") moved (Docket No. [#24]) to dismiss the first, third, and fourth counterclaims, pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b)(6). However, prior to oral argument of the motion, Defendant notified the Court that it was withdrawing all of its counterclaims, except the first. Subsequently, the parties executed a stipulation, agreeing to the dismissal of Defendant's second, third, and fourth counterclaims. Consequently, Movants' motion to dismiss the third and fourth counterclaims is denied as moot. The remaining aspect of Movants' motion, seeking dismissal of the first counterclaim, is granted.

BACKGROUND

The following facts are taken from Defendant's Corrected Answer [#20] with counterclaims, and are viewed in the light most-favorable to Defendant. Defendant was a party to a contract ("the Production Agreement") with High Falls Brewing Company, LLC ("HFBC"). Pursuant to the Production Agreement, HFBC was required to produce beer and other beverages for Defendant, through the year 2014. In 2009, HFBC contracted to sell substantially all of its assets to OpCo.*fn1 OpCo is a subsidiary of KPS, a private equity fund. At that time, OpCo, KPS, and North American Breweries ("NAB"), were aware of the Production Agreement between HFBC and Defendant, and were interested in assuming HFBC's interest in the agreement as part of the asset purchase. However, OpCo and Defendant were not able to reach an agreement concerning assignment of the Production Agreement.*fn2 Consequently, OpCo purchased HFBC's assets without assuming HFBC's obligations under the Production Agreement. OpCo apparently then began doing business under NAB's name. Defendant subsequently had discussions with OpCo concerning whether OpCo would honor HFBC's obligations under the Production Agreement. OpCo, though, declined to assume such obligations. Subsequently, HFBC failed to fulfill its obligations under the Production Agreement, since it no longer had the equipment or other assets with which to carry out its obligations. Consequently, Defendant maintains that by buying HFBC's assets, OpCo, KPS, and NAB "intentionally and improperly procured the breach by [HFBC[ of the Production Agreement." Corrected Answer [#20] at p. 19, ¶ 51.

However, Movants maintain that such facts fail to state a claim for tortious interference with contract. On June 18, 2010, Movants filed the subject motion to dismiss, arguing that Defendant has not pleaded a plausible claim, since it has not alleged that Movants' actions were wrongful and without justification. Pls. Memo of Law [#24-5] at 6 ("Boston Beer's claim for wrongful interference with contract . . . fails on its face because Boston Beer does not allege the wrongfulness of and lack of justification for the Companies' actions that are required to maintain such a claim."). More specifically, Movants' contend that a plausible claim must allege that they acted with "an intention to harm plaintiff without economic or other lawful excuse or justification." Id. (citations omitted); see also, id. at 7 ("Boston Beer must allege facts sufficient to permit the court to draw a reasonable inference that the Companies procured HFBC's breach of contract (1) with the intent to harm Boston Beer and (2) without justification."). Movants argue that Defendant's counterclaim fails on this point, since it alleges only that OpCo's purchase of HFBC's assets "had the indirect effect of leaving HFBC without the means to perform under the Production Agreement." Id. at 8.*fn3 Movants further maintain that tortious interference cannot be found where the defendant acted to protect a legitimate business interest. Id.

In response, Defendant maintains, first, that an allegation of "malice" is not required to state a claim for tortious interference with contract.*fn4 Additionally, Defendant states that Movants cannot establish the "economic self-interest" defense, since they did not have a pre-existing relationship with, or financial stake in, HFBC. Def. Memo of Law [#27] at 2.*fn5

On April 14, 2011, counsel for the parties appeared before the undersigned for oral argument.

DISCUSSION

The applicable legal standard for determining whether a complaint is sufficient to survive a Rule 12(b)(6) motion is clear:

Federal Rule of Civil Procedure 8(a)(2) requires only 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. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964-65 (2007); see also, ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) ("To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'") (quoting Bell Atl. Corp. v. Twombly) (footnote omitted); Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (Indicating that Bell Atl. Corp. v. Twombly adopted "a flexible 'plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible[,]" as opposed to merely conceivable.), reversed on other grounds, Ashcroft v. Iqbal, 129 S.Ct.1937 (2009). When applying this standard, a district court must accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir. 1999). Moreover, "[c]complaints need not anticipate, and attempt to plead around, potential affirmative defenses." Davis v. Indiana State Police, 541 F.3d 760, 763 (7th Cir. 2008) (citations omitted).

Defendant is asserting a counterclaim for tortious interference with contract under New York law. In sum, Defendant alleges that OpCo, NAB, and KPS committed the tort by purchasing HFBC's assets, knowing that such purchase would prevent HFBC from performing its contract with Boston Beer. See, e.g., Answer and Counterclaims, Counterclaims ¶ 26 ("OpCo, NAB and KPS wrongfully interfered with the advantageous Production Agreement by stripping [HFBC] of substantially all of its operating assets, thereby rendering [HFBC] unable to perform its obligations under the Production Agreement.").

Under New York law, "[t]ortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom." Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424, 646 N.Y.S.2d 76, 82 (1996) (citations omitted). Here, for purposes of this motion, it is undisputed that a contract existed between Defendant and HFBC, that Movants were aware of the contract, that the contract was breached, and that ...


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