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G.L.M. Security & Sound, Inc v. Lojack Corp

September 30, 2011

G.L.M. SECURITY & SOUND, INC., PLAINTIFF,
v.
LOJACK CORP., DEFENDANT.



The opinion of the court was delivered by: Seybert, District Judge:

MEMORANDUM & ORDER

Plaintiff GLM Security & Sound, Inc. ("Plaintiff") sued Defendant LoJack Corp. ("Defendant") in a case arising out of a dispute over an agreement to distribute automobile security systems. Pending before the Court is Plaintiff's motion for leave to amend its Complaint. For the reasons that follow, Plaintiff's motion is GRANTED IN PART AND DENIED IN PART.

BACKGROUND

The following facts are taken from Plaintiff's Proposed Amended Complaint (in citations, the "PAC"). Plaintiff is a Lynbrook, New York corporation that sells, among other things, car security systems to car dealers in New York City and the suburbs. (PAC ¶ 5.) Defendant is a Delaware corporation that manufactures and distributes car security systems. Its principal place of business is Massachusetts. (Id. ¶¶ 6-7.)

In 2002, Plaintiff and Defendant entered into a "Distributorship and Installation Agreement" (the "Agreement"), which provided, in general terms, that Defendant would sell its security systems to Plaintiff. (Id. ¶¶ 8-12.) Plaintiff and Defendant eventually negotiated additional deals, including oral modifications of the Agreement and contracts concerning items outside the Agreement's scope. (Id. ¶ 15.) For example, the parties agreed to extend the Agreement's "Net 60 Days" payment term, extending it first to 90 days and then to 120, "as long as [Plaintiff] paid up to 90 days at the end of certain quarters." (PAC ¶¶ 18, 19.) The parties also developed a practice of disregarding the Agreement's sales expectations term. "The performance requirements in the Agreement were never reached--not even in the first three months--and they were thereafter never reset--with no objection or other action taken by [Defendant]." (Id. ¶ 22.)

According to Plaintiff, its relationship with Defendant was really a partnership. Defendant announced the supposed partnership in a letter to approximately 120 car dealers in the New York area, and the partnership was further manifested in correspondence, marketing materials, and Defendant's representatives' consistent presence on Plaintiff's premises. Further, Plaintiff's employees wore work clothing with Defendant's logo and carried identification cards with Defendant's insignia. (PAC ¶¶ 28-30, 33-34.) In furtherance of this "partnership," Defendant exercised significant control over Plaintiff's operations. (Id. ¶ 36.)

During the course of their relationship, Defendant and Plaintiff freely traded customers, and jointly serviced customers in the New York area. (Id. ¶ 29.) Defendant both helped Plaintiff sell Defendant's products to Plaintiff's car dealership-clients and sold its security systems directly to car dealers. Defendant knew the prices that both it and Plaintiff were charging for its security systems and, under the Agreement, dealer pricing should have been consistent "with [Plaintiff] getting [Defendant's] lowest prices." (Id. ¶¶ 30-32.) Instead, Plaintiff claims, Defendant sold its security systems to car dealers more cheaply than it sold them to Plaintiff. (Id. ¶ 31.)

Plaintiff confronted Defendant about the pricing discrepancy, but Defendant assured Plaintiff that it was not offering its direct-sales customers a better price than what Plaintiff was receiving. (PAC ¶¶ 51.) Plaintiff, in turn, reassured its dealership customers that they were getting the same price as those dealerships who bought straight from Defendant. (Id. ¶¶ 52-54.) At some point, however, an unnamed employee of Defendant sought out Joe Melso, Defendant's Director of Sales for New York and New Jersey. (Id. ¶¶ 57-59, 62.) The employee, who had been selling security systems directly to car dealers for a lower price than what Plaintiff was required to charge to dealers in the same geographic area, complained to Melso that Defendant's business tactics were injuring Plaintiff. "F*ck [Plaintiff]," Melso replied. (Id. ¶¶ 57-60.)

Defendant's business strategy, calculated "to increase sales at virtually any price," continued with its October 2008 roll-out of the Lease Pilot Program. (Id. ¶ 61.) Under this initiative, Defendant lowered the price it charged its direct dealerships. (Id. ¶ 64.) Neither Plaintiff nor Plaintiff's dealership customers were offered participation in the new program. (Id.) Plaintiff eventually secured a price reduction, but the new price was still $25 per unit more than Defendant charged its direct-sales customers. (Id. ¶ 65.) Defendant was selling units to direct-sales customers for $150, installation included. Plaintiff, on the other hand, was paying $175 for uninstalled units. (Id.)

In early 2010, Plaintiff again complained to Defendant about the pricing discrepancies. Melso denied that Defendant was selling its security systems directly to dealerships for $150, but it admitted that it offered "special" pricing to large national chains of automobile dealers. (Id. ¶ 68.) The very same day, however, Melso offered the $150 price to a local car dealer who was not part of a national chain. (Id. ¶ 69.)

Plaintiff and Defendant's business relationship fell apart after that. Plaintiff demanded that Defendant compensate Plaintiff for the difference between the price it charged Plaintiff and the price it charged its direct dealership customers, plus extra to reimburse the labor cost of installing the security systems. (Id. ¶ 70.) Defendant refused and informed Plaintiff that it would not sell Plaintiff any security systems except on a "pre-paid" basis and only after Plaintiff's account, which had previously been payable on 120-day terms, had been paid in full. (Id. ¶¶ 71-72.) Plaintiff interpreted this as a material breach, and it terminated the Agreement. (Id. ¶¶ 75-76.)

Plaintiff also alleges that Defendant breached its post-termination obligations under the Agreement. Specifically, Plaintiff claims that Defendant was required to pay Plaintiff for each of Defendant's security systems that Plaintiff returned to Defendant, plus a $50 fee for each unit that Defendant sold to a car dealer within Plaintiff's exclusive territory for six months after the Agreement's end. (Id. ¶¶ 75-77.)

In its Proposed Amended Complaint, Plaintiff asserts the following eight claims: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) misrepresentation; (4) tortious interference with business relations; (5) violation of the New York Franchise Sales Act; (6) violation of the Massachusetts General Law Chapter 93A; (7) price discrimination under the federal Robinson-Patman Act; and (8) breach of fiduciary duty.

DISCUSSION

Under Federal Rule of Civil Procedure 15(a), the Court should freely grant parties leave to amend their pleadings "when justice so requires." FED. R. CIV. P. 15(a)(2). Defendant argues that Plaintiff should not be permitted to amend its Complaint because the Proposed Amended Complaint is futile. Futility, of course, is one circumstance under which courts may deny plaintiffs leave to amend their complaints. E.g., Silverman Partners, L.P. v. First Bank, 687 F. Supp. 2d 269, 277-78 (E.D.N.Y. 2010).

I. Legal Standard

To determine whether an amended claim is futile, courts analyze whether the proposed pleading would withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). E.g., Steel Institute of N.Y. v. City of N.Y., No. 09-CV-6539, 2010 WL 5060682, at *6 (S.D.N.Y. Dec. 2, 2010). To survive a Rule 12(b)(6) motion, a plaintiff must plead sufficient factual allegations in the complaint to "state a claim [for] relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929, 949 (2007). The complaint does not need "detailed factual allegations," but it demands "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. In addition, the facts pleaded in the complaint "must be enough to raise a right to relief above the speculative level." Id. Determining whether a plaintiff has met his burden is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009). On a motion to dismiss, a plaintiff gets the benefit of all reasonable inferences, see, e.g., Litwin v. Blackstone Group, L.P., 634 F.3d 706, 711 n.5 (2d Cir. 2011), but "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).

As will become relevant later, when evaluating whether a complaint states a plausible claim, courts may consider "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference."

Int'l. Audiotex Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (per curiam) (quoting Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991)). Further, "[e]ven where a document is not incorporated by reference, the court may nevertheless consider it where the complaint 'relies heavily upon its terms and effect,' which renders the document 'integral' to the complaint." Int'l Audiotex, 62 F.3d at 72.

II. Application to Plaintiff's Proposed Amended Compliant

After briefly addressing the governing law and a threshold issue concerning certain of Plaintiff's allegations that are contradicted by the Agreement, the Court considers each claim in Plaintiff's Proposed Amended Complaint.

A. Governing Law

Massachusetts law governs Plaintiff's breach of contract and breach of the covenant of good faith and fair dealing claims because the Agreement expressly provides that Massachusetts law governs. (Agreement 10.) Absent allegations of fraud related to that choice-of-law provision or a violation of public policy, the Court will honor that clause. See Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir. 2001). Massachusetts law also governs Plaintiff's claim under Massachusetts General Law Chapter 93A.

Whether New York or Massachusetts law governs Plaintiff's tort claims requires further discussion. "Under New York law . . . tort claims are outside the scope of contractual choice-of-law provisions that specify what law governs construction of the terms of the contract." Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 335 (2d Cir. 2005). A federal court exercising diversity jurisdiction must apply the choice of law analysis of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021, 85 L. Ed. 1477 (1941); Dargahi v. Honda Lease Trust, 370 Fed. Appx. 172, 174 (2d Cir. 2010). The first step in New York's conflict of laws approach is determining "whether there is an actual conflict between the laws of the jurisdictions involved." In re All State Ins. Co., 613 N.E.2d 936, 937 (N.Y. 1993). If no actual conflict of laws exists, New York "dispenses with the choice of law analysis." Intellivision v. Microsoft Corp., No. 07-CV-4079, 2008 U.S. Dist. LEXIS 63564 at *10 (S.D.N.Y. Aug. 20, 2008) (citing Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). Where a conflict exists, New York employs two "choice of law analyses, one for contract claims, another for tort claims." Fieger, 251 F.3d at 394. If there is no conflict, and "if New York law is among the relevant choices, New York courts are free to apply [New York law]." Int'l Bus. Mach. Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004).

New York courts implement the "interest analysis" to choice of law in tort claims. Globalnet Financial.com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 384 (2d Cir. 2006) (citing Schultz v. Boy Scouts of Am., Inc., 480 N.E.2d 679 (N.Y. 1985)). New York's torts choice of law analysis distinguishes torts that regulate conduct from those that involve loss allocation. "If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders." Cooney v. Osgood Mach., Inc., 612 N.E.2d 277, 280 (N.Y. 1993). For conflict involving the "allocation of losses, the site of the tort is less important, and the parties' domiciles are more important." Globalnet ...


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