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High Falls Brewing Company, LLC v. Boston Beer Corporation

June 26, 2012


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



This is a diversity action arising from a contractual dispute. Defendant asserted a counterclaim for tortious interference with contract. Plaintiffs moved to dismiss the counterclaim pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b)(6). On August 4, 2011, the Court granted the application and dismissed the counterclaim. See, Decision and Order, Docket No. [#42]. Now before the Court are Defendant's motion [#43] for reconsideration of that decision, or in the alternative, for leave to re-plead the counterclaim, and Defendant's motion [#49] for entry of judgment on a related arbitration award, pursuant to FRCP 54(b). The first application is denied, and the second application is granted.


The reader is presumed to be familiar with the prior Decision and Order [#42], in which the facts were set forth in the light most-favorable to Defendant. To briefly summarize, Defendant was a party to a contract ("the Production Agreement") with High Falls Brewing Company, LLC ("HFBC"), a brewery in Rochester, New York. Pursuant to that 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. OpCo, KPS, and North American Breweries ("NAB") intended to use HFBC's assets to operate their own brewery. OpCo, KPS and 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 come to terms regarding an assignment of the Production Agreement.*fn2 See, Answer and Counterclaims [#20] at p. 15, ¶ 17. Consequently, OpCo purchased HFBC's assets without assuming HFBC's obligations under the Production Agreement. OpCo then began doing business under NAB's name. Although Defendant and OpCo had further discussions about whether OpCo/NAB would perform HFBC's obligations under the Production Agreement, OpCo ultimately declined to do so. Thereafter, HFBC failed to fulfill its obligations under the Production Agreement, since it no longer had the equipment or other assets with which to carry them out.

Defendant commenced an arbitration proceeding against Plaintiffs, who then commenced this action seeking declaratory and injunctive relief. Defendant asserted a counterclaim in this action for tortious interference with contract, alleging that, by buying HFBC's assets, OpCo, KPS, and NAB "intentionally and improperly procured the breach by [HFBC[ of the Production Agreement." On January 13, 2011, the Arbitrator issued an award finding, inter alia, that HFBC was liable to Defendant for $1.2 million in damages, and $77,100.00 for attorney's fees and expenses. On May 31, 2011, the parties stipulated to the confirmation of the Arbitrator's award. See, Stipulation and Order [#38] ("IT IS HEREBY STIPULATED AND AGREED, by and between counsel for all parties hereto, that the Award of Arbitrator, dated January 13, 2011, and attached hereto as Exhibit B, is hereby confirmed pursuant to 9 U.S.C. § 9." ). Consequently, the only unresolved claim in this action was Defendant's counterclaim for tortious interference with contract.

On June 18, 2010, Plaintiffs moved to dismiss the tortious interference counterclaim for failure to state a claim, and on August 4, 2010, the Court granted the application. The Court based its decision on Restatement (Second) of Torts § 766, Comment n (1979), which indicates that one does not induce another to commit a breach of contract with a third person when he merely enters into an agreement with the other with knowledge that the other cannot perform both it and his contract with the third person. See, Decision and Order [#42] at pp. 6-9 (citing, inter alia, Planet Payment, Inc. v. Nova Information Sys., Inc., No. 07-cv-2520 (CBA) (RML), 2011 WL 1636921 at *10-13 (Mar. 31, 2011) and Beecher v. Feldstein, 8 A.D.3d 597, 598, 780 N.Y.S.2d 153, 154 (2d Dept. 2004)).

Defendant then filed the subject motion [#43] for reconsideration or for leave to amend. Defendant also filed the subject motion [#49] for immediate entry of judgment on the arbitration award. On June 14, 2012, counsel for the parties appeared before the undersigned for oral argument. Regarding the tortious interference claim, the Court asked Defendant's counsel to explain why OpCo's purchase of HFBC's assets did not fall under Restatement (Second) of Torts § 766, Comment n. Counsel responded that this was not merely a situation where OpCo purchased HFBC's assets with knowledge that such sale would render HFBC unable to perform its Production Agreement with Defendant. Instead, counsel argued, HFBC initially refused to sell its assets unless OpCo agreed to assume the Production Agreement, whereupon OpCo responded by increasing its offer, specifically to persuade HFBC to forego its insistence that OpCo assume the Production Agreement, and to induce HFBC to breach that agreement.*fn3 In that regard, Defendant's counsel argued, OpCo "upped the ante" and "sweetened the pot," which amounted to tortious interference. As authority for that argument, Defendant cited, among other cases, Steuben Foods, Inc. v. Country Gourmet Foods, LLC, No. 08--CV--561S(F), 2009 WL 3191464 (W.D.N.Y. Sep. 30, 2009).*fn4


Tortious Interference With Contract 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). For purposes of the instant motion, it is undisputed that a contract existed between Defendant and HFBC, that Plaintiffs were aware of the contract, that HFBC breached the contract, and that Defendant sustained damages. The disputed issue is whether Plaintiffs/Counterclaim-Defendants intentionally and improperly procured the breach.

"[W]here there is an existing, enforceable contract and a defendant's deliberate interference results in a breach of that contract, a plaintiff may recover damages for tortious interference with contractual relations even if the defendant was engaged in lawful behavior." NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc., 87 N.Y.2d 614, 621 (1996) (citations omitted). According to the pertinent section of the Restatement (Second) of Torts, deliberate or intentional interference may be shown where the defendant is certain, or substantially certain, that his actions will result in a breach of the contract:

Intent and purpose. The rule stated in this Section is applicable if the actor acts for the primary purpose of interfering with the performance of the contract, and also if he desires to interfere, even though he acts for some other purpose in addition. The rule is broader, however, in its application than to cases in which the defendant has acted with this purpose or desire. It applies also to intentional interference, as that term is defined in § 8A,*fn5 in which the actor does not act for the purpose of interfering with the contract or desire it but knows that the interference is certain or substantially certain to occur as a result of his action. The rule applies, in other words, to an interference that is incidental to the actor's independent purpose and desire but known to him to be a necessary consequence of his action.

Restatement (Second) of Torts § 766, comment j (1979); see also, Union Carbide Corp. v. Montell N.V., 944 F.Supp. 1119, 1137 (S.D.N.Y. 1996) (Denying 12(b)(6) motion, where allegations in pleading "provide[d] ample support for the inference that [defendant] either knew that its actions were certain or substantially certain to induce a breach . . . or acted with the primary purpose of inducing a breach."); @Wireless Enterprises, Inc. v. AI Consulting, LLC, No. 05--CV--6176 CJS(P), 2011 WL 1871214 at *11 (W.D.N.Y. May 16, 2011) ("A defendant intentionally procures a breach when he 'knows of a valid ... contract' and 'commits an intentional act whose probable and foreseeable outcome is that one party will breach the contract, causing the other party damage.'") (quoting Leventhal v. Franzus Co., Inc., No. 88 CIV. 3547(MBM), 1988 WL 132868 at *7 (S.D.N.Y. Dec. 6, 1988)).

On the other hand, a party does not induce or procure a breach of contract when he "merely enters into an agreement with the other with knowledge that the other cannot perform both it and his contract with the third person." Restatement (Second) of Torts § 766, Comment n (1979). On this point, the Restatement says:

n. Making agreement with knowledge of the breach. One does not induce another to commit a breach of contract with a third person under the rule stated in this Section when he merely enters into an agreement with the other with knowledge that the other cannot perform both it and his contract with the third person. . . . For instance, B is under contract to sell certain goods to C. He offers to sell them to A, who knows of the contract. A accepts the offer and receives the goods. A has not induced the breach and is not subject to liability under the rule stated in this Section.

Id.; see also, NCC Sunday Inserts, Inc. v. World Color Press, Inc., 759 F.Supp. 1004, 1016 (S.D.N.Y. 1991) ("WCP contends [that] the conditions placed on the sale by GFV, namely the fact that it would not assume the requirements contract and its demand of a non-compete clause from NCC, caused the contract's breach. The problem with this argument, however, is that it still fails to show any improper, malicious, or unjustified conduct by GFV suggesting an intent to cause the breach of contract. Granted, GFV knew of the NCC/WCP contract when it purchased NCC's assets. Moreover, it probably can be inferred that GFV knew that if it purchased NCC's assets, NCC would no longer be able to comply with its contract with WCP. Nonetheless, these facts fail to establish anything more than an incidental interference with WCP's contractual rights and this is insufficient to create liability under a theory of tortious interference with contract.") (citation omitted).

Motion For Reconsideration

Defendant asks the Court to reconsider its prior Decision and Order pursuant to FRCP 54(b), or, in the alternative, to permit Defendant to re-plead the cause of action for tortious interference, pursuant to FRCP 15. As for the motion to reconsider, FRCP 54(b) provides that any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities. "Under Fed.R.Civ.P. 54(b) as well as the inherent power of the court to reconsider a prior decision at any time before the entry of final judgment, the major grounds justifying reconsideration are an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Shervington v. Village of Piermont, 732 F.Supp.2d 423, 425 (S.D.N.Y. 2010) (citations omitted).

Defendant maintains that reconsideration is required to correct a clear error by the Court. In that regard, Defendant contends that the dismissed counterclaim adequately pleaded a claim for tortious interference, since it alleged that OpCo did more than merely purchase HFBC's assets, knowing that such purchase would prevent HFBC from performing its contract with Defendant. According to Defendant, the dismissed counterclaim pleaded that OpCo actively induced HFBC to breach the production agreement with Defendant. See, Def. Memo of Law [#43]. The Court disagrees, since the relevant portions of the Answer with Counterclaims [#20] merely alleged the following facts: 1) HFBC and OpCo were aware of the production agreement; 2) HFBC agreed to sell its assets to OpCo, without ensuring that OpCo would honor HFBC's obligations under the production agreement; 3) OpCo expressed interest in doing business with Defendant, but not in assuming HFBC's obligations; 4) OpCo and Defendant failed to reach a new agreement; and 5) HFBC failed to perform its contractual obligations. See, id. at pp. 14-16, Counterclaim ΒΆ ...

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