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Ergowerx Int'l, LLC v. Maxell Corp. of Am.

United States District Court, S.D. New York

April 23, 2014

ERGOWERX INTERNATIONAL, LLC d/b/a/ SMARTFISH TECHNOLOGIES, LLC, Plaintiff,
v.
MAXELL CORPORATION OF AMERICA, Defendant

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For Ergowerx International LLC, Plaintiff: Jay Philip Nelkin, Nelkin & Nelkin, P.C., Houston, TX.

For Maxell Corporation of America, Defendant: Hilary Lovett Preston, LEAD ATTORNEY, Vinson & Elkins L.L.P., New York; Nickou Oskoui, Scott W. Breedlove, PRO HAC VICE, Vinson & Elkins L.L.P. (Dallas), Dallas, TX; Temilola Oluwatosin Sobowale, Vinson & Elkins LLP, New York, NY.

OPINION

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OPINION & ORDER

Paul A. Engelmayer, United States District Judge.

This lawsuit involves claims, including breach of contract, brought by a manufacturer of ergonomic computer keyboards and mice against its distribution agent. The plaintiff, Ergowerx International, LLC, doing business as Smartfish Technologies, LLC (" Smartfish" ), asserts 13 claims against distribution agent Maxell Corporation of America (" Maxell" ). In addition to (1) breach of contract; these claims are for (2) promissory estoppel; (3) intentional interference with economic advantage; (4) fraud in the inducement; (5) fraud; (6) conversion; (7) patent infringement; (8) trademark infringement; (9) violations of the Lanham Act; (10) violations of N.Y. General Business Law § 360; (11) breach of the implied covenant of good faith and fair dealing; (12) unjust enrichment; and (13) equitable accounting. Maxell now moves to dismiss all claims but the breach of contract claim, casting Smartfish's case as " a contract case that Smartfish attempts to dress up as something more." Dkt. 25 (" Def. Br." ) at 1. And, as to the breach-of-contract claim, Maxell moves to dismiss Smartfish's demand for damages stemming from the alleged breach of the contract's minimum purchase requirement, to the extent that these arise out of events outside the distribution agreement's 18-month period of exclusivity. Id. For the reasons that follow, Maxell's motions to dismiss are granted.

I. Background[1]

A. The Contract

Smartfish, a New York corporation, sells a line of " injury avoidance" ergonomic

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computer keyboards and mice. FAC ¶ ¶ 2, 10. These products are " designed to eliminate risks of repetitive stress injury and carpal tunnel syndrome for the user." Id. ¶ 10. The technologies underlying these products are patent-protected, and the " Smartfish" name is trademarked. Id. ¶ 15.

In early to mid-2009, Smartfish began meeting with Maxell, a New Jersey corporation, to explore an exclusive distribution agreement. Id. ¶ ¶ 3, 18. On July 8, 2009, Maxell told Smartfish that it had " worldwide distribution opportunities and current channels of sales opportunities in the U.S., Latin America and Canadian markets." Id. ¶ 19. During the last three months of 2009, Maxell told Smartfish that it had " numerous existing worldwide distribution relationships and channels," which would allow Maxell to " automatically augment its existing product lines with retailers by adding Smartfish products." Id. ¶ ¶ 19-20. Maxell also stated that it had met with " its 10 key accounts and confirmed the market for Smartfish products existed." Id. ¶ 21. Finally, Maxell claimed that it would make " a 'financial commitment' to Smartfish" of over " $3,000,000 [and to] stand by that financial commitment to the end." Id. ¶ 22. Based on these and other assurances, Smartfish concluded that it would " benefit from Maxell's existing relationships and resources." Id. ¶ 19.

On December 22, 2009, Smartfish and Maxell entered into a distribution agreement. Id. ¶ 24; see Dkt. 1, Ex. A (" Agreement" ).[2] The agreement made Maxell, for a period of 18 months, the exclusive distributor of Smartfish's computer keyboards and mice within the United States, Mexico, Canada, and Latin America. FAC ¶ 24; see Agreement § 3.10. Maxell was exclusively authorized to distribute to brick-and-mortar customers in those markets, mail order and non-online catalog customers, and 28 specified educational and business-to-business (" B2B" ) accounts. See Agreement § 3.10. But the agreement reserved certain distribution channels for Smartfish, including e-Tailers,[3] Smartfish.com, Amazon, catalogs of e-Tailers, and the remaining education and B2B accounts. Id.; FAC ¶ 24.

In return for the exclusive distribution rights granted in § 3.10, Smartfish, in turn, agreed to convey to Maxell " good and clear title to the Products, free and clear of all liens, encumbrances, restrictions, and other claims against title or ownership (including, without limitation, claims of patent, copyright or trademark infringement or violations or misappropriations of trade secrets or other intellectual property rights)." Agreement § 7.1(a). The Agreement provided that the Smartfish products distributed by Maxell would be customized to Maxell's specifications, and that the packaging and product casings would bear both the Smartfish and Maxell logos (e.g., " Maxell with ErgoMotion Inside" ). Id. § 5. Maxell agreed to

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pay " additional costs associated with such packaging and shipping specifications," id. § 5.1, as well as the cost " of any and all artwork, including but not limited to Packaging, Instruction Booklets, Product Labels, Product Graphics, Packaging Contents, etc. to be used in connection with the Products," id. § 4.1.

In exchange for the exclusive right to distribute Smartfish's products in these markets, Maxell agreed to " use good faith efforts to purchase" certain quantities of keyboards and mice " during an eighteen (18) month period beginning on the execution date." Id. § 3.4(a). Specifically, Maxell committed that its " total Product purchases (measured by the aggregate purchase price)" would not " be less than $1,804,800 during such eighteen (18) month period." Id. The agreement defined good faith, or commercially reasonable, efforts to include Maxell's " educating its sales force on the Products, actively seeking distribution with its partners, and actively marketing the Products." Id. § 3.11.

Finally, the contract contained both renewal and termination provisions. First, if Maxell was able to sell a certain volume of Smartfish products--specifically, 50,000 keyboards, 80,000 laser mice, and 175,000 optical mice--it would receive " a second (2nd) year of exclusivity for each product as outlined in Section 3.10." [4] Id. at § 3.8. However, Smartfish reserved " the right to grant a second (2nd) year of exclusivity even if the thresholds are not achieved." Id. Either party had the right to terminate the contract, " with or without cause, upon ninety (90) days prior written notice to the other party." Id. § 10.1. Moreover, if either party failed to comply with any obligations under the Agreement, and " such failure [was] not remedied within thirty (30) days after receipt of written notice of such failure, the non-breaching party" could terminate the Agreement " immediately upon written notice to such (breaching) party." Id. § 10.2.

B. The Alleged Breach

The FAC alleges that Maxell committed multiple breaches of the Agreement. It alleges that Maxell: (1) imposed an extra-contractual condition on its purchase of Smartfish's products--namely, by requiring Smartfish to purchase Maxell brand batteries, FAC ¶ 27; (2) failed to reimburse Smartfish for the costs associated with product re-packaging, in violation of § 4 of the Agreement, FAC ¶ 29; (3) distributed Smartfish's products through " unauthorized distribution channels," such as its own online shop, www.shopmaxell.com, which caused Smartfish to close its own website, www.smartfish.com, FAC ¶ ¶ 30-31; (4) failed to use commercially reasonable efforts to market Smartfish's products, in violation of § 3.11 of the Agreement, FAC ¶ 32; and (5) failed to satisfy the minimum purchase requirement of $1,804,800 worth of Smartfish products during the 18-month period, in violation of § 3.4(a) of the Agreement, FAC ¶ 34.

Smartfish asserts that these breaches of the Agreement have harmed its ability to " survive as an ongoing concern." Id. ¶ ¶ 40-42.

C. Procedural History

On August 12, 2013, Smartfish filed its initial Complaint. Dkt. 1. On October 8, 2013, Maxell moved to dismiss. Dkt. 9. On

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October 29, 2013, Smartfish filed the FAC. Dkt. 21. On November 19, 2013, Maxell submitted a new motion to dismiss, Dkt. 24, and a supporting memorandum of law, Dkt. 25 (" Def. Br." ). On December 5, 2013, an initial conference was held, in which the Court ordered a period of document-based fact discovery, which ended on April 11, 2014. Dkt. 45. On December 20, 2013, Smartfish submitted an opposition to Maxell's motion to dismiss. Dkt. 36 (" Pl. Br." ). On January 6, 2014, Maxell filed a reply brief. Dkt. 37 (" Def. Rep. Br." ). On February 5, 2014, the Court heard argument.

II. Applicable Legal Standards

To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead " enough facts to state a claim to relief that is plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim will only have " facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A complaint is properly dismissed, where, as a matter of law, " the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Twombly, 550 U.S. at 558. Accordingly, a district court must accept as true all well-pleaded factual allegations in the complaint, and draw all inferences in the plaintiff's favor. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). However, that tenet " is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. A pleading that offers only " labels and conclusions" or a " formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. " Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 556 U.S. at 678 (citation omitted).

III. Discussion[5]

A. Count One: Breach of Contract

Maxell has not moved to dismiss the FAC's breach-of-contract claim in its entirety. Instead, it moves to dismiss certain damages that ...


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