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Wexler v. Allegion (UK) Ltd.

United States District Court, S.D. New York

March 29, 2018

ELIAS WEXLER, ZERO INTERNATIONAL REALTY CO., INC., ZERO OHIO, LLC, ZERO AMERICA LATINA, LTD., ZERO ASIA PACIFIC LTD., ZERO EAST, LTD., 391 CONCORD AVENUE, INC., and ZERO REALTY NC LLC, Plaintiffs,
v.
ALLEGION (UK) LIMITED, SCHLAGE LOCK COMPANY, LLC, and ALLEGION PLC, Defendants.

          OPINION AND ORDER

          Edgardo Ramos, U.S.D.J.

         Elias Wexler (“Wexler”), Zero International Realty Co., Inc. (“Zero Realty”), Zero Ohio, LLC (“Zero Ohio”), Zero America Latina, Ltd. (“Zero Latina”), Zero Asia Pacific Ltd. (“Zero Asia”), and Zero East, Ltd. (“Zero East”) brought this action against Allegion (UK) Limited (“Allegion UK”) and Schlage Lock Company, LLC (“Schlage”), alleging a host of state law claims. On March 9, 2017, the Court granted in part and denied in part Defendants' motion to dismiss, permitting Wexler to proceed on his defamation claim and granting him leave to replead his age discrimination claims, and granting Zero Latina, Zero Asia, and Zero East leave to replead their breach of contract claims. See Opinion and Order on Defendants' Motion to Dismiss (the “March 2017 Order”) (Doc. 46). Plaintiffs filed an amended complaint on April 28, 2017, naming Zero Realty NC, LLC (“Zero NC”) and 391 Concord Avenue, Inc. (“Concord”) as additional plaintiffs, naming Allegion plc as an additional defendant, adding multiple new claims, and dropping Wexler's prior age discrimination and breach of employment contract claims. See Plaintiffs' Amended Complaint (“Am. Comp.”) (Doc. 52). Pending before the Court are: (1) Defendants' motion to dismiss Counts One, Two, Four through Twelve, and Eighteen of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and (2) Allegion plc's motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). For the reasons discussed below, Defendants' 12(b)(6) motion is GRANTED in part and DENIED in part, and Allegion plc's 12(b)(2) motion is GRANTED.

         I. Factual Background[1]

         Wexler is an entrepreneur and engineer who, for thirty-five years, served as the President and CEO of Zero International, Inc. (“Zero International”), a Bronx company specializing in the manufacture and wholesale of door and window fixtures, frames, weather-stripping, and acoustic and fire-proof liners and seals. Am. Compl. ¶¶ 31-32, 35. The company earned the reputation as the “gold standard” for high-quality door and window seals and fixtures, having developed its own patented designs, created its own specialized factory machinery, and devoted significant resources to obtain high quality materials and train factory workers. Id. ¶ 32. Under Wexler's leadership, Zero International expanded its operations from one small factory in the Bronx to an international company with four factories in the United States (including in Ohio and North Carolina), branches all over the country, and sales in thirty-five countries around the world. Id. ¶ 35. Throughout that expansion, Wexler was committed to the Bronx community where the company was founded, maintaining Zero International's headquarters and main factory in the Bronx and employing numerous local workers. Id.

         Wexler has been published in trade magazines and has served as a visiting lecturer at the Pratt Institute of Design, President of the New York Society of Manufacturing Engineers, and President of the New York Critical Manufacturing Sector Coordinating Council. Id. ¶¶ 37-38. He was a member of the Builders Hardware Manufacturers Association, which advises and writes standards for the American National Standards Institute. Id. ¶ 37. Wexler is also the sole shareholder and President of Zero Realty and Concord, the majority member and President of Zero Ohio and Zero Realty NC, and the 51% shareholder and President of each of Zero Latina, Zero Asia, and Zero East. Id. ¶¶ 9-13.

         In 2014, Allegion UK and Allegion plc[2] (collectively, “Allegion”) and Schlage approached Wexler and expressed interest in acquiring Zero International through an asset purchase transaction. Id. ¶ 40. Until then, Wexler had not seriously considered selling the company. Id. Wexler alleges that Anshu Mehrotra (“Mehrotra”), Allegion's Vice President and General Manager of Commercial Mechanical Business, nonetheless enticed him with collateral benefits of the deal for Wexler personally, beyond the economic benefits such a transaction would bring him as the principal shareholder of Zero International. Id. ¶ 41. For example, Wexler and Mehrotra discussed Wexler's desire to continue his leading statesman role in the industry so that he could continue his teaching positions, speaking engagements, and membership in various industry organizations. Id. ¶ 44. Mehrotra, on behalf of Allegion and Schlage, assured Wexler that they would support and promote Wexler in an “emeritus” role so that he could continue his high-profile involvement in the industry, which would also benefit Allegion. Id. ¶¶ 43-44. Mehrotra also represented that Allegion would offer Wexler an honorary “lifetime” position on an internal board of directors for Allegion's U.S. commercial mechanical division so long as Allegion sold Zero products. Id. ¶ 43.

         In their discussions, Wexler also made it clear to Allegion and Mehrotra that the success of Zero International was his greatest career achievement and that his main priority was to ensure that the company continued beyond his lifetime as a leading company in the industry. Id. ¶ 45. Mehrotra told Wexler that this was consistent with Allegion and Schlage's interests and intent in acquiring the Zero brand and product line, and assured him that Defendants would maintain the high quality of Zero products. Id. ¶¶ 45, 71. Moreover, he represented that Defendants intended to keep Zero International's workforce in the Bronx, Ohio, and North Carolina. Id. ¶ 71.

         Based on Mehrotra's assurances, Wexler agreed to negotiate an asset purchase agreement (“APA”). Id. ¶ 46. According to the Amended Complaint, Wexler was so pleased with Mehrotra and Allegion's representations that he engaged in minimal negotiation over the purchase price. Id. Following further negotiations on the structure and terms of the agreement, Wexler and Defendants entered into the APA, which governed the sale of substantially all of Zero International's assets to Defendants. Id. ¶ 48. The parties executed the APA on February 19, 2015, and the transaction closed on April 1, 2015. Id. Pursuant to the APA, Defendants paid Wexler a fixed cash purchase price in exchange for acquiring Zero International's name, brand, product line, inventory, designs, patents and other intellectual property, and its factory machinery. Id. ¶ 49. The APA contemplated that Defendants would continue to manufacture and sell Zero products through a Schlage subsidiary, known as Zero Group International (“New Zero”), wholly owned and controlled by Schlage and indirectly by Allegion. Id.

         Wexler and Defendants also entered into various related agreements, including an employment and non-compete agreements. Id. ¶ 51. Wexler's employment agreement provided that he would have the title of “President Emeritus” of Zero Group. Id. ¶ 52. While the agreement had an eighteen-month minimum term, Mehrotra assured Wexler that Defendants intended to employ him until he retired, and further assured him that even after retirement, he would have the President Emeritus title and Allegion board position for “life” so long as Allegion carried Zero products. Id.

         Schlage also entered into lease agreements with Zero Realty, Zero Ohio, Zero Realty NC, and Concord allowing Schlage to use facilities already in use by Zero International. Id. ¶¶ 54- 55. Additionally, Wayne Bewley, an Allegion product manager, convinced Wexler to retrofit a new building he had acquired in Burgaw, North Carolina (the “Burgaw facility”) so that Allegion and Schlage could use it. Id. ¶ 58. Although Wexler already had a factory in Wallace, North Carolina used by Zero, Bewley told him that the head of Allegion's Americas Division maintained a summer home thirty miles from Burgaw, and assured him that if he moved the Zero operation to Burgaw, Defendants would enter into a 40-year lease for the facility. Id. ¶ 59. Wexler agreed and undertook the significant expense of retrofitting the Burgaw facility. Id. ¶ 61. Defendants never reimbursed Wexler for the costs of retrofitting. Id. The lease agreements for all of the facilities leased by Schlage, including the Burgaw facility, were subject to two-year terms, renewable in two-year increments. Id. Wexler alleges that even though the written lease agreements were for two-year terms, Bewley assured him that this was merely a standard term required by Allegion's internal policies and that Defendants intended to lease the facilities long term. Id. ¶¶ 56, 61.

         Defendants also agreed to assume contractual relationships that Zero International had with its overseas distributors, Zero Asia, Zero Latina, and Zero East (collectively, the “Distributor Plaintiffs”). Id. ¶ 62. Prior to the APA, Zero International had exclusive contracts with each of the Distributor Plaintiffs, which it provided to Defendants. Id. ¶ 63. After the APA closed, Mehrotra and Bewley, as Defendants' agents, told Wexler, as the distributors' representative, that Defendants agreed to use the Distributor Plaintiffs as the exclusive distributors for New Zero on the same terms as had been previously set forth in their written contracts with Zero International concerning exclusivity, territory, pricing and commissions, and payment terms. Id. ¶ 64. According to Wexler, the parties further agreed that the contract period for each Distributor Plaintiff would last for so long as Defendants sold Zero products in the distributor's respective region. Id.

         Wexler alleges that shortly after the close of the APA, Defendants “began to reveal their true intention.” Id. ¶ 82. He alleges that in the early summer of 2015, Defendants began to ignore his advice about managing the affairs of New Zero, and almost entirely stopped communicating with him by mid-summer. Id. ¶ 84. Around that same time, Defendants also began planning to lay off Zero's workforce in the Bronx and other factories in the U.S. and began preparing to close its U.S. factories altogether. Id. ¶ 85. On the morning of September 17, 2015, Mehrotra traveled to Wexler's office in the Bronx, accompanied by Schlage's head of human resources and two security guards. Id. ¶ 87. Mehrotra told Wexler that he was fired, and after giving him a few minutes to gather whatever belongings he could carry, the security guards escorted him from the building, as his friends and colleagues watched. Id. After Wexler had been removed from the premises, Defendants assembled New Zero's employees and told them that Wexler had been terminated because of something he allegedly did in the office. Id. ¶ 88. They instructed the employees that they were not permitted to talk to Wexler or his family. Id.

         Wexler alleges that Defendants defamed him by falsely informing prominent members of the acoustical, fireproofing, and door-hardware industries that Wexler's work for Defendants had been unsatisfactory. Id. ¶ 94. Wexler also alleges that Defendants informed these industry leaders that he was escorted out of the building after his firing, suggesting that he was dishonest and unworthy of continued employment. Id. Wexler contends that Defendants never expressed dissatisfaction with his work and later sent him a letter stating that he had been terminated without cause as part of a general “reduction in force.” Id. ¶ 95.

         Wexler alleges that Defendants further defamed him when they sent a marketing bulletin entitled “Zero International Product Availability Update” to Zero customers and industry members in December 2016 (the “December 2016 Bulletin”). Id. ¶ 97. Wexler asserts that the bulletin falsely claimed that Zero products developed under Wexler had “quality issues” and that the “old Zero management” had acted unethically by circumventing proper safety and quality review of products he rushed to market.[3] Id. ¶ 98. According to Wexler, Defendants derisively called these products “Engineered Specials, ” advising customers that they were so defective that Allegion was pulling them from the market pending review and redesign. Id. Wexler claims that the false statements in the bulletin impugned his ethics, honesty, and integrity. Id. ¶ 102. Moreover, Wexler asserts, Defendants' overall conduct damaged his reputation and interfered with his future business prospects. Id. ¶¶ 121-126. Since his employment with New Zero was terminated, Wexler has been stripped of his membership in various industry organizations, and has lost his ability to continue speaking and teaching engagements and to serve as a credentialed expert in the industry. Id. ¶¶ 123-124.

         By late 2016, Defendants had fired nearly all of the Zero employees in the Bronx and elsewhere in the U.S., and moved Zero's headquarters to Indiana, where Schlage is located. Id. ¶ 89. Wexler asserts that, in addition to gutting Zero's work force, Defendants physically destroyed Zero's factory machinery, which had been developed, designed, and calibrated by Zero International to make its unique high quality door/window seals and weather-stripping. Id. ¶ 90. Allegion personnel physically smashed the machines, rendering them inoperable and irreparable. Id. ¶ 91. In March 2017, Schlage notified that it would not renew its lease of the various facilities it had leased from Zero Realty, Zero Ohio, and Zero NC, including the Burgaw facility. Id. ¶¶ 104, 107. Defendants also failed to use the Distributor Plaintiffs as their exclusive distributors for Zero products in the distributors' regions. Id. ¶¶ 117-120.

         II. Procedural History

         On February 29, 2016, Wexler, the Distributor Plaintiffs, Zero Realty, and Zero Ohio brought this action against Allegion UK and Schlage in New York State Supreme Court, Bronx County, alleging age discrimination, defamation, breach of various contracts, including Wexler's employment contract and the oral distributor contracts with Zero Latina, Zero Asia, and Zero East, unjust enrichment, and conversion. Doc. 2. On March 28, 2016, Defendants removed the case to this Court on the basis of diversity jurisdiction. Id. On November 9, 2016, the Court denied Plaintiffs' motion to remand the case back to state court. Doc. 36.

         On March 9, 2017, the Court granted in part and denied in part Defendants' motion to dismiss, permitting Wexler to proceed on his defamation claim and granting him leave to replead his age discrimination claims, and granting the Distributor Plaintiffs leave to replead their breach of contract claims. See March 2017 Order. Plaintiffs filed an amended complaint on April 28, 2017, naming Zero NC and Concord as additional plaintiffs and naming Allegion plc as an additional defendant. See Am. Comp. The Amended Complaint dropped Wexler's age discrimination claim and breach of contract claim arising from his employment contract, and added various new state law claims. Id.

         Pending before the Court is Defendants' partial motion to dismiss Plaintiffs' claims for fraudulent inducement (Count One); tortious interference (Count Two); defamation based on the December 2016 bulletin (Count Four); breach of contract based on Wexler's honorary board position (Count Five); breach of the contracts with the Distributor Plaintiffs (Counts Six, Seven, and Eight); promissory estoppel based on Defendants' promise to continue using the Distributor Plaintiffs as exclusive distributors (Counts Nine, Ten, and Eleven); promissory estoppel based on Defendants' promise to lease the Burgaw facility for decades (Count Twelve); and unjust enrichment (Count Eighteen). Doc. 67. Also pending before the Court is Allegion plc's motion to dismiss for lack of personal jurisdiction. Id.

         III. Legal Standard

         A. Rule 12(b)(2) Motion to Dismiss: Lack of Personal Jurisdiction

         “A plaintiff opposing a motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction has the burden of establishing that the court has jurisdiction over the defendant.” BHC Interim Funding, LP v. Bracewell & Patterson, LLP, No. 02 Civ. 4695 (LTS) (HBP), 2003 WL 21467544, at *1 (S.D.N.Y. June 25, 2003) (citing Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999)). To meet this burden, the plaintiff must plead facts sufficient for a prima facie showing of jurisdiction. Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001). The court construes all of the plaintiff's allegations as true and resolves all doubts in its favor. Casville Invs., Ltd. v. Kates, No. 12 Civ. 6968 (RA), 2013 WL 3465816, at *3 (S.D.N.Y. July 8, 2013) (citing Porina v. Marward Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008); Martinez v. Bloomberg LP, 883 F.Supp.2d 511, 513 (S.D.N.Y. 2012)). “However, a plaintiff may not rely on conclusory statements without any supporting facts, as such allegations would lack the factual specificity necessary to confer jurisdiction.” Art Assure Ltd., LLC v. Artmentum GmbH, No. 14 Civ. 3756 (LGS), 2014 WL 5757545, at *2 (S.D.N.Y. Nov. 4, 2014) (internal quotation marks and citations omitted).

         B. Rule 12(b)(6) Motion to Dismiss: General Legal Standard

         Under Rule 12(b)(6), a complaint may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Koch, 699 F.3d at 145. However, the Court is not required to credit “mere conclusory statements” or “[t]hreadbare recitals of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). If the plaintiff has not “nudged [his] claims across the line from conceivable to plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.

         IV. Discussion

         A. Wexler's Fraudulent ...


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