Active Marketing Group, Inc. v. EB Brands Holdings, Inc.

Filing 43

OPINION AND ORDER denying 39 Motion to Dismiss.. Signed by Honorable Timothy L. Brooks on October 17, 2016. (rg)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION

ACTIVE MARKETING GROUP, INC.

v.

PLAINTIFF

CASE NO. 5:16-CV-5079

EB BRANDS HOLDINGS, INC., d/b/a
EB Sport Group, EB Brands, E&B HK
Limited, EB Giftware, Sports and
Leisure Tech, and Sportline

DEFENDANT

OPINION AND ORDER

Currently before the Court are Plaintiff Active Marketing Group , lnc.'s ("Active")
Partial Motion to Dismiss Defendant's Third Amended Counterclaim (Doc. 39) and
Memorandum of Law in Support (Doc. 40), and Defendant EB Brands Holdings, lnc.'s
("EB") Response (Doc. 41) and Brief in Support (Doc. 42) . For the reasons given below,
Active's Motion is DENIED.
As recounted in a previous Order by this Court:
According to the Amended Complaint in this case, Active and EB have been
doing business with each other since 1989. Specifically, Active has been
acting as a sales representative for EB , placing EB's products for sale with
retailers like Walmart. The subject of th is lawsuit is the most recent sales
representative agreement ("the Contract") between the parties , into which
they entered on December 31 , 2014. Active alleges that on April 1, 2016 ,
EB breached the Contract by unilaterally terminating it without adequate
notice or good cause, attempting to restrict Active's ability to communicate
with Walmart, and withholding sales comm issions that were owed to Active
by EB under the Contract. Active's Amended Complaint sets forth two
counts premised on these allegations: breach of contract, and violation of
Ark. Code Ann . § 4-70-301 , et seq.
(Doc. 34 , pp. 1-2) (internal quotation marks and citations removed).

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EB answered and filed counterclaims on June 23 for accounting , replevin ,
declaratory judgment, and breach of contract. Active moved to dismiss EB's counterclaim
for breach of contract under Fed . R. Civ. P. 12(b)(6). This Court granted that Motion ,
dismissing the claim without prejudice because "[a]s currently pleaded , it is impossible for
the Court to determine the grounds upon which EB's contract claim rests." (Doc. 34)
(internal quotation marks and alterations omitted) . The Court explained that while it
appeared EB was alleging that Active breached Section 6 of the Contract, the Court was
unable to glean from the pleadings which subsection Active was alleged to have violated ,
or what conduct or failure on Active's part could have constituted such a breach :
How did Active violate Section 6 of the Contract? Did it fail to "maintain a
sales office and dedicated support team with close proximity to the
Accounts ," or perhaps fail to "report on the activity of the Accounts"? (Doc.
1-1 , p. 2). Did Active fail to hire a sales manager for EB's accounts? See
id. Or did the breach consist entirely of some other objectionable act or
omission? The Court is left only to guess . .. .
(Doc. 34, p. 6) . In other words, the Court did not believe EB's counterclaim for breach of
contract provided Active with the minimal notice required by Rule 8 of the Federal Rules
of Civil Procedure .
On August 19, EB amended its pleadings, this time asserting factual allegations in
support of its counterclaim for breach of contract with greater specificity. (Doc. 38) . Active
again moved on September 6 to dismiss EB's re-pleaded contract counterclaim under
Rule 12(b)(6) for failure to state a claim , (Doc. 39) , and requested this Court to set a
hearing for oral argument on its Motion . The Court held the requested hearing by
telephone conference earlier today and ruled from the bench . The purpose of this Opinion
and Order is to memorialize the Court's ruling in greater detail.

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The Court has already explained, in its previous Order, the legal standard
applicable to Rule 12(b)(6) motions to dismiss:
To survive a Rule 12(b)(6) motion to dismiss, a pleading must provide "a
short and plain statement of the claim showing that [the claimant] is entitled
to relief. " Fed . R. Civ. P. 8(a)(2) . The purpose of this requirement is to "give
the defendant fair notice of what the . .. claim is and the grounds upon
which it rests ." Erickson v. Pardus , 551 U.S. 89 , 93 (2007) (quoting Bell At/.
Corp. v. Twombly, 550 U.S. 544 , 555 (2007)) . The Court must accept all of
the Counterclaim 's factual allegations as true, and construe the pleadings
in the light most favorable to EB , drawing all reasonable inferences in EB's
favor. See Ashley Cnty. , Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir.
2009) .
However, the Counterclaim "must contain sufficient factual matter, accepted
as true, to 'state a claim to relief that is plausible on its face ."' Ashcroft v.
Iqbal, 556 U.S. 662 , 678 (2009) (quoting Twombly, 500 U.S. at 570) . "A
claim has facial plausibility when the [claimant] pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged ." Id. "A pleading that offers 'labels and
conclusion ' or 'a formulaic recitation of the elements of a cause of action will
not do.' Nor does a [pleading] suffice if it tenders 'naked assertion[s]' devoid
of 'further factual enhancement.'" Id. In other words , while "the pleading
standard that Rule 8 announces does not require 'detailed factual
allegations,' .. . it demands more than an unadorned , the defendantunlawfully-harmed-me accusation ." Id.
(Doc. 34, pp . 2-3) .
Although the prior version of EB's counterclaim which the Court dismissed merely
made a vague assertion that "Plaintiff breached its obligations to Defendant under the
Sales Representative Agreement by, inter a/ia , failing to perform in accordance with
Section 6 of the Sales Representative Agreement," (Doc. 28 , ,-i 79) , this time EB has
pleaded with much greater specificity, such that a reader of the counterclaim may
reasonably infer from the face of the pleading how the breach allegedly occurred. The
latest version of the counterclaim explicitly alleges that:
Plaintiff materially breached the terms of the Sales Representative
Agreement by, inter alia , failing to hire or assign a new sales manager to
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maximize business opportunities with the Accounts in violation of paragraph
6(i) of the Sales Representative Agreement. Effectively, Plaintiff brought in
less experienced personnel to replace , rather than supplement, RJ and the
services he previously provided, thereby reducing the overall level and
quality of service on Defendant's Accounts. Further, Plaintiff failed to use
its best efforts to sell and promote Defendant's products to Walmart,
Walmart.com , SAM 's Club , and/or Samsclub.com , in violation of paragraph
6(a) . . . . Furthermore , Plaintiff failed to maintain a dedicated support team
with close proximity to the Accounts.
(Doc. 38 ,

,m 84-85) .

Thus stated , and unlike before, it is now perfectly clear what the factual bases and
theories of recovery for EB's breach-of-contract counterclaim are, such that Active may
easily be seen to have "fair notice of what the .. . claim is and the grounds upon which it
rests ." Twombly, 550 U.S. at 555 . Active nevertheless argues that the counterclaim
should be dismissed with prejudice , but none of its arguments are availing under the
applicable legal standard .
Active first argues that EB is improperly attempting to read a nonexistent "Key
Man" provision into the Contract, under which a specifically-named individual would be
required "to devote a stated amount of time and effort to achieving contractual ends." See
Doc. 40, p. 6. But that is not how the Court interprets EB's latest pleadings , and at any
rate , EB explicitly disavows any such theory in its Response Brief to EB's Motion . See
Doc. 42, pp . 6-7 .
Next, Active argues that EB has not pleaded sufficient facts to support its
contention that Active failed to use "best efforts" as required under paragraph 6(a) of the
Contract. See Doc. 40 , pp . 8-10 . But as EB correctly points out in its Response Brief,
the latest version of the counterclaim provides specific examples of alleged failures to use

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"best efforts"; under New York law 1 , a "best efforts" provision requires a party to "pursue
all reasonable methods" to carry out its contractual obligation , "and whether such
obligation has been fulfilled will almost invariably . . . involve a question of fact. " Krobath
v. Brent, 215 A.D.2d 813 , 814 (N .Y. Sup. Ct. , App . Div., 3d Dept. 1995) (reversing an

award of summary judgment as to a "best efforts" contractual provision) . The Court will
not peek behind the pleadings and make such factual findings prior to the filing of any
motion for summary judgment.
Active also argues that EB has alleged insufficient facts to set out a breach of
paragraph 6(d) of the Contract, which requires that Active "maintain a sales office and
dedicated support team with close proximity to the Accounts. " (Doc. 1-1 , p. 2) . This
argument is misdirected . Active insists that EB "well knows" that "discovery will reveal
evidence that [Active] did , in fact maintain a sales office and dedicated support team in
close proximity to the Accounts. " (Doc. 40 , p. 11). If discovery reveals such evidence,
then Active will be perfectly free to move for summary judgment on those grounds. But
this is not a summary judgment motion; it is a Rule 12(b) motion, under which the Court
must confine itself to the allegations set forth in the pleadings , construed in the light most
favorable to EB. EB has alleged that Active "did not maintain a dedicated support team
with close proximity to the Accounts," and "instead relied on sales representatives who
often had to travel long distances, some from out of state , to reach the Accounts." (Doc.
38 , ~ 58). Again , this is adequate to provide Active "fair notice of what the .. . claim is
and the grounds upon which it rests." Twombly, 550 U.S. at 555 .

1

The Contract's choice-of-law provision invokes New York law.
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Finally, Active argues that EB has failed to allege "a plausible causal connection
between the essential elements of breach and damages, " and that the quantity of EB's
alleged damages-"believed to exceed $4 million" in "lost sales and attendant lost profits"
(Doc. 38 ,

,m 60 , 86)-has "strangely, remained unchanged " from estimates in earlier

pleadings , despite EB having subsequently abandoned one particular theory of
contractual breach . See Doc. 40, pp . 12-13. The Court disagrees, and sees nothing
obviously strange about the stability in EB's damages estimates from one version of its
pleadings to another. Certainly, changes in theories of recovery may result in changes
to damages calculations , but that does not mean they must. It seems perfectly plausible
to the Court that the facts pleaded by EB , accepted as true for purposes of this Motion,
would result in "lost sales and attendant lost profits ." The Court is not going to require EB
to justify its measure of estimated damages with exacting precision at the pleading stage,
"so long as facts are alleged from which damages may properly be inferred ," which is
what has been done here. See A.S. Rampell, Inc. v. Hyster Co., 144 N.E.2d 371 , 383
(N.Y. 1957).
IT IS THEREFORE ORDERED that Plaintiff Active Marketing Group , lnc.'s Partial
Motion to Dismiss Defendant's Third Amended Counterclaim (Doc. 39) is DENIED .
IT IS SO ORDERED on this

f 1-aday of Octobe ,

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016 .