Raymat Materials, Inc. v. A&C Catalysts, Inc.

Filing 39

ORDER DENYING THIRD-PARTY DEFENDANT'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT by Hon. William Alsup denying 33 Motion to Dismiss.(whalc4, COURT STAFF) (Filed on 10/31/2013)

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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

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RAYMAT MATERIALS, INC., a
California corporation,
Plaintiff,

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No. C 13-00567 WHA
v.

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A&C CATALYSTS, INC., a New Jersey
corporation,

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Defendant.
/

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A&C CATALYSTS, INC., a New Jersey
corporation,

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ORDER DENYING THIRDPARTY DEFENDANT’S
MOTION TO DISMISS OR,
IN THE ALTERNATIVE,
FOR SUMMARY JUDGMENT

Third-Party Plaintiff,
v.
PROTAMEEN CHEMICALS, INC., a New
Jersey corporation,
Third-Party Defendant.
/

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INTRODUCTION

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In this action for intentional interference with contractual relations and unfair
competition, third-party defendant moves to dismiss or, in the alternative, for summary
judgment. As defendant has properly pled a claim for intentional interference with contractual
relations and unfair competition, and because material issues of fact remain, third-party
defendant’s motion is DENIED.

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STATEMENT
Plaintiff Raymat Materials, Inc. filed a breach of contract action against A&C Catalysts,

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Inc. in February 2013 (Dkt. No. 1). A&C then filed this third-party complaint against Protameen

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Chemicals, Inc. on July 22 alleging intentional interference with contractual relations and unfair

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competition (Dkt. No. 26).

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Plaintiff Raymat is a chemical manufacturer and supplier. Defendant A&C is a

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manufacturer and supplier of resins and curing agents. In 2008, A&C approached Raymat to

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manufacture and produce N-Lauroyl-Llysine, a chemical powder derived from the amino acid

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Llysine (“lysine”). Thereafter, Raymat produced lysine for A&C at its manufacturing facility

United States District Court
For the Northern District of California

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located in China (Third-Party Compl. ¶ 48–52).

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In March 2009, A&C received its first-ever shipment of lysine produced by Raymat.

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Multiple orders were subsequently placed and in November 2009, A&C and Raymat entered

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into a confidential disclosure agreement, binding the parties from disclosing or improperly using

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confidential information (id. at ¶ 53).

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At the time, the lysine business was growing and third-party defendant Protameen was

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one of A&C’s largest lysine customers. In July 2010, Protameen informed A&C that it no

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longer wished to purchase lysine. According to the complaint, A&C later discovered that

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Raymat, using A&C’s confidential business and marketing information, approached Protameen

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to sell lysine directly to Protameen, in violation of its contractual relationship. In September

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2010, Raymat delivered its first order of lysine to Protameen, however, it was deemed defective

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and unusable by Protameen. As a consequence, Protameen’s customers rejected the shipments

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and refrained from making future purchases, thus damaging the overall market for lysine (id. at ¶

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54–57).

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In January 2011, Raymat approached A&C about repairing their business relationship

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and reestablishing the lysine market. In April 2011, Raymat and A&C entered into an Exclusive

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Supply Agreement (“agreement”), making A&C Raymat’s exclusive distributor of lysine in the

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United States and other territories (id. at Exh. A). Section 8.6 of the agreement contained a

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non-circumvention clause that precluded Raymat from seeking or consummating any transaction
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for lysine in the United States without the written consent of A&C. In addition, the agreement

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contained an annual volume commitment of lysine that A&C had to purchase from Raymat.

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Upon consummation of the agreement, A&C resumed purchasing lysine from Raymat (ibid.).

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On December 5, 2012, while the agreement was still in effect, Raymat officers personally

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met with Protameen personnel to discuss once again selling lysine directly to Protameen and

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circumventing A&C. The pleading alleges that Protameen subsequently cancelled their January

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and February purchase orders with A&C as a result of their meeting with Raymat

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(id. at ¶ 59–60).
On December 31, Raymat sent notice to A&C that it had failed to meet the annual

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United States District Court
For the Northern District of California

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purchase requirement of lysine laid out in the agreement. With Protameen no longer purchasing

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lysine from A&C, it became more difficult for A&C to meet the minimum purchase requirement.

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The notice stated that A&C had 60 days to purchase the outstanding quantity of lysine. A&C

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alleges that as a direct result of Protameen’s interference with A&C and Raymat’s contractual

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obligations, A&C could not cure the agreement by purchasing the quantities of lysine demanded

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by Raymat (id. at ¶ 61–62).

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A&C denies that it failed to meet the minimum purchase requirement and claims that

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Raymat breached the agreement through circumvention. On January 31, 2013, A&C sent

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Protameen a cease-and-desist letter demanding it refrain from contacting and consummating any

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transactions with Raymat for lysine.

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According to the complaint, Raymat did not send further communications to A&C

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following its notice to cure, and did not provide A&C with a notice of termination of the

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agreement. Instead, within the 60-day cure period, Raymat initiated the present lawsuit

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(id. at ¶ 63–64).

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On July 22, A&C filed its third-party complaint against Protameen for intentional

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interference with contractual relations and unfair competition (Dkt. No. 26). On October 1,

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Protameen filed this motion to dismiss or, in the alternative, a motion for summary judgment

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(Dkt. No. 33). A&C’s response was due September 27, but was untimely. For good cause

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shown, the response was received and accepted on October 1 (Dkt. No. 36). Protameen filed its

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reply on October 8 (Dkt. No. 38). A hearing was then held.

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ANALYSIS

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INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS.

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To survive a motion to dismiss, a complaint must contain sufficient factual matter,

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accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal,

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556 U.S. 662, 663 (2009).

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California courts have long held that a stranger to a contract may be liable in tort for
intentionally interfering with the performance of the contract. See Imperial Ice v. Rossier,

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For the Northern District of California

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18 Cal.2d 33, 39 (1941). The elements which a plaintiff must plead to state a claim for

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intentional interference with contractual relations are: (1) a valid contract between plaintiff and

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a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts

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designed to induce a breach or disruption of the contractual relationship; (4) actual breach or

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disruption of the contractual relationship; and (5) resulting damage. See Pacific Gas & Electric

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Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990). Even where a contract has an express

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termination provision, and the provision is exercised, the parties to the contract are still protected

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against the unjustified interference by third parties. Id. at 1128. Furthermore, the California

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Supreme Court has recognized that a plaintiff need not allege an actual or inevitable breach of

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the contract in order to state a claim for disruption of contractual relations; mere interference

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with the plaintiff’s performance may give rise to a claim for interference with contractual

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relations if plaintiff’s performance is made more costly or burdensome. Id. at 1129. Unlike the

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tort of inducing breach of contract, which requires proof of a breach, the tort of interference of

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contractual relations only requires proof of interference. See Shamblin v. Berge, 166 Cal. App.

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3d 118, 122–23 (1985).

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Protameen’s motion to dismiss focuses on the third element of the intentional

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interference claim: whether Protameen acted intentionally to induce a breach or disruption of the

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contractual relationship (Protameen Br. 7). Protameen states that “the only facts that A&C has

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alleged on this point are that Raymat solicited [Protameen] to buy [lysine] and that [Protameen]
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had a meeting with Raymat in December 2012” (ibid.).* According to Protameen, the complaint

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fails to allege that Protameen did anything affirmative that was “designed to induce a breach or

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disruption of the contractual relationship” (ibid.). Protameen argues that it cannot be held liable

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for intentional interference with a contractual relations when it was Raymat that solicited

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Protameen to purchase lysine, not the other way around (id. at 8).

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United States District Court
For the Northern District of California

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The third-party complaint states:
. . . Raymat officers personally met with Protameen personnel on
or about December 5, 2012 to . . . sell Lysine at more favorable
terms. Protameen was fully knowledgeable of the Agreement
between A&C and Raymat. Soon thereafter, Protameen cancelled
their January and February purchase orders with A&C.
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. . . Protameen had willingly engaged Raymat despite its
knowledge of the illegality of that engagement. Therefore, A&C
had lost Protameen as a customer. Protameen was the largest
customer in the Lysine market, a fact that was known to both
Raymat and Protameen. Therefore, as a result of Raymat’s breach
of the Agreement’s non-circumvention clause and Protameen’s
interference with the parties’ contractual obligations, A&C could
not have possibly ‘cured’ by purchasing such large quantities as
demanded by Raymat.
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A&C and Raymat have a valid existing contract for the exclusive
sale of Lysine in the United States. Protameen at all relevant times
knew of the existence of this contract. Protameen intentional[ly]
and tortiously interfered with the Agreement by consenting to
meetings with Raymat and engaging in the negotiations for the
purchase of Lysine from Raymat, even knowing that the
Agreement designated A&C as the exclusive supplier of Lysine.
Protameen, not being a party to the Agreement, and without
justification or excuse, intentionally and tortiously interfered with
A&C’s ability to do business under the Agreement. Protameen’s
conduct prevented A&C’s performance under the Agreement or
made performance more expensive or difficult.

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(A&C Compl. ¶¶ 59, 62, 77). The facts alleged in the third-party complaint, which for the
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purposes of a motion to dismiss must be regarded as true, allege that Protameen intentionally
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* Protameen’s motion to dismiss confuses the names of the parties. The above quoted passage states, “A&C
has not properly pleaded the third element, i.e., ‘defendant's intentional acts designed to induce a breach or disruption of
the contractual relationship.’ Other than formulaic and conclusory statements, the only facts that A&C has alleged on
this point are that Raymat solicited A&C to buy lauroyl lysine and that A&C had a meeting with Raymat in December
2012” (Protameen Br. 7).
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interfered with a contractual relationship, and that such interference resulted in substantial

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damage to A&C. The complaint alleges that Protameen, with full knowledge of the

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non-circumvention agreement, engaged in negotiations intended to interfere with the contract that

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existed between Raymat and A&C. Furthermore, it alleges that Protameen cancelled its January

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and February purchase orders of lysine in order to make it more difficult for A&C to perform

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under its agreement with Raymat, thereby allowing Protameen to buy from Raymat directly.

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Accordingly, A&C has met its pleading burden under Iqbal.

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As a corollary to this argument, Protameen asserts that A&C cannot make out a claim for

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inducement because it was Raymat that called the meeting with Protameen and not the other way

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For the Northern District of California

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around. It is beyond the pale to argue that a non-organizing attendee at a meeting cannot be

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guilty of intentional interference with contractual relations. To follow such logic would mean

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that nothing Protameen’s officials said, or agreed to, at the meeting with Raymat was of any

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consequence. While Protameen fails to cite any authority for its proposition, the only authority

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on this point is contrary.

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For example, where plaintiffs real estate brokers alleged that home owner met with a

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prospective buyer and conspired to deprive plaintiffs of their commission under the contract,

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the state court of appeal denied a motion for judgment on the pleadings. Allen v. Powell,

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248 Cal. App.2d 502, 512 (1967). The court held, “[o]f course, plaintiffs must prove that Lee

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Bros. actively induced the original owners to breach their contract with plaintiffs. If it developed

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in the proof that Lee Bros. merely paid the price requested by the original owners and that the

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breach of the commission contract resulted from the unilateral acts of the original owners, then

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Lee Bros. would not be liable for interferences.” Id. at 506. Similarly, if Protameen can show

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that it either did not interfere or that the interference resulted from the unilateral acts of Raymat,

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then it would not be liable. The motion to dismiss, however, cannot be granted merely because

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Protameen was not the organizer of the meeting. Such a theory overlooks the fact that Raymat

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and Protameen allegedly joined together with an intent to deprive A&C of the benefits of the

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agreement. It is plausible to conclude, as alleged by A&C, that Protameen actively withdrew its

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orders from A&C — in full knowledge that A&C would not be able to perform under its
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agreement with Raymat — in order to secure lysine directly from Raymat at a lower price.

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The complaint sufficiently alleges intentional interference with contractual relations.

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As for Protameen’s motion for summary judgment, this order finds that it would be

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premature to grant summary judgment on this issue when A&C only filed its third-party

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complaint in July, and discovery is ongoing until March 28, 2014 (Dkt. No. 16). The details of

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Protameen’s meeting with Raymat are not first hand knowledge to A&C, and A&C should be

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afforded due opportunity to obtain the evidence necessary to litigate this action. Should A&C fail

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to provide sufficient evidence such that a reasonable jury would have no evidentiary basis to find

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in its favor for this issue, summary judgment may be appropriate, but not at this point.

United States District Court
For the Northern District of California

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Accordingly, the motion for summary judgment of the intentional interference claim is DENIED.
UNFAIR COMPETITION CLAIM.

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Protameen also moves to dismiss or, in the alternative, for summary judgment of A&C’s

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unfair competition claim. A&C’s claim against Protameen for unfair competition is based on

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A&C’s claim against Protameen for intentional interference with contractual relations.

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Section 17200 of the California Business and Professions Code states, “unfair competition

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shall mean and include any unlawful, unfair or fraudulent business act or practice.” The Code

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was once applicable only to unlawful business practices, requiring proof of a pattern or course of

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conduct, not just a single transaction. It was amended in 1992, however, to state that it applies to

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any unlawful “act or practice,” permitting invocation of the Code based on a single instance of

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unfair conduct. See Podolsky v. First Healthcare Corp., 50 Cal. App. 4th 632, 653 (1996).

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A&C’s unfair competition claim against Protameen is based on the same conduct alleged

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under its claim for intentional interference with contractual relations. Since A&C has adequately

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pled a claim for the latter, A&C has also adequately pled a claim for unfair competition.

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Consequently, Protameen’s motion to dismiss is DENIED.

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CONCLUSION
For the reasons stated above, third-party defendant’s motion is DENIED. Third-party
defendant has FOURTEEN CALENDAR DAYS to submit an answer to the third-party complaint.

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IT IS SO ORDERED.

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Dated: October 31, 2013.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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United States District Court
For the Northern District of California

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