Luster v. PuraCap Laboratories, LLC
Filing
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MEMORANDUM OPINION. Signed by Judge Maryellen Noreika on 12/10/2018. (dlw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
JOSEPH WILLIAM LUSTER,
Plaintiff,
V.
PURACAP LABORA TORIES, LLC,
Defendant.
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C.A. No. 18-503 (MN)
MEMORANDUM OPINION
Brian C. Ralston, Jacob R. Kirkham, POTTER ANDERSON & CORROON LLP, Wilmington, DE attorneys for Plaintiff
David A. Dorey, Adam V. Orlacchio, BLANK ROME LLP, Wilmington, DE - attorneys for
Defendant
December 10, 2018
Wilmington, Delaware
Pending before the Court is the motion of Defendant PuraCap Laboratories, LLC
("PuraCap") to dismiss Count III of the Complaint filed by Plaintiff Joseph William Luster
("Plaintiff') arguing Plaintiff has failed to state a claim upon which relief can be granted pursuant
to Fed. R. Civ. P. 12(b)(6). (D.I. 4). For the reasons set forth below, the Court will GRANT
Defendant's motion.
I.
BACKGROUND
A.
The Consulting Agreement
The dispute in this case relates to a Consulting Agreement dated March 31, 2016
("the Agreement") entered into by Plaintiff and PuraCap. (D.I. 1, Ex. A ,r,r 1, 7). Plaintiff alleges
that, "[u]nder the terms of the Agreement, [he] was to provide ce1iain consulting services" and
"was to receive a fee for such services, as well as additional performance compensation." (Id
,r
7). Specifically, Plaintiff alleges that Schedule 2 of the Agreement requires PuraCap "to make
certain payments under the 'Journey Medical Contract' and 'Additional Government Contracts."'
(Id
,r,r 8-10).
Plaintiff further alleges that the Agreement entitles him to inspect "the relevant
books and records of [PuraCap] as may be reasonably necessary to determine and/or verify the
amount of the applicable Performance Compensation Payment due." (Id
B.
,r 14).
The Current Dispute
Plaintiff alleges that, on November 30, 2017, he "requested via letter that he, and his
external accounting firm, be provided access to the relevant books and records in order to
determine the amount of the Performance Compensation Payment due to him" and, further, that
he followed up on that request in December 2017. (D.I. 1
,r 15).
He alleges that despite his
requests, "[t]o date, although PuraCap has provided limited books and records in the form of
summary spreadsheets to Luster, it has not provided all books and records 'reasonably necessary
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to determine and/or verify the amount of the applicable Performance Compensation Payment
due .... '" (Id. ,I 16). Plaintiff does not specify the additional materials that he seeks. Plaintiff
also alleges that PuraCap has failed to pay him the Performance Compensation owed and has
improperly restricted his access to PuraCap's facilities due to a dispute between PuraCap and two
of Plaintiffs companies. (Id. ,I,I 13, 17).
On March 13, 2018, Plaintiff sued Defendant in the Delaware Court of Chancery, alleging
the following three claims: (1) specific performance compelling PuraCap to provide Plaintiff with
books and records related to the calculation of his Performance Compensation; (2) breach of
contract for failure to pay Plaintiff the Performance Compensation purportedly owed; and (3)
breach of the implied covenant of good faith and fair dealing based on PuraCap: (a) improperly
including certain of PuraCap's expenses in its calculation of "Net Profits," adversely impacting
Plaintiffs Performance Compensation and (b) restricting Plaintiffs access to PuraCap's facilities.
(Id. ,I,I 18-42).
On April 4, 2018, PuraCap removed the action to this Court. On April 11, 2018, PuraCap
filed the instant motion to dismiss. (D.I. 4). On April 25, 2018, Plaintiff responded to the motion.
(D.I. 8). The Court has considered the Complaint, with attachments, and the parties briefing in
connection with the motion.
II.
LEGAL STANDARDS
A.
Motion to Dismiss
When reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court conducts a twopart analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the Court
separates the factual and legal elements of a claim, accepting "all of the complaint's well-pleaded
facts as true, but [disregarding] any legal conclusions." Id. at 210-11.
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Second, the Court
determines "whether the facts alleged in the complaint are sufficient to show ... a 'plausible claim
for relief.'" Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). "The issue is not
whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to
support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997)
(quoting Scheuer v. Rhodes, 416 U.S. 232,236 (1974)). The Court may grant a motion to dismiss
only if, after "accepting all well pleaded allegations in the complaint as true, and viewing them in
the light most favorable to plaintiff, [the] plaintiff is not entitled to relief." Id.
To survive a motion to dismiss, a complaint cannot rely on labels, conclusions, "and a
formulaic recitation of the elements of a cause of action," Bell Atlantic Corp. v. Twombly,
550 U.S. 644, 555 (2007), but instead "must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face." Zuber v. Boscov's, 871 F.3d 255, 258
(3d Cir. 2017) (citing Santiago v. Warminster Twp., 629 F.3d 121, 128 (3d Cir. 2010)). A claim
is facially plausible where "plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at
678. Further, "[t]he complaint must state enough facts to raise a reasonable expectation that
discovery will reveal evidence of [each] necessary element" of the plaintiffs claim. Wilkerson v.
New Media Tech. Charter Sch. Inc., 522 F.3d 315,321 (3d Cir. 2008) (internal quotations omitted).
Lastly, "[i]n deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits
attached to the complaint, matters of public record, as well as undisputed authentic documents if
the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223,
230 (3d Cir. 2010) (emphasis added).
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B.
Implied Covenant of Good Faith and Fair Dealing
In Delaware, the implied covenant of good faith and fair dealing requires "a party in a
contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of
preventing the other party to the contract from receiving the fruits of the bargain." Dunlap v. State
Farm Fire and Cas. Co., 878 A.2d 434, 442 (Del. 2005) (internal quotation marks omitted). To
advance a claim for breach of the implied covenant:
[A] plaintiff must allege [1] a specific implied contractual obligation, [2] a breach
of that obligation by the defendant, and [3] resulting damage to the plaintiff. The
implied covenant, however, only applies where a contract lacks specific language
governing an issue and the obligation the court is asked to imply advances, and
does not contradict, the purposes reflected in the express language of the contract.
Where the contract specifically addresses the issue complained of, [e]xisting
contract terms control, [and] implied good faith cannot be used to circumvent the
parties' bargain, or to create a free-floating duty ... unattached to the underlying
legal document.
Haneyv. BlackhawkNetworkHoldings, Inc., C.A. No. 10851-VCN, 2016 WL 769595, at *8 (Del.
Ch. Feb. 26, 2016) (internal quotation marks omitted); see also Dunlap, 878 A.2d at 441 ("[O]ne
generally cannot base a claim for breach of the implied covenant on conduct authorized by the
terms of the agreement.").
III.
DISCUSSION
In his Complaint, Plaintiff alleges that PuraCap breached its duty of good faith and fair
dealing by: (1) "improperly including as costs for the computation of 'Net Profits,' expenses born
by PuraCap that should not be included in the computations for [Plaintiffs] performance
compensation"; and (2) sending him a letter on March 7, 2018 ("the March 2018 Letter") that
unreasonably restricted Plaintiffs access to PuraCap's facilities. (D.I. 1, Ex. A ,r,r 37-39). For the
reasons discussed below, neither of these allegations state a claim on which relief may be granted.
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1.
The Calculation of "Net Profits"
Plaintiff contends that PuraCap breached the duty of good faith and fair dealing by
including unidentified expenses as PuraCap costs when calculating Net Profits, and that this
adversely affected the computation of Plaintiffs Performance Compensation. (Id.
,r,r 37-38).
"Net
Profits" is a defined term in Schedule 2 of the Agreement:
"Net Profits" means the net revenues actually received by Company or its affiliates
under the relevant contract for the relevant period minus the sum of the following
additional costs applicable to such contract (whether incurred by Company or its
affiliates): (i) raw material, (ii) direct labor, (iii) indirect labor (allocated by unit
volume), (iv) indirect overhead (allocated by unit volume), (v) freight, (vi)
distribution, and (vii) selling, general, and administrative expenses (SG&A)
(allocated by unit volume) Net revenues shall take into account chargebacks,
rebates, returns, and other reductions if they should apply consistent with the
calculation of net revenues by the Sellers for the fiscal year ending December 31,
2015. For the purpose of this calculation Net Profits shall not be reduced by product
development costs, research and development costs, technical transfer costs, or
corporate allocations. For the CDC Contract only CAPEX specific to the project
will be charged to the calculation as an amortized expense (amortization schedule
equals 7 years). An example of the method by which Net Profits is to be calculated
appears as Exhibit 1.11 to this Schedule 2.
(D.I. 1, Ex. A, Ex. 1 at Schedule 2 ,r 1.11).
An implied covenant of good faith and fair dealing applies only where a contract lacks
specific language governing an issue. See Haney, 2016 WL 769595, at *8 ("Where the contract
specifically addresses the issue complained of, [e]xisting contract terms control, [and] implied
good faith cannot be used to circumvent the parties' bargain .... " (internal quotation marks
omitted)).
Here, however, the calculation of Net Profits is specifically addressed by the
Agreement. Plaintiff acknowledges that definition but asserts that the definition "does not address
the arbitrary inclusion of costs and expenses by PuraCap that are not explicitly covered in the
definition of 'Net Profits."' (D.I. 8 at 8). The Court disagrees. The definition of "Net Profits"
identifies the costs and expenses to be included. If a cost or expenses is included in the list, it is
proper. If it is not, then it cannot be included in the calculation of"Net Profits."
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Plaintiff has not identified the purported costs or expenses that he contends PuraCap
improperly included in its calculation. Nor has he alleged in his Complaint that they are costs not
included in the definition above. No matter what the complained of costs or expenses may be,
however, the alleged failure to properly calculate and pay "Net Profits" is governed by an express
term in the Agreement and, therefore, is not the basis for an implied breach of duty claim. Thus,
Plaintiffs claim for breach of the implied covenant of good faith and fair dealing based on
PuraCap's calculation of Net Profits must be dismissed.
2.
Access to PuraCap's Facilities
Plaintiff alleges that PuraCap also breached its implied duty of good faith when PuraCap
sent its March 2018 letter, which "unreasonably restricted [his] access to PuraCap's facilities" and
prevented him "from meeting his obligations under the Agreement." (D.I. 1, Ex. A ,r,r 39-40). The
letter states that, given Plaintiffs decision to sue PuraCap and his "refusal to pursue a more
amicable course," PuraCap requested:
that [Plaintiff] not enter any PuraCap facility, including the Kentucky facility,
except in the event that he has made an appointment in advance with a particular
PuraCap employee in connection with services he is required to provide under his
Consulting Agreement with PuraCap, and, then, PuraCap asks that [Plaintiff] only
remain in the facility for so long as necessary to attend such meeting.
(D.I. 1, Ex. A, Ex. 5 at 1-2). 1 The letter by its terms does not restrict Plaintiffs ability to perform
services under the Agreement. To the contrary, it permits Plaintiff access if "he has made an
appointment in advance." (Id.).
Moreover, Plaintiff has not identified any provision of the
Agreement - express or implied - that affords him unfettered access to PuraCap's facilities at any
Plaintiff attached the March 2018 Letter as an Exhibit to his Complaint, and thus it may be
considered in connection with the motion to dismiss. See Mayer v. Belichick, 605 F.3d
223, 230 (3d Cir. 2010) ("In deciding a Rule 12(b)(6) motion, a court must consider only
the complaint, exhibits attached to the complaint, matters of public record, as well as
undisputedly authentic documents if the complainant's claims are based upon these
documents.").
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time he pleases, or that would otherwise plausibly support the claim that PuraCap acted in bad
faith by asking him to notify PuraCap before entering its premises.
Moreover, Plaintiff has not alleged any instance in which he sought, and was denied, access
to PuraCap's facility to perform any function under the Agreement, nor has he identified any
contractual obligation that would be hindered by having to make an appointment to visit a PuraCap
facility. Accordingly, Plaintiff has failed to state a claim for breach of the implied covenant of
good faith and fair dealing based on PuraCap's request for advance notice of Plaintiff entering its
premises, and this claim must also be dismissed.
IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant's motion to dismiss Count III of
the Complaint for failure to state a claim (D.I. 4) without prejudice. An appropriate order will
follow.
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