Reagan Wireless Corporation v. Apto Solutions, Inc. et al

Filing 45

ORDER ON MOTION TO DISMISS COUNTERCLAIMS, Denied : 34 MOTION TO DISMISS 33 Answer to Amended Complaint, Counterclaim FOR FAILURE TO STATE A CLAIM (Motion to Dismiss Counterclaims) MOTION to Strike Attorneys' Fees Request filed by Reagan Wireless Corporation., Reagan Wireless Corporation response due 1/28/2019. Signed by Judge Beth Bloom on 1/16/2019. See attached document for full details. (cds)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 18-cv-61147-BLOOM/Valle
REAGAN WIRELESS CORPORATION,
Plaintiff,
v.
APTO SOLUTIONS, INC. and
TOM WILLIG,
Defendants.
__________________________________/
ORDER ON MOTION TO DISMISS COUNTERCLAIMS
THIS CAUSE is before the Court upon Plaintiff Reagan Wireless Corporation’s
(“Plaintiff” or “Reagan”) Motion and Supporting Memorandum for Dismissal of Counterclaims,
or, Alternatively, for Striking of Request for Attorneys’ Fees, ECF No. [34] (“Motion”), filed on
November 6, 2018. Defendant Apto Solutions, Inc. (“Defendant” or “Apto”) filed a Response,
ECF No. [39]. Despite the Court’s granting Plaintiff’s request for additional time in which to file
a reply, Plaintiff failed to timely do so. See ECF No. [44].1 The Court has carefully reviewed
the Motion and Response, the record in this case and the applicable law, and is otherwise fully
advised. For the reasons set forth below, the Court denies the Motion.
I.

BACKGROUND
As set forth in greater detail in the Court’s previous order on Apto’s motion to dismiss,

ECF No. [32], this case arises as a result of a business relationship turned sour. Apto is the
business of managing and disposing of used information technology equipment, including cell

1

The Court also granted Plaintiff’s counsel’s request to withdraw, and required that Plaintiff retain
counsel on or before January 2, 2019. See id. To date, no counsel has entered an appearance on behalf of
Plaintiff.

Case No. 18-cv-61147-BLOOM/Valle
phones. Reagan is a wholesale distributor of cell phones and related accessories. After some
negotiations, the parties entered into an agreement whereby Apto would sell Google-branded
phones exclusively to Reagan with an unconditional right to return within 45 days of receipt.
See Am. Compl., ECF No. [26] ¶¶ 6-7, 12-14. The parties memorialized their agreement in
writing. See ECF No. [26-1] at 5 (the “Purchase Agreement”). Thereafter, Reagan sent Apto
50% of the invoiced amount, see ECF No. [26-1] at 2-3 (the “Invoice”), or $1,201,292.41. ECF
No. [26] ¶ 18. After receiving over fourteen thousand cell phones from Apto, Reagan rejected
more than half of them due to screen burn-in. Id. ¶¶ 19, 22. Reagan did not make the remaining
50% payment on the Invoice, and requested a refund from Apto after returning the nonconforming cell phones. Id. ¶¶ 25-27. Apto was unable to provide a refund for the cell phones
Reagan returned until it could attempt to sell the returned cell phones and other inventory
product to generate cash flow. Id. ¶ 39. As a result, Reagan commenced this action asserting a
claim for breach of contract against Apto.2
In its Answer, Apto asserts counterclaims against Reagan for breach of contract and
breach of the covenant of good faith and fair dealing. See Answer, ECF No. [33]. In pertinent
part, Apto alleges that at the beginning of the parties’ relationship, Defendant Willig forwarded a
document explaining the criteria describing the different grades assigned by Apto to its products.
ECF No. [33] ¶ 11. At the end of 2017, the parties discussed a possible business relationship in
which Apto would supply Reagan exclusively with its entire stock of Google-branded Pixel and
Nexus phones, which included all grades. Id. ¶ 15. According to Apto, at no time were device
screen conditions discussed, nor were there any representations made about the conditions of the
phone screens other than as stated in the grading criteria.
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Id. ¶ 16.

The negotiations

Reagan also asserted a claim for fraud, which the Court previously dismissed. See ECF No.
[32].
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Case No. 18-cv-61147-BLOOM/Valle
contemplated that Reagan would take all grades of Apto’s stock. Id. ¶ 18. Based upon Reagan’s
representations of expertise and market power, Apto agreed to guarantee Reagan exclusive
purchasing and resale rights to Apto’s Google-branded phone for the duration of the parties’
relationship, and the right to return any product for a full refund. Id. ¶¶ 21-22. The terms of the
parties’ agreement was memorialized in writing in the Purchasing Agreement. Id. ¶ 20. In
exchange, Reagan wired Apto 50% of the invoiced amount, with the balance of the money due
three weeks later. Id. ¶ 24.
According to Apto, the phones shipped were tested and conformed to its grading criteria.
Id. ¶ 25. Nevertheless, after less than a week, Reagan began complaining about the quality of
certain phones with screen issues and demanded that Apto ship spare parts for repairs, which
Apto agreed to do. Id. ¶¶ 27-28. In subsequent communications, it became clear that Reagan
never had any intention of selling all grades of phones. Id. ¶ 32. Reagan did not pay any of the
remaining invoiced amounts. Id. ¶ 33. Moreover, Reagan returned a large number of lower
graded phones and demanded that Apto reduce the agreed-upon prices. Id. ¶¶ 35-37. Apto
agreed and extended the unconditional return window, during which time Reagan was able to
dispose of all of the higher grade phones in its possession, but was not able to sell approximately
2,400 lower graded phones in the inventory. Id. ¶¶ 39-41. Ultimately, Apto accepted return of
the remaining phones, which Reagan had had in its possession for over three months. Id. ¶¶ 44,
47. Apto was able to resell the returned phones; however, at a loss compared to the original
contract price negotiated with Reagan. Id. ¶¶ 52-54.
Reagan seeks dismissal of Apto’s counterclaims for failure to state a claim under Rule
12(b)(6), and in the alternative, to strike Apto’s request for attorneys’ fees under Rule 12(f).

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II.

LEGAL STANDARD
A pleading in a civil action must contain “a short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Although a complaint
“does not need detailed factual allegations,” it must provide “more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (explaining
that Rule 8(a)(2)’s pleading standard “demands more than an unadorned, the-defendantunlawfully-harmed-me accusation”). Nor can a complaint rest on “‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557
(alteration in original)). “To survive a motion to dismiss a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id.
(quoting Twombly, 550 U.S. at 570). “A claim has 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.” Iqbal, 556 U.S. at 678.
When reviewing a motion under Rule 12(b)(6), a court, as a general rule, must accept the
plaintiff’s allegations as true and evaluate all plausible inferences derived from those facts in
favor of the plaintiff. Chaparro v. Carnival Corp., 693 F.3d 1333, 1337 (11th Cir. 2012);
Miccosukee Tribe of Indians of Fla. v. S. Everglades Restoration Alliance, 304 F.3d 1076, 1084
(11th Cir. 2002); AXA Equitable Life Ins. Co. v. Infinity Fin. Grp., LLC, 608 F. Supp. 2d 1349,
1353 (S.D. Fla. 2009). However, this tenet does not apply to legal conclusions, and courts “are
not bound to accept as true a legal conclusion couched as a factual allegation.” Twombly, 550
U.S. at 555; see Iqbal, 556 U.S. at 678; Thaeter v. Palm Beach Cty. Sheriff’s Office, 449 F.3d
1342, 1352 (11th Cir. 2006). Moreover, “courts may infer from the factual allegations in the

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complaint ‘obvious alternative explanations,’ which suggest lawful conduct rather than the
unlawful conduct the plaintiff would ask the court to infer.” Am. Dental Ass’n v. Cigna Corp.,
605 F.3d 1283, 1290 (11th Cir. 2010) (quoting Iqbal, 556 U.S. at 682).
Where the allegations “possess enough heft” to suggest a plausible entitlement to relief,
the case may proceed. See Twombly, 550 U.S. at 557. “[T]he standard ‘simply calls for enough
fact to raise a reasonable expectation that discovery will reveal evidence’ of the required
element.” Rivell v. Private Health Care Sys., Inc., 520 F.3d 1308, 1309 (11th Cir. 2008)
(citation omitted). “And, of course, a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote
and unlikely.’” Twombly, 550 U.S. at 556 (citation omitted).
A court considering a Rule 12(b) motion is generally limited to the facts contained in the
complaint and attached exhibits, including documents referred to in the complaint that are central
to the claim. See Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009);
Maxcess, Inc. v. Lucent Techs., Inc., 433 F.3d 1337, 1340 (11th Cir. 2005) (“[A] document
outside the four corners of the complaint may still be considered if it is central to the plaintiff’s
claims and is undisputed in terms of authenticity.”) (citing Horsley v. Feldt, 304 F.3d 1125, 1135
(11th Cir. 2002)).
III.

ANALYSIS
Reagan first argues that Apto’s counterclaims fail because Apto has no affirmative right

of recovery, since Reagan’s recovery rights arise from the same documents and transactions
underlying Apto’s counterclaims, and Reagan’s claims exceed the amounts claimed by Apto.
Thus, Reagan argues that it has a right of recoupment that defeats Apto’s right to recovery. The
Court disagrees. “Recoupment is a common law, equitable doctrine that permits a defendant to

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assert a defensive claim aimed at reducing the amount of damages recoverable by a plaintiff.”
United States v. Keystone Sanitation Co., 867 F. Supp. 275, 282 (M.D. Pa. 1994) (citing Berger
v. City of N. Miami, 820 F. Supp. 989, 991 (E.D. Va. 1993)). “Typically, recoupment is invoked
in situations involving ‘a credit and debt arising out of a transaction for the same goods or
services.’” Richmond Manor Apts., Inc. v. Certain Underwriters at Lloyd’s London, Case No.
09-60796-CIV-ALTONAGA/Brown, 2011 WL 13175618, at *8 (S.D. Fla. Feb. 28, 2011)
(quoting In re Malinowski, 156 F.3d 131, 133 (2d Cir. 1998)). However, Reagan also concedes
that recoupment is an affirmative defense, but argues that if a claim is facially subject to an
affirmative defense, the claim may be dismissed. Even so, indulging Reagan’s argument for
dismissal on this ground would require the Court to discount the factual allegations in Apto’s
counterclaims, which is not the standard applied upon a 12(b)(6) motion. Thus, the Court will
not dismiss Apto’s counterclaims upon this basis.
Reagan next argues that Apto fails to state a claim for breach of contract because Reagan
did not owe Apto a duty to use its best efforts to sell the phones, where the Purchase Agreement
granted Reagan an unconditional right to return the phones. Moreover, even if such a duty could
be implied, Apto has not alleged actions or omissions constituting a breach of that duty or any
damages sustained as a result of the breach. Upon review, Reagan’s arguments are not welltaken.
First, the parties agree that as a transaction in goods, the relationship between them is
governed by Florida’s Uniform Commercial Code, Florida Statutes §§ 672.101 et seq. (“UCC”).
Pursuant to the UCC, “[a] lawful agreement by either the seller or the buyer for exclusive dealing
in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use
best efforts to supply the goods and by the buyer to use best efforts to promote their sale.” Fla.

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Stat. § 672.306(2). Reagan contends that the Purchase Agreement, which granted Reagan an
unconditional right of return, removed its duty as a buyer to use its best efforts to promote the
sale of the cell phones. It argues that the unconditional right of return conflicts with such an
implied duty. However, Reagan cites no authority to support its argument. “On a Rule 12(b)(6)
motion to dismiss, ‘[t]he moving party bears the burden to show that the complaint should be
dismissed.’” Sprint Sols., Inc. v. Fils-Amie, 44 F. Supp. 3d 1224, 1228 (S.D. Fla. 2014) (quoting
Mendez-Arriola v. White Wilson Med. Ctr. PA, No. 09-495, 2010 WL 3385356, at *3 (N.D. Fla.
Aug. 25, 2010)). “The movant must support its arguments for dismissal with citations to legal
authority.” Id. (citing S.D. Fla. L.R. 7.1(a)(1)). “Where a [counter-]defendant seeking dismissal
. . . under Rule 12(b)(6) does not provide legal authority in support of its arguments, it has failed
to satisfy its burden of establishing its entitlement to dismissal.” Id. (citing Super. Energy Servs.,
LLC v. Boconco, Inc., No. 09-0321, 2010 WL 1267173, at *5-6 (S.D. Ala. Mar. 26, 2010) and
United States v. Vernon, 108 F.R.D. 741, 742 (S.D. Fla. 1986)).
In addition, Apto has sufficiently pled facts demonstrating how Reagan allegedly
breached its duty and the damages it has sustained as a result of that breach. In pertinent part,
Apto alleges that within days of receiving the phones, Reagan confirmed its intention of only
keeping products it considered to be “end user friendly or devices that fit” its markets, kept the
highest graded phones, and returned the majority of the phones received from Apto claiming that
it could not sell them, and which Apto was able to sell elsewhere at a loss. ECF No. [33] ¶¶ 32,
51-52, 63. Apto’s damages arise from Reagan’s refusal to pay the second half of the invoice
amount, and the resulting sales (at a loss) of the units that Reagan ultimately returned. Given the
sufficiency of the allegations, the Court will not dismiss Apto’s counterclaim against Reagan for
breach of contract.

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Finally, Reagan argues that Apto fails to state a claim for breach of the covenant of good
faith and fair dealing. It argues that such a claim is not an independent cause of action, Apto does
not identify an express term of the Purchase Agreement that Reagan breached, and implying
such a duty contravenes the unconditional right of return in the Purchase Agreement. Once
again, Reagan’s arguments for dismissal are without merit.
Under Florida law, every contract contains an implied covenant of good faith and fair
dealing that protects “the reasonable expectations of the contracting parties in light of their
express agreement.” QBE Ins. Corp. v. Chalfonte Condo. Apartment Ass’n, Inc., 94 So. 3d 541,
548 (Fla. 2012) (quoting Barnes v. Burger King Corp., 932 F. Supp. 1420, 1438 (S.D. Fla.
1996)); Centurion Air Cargo, Inc. v. United Parcel Serv. Co., 420 F.3d 1146, 1151 (11th Cir.
2005). The covenant is implied as a gap-filling default rule where the terms of the contract vest
a party with substantial discretion, requiring that party to act in a commercially reasonable
manner and limiting its ability to act capriciously to contravene the reasonable expectations of
the contract counterparty. See Brown v. Capital One Bank (USA), N.A., Case No. 15-60590CIV-BLOOM/Valle, 2015 WL 5584697, at *3-4 (Sept. 22, 2015) (citing Karp v. Bank of Am.,
N.A., No. 8:12-cv-1700-T-17MAP, 2013 WL 1121256, at *3 (M.D. Fla. Mar. 18, 2013) and
Martorella v. Deutsche Bank Nat. Trust Co., 931 F. Supp. 2d 1218, 1225 (S.D. Fla. 2013)).
Contracts governed by the UCC are subject to the same duty of good faith. See Fla. Stat.
§ 671.203 (“Every contract or duty within this code imposes an obligation of good faith in its
performance and enforcement.”).
“A breach of the implied covenant of good faith and fair dealing is not an independent
cause of action, but attaches to the performance of a specific contractual obligation.” Centurion,
420 F.3d at 1151. The implied duty of good faith must therefore “relate to the performance of an

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express term of the contract . . . [and] cannot be used to vary the terms of an express contract.”
Burger King Corp. v. Weaver, 169 F. 3d 1310, 1316 (11th Cir. 1999) (quoting Hosp. Corp. of
Am. v. Fla. Med. Ctr., Inc., 710 So. 2d 573, 575 (Fla. 4th DCA 1998) and City of Riviera Beach
v. John’s Towing, 691 So. 2d 519, 521 (Fla. 4th DCA 1997)). Further, the covenant cannot “add
an obligation to the contract which was not negotiated by the parties and not in the contract.”
Hosp. Corp. of Am., 710 So. 2d at 575. As such, “there are two limitations on such claims: (1)
where application of the covenant would contravene the express terms of the agreement; and (2)
where there is no accompanying action for breach of an express term of the agreement.” QBE,
94 So. 3d at 548 (citing Ins. Concepts & Design, Inc. v. Healthplan Servs., Inc., 785 So. 2d 1232,
1234 (Fla. 4th DCA 2001)).
In its counterclaims, Apto sufficiently alleges that Reagan breached the Purchase
Agreement by failing to pay the second half of the invoice amount, and breached the implied
duty under the UCC to use its best efforts to sell the phones Apto supplied exclusively to
Reagan. In addition, under the UCC, “[t]he obligations of good faith, diligence, reasonableness,
and care prescribed by this code may not be disclaimed by agreement . . . ,” and therefore,
Reagan’s unconditional right of return in the Purchase Agreement does not conflict with its
alleged duty of good faith. Fla. Stat. § 671.102(2)(b). Thus, Reagan was required to exercise its
unconditional return rights in good faith, which Apto sufficiently alleges Reagan did not.
Therefore, the Court will not dismiss Apto’s counterclaim based on Reagan’s alleged breach of
the duty of good faith and fair dealing.
Reagan also requests, in the alternative, that the Court strike Apto’s request for attorneys’
fees contained in its prayer for relief, arguing that there is no statutory or contractual basis for an
award of prevailing party attorneys’ fees in this matter. In response, Apto points out that it seeks

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only “appropriate” attorneys’ fees, and that while there may be no entitlement to prevailing party
attorneys’ fees in the instant case, Apto may be entitled to fees for discovery violations or other
bad-faith conduct in litigation. Thus, Apto contends that it would be premature to strike its
request.
Rule 12(f) of the Federal Rules of Civil Procedure permits a court to “strike from a
pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous
matter,” and grants a court broad discretion in making this determination. Fed. R. Civ. P. 12(f);
Morrison v. Exec. Aircraft Refinishing, Inc., 434 F. Supp. 2d 1314, 1318-19 (S.D. Fla. 2005)
(citing Williams v. Eckerd Family Youth Alt., 908 F. Supp. 908, 910 (M.D. Fla. 1995)). Under
Rule 12(f), “[a] motion to strike will usually be denied unless the allegations have no possible
relation to the controversy and may cause prejudice to one of the parties.” United States
Commodity Futures Trading Comm’n v. Mintco, LLC, No. 15-CV-61960, 2016 WL 3944101, at
*2 (S.D. Fla. May 17, 2016). Thus, despite the Court’s broad discretion, a motion to strike is
considered a drastic remedy and is often disfavored. Thompson v. Kindred Nursing Ctrs. E.,
LLC, 211 F. Supp. 2d 1345, 1348 (M.D. Fla. 2002) (quoting Augustus v. Bd. of Pub. Instruction
of Escambia Cty., Fla., 306 F.2d 862, 868 (5th Cir. 1962)); Fabing v. Lakeland Reg’l Med. Ctr.,
Inc., No. 8:12-CV-2624, 2013 WL 593842, at *2 (M.D. Fla. Feb. 15, 2013) (calling Rule 12(f) a
“draconian sanction”).

Upon review, the Court will not strike the request for appropriate

attorneys’ fees at this juncture.
IV.

CONCLUSION
Accordingly, Reagan’s Motion, ECF No. [34], is DENIED. Reagan shall file its Answer

to the counterclaims, ECF No. [33], on or before January 28, 2019.

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DONE AND ORDERED in Chambers at Miami, Florida this 16th day of January, 2019.

_________________________________
BETH BLOOM
UNITED STATES DISTRICT JUDGE
Copies to:
Counsel of Record
Reagan Wireless Corporation
720 S. Powerline Rd., Suite D
Deerfield Beach, FL 33442
Attention: Daniel Kaufman, Esq.

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