NewSpin Sports LLC v. Arrow Electronics, Inc.

Filing 27

MEMORANDUM OPINION Signed by the Honorable Samuel Der-Yeghiayan on 7/26/2017: Granting Defendant's motion to dismiss. Mailed notice (mw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
NewSpin Sports LLC,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
Arrow Electronic, Inc.,
Defendant.

No. 17 C 345

MEMORANDUM OPINION
SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Defendant Arrow Electronics, Inc.’s
(Arrow) motion to dismiss. For the following reasons, Arrow’s motion to dismiss is
granted.

BACKGROUND
Plaintiff NewSpin Sports LLC (NewSpin) alleges that on August 18, 2011,
NewSpin and Arrow entered into an agreement that was titled, “Materials and
Manufacturing Management Agreement Board Assembly” (“Agreement”).
NewSpin alleges that in mid-2012, Arrow breached the Agreement by shipping some
components to NewSpin that were defective and not in conformance with the
specifications NewSpin provided to Arrow. On January 17, 2017, NewSpin filed the

1

complaint in this action alleging claims of breach of contract (Count I), breach of
implied covenant of good faith and fair dealing (Count II), breach of warranty (Count
III), fraud (Count IV), fraudulent misrepresentation (Count V), negligent
misrepresentation (Count VI), and unjust enrichment (Count VII). Arrow now moves
to dismiss all claims.

LEGAL STANDARD
In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court
must draw all reasonable inferences that favor the plaintiff, construe the allegations
of the complaint in the light most favorable to the plaintiff, and accept as true all
well-pleaded facts and allegations in the complaint. Appert v. Morgan Stanley Dean
Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012); Thompson v. Ill. Dep’t of Prof’l
Regulation, 300 F.3d 750, 753 (7th Cir. 2002). A plaintiff is required to include
allegations in the complaint that “plausibly suggest that the plaintiff has a right to
relief, raising that possibility above a ‘speculative level’” and “if they do not, the
plaintiff pleads itself out of court.” E.E.O.C. v. Concentra Health Services, Inc., 496
F.3d 773, 776 (7th Cir. 2007)(quoting in part Bell Atlantic Corp. v. Twombly, 127
S.Ct. 1955, 1965 (2007)); see also Morgan Stanley Dean Witter, Inc., 673 F.3d at
622 (stating that “[t]o survive a motion to dismiss, the complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on
its face,” and that “[a] claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
2

liable for the misconduct alleged”)(quoting Ashcroft v. Iqbal, 556 U.S. 662
(2009))(internal quotations omitted).

DISCUSSION
I. Controlling Law
The parties do not dispute that the Agreement contains a choice of law
provision stating that New York law shall govern the contract and all disputes
relating to and arising under the Agreement. This cause of action is before the court
under diversity jurisdiction, 28 U.S.C. § 1332. In general, “a federal court sitting in
federal diversity jurisdiction pursuant to 28 U.S.C. § 1332 must apply the substantive
law of the state in which it sits.” Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78–80
(1938). Also, “[s]tatutes of limitations are generally considered part of the forum
state's substantive law which federal courts must apply when sitting in diversity.”
Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 528 (7th
Cir. 1999). In addition, “when applying a state statute of limitations, a federal court
sitting in diversity must apply state law governing accrual of a cause of action for
purposes of the commencement of a relevant limitations period.” Kremers v.
Coca-Cola Co., 712 F. Supp.2d 759, 763 (S.D. Ill. 2010)(citing Hollander v. Brown,
457 F.3d 688, 694 (7th Cir. 2006)). Accordingly, although the case was filed in
Illinois, New York is the forum state. Thus, New York law will govern the
Agreement and causes of action arising from and related to the Agreement.

3

II. The Uniform Commercial Code
Arrow contends that the contract-based claims should be dismissed because
the Agreement with NewSpin is one for the sale of goods and is thus governed by the
New York Uniform Commercial Code (“UCC”) and time-barred. Under New York
law, “the statute of limitations for breach of contract actions on sale of goods is four
years.” Four Seasons Solar Products Corp. v. Southwall Technologies, Inc., 2004
WL 1202019, at *1 (2d Cir. 2004)(citing N.Y. U.C.C. § 2-725(1)). Also, “[a] cause
of action accrues when the breach occurs, regardless of the aggrieved parties lack of
knowledge of the breach. . . .” N.Y. UCC § 2-725(2). A contract for the sale of
goods is governed by the UCC. Triangle Underwriters, Inc. v. Honeywell, Inc., 604
F.2d 737, 742-43 (2d Cir. 1979). Under New York law, “‘[g]oods’ means all things
(including specially manufactured goods) which are movable at the time of
identification to the contract for sale other than the money in which the price is to be
paid, investment securities and things in action.” N.Y. UCC § 2–105(1). However,
the UCC does not apply to contracts which are predominately for the rendition of
work, labor, and services rather than for the sale of goods. See Schenecdaty Steel
Co. v. Trimpoli Gen. Constr. Co., 350 N.Y.S.2d 920, 925 (N.Y. App. Div.
1974)(stating that “the Uniform Commercial Code does not apply to a contract such
as the instant one where service predominates and the provision of goods is a mere
incident”). In determining whether a contract is one of sale or to provide services,
the court “must look to the ‘essence’ of the agreement.” North American Leisure
Corp. v. A & B Duplicators, Ltd., 468 F.2d 695, 697 (2d Cir. 1972). Also, “[i]f the
4

provision of services or rendition of other performance predominates and is not
merely incidental or collateral to the sale of goods, then the contract will not be
subject to Article Two of the UCC with its four-year limitation.” Dynamics
Corporation of America v. International Harvester Co., 429 F. Supp. 341, 346
(S.D.N.Y. 1977).
Arrow argues that the Agreement’s essence and predominate purpose is for the
sale of goods, falls under the UCC and is thus time-barred by the statute of
limitations. NewSpin argues that the contract is for services and therefore, the statute
of limitations is six years. See Triangle Underwriters, Inc., 604 F.2d at 742 (stating
that if “the contract is properly viewed as one for services, and not for a sale, then the
New York statute of limitations is six years”). NewSpin argues that the management
services are the essence of the Agreement and cannot be considered merely
incidental or collateral to the sale of goods. NewSpin contends that Section 1.1 of
the Agreement is titled, “Work,” and states: “Work shall mean for Arrow to procure
components and other supplies (Components) and to engage a sub-assembly house
for the manufacture and assembly of Products or (Boards) through a subcontractor
(the “Subcontractor”) on the Customer’s behalf pursuant to detailed, written
specifications (“Specifications”) which are provided by Customer and accepted by
Arrow, and to deliver such products to a Customer designation location.” (Compl.
Ex. 1). NewSpin contends that the work under the Agreement consists of
management, procuring components, engaging subcontractors, and delivery of
products to be manufactured and assembled. NewSpin argues that Arrow was hired
5

to utilize its expertise to supervise the manufacture of usable components and that
Arrow failed in this supervisory role. NewSpin also argues that the contract cannot
be for the sale of goods because the Agreement does not include essential sales terms
such as quantity, price, and description of items. NewSpin also contends that the
product which Defendant was to oversee manufacturing did not exist at the time of
the Agreement, was not ordered yet, and was certainly not moveable. NewSpin also
contends that “Arrow’s services were a spectacular failure, as the components that
NewSpin ultimately received were unusable.” (Mot. 1).
The Agreement and NewSpin’s own pleadings indicate that the Agreement
was for the sale of goods, as NewSpin alleges that Arrow breached “the Agreement
by providing defective and deficient components, including without limitation,
defective and deficient flux-infiltrated switches, punctured batteries, computer
processors, ball grid arrays and solder balls.” (Compl. Par. 11). Also, NewSpin
alleges that “Arrow breached the agreement by failing to provide components in
accordance with the Agreement and in accordance with NewSpin Sports’
specifications and Arrow breached the Agreement by failing to deliver components
to NewSpin Sports, including, but not limited to, the NC/NR Components.” (Compl.
Par. 28). NewSpin’s breach of contract allegations make clear that the essence of the
contract was for the components and the components’ specific parts. The court also
notes that the title of the agreement, “New Spin Golf LLC Turnkey Agreement
08-10-2011," as stated on the lower left hand corner of the Agreement, reflects that
the contract falls under the UCC because Arrow is tasked with delivering goods
6

under a turnkey agreement. The essence of the contract is focused on the products
that were intended to be utilized in NewSpin’s technology. Therefore, based on the
above, the Agreement is governed by the UCC and the UCC’s four-year statute of
limitations applies.

II. Contract-Based Claims
Arrow contends that the claims for breach of contract, breach of warranty, and
breach of implied covenant of good faith and fair dealing should be dismissed
because they are time-barred under the UCC. Under the UCC, “[a]n action for
breach of any contract for sale must be commenced within four years after the cause
of action has accrued.” UCC § 2-725(1); Triangle Underwriters, Inc., 604 F.2d at
741. NewSpin alleges that the agreement was executed on August 8, 2011, and that
the defective goods were delivered in mid-2012. The docket reflects that NewSpin
filed this cause of action on January 17, 2017. NewSpin’s allegations are thus not
within the four-year statute of limitations under the UCC. Therefore, the claims for
breach of contract, breach of warranty, and breach of implied covenant of good faith
and fair dealing are dismissed.

III. Fraud Claims
Arrow argues that NewSpin’s fraud-based claims fail as a matter of law
because they are duplicative of the breach of contract claim and time-barred. To
maintain a claim for fraud under New York law, a “plaintiff must either: (i)
7

demonstrate a legal duty separate from the duty to perform under the contract . . . (ii)
demonstrate a fraudulent misrepresentation collateral or extraneous to the contract . .
. or (iii) seek special damages that are caused by the misrepresentation and
unrecoverable as contract damages.” Bridgestone/Firestone, Inc. v. Recovery Credit
Services, Inc., 98 F.3d 13, 20 (2d Cir. 1996). NewSpin has asserted no facts by
which a reasonable inference could be drawn to conclude that any elements of this
claim have been satisfied. NewSpin fails to allege facts demonstrating a legal duty
separate from the duty to perform under the contract and fails to allege facts
demonstrating a fraudulent misrepresentation collateral to the contract. The court
also notes that NewSpin relies on the previous breach of contract arguments to
support its claims for fraud, which indicates that NewSpin’s fraud-based claims are
contract claims dressed in tort. Because NewSpin’s fraud claims are duplicative of
the contract claims, they are time-barred under UCC § 2-725(1). See Sears, Roebuck
& Co. v. Enco Assocs., 43 NY 2d 389, 394 (N.Y. App. 1977)(stating that the courts
must look to the essence of the claim, and not to the form in which it is pleaded).
Therefore, Arrow’s motion to dismiss the fraud and fraudulent representation claims
is granted.

IV. Negligent Misrepresentation
Arrow contends that NewSpin’s negligent misrepresentation claim should be
dismissed as time-barred and subject to the economic loss rule under the UCC.
Under New York law, “the elements for a negligent misrepresentation claim are that
8

(1) the defendant had a duty, as a result of a special relationship, to give correct
information; (2) the defendant made a false representation that he or she should have
known was incorrect; (3) the information supplied in the representation was known
by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff
intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or
her detriment.” King v. Crossland Savs. Bank, 111 F.3d 251, 257–58 (2d Cir.1997).
Similar to the court’s reasoning on the fraud and fraudulent misrepresentation claims,
the alleged negligent misrepresentation is essentially duplicative of the breach of
contract claim. NewSpin alleges that Arrow, in several meetings, provided
“information related to the specifications of its components. . . .” (Compl. 15).
NewSpin alleges that Arrow misrepresented information regarding the following
aspects of its components: functional flux-infiltrated switches, functional batteries,
secured batteries, functional computer processors, functional ball grid arrays, and
functional solder balls. This technology, and the underlying specifications, are
wholly covered by the terms of the contract. In essence, the negligent
misrepresentation claim attempts to hold Arrow liable for its contractual obligations.
As such, the four-year statute of limitations in UCC § 2-725(1) applies to this cause
of action. Therefore, this action, similar to the other fraud-based claims, is dismissed
as untimely. The court also notes that even if the negligent misrepresentation claim
were timely, it would be dismissed under the economic loss rule. See Bocre Leasing
Corp. v. Gen. Motors Corp. (Allison Gas Turbine Div.), 645 N.E.2d 1195, 1196
(N.Y. 1995)(stating that “cogent policy considerations militate against allowing tort
9

recovery for contractually based economic losses in this kind of commercial
dispute”). Therefore, Arrow’s motion to dismiss NewSpin’s negligent
misrepresentation claim is granted.

V. Unjust Enrichment
Arrow argues that NewSpin’s unjust enrichment claim should be dismissed
because the claim is time-barred. Under New York law, an unjust enrichment claim
that is predicated on the same underlying allegations as the breach of contract claim
will be governed by the four-year statute of limitations. See Herba v. Chichester, 301
A.D. 2d 822, 823 (2003)(stating that plaintiff's complaint establishes that the breach
of contract, unjust enrichment and account causes of action are based on the same
allegations and as “a result, all three causes of action are governed by the four-year
statute of limitations and are time-barred”). In the instant action, the parties do not
dispute that the unjust enrichment claim is essentially duplicative of the breach of
contract claim. Therefore, Arrow’s motion to dismiss the claim for unjust
enrichment in Count VII is granted.

10

CONCLUSION
For the foregoing reasons, Arrow’s motion to dismiss is granted. Instant
action is dismissed.

_______________________________
Samuel Der-Yeghiayan
United States District Court Judge
Dated: July 26, 2017

11