HayJo S.A. de CV et al v. Sponge-Jet, Inc.

Filing 42

///ORDER terminating as moot 27 Motion for Summary Judgment; granting in part and denying in part 28 Motion for Summary Judgment. So Ordered by Judge Joseph A. DiClerico, Jr.(gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
HayJo S.A. de CV
v.

Civil No. 14-cv-196-JD
Opinion No. 2015 DNH 235

Sponge-Jet, Inc.
O R D E R
HayJo S.A. de CV, a Mexican corporation, and its president,
Sami Hayek Dominguez, brought suit against Sponge-Jet, Inc.
after Sponge-Jet terminated HayJo’s distributor agreement and an
employee of HayJo left to work for a new company.1
moves for summary judgment.

Sponge-Jet

HayJo objects to summary judgment.

Preliminary Matters
Sponge-Jet charges in its reply that HayJo’s objection to
summary judgment is deficient because it lacks a statement of
material facts as required by Local Rule 56.1(b).2

Contrary to

1On

October 23, 2015, Sami Hayek Dominguez filed a stipulation
dismissing all of his claims with prejudice.
2In

support, Sponge-Jet cites a First Circuit case that
interprets a local rule in the District of Puerto Rico, which
Sponge-Jet represents, without analysis, is the “analog to Local
Rule 56.1(b).” Sponge-Jet is mistaken. As is plainly
demonstrated in the cited case, the local rule in the District
of Puerto Rico is not the analog of Local Rule 56.1(b) in this
district, as it requires a format that is not required by Local
Rule 56.1. See P.R. Am. Ins. Co. v. Rivera-Vazquez, 603 F.3d
125, 131 (1st Cir. 2010).

Sponge-Jet’s challenge, however, HayJo’s objection includes a
section titled “Statement of Undisputed Material Facts.”

That

section includes citations to the summary judgment record.
Therefore, HayJo complied with Local Rule 56.1.
Sponge-Jet objects generally in a footnote to emails
submitted by HayJo in support of its objection that they are in
Spanish without English translations.

Under Local Rule 5.1(h),

“the court will reject documents not in the English language
unless translations are furnished.”

In its objection, HayJo

translated some but not all of the emails that were submitted in
Spanish, specifically in Exhibits F and G.

The court will

consider the translated parts of the emails, for purposes of
summary judgment, but not the emails provided only in Spanish.
Sponge-Jet requests in a footnote that HayJo’s objection be
struck for violating the parties’ protective order.

The issue

of sealing confidential documents apparently has been resolved.
Standard of Review
Summary judgment is appropriate when the moving party
“shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).

“A genuine dispute is one that a

reasonable fact-finder could resolve in favor of either party
and a material fact is one that could affect the outcome of the
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case.”

Flood v. Bank of Am. Corp., 780 F.3d 1, 7 (1st Cir.

2015).

Reasonable inferences are taken in the light most

favorable to the nonmoving party, but unsupported speculation
and evidence that “is less than significantly probative” are not
sufficient to avoid summary judgment.

Planadeball v. Wyndham

Vacation Resorts, Inc., 793 F.3d 169, 174 (1st Cir. 2015)
(internal quotation marks omitted).
Background
Sponge-Jet manufactures and sells abrasive blasting
material used to clean industrial infrastructure.
are sold globally.

The products

To distribute its products, Sponge-Jet makes

agreements with independent distributors.
In 2001, Michael Merritt, president of Sponge-Jet, met Sami
Hayek, president of HayJo.

In 2003, Sponge-Jet appointed HayJo

as its distributor in Mexico.

Hayek used his contacts in the

Mexican oil industry and the government to institute a
government standard that required a product that met the
specifications of the Sponge-Jet product.

He also worked to

educate the oil industry about the requirement to use Sponge-Jet
products.
Hayek’s brother was his business partner at HayJo.

Hayek

hired Francisco Malagon, Hayek’s brother’s son-in-law, to be the
main sales person at HayJo.

Malagon was the only person in the
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company who spoke English and became the main contact with
Sponge-Jet.

Malagon was made the “commisario” in the company, a

position with particular duties under Mexican law.
Sponge-Jet and HayJo entered into a written distributorship
agreement in 2007.

In 2009, Diego Cavalieri, Sponge-Jet’s vice

president for Latin American sales, wanted to cancel HayJo’s
distributorship but Merritt told him to give Hayek a chance.
HayJo and Sponge-Jet signed two new distributorship agreements
in 2010.
The agreements divided Mexico into two territories, north
and south.

The terms of the agreements were the same except for

the regions covered.

Under both agreements, HayJo was “the

authorized, Sole non-exclusive distributor of all Sponge-Jet’s
products designated in Exhibit ‘A’ (‘Products’).”

Sponge-Jet

sold products to HayJo “at such prices and upon such terms and
conditions as determined and established by Sponge-Jet.”

The

prices current at that time were provided in “Exhibit C.”
Under the agreement, Sponge-Jet also retained the right to
sell its products directly to customers in Mexico and promised
to “attempt to keep the Distributor informed of such sales.”
Sometimes Sponge-Jet paid HayJo commissions on the direct sales,
but the distributorship agreement did not require payment of

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commissions.

HayJo had received awards from Sponge-Jet for its

sales.
Cavalieri decided to sell Sponge-Jet products directly to a
customer in the north territory, the customer who brought in all
the money from the north territory, because he believed that
Hayek was not visiting that customer.
had no sales in the north territory.

From that point on HayJo
Because of a lack of sales

in the north territory, the agreement for the north territory
was terminated in May of 2011.
At the same time, Cavalieri was looking for another
distributor to sell Sponge-Jet products in Mexico.

He asked

Malagon at HayJo to send him names of companies in Mexico that
were distributors of other products and said he wanted to
interview them.

He did not tell Malagon directly that he

intended to hire another distributor to replace HayJo.
Malagon recommended David Andrade, whose company was Cajona
Maniemento, C.A.

Andrade was a good friend of Malagon, and

Malagon’s father was Andrade’s godfather.

By May of 2011,

Cavalieri had met with Andrade and Malagon to discuss having
Andrade become Sponge-Jet’s distributor.

Cavalieri instructed a

Sponge-Jet employee to pay Malagon directly for a sale instead
of paying HayJo.

In June of 2011, Cavalieri, Andrade, and

Malagon called on a customer of HayJo, which resulted in an

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order that was placed in December of 2011.

HayJo was not

informed of that sale.
In July of 2011, Cavalieri sent Malagon and Andrade a
distributorship agreement that included some of HayJo’s south
territory.

Malagon and Andrade asked why they did not get all

of HayJo’s territory, and Cavalieri responded that the division
of the territory was to protect HayJo’s contracts and advised
them to be patient.

In August, Cavalieri referred a customer or

a potential distributor to Malagon and Andrade and told them to
“take care of it.”
In October of 2011, Sponge-Jet sent HayJo notice that it
was terminating the remaining distributorship agreement, for the
south territory.

HayJo states that the termination was

effective on January 20, 2012, and Sponge-Jet cites the
effective date as January 3, 2011.
HayJo and Hayek brought suit against Sponge-Jet in May of
2014, alleging claims of breach of contract, Count One; unjust
enrichment, Count Two; aiding and abetting breach of fiduciary
duty, Count Three; and breach of the duty of good faith and fair
dealing, Count Four.

Hayek has stipulated to dismissal of his

claims, making Sponge-Jet’s motion for summary judgment on his
claims moot.

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Discussion
Sponge-Jet moves for summary judgment on all of HayJo’s
claims.

In support, Sponge-Jet contends that it properly

terminated the distributorship agreements so that no breach
occurred; that the distributorship agreements preclude the
unjust enrichment claim; that the aiding and abetting claim is
untimely, barred by the economic loss doctrine, and is legally
unsupportable; and that the breach of the duty of good faith and
fair dealing is duplicative of the breach of contract claim.
HayJo apparently concedes its unjust enrichment claim but
objects to the motion for summary judgment on all other grounds.
A.

Unjust Enrichment

In a footnote, HayJo states that “[b]ecause [it]
acknowledges and admits that the contract between the parties
was valid and enforceable, there is no need for HayJo to press
its undue enrichment claims at this time.”

Failure to contest a

ground raised in support of summary judgment results in waiver.
See Grenier v. Cyanamid Plastics, Inc., 70 F.3d 667, 678 (1st
Cir. 1995); see also Cooper v. Lew, 2015 WL 7568382, at *5 (N.D.
Ill. Nov. 24, 2015) (citing Bruce v. Ghosh, 2015 WL 1727318, at
*14 (N.D. Ill. Apr. 13, 2015).

Therefore, HayJo has waived

objection to summary judgment on the unjust enrichment claim.

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B.

Breach of Contract

HayJo alleges that it entered contracts in 2003 and 2010
with Sponge-Jet through which HayJo was the exclusive
distributor of Sponge-Jet products in Mexico.

HayJo further

alleges that “[b]y using Mr. Malagon as Sponge-Jet’s distributor
in Mexico, Sponge-Jet breached the agreement.”

That breach,

HayJo alleges, caused damages in excess of $75,000.
Sponge-Jet moves for summary judgment on the breach of
contract claim primarily on the ground that Sponge-Jet
terminated both distributorship agreements pursuant to the terms
of the agreements.

As HayJo points out, the breach of contract

claim does not allege a breach based on termination of the
agreements.

Therefore, Sponge-Jet moves for summary judgment on

a claim that was not pleaded and is denied for that reason.3
Sponge-Jet also asserts that it is entitled to summary
judgment on the claim that is pleaded, arguing that it did not
breach the distributor agreement by engaging Malagon, a HayJo
employee, to provide recommendations of other companies to
replace HayJo as distributor because the distributor agreement
did not prohibit it from using the distributor of its choice

In its reply, Sponge-Jet explains that it raised the
termination issue based on HayJo’s responses to requests for
admissions and states that HayJo’s objection eliminates the
distributor agreement terminations as grounds for the breach of
contract claim.
3

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after terminating HayJo.

But again, HayJo does not allege that

breach occurred based on termination.
HayJo alleges that Sponge-Jet breached the agreement by
engaging Malagon before termination, while HayJo was still the
distributor and Malagon was working for HayJo.

Sponge-Jet

addresses termination of the agreements but not the alleged
breaches that occurred before termination.

Therefore, Sponge-

Jet has not shown that it is entitled to judgment as a matter of
law on the claim that is pleaded in the complaint.4
C.

Aiding and Abetting Breach of Fiduciary Duty

HayJo alleges that Malagon breached his fiduciary duty to
HayJo by developing his own distributorship with Sponge-Jet,
using contacts and information obtained while working at HayJo,
and that Sponge-Jet knowingly participated in Malagon’s breach.
Sponge-Jet moves for summary judgment on the grounds that the
claim is barred by the economic loss doctrine, that the claim is
barred by the statute of limitations, and that the claim fails
on the merits.

To the extent Sponge-Jet raises different arguments and
theories in its reply, those may not be considered for purposes
of deciding summary judgment. See Conway v. Licata, --- F.
Supp. 3d ---, 2015 WL 2165901, at *13 (D. Mass. May 8, 2015);
Phenix Mut. Fire Ins. Co. v. Stanley Convergent Sec. Solutions,
Inc., 2013 WL 3933930, at *2 (D.N.H. July 30, 2013) (citing
cases).
4

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Although the New Hampshire Supreme Court has not addressed
the issue, other courts have concluded that New Hampshire would
recognize the tort of aiding and abetting breach of fiduciary
duty based on the Restatement (Second) of Torts § 876(b).

See

Invest Almaz v. Temple-Inland Forest Prods. Corp., 243 F.3d 57,
82-83 (1st Cir. 1994); Tamposi v. Denby, 974 F. Supp. 2d 51, 6162 (D. Mass. 2013); In re Felt Mfg. Co., Inc., 371 B.R. 589, 615
(Bankr. N.H. 2007).

To succeed on that claim, a plaintiff must

prove three elements:

breach of fiduciary obligations, knowing

inducement or participation in the breach by the defendant, and
damages to the plaintiff caused by the breach.

Invest Almaz,

243 F.3d at 83.
1.

Economic Loss Doctrine

The economic loss doctrine is described by the New
Hampshire Supreme Court as “one of the most confusing doctrines
in tort law.”

Wyle v. Lees, 162 N.H. 406, 410 (2011).

When the

parties’ relationship is governed by a contract, the economic
loss doctrine precludes the plaintiff from bringing a tort claim
for purely economic losses arising from the contractual
relationship.

Schaefer v. Indymac Mortg. Servs., 731 F.3d 98,

103 (1st Cir. 2013) (citing Plourde Sand & Gravel Co. v. JGI
Eastern, Inc., 154 N.H. 791, 794 (2007)).

An exception exists,

however, if the defendant owes the plaintiff “an independent
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duty of care outside the terms of the contract.”

Wyle, 162 N.H.

at 410.
The distributor agreement governed the contractual
relationship between HayJo and Sponge-Jet.

The tort HayJo

alleges is based on Sponge-Jet’s duty not to aid and abet
Malagon in breaching his fiduciary duty to HayJo.5

Sponge-Jet

does not show that duty is covered by the distributor
agreements.

Therefore, Sponge-Jet has not shown that it is

entitled to summary judgment based on the economic loss
doctrine.
2.

Timeliness

Under RSA 504:8, which governs tort actions brought under
New Hampshire law, HayJo had three years to bring its claim of
aiding and abetting breach of fiduciary duty.

The action must

be brought “within 3 years of the act or omission complained of,
except that when the injury and its causal relationship to the
act or omission were not discovered and could not reasonably

Sponge-Jet concedes as much, stating: “Through its aiding
and abetting claim, HayJo simply is trying to pursue Sponge-Jet
for what it feels was disloyalty by its former employee, Mr.
Malagon. The real subject of HayJo’s ire is Mr. Malagon, and
whether he breached any fiduciary duty that he owed to HayJo is
not properly the subject of litigation between Sponge-Jet and
HayJo.” To the contrary, however, that is the basis for an
aiding and abetting claim.
5

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have been discovered at the time of the act or omission.”

Id.

The complaint in this case was filed on May 5, 2014.
Sponge-Jet contends that the three-year limitation period
began in 2010 when Hayek learned that Malagon was forming his
own company and was planning to leave HayJo.

Sponge-Jet further

contends that HayJo should have investigated then to learn what
Malagon was doing and what he planned.
The act or omission complained of in this case is not just
Malagon’s breach of fiduciary duty but instead is Sponge-Jet’s
aiding and abetting in that breach.

Sponge-Jet has not shown,

based on Hayek’s information about Malagon in 2010, that HayJo
knew or should have known of Sponge-Jet’s involvement with
Malagon at that time.

In fact, Sponge-Jet provides no evidence

that it was involved then with Malagon for the purpose of
changing distributors.
The evidence provided by both parties for summary judgment
shows that Cavalieri, of Sponge-Jet, became involved with
Malagon and Andrade in the spring of 2011 for the purpose of
establishing them as the Sponge-Jet distributor instead of
HayJo.

The relationship between Malagon and Sponge-Jet grew

from that time forward.

Sponge-Jet has not shown based on

undisputed facts that HayJo knew or should have known of Sponge-

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Jet’s efforts to engage Malagon to work on behalf of Sponge-Jet
before May of 2011.
3.

Merits

Sponge-Jet contends that HayJo cannot prove the aiding and
abetting claim because it cannot show that Malagon owed a
fiduciary duty to HayJo, that Sponge-Jet knew of the duty, or
that Sponge-Jet gave substantial assistance or encouragement to
Malagon in breaching his fiduciary duty.

Given Malagon’s

position at HayJo and his interactions with Sponge-Jet on
HayJo’s behalf, material disputed facts exist as to whether he
owed a fiduciary duty to HayJo and what Sponge-Jet knew about
his duty.

Similarly, taken in the light most favorable to

HayJo, Cavalieri’s involvement with Malagon for the purpose of
giving Malagon and Andrade the Sponge-Jet distributorship could
show that he gave substantial assistance or encouragement to
Malagon’s breach of fiduciary duties.
Therefore, Sponge-Jet has not shown that it is entitled to
summary judgment on the aiding and abetting breach of fiduciary
duty claim.
D.

Breach of the Implied Duty for Good Faith and Fair
Dealing

Sponge-Jet seeks summary judgment on the grounds that the
implied duty cannot rewrite the distributor agreement to provide
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new obligations and that the claim is vague and appears to seek
the same relief that is sought for breach of contract.

In its

objection, HayJo clarifies that it intended to invoke the
implied duty that limits the discretion of a party in contract
performance.
Under New Hampshire law, the implied duty restricts a
party's exercise of discretion within “reasonable limits.”
Centronics Corp. v. Genicom Corp., 132 N.H. 133, 143 (1989).
Therefore, when “the agreement ostensibly allow[s] to or
confer[s] upon the defendant a degree of discretion in
performance tantamount to a power to deprive the plaintiff of a
substantial proportion of the agreement's value,” the defendant
cannot exercise discretion in a manner that “exceed[s] the
limits of reasonableness.”

Id. at 144.

In this context, HayJo claims that the implied duty cabins
the discretion conferred by the contract for Sponge-Jet to
terminate.

HayJo contends that Sponge-Jet terminated the

contract after Hayek, relying on the exclusive distributor
agreement, put efforts into developing the market in Mexico for
Sponge-Jet products.

When those efforts were producing sales

that were becoming profitable, Sponge-Jet terminated the
agreement with HayJo to work with Malagon.

Further, Hay Jo

contends, Sponge-Jet manipulated the termination to avoid paying

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HayJo for sales made before termination.

HayJo asserts that

Sponge-Jet’s actions under the agreement deprived HayJo of the
benefit of its efforts made pursuant to the agreement.
As such, HayJo asserts a claim under an implied duty theory
based on the discretion conferred by the distributor agreement.
The claim does not duplicate the breach of contract claim.
Conclusion
For the foregoing reasons, the defendant’s motion for
summary judgment as to the claims brought by Sami Hayek
(document no. 27) is terminated as moot.

The motion for summary

judgment as to the claims brought by HayJo (document no. 28) is
granted as to Count Two, Unjust Enrichment, and is otherwise
denied.
SO ORDERED.

__________________________
Joseph DiClerico, Jr.
United States District Judge
December 23, 2015
cc:

Nicholas F. Casolaro, Esq.
Peter E. Ferraro, Esq.
Joshua William Gardner, Esq.
Jeremy T. Walker, Esq.

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