SGS U.S. TESTING COMPANY, INC. v. TAKATA CORPORATION et al

Filing 57

OPINION. Signed by Judge Dennis M. Cavanaugh on 5/4/11. (jd, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

SGS U.S. TESTING COMPANY, INC.,
Plaintiff,
v.
T A K A T A C O R P O R A T IO N , T K
HOLDINGS, INC., TAKATA, INC.,
TAKATA RESTRAINT SYSTEMS, INC.,
TAKATA SEATBELTS, INC., TK-TAITO,
LLC, JOHN DOES COMPANIES (1-50)
Defendants.

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Hon. Dennis M. Cavanaugh

OPINION
Civil Action No. 09-CV-6007 (DMC - JAD)

DENNIS M. CAVANAUGH, U.S.D.J.:
This matter comes before the Court upon motion by Takata Corporation and TK Holdings,
Inc. (“Defendants”) to strike SGS U.S. Testing Company, Inc.’s (“Plaintiff”) amended complaint
pursuant to Fed. R. Civ. P. 15(a) and 12(b)(6). Pursuant to Fed. R. Civ. P. 78, no oral argument was
heard. Upon careful consideration of the parties’ submissions, for the reasons herein expressed, it
is the decision of this Court that Defendants’ motion is granted.
I.

BACKGROUND AND PROCEDURAL HISTORY
Plaintiff SGS-USTC is a company that does safety testing for the automotive industry, and

Defendant Takata is a manufacturer of seatbelts. SGS-USTC has performed testing for Takata since
1985. In 2002 a series of seven lawsuits were filed against Takata; in five of them, SGS-USTC was
named as a party defendant, and accused of negligent testing and conspiring with Defendant to hide

alleged defects in the series TK-52 seatbelts. These suits included both class actions claiming that
the value of cars had been diminished because of faulty seatbelts, and personal injury claims arising
from allegedly defective seatbelts. Four of the cases in which SGS-USTC was named have been
resolved to date. In two of the cases, the complaint against SGS-USTC was dismissed. In a third
case , SGS-USTC was granted summary judgment, and in the fourth, judgment was entered in favor
of all defendants. It appears that the fifth case is still pending. In at least two separate actions, SGSUSTC was not named as a defendant, but nonetheless allegedly incurred litigation expenses as a
consequence of the allegations in those complaints. There have been no findings of wrongdoing or
negligence on the part of SGS-USTC.
The parties signed various contracts containing indemnification provisions and other terms
and conditions starting in 1986. Plaintiff styles this amended complaint as a breach of contract claim
in contrast to its original complaint in an apparent effort to avoid the deficiencies the Court found
in dismissing Plaintiff’s original claims for contractual indemnification. In the Court’s Opinion of
August 3, 2010, Counts I (contract indemnification), III (breach of duty of good faith and fair
dealing) and IV (promissory estoppel) of Plaintiff’s complaint were dismissed pursuant to Fed. R.
Civ. P. 12(b)(6), leaving only Count II, common law indemnification. The Court denied Plaintiff’s
motion for reconsideration on November 17, 2010. On November 15, 2010 Magistrate Judge
Dickson allowed Plaintiff to make a motion to amend their compliant on or before January 7, 2011.
Without leave of Court, Plaintiff filed the amended complaint which is the subject of the instant
motion on December 28, 2010.
II.

STANDARD OF REVIEW
Fed. R. Civ.P. 15(a)(2) states in relevant part that “in all other cases, a party may
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amend its pleading only with the opposing party's written consent or the court's leave. The court
should freely give leave when justice so requires.” The Supreme Court has identified several
factors to be considered when applying Rule 15(a): “if the underlying facts or circumstances
relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity
to test his claim on the merits. In the absence of any apparent or declared reason-such as undue
delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance
of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be
‘freely given.’ Of course, the grant or denial of an opportunity to amend is within the discretion
of the District Court, but outright refusal to grant the leave without any justifying reason
appearing for the denial is not an exercise of discretion; it is merely an abuse of that discretion
and inconsistent with the spirit of the Federal Rules.” Foman v. Davis, 371 U.S. 178, 182, 83
S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). In our circuit, this has been further analyzed, and “we have
interpreted these factors to mean that “prejudice to the non-moving party is the touchstone for the
denial of an amendment.” Lorenz v. CSX Corp. 1 F.3d 1406, 1414 (C.A.3 (Pa.),1993), citing
Cornell & Co. v. Occupational Safety & Health Review Comm'n, 573 F.2d 820, 823 (3d
Cir.1978). Moreover, “futility of amendment occurs when the complaint, as amended, does not
state a claim upon which relief can be granted.” Smiley v. Daimler Chrysler 538 F.Supp.2d 711,
715 (D.Del.,2008) See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d
Cir.1997). Additionally, if the proposed amendment ‘is frivolous or advances a claim or defense
that is legally insufficient on its face, the court may deny leave to amend.’” Harrison Beverage
Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 469 (D.N.J.1990).
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III.

DISCUSSION

The gravaman of this law suit is a claim for attorney’s fees and expenses incurred by
Plaintiff as a result of having to defend in several law suits related to allegedly defective seatbelts
manufactured by Defendant. Because legal fees are at issue, any litigation that unnecessarily
serves to increase those fees would be exacerbating rather than remedying the situation,
something which the Court seeks to avoid. With that in mind, the Court must consider whether
the amended complaint submitted by Plaintiff merely rehashes arguments that have already been
addressed in dispositive motions before the Court. Also, the Court must consider whether the
amended complaint is ultimately futile because all it attempts to do is make an end run around
the Court’s ruling that Defendant was not contractually obligated to indemnify Plaintiff for the
costs of defense in the above mentioned actions. Although the amendment styles the complaint as
a breach of contract action, the Court finds that this is a distinction without a difference. The
contractual indemnification count which the Court dismissed on August 3, 2010 was also based
on a breach of contract theory, albeit a breach of a different provision of the contract. Here,
Defendant correctly points out that Plaintiff places all of its reliance on catch-all, boiler plate
language which is essentially meaningless as written, stating that Defendant was not allowed to
use the results of Plaintiff’s testing “for any purpose.” Moreover, and most importantly, the
language which Plaintiff refers the Court to is not consistent over the course of the relationship
between the parties, and was completely altered by the time of the 2000 agreement. Perhaps most

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critically, however, even if the Court were to find that the early versions of the contract that
contain the “for any purpose” language are controlling, and even if the statute of limitations were
not an insurmountable problem for Plaintiff, there is no evidence that Defendant ever violated the
terms and conditions on which Plaintiffs rely. In the First Amended Complaint in one of the
underlying cases, Zavala v. Takata BC 277327 (Superior Court of Los Angeles County, 2006),
for example, it was alleged that “all automobile manufacturers rely on Takata to confirm that the
TK-52 series buckles comply with FMVSS209.” (Defendant’s Motion to Dismiss, ECF Doc. 3-7,
Exhibit C, ¶10). The alleged defect in the buckle was not discovered because Takata supplied
SGS-USTC testing results to auto manufacturers, or because, as alleged, SGS-USTC conspired
with Takata to falsify testing results that were then given to automobile manufacturers with the
consent of SGS-USTC, but rather because a former Honda engineer reported that, “during a crash
test of a Honda Accord equipped with a Takata TK-52 series buckle, the buckle disengaged upon
vehicle impact.” (Id at ¶ 12) The Zavala complaint alleges that it is the responsibility of vehicle
manufacturers to “self- certify that its vehicles pass all applicable standards,” which explains why
Honda was conducting independent crash tests, and not relying on Takata or SGS-USTC to
insure its compliance. Moreover, and most tellingly, the Zavala complaint states that when SGSUSTC allegedly altered the testing standards so that Takata’s seatbelts would appear to be
compliant, “the only record of this ‘standard’ appears in the actual compliance reports issued by
SGS -USTC, which are not sent to NHTSA (National Highway Traffic Safety Administration) or
made available to the public.” (¶ 29) In other words, the only culpable conduct SGS-USTC is
alleged to have engaged in was either as a result of Takata’s failure to share its reports, or its
collusion with Plaintiff in selectively sharing reports that were inaccurate. Neither of these
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allegations suggest that Takata violated the terms and conditions of the contracts it signed with
SGS-USTC by using reports without permission. Moreover, as Defendant correctly points out,
those contracts changed over the course of the business relationship between Plaintiff and
Defendant. In 1996, the contract language cited by Plaintiff had already been modified such that
“SGS USTC reports are for the exclusive use of the Client to whom they are addressed and the
name SGS U.S.Testing and the name SGS U.S. Testing Inc. or its seals and insignia, are not to be
used by or on behalf of clients under any circumstances or for any purpose whatsoever, including
but not limited to use in advertising, publicity material or in any other manner without SGS
USTC’s prior written approval.” The very next term states “any use by Client of SGS USTC’s
Reports or the information contained therein is conditional upon timely payment of all fees,” a
term that suggests a rationale for the previous term that Plaintiff does not address. (Plaintiff’s
Opposition to Motion to Dismiss, ECF Doc. 5-4, 1996 contract, ¶ 8 and 9). By 1996 it was
already clear that the contract enjoined Defendant from using Plaintiff’s name, insignia and seals,
but not the reports themselves, or the results contained therein. Presumably, a report prepared
solely for the edification of Defendant with no practical application in terms of its ability to
warranty its seatbelts would be useless, and would, as Defendant suggests, deny Defendant any
benefit of its bargain with Plaintiff. Moreover, by the 2000 version of the contract, the language
had been significantly altered, and stated only that “the name, seals, marks or insignia of SGS
U.S.Testing Company, Inc. may not be used in any advertising or promotional activity without
the prior written approval of the Company.” In the next paragraph the contract states that “subject
to the Client’s instructions as accepted by the Company, the Company will issue reports which
reflect results of testing made with due care within the limitation of instructions (ECF Doc. 5-4, ¶
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5 and 6) received but the Company is under no obligation to refer to or report upon any facts or
circumstances which are outside the specific instructions received.” This strongly suggests that
by 2000, the provision that Plaintiff points to, and the “for any purpose” language on which it
relies, had already been abandoned by Plaintiff, and Plaintiff had instead shifted its focus to
insuring that their test results would not be interpreted too broadly, or used to prove aspects of
the seatbelt’s safety that had not been tested under the contract. The Court finds it reasonable to
infer that this was always the purpose of the contractual language, and that as the contract
evolved over the years, and the drafting became more focused and precise, the real purpose of the
limitation on using SGS-USTC”s name, logo or mark in reports that Defendant shared became
apparent. Plaintiff clearly wished to protect itself from the possibility that third parties would
think that they had given their stamp of approval on Defendant’s products when, in fact, their
role was more limited. Plaintiff’s preferred inference, that their reports were never meant to be
used by Defendant for any purpose, strains credulity, and is not borne out by the language which
clearly limits the use of Plaintiff’s name, but not the use of reports themselves that, once
delivered and paid for, became the property of Defendant.
The Court does not find that Plaintiff acted in bad faith, or with undue delay in amending
their complaint, although the “terms and conditions” on which they seek to amend were part of
the contract that the original complaint was based on, and was surely available for Plaintiff to
analyze at the earliest point in this litigation. Although the Court does not decide on this ground,
it should be noted that where, as here, “most of the facts were available to plaintiff” from the
beginning of litigation, that weighs against granting leave to amend. Lorenz v. CSX Corp. 1 F.3d
1406, 1414 (C.A.3 (Pa.),1993) It is peculiar that Plaintiff only came forward with this novel
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amendment after their contract claims were dismissed twice. Its presentation of this new
contractual theory as if it were a Eureka! moment seems disingenuous, but the Court does not
find bad faith in the attempt. The Court does find, however, that the dual factors of prejudice to
the opposing party and futility weigh in favor of striking Plaintiff’s amended complaint. As
previously stated, this is a dispute about legal fees, and every motion only enlarges the scope of
the litigation. The Court would prefer to be part of the solution, rather than part of the problem.
Plaintiff has failed to document in even the most rudimentary way its claim that Defendant either
violated the terms and conditions relating to use of the testing reports, or that the terms and
conditions conform to Plaintiff’s interpretation of them. Plaintiff is, and has been since the
beginning of this law suit, seeking payment for its costs of defense. Plaintiff has not shown,
however, that the contractual violation of which they complain, the presumptively unauthorized
sharing by Defendant of Plaintiff’s testing reports with automobile manufacturers, is causally
related to the cases in which Plaintiff was forced to appear as a party defendant, or the other cases
in which Plaintiff was compelled to defend. Thus, even if Plaintiff were correct that Defendant
had breached the letter of the contractual terms, it can point to no defense costs related to that
breach. To the extent that defense costs were incurred as the result of a breach of contract, those
costs could only relate to a contractual indemnification provision which the Court already found
lacking. Without the existence of an enforceable indemnification clause, and without a causal
relationship between the breach and the defense costs incurred, there is no basis on which the
Court can grant relief. None of the complaints in the underlying actions allege that Defendant
improperly revealed testing results to automobile manufacturers. As previously stated, they allege
the opposite, that Plaintiff withheld information or did inadequate testing at Defendant’s behest,
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and allowed Defendant to share reports which they knew to be inaccurate. The costs of defense
that Plaintiff incurred were not related to any actual or imagined unauthorized sharing on the part
of Defendant. Since Plaintiff never had to defend against that breach, it is not related to a suit for
cost of defense. If Plaintiff could prove unauthorized sharing, and could demonstrate how they
were harmed, perhaps a Court could fashion a remedy, but in this situation the alleged breach and
the alleged harm are apples and oranges, factually and causally unrelated.. As such, the Court
finds that allowing Plaintiff to proceed with the complaint as amended would be both futile and
counter-productive.
IV.

CONCLUSION

For the foregoing reasons, Defendants’ motion to strike Plaintiff’s amended complaint
pursuant to Fed. R. Civ. P. 15(a) and Fed. R. Civ. P. 12(b)(6)is granted. An appropriate order
follows this opinion.

S/ Dennis M. Cavanaugh
DENNIS M. CAVANAUGH, U.S.D.J.
Date: May 4

, 2011

cc: Counsel of Record
Hon. Joseph A. Dickson, U.S.M.J.

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