Myers Industries, Inc. et al v. Schoeller Arca Systems, Inc. et al
Filing
40
MEMORANDUM OPINION & ORDER re: 35 MOTION to Dismiss filed by Schoeller Arca Systems, Inc., Schoeller Arca Systems N.V.: For the foregoing reasons, the Defendants' motion to dismiss the Plaintiffs' FAC is GRANTED as to the Plaintiffs' causes of action for fraudulent inducement, breach of the patent license agreement, breach of the asset purchase agreement, breach of guaranty, and unjust enrichment. The Defendants' motion to dismiss is DENIED as to the Plaintiffs' cause of action for declaratory judgment. Ordinarily, dismissal under Federal Rule of Civil Procedure 12(b) is without prejudice. The Court finds, however, that amendment of the fraudulent inducement, breach of the patent license agreement, and breach of the asset purchase agreement claims would be futile because these claims are time-barred. The Court also finds that amendment of the unjust enrichment and breach of guaranty claims would be futile because these claims are su bstantively defective. Accordingly, these causes of action are DISMISSED WITH PREJUDICE. See Van Buskirk v. N.Y. Times Co., 325 F. 3d 87, 92 (2d Cir. 2003); Cuoco v. Moritsugu, 222 F.3d 99, 112 (2d Cir. 2000). Counsel are directed to appear in Courtr oom 20-C on Thursday, April 21, 2016, at 11:15 a.m. for a conference to discuss the case management plan and scheduling order and specifically, whether the Court should order a speedy hearing of the declaratory judgment action in accordance with Federal Rule of Civil Procedure 57. (Signed by Judge John F. Keenan on 3/21/2016) (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
MYERS INDUSTRIES, INC.,
:
:
and
:
:
BUCKHORN, INC.,
:
:
Plaintiffs,
:
:
-against:
:
:
SCHOELLER ARCA SYSTEMS, INC.,
:
:
and
:
:
SCHOELLER ARCA SYSTEMS
:
SERVICES, B.V. F/K/A SCHOELLER
:
ARCA SYSTEMS, N.V.,
:
:
Defendants.
:
-----------------------------------X
No. 14 Civ. 7051 (JFK)
MEMORANDUM
OPINION & ORDER
APPEARANCES
FOR PLAINTIFFS MYERS INDUSTRIES, INC. AND BUCKHORN, INC.
Judy L. Woods, Esq.
Daniel M. Meier, Esq.
BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP
FOR DEFENDANTS SCHOELLER ARCA SYSTEMS, INC. AND SCHOELLER ARCA
SYSTEMS SERVICES, B.V. F/K/A SCHOELLER ARCA SYSTEMS, N.V.:
John A. Basinger, Esq.
Matthew G. Allison, Esq.
Kyle R. Olson, Esq.
BAKER & McKENZIE LLP
JOHN F. KEENAN, United States District Judge:
Before this Court is Defendants Schoeller Arca Systems,
Inc. (“SAS”) and Schoeller Arca Systems Services, B.V. f/k/a
Schoeller Arca Systems, N.V.’s (“SAS BV”) motion to dismiss
Plaintiffs Myers Industries, Inc. (“Myers”) and Buckhorn, Inc.’s
1
(“Buckhorn”) First Amended Complaint (“FAC”) for failure to
state a claim under Federal Rule of Civil Procedure 12(b)(6).
This action concerns two contracts between the Plaintiffs
and the Defendants:
license agreement.
an asset purchase agreement and a patent
Under these agreements, the Defendants
purported to license a patent to the Plaintiffs.
The Plaintiffs
later sued nonparties to this action, Orbis Corporation and
Orbis Material Handling, Inc. (collectively, “Orbis”), for
infringing this patent in the Southern District of Ohio.
During the course of that litigation, the Plaintiffs
discovered that Orbis held a superior claim to the patent, which
SAS failed to disclose to Myers.
Orbis successfully moved for
the infringement action to be dismissed and the Southern
District of Ohio subsequently awarded Orbis its attorney’s fees.
The action before this Court seeks recovery of the lost value of
the agreements between Myers and SAS and a determination of
which parties—Myers and Buckhorn on the one hand, or SAS and SAS
BV on the other—should bear the cost of Orbis’s attorney’s fees
in the Ohio Action as well as Myers and Buckhorn’s costs,
expenses, and attorney’s fees associated with the Ohio Action.
The Plaintiffs’ FAC asserts six causes of action against
the Defendants:
(1) fraudulent inducement; (2) breach of the
patent license agreement; (3) breach of the asset purchase
agreement; (4) breach of SAS BV’s guaranty; (5) unjust
2
enrichment; and (6) declaratory judgment against SAS and SAS BV.
(See FAC ¶¶ 50-95.)
This case is complicated by the existence of full-scale
litigation in the Southern District of Ohio, which included
multiple appeals to the Federal Circuit.
The gravamen of the
Plaintiffs’ injury as alleged in the FAC was resolved by the
Federal Circuit shortly after the Defendants’ motion to dismiss
was fully briefed before this Court. See Buckhorn Inc. v. Orbis
Corp., 618 F. App’x 1000 (Fed. Cir. 2015). 1
not moot this action entirely, however.
That decision did
The Court considers
this motion to dismiss in light of the Plaintiffs’ remaining
injuries as alleged.
For the following reasons, Defendants’
motion is granted in part and denied in part.
I.
Background 2
SAS is a Delaware corporation with its principal place of
business in Goodyear, Arizona, that engages principally in the
development and manufacture of plastic packaging. (FAC ¶¶ 19,
1
Inexplicably, neither party informed the Court of the Federal
Circuit’s opinion. The Court reminds counsel of their
obligation to conduct themselves with candor before the
tribunal. See generally N.Y. RULES OF PROF’L CONDUCT 3.3 (2015).
2
The following facts are drawn from the FAC and the documents
attached thereto. See Staehr v. Hartford Fin. Servs. Grp., Inc.,
547 F.3d 406, 425 (2d Cir. 2008). The FAC omits certain
specific dates of referenced related judicial opinions of which
this Court takes judicial notice simply to establish the fact of
such litigation and related filings. See id.
3
21.)
SAS owned U.S. Patent No. 5,199,592 (the “’592 Patent”). 3
(Id. ¶ 20.)
On about March 7, 2007, Myers, an Ohio corporation with its
principal place of business in Akron, Ohio, entered into an
asset purchase agreement with SAS. (Id. ¶¶ 17, 26.)
Under this
agreement, SAS agreed to convey certain assets and to license
certain patents, including the ’592 Patent, to Myers. (Id.)
The
asset purchase agreement contained a jurisdiction clause
limiting the parties to bringing suits arising in connection
with the agreement in only the Southern District of New York or
New York state courts in New York county. (Id. Ex. B § 10.11.)
It also contained a choice-of-law clause in favor of New York
law. (Id. Ex. C § 10.8.)
SAS licensed the ’592 Patent to Myers in a separate patent
license agreement executed on about March 8, 2007. (Id. ¶¶ 2,
31.)
The patent license agreement granted a fully paid-up,
royalty-free, nontransferable, co-exclusive license for the ’592
Patent to Myers. 4 (Id. ¶ 31.)
The patent license agreement
contained a jurisdiction clause and choice-of-law clause
3
The ’592 Patent expired on April 6, 2010. (FAC ¶ 20; id. Ex. C
sch. A.)
4
The license was co-exclusive between SAS and Myers because SAS
retained the right to sell certain licensed products to its own
customers. (Id. ¶ 33.)
4
identical to the asset purchase agreement. (Id. Ex. C §§ 7.11.12.)
SAS made certain representations and warranties as part of
the patent license agreement.
Under section 5.01, SAS
represented and warranted that its execution, delivery, and
performance of the patent license agreement would not violate,
conflict with, or constitute a default under any of its other
contractual obligations. (Id. ¶ 36; id. Ex. C § 5.01(iii).)
Under section 5.02, SAS represented and warranted that it was
the owner of the entire right, title, and interest in the ’592
Patent and that it had the right and power to grant the licenses
granted in the patent license agreement. (Id. ¶ 35; id. Ex. C
§ 5.02(i)-(ii).)
SAS made similar representations and warranties as part of
the asset purchase agreement.
Under section 3.2, SAS
represented and warranted that it had full authority to enter
into the asset purchase agreement and the patent license
agreement and that these agreements would be the legal, valid,
and binding obligations of SAS, which would be enforceable
against SAS according to their terms. (Id. ¶ 68; id. Ex. B
§ 3.2(a)-(b).)
Under section 7.1, SAS represented and warranted
that the certificates and papers delivered to Myers were true
and correct in all material respects on the date of the asset
5
purchase agreement and on the closing date. (Id. ¶ 69; id. Ex. B
§ 7.1.)
Under each agreement, SAS also agreed to indemnify Myers.
Section 5.03 of the patent license agreement states that SAS’s
obligations to indemnify Myers “for a breach of representations
and warranties in Section 5.02 shall be made in accordance with
Section 9.1 of the Asset Purchase Agreement and shall be subject
to the limitations set forth therein.” (Id. Ex. C. § 5.03.)
Section 9.1 of the asset purchase agreement states that SAS
“shall” hold Myers
harmless and indemnify [it] from and against
. . . any and all Indemnified Losses incurred
or to be incurred by [it] to the extent
resulting from or arising from:
(a) The breach of any representation or
warranty of [SAS] made or incurred under or
pursuant to this Agreement or any document
delivered pursuant hereto;
(b) The breach of any agreement or covenant of
[SAS] made or incurred under or pursuant to
this Agreement or any document delivered
pursuant thereto; and
(c) Any Excluded Liability.
(Id. Ex. B § 9.1.)
The asset purchase agreement defines
“Indemnified Losses” somewhat circularly as “Losses (including
reasonable attorneys’ fees and expenses) for which a party is
entitled to be indemnified pursuant to Article IX hereof.” (Id.
Ex. B art. I, at 4.)
In turn, the asset purchase agreement
6
defines “Losses” as “indirect or direct claims, losses, damages,
Liabilities, expenses or costs.” (Id.)
SAS BV, a Netherlands
business entity with a principal place of business in Zwolle,
Netherlands, and SAS’s designated parent company under the asset
purchase agreement, unconditionally, irrevocably, and absolutely
guaranteed SAS’s indemnity of Myers under the asset purchase
agreement. (Id. ¶¶ 22, 29-30; id. Ex. B pmbl., § 10.13.)
SAS authorized Myers to assign the patent license agreement
to Buckhorn, a wholly owned subsidiary of Myers and an Ohio
corporation with its principal place of business in Milford,
Ohio. (Id. ¶¶ 18, 38.)
As an assignee, Buckhorn could assert
the ’592 Patent in an infringement action. (Id. ¶ 38)
The patent license agreement details an agreed-upon process
for bringing a patent infringement action against third parties.
SAS has the first right to bring an infringement action. (Id.
Ex. C § 3.02.)
If SAS exercises this right, Buckhorn can
participate at its own expense, but SAS has the right to control
the conduct of the litigation. (Id.)
If SAS does not exercise
this right, Buckhorn may bring the action. (Id.)
In that case,
SAS may participate at its own expense, but Buckhorn has the
right to control the conduct of the litigation. (Id.)
If either
party chooses not to participate, but its participation is later
“require[d]” by the party who brought suit, the party who
brought suit shall pay the “costs and expenses” associated with
7
the other party’s required cooperation including any attorney’s
fees. (Id. Ex. C § 3.03.)
On December 12, 2008, Buckhorn filed a patent infringement
suit against nonparties to this action, Orbis, in the U.S.
District Court for the Southern District of Ohio asserting
infringement of the ’592 Patent (the “Ohio Action”). 5 (Id. ¶ 39.)
On September 18, 2009, Buckhorn amended its complaint in the
Ohio Action to add SAS as a co-plaintiff. (Id. ¶ 40; id. Ex. C
§§ 3.02-.03.) 6
During the course of the Ohio Action, on May 28, 2010,
Orbis produced a copy of a license agreement that predates the
SAS-Myers patent license agreement (the “Orbis License”). (Id.
¶ 41.)
SAS never disclosed this earlier license agreement to
Myers. (Id. ¶¶ 42-43.)
On November 22, 2011, the Southern District of Ohio ruled
that the Orbis License was valid and that it predated the SASMyers patent license agreement. (Id. ¶ 44.)
Therefore, Orbis
was the licensee of the ’592 Patent through its expiration.
5
The Ohio Action is styled Buckhorn Inc. v. Orbis Corp., No.
3:08-cv-459 (S.D. Ohio). (See FAC ¶ 7; Pls.’ Mem. of Law in
Opp’n to Defs.’ Mot. to Dismiss 3 [hereinafter “Opp’n”].)
6
While it is not necessarily required for the Plaintiffs to
state a claim at this juncture, the FAC does not expressly
allege whether SAS’s participation was voluntary or “required.”
(See FAC ¶ 40.)
8
(Id.)
On February 21, 2012, the Southern District of Ohio
dismissed the action against Orbis. (Id. ¶ 45); Buckhorn Inc.,
2012 WL 555397, at *1 (S.D. Ohio Feb. 21, 2012).
Orbis sought
to recover attorney’s fees through a provision in the Orbis
License.
The Southern District of Ohio did not initially award
Orbis these attorney’s fees. (FAC ¶ 46.)
Orbis appealed this determination, and in two separate
opinions dated April 22, 2014, and July 11, 2014, on remand from
the Federal Circuit, the Southern District of Ohio awarded Orbis
attorney’s fees in an amount exceeding $3 million plus
postjudgment interest and costs. (Id. ¶¶ 46-47); Buckhorn Inc.,
2014 WL 3456993, at *3 (July 11, 2014), rev’d in part, 618 F.
App’x 1000 (Fed. Cir. 2015).
The Southern District of Ohio
expressly declined to allocate the obligation for payment of the
attorney’s fees between the parties to this action. See Buckhorn
Inc., 2013 WL 6858768, at *2 n.3 (S.D. Ohio Dec. 30, 2013),
rev’d in part, 618 F. App’x 1000.
On August 29, 2014, Myers and Buckhorn filed the action
before this Court asserting six causes of action:
(1) fraudulent inducement; (2) breach of the patent license
agreement; (3) breach of the asset purchase agreement;
(4) breach of SAS BV’s guaranty; (5) unjust enrichment; and
(6) declaratory judgment against SAS and SAS BV. (See id. ¶¶ 5095.)
9
On February 9, 2015, the Defendants moved to dismiss the
FAC for failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6).
The parties completed briefing in May 2015.
On July 2, 2015, while the Defendants’ motion to dismiss
was pending before this Court, the Federal Circuit reversed the
Southern District of Ohio in part, concluding that the
Plaintiffs were not parties to the Orbis License and, therefore,
not liable to Orbis for attorney’s fees under the Orbis License
and, also, that the Plaintiffs were not directly liable to Orbis
for attorney’s fees under the patent license agreement. See
Buckhorn Inc., 618 F. App’x at 1006-07.
The Federal Circuit
declined, however, to express an opinion on whether the
Plaintiffs were liable to SAS under the patent license agreement
for payment of Orbis’s judgment of attorney’s fees against SAS.
Id. at 1007.
II.
A.
Analysis
Jurisdiction
This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a)
because there is diversity of citizenship and the amount in
controversy exceeds $75,000.
Venue is appropriate under 28
U.S.C. § 1391(b)(3) because the parties have agreed to litigate
in the federal or state courts of New York and agreed that venue
is proper in the Southern District of New York. (See FAC ¶ 25;
id. Ex. B § 10.11; id. Ex. C § 7.12.)
10
B.
Legal Standard
A motion to dismiss should be denied so long as the
complaint “contain[s] sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
A claim
is facially plausible “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
When
considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court must accept all factual allegations
as true and draw all reasonable inferences in the plaintiff’s
favor. Segarra v. Fed. Reserve Bank of N.Y., 802 F.3d 409, 411
(2d Cir. 2015). 7
Rule 12(b)(6)’s plausibility standard applies equally to
motions to dismiss based on a statute of limitations defense.
See Schenker AG v. Société Air France, 102 F. Supp. 3d 418, 422
(E.D.N.Y. 2015).
Even so, the statute of limitations is an
affirmative defense, and the defendant bears the burden of
7
In addition to Rule 12(b)(6)’s facial plausibility standard,
the Plaintiffs’ fraudulent inducement claim is subject to
Federal Rule of Civil Procedure 9(b)’s heightened pleading
standard. Because this cause of action is time-barred as
pleaded, however, the Court need not consider whether the
Plaintiffs met this heightened pleading standard.
11
proving it applies. FED. R. CIV. P. 8(c); Ellington Long Term
Fund, Ltd. v. Goldman, Sachs & Co., No. 09 Civ. 9802 (RJS), 2010
WL 1838730, at *2 (S.D.N.Y May 4, 2010).
Therefore, “the
survival of a [complaint in the face of a] Rule 12(b)(6) motion
to dismiss on statute of limitations grounds requires only
allegations consistent with a [facially plausible] claim that
would not be time-barred.” Harris v. City of N.Y., 186 F.3d 243,
251 (2d Cir. 1999). 8
C.
Discussion
A federal court sitting in diversity in New York applies
the choice-of-law rules of New York. Thea v. Kleinhandler, 807
F.3d 492, 497 (2d Cir. 2015).
New York law honors the parties’
choice of New York substantive law in their choice-of-law
clauses, but does not consider the election of New York law to
include an election of New York’s statutes of limitations unless
the parties explicitly indicate such a choice. See Portfolio
Recovery Assocs. v. King, 14 N.Y.3d 410, 416 (2010).
Where, as here, a nonresident plaintiff suffers an injury
outside of the state, New York’s choice-of-law rules require a
8
Although Harris was decided prior to the Supreme Court’s
retirement of the no-set-of-facts pleading standard, its holding
with regards to motions to dismiss based on statute of
limitations grounds remains good law, so long as the claim
stated in the complaint meets Iqbal and Twombly’s plausibility
standard. See Ellington, 2010 WL 1838730, at *2.
12
court to apply the shorter limitations period, including all
relevant tolling provisions, between New York and the state
where the cause of action accrued.
N.Y. C.P.L.R. § 202; see
Thea, 807 F.3d at 497; Stuart v. Am. Cyanamid Co., 158 F.3d 622,
627 (2d Cir. 1998).
A claim accrues under New York law at the
time and the place of injury. Glob. Fin. Corp. v. Triarc Corp.,
93 N.Y.2d 525, 529 (1999).
Where the “injury is purely
economic, the place of injury usually is where the plaintiff
resides and sustains the economic impact of the loss.” Id.
The
Plaintiffs, who are both Ohio corporations with their principal
places of business in Ohio, allege economic injury and, thus,
sustained their injury in Ohio, where their claims accrued.
The
Defendants assert that each of the Plaintiffs’ fraudulent
inducement, breach of contract, unjust enrichment, and
declaratory judgment causes of action is barred by the statute
of limitations.
As explained below, the Court applies New York
substantive law and the shorter applicable statute of
limitations as between Ohio and New York for each cause of
action. 9
9
The parties do not contend that any state’s statutes of
limitations periods apply to the Plaintiffs’ claims other than
New York’s. See Defs.’ Mem. of Law in Support of Mot. to Dismiss
4 n.2 [hereinafter “Mem.”]. See generally Opp’n.
13
1.
Fraudulent Inducement
The Plaintiffs bring both fraudulent inducement and breach
of contract claims. (See FAC ¶¶ 50-72.)
The Defendants seek
dismissal of the fraudulent inducement claim as duplicative of
the breach of contract claims and as untimely. (Defs.’ Mem. of
Law in Support of Mot. to Dismiss 4-9 [hereinafter “Mem.”].)
Because this Court finds that the fraudulent inducement claim is
untimely, it need not consider whether the fraudulent inducement
claim should also be considered duplicative of the breach of
contract claims.
In New York, a plaintiff alleging fraud must bring an
action either six years from the date that the cause of action
accrued or two years from when the plaintiff discovered (or with
reasonable diligence could have discovered) the fraud. N.Y.
C.P.L.R. § 213(8).
Ohio’s statute of limitations governing
fraud, by contrast, requires a plaintiff to bring an action
within four years from the date that the fraud is or reasonably
should be discovered. OHIO REV. CODE § 2305.09(C); Cundall v. U.S.
Bank, 909 N.E.2d 1244, 1249 (Ohio 2009).
The Plaintiffs allege two separate injuries caused by the
Defendants’ fraud:
(1) direct liability for Orbis’s attorney’s
fees and (2) the value of the patent license agreement. (FAC
¶¶ 6, 48-49.)
14
The Federal Circuit’s July 2, 2015 opinion addressed and
mooted 10 the Plaintiffs’ first alleged injury. See Buckhorn Inc.,
618 F. App’x at 1007 (reversing the district court’s ruling that
Myers and Buckhorn are directly liable to Orbis for attorney’s
fees).
Drawing all reasonable inferences in favor of the
Plaintiffs, the injury involving loss of the value of the
contract could be truthfully alleged as of March 8, 2007, when
the parties executed the patent license agreement. See Carbon
Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d
Dep’t 2011) (holding that a party seeking recovery of contract
price under a fraudulent inducement theory suffered injury on
the date the parties entered the contract).
Accordingly, under
New York’s limitations period running from accrual, the last
date for the Plaintiffs to timely allege their fraud claim
passed on March 8, 2013.
Similarly, the Plaintiffs could with reasonable diligence
have discovered the fraud no later than November 22, 2011, when
the Southern District of Ohio ruled that the Orbis License was
valid and predated the patent license agreement. (See FAC
10
“A case becomes moot when interim relief or events have
eradicated the effects of the defendant’s act or omission, and
there is no reasonable expectation that the alleged violation
will recur.” Irish Lesbian & Gay Org. v. Giuliani, 143 F.3d 638,
647 (2d Cir. 1998).
15
¶ 44.) 11
Under New York’s limitations period running from
discovery, the last date for the Plaintiffs to timely allege
their fraud claim passed on November 22, 2013.
Under Ohio’s
limitations period, that statute of limitations did not run
until November 22, 2015.
Because New York’s statute of limitations is shorter here,
it governs.
The statute of limitations governing the
Plaintiffs’ fraudulent inducement claim ran on November 22,
2013, and, therefore, the claim is untimely and is dismissed.
2.
Breach of the Patent License Agreement
and the Asset Purchase Agreement
The Plaintiffs allege that the Defendants breached both the
patent license agreement and the asset purchase agreement. (Id.
¶¶ 58-72.)
In each of these causes of action, the Plaintiffs
assert that SAS breached the representations and warranties in
the agreement. (Id. ¶¶ 62, 70.)
11
Both New York and Ohio law would likely consider the
Plaintiffs to have discovered the fraud earlier (for example,
when Orbis first produced the Orbis License on May 28, 2010)
because both states’ law requires only that the plaintiff
possess knowledge of the facts from which the fraud could be
reasonably inferred. See Sargiss v. Magarelli, 12 N.Y.3d 527,
532 (2009); Cundall, 909 N.E.2d at 1250. For the purposes of
this motion to dismiss, however, the Court draws the reasonable
inference in favor of the Plaintiffs that, prior to the Southern
District of Ohio’s decision, a jury could determine the
Plaintiffs’ prior knowledge was only “mere suspicion.” Sargiss,
12 N.Y.3d at 532.
16
New York law provides for a six-year statute of limitations
for causes of action upon a contractual obligation or liability.
N.Y. C.P.L.R. § 213(2).
When a plaintiff seeks to recover for
breach of a contract’s representations and warranties, that
action can only be brought within six years of the date of the
contract execution. See ACE Sec. Corp. v. DB Structured Prods.,
Inc., 25 N.Y.3d 581, 596 (2015); Deutsche Bank Nat’l Tr. Co. v.
Quicken Loans Inc., 810 F.3d 861, 865 (2d Cir. 2015).
Ohio’s statute of limitations for written contracts is
eight years. OHIO REV. CODE § 2305.06.
A breach of contract cause
of action does not accrue “until the complaining party suffers
actual damages as a result of the alleged breach.” Kincaid v.
Erie Ins. Co., 944 N.E.2d 207, 210 (Ohio 2010). 12
The parties executed the contracts at issue here on March 7
and 8, 2007.
Therefore, the Plaintiffs’ claim that the
Defendants breached the representations and warranties of the
asset purchase agreement expired on March 7, 2013, and their
same claim pertaining to the patent license agreement expired on
March 8, 2013.
Under Ohio law, the earliest date that the
12
Ohio reduced its statute of limitations on claims arising
from written contracts from fifteen years to eight years
effective September 28, 2012. See 2012 Ohio Laws 135. For
causes of action that accrued prior to that date, the period of
limitations ends fifteen years from the date of accrual or
September 28, 2020, whichever occurs first. Id.
17
statute of limitations could run given the dates that the
parties executed the contracts is September 28, 2020.
New York’s shorter statutory limitations period governs
here.
Since the Plaintiffs first filed this lawsuit on August
29, 2014, their breach of contract claims are too late and are
dismissed.
3. No Equitable Estoppel or Tolling Doctrines Apply to the
Plaintiffs’ Fraudulent Inducement or Breach of Contract Claims
The Plaintiffs implicitly concede that their claims for
fraudulent inducement and breach of contract are time-barred in
their opposition brief and argue instead that either the
Defendants should be equitably estopped from raising the statute
of limitations as a defense or the continuing wrong or
continuous representation doctrines toll the statute of
limitations period. (Opp’n 17-21.)
The Defendants reply that equitable estoppel is
inapplicable because the Plaintiffs failed to adequately plead
the subsequent misrepresentations that they claim to have relied
on in delaying the commencement of suit and, even if they had
done so, the Plaintiffs’ timely knowledge of the facts
underlying the alleged misrepresentations precludes application
of equitable estoppel. (Defs.’ Reply Mem. of Law in Support of
Mot. to Dismiss 7-8.)
The Defendants also contest the
applicability of the continuing wrong doctrine because the
18
Plaintiffs assert simply the ongoing effects of one contractual
breach. (Id. at 9.)
Because the Plaintiffs’ fraudulent inducement and breach of
contract causes of action would be timely under Ohio law, the
Court considers only the application of equitable estoppel, the
continuing wrong doctrine, and the continuous representation
doctrine under New York law.
For the reasons explained below,
neither equitable estoppel nor either tolling doctrine applies
here.
a.
Equitable Estoppel Does Not Apply Because the Plaintiffs
Allege Only That the Defendants Failed to
Disclose the Wrongs Committed
Where, as here, the Defendants have shown that the FAC is
facially inconsistent with timely fraudulent inducement and
contractual claims, they are generally entitled to dismissal of
those claims as time-barred.
Under the doctrine of equitable
estoppel, however, New York law will deny a defendant the
benefit of a statute of limitations defense where the
defendant’s affirmative wrongdoing produced the long delay
between the accrual of the cause of action and the institution
of the legal proceeding. Putter v. N. Shore Univ. Hosp., 7
N.Y.3d 548, 552 (2006).
The plaintiff must assert additional
acts beyond the original injurious one and “may not rely on the
same act that forms the basis for the claim—the later fraudulent
misrepresentation must be for the purpose of concealing the
19
former tort.” Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478,
491 (2007).
The Plaintiffs allege only one additional act in the FAC—
that the Defendants failed to disclose the Orbis License. (See
FAC ¶ 43.)
Where, as here, “the alleged concealment consisted
of nothing but defendants’ failure to disclose the wrongs they
had committed, [New York courts] have held that the defendants
were not estopped from pleading a statute of limitations
defense.” Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 789
(2012).
Solely in their opposition brief, the Plaintiffs assert
that, in the Ohio Action, “SAS maintained that the [Orbis
License] had been breached, had not been properly transferred to
Orbis, was no longer valid, or did not include the ’592 Patent.”
(Opp’n 19.)
While the Court would ordinarily decline to
consider these new allegations raised for the first time in an
opposition brief, it must consider these potential claims to
determine whether these causes of action should be dismissed
with prejudice (because amendment would be futile) or without
prejudice with leave to amend.
See Fisk v. Letterman, 424 F.
Supp. 2d 670, 676 (S.D.N.Y.) (Francis, Mag. J.), adopted by 424
F. Supp. 2d 670 (S.D.N.Y. 2006).
Even if Plaintiffs pleaded these allegations in the FAC,
they would be insufficient to meet the Plaintiffs’ burden of
20
establishing that equitable estoppel should apply here.
These
additional misrepresentations, which must have been made prior
to the Southern District of Ohio’s November 22, 2011 decision,
ceased to be operational within the original limitations period.
After that November 22, 2011 decision, more than 15 months
remained before termination of the statutory limitations period
for contractual breaches, which ran in March 2013, and the full
two-year discovery period remained for fraud.
In New York,
“[t]he doctrine of equitable estoppel will not apply if the
plaintiff possesses ‘timely knowledge’ sufficient to place him
or her under a duty to make inquiry and ascertain all the
relevant facts prior to the expiration of the applicable Statute
of Limitations.” Harris v. Wilmorite Corp., 266 A.D.2d 902, 902
(4th Dep’t 1999) (quoting McIvor v. Di Benedetto, 121 A.D.2d
519, 520 (2d Dep’t 1986))); see also Simcuski v. Saeli, 44
N.Y.2d 442, 449-50 (1978). Thus, even if the Plaintiffs were
lulled into inactivity until November 2011, their possession of
timely knowledge of the alleged breaches makes the doctrine of
equitable estoppel inapplicable here.
b. The Continuing Wrong Doctrine Does Not Toll the Limitations
Period Because the Plaintiffs Fail to Allege That the Defendants
Committed Any Ongoing Wrongs
The continuing wrong doctrine “is usually employed where
there is a series of continuous wrongs and serves to toll the
running of a period of limitations to the date of the commission
21
of the last wrongful act.” Selkirk v. State, 249 A.D.2d 818, 819
(3d Dep’t 1998).
Thus, “it may only be predicated on continuing
unlawful acts and not on the continuing effects of earlier
unlawful conduct.” Id.
The Plaintiffs’ claims of fraudulent inducement and breach
of contract accrued on the dates of execution, March 7 and 8,
2007.
The Plaintiffs fail to allege that the Defendants
committed any subsequent unlawful act.
While the Plaintiffs may
have continued to feel the loss of the value of the patent
license agreement over time, their failure to allege that the
Defendants committed any additional wrongs precludes application
of the continuing wrong doctrine.
See Pike v. N.Y. Life Ins.
Co., 72 A.D.3d 1043, 1048 (2d Dep’t 2010) (rejecting the
application of the continuing wrong doctrine where the
plaintiffs alleged they were induced to purchase unsuitable
insurance policies but could not point to a specific wrong that
occurred subsequently even though the insurer continued to
accept payment of premiums).
Additionally, in breach of contract claims, New York courts
apply the continuing wrong doctrine where a defendant’s duty
under the contract is ongoing. See, e.g., Bulova Watch Co. v.
Celotex Corp., 46 N.Y.2d 606, 611 (1979); Beller v. William Penn
Life Ins. Co. of N.Y., 8 A.D.3d 310, 314 (2d Dep’t 2004).
Plaintiffs have failed to identify any ongoing duty in the
22
The
representations and warranties that they allege the Defendants
breached in order to justify the tolling of the statute of
limitations for their breach of contract claims. 13
c. The Plaintiffs Failed to Plead Facts and Claims That Support
Invoking and Expanding the Continuous Representation Doctrine
The Plaintiffs assert that if equitable estoppel does not
bar the Defendants’ statute of limitations defense and the
continuing wrong doctrine does not apply to toll the limitations
period, then this Court should expand the continuous
representation doctrine—a toll unique to malpractice causes of
action—to fit here. (Opp’n 21-22.)
With regards to malpractice claims, New York courts
“appreciate[] the client’s dilemma if required to sue the
attorney while the latter’s representation on the matter at
issue is ongoing:
. . . . ‘Since it is impossible to envision a
situation where commencing a malpractice suit would not affect
the professional relationship, the rule of continuous
representation tolls the running of the Statute of Limitations
13
Here, again, the Plaintiffs’ additional (not pleaded)
allegations that “SAS maintained that the [Orbis License] had
been breached, had not been properly transferred to Orbis, was
no longer valid, or did not include the ’592 Patent,” (Opp’n
19), if pleaded, would still fail to support application of the
continuing wrong doctrine. These allegations fail to identify
any specific wrong that occurred as a result of these
statements. Thus, any wrong accrued at the time of contract
execution. See Pike, 72 A.D.3d at 1048.
23
on the malpractice claim until the ongoing representation is
completed.’” Shumsky v. Eisenstein, 96 N.Y.2d 164, 167-168
(2001) (quoting Glamm v. Allen, 57 N.Y.2d 87, 94 (1982)).
The Plaintiffs do not assert malpractice claims and allege
no facts about any of the positions taken in the Ohio Action to
suggest why expanding the doctrine beyond malpractice claims
would be appropriate here.
More generally, the Plaintiffs
misunderstand the purpose of the continuous representation
doctrine.
In malpractice actions, “a client cannot reasonably
be expected to assess the quality of the professional service
while it is still in progress.” W. Vill. Assocs. Ltd. P’ship v.
Balber Pickard Battistoni Maldonado & Ver Dan Tuin PC, 49 A.D.3d
270, 270 (1st Dep’t 2008).
The Plaintiffs do not assert that
they failed to identify the claims against the Defendants
because of their co-party status or because of their joint
representation. 14
Rather, the Plaintiffs merely assert that they
“could not reasonably be expected to take a position adverse to
SAS” while the Ohio Action was pending. (Opp’n 21.)
Presumably,
the Plaintiffs believe this to be so merely because of their
status as co-parties with SAS.
But the Federal Rules of Civil
14
Although not alleged in the FAC, the Plaintiffs state in
their opposition brief that, in the Ohio Action, they both
shared counsel with SAS and retained their own independent
counsel. (Opp’n 21 & n.19.)
24
Procedure specifically contemplate that co-parties may also be
adverse. See FED. R. CIV. P. 13(g). 15
Accordingly, the continuous
representation doctrine cannot be applied to toll the statute of
limitations for fraudulent inducement and breach of contract
claims between arms-length business partners merely because of
their status as co-plaintiffs.
4.
Unjust Enrichment
The Plaintiffs argue, in the alternative, that the
Defendants are responsible for damages resulting from the
Defendants’ unjust enrichment. (FAC ¶¶ 78-84; Opp’n 24-25.)
The
Defendants argue that this cause of action is time-barred and
that it is duplicative of the Plaintiffs’ breach of contract
claims because there is no dispute that two valid express
contracts exist. (Mem. 10-12.)
This Court finds that the
Plaintiffs’ unjust enrichment claim is barred by their expired
fraudulent inducement and breach of contract claims and their
surviving declaratory judgment claim.
In New York, an “[u]njust enrichment is an equitable claim
that is unavailable where an adequate remedy at law exists.”
15
The Court recognizes that crossclaims are permissive and, in
light of the at-issue agreements’ jurisdiction clauses, it was
reasonable for the Plaintiffs not to bring crossclaims in the
Southern District of Ohio. It is equally reasonable, however,
to expect the Plaintiffs to bring timely suit against the
Defendants in a separate action consistent with these
jurisdiction clauses.
25
Fed. Treasury Enterprise Sojuzplodoimport v. Spirits Int’l N.V.,
400 F. App’x 611, 613 (2010) (amended summary order).
The
Plaintiffs’ unjust enrichment claim seeks restitution for two
injuries:
(1) the value of the contract (FAC ¶¶ 79, 84
(alleging that SAS retained the “amounts paid by Myers in
consideration for the Asset Purchase Agreement and the SAS/Myers
Patent License Agreement”)) and (2) the costs, expenses, and
attorney’s fees incurred in the Ohio Action (FAC ¶¶ 83-84
(alleging that SAS was unjustly enriched by the “amounts that
Buckhorn has paid and will continue to pay to defend the claims
of Orbis in connection with the [Orbis] License Agreement”)).
As explained below, the costs, expenses, and attorney’s fees
from the Ohio Action are also sought in the Plaintiffs’
surviving declaratory judgment action.
Similarly, the return of
the amounts paid as consideration for the asset purchase
agreement and patent license agreement is the same value-of-thecontract remedy the Plaintiffs seek under their time-barred
fraudulent inducement and breach of contract claims.
While the
Plaintiffs are time-barred from bringing these claims at law,
“[a]n equitable claim cannot proceed where the plaintiff has had
and let pass an adequate alternative remedy at law.” See Spirits
Int’l N.V., 400 F. App’x at 614 (quoting Norris v. Grosvenor
Mktg. Ltd., 803 F.2d 1281, 1287 (2d Cir. 1986), superseded on
other grounds by rule, FED. R. CIV. P. 11, as recognized in Ipcon
26
Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 63 (2d
Cir. 2012)).
As a result, the Plaintiffs’ unjust enrichment
claim is barred.
5.
Breach of Guaranty
The Plaintiffs fail to state a claim against SAS BV for
breach of guaranty because they have not alleged any underlying
debt.
A prima facie case for breach of a written guaranty in
New York requires a plaintiff to establish (1) an absolute and
unconditional guaranty, (2) the underlying debt, and (3) the
guarantor’s failure to satisfy the unpaid debt. City of N.Y. v.
Clarose Cinema Corp., 256 A.D.2d 69, 71 (1st Dep’t 1998).
On
July 2, 2015, the Federal Circuit concluded that the Plaintiffs
here were not liable to Orbis directly for its attorney’s fees.
See Buckhorn Inc., 618 F. App’x at 1006-07.
The Plaintiffs
fraudulent inducement, breach of contract, and unjust enrichment
claims are each barred as explained above.
Accordingly, based
on the facts as alleged in the FAC, SAS does not owe a debt to
the Plaintiffs and SAS BV has not yet breached the guaranty.
6.
Declaratory Judgment
Finally, the Plaintiffs seek a declaratory judgment that
(1) they are not liable to any party for the fee awards issued
in the Ohio Action or for any other amounts or damages due to
Orbis; (2) SAS is obligated to indemnify the Plaintiffs under
the asset purchase agreement and/or the patent license agreement
27
for any and all amounts wrongfully incurred as a result of SAS’s
breaches and wrongful conduct; and (3) SAS BV is responsible
under its guaranty in the asset purchase agreement for any
amounts SAS does not pay. (FAC ¶¶ 88-91.)
The Defendants argue
that the declaratory judgment cause of action is barred as
duplicative of the breach of contract claim and barred by the
statute of limitations. (Mem. 13-14.)
This Court finds that the
declaratory judgment action is distinct and timely.
a.
The Declaratory Judgment Standard
The Declaratory Judgment Act permits a district court to
exercise jurisdiction over a proposed declaratory judgment
action when an actual controversy exists. See 28 U.S.C.
§ 2201(a).
A district court has broad discretion when
considering whether to exercise its jurisdiction under the
Declaratory Judgment Act. Dow Jones & Co. v. Harrods Ltd., 346
F.3d 357, 359 (2d Cir. 2003).
Thus, under the Declaratory Judgment Act, a district court
must first determine whether an actual controversy exists and
then decide whether it will exercise jurisdiction over that
controversy.
i.
An Actual Controversy Exists
An actual controversy is one where “the facts alleged,
under all circumstances, show that there is a substantial
controversy, between parties having adverse legal interests, of
28
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549
U.S. 118, 127 (2007) (quoting Md. Cas. Co v. Pac. Coal & Oil
Co., 312 U.S. 270, 273 (1941)).
The parties do not dispute that there is an actual
controversy here; however, because this determination invokes
the court’s subject matter jurisdiction under Article III of the
U.S. Constitution, it must be considered. FED. R. CIV. P.
12(h)(3); Transatlantic Marine Claims Agency, Inc. v. Ace
Shipping Corp., 109 F.3d 105, 107 (2d Cir. 1997).
The
Plaintiffs allege facts sufficient to suggest that the
Plaintiffs and Defendants assert competing interpretations of
the patent license agreement and asset purchase agreement that
would result in opposite outcomes when determining the parties’
ultimate liability for Orbis’s attorney’s fees and for the
Plaintiffs’ costs, expenses, and attorney’s fees in the Ohio
Action.
This is an actual controversy sufficient to invoke the
court’s subject matter jurisdiction and to require the court to
consider whether to exercise its discretion under the second
step.
ii.
The Court Will Exercise Jurisdiction Over the Declaratory
Judgment Action
If an actual controversy exists, the Court retains broad
discretion to exercise jurisdiction over the declaratory
29
judgment action.
The Second Circuit instructs its district
courts to consider the following factors in exercise of their
discretion:
(1) whether the judgment will serve a useful
purpose in clarifying or settling the legal issues involved;
(2) whether a judgment would finalize the controversy and offer
relief from uncertainty; (3) whether the proposed remedy is
being used merely for “procedural fencing” or a “race to res
judicata;” (4) whether the use of declaratory judgment would
increase friction between sovereign legal systems or improperly
encroach on the domain of a state or foreign court; and
(5) whether there is a better or more effective remedy. See New
York v. Solvent Chem. Co., 664 F.3d 22, 26 (2d Cir. 2011)
(quoting Dow Jones & Co., 346 F.3d at 359-60).
When considering the first two factors—whether the judgment
will serve a useful purpose in clarifying or settling legal
issues involved and offer relief from uncertainty—this Court has
previously declined to exercise jurisdiction over a declaratory
judgment action that duplicates an available coercive action.
See, e.g., Camofi Master LDC v. Coll. P’ship, Inc., 452 F. Supp.
2d 462, 480 (S.D.N.Y. 2006); Sofi Classic S.A. de C.V. v.
Hurowitz, 444 F. Supp. 2d 231, 249-50 (S.D.N.Y. 2006).
Defendants urge the Court to do the same here.
The
The Court
declines to do so, however, because the Plaintiffs’ declaratory
30
judgment cause of action is not duplicative of their fraudulent
inducement or breach of contract claims.
In New York, duplicative claims arise from the same facts
and allege the same damages. NetJets Aviation, Inc. v. LHC
Commc’ns, LLC., 537 F.3d 168, 175 (2d Cir. 2008) (citing Sitar
v. Sitar, 50 A.D.3d 667, 670 (2d Dep’t 2008)).
“Where a
claimant is entitled to a particular category of damages on one
claim but not the other, the claims are not duplicative.” Id.
On a valid fraudulent inducement claim, a plaintiff may
recover its “out-of-pocket” damages:
the difference between the
value of the bargain it was fraudulently induced to make and the
value of the consideration exacted as the price of the bargain.
Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, 421
(1996).
On a valid breach of contract claim, “damages for
breach of contract should put the plaintiff in the same economic
position he would have occupied had the breaching party
performed the contract.” Oscar Gruss & Son, Inc. v. Hollander,
337 F.3d 186, 196 (2003).
New York measures contract damages by
the value of the item at the time of the breach. Id.
Consequential damages—which could cover additional damages
like the costs, expenses, and attorney’s fees from the Ohio
Action—are not ordinarily available and require additional proof
to obtain. See Clearview Concrete Products Corp. v. S. Charles
Gherardi, Inc., 88 A.D.2d 461, 468 (2d Dep’t 1982) (holding that
31
consequential damages are available in fraudulent inducement
where the plaintiff can “demonstrate that its reliance on the
false representation resulted in expenditures which would not
otherwise have been incurred”); Kenford Co. v. Cty. of Erie, 73
N.Y.2d 312, 319 (1989) (holding that consequential damages in a
breach of contract action are “unusual or extraordinary damages”
and “must have been brought within the contemplation of the
parties as the probable result of a breach at the time of or
prior to contracting” (quoting Chapman v. Fargo, 223 N.Y. 32, 36
(1918)).
The portion of the Plaintiffs’ declaratory judgment action
seeking costs, expenses, and attorney’s fees from the Ohio
Action is a claim for contractual indemnity.
Recovery under an
indemnity provision is defined by the terms of that provision.
See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine
Host Corp., 418 F.3d 168, 179 (2d Cir. 2005) (holding that a
plaintiff’s recovery was limited to losses and liabilities
provided for in the indemnity clause).
The indemnity provisions
at issue here provide for payment of “indirect or direct claims,
losses, damages, Liabilities, expenses or costs” “(including
reasonable attorneys’ fees and expenses).” (FAC Ex. B art. I, at
4.)
Because the indemnity claim provides for recovery of
indirect injuries and attorney’s fees, which are not ordinarily
included in fraudulent inducement and breach of contract claims,
32
as pleaded, the Plaintiffs’ claim for contractual
indemnification is not duplicative of either their fraudulent
inducement or breach of contract claims. See NetJets, 537 F.3d
at 175.
Similarly, the portion of the Plaintiffs’ declaratory
judgment action seeking a declaration of nonliability for
Orbis’s attorney’s fees seeks distinct relief from the
fraudulent inducement and breach of contract claims, because the
damages recovered under either claim would not resolve the
Plaintiffs’ potential liability to SAS for Orbis’s award in the
Ohio Action.
Indeed, a declaratory judgment action in this matter would
clarify the parties’ legal obligations to one another and offer
relief from uncertainty because it would determine the single
issue that the Federal Circuit expressly declined to address in
its July 2, 2015 opinion:
whether the Plaintiffs are liable to
Defendants under the patent license agreement for Orbis’s award
of attorney’s fees in the Ohio Action.
It would also clarify
whether, under the asset purchase agreement or patent license
agreement, the Defendants are liable for the Plaintiffs’ own
costs, expenses, and attorney’s fees associated with the Ohio
Action.
The remaining factors also favor this Court exercising
discretion over a declaratory judgment action.
33
First, there is no suggestion that the Plaintiffs seek a
declaratory judgment as procedural gamesmanship or as a race to
res judicata.
The patent license agreement and asset purchase
agreement limit jurisdiction to New York state or federal courts
by their express terms. (See FAC Ex. B § 10.11; id. Ex. C
§ 7.12); Buckhorn Inc., 618 F. App’x at 1006 (“Under the express
terms of the [patent license] agreement, an Ohio court cannot
enforce the agreement.”).
Moreover, there is no other action
currently pending to raise concerns that the Plaintiffs are
seeking to win the race to res judicata.
See generally Buckhorn
Inc., No. 3:08-cv-459 (terminated as of April 22, 2014).
Second, there is no risk of encroaching on the domain of
another court because the patent license agreement and asset
purchase agreement limit jurisdiction to New York state or
federal courts, and the Southern District of Ohio and Federal
Circuit have expressly declined to entertain the actions that
would provide the relief sought here.
Third, no better or more effective remedy exists here.
Plaintiffs could perhaps bring a coercive breach of contract
The
claim for the portion of the declaratory judgment action that
seeks indemnity for the Plaintiffs’ own costs, expenses, and
attorney’s fees from the Ohio Action, but dismissing on this
ground would exalt form over substance.
The Plaintiffs have
pleaded facts sufficient on motion to dismiss to reasonably
34
infer that SAS breached its alleged duty to indemnify. (See FAC
¶ 92 (“SAS has refused to honor its indemnification obligations
. . . .”).)
Moreover, when the Plaintiffs filed this suit, the
Ohio Action was ongoing and the Plaintiffs presumably continued
to incur costs, expenses, and attorney’s fees.
The Court will
not decline jurisdiction based on the Plaintiffs’ election to
use one available procedural device instead of another. See City
of Rome, N.Y. v. Verizon Commc’ns, Inc., 362 F.3d 168, 174 n.3
(2d Cir. 2004) (observing that one purpose of the Declaratory
Judgment Act “is to furnish a less formidable alternative to
injunctive relief” and that “[t]he coercive action implicated by
a declaratory judgment suit will not, therefore, always be that
of the defendant, but may instead be that of the declaratory
judgment plaintiff.”).
b.
The Declaratory Judgment Cause of Action Is Timely
“Because a declaratory judgment action is a procedural
device used to vindicate substantive rights, it is time-barred
only if relief on a direct claim based on such rights would also
be barred.” Stone v. Williams, 970 F.2d 1043, 1048 (2d Cir.
1992); accord Toledo Museum of Art v. Ullin, 477 F. Supp. 2d
802, 806 (N.D. Ohio 2006).
The Defendants assert that the
Plaintiffs’ declaratory judgment cause of action arises from the
parties’ contractual relationship and, therefore, it should be
governed by N.Y. C.P.L.R. § 213(2).
35
This is correct, but it
only resolves part of the issue.
Equally important to
timeliness is when the claim accrued.
As noted above, the Plaintiffs seek two separate
declarations.
First, they seek a declaration of nonliability to
the Defendants under the patent license agreement for Orbis’s
attorney’s fees.
Second, they seek affirmative relief that they
are entitled to recover their own costs, expenses, and
attorney’s fees from the Ohio Action from the Defendants under
the patent license agreement, the asset purchase agreement, or
both.
i.
As explained below, each declaration is timely.
The Plaintiffs’ Cause of Action Seeking a Declaration of
Nonliability for Orbis’s Attorney’s Fees Is Timely
The Plaintiffs’ claim for a declaration of nonliability to
the Defendants under the patent license agreement “is the
negative of the claim or cause of action with respect to which
the declaration is sought.” Luckenbach S.S. Co. v. United
States, 312 F.2d 545, 549 (2d Cir. 1963).
Therefore, “[f]or
purposes of the statute of limitations non-liability is
inextricably linked with the cause of action.
So long as the
claim can be made, its negative can be asserted.” Id.; accord
Toledo Museum of Art, 477 F. Supp. 2d at 806.
The Plaintiffs’
claim for nonliability here is the negative of the Defendants’
claim for indemnification under section 3.03 of the patent
license agreement.
36
In New York, a contractual indemnification claim is
governed by N.Y. C.P.L.R. § 213(2)’s six-year statute of
limitations.
An indemnification claim accrues only when the
party seeking indemnification has made payment to the injured
person. See McDermott v. City of N.Y., 50 N.Y.2d 211, 216
(1980).
In Ohio, a contractual indemnification claim is governed by
OHIO REV. CODE § 2305.06’s eight-year statute of limitations.
When
“the contract provides indemnity against loss, the alleged
indemnitor becomes liable and the cause of action accrues when
the person seeking an indemnity suffers a loss.” Firemen’s Ins.
Co. of Newark, N.J. v. Antol, 471 N.E.2d 831, 833 (Ohio Ct. App.
1984).
Under each state’s law, the claims accrue at the same time.
Therefore, New York’s shorter six-year statute of limitation
applies.
While the date of the Defendants’ payment is not
alleged in the FAC, the Southern District of Ohio fixed the
Defendants’ liability to Orbis no earlier than April 22, 2014.
The Court can reasonably infer that, if payment has been made,
it did not occur earlier than that date.
Therefore, the
Plaintiffs cause of action seeking a declaration of nonliability
to the Defendants under the patent license agreement for Orbis’s
attorney’s fees in the Ohio Action is timely.
37
ii. The Plaintiffs’ Cause of Action Seeking a Declaration that
the Defendants Are Responsible to the Plaintiffs for Costs,
Expenses, and Attorney’s Fees Associated with
the Ohio Action Is Timely
The Plaintiffs’ claim for a declaration that the Defendants
must indemnify the Plaintiffs’ for the Plaintiffs’ own costs,
expenses, and attorney’s fees from the Ohio Action is
contractual in nature and is, therefore, also governed by N.Y.
C.P.L.R. § 213(2)’s shorter six-year statute of limitations.
As
noted above, an indemnity claim accrues when the indemnitee
suffers a loss.
The Plaintiffs first filed suit in the Ohio
Action on December 12, 2008, less than six years prior to filing
the complaint in the present action.
Drawing all reasonable
inferences in the Plaintiffs’ favor, a declaratory judgment
ruling that the Defendants must indemnify the Plaintiffs for the
Plaintiffs’ own costs, expenses, and attorney’s fees from the
Ohio Action, would permit recovery at least as far back as the
date that the Plaintiffs first initiated the Ohio Action.
Conclusion
For the foregoing reasons, the Defendants’ motion to
dismiss the Plaintiffs’ FAC is GRANTED as to the Plaintiffs’
causes of action for fraudulent inducement, breach of the patent
license agreement, breach of the asset purchase agreement,
breach of guaranty, and unjust enrichment.
38
The Defendants’
motion to dismiss is DENIED as to the Plaintiffs' cause of
action for declaratory judgment.
Ordinarily, dismissal under Federal Rule of Civil Procedure
The Court finds, however, that
12(b) is without prejudice.
amendment of the fraudulent inducement, breach of the patent
license agreement, and breach of the asset purchase agreement
claims would be futile because these claims are time-barred.
The Court also finds that amendment of the unjust enrichment and
breach of guaranty claims would be futile because these claims
are substantively defective.
Accordingly, these causes of
action are DISMISSED WITH PREJUDICE. See Van Buskirk v. N.Y.
Times Co., 325 F. 3d 87,
92
(2d Cir. 2003); Cuoco v. Moritsugu,
222 F.3d 99, 112 (2d Cir. 2000).
Counsel are directed to appear in Courtroom 20-C on
Thursday, April 21, 2016, at 11:15 a.m. for a conference to
discuss the case management plan and scheduling order and
specifically, whether the Court should order a speedy hearing of
the declaratory judgment action in accordance with Federal Rule
of Civil Procedure 57.
SO ORDERED.
Dated:
New York, New York
Marcht..__l, 2016
(c{_ ___ ,_/
~
John F. Keenan
United States District Judge
39
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