Advanced Water Technologies Inc. v. Amiad U.S.A., Inc.

Filing 25

OPINION & ORDER re: 12 MOTION to Dismiss The Complaint. filed by Amiad U.S.A., Inc. For the foregoing reasons, Amiad's motion to dismiss is DENIED. Amiad shall file an answer to the Complaint no later than twenty-one (21) days after the entry of this Opinion & Order. The Clerk of Court is respectfully directed to terminate the motion pending at Docket Entry 12. SO ORDERED. (Signed by Judge Vernon S. Broderick on 9/30/2019) (mml)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
ADVANCED WATER TECHNOLOGIES
:
INC.,
:
:
:
Plaintiff,
:
:
- against :
AMIAD U.S.A., INC.,
:
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Defendant. :
:
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9/30/2019

18-CV-5473 (VSB)
OPINION & ORDER

Appearances:
Ronald Francis
Ronald Francis Esq.
New York, New York
Counsel for Plaintiff
Courtney Janae Peterson
Noah Weissman
Bryan Cave Leighton Paisner LLP
New York, New York
Counsel for Defendant
VERNON S. BRODERICK, United States District Judge:
Plaintiff Advanced Water Technologies Inc. (“AWT”) brings this breach of contract
action against Amiad U.S.A., Inc. (“Amiad”), arising out of Amiad’s termination of a 2005
contract between the parties designating AWT as the exclusive distributor of Amiad’s water
filtration products in New York City and the surrounding area. Before me is Amiad’s motion to
dismiss AWT’s complaint for failure to state a claim, pursuant to Federal Rule of Civil
Procedure 12(b)(6). Because I find the language of the parties’ agreement to be ambiguous, I
cannot conclude as a matter of law that Amiad was permitted to terminate the contract under the
circumstances presented here. Amiad’s motion to dismiss is therefore DENIED.

Background 1
Plaintiff AWT is a New York corporation that distributes, installs, and services domestic
water filtration systems and products. (Compl. ¶¶ 1, 7.) Defendant Amiad, a California
corporation with a principal place of business in North Carolina, manufactures water filtration
products. (Id. ¶¶ 2, 9.) On March 31, 2005, AWT and Amiad entered into a one-page contract
(the “Agreement,” id. Ex. A), pursuant to which AWT was designated as the exclusive
distributor for wholesale and retail sales of Amiad’s screen filtration products in New York City,
as well as Nassau and Suffolk Counties. (Id. ¶ 10.) The Agreement required AWT to “purchase
an agreed $ volume from Amiad on an annual basis.” (Id. Ex. A.) If AWT did so, “it ha[d] an
automatic right of renewal” of the Agreement. (Id.) The Agreement further provided that the
sales quota for net purchases of Amiad products for 2005 would be $55,000, and stated that
“[t]he annual increase in sales/quota should be a reasonable number and will be jointly agreed
between Amiad and AWT.” (Id.)
From 2005 through April 2018, AWT purchased water filtration products from Amiad for
AWT’s customers in the New York City area. (Id. ¶ 16.) AWT’s total purchases from Amiad
during this time period totaled approximately $4,000,000. (Id.) The parties never agreed to
modify the $55,000 annual sales quota set forth in their 2005 Agreement, and between 2005 and
2018, AWT’s annual sales always exceeded $55,000. (Id. ¶¶ 15–16.) In 2017, AWT sold
approximately $207,000 in Amiad products to New York customers. (Id. ¶ 17.)
On April 13, 2018, Amiad provided notice by letter to AWT that the parties’ Agreement
was “immediately terminate[d]” based on AWT’s failure to pay an overdue balance of

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The following factual summary is drawn from the allegations of the Complaint (“Compl.,” Doc. 1), filed on June
18, 2018, unless otherwise indicated, which I assume to be true for purposes of this motion. See Kassner v. 2nd Ave.
Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). My references to these allegations should not be construed as a
finding as to their veracity, and I make no such findings.

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$18,085.27. (Id. ¶ 19.) On May 1, 2018, AWT rejected Amiad’s purported termination and
remitted payment to Amiad in the amount of $17,399.63, representing the total amount AWT
believed to be owed to Amiad at the time. (Id. ¶ 21.) Amiad refused to cash AWT’s check and
rejected AWT’s subsequent attempts to reconcile its outstanding balance. (Id. ¶¶ 22–23.)
Procedural History
On May 17, 2018, Amiad filed a breach of contract action against AWT in North
Carolina’s Guilford County Superior Court (the “North Carolina action”), seeking damages for
unpaid invoices. See Amiad U.S.A, Inc. v. Advanced Water Techs., Inc., No. 1:18CV520, 2019
WL 1359240, at *1 (M.D.N.C. Mar. 26, 2019). On June 19, 2018, AWT removed the North
Carolina action to the United States District Court for the Middle District of North Carolina. Id.
AWT filed its Complaint in this Court on June 18, 2018, alleging that Amiad—not
AWT—had breached the Agreement by terminating the contract despite AWT having satisfied
all of its obligations under the Agreement, thereby triggering AWT’s automatic right of renewal
for 2018. (See Compl. ¶¶ 24–28.) On September 28, 2018, Amiad filed its motion to dismiss the
Complaint, (Doc. 12), along with a memorandum of law, (Doc. 15), and supporting declarations
with exhibits, (Docs. 13, 14). Amiad asserts that AWT fails to state a claim upon which relief
may be granted and argues, in the alternative, that the Complaint should be dismissed in favor of
the North Carolina action, pursuant to the “first-filed” rule. (See generally Doc. 15.) On
November 5, 2018, AWT filed its opposition to Amiad’s motion, (Doc. 19), also accompanied
by a supporting declaration with exhibits, (Doc. 20). Amiad filed its reply on November 26,
2018, (Doc. 23). On April 3, 2019, AWT filed a notice of supplemental authority indicating that
the North Carolina action had been dismissed for lack of personal jurisdiction over AWT. (Doc.
24.)

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Legal Standard
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a
complaint must contain 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 will have “facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. This standard demands “more than a sheer possibility
that a defendant has acted unlawfully.” Id. “Plausibility . . . depends on a host of considerations:
the full factual picture presented by the complaint, the particular cause of action and its elements,
and the existence of alternative explanations so obvious that they render plaintiff’s inferences
unreasonable.” L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011).
In considering a motion to dismiss, a court must accept as true all well-pleaded facts
alleged in the complaint and must draw all reasonable inferences in the plaintiff’s favor. Kassner
v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). A complaint need not make
“detailed factual allegations,” but it must contain more than mere “labels and conclusions” or “a
formulaic recitation of the elements of a cause of action.” Iqbal, 556 U.S. at 678 (internal
quotation marks omitted). Finally, although allegations contained in a complaint are assumed to
be true, this tenet is “inapplicable to legal conclusions.” Id.
A complaint is “deemed to include any written instrument attached to it as an exhibit or
any statements or documents incorporated in it by reference.” Chambers v. Time Warner, Inc.,
282 F.3d 147, 152 (2d Cir. 2002) (citation omitted). Where a document is not incorporated by
reference, “the court may nevertheless consider it where the complaint relies heavily upon its
terms and effect, which renders the document ‘integral’ to the complaint.” Id. at 153 (internal

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quotation marks omitted). Finally, a court may consider any matters that are subject to judicial
notice, including publicly filed documents. Cortec Indus., Inc. v. Sum Holdings L.P., 949 F.2d
42, 47 (2d Cir. 1991). 2
Discussion
A.

Breach of Contract

Amiad argues that AWT fails to state a breach of contract claim because (1) in the
absence of a 2017 sales quota, Amiad was permitted discontinue AWT’s exclusive distribution
right for 2018; and (2) AWT materially breached the Agreement by failing to timely pay
Amiad’s invoices, thereby permitting Amiad to terminate the contract. Neither argument entitles
Amiad to dismissal at this early stage of the litigation.
1. Applicable Law
Under New York law, 3 a plaintiff claiming a breach of contract must allege: “(i) the
formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of
defendant to perform; and (iv) damages.” Orchard Hill Master Fund Ltd. v. SBA Commc’ns

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The parties dispute whether certain documents—including Amiad’s invoices and various declarations—are integral
to the Complaint or are otherwise appropriately subject to judicial notice. (See Amiad Br. 8 n.2, 11 n.3; AWT
Opp’n 8–11; Amiad Reply 6–7.) (“Amiad Br.” refers to Defendant’s Memorandum of Law in Support of Its Motion
to Dismiss the Complaint, filed September 28, 2018, (Doc. 15). “AWT Opp’n” refers to Plaintiff’s Memorandum of
Law in Opposition to Defendant’s Motion to Dismiss the Complaint, filed November 5, 2018, (Doc. 19). “Amiad
Reply” refers to Defendant’s Reply Memorandum of Law in Support of Its Motion to Dismiss the Complaint, filed
November 26, 2018, (Doc. 23).) Because these documents do not affect the outcome of my decision, I decline to
consider them.
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The parties’ Agreement does not contain a choice-of-law clause but I find that New York law governs. As
jurisdiction in this matter is based on diversity of citizenship, I am bound to apply New York choice-of-law rules.
See, e.g., Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir. 2001) (“A federal trial court sitting in
diversity jurisdiction must apply the law of the forum state to determine the choice-of-law.” (citing Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941))). “In the absence of a choice of law provision, New York courts
apply the law of the forum in which the ‘center of gravity’ . . . is located.” Herald Square Loft Corp. v. Merrimack
Mut. Fire Ins. Co., 344 F. Supp. 2d 915, 918 n.2 (S.D.N.Y. 2004) (quoting Lazard Freres & Co. v. Protective Life
Ins. Co., 108 F.3d 1531, 1539 (2d Cir. 1997)). I conclude that New York is the “center of gravity” of this contract—
which was intended to be performed in New York by a New York corporation—and that the Agreement is therefore
governed by New York law. I also note that neither party argues for the application of another state’s law and that
Amiad appears to agree that New York law applies. (See Amiad Br. 7, 11 (setting forth various rules under “New
York law”).)

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Corp., 830 F.3d 152, 156 (2d Cir. 2016) (citation omitted). A court’s primary objective in
interpreting a contract “is to give effect to the intent of the parties as revealed by the language of
their agreement.” Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill Lynch,
Pierce, Fenner & Smith Inc., 232 F.3d 153, 157 (2d Cir. 2000); see also Greenwich Capital Fin.
Prods., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 (1st Dep’t 2010) (courts are bound to construe the
terms of a contract “in a manner that accords the words their fair and reasonable meaning, and
achieves a practical interpretation of the expressions of the parties” (internal quotation marks
omitted)).
A district court may dismiss a breach of contract claim at the motion-to-dismiss stage
only where “the terms of the contract are unambiguous.” Orchard Hill, 830 F.3d at 156. A
contract is ambiguous “if its terms could suggest more than one meaning when viewed
objectively by a reasonably intelligent person who has examined the context of the entire
integrated agreement and who is cognizant of the customs, practices, usages and terminology as
generally understood in the particular trade or business.” Chesapeake Energy Corp. v. Bank of
N.Y. Mellon Tr. Co., 773 F.3d 110, 114 (2d Cir. 2014) (internal quotation marks omitted). There
is no ambiguity “where the contract language has a definite and precise meaning.” Id.
2. Application
The parties’ Agreement provides, in pertinent part:
AWT must purchase an agreed $ volume from Amiad on an annual basis; if AWT
does not do so, Amiad may elect to continue or discontinue the exclusive nature of
the distribution agreement. The annual increase in sales/quota should be a
reasonable number and will be jointly agreed between Amiad and AWT. If AWT
meets the quota, it has an automatic right of renewal, subject to continued
creditworthiness, continuing and responsible efforts to sell Amiad filtration, and
responsible maintenance of equipment it has sold. The sales quota/target for NET
purchases of Amiad products is US $55,000 in FY 2005 (i.e. January 1 – December
31, 2005).

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(Compl. Ex. A.) Given that the parties never subsequently raised the annual sales quota set forth
in the Agreement, (see id. ¶ 15), AWT reads this language to provide AWT an automatic right of
renewal for 2018 so long as AWT met the $55,000 quota in 2017. Accordingly, because AWT
far exceeded $55,000 in sales in 2017, the Agreement was automatically renewed for 2018 and
Amiad breached the Agreement by terminating it mid-year. Amiad responds that there was no
quota in place for 2017 because the parties did not “jointly agree[]” to an “annual increase” for
that year. As a result, a necessary precondition to AWT’s automatic right of renewal—i.e.,
fulfilling an “increase[d] sales/quota” for 2017—was not satisfied because there was no
applicable sales quota in place. Amiad was therefore free to “continue or discontinue the
exclusive nature of the distribution agreement” at will.
I find both of these readings to be plausible. Although the Agreement allows for the
applicable sales quota to be increased annually, there is no indication in the contract that if the
parties fail to adjust the quota each year, there will cease to be any sales quota at all. I decline to
effectively read such a provision into the Agreement at the motion-to-dismiss stage, particularly
given that the Agreement expressly includes an “agreed $ volume” (i.e., $55,000) that might
reasonably continue to govern unless and until the parties agree to modify it. Cf. May Metro.
Corp. v. May Oil Burner Corp., 290 N.Y. 260, 265 (1943) (declining to find that contract
providing for automatic renewal if plaintiff satisfied a “mutually agreed upon” quota terminated
where parties did not reach agreement as to the following year’s quota, in part because contract
did not contain “any statement that, absent such agreement, the long-existing relationship
[between the parties] shall forthwith be dissolved”).
On the other hand, the Agreement also fails to expressly indicate that if the parties do not
adjust the sales quota each year, the previously agreed upon quota shall remain in effect. The

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Agreement should not be read to permit AWT to bind Amiad to the parties’ exclusive
distribution arrangement in perpetuity simply by meeting the 2005 quota year after year, and
rejecting any attempt by Amiad to raise that quota. See Nat’l Union Fire Ins. Co. of Pittsburgh,
PA v. Monarch Payroll, Inc., No. 15-cv-3642 (PKC), 2016 WL 634083, at *10 (S.D.N.Y. Feb.
17, 2016) (“[A] contract should not be interpreted to produce a result that is absurd,
commercially unreasonable or contrary to the reasonable expectations of the parties.” (citation
omitted)). That said, the Agreement contains language referencing a “reasonable” annual
increase, (Compl. Ex. A), on which Amiad might rely if AWT arbitrarily rejected reasonable,
good faith attempts by Amiad to raise the quota. AWT is also bound by an implied duty of good
faith and fair dealing, which would preclude it from engaging in such abusive conduct. See 19
Recordings Ltd. v. Sony Music Entm’t, 165 F. Supp. 3d 156, 161 (S.D.N.Y. 2016)
(“Under New York law, ‘a covenant of good faith and fair dealing in the course of contract
performance’ is ‘[i]mplicit in all contracts.’” (alternation in original) (quoting Dalton v. Educ.
Testing Serv., 87 N.Y.2d 384, 389 (1995))). Moreover, even if Amiad is correct that AWT did
not have an automatic right to renew the contract for 2018 because there was no 2017 quota in
place for AWT to satisfy, it does not necessarily follow that Amiad was free to terminate the
Agreement in April 2018, effective immediately. The Agreement—which is renewed “on an
annual basis,” (Compl. Ex. A)—certainly permits Amiad to decline to renew the contract for the
following year where AWT has not satisfied an agreed-upon quota; however, it is not clear that
Amiad may terminate the Agreement mid-year. 4

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Amiad also contends that the Agreement is an unenforceable “agreement to agree, in which a material term”—
here, updated sales quotas for the years following 2005—“is left for future negotiations.” (Amiad Br. 9 (quoting
Joseph Martin, Jr. Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109–10 (1981)).) However, the primary case
upon which Amiad relies—which held that a five-year commercial lease that provided for renewal “for an additional
period of five years at annual rentals to be agreed upon” was unenforceable for uncertainty—expressly distinguished

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Because I find that the relevant terms of the parties’ Agreement “could suggest more than
one meaning when viewed objectively by a reasonably intelligent person,” Chesapeake Energy
Corp., 773 F.3d at 114, I cannot conclude that AWT has failed to state a breach of contract
claim.
Amiad argues further that it was entitled to terminate the Agreement because AWT failed
to timely pay certain invoices. (See Amiad Br. 11–12.) AWT concedes in its Complaint that
Amiad purported to justify its termination of the parties’ Agreement on the basis that AWT had
failed “to pay an overdue balance of $18,085.27.” (Compl. ¶ 19.) Shortly after receiving
Amiad’s termination notice, AWT remitted payment to Amiad in the amount of $17,399.63—the
amount that “AWT believed to be the outstanding balance owed to Amiad at that time,” and just
$685.64 less than the amount Amiad claimed was due and owing. (Id. ¶ 21.) Amiad, however,
refused to cash AWT’s check. (Id. ¶ 22.) Instead, Amiad asserts that AWT’s failure to timely
pay its outstanding balance constitutes a material breach of the Agreement, which entitled Amiad
to terminate the contract and sue for damages.
The Second Circuit has explained that a breach is deemed “material” only where it
“go[es] to the root of the agreement between the parties.” Process Am., Inc. v. Cynergy
Holdings, LLC, 839 F.3d 125, 136 (2d Cir. 2016) (citation omitted). Whether a breach qualifies
as “material” “turns on several factors, such as the absolute and relative magnitude of default, its
effect on the contract’s purpose, willfulness, and the degree to which the injured party has
benefitted under the contract.” Id. (citing Hadden v. Consol. Edison Co. of N.Y., 34 N.Y.2d 88,

contracts made in the “more fluid sales setting” and noted that in the sales context, it made sense to provide a
plaintiff “an opportunity to establish that a series of annual renewals had ripened into a course of dealing from which
it might be possible to give meaning to an otherwise uncertain term.” Joseph Martin, 52 N.Y.2d at 108, 111 (citing
May Metro. Corp., 290 N.Y. 260 (declining to find a contract for the sale of oil burners unenforceable where it
provided that each year’s sales quota was “to be mutually agreed upon”)). Unlike Joseph Martin, the instant case
involves a contract for the sale of goods (Amiad’s water filtration systems), and I am therefore unpersuaded by
Amiad’s argument.

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96 n.9 (1974)). For this reason, “[t]he determination whether a material breach has occurred is
generally a question of fact.” Kuhbier v. McCartney, Verrino & Rosenberry Vested Producer
Plan, 239 F. Supp. 3d 710, 735 (S.D.N.Y. 2017) (quoting 23 Williston on Contracts § 63:3 (4th
ed.)) (citing Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 186 (2d Cir. 2007));
see also Katz v. Berisford Int’l PLC, No. 96-cv-8695 (JGK), 2000 WL 959721, at *3 (S.D.N.Y.
July 10, 2000) (“Materiality is a question of fact to be determined by the jury . . . .”).
Although Amiad asserts broadly that AWT’s failure to pay the relevant invoices is
necessarily a material breach, (Amiad Br. 11), the case on which Amiad relies, Jafari v. Wally
Findlay Galleries, was decided on summary judgment—after the court denied defendant’s
motion to dismiss. See 741 F. Supp. 64, 65, 67 (S.D.N.Y. 1990). In addition, in Jafari, unlike
here, the amount and timing of the payment owed by plaintiff appear to have been express terms
of the parties’ agreement. Id. at 67.
It would be inappropriate for me to conclude as a matter of law at this stage of the case
that AWT’s outstanding $18,000 balance constituted a material breach that entitled Amiad to
rescission. See Callanan v. Powers, 199 N.Y. 268 (1910) (“[Rescission] is not permitted for a
slight, casual or technical breach, but, as a general rule, only for such as are material and willful,
or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the
parties in making the contract.”). There are several outstanding questions that prevent me from
reaching such a conclusion at the motion-to-dismiss stage, including (1) whether AWT’s breach
was significant in the context of the parties’ nearly fifteen-year relationship and AWT’s
$4,000,000 in purchases from Amiad throughout that period, (see Compl. ¶ 16); (2) whether the
payment terms that Amiad unilaterally imposed on AWT were reasonable given that the
Agreement is silent as to the timing and manner of payments from AWT to Amiad; and (3) what

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effect, if any, does AWT’s prompt attempt to cure the breach have on Amiad’s right to terminate
the Agreement. 5 Cf. Process Am., Inc., 839 F.3d at 137 (concluding that defendant’s failure to
pay residuals was “not so significant as to constitute a material breach,” in part because of
defendant’s “lengthy period of performance” prior to the breach). Resolution of these questions
requires discovery relating to the parties’ long-term course of dealing.
B.

First-Filed Rule

Amiad argues, in the alternative, that “[i]f the Court declines to grant Amiad’s motion to
dismiss for failure to state a cause of action, it should dismiss the action under the first-filed
rule.” (Amiad Reply 7.) The “first-filed rule” is a “well-settled” doctrine that provides that
“where there are two competing lawsuits, the first suit should have priority, absent the showing
of balance of convenience or special circumstances giving priority to the second.” First City
Nat’l Bank & Tr. Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989) (internal quotation marks
omitted).
Here, Amiad filed a breach of contract action against AWT in North Carolina on May 17,
2018, see Amiad, 2019 WL 1359240, at *1—approximately one month before AWT filed the
instant action. While Amiad’s motion to dismiss was pending before this Court, the U.S. District
Court for the Middle District of North Carolina dismissed the North Carolina action on March
26, 2019 for lack of personal jurisdiction over AWT. Id. at *6. As a result of that dismissal,
“there are no longer competing lawsuits” and the parties may “proceed with this case without the
risk of duplicative litigation.” Reed v. 1-800-Flowers.com, Inc., 327 F. Supp. 3d 539, 545–46
(E.D.N.Y. 2018). Amiad’s first-filed argument is therefore denied as moot. See id. at 545

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The above list of questions is not intended to be an exhaustive list.

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(finding first-filed argument moot where first-filed lawsuit had been dismissed because “[w]hen
the first-filed lawsuit is dismissed, it cannot take priority over the second-filed lawsuit”).
Conclusion
For the foregoing reasons, Amiad’s motion to dismiss is DENIED. Amiad shall file an
answer to the Complaint no later than twenty-one (21) days after the entry of this Opinion &
Order.
The Clerk of Court is respectfully directed to terminate the motion pending at Docket
Entry 12.
SO ORDERED.
Dated: September 30, 2019
New York, New York
______________________
Vernon S. Broderick
United States District Judge

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