Marx Industries, Inc. v. Baseline Licensing Group, LLC
Filing
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ORDER denying 10 Plf's Motion to Dismiss Defendant's Counterclaim; denying 15 Third- Party Dft's Motion to Dismiss Breach of Contract Claim. Signed by District Judge Richard Voorhees on 7/26/11. (smj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO.: 5:09-cv-136
MARX INDUSTRIES, INC.,
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Plaintiff,
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vs.
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BASELINE LICENSING GROUP,
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LLC,
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Defendant
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vs.
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CONSUMER SPECIALTIES
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INCORPORATED OF NORTH
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CAROLINA,
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Third-Party
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Defendant.
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___________________________________ )
ORDER
THIS MATTER is before the Court on Plaintiff’s Motion to Dismiss Defendant’s
Counterclaim (Doc. #10), filed January 29, 2010, and Third-Party Defendant Consumer
Specialties of North Carolina’s (“CSI”) Motion to Dismiss Breach of Contract Claim (Doc. #15)
filed February 4, 2010. The parties have filed responsive memoranda and this matter is now ripe
for review.
I. BACKGROUND
Accepting the factual allegations of Defendant’s Counterclaim as true, as this Court must
do at this stage of the proceeding, the facts are as follows. Defendant Baseline is in the business
of marketing, selling, and distributing college and professional sports-related merchandise.
Because Baseline does not manufacture the goods it sells, it contracts with third parties for
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production of goods.
Marx and Baseline entered into a business relationship prior to 2009 wherein the parties
agreed that Marx would manufacture certain merchandise to be sold by Baseline to its
customers. Marx and Baseline memorialized their agreement in writing and Marx attached a
copy of the written agreement to its complaint. Defendant Baseline alleges that during the period
in which Marx and Baseline operated under the terms of the written agreement, Baseline
“consistently experienced problems with the quality and timeliness of the delivery of the goods
produced by Marx.” Countercl. ¶¶ 7-9. Defendant Baseline next alleges that it suffered economic
damages due to impermissible unilateral price increases by Marx. Countercl. ¶¶ 10-11.
As a result of the problems with performance under the written agreement, Baseline
alleges that it entered into discussions with Marx in 2009 to alter their business relationship to
include CSI. Baseline and Marx then “mutually terminated their prior business relationship and
agreed to enter into a new relationship – adding CSI as the manufacturer of the goods to be sold
and allowing Marx to perform the function of selling and distributing the goods made by CSI
and licensed through Baseline’s agreements.” Countercl. ¶ 11. Pursuant to the 2009 Agreement,
Marx was to make a sale and place an order with CSI and then collect the purchase price of the
goods from the end customer. CSI would then bill Baseline some amount less than Baseline
would bill Marx for the product sold and Marx, CSI, and Baseline would all realize a profit.
Countercl. ¶ 11.
Baseline alleges that Marx and CSI breached the 2009 Agreement. More specifically,
Baseline alleges that Marx and/or CSI have failed to deliver goods to customers and have failed
to comply with customers requirements, thereby causing customers to cancel their orders and
depriving Baseline of its opportunity to realize additional profits. Additionally, Baseline alleges
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that under the 2009 Agreement, certain amounts are due and owing from Marx to Baseline and
that Marx has failed to remit such amounts.
II. STANDARD OF REVIEW
In reviewing a Rule 12(b)(6) motion, "the court should accept as true all well-pleaded
allegations and should view the complaint in a light most favorable to the plaintiff." Mylan
Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). The plaintiff's "[f]actual allegations
must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). "[O]nce a claim has been stated adequately, it may be
supported by showing any set of facts consistent with the allegations in the complaint." Id. at
563. A complaint attacked by a Rule 12(b)(6) motion to dismiss will survive if it contains
"enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct.
1937, 1960 (2009) (quoting Twombly, 550 U.S. at 570). "A claim has 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. at 1949.
In Iqbal, the Supreme Court articulated a two-step process for determining whether a
complaint meets this plausibility standard. First, the court identifies allegations that, because
they are no more than conclusions, are not entitled to the assumption of truth. Id. at 1951.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 554-55) (allegation that
government officials adopted challenged policy “because of” its adverse effects on protected
group was conclusory and not assumed to be true). Although the pleading requirements stated in
“Rule 8 [of the Federal Rules of Civil Procedure] mark[] a notable and generous departure from
the hyper-technical, code-pleading regime of a prior era . . . it does not unlock the doors of
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discovery for a plaintiff armed with nothing more than conclusions.” Id. at 1950.
Second, to the extent there are well-pleaded factual allegations, the court should assume
their truth and then determine whether they plausibly give rise to an entitlement to relief. Id. at
1951. “Determining whether a complaint contains sufficient facts to state a plausible claim for
relief “will . . . be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 1950. “Where the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has
not ‘show[n]’-‘that the pleader is entitled to relief,’” and therefore should be dismissed. Id.
(quoting Fed. R. Civ. P. 8(a)(2)). In other words, if after taking the complaint’s well-pleaded
factual allegations as true, a lawful alternative explanation appears a “more likely” cause of the
complained of behavior, the claim for relief is not plausible. Id. at 1951-52.
III. ANALYSIS
The essence of Baseline’s claim is as follows. Baseline alleges that it formed an oral
contract with Marx and Baseline wherein Marx would make a sale and place and order with CSI.
Marx would then collect the purchase price of the goods from the end consumer. CSI would then
bill Baseline some amount less than Baseline would bill Marx for the product sold. Baseline
alleges that Marx and CSI failed to perform in accordance with the contract.
In order to survive the motions to dismiss, Baseline is required to plead a breach of
contract claim that is “plausible” on its face. Under North Carolina law, the elements of a breach
of contract claim are: (1) the existence of a valid contract and (2) breach of the terms of the
contract. Phelps-Dickson Builders, L.L.C. v. Amerimann Partners, 617 S.E.2d 664, 670 (N.C.
App. 2005) (quoting Poor v. Hill, 530 S.E.2d 838, 843 (N.C. App. 2000)). Though Baseline must
plead sufficient factual allegations to establish that a “plausible” contract exists, Baseline does
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not need to plead every detail of the contract or attach a copy of the contract to its counterclaim.
See Securimetrics, Inc. v. Hartford Cas. Ins. Co., No. C 0500917CW, 2005 WL 1712008, *2
(N.D.Cal. July 21, 2005) (“Federal law does not require Plaintiff to recite the contract terms
verbatim or to attach a copy of the contract to the complaint.”).
In the instant case, Baseline has alleged the existence of a contract (Countercl. ¶ 12-13).
Baseline has further alleged breach of the terms of the contract by Marx and CSI due to failure to
deliver goods to customers or comply with customers’ requirements. (Countercl. ¶ 14). As such,
Baseline has satisfied the requirements for pleading a breach of contract so long as Baseline’s
allegations may be taken to support the validity of the alleged contract.
Marx and CSI contend that the Statute of Frauds bars Baseline’s claim for breach of
contract because Baseline has only alleged the existence of an oral contract. As a general rule,
the Statute of Frauds bars the enforcement of a contract “unless there is some writing sufficient
to indicate that a contract for sale has been made between the parties and signed by the party
against whom enforcement is sought.” N.C. Gen. Stat. § 25-2-201(1). There are, however,
several notable exceptions to the general rule. For instance, a contract that would otherwise be
barred by the Statute of Frauds is enforceable if the party against whom enforcement is sought
admits in its pleadings that there was a contract for sale. N.C. Gen. Stat. § 25-2-201(3).
Additionally, a valid and legally enforceable contract may arise in the absence of a written
agreement through conduct of the parties which indicates the existence of a contract. N.C. Gen.
Stat. § 25-2-204. A valid contract may also be formed through a written confirmation of an
earlier oral agreement, even if the confirmation states different or additional terms than those
previously agreed upon. N.C. Gen. Stat. § 25-2-207(1).
Two cases–one from outside North Carolina and one from North Carolina–provide this
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Court with guidance in evaluating whether Plaintiff has stated a “plausible” breach of contract
claim. In Premix-Marbletite Mfg. Corp. v. SKW Chems., Inc., the plaintiff, a manufacturer of
pool coatings, purchased a chemical additive from the defendant. 145 F. Supp. 2d 1348, 1354-56
(S.D. Fla. 2001). After the plaintiff’s order was filled, the parties exchanged invoices and
payment was made. Id. at 1354. In that case, the court found that no contract was created by the
parties’ invoices because they disagreed on material terms. Id. at 1355. Despite this, the court
held that a contract arose from the conduct of the parties in executing the sale. Id.
In a similar case from North Carolina, the court of appeals held that an oral agreement
over the telephone for purchase of urea resin created a binding contract at the time of the phone
conversation. Se. Adhesives Co. v. Funder Am., Inc., 366 S.E.2d 505, 507-08 (N.C. App. 1988).
The court in that case held that the subsequent conduct of the parties, as well as their prior course
of dealings, supported the existence of a contract under N.C. Gen. Stat. § 25-2-204(1). Id. at 507.
The court further held that a bill of lading, which disclaimed the warranties of merchantability
and fitness and which was shipped alongside the urea resin, materially altered the terms of the
original contract and was unenforceable since these terms had not been accepted by the
purchaser. Id. at 507-08.
In the instant case, Marx and CSI acknowledge the existence of a written contract but
deny the existence and terms of the 2009 Agreement alleged by Baseline. After further
discovery, Baseline may, like the purchasers in both Se. Adhesives and Premix, be able to prove
the existence of a legally enforceable contract arising from the conduct of the parties in
performing under the terms of the 2009 Agreement as alleged by Baseline separate and apart
from the previous written contract. Similar to Se. Adhesives, further discovery regarding the
parties’ previous dealings may contribute to finding the existence of a contract. Consequently,
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viewing the facts in the light most favorable to Baseline, it would be improper to dismiss
Baseline’s breach of contract claim at this stage in the litigation.
Marx and CSI further argue that Baseline fails to state a claim for relief because the
contract that Baseline alleges to exist was not supported by consideration and the counterclaim
fails to allege damages. This Court disagrees with both contentions.
Viewing the facts in the light most favorable to the Plaintiff, Plaintiff has alleged an oral
agreement supported by consideration. It is well-settled law that, in order to be enforceable, a
contract must be supported by consideration. Investment Properties v. Norburn, 188 S.E.2d 342,
345 (N.C. 1972). A mere promise, without more, is unenforceable.” Scott v. Foppe, 100 S.E.2d
238, 241 (N.C. 1957). “As a general rule, consideration consists of some benefit or advantage to
the promisor or some loss or detriment to the promisee.” Investment Properties, 188 S.E.2d at
345. It has also been found that consideration exists when the promisee, in return for the
promise, does anything legal which he is not bound to do, or refrains from doing anything which
he has a right to do, regardless of whether there is any actual loss. Id. In the instant case,
Baseline’s counterclaim sufficiently alleges a contract supported by consideration. Under the
2009 agreement alleged by Baseline, Marx, CSI, and Baseline all made promises to undertake
activities which they would be under no legal obligation to perform. Marx was responsible for
selling the merchandise, collecting the purchase price from the end consumer, and placing an
order with CSI–all actions that Marx was under no legal obligation to undertake. In return for
undertaking these obligations under the 2009 agreement, Marx ultimately received the benefit of
a financial profit. Similarly, CSI received orders from Marx and then billed Baseline at a higher
rate–requiring CSI to perform work and producing a benefit for CSI. Finally, Baseline received a
financial benefit from the contract and gave Marx and CSI permission to produce Baseline
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sports-related merchandise.
This Court similarly rejects Marx and CSI’s argument that Baseline’s counterclaim fails
to sufficiently allege damages arising from breach of contract. In paragraph 14 of the
counterclaim, Baseline alleges that “Marx and/or CSI have failed to deliver goods to customers
and have failed to comply with customer requirements, thereby causing customers to cancel their
orders and, accordingly, depriving Baseline of its opportunity to realize additional profits.”
Further, Baseline alleges that Marx owes Baseline on certain amounts and that Marx has failed
to remit such amounts. Countercl. ¶ 15. Even if this Court were to accept Marx and CSI’s
contention that Baseline has failed to allege damages, which this Court declines to do at this
stage in the litigation, Marx and CSI’s motions to dismiss would still be denied. Marx and CSI
have cited to no authority, and this court has found no authority in North Carolina case law,
where a breach of contract claim has been dismissed for failure to allege damages. As stated
above, the elements of a breach of contract under North Carolina law are: (1) the existence of a
valid contract and (2) breach of the terms of the contract. Phelps-Dickson Builders, L.L.C. v.
Amerimann Partners, 617 S.E.2d 664, 670 (N.C. App. 2005) (quoting Poor v. Hill, 530 S.E.2d
838, 843 (N.C. App. 2000)). As such, Marx and CSI are not entitled to dismissal of Baseline’s
breach of contract counterclaim on the ground that Baseline failed to sufficiently allege
damages.
Without further fact finding, this court is unable to determine if a contract enforceable on
the terms alleged by Baseline arose from the transactions between the parties in this case. The
arguments presented by Marx and CSI are well taken and seem to present a formidable hurdle
for Baseline; however, they would be better asserted as affirmative defenses, which can be
addressed on a motion for summary judgment or at trial. Moreover, because the pleadings allege
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facts which construed in the light most favorable to Baseline could satisfy the Statute of Frauds,
Marx and CSI’s motions to dismiss are DENIED and Baseline’s claim for breach of contract
may proceed.
IV. CONCLUSION
THEREFORE, IT IS HEREBY ORDERED THAT:
(1) Plaintiff’s Motion to Dismiss Defendant’s Counterclaim (Doc. #10) is DENIED.
(2) Third-Party Defendant Consumer Specialties of North Carolina’s Motion to Dismiss
Breach of Contract Claim (Doc. #15) is DENIED.
Signed: July 26, 2011
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