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Tristate HVAC Equipment, LLP v. Big Belly Solar

October 20, 2010

TRISTATE HVAC EQUIPMENT, LLP, PLAINTIFF,
v.
BIG BELLY SOLAR, INC., DEFENDANT.



The opinion of the court was delivered by: Yohn, J.

MEMORANDUM

TriState HVAC Equipment, LLP ("TriState") brings this action against Big Belly Solar, Inc. ("Big Belly"), alleging breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with a prospective contractual relation, unjust enrichment, and unfair competition under both section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and the common law. Currently before the court is Big Belly's motion to dismiss for lack of subject-matter jurisdiction under Fed. R. Civ. P. 12(b)(1) or, in the alternative, to dismiss for improper venue under Fed. R. Civ. P. 12(b)(3), to dismiss for failure to state a compulsory counterclaim in a prior state-court action, or to transfer venue to the District of Massachusetts under 28 U.S.C. § 1404(a).

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This case arises from a distribution agreement between TriState, a Pennsylvania limited liability partnership with a principal place of business in West Conshohocken, Pennsylvania, and Big Belly, a Delaware corporation with a principal place of business in Needham, Massachusetts. (Compl. ¶¶ 1--2.) The following summary is based on the allegations in TriState's complaint, which I assume to be true for the purposes of Big Belly's motion to dismiss for lack of subject-matter jurisdiction, see McCann v. George W. Newman Irrevocable Trust, 458 F.3d 281, 290 (3d Cir. 2006), as well as the distribution agreement and documents from an earlier Massachusetts state-court action brought by Big Belly against TriState, both of which Big Belly attached to its motion to dismiss, see Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (noting that "[t]o decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint[,] and matters of public record").*fn1

Big Belly appointed TriState as a nonexclusive distributor of its solar-powered trash-compactor products*fn2 in the territory covering Pennsylvania, New Jersey, and Delaware, but, under the distribution agreement, reserved the right to sell directly to so-called key and national accounts, a list of which was to be provided by the company. (Compl. ¶¶ 7--12; Def.'s Mem. of Law in Supp. of Def.'s Mot. to Dismiss, or, in the Alternative, to Transfer Venue ("Def.'s Mem.") Ex. 1, Distribution Agreement ("Agreement") § 3(a), (c).)*fn3 Big Belly recognized that its sales to these key and national accounts might require participation by its local distributors, and the distribution agreement provided that distributors such as TriState would be entitled to 25 percent of their normal margin if Big Belly involved the distributor in a sale to one of these accounts. (Compl. ¶ 11; Agreement § 3(c), Sch. A; Def.'s Mem. at 2.) Big Belly also reserved the right not to accept, in its sole discretion, any order submitted by a distributor. (Agreement § 10(a).)

TriState asserts that Big Belly never provided a list of key or national accounts. (Compl. ¶ 13.) TriState claims that on February 1, 2008, it sent Big Belly a list of its sales targets, which included the City of Philadelphia (the "City"), and that on February 26, 2008, Rick Gaudette, then Big Belly's vice president of sales, confirmed that Big Belly would not be pursuing the City as one of its own accounts. (Id. ¶¶ 14--15, 18.) Thereafter, TriState began its marketing effort to sell Big Belly products to the City, contacting the City's Streets Department, the "Green Plan of Philadelphia," and individuals in the administration of Michael Nutter, the City's mayor. (Id. ¶¶ 19--22.) TriState asserts that it placed Big Belly trash compactors at the University of Pennsylvania and Drexel University, and that individuals from those schools "actively discuss[ed] the Big Belly trash cans with the City on behalf of TriState." (Id. ¶¶ 25--26.) TriState claims that on May 7, 2008, Gaudette again confirmed that the City was a TriState account and that Big Belly would not be pursuing the City-according to TriState, Gaudette said, "We continue to support your efforts to win Philly." (Id. ¶ 23.)

In September 2008, sometime after Gaudette left Big Belly, TriState updated William M. Eddy, Big Belly's director of sales, on its sales efforts, including its efforts to sell Big Belly products to the City. (Id. ¶¶ 27--29.) According to TriState, Eddy neither identified the City as a key account of Big Belly's nor instructed TriState not to market to the City. (Id. ¶ 30.)

In February or March 2009, Jack Kutner, a vice president at Big Belly, told TriState that Big Belly was in direct discussions with the City's Streets Department regarding the sale of Big Belly products. (Id. ¶¶ 32--33.) TriState sent an e-mail to Eddy to confirm that the City was one of TriState's accounts, but Eddy never acknowledged that the City was in fact a TriState account. (Id. ¶¶ 37--38.)

On April 16, 2009, TriState sent an e-mail to several individuals in the office of Mayor Nutter identifying TriState as a distributor for Big Belly products and describing the efforts the company had been making to sell Big Belly trash compactors to the City. (Id. ¶ 39.) An executive assistant in the Office of Sustainability responded to TriState's e-mail, advising the company that its proposal had been forwarded to the City's director of strategic initiatives. (Id. ¶ 41.) TriState was unable to contact the director of strategic initiatives, and the director never contacted TriState. (Id. ¶¶ 42--43.) TriState monitored the City's website, but the City never issued a request for proposal ("RFP") for Big Belly trash compactors. (Id. ¶ 44.) TriState later learned that Mayor Nutter would be holding a press conference on April 30, 2009, to announce the City's purchase of 500 Big Belly trash compactors for Center City. (Id. ¶ 45.)

On April 30, 2009, the same day as the scheduled press conference, TriState met with Eddy and Kutner at TriState's facility in West Conshohocken. (Id. ¶ 46.) When asked about the City, Kutner allegedly said that Big Belly had entered into a contract for the sale of its trash compactors to the City, explaining that Big Belly "sole-sourced" the contract. (Id. ¶¶ 48--50.) According to TriState, Kutner said that Big Belly had informed the City that it had to buy directly from Big Belly and that the City did not have to put the contract out for bid to distributors. (Id. ¶ 51.) TriState then asked to be compensated for its sales efforts with the City, as provided for in the distribution agreement, but Kutner allegedly refused to compensate TriState, even though Big Belly was allegedly aware "of the considerable efforts made by TriState." (Id. ¶ 55--57.)*fn4

The next month, TriState met with various individuals from the City, including members of the Streets Department, the Procurement Office, and the Controller's Office. (Id. ¶¶ 59--65.) During a meeting with the Streets Department, TriState was informed that Eddy, Big Belly's director of sales, had told the City not to put the contract for Big Belly trash compactors out for bid. Eddy allegedly said that the City could purchase trash compactors with the desired wireless configuration only from Big Belly, that Big Belly could give the City the best price, and that the City did not need to purchase the trash compactors through a Big Belly distributor. (Id. ¶ 61.)

Allegedly because Big Belly refused to compensate TriState for its efforts to sell Big Belly trash compactors to the City-efforts that TriState believed had contributed to Big Belly's contract with the City-TriState withheld payments owed to Big Belly under the distribution agreement. (Def.'s Mem. at 11.; id. Ex. 4 ("Mass. Compl.") Ex. 3, E-mail from Joe Callahan to Jack Kutner (Sept. 18, 2009).) As a result, Big Belly terminated the distribution agreement for cause on August 31, 2009, and on November 3, 2009, Big Belly brought suit in Massachusetts state court against Tristate for payment of the outstanding debt (Def.'s Mem. at 2 n.1; Mass. Compl.). That suit was voluntarily dismissed by Big Belly under Mass. R. Civ. P. 41(a)(1) on January 20, 2010, after TriState agreed to pay its outstanding debt, but before TriState entered an appearance or served a pleading in the action. (Pl.'s Resp. in Opp'n to Def.'s Mot. to Dismiss ("Pl.'s Mem.") at 22; Def.'s Mem. at 2 n.1; id. Ex. 6 ("Mass. Docket") entry no. 12.)

TriState filed this action against Big Belly on March 10, 2010, alleging six counts. TriState alleges that Big Belly breached the distribution agreement by failing to identify the City as a key account and by failing to compensate TriState for its participation in the sale of Big Belly trash compactors to the City, as required by the agreement (Count I). (Compl. ¶¶ 79--84.) TriState claims that it spent a significant amount of time and resources educating City officials about the benefits of Big Belly's trash compactors and that these marketing efforts contributed to Big Belly's contract with the City and thus conferred a substantial benefit on Big Belly. By failing to compensate TriState for its marketing efforts, TriState alleges, Big Belly was unjustly enriched and profited at TriState's expense (Count VI). (Id. ¶¶ 121--125.)

TriState further alleges that by instructing the City not to put the Big Belly trash-compactor contract out for bid and by making false or misleading statements to the City-namely, that the City could purchase Big Belly trash compactors with the desired wireless configuration only from Big Belly-Big Belly breached the implied covenant of good faith and fair dealing in the distribution agreement (Count II), tortiously interfered with TriState's prospective contractual relationship with the City (Count III), and engaged in unfair competition under both the Lanham Act and the common law (Counts IV and V). (Id. ¶¶ 91--92, 96--99, 103--112, 114--119.) TriState alleges that "[h]ad Big Belly not improperly insisted on a sole-sourced contract and erroneously promised the City that it would get the 'best price' for the Big Belly trash cans from Big Belly, and had [an] RFP been issued for the Big Belly trash cans, TriState's more competitive proposal would have prevailed over Big Belly's." (Id. ¶ 67.)

TriState seeks actual and consequential damages, including anticipated profits from its prospective contractual relationship with the City, as well as attorney's fees and costs.

On April 12, 2010, Big Belly filed a motion to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) or, in the alternative, to dismiss for failure to state a compulsory counterclaim in a prior state-court action, to dismiss for improper venue under Rule 12(b)(3), or to transfer venue to the District of Massachusetts under 28 U.S.C. § 1404(a).

II. DISCUSSION

TriState asserts that the court has subject-matter jurisdiction over this action on the basis of both diversity of citizenship under 28 U.S.C. § 1332 and the presentation of a federal question under 28 U.S.C. § 1331. Big Belly challenges both of those grounds and argues that TriState's complaint should be dismissed for lack of subject-matter jurisdiction. Big Belly further argues that even if this court has subject-matter jurisdiction, the complaint should be dismissed because TriState failed to assert a compulsory counterclaim in the prior Massachusetts state-court action. Finally, Big Belly contends that because the distribution agreement contains a forum-selection clause designating the Commonwealth of Massachusetts as the venue for any legal disputes, this action should either be dismissed for improper venue under Rule 12(b)(3) or transferred to the District of Massachusetts under 28 U.S.C. § 1404(a).

I consider first Big Belly's challenge to federal-question jurisdiction.

A. Federal-Question Jurisdiction

Big Belly argues that TriState's complaint fails to state a claim under the Lanham Act and thus fails to present a federal question upon which jurisdiction may be based under 28 U.S.C. § 1331. In attacking the legal sufficiency of TriState's claim, however, Big Belly has "confused the issue of subject matter jurisdiction with the separate and distinct issue of whether the complaint state[s] a cause of action." Johnsrud v. Carter, 620 F.2d 29, 32 (3d Cir. 1980).

The court has federal-question jurisdiction where a plaintiff "makes a non-frivolous allegation that he or she is entitled to relief because the defendant's conduct violated a federal statute." Growth Horizons, Inc. v. Delaware County, 983 F.2d 1277, 1281 (3d Cir. 1993). It is well settled that the "legal insufficiency of a federal claim generally does not eliminate the subject matter jurisdiction of a federal court." Id. at 1280; see also Bell v. Hood, 327 U.S. 678, 682 (1946) ("Whether the complaint states a cause of action on which relief could be granted is a question of law and . . . must be decided after and not before the court has assumed jurisdiction over the controversy."). As the Third Circuit has explained, "dismissal for lack of jurisdiction is not appropriate merely because the legal theory alleged is probably false, but only because the right claimed is 'so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy.'" Kulick v. Pocono Downs Racing Ass'n, 816 F.2d 895, 899 (3d Cir. 1987) (quoting Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666 (1974)). In this case, TriState claims that Big Belly made false or misleading statements to the City in violation of the Lanham Act, and I cannot conclude that the claim is "insubstantial on [its] face." Lunderstadt v. Colafella, 885 F.2d 66, 70 (3d Cir. 1989) (internal quotation marks and citation omitted). The court thus has subject-matter jurisdiction over the claim.

B. Treating the Rule 12(b)(1) Motion as a Rule 12(b)(6) Motion

To the extent that Big Belly argues that TriState has failed to state a claim upon which relief may be granted, however, Big Belly's motion is more properly construed as a motion to dismiss under Rule 12(b)(6) and, having established jurisdiction, I will treat it as such.

Although the Third Circuit, recognizing that "the standard for surviving a Rule 12(b)(1) motion is lower than that for a Rule 12(b)(6) motion," has "cautioned against treating a Rule 12(b)(1) motion as a Rule 12(b)(6) motion and reaching the merits of the claims," Gould Elecs., Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000), there is no reason not to do so where, as here, the plaintiff itself treats the motion as having been made under Rule 12(b)(6), see Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991). In its response in opposition to Big Belly's motion to dismiss, TriState cited the legal standards under Rule 12(b)(6), rather than those under Rule 12(b)(1), and argued that it had sufficiently pleaded all the elements of a Lanham Act claim. (See, e.g., Pl.'s Mem. at 8 ("In deciding a motion to dismiss for failure to state a claim upon which relief can be granted, . . . ."); id. at 11--18 (reaching the merits and discussing the elements of its Lanham Act claim and concluding that its complaint "unquestionably pleads an adequate Lanham Act claim").)

Moreover, because I will employ the legal standards that govern a Rule 12(b)(6) motion, rather than those that govern a Rule 12(b)(1) motion, there is no risk of prejudicing TriState. See Kehr Packages, 926 F.2d at 1409. When a defendant challenges subject-matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of persuasion. See id. But here, under Rule 12(b)(6), Big Belly bears the burden of showing that no claim has been stated. See id. This situation may thus be distinguished from that in Johnsrud v. Carter, in which by "fus[ing] the two distinct concepts and dismiss[ing] the complaint for lack of subject matter jurisdiction because it failed to state a claim," the district court "in effect shifted to the plaintiffs the burden which properly was the Government's on a motion to dismiss under [Rule] 12(b)(6) and deprived the plaintiffs of the procedural safeguards to which they were entitled." 620 F.2d at 33.

1. Legal Standard

"To survive a motion to dismiss [under Rule 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, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Factual allegations "that are 'merely consistent with' a defendant's liability," or that permit the court to infer no more than "the mere possibility of misconduct" are not enough. Id. at 1949--50 (quoting Twombly, 550 U.S. at 557). Rather, the plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1949. In evaluating a motion to dismiss, "the factual and legal elements of a claim should be separated." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The court "must accept all of the complaint's well-pleaded facts as true, but may ...


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