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Clark Distribution Systems, Inc v. Alg Direct

August 27, 2012


The opinion of the court was delivered by: (Judge Conner)


This is an action for breach of contract filed by Clark Distribution Systems, Inc. ("CDS") against American Logistics Group, Inc., operating as ALG Direct, Inc. ("ALG"). CDS, a freight forwarder, alleges that ALG, a logistics provider and distributer of printed materials, breached a contract entered into on June 28, 2010, for "transportation and related services" to be provided by CDS to ALG. Presently before the court is the motion (Doc. 41) to dismiss filed by ALG. For the reasons that follow, the court will deny the motion.

I. Background

Plaintiff CDS is a Delaware corporation with its principal place of business in New Jersey and a "major hub of operations" in Mechanicsburg, Pennsylvania. (Doc. 33 ¶ 1). CDS is a "provider of distribution logistics services to the publishing and printing industries--also known as a 'freight forwarder'". (Id. ¶ 6). CDS's business consists of picking up materials such as newspapers and magazines from a distributor and forwarding these materials to delivery services such as the United States Postal Service ("USPS"). (Id. ¶¶ 7, 8). When delivering materials to the USPS, CDS must comply with the USPS's standards and regulations. (Id. ¶ 9). In particular, materials must be sorted and accompanied by easily accessible bar codes. (Id. ¶¶ 19, 22).

Defendant ALG is an Illinois corporation with its principal place of business in Illinois. (Id. ¶ 2). ALG is a "logistics provider in the business of coordinating the distribution of printed materials." (Id. ¶ 10). CDS had performed work for ALG for many years before 2010 without issue, and the two companies maintained a good working relationship. (Id. ¶ 13). On June 28, 2010, ALG and CDS entered into a contract, referred to as the Transportation Services Agreement ("TSA"), wherein CDS agreed to "furnish transportation and related services as directed by ALG for the transportation of printed matter and materials, equipment and supplies for distribution to USPS Locations and other locations for ALG as may be tendered to [CDS] from time to time." (Id. ¶ 12; Doc. 33, Ex. A, Art. 1). Under the TSA, CDS was to invoice ALG within 10 days of service, and ALG would then have 40 days to remit payment for the service. (Doc. 33, Ex. A, Art. 6).

Patrick Del Monico III ("Del Monico"), then-president of ALG, represented to CDS that the volume of shipments ALG would provide to CDS under the TSA would be approximately 11% greater than the volume ALG provided CDS prior to the contract's formation. (Id. ¶¶ 11, 14). Del Monico also represented that all materials would be delivered to CDS in acceptable condition consistent with the condition of materials tendered to CDS before the TSA. (Id. ¶ 15). CDS relied on Del Monico's statements as it prepared to perform under the TSA. (Id. ¶ 16).

According to the amended complaint, much of the material tendered by ALG to CDS was in unacceptable condition, despite ALG's "awareness of their obligations." (Id. ¶¶ 20, 21). Many of the pallets tendered by ALG were disorganized, and bar codes required by the USPS were obscured or missing. (Id. ¶ 22). Additionally, the amount of product provided by ALG to CDS was over 100% greater than before the TSA became active, rather than the 11% previously suggested by Del Monico. (Id. ¶ 24).

Ultimately, CDS claims that ALG owes $681,474.13 in unpaid shipment invoices and an additional $337,997.00 for CDS's processing the higher-than-anticipated volume of materials and converting it to a condition acceptable to the USPS. (Id. ¶¶ 25, 27, 31, 32).

On August 19, 2011, ALG filed the instant motion (Doc. 41) to dismiss. ALG contends that the $337,997 CDS claims in damages for processing higher than anticipated volumes and converting materials to an acceptable condition is incidental or consequential to ALG's purported breach of contract, and is unrecoverable under Article Fourteen of the TSA. (Doc. 42 at 4; Doc. 33, Ex. A, Art. 14(d)). ALG does not dispute CDS's claim that the $681,474.13 in unpaid invoices falls under the category of direct damages. (Doc. 42). However, ALG has expressed its inability to pay that sum to CDS, citing "cash-flow issues." (Doc. 33 ¶ 28). The only issue presently before the court is whether the $337,997 qualifies as direct damages, which can be recovered, or as incidental/consequential damages, recovery of which is barred under Article Fourteen of the TSA.

II. Standard of Review

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for the dismissal of complaints that fail to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). When ruling on a motion to dismiss under Rule 12(b)(6), the court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009) (quoting Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2009)); see also Kanter v. Barella, 489 F.3d 170, 177 3d Cir. 2007) (quoting Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir. 2005)). Although the court is generally limited in its review to the facts contained in the complaint, it "may also consider matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).

Federal notice and pleading rules require the complaint to provide "the defendant notice of what the . . . claim is and the grounds upon which it rests." Philips, 515 F.3d at 232 (quoting Bell Atl. Corp v. Twombley, 550 U.S. 544, 555 (2007)). To test the sufficiency of the complaint in the face of a Rule 12(b)(6) motion, the court must conduct a three-step inquiry. See Santiago v. Warminster Twp., 629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, "the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662 (2009)). Next the factual and legal elements of a claim should be separated; well-pleaded facts must be accepted as true, while mere legal conclusions may be disregarded. Id., see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir. 2009). Once the well-pleaded factual allegations have been isolated, the court must determine whether they are sufficient to show a "plausible claim for relief." Ashcroft v. Iqbal, 556 U.S. at 662 (citing Twombly, 550 U.S. at 556); Twombly, 550 U.S. at 555 (requiring plaintiffs to allege facts sufficient to "raise a right to relief above the speculative level"). A claim "has facial probability when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. When the complaint fails to present a prima facie case of liability, however, courts should generally grant leave to amend before dismissing a complaint. See Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver, 213 F.3d 113, 116-17 (3d Cir. 2000).

III. Discussion

Defendant ALG contends that CDS fails to state a claim upon which relief can be granted for the $337,997 CDS claims it is owed by ALG. This contention is based on ALG's assertions that the $337,997 for processing higher volumes of material and converting the material to acceptable condition constitutes "incidental, indirect, special or consequential" (hereafter ...

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