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Palermo Gelato, LLC v. Pino Gelato, Inc.

United States District Court, Third Circuit

December 30, 2013

PINO GELATO, INC., Defendant.


MARK R. HORNAK, District Judge.

Pending before the Court is Defendant Pino Gelato, LLC's ("Pino")'s Motion to Dismiss Plaintiff Palermo Gelato, LLC's ("Palermo")'s Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). Having carefully considered Plaintiff's Complaint, ECF No. 1; Defendant's Motion to Dismiss, ECF No. 11, and Brief in Support, ECF No. 12; Plaintiff's Response in Opposition, ECF No. 13, and Brief in Opposition, ECF No. 14; and Defendant's Reply Brief, ECF No. 15; the Court concludes that the case should be dismissed for failure to state a claim.


The facts allegedly surrounding this case were explained In detail by the Court in Palermo Gelato, LLC v. Pino Gelato, Inc., 2: 12-CV-931, 2013 WL 285547 (W.D. Pa. Jan. 24, 2013) ("Palermo I"), as well as in Palermo Gelato, LLC v. Pino Gelato, Inc., 2: 12-CV-931, 2013 WL 3147312 (W.D. Pa. Jun. 19, 2013) ("Palermo I") , and the Court need not reiterate them here at great length. When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true the factual allegations in the Complaint and draw all reasonable inferences in the Plaintiff's favor. Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). Therefore, for the purposes of this Opinion, the essential facts are as follows.

Palermo, in seeking to open high-end gelato stores in the Pittsburgh area, agreed to purchase the product of Pino, who prior to entering into a license agreement with Palermo, allegedly made various representations suggesting that Pino was the "exclusive" owner of a "unique recipe" of gelato developed in Sicily. Id. at ¶¶ 11, 12, 13. In 2008, the parties entered into a Store License Development and Supply Agreement ("Agreement") for the licensing and supply of Pino's gelato product at Palermo's places of business located in Allegheny County and Butler County, Pennsylvania. Id. at ¶ 17. Under the Agreement, Palermo agreed to purchase Pino's gelato product at a certain price and sell it with the Pino trademark, and Palermo became the exclusive Pino licensee in the Western Pennsylvania area. Id. at Ex. D.

Based on Palermo's belief that Pino was complying with the terms of the Agreement and the express warranties contained in it, Palermo accepted and paid for multiple shipments of Pino's gelato product. Id. at ¶ 24. Around September 2011, Palermo discovered that the gelato it was purchasing from Pino was not small-batch crafted gelato, but gelato manufactured in bulk by G.S. Gelato ("G.S."). Id. at ¶¶ 26, 27. Palermo alleges that the gelato recipe it contracted to purchase from Pino was not owned by or "unique" to Pino, and that as such, the price Palermo was paying for Pino gelato was unfairly "marked up." Id. at ¶¶ 33-35. Palermo also alleges that the Agreement in reality established a franchise relationship with Pino, rather than a license relationship, and that the 30% mark-up fees were essentially disguised royalties. Id. at ¶¶ 37-38.

This litigation began when Palermo filed a Complaint in this Court against Pino, which the Court dismissed without prejudice for lack of subject matter jurisdiction. See Dkt. 2: 12-cv-931, ECF No. 1. Palermo then filed an Amended Complaint, asserting two counts against Pino under Pennsylvania law: Count I for Fraud in the Inducement, and Count II for Unjust Enrichment. See id. at ECF No. 14. Pino moved to dismiss Counts I and II of the Amended Complaint on the grounds that the parol evidence rule barred any evidence of Palermo's alleged fraud in the inducement claim, and that in the absence of any basis to invalidate the Agreement, Plaintiff's claim for unjust enrichment was barred by the existence of that Agreement. Id. at ECF No. 16.[1] This Court granted Pino's Motion, and dismissed that lawsuit with prejudice on June 19, 2013. Id. at ECF No. 25. No appeal was taken from that decision. On October 29, 2013, Palermo initiated this suit by filing another Complaint against Pino, at Civil Action No. 2:13-cv-1573, asserting claims of breach of contract and breach of warranty, based, as Palermo concededly (and correctly) states, "upon the same transaction and occurrence as the first and second amended complaints." Pl.'s Compl. ¶ 47.


a. Standard of Review

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must allege "enough facts to state a claim for relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). "The District Court must accept the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678. In short, a motion to dismiss should be granted if a party does not allege facts which could, if established at trial, entitle him to relief. See Fowler, 578 F.3d at 211.

b. Defendant's Motion to Dismiss Plaintiff's Complaint

In its latest Complaint in this second Civil Action, Plaintiff Palermo brings two never-before-alleged claims against Defendant Pino: Count I - Breach of Contract, and Count II - Breach of Warranty. Pino avers that the now-final judgment in Palermo II, coupled with the doctrine of res judicata, bars this second lawsuit. See Def.'s Br. in Supp. of Mot to Dismiss at 3. Pino further avers that the doctrine of collateral estoppel bars Palermo from arguing that the parties' Agreement was "formed and executed on fraud and misrepresentation, " such that the Agreement's exculpatory provision ultimately applies to conclusively defeat Palermo's latest claims. Id. at 3. Palermo responds that (1) res judicata does not bar this second lawsuit against Pino for breach of contract and breach of warranty because this Court lacked jurisdiction over those omitted claims in the parties' previous suit; and (2) collateral estoppel does not bar Plaintiff's latest Complaint because the breach of contract and breach of warranty claims were not previously litigated. See Pl.'s Br. in Opp'n to Def.'s Mot. to Dismiss at 5, 8.

The doctrine of res judicata, or claim preclusion, is intended to avoid piecemeal litigation of claims arising from the same events. Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir. 1999). "[A] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Id. (quoting Rivet v. Regions Bank of La., 522 U.S. 470, 476 (1998) (emphasis added); see Duhaney v. Atty Gen. of the U.S., 621 F.3d 340, 347 (3d Cir. 2010) ("The doctrine of res judicata bars not only claims that were brought in a previous action, but also claims that could have been brought."). The application of res judicata requires a defendant to demonstrate three elements: (1) a final judgment on the merits in a prior suit involving, (2) the same parties or their privies, and (3) a subsequent suit based on the same cause of action. Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963 (3d Cir. 1991) (citing United States v. Athlone Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984)). "If these three factors are present, a claim that was or could have been raised previously must be dismissed as precluded." CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d 187, 194 (3d Cir. 1999).

Here, this Court entered a final judgment on the merits when (as Palermo does not dispute) the Court entered its Memorandum Opinion and now-final dismissal Order at Civil Action No. 2:12-cv-931, ECF Nos. 25, 26. The Court held that (1) Pennsylvania's parol evidence rule barred consideration of the alleged gelato-centric misrepresentations that supposedly fraudulently induced Palermo to enter into the Agreement, and without those misrepresentations, Palermo could not state a claim for fraud in the inducement; and (2) without a claim of fraud in the inducement, there was no basis for Palermo's claim of unjust enrichment in Count II, given the presence of a valid contract. Palermo II, 2013 WL 3147312, at *3. With this Court's Opinion in Palermo II granting ...

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