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Continental Materials, Inc. v. Robotex, Inc.

United States District Court, E.D. Pennsylvania

April 17, 2015

ROBOTEX, INC. et al.


MARK A. KEARNEY, District Judge.

AND NOW, this 17th day of April 2015, upon consideration of Defendants' Motion to Dismiss (ECF Doc. No. 12), Plaintiff's Response (ECF Doc. No. 20), and Defendants' Reply (ECF Doc. No. 23), and the parties' briefs regarding an arbitration issue (ECF Doc. Nos. 24 & 25), and following oral argument, it is ORDERED that Defendants' Motion is GRANTED IN PART AS TO COUNTS III AND IV and OTHERWISE DENIED as described in this Order.

As detailed below, the Court retains personal jurisdiction and venue. We deny the motions to dismiss the Lanham Act claim (Count I) and contract claims in Count II relating to the Supply and Marketing Agreement. We dismiss Count III' (fraud) with leave to amend to specify fraud under Fed. R. Civ.P. 9(b) not barred by the gist of the action doctrine to be filed no later than April 24, 2015. We dismiss Count IV (intentional interference) under the gist of the action doctrine. Defendants shall respond to the Complaint (or Amended Complaint re: Count III) on or before May 8, 2015.


A. Defendants' Fed.R.Civ.P. 12(b)(2) motion is DENIED.

Based on the affidavits submitted by the parties, the Court finds that it has specific personal jurisdiction over Defendants Robetex, Inc. ("Robetex") and Kerry Talbot ("Talbot") on Plaintiff Continental Materials, Inc.'s ("CMI") breach of contract claim.[1]

The "totality of the circumstances, including the location and character of the contract negotiations, the terms of the contract, and the parties' actual course of dealing" supports the finding of specific personal jurisdiction over Robetex as to CMI's breach of contract claim. Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir. 2001) (citation omitted). Robetex, through its President, Talbot, entered into a Supply and Marketing Agreement ("SMA") and created "continuing relationships and obligations" with CMI in Pennsylvania; a relationship achieved, in part, by physical trips to Pennsylvania.[2] The SMA, appointing CMI as the exclusive distributor of Robetex's products in North America, amounted to purposeful direction of its activities in Pennsylvania. When a dispute arose regarding performance under the SMA, Talbot flew to Philadelphia to resolve the parties' issues and agreed to a settlement. CMI's breach of contract claim arises out of both the SMA and the Settlement Agreement. We find that Defendants' contacts with Pennsylvania were instrumental in the formation of both the SMA and the Settlement Agreement as well as the alleged breaches of those agreements. See General Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001).[3]

As to CMI's tort based claims against Robetex and Talbot[4] - violations of the Lanham Act (Count I), fraud (Count III) and intentional interference with contractual relations (Count IV) - the Court applies the "effects test" to determine whether there is personal jurisdiction.[5] See Calder v. Jones, 465 U.S. 783 (1984); IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 260-61 (3d Cir. 1998). CMI sufficiently alleges that Robetex and Talbot committed torts, that CMI has been harmed, and that Defendants directed their conduct toward CMI in Pennsylvania to state a prima facie case of jurisdiction over Robetex and Talbot under the "effects test."[6]

Having determined that minimum contacts exist between Robetex and Talbot and Pennsylvania, we find that the Court's exercise of jurisdiction comports with "traditional notions of fair plan and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). "The existence of minimum contacts makes jurisdiction presumptively constitutional and the defendant must present a compelling case that he presence of some other considerations would render jurisdiction unreasonable.'" O'Connor, 496 F.3d at 324 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)). Defendants failed to present such a "compelling case."

B. Defendants' motion pursuant to Fed.R.Civ.P. 12(b)(3) to dismiss the complaint for improper venue or, in the alternative, to transfer the action pursuant to 28 U.S.C. § 1404(a) is DENIED.

CMI's asserts venue in this District under 28 U.S.C. § 1391(b)(2) because a "substantial part of the events or omissions giving rise to the claim occurred" here. A defendant seeking to dismiss a case for improper venue under Rule 12(b)(3) bears the burden of demonstrating that venue is improper. Cargill Cocoa & Chocolate, Inc. v. Abco Labs., Inc., No. 13-6004, 2014 WL 4795028, *2 (E.D. Pa. Sept. 26, 2014) (citing Myers v. American Dental Assoc., 695 F.2d 716, 724-725 (3d Cir.1982)). In considering a motion to dismiss for improper venue, the Court accepts as true the allegations in the Complaint, "although the parties may submit affidavits in support of their positions, " and the Court must "draw all reasonable inferences and resolve all factual conflicts in the plaintif [']s favor." Giuliano v. CDSI I Holding Co., No. 13-2776, 2014 WL 1032704, *1 (E.D. Pa. Mar. 17, 2014) (quoting Chester v. Beard, No. 07-4742, 2008 WL 2310946, *5 (E.D. Pa. June 1, 2008)). Based on the above analysis, the Court finds that a "substantial part of the events or omission giving rise" to CMI's claim occurred in Pennsylvania, and venue is proper in this District. Defendants have not met their burden of demonstrating that venue is improper.

The Court declines to transfer this matter to the United States District Court for the Northern District of Georgia under 28 U.S.C. § 1404(a). Under 28 U.S.C. § 1404(a), a district court "[for the convenience of parties and witnesses, in the interest of justice, ... may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties consented." "Section 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer according to an individualized, case-by-case consideration of convenience and fairness." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (internal quotation omitted); see also Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995).

The burden of establishing the need for transfer is on the moving party. Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir. 1995).[7] Defendants argue that the matter should be transferred to Georgia because (1) all of Defendants' witnesses reside in Georgia and North Carolina; (2) all of its records and documents are located in Georgia; and (3) the Northern District of Georgia "has a more significant connection to this dispute" than this Court "because all of the alleged wrongful conduct occurred in Georgia and North Carolina." (ECF Doc. No. 12-2 at 13-14).[8]

While it may be more convenient for Defendants to litigate in the Northern District of Georgia, this factor does not weigh in Defendants' favor.[9] Defendants fail to establish how the convenience of its witnesses trumps that of CMI's; a Pennsylvania corporation that chose its home forum for this litigation. CMI's choice is entitled to deference and should not be lightly disturbed. Jumara, 55 F.3d at 879. Similarly, the fact that Defendants' records and documents are located in Georgia does not weigh in its favor. There is no indication that Defendants cannot simply send its documents and records to this District. CMI would be faced with the same burden if the case were transferred to the Northern District of Georgia. This factor does not weigh in Defendants' favor. Defendants' position merely shifts their inconvenience to CMI. Transfer "is not warranted if it would merely shift the inconvenience from the defendant to the plaintiff." Blue Ribbon Commodity Traders, Inc. 2008 WL 269487 at *3 (internal quotation omitted).

Finally, the Court does not find persuasive Defendants' assertion that the Northern District of Georgia "has a more significant connection to this dispute" than this Court. As previously discussed, the Eastern District of Pennsylvania is CMI's home forum and there is a strong presumption in favor of venue here, and its claims arose out of actions affecting CMI in this District. Notably, the Settlement Agreement that forms part of CMI's breach of contract claim appears to contain a Pennsylvania choice of law provision. Defendants fail to demonstrate how local interests would be better served by deciding this case in Georgia, particularly where a court in Georgia may be required to apply Pennsylvania law. The Court finds that Defendants failed to satisfy their burden of proving the interests of justice would be better served by a transfer to the Northern District of Georgia. The balance of the Jumara factors weights in favor of retaining venue here. Defendants' motion is denied.

C. Defendants' motion to dismiss the fraud (Count III) and intentional interference with contractual relations (Count IV) claims pursuant to Fed.R.Civ.P. 12(b)(6) is GRANTED.

The gist of the action doctrine bars CMI's fraud and intentional interference with contractual relations claims. CMI's fraud claim is based on Robetex's alleged scheme to sell CMI "substandard and nonconforming goods" from a plant in China rather than the parties' agreed upon "conforming product" from a plant in India. (Compl. at ¶¶ 51-57) CMI alleges that the goods it paid for were "not conforming to the specifications in the contract" and "were not contractually authorized." ( Id. at ¶¶ 52, 56)

Under Pennsylvania law, the gist of doctrine "is designed to maintain the conceptual distinction between breach of contract and tort claims, " and precludes a plaintiff from "re-casting ordinary breach of contract claims into tort claims." eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa.Super. 2002) (citing Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa.Super. 1992)).[10] While non-performance of a contract does not constitute fraud, "it is possible that a breach of contract also gives rise to an actionable tort." Id. (quoting Bash, 601 A.2d at 829). "To be construed as in tort, however, the wrong ascribed to defendant must be the gist of the action, the contract being collateral." Id.

In determining whether the "gist of the action" sounds in tort or contract, the Court must ascertain the source of the duties allegedly breached. Synthes, Inc. v. Emerge Medical, Inc., 25 F.Supp. 3d 617, 725 (E.D. Pa. 2014). Plaintiff alleges that it did not end the contractual relationship for a brief period of time after it discovered the alleged fraud. CMI does not allege that it paid any money or lost any rights during this short period (approximately a month in 2014). As presently pled, CMI does not meet the limited exception described in Synthes to show a continuation of the contractual relationship. Id. at 725. CMI may, subject to Fed.R.Civ.P. 11, amend Count III by April 24, 2015 to specifically plead reliance and damage caused by the alleged misrepresentations that arise separate from the contract duties.

CMI's claim for intentional interference with contractual relations is barred by the gist of the action doctrine. CMI's claim is based on the allegation that Robetex and Talbot deliberately solicited CMI's customers to purchase the non-conforming goods carrying CMI's mark, which diluted the value of CMI's mark and its relationships and reputation with its customers. (Compl. at ¶¶ 59-64) Defendants' duty, however, to refrain from soliciting CMI's customers arose solely from the contractual relationship between the parties, and the success of CMI's claim is "wholly dependent on the terms of [the] contract" between the parties. eToll, 811 A.2d at 19. The Court finds unpersuasive CMI's argument that Defendants' improper solicitation of CMI customers was "extra-contractual" and "occurred after the termination of the SMA." CMI provides no authority to support its argument. Without the SMA, Defendants would not have had any obligation to CMI regarding solicitation of its customers. CMI's intentional interference with contractual relations claim is barred by the gist of the action doctrine.

Subject to an amended Count III (fraud) to be filed in an Amended Complaint no later than April 24, 2015, Defendant Talbot shall be dismissed as a party.

D. Defendants' motion to dismiss the Lanham Act claim (Count I) and breach of the Supply and Marketing Agreement (Count II) is DENIED.

CMI specifically pleads a Lanham Act claim arising from selling "nonconforming and inferior goods with CMI's mark on them" after the Settlement Agreement. (Compl. at ¶ 32) Defendants raise factual defenses, and possible affirmative defenses based on the "first sale doctrine" claiming that CMI sold the products in the nonconforming packaging. These issues are more prudently resolved at summary judgment or by the fact finder.

CMI also specifically pleads that Robetex breached the SMA by soliciting customers and shipping products that did not conform to the contract specifications. Robetex disputes this allegation, arguing that there is no provision in the SMA requiring Robetex to have its product manufactured at a specific plant in India. We will not, at this stage of the proceeding, engage in interpretation of the SMA. Robetex similarly argues that under the SMA, it is "clear" that Robetex was permitted to solicit certain entities; and because CMI failed to identify the entities solicited by Robetex, it fails to state a claim. Robetex seeks greater specificity as to any alleged specifications not met and the identity of solicited customers. As with the Lanham Act claim, these disputes are subject to discovery and review later in the proceedings.

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