United States District Court, E.D. Pennsylvania
MARK A. KEARNEY, District Judge.
Succeeding in a new business requires managing expectations while balancing several initiatives. Promises, often included in written contracts, are the bedrock of any business plan. When encountering difficulty, you may look to the negotiated contracts and possibly other persons who, with the benefit of hindsight, you now wish did not cross your path. Such is the nature of the human dynamic risk in any new business. When disappointed, parties often invoke the valuable but costly lever known as commercial litigation. Using this lever in federal courts requires putting aside personal animus leading to broad impermissible allegations and instead pursuing specific claims recognized at law in the proper forum. Here, in its third costly attempt to plead a claim, a disappointed contracted distributor of roofing products again broadly overstates its claims for failure to receive product it allegedly purchased in 2013, sues a party over whom this Court lacks jurisdiction and ignores its promise to arbitrate. In the accompanying Order, we: grant Defendant Jay Sanborn's motion to dismiss for lack of personal jurisdiction; grant Defendant Tony Ring's motion to dismiss the conversion and unjust enrichment claims against him; direct Plaintiff to forthwith seek recovery from Defendants Polarhyde Distribution Corporation and Sean Sanborn in the agreed arbitration forum; and, pending arbitration and the possible raising of all claims there, stay the remaining claims against Defendants Tony Ring (to a limited extent) and claims against Fielco LLC and Fielco Industries, Inc. arising from their conduct but not under an alleged joint venture, agency or "acting in concert" theory.
I. FACTS ALLEGED IN SECOND AMENDED COMPLAINT
This case involves the alleged failure of a Florida company to deliver a certain roofing product to one of its exclusive distributors, a South Carolina company. The nexus to this Court is the Defendant Pennsylvania company manufactures and sells the roofing product to the Defendant Florida company who, in turn, sells it to the South Carolina Plaintiff under an exclusive distribution agreement. After three attempts at a complaint, we understand at least one pled allegation subject to several defenses: the South Carolina company never received two-thirds of roofing product it ordered in February 2013 from the Florida company. This contractual breach will be resolved exactly where the parties agreed; an American Arbitration Association ("AAA") arbitration in Florida.
Non-parties Douglas Delaney ("Delaney") and James Brady ("Brady") formed South Carolina Plaintiff FFR SE LLC ("FFR") in August 2011 to distribute allegedly unique roofing material bought and promoted by Defendant Polarhyde Distribution Corporation, a Florida company ("Polarhyde") owned and run by Floridian Sean Sanborn, a college mate of Delaney. (ECF Doc. No. 45, Second Am. Compl. ("SAC"), ¶¶ 1, 5, 7, 31, 32-34.) Sean Sanborn's brother, Defendant Jay Sanborn, is a Kentucky resident allegedly providing technology services to Polarhyde, including website assistance. ( Id. ¶¶ 6, 19.) Polarhyde purchases and then sells this K-1 roofing material manufactured by Pennsylvania companies Defendants Fielco LLC and Fielco Industries, Inc. ("Fielco") through exclusive distributors. ( Id. ¶¶ 2-3, 7, 37.) Defendant Tony Ring ("Ring") promoted Fielco's products. ( Id. ¶ 4, 16.)
2011 formation of FFR and $10, 000 purchase of product .
In July 2011, Sean Sanborn began soliciting his college mate Delaney to become a Polarhyde exclusive distributor of the K-1 product. ( Id. ¶ 32.) Sean Sanborn allegedly misrepresented the "K-1 product, the K-1 business, including sourcing, supply, performance, and return on investment." ( Id. ¶ 34.) Delaney and Brady claim Sean Sanborn's July 2011 representations "induced [them] to form" FFR and sign an August 23, 2011 exclusive distribution agreement with Polarhyde ("August 2011 EDA"). ( Id. ) The August 2011 EDA required mandatory arbitration in Florida of "any dispute arising out of this Agreement or with respect to the interpretation of any provision hereof". (ECF Doc. No. 50, Polarhyde Memo., p. 11.) FFR does not plausibly or specifically allege Ring or Fielco induced it to sign the August 2011 EDA. See e.g. SAC ¶ 34.
In September 2011, FFR bought 100 gallons of K-1 for $10, 000. ( Id. ¶ 57.) FFR, in its third attempt, still has not pled where it sent this money, but makes no claim for failure of this delivery or product defect.
Almost two months after signing the August 2011 EDA and a month after buying $10, 000 of K-1, FFR, through Delaney and Brady, attended an October 2011 seminar in West Palm Beach, Florida, during which the Sanborn brothers and Ring solicited persons to become Polarhyde exclusive distributors of the K-1 product. (SAC ¶ 35.) The Sanborns and Ring spoke about marketing and selling K-1, the sales support for distributors, as well as K-1's composition and favorable environmental impacts. ( Id. ) Sean Sanborn misrepresented the "status of certain large, national accounts and larger jobs" Polarhyde had already contracted, thus giving a certain appeal to becoming an exclusive distributor. ( Id. ¶ 43.) Jay Sanborn misrepresented "the number of customer and sales representative leads" Polarhyde's electronic referral system could produce. ( Id. ¶¶ 45-46.) Sean Sanborn also misrepresented K-1's origin story through marketing materials approved by Polarhyde and Fielco. ( Id. ¶ 47.) Further, Polarhyde and Fielco approved marketing materials misrepresenting K-1's shelf life. ( Id. ¶ 48.) Sean Sanborn also misrepresented FFR's payments would be used to subject K-1 to industry testing beneficial to sales efforts. ( Id. ¶ 52.) FFR claims this industry testing never took place. ( Id. )
Although it already signed the August 2011 EDA months earlier, FFR alleges it relied on these October 2011 misrepresentations when purchasing K-1 product in February 2013.
FFR's 2013 purchases of K-1 from Polarhyde.
FFR's next alleged interaction is in February 2013 when it ordered 500 gallons of K-1 on February 8, 2013 and wired $40, 000 to "Defendants." ( Id. ¶¶ 81-82.) For unknown reasons, FFR then signed a second EDA on February 11, 2013 which includes the identical arbitration provision. ("February 2013 EDA") ( Id. ¶ 78.) On February 12 and 13, 2013, FFR ordered 2, 500 gallons of K-1 and wired $200, 000 to "Defendants." ( Id. ¶¶ 83-84.) Sean Sanborn said someone sent this FFR payment to Fielco. ( Id. ¶ 85.)
After those purchases, FFR traveled to see its product. In March 2013, FFR's Brady met with Sean Sanborn and Ring at Fielco's Pennsylvania manufacturing plant. ( Id ¶ 16.) While at the plant, Sean Sanborn and Ring showed FFR's K-1 product inventory it had allegedly purchased and over which it had exclusive control. ( Id. ) Brady confirmed the existence of 1, 500 of the 3, 000 total gallons ordered by FFR and took a picture of the ordered inventory. ( Id. ¶¶ 90-93.) A day later, FFR's Brady and Sean Sanborn traveled to Bensalem, Pennsylvania where Sanborn repeated his representations regarding the K-1 product's performance. ( Id. ¶ 17.)
FFR's Brady traveled to Philadelphia in September 2013 to attend an industry expo with Sean Sanborn. ( Id. ¶ 18.) Sean Sanborn again repeated the same representations he made at the October 2011 seminar. ( Id. ) These March and September 2013 representations, of course, did not induce any purchases.
By mid-November 2013, FFR had only received one-third of its February 2013 orders and the delivered K-1 product contained a different batch number than shown to Brady on his March 2013 visit. ( Id. ¶¶ 99, 101-02.) FFR describes the limited K-1 product received as "stale, and... partially solidified." ( Id. ¶ 102.)
In this third attempt at pleading a viable complaint, FFR alleges "Defendants" violated the Lanham Act, 15 U.S.C. § 1125(a)(1) (Count I) and engaged in: unfair competition under Pennsylvania law (Count II); conversion (Count III); fraudulent misrepresentation (Count IV); negligent misrepresentation (Count V); unjust enrichment (Count VI); and, fraudulent inducement (Count VII). These claims challenge Polarhyde's failure to deliver K-1 product under either the August 2011 or February 2013 EDA and are subject to the agreed arbitration in Florida. In this agreed forum, the parties can promptly resolve the anticipated parol evidence and gist of the action challenges to FFR's tort and unfair competition claims and the role, if any, played by the other Defendants in this failure to deliver.
In exercising our discretion to stay this matter, pending the arbitration, and place it in this Court's suspense docket, we must first address Defendants' challenges to this Court's jurisdiction over the case and the non-Pennsylvania defendants and then whether FFR states a claim.
A. This Court has subject matter jurisdiction.
Fielco argues FFR fails to sufficiently aver the citizenship of each member of Fielco LLC thus possibly depriving this Court of diversity jurisdiction. FFR admits its omission but argues LLC membership is not a matter of public record in Pennsylvania. LLC citizenship is determined by the citizenship of its members. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). FFR fails to properly allege the citizenship of Fielco LLC. FFR does not meet its obligation to plead diversity jurisdiction.
Notwithstanding the apparent, but not confirmed, lack of diversity jurisdiction, this Court exercises subject matter jurisdiction under its supplemental jurisdiction authority pursuant to 28 U.S.C. § 1367. "[A] district court may exercise supplemental jurisdiction where state-law claims share a common nucleus of operative fact' with the claims that supported the district court's original jurisdiction." De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 307-08 (3d Cir. 2003) (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966)). Section 1367(a) provides:
Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
28 U.S.C. § 1367(a).
Subsection (c) provides:
The district courts may decline to exercise supplemental jurisdiction over a claim ...