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Kentex Asia Ltd. v. ATT Southern Inc.

United States District Court, M.D. Pennsylvania

September 14, 2017

KENTEX ASIA LIMITED, Plaintiffs/Counter-Defendant,
v.
ATT SOUTHERN INC., Defendant/Counterclaimant.

          MEMORANDUM & ORDER

          JOHN E. JONES III, UNITED STATES DISTRICT JUDGE.

Presently before the Court are two pending motions. The first motion is Plaintiff Kentex Asia Limited's (“Kentex”) Motion to Dismiss Defendant's Amended Counterclaims. (Doc. 21). Subsequent to Kentex's Motion, Defendant ATT Southern Inc. (“ATT”) filed a Motion for Leave to File a Second Amended Answer, Affirmative Defenses, and Counterclaims. (Doc. 27). ATT proposes to allege two additional counterclaims but does not propose any changes to the counterclaims challenged in Kentex's Motion. For the reasons that follow, we shall deny Kentex's Motion and grant ATT's Motion.

         I. PROCEDURAL HISTORY

         Kentex initiated this diversity action by filing of a Complaint on February 14, 2017. (Doc. 1). The Complaint alleges, in the alternative, breach of contract, quantum meruit, and unjust enrichment. ATT filed its Answer and Counterclaim on April 10, 2017. (Doc.11). On May 22, 2017, ATT filed an Amended Answer and Counterclaims. (Doc. 18). ATT asserted six counts in its Amended Counterclaims, including four counts of breach of contract, false advertising under the Lanham Act, [1] and tortious interference with contractual relations. Kentex filed a Motion to Dismiss all of ATT's Amended Counterclaims, except for the Lanham Act claim, on June 19, 2017. (Doc. 21). Kentex's Motion has been fully briefed and is ripe for our review. (Docs. 22, 25, 26). While Kentex's Motion was pending, ATT filed its motion seeking to leave to file a Second Amended Answer and Counterclaims with the addition of new counterclaims. (Doc. 27). ATT's Motion also has been fully briefed and is ripe for our review. (Docs. 31, 32, 33).

         We will dispose of both pending Motions in this Memorandum and Order. We will first outline the facts pertinent to both Motions and will then address Kentex's Motion followed by ATT's Motion.

         II. FACTUAL BACKGROUND

         We draw facts from ATT's Amended Counterclaims and assume them to be true. This case involves agreements between ATT, Kentex, and Dongguan Sunland Technology Co., Ltd. (“Sunland”) for the manufacture of custom planters using ATT's proprietary molds. ATT and Sunland entered a Manufacturing Agreement and an Agreement of Title and Ownership of Molds, Covenants of Confidentiality, and Release and Disclaimer (“Mold Agreement”). (Doc. 18, Am. Countercl. ¶¶ 7, 8). Sunland later instructed ATT to direct purchase orders, invoices, and payment to Kentex. (Id. at ¶ 9). Original shipping documents bore Kentex's name. (Id. at ¶ 10). The shipping documentation was later changed to show Sunland as shipper because Kentex did not meet overseas shipping regulations. (Id. at ¶ 11). Invoices also showed Sunland as shipper and Kentex as beneficiary of the purchase. (Id. at ¶ 12).

         In early 2015, Kentex delivered planters directly to ATT's customers. (Id. at ¶ 32). Shortly after receiving the planters, several of ATT's customers complained to ATT of the planters' poor quality. (Id. at ¶ 33). As a result of the complaints, ATT was required to buy back more than $1.5 million in defective planters from its customers. (Id. at ¶ 38). ATT contacted Kentex to inform Kentex of the defective planters and demanded reimbursement for charge-backs pursuant to the Manufacturing Agreement. (Id. at ¶ 40). Kentex, in response, demanded immediate payment for amounts due. (Id. at ¶ 41). ATT did not pay Kentex, and Kentex instructed Sunland to refrain from producing any planters for ATT. (Id. at ¶ 44). The production stoppage forced ATT to source other manufacturers to fulfill ATT's obligations to its customers, which resulted in increased costs to ATT. (Id. at ¶¶ 45, 46). Thereafter, ATT ended its relationship with Kentex. (Id. at ¶ 47).

         Kentex has not returned samples that belong to ATT. (Id. at ¶¶ 49, 50). In addition, Kentex has displayed products made using ATT's proprietary molds at trade shows. (Id. at ¶ 51).

         III. ANALYSIS

         1. Kentex's Motion to Dismiss

         A. Standard of Review

         In considering a motion to dismiss pursuant to Rule 12(b)(6), courts “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.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). In resolving a motion to dismiss pursuant to Rule 12(b)(6), a court generally should consider only the allegations in the complaint, as well as “documents that are attached to or submitted with the complaint, …and any matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006).

         A Rule 12(b)(6) motion tests the sufficiency of the complaint against the pleading requirement of Rule 8(a). Rule 8(a)(2) requires that a complaint contain a short and plain statement of the claim showing that the pleader is entitled to relief, “in order to give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While a complaint attacked by Rule 12(b)(6) motion to dismiss need not contain detailed factual allegations, it must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, a civil plaintiff must allege facts that “raise a right to relief above the speculative level….” Victaulic Co. v. Tieman, 499 F.3d 227, 235 (3d Cir. 2007) (quoting Twombly, 550 U.S. at 555). Accordingly, to satisfy the plausibility standard, the complaint must indicate that defendant's liability is more than “a sheer possibility.” Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         Under the two-pronged approach articulated in Twombly and later formalized in Iqbal, a district court must first identify all factual allegations that constitute nothing more than “legal conclusions” or “naked assertions.” Twombly, 550 U.S. at 555, 557. Such allegations are “not entitled to the assumption of truth” and must be disregarded for purposes of resolving a 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 679. Next, the district court must identify “the ‘nub' of the … complaint - the well-pleaded, nonconclusory factual ...


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