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Merchants Distributors, LLC v. Harold Friedman Inc.

United States District Court, W.D. Pennsylvania

April 5, 2018



          Arthur J. Schwab, United States District Judge

         Plaintiffs, Merchants Distributors, LLC ("MDI") and Capital Resources, LLC ("Capital") (together, "Plaintiffs"), initiated this breach of contract and declaratory judgment action by filing a Complaint against Defendant, Harold Friedman Inc. ("Defendant" or "HFI"), on January 26, 2018. (ECF 1). Defendant filed an Answer, Affirmative Defenses and Counterclaims for breach of contract, breach of confidential relationship, and tortious interference. (ECF 9).

         Presently before the Court is Plaintiffs' Motion to Dismiss Defendant's Counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6) with a brief in support (ECF 17 and 18). Defendant filed a Response in Opposition (ECF 21), to which Plaintiffs filed a Reply. (ECF 22). For the reasons that follow, Plaintiffs' Motion to Dismiss will be granted, and Defendant's Counterclaims will be dismissed.[1]


         For purposes of a Rule 12(b)(6) motion to dismiss, claims and counterclaims are treated equivalently and therefore the standard of review is the same. Red Bend Hunting & Fishing Club v. Range Resources-Appalachia, LLC, No. 4:16-CV-00864, 2016 WL 7034686, at *4 n.35 (M.D. Pa. Dec. 2, 2016). Under Rule 12(b)(6), a counterclaim must be dismissed for "failure to state a claim upon which relief can be granted." Although detailed factual pleading is not required, a counterclaim must set forth sufficient factual allegations that, taken as true, set forth a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plausibility standard does not require a showing of probability that a claim has merit, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007), but it does require that a pleading show "more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678.

         Building upon the landmark United States Supreme Court decisions in Twombly and Iqbal, the United States Court of Appeals for the Third Circuit explained that a District Court must undertake the following three steps to determine the sufficiency of a claim:

First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief

Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013) (citation omitted). The final step requires this Court to consider the specific nature of the claims presented and to determine whether the facts pled to substantiate the claims are sufficient to show a "plausible claim for relief." Covington v. Int'l Ass'n of Approved Basketball Officials, 710 F.3d 114, 118 (3d Cir. 2013).

         In determining the adequacy of a counterclaim, the Court must accept the factual allegations as true and draw all reasonable inferences in the light most favorable to the defendant. GE Capital Mortg. Servs., Inc. v. Pinnacle Mortg. Inv. Corp., 897 F.Supp. 854, 860 (E.D. Pa. 1995). However, the Court need not accept inferences or conclusory allegations that are unsupported by the facts set forth in the claim. See Reuben v. U.S. Airways, Inc., 500 Fed.Appx. 103, 104 (3d Cir. 2012) (citing Iqbal, 556 U.S. at 678); Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (stating that District Courts "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions").

         This Court may not dismiss a counterclaim merely because it appears unlikely or improbable that the defendant can prove the facts alleged or will ultimately prevail on the merits. Twombly, 550 U.S. at 563 n.8. Instead, this Court must ask whether the facts alleged raise a reasonable expectation that discovery will reveal evidence of the necessary elements. Id. at 556. Generally speaking, a claim that provides adequate facts to establish "how, when, and where" will survive a motion to dismiss. Fowler, 578 F.3d at 212. In short, a motion to dismiss should be granted if a party fails to allege facts, which could, if established at trial, entitle him or her to relief. Twombly, 550 U.S. at 563 n.8.


         In accordance with the foregoing standard of review, the following facts are derived from Defendant's Counterclaims and are accepted as true solely for the purpose of adjudicating Plaintiffs' Motion to Dismiss.[2]

         Defendant admits that it entered into a number of contractual agreements with Plaintiffs on October 14, 2016, regarding the provision of wholesale grocery services as well as the lending of money.[3] (ECF 1, ¶ 7; ECF 9, ¶ 7). Plaintiffs sued Defendant for breach of contract after Defendant allegedly failed to make payments that were due under the agreements. See ECF 1, ¶¶ 7-21. Defendant filed counterclaims against Plaintiffs for breach of contract and breach of the covenant of good faith and fair dealing, claiming that the agreements related to "resets"[4] of Defendant's grocery stores that occurred between August 31, 2015, and September 15, 2015. See ECF 9, ¶¶ 43, 45, 68-70. Defendant alleges that Plaintiffs did not perform the resets competently, which resulted in problems for Defendant's grocery business, including "serious cash flow issues." See Id. ¶¶ 46-52. In addition, Defendant claims that Plaintiffs began to require "pre-wire payment" before making product deliveries, which purportedly added to its financial problems. Id. ¶ 54. Defendant also filed counterclaims against Plaintiffs for breach of a confidential relationship and tortious interference, alleging that Plaintiffs shared confidential information with a potential purchaser and interfered with its efforts to sell the business to third parties. Id. ¶¶ 59, 75-77, 81, 84. Defendant claims that it suffered millions of dollars in damages as a result of Plaintiffs' conduct and had to close its business in January 2018. Id. ¶¶ 61-62.


         A. Choice of Law

         The contractual agreements attached to Plaintiffs' Complaint each contain a provision specifying that the agreement shall be governed by and construed in accordance with North Carolina law.[5]See ECF 1-2 at 7; ECF 1-3 at 9; ECF 1-10 at 2; ECF 1-11 at 9. Despite the choice of law provision, the parties analyzed Defendant's breach of contract counterclaim under both Pennsylvania and North Carolina law, but they analyzed Defendant's tort counterclaims under Pennsylvania law. Therefore, the Court must begin its analysis by determining what law applies to the issues presented by the parties. As a federal court sitting in diversity, we must apply the choice of law rules of the forum state, ...

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