Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 1 of 14 PageID:
I. that KEVIN
corporation and Based not Betachem,
drug prejudice fair breach Betachem Betachem
manufactures
Chemo’s
set
CHEMO
BETACHEM,
forth
paid.
dealing
detrimental
owes
companies
BACKGROUND
Chemo Plaintiff
on
of
MCNULTY,
below,
motion
IBERICA,
vs.
Betachem
the
to
Betachem
with
says,
Inc.
(Count
that
the
alleged
is
INC.,
Chemo
active
pharmaceutical
(“Betachem”).
the
a
filing
set
reliance
use
to
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pharmaceutical
(Count
IV),
dismiss
U.S.D.J.:
off
Court
S.A.,
FOR
responds
to
money
pharmaceutical
UNITED
oral
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Iberica,
and
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that,
medications.
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grant
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counterclaims
sales
products
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markets
counterclaims
company
exceed
(“Chemo”)
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ingredients
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complaint
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Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 2 of 14 PageID:
with
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products products is Amended
payments, claims
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in it Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 3 of 14 PageID:
Based on the alleged oral 5-3-1 agreement, Betachem initially asserted a single counterclaim for breach of contract. (Answer and Counterclaims, Dkt. No. 5) However, after the Court granted Chemo’s Motion for a More Definite Statement pursuant to Federal Rule of Civil Procedure 12(e) (Dkt. No. 6-1), Betachem filed a First Amended Answer and Counterclaims (“FAC”). The FAC asserts counterclaims for breach of contract (Counterclaim Count I), unjust enrichment (Counterclaim Count II), promissory estoppel (Counterclaim Count III), breach of the covenant of good faith and fair dealing (Counterclaim Count IV), and implied contract (Counterclaim Count V). The FAC includes additional details, such as lists of drugs allegedly subject to the 5-3-1 agreement. All told, Betachem estimates that its damages from Chemo’s failure to pay the sales commissions exceed $5 million. (FAC ¶92-108)
Now before the Court is Chemo’s motion to dismiss Betachem’s counterclaims.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6)provides for the dismissal of a complaint, in whole or in part, if it fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). For the purposes of a motion to dismiss, the facts alleged in the complaint are accepted as true and all reasonable inferences are drawn in favor of the plaintiff or counterclaimant. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (stating that well-established “reasonable inferences” principle is not undermined by intervening Supreme Court case law).
Although a complaint need not contain detailed factual allegations, “a plaintiffs obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions.” Bell Ati. Corp. v. Twombly, 550 U.S. 544,
3 Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 4 of 14 PageID:
555 (2007) (internal quotations omitted). The factual allegations must be sufficient to raise a plaintiff’s right to relief beyond the merely speculative level to demonstrate that the claim is “plausible on its face.” Id. at 570; see also Umland v. PLANCO Fin. Serus., Inc., 542 F.3d 59, 64 (3d Cir. 2008). This requires the plaintiff to plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, sso U.S. at 556). While this “plausibility standard” does not amount to a “probability requirement,” it does ask for “more than a sheer possibility.” Iqbal, 556 U.S. at 678. Stated differently, in reviewing the well-pleaded factual allegations and assuming their veracity, this Court must “determine whether they plausibly give rise to an entitlement to relief.” Iqbal, 556 U.S. at 679. Finally, a complaint or counterclaim is subject to dismissal under Rule 12(b)(6) “when an affirmative defense like the statute of frauds appears on its face.” ALA v. CCAIR Inc., 29 F.3d 855, 859 (3d Cir. 1994).
III. ANALYSIS
A. Counterclaim Count I — Breach of Contract 1. Lack of specificity The existence and terms of the alleged oral 5-3-1 agreement are not sufficiently pled under Twombly and Iqbal. A commercial party who claims post-termination commissions under an oral agreement should be able to allege the fundamentals of contract formation; to allege that it made post-termination sales; and to allege the commissions that are owed. Betachem has failed to do that here. Betachem has failed to allege facts sufficient to establish offer, acceptance, or the material terms of the 5-3-1 agreement. The FAC alleges generally that business was done on a “handshake” basis, but it does not describe any meeting or conversation in which the 5-3-1 agreement was arrived at. Betachem announces that it is entitled to post-severance commissions, but nowhere alleges such an understanding with Chemo. The FAC alleges that the
4 Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 5 of 14 PageID:
agreement was meant to compensate Betachem “for pending and continual projects the parties were engaged in.” (Opposition, at 7) There is no mention of what these projects were, what acts the parties were expected to perform, or what understanding it had with Chemo as to the compensation Betachem was entitled to receive. Upon cancellation, Betachem’s principal, Mr. Gaunt allegedly expressed “shock[]” and told Chemo’s representative that he thought some oral agreement did exist and was “customary” in the industry. (FAC ¶ 77) That unilateral statement falls short of a bilateral agreement. Yet it is virtually the only fact that the Counterclaim pleads in support of its contention that the 5-3-1 oral agreement even existed. Should Betachem choose to amend its counterclaim, it should be mindful of the requirements of the substantive law of contracts. To be enforceable, a contract “must be sufficiently definite ‘that the performance to be rendered by each party can be ascertained with reasonable certainty.”’ Weichert Co. Realtors v. Ryan, 128 N..J. 427, 435, 608 A.2d 280, 284 (1992) (quoting West Caldwell v. Caidwell, 26 N.J. 9, 24-25, 138 A.2d 402 (1958)). See Monroe v. Host Marriot Servs. Corp., 999 F. Supp. 599, 606 (D.N.J. 1998) (promise of “fair treatment” is too vague to be enforced as an employment contract). That principle applies a fortiori to a vaguely defined oral contract: “New Jersey law would bar enforcement of this oral promise because... the terms of this alleged promise cannot be reasonably ascertained.” Kreuzburg v. Computer Sciences Corp., 661 F. Supp. 877, 877 (D.N.J. 1987) (citing Woolley v. Hoffmann—LaRoche, Inc., 99 N.J. 284, 293 (1985)). Of course, Betachem is not required to prove the existence of such a reasonably specific agreement at this preliminary stage. But it is required to allege that such a reasonably specific agreement exists. It has not done so. 2. Statute of frauds Chemo argues that the alleged 5-3-1 agreement with Betachem, assuming it exists, constitutes a “transaction in goods” under article 2 of the
5 Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 6 of 14 PageID:
New Jersey Uniform Commercial Code (“UCC-Sales”).’ See N.J.S.A. 12A:2-102. As such, it is subject to the UCC-Sales statute of frauds. See N.J.S.A. 12A:2- 201(1). The 5-3-1 agreement, being oral, is therefore unenforceable, and Betachem’s counterclaim for breach of contract must be dismissed.
If a contract is governed by article 2 of the UCC and its value exceeds $500, the UCC’s internal statute of frauds provides that it shall be unenforceable “unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought.” N.J.S.A. 12A:2-201.(1). Since Betachem alleges an oral contract, the dispute over the applicability of article 2 of the UCC is critical. The applicability of UCC-Sales depends on the nature of the contract: Contracts for the sale of goods are covered; service contracts are not. A “mixed” contract—one that concerns both goods and services—is covered if “the sales aspect predominates.” Quality Guaranteed Roofing, Inc. v. Hoffman LaRoche, Inc., 302 N.J. Super. 163, 166 (App. Div. 1997) (quoting Custom Communications Eng’g, Inc., v. E.F. Johnson Co., 269 N.J. Super. 531, 537 (App. Div. 1993)). To determine the predominant purpose of a mixed contract, courts ask whether the services contracted for “were merely incidental or collateral to the sale of goods.” Docteroff v. Barra Corp. of Am., 282 N.J. Super, 230, 240 (App. Div. 1995).
Chemo maintains that UCC-Sales applies because the alleged oral 5-3-1 agreement must be characterized as either a sales contract or a mixed contract in which the sales aspect predominates. Betachem’s description of the agreement in its Counterclaim, Chemo says, clearly indicates that the
commissions owed to Betachem depend on its sale of Chemo products. I agree.
All citations to the UCC herein refer to the New Jersey version of Article 2, which is “known and may be cited as Uniform Commercial Code—Sales.” N.J.S.A. 12A:2: 101. 6 Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 7 of 14 PageID:
Betachem’s function during the life of the Betachem/Chemo relationship was as follows: [Tjhe U.S. generic companies would place orders with Betachem who in turn, would place orders with Chemo Iberica. The spread between these two orders represented Betachem’s profit. For products that were no commercially sold in the US, which in the early days was virtually everything, Betachem would receive a 10% profit. For products that were sold commercially, Betachem would receive 5% profit. (FAC ¶56) That 5% or 10% profit may be an example of what Betachem refers to as its “commission,” although this is never clarified in the FAC; perhaps the “commission” is something else. The alleged “tail commission” seems represent a continuation, on a diminishing basis, of that arrangement after the parties severed their relationship. Be that as it may, the Counterclaim repeatedly emphasizes that Betachem’s post-severance sale of pharmaceutical goods was to be the basis for its entitlement to a commission from Chemo. For example, in reference to a list of Chemo products allegedly subject to the 5-3-1 agreement, Betachem alleges that “[such] products were being marketed by Betachem and that Betachem would be entitled to a tail commission on these products sold to customers.” (Id. at ¶78) Elsewhere, Betachem refers to a popular API manufactured by Chemo and concludes that “the sales of Guanfacine HCI—and Betachem’s commission—should have increased many fold.” (Id. at ¶81) These and other allegations in Betachem’s Counterclaim establish that the sale of Chemo’s products was the predominant focus of the alleged 5-3-1 agreement. (See FAC ¶j 79, 89, 91) Betachem does allege that it performed certain services under the agreement—chiefly, that it “marketed” Betachem’s products (id. at ¶78)— but such efforts are incidental to sales. Nothing in Betachem’s Counterclaim states or implies that Betachem expected to receive a tail commission for any “marketing” effort divorced from a sale.
The face of the Counterclaim establishes that the alleged 5-3-1 agreement is a contract for the sale of goods within the meaning of UCC-Sales.
7 Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 8 of 14 PageID:
Because this agreement was never reduced to a writing signed by Chemo, it is unenforceable under the UCC’s statute of frauds.
Betachem advances two arguments to avoid this conclusion. Neither is persuasive.
First, Betachem tries to rewrite the FAC. For the first time, in its brief in opposition to the motion, Betachem says that it actually had three oral agreements with Chemo. (Betachem’s Memorandum of Law in Opposition to Chemo’s Motion to Dismiss Betachem’s Counterclaims (“Opposition”), Dkt. No. 29, at 3). Neither the FAC nor the brief discloses the terms of such agreements, nor are we told how, when, or where these agreements were made. The brief attempts to give these alleged agreements heft by assigning them capitalized, underlined titles, but there is no indication that the parties ever used those titles before this action was filed. One of these oral agreements, the “Sales Agreement,” pertained to Betachem’s purchases-for-resale of Chemo products. Another, the “Agency Agreement,” required Betachem to market Chemo’s products to buyers in the United States. Neither, says Betachem, is at issue here. (Id.) The “focus of [its] Counterclaims,” it says, is a third agreement—the “Commission Agreement.” (Id.) This Commission Agreement allegedly “did not contemplate a sale of goods or an exchange of services; it was simply an acknowledgment of the Parties’ many years of working together, creating new markets and business.” (Id.) “It was in essence, a type of consolation or severance package in the event of the termination of the relationship.” (Id.) Apparently it corresponds to the alleged 5-3-1 Agreement. Once this third agreement is segregated from the other two, says Betachem, the sale of goods no longer predominates; it therefore is not a contract subject to UCC-Sales and its statute of frauds. The Counterclaim must stand on its own; it cannot be saved by the radical reconstructive surgery in Betachem’s brief. Not one of the three oral agreements is mentioned in the FAC. It is difficult to comprehend how a
8
Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 9 of 14 PageID:
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Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 10 of 14 PageID:
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from
the
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or
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number
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1956)).
performance
not
allege
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of
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to
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of
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as
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list
Betachem
performance.
or
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no
that
freely
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(FAG
and
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of
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specifically
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specific
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nowhere
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fully
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it
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and
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attempt
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admits
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under
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attempting
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for
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enable
its
sales
on
to
avoid
of
sale of
Case 2:13-cv-04742-KM-MAH Document 32 Filed 03/25/15 Page 11 of 14 PageID:
*19
duty dealing. whether
Betachem’s unenforceable,
contention
798 contract.” presupposes
the fair implied
dealing,
F.3d faith
Counterclaim
(1997)
Betachem’s
implied
dealing
(E.D.
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of
and
1078
will
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support
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2006)
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reasons,
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party
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in
Co.,
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Plaintiff
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accounting
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for
termination
for
after
for
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