Cemex Constr. Materials Fla., LLC v. Armstrong World Indus., Inc., Case No. 3:16-cv-186-J-34JRK

CEMEX CONSTRUCTION MATERIALS FLORIDA, LLC, Plaintiff, v. ARMSTRONG WORLD INDUSTRIES, INC., Defendant.

ARMSTRONG WORLD INDUSTRIES, INC., Counterclaim Plaintiff, v. CEMEX CONSTRUCTION MATERIALS FLORIDA, LLC, Counterclaim Defendant.

Case No. 3:16-cv-186-J-34JRK

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION

February 15, 2018

ORDER

THIS CAUSE is before the Court on Plaintiff/Counterclaim Defendant CEMEX Construction Materials Florida, LLC's Motion to Dismiss Second Amended Counterclaim and Supporting Memorandum of Law (Doc. No. 63; CEMEX Motion), filed on March 29, 2017. Defendant/Counterclaim Plaintiff Armstrong World Industries, Inc. filed a response in opposition to the CEMEX Motion. See Armstrong World Industries Inc.'s Response in Opposition to CEMEX Construction Materials Florida LLC's Motion to Dismiss Second Amended Counterclaim (Doc. No. 65; Response to CEMEX). Accordingly, the motion is ripe for review.

I. Background

A. Facts¹

This action arises from a contractual relationship between a manufacturer and a distributor of building materials. In its Second Amended Counterclaim (Doc. No. 49; SAC), Defendant/Counterclaim Plaintiff Armstrong World Industries, Inc. (Armstrong), a Pennsylvania corporation with its principal place of business in Lancaster, Pennsylvania, states that it is a manufacturer of "acoustical ceiling products, including but not limited to ceiling tiles, grid, acoustical wall panel and installation, maintenance and accessory products," which it collectively refers to as the "Ceiling Products" (Ceiling Products or Products). SAC ¶¶ 1, 9. Armstrong distributes its Ceiling Products via wholesale distributors located in specified geographic areas, known as "territories." Id. ¶ 10. In December of 2006, Armstrong entered into a non-exclusive distribution agreement (Distribution Agreement or Agreement) with Rinker Materials of Florida, Inc. (Rinker) in which it authorized Rinker to purchase and resell Armstrong's Ceiling Products. See id. ¶¶ 12; Distribution Agreement. The Distribution Agreement identifies Rinker's territory as specific counties in Florida, Georgia, and Alabama, see id. at ¶ 20, and as relevant to this action contains the following terms:

[Distribution Agreement ¶ 1]: Armstrong appoints each Distributor to be its non-exclusive wholesale distributor located within the geographic area described in Attachment A hereto as Distributor's "Territory[]" . . .[Distribution Agreement ¶ 2]: Distributor will sell Ceiling Products to accounts serving the construction industry. Distributor is authorized to sell and distribute Ceiling Products only from those distribution locations within the Territory listed on Attachment A as "Distributor Locations." The term "Distributor" includes each authorized Distributor Location, whether or not owned by an affiliate or separate legal entity . . .

[Distribution Agreement ¶ 3]: Distributor is authorized to sell and distribute Ceiling Products (including will call or pick-up sales) only to accounts whose billing address is located in the Territory or for construction products located in the Territory. In the event Distributor sells or distributes Ceiling Products in violation of this section, and without prejudice to any other rights or remedies it may have, Armstrong may (1) bill back to Distributor any discount given by Armstrong on the Ceiling Products involved; (2) suspend any or all discounts or rebate programs to Distributor at the discretion of Armstrong; or (3) terminate Distributor . . .

[Distribution Agreement ¶ 4]: Distributor will use its best efforts to promote, sell and service all Ceiling Products within its Territory . . .

Id. ¶¶ 15-18; see also SAC, Ex. A: Armstrong World Industries, Inc. Building Products Division Non-Exclusive Distribution Agreement (Distribution Agreement) ¶¶ 1-4. The Distribution Agreement further provides that "sales of Ceiling Products outside Distributor's Territory in violation of paragraph 2" shall constitute a breach of the Distribution Agreement. SAC ¶ 19; Distribution Agreement ¶ 20(b). Notably, the Distribution Agreement is governed by Pennsylvania law. See Distribution Agreement ¶ 24.

In 2008, Plaintiff/Counterclaim Defendant CEMEX Construction Materials Florida, LLC (CEMEX) acquired Rinker and assumed the role as Armstrong's local distributor pursuant to the Distribution Agreement. See SAC ¶ 13. According to Armstrong, because the markets for Ceiling Products vary across geographic regions, Armstrong sold its Ceiling Products to CEMEX at a significant discount as compared to the wholesale price for the same Ceiling Products in other regions, such as New York. Id. ¶ 21. Armstrong based its pricing of products sold through CEMEX on its belief that CEMEX would onlydistribute the Ceiling Products within its contractually-assigned territory. See id. ¶ 22. Indeed, it is Armstrong's position that CEMEX was not authorized to sell Ceiling Products "for distribution or redistribution" anywhere outside of its specified territory. Id. Armstrong asserts that this practice helps "encourage its distributors to promote and grow business within their territories," while simultaneously "maximiz[ing] Armstrong's sales and profits[.]" Id. ¶ 11. On occasion, Armstrong also provided CEMEX with a special pricing exception (SPE) based on CEMEX's representations that the Ceiling Products would be sold only to a specified contractor and used for a specified construction job within its assigned territory. See id. ¶ 23.

As early as 2009, Armstrong became aware that CEMEX had sold Ceiling Products for use in a construction project outside of its contractually-assigned territory. Id. ¶ 25. This prompted Armstrong to send CEMEX a letter reminding CEMEX of its obligations under the Distribution Agreement. See id. Then, in 2011, CEMEX allegedly began conspiring with Metro Interior Distributors Corporation (Metro),² a New York Corporation with its principal place of business in New York, to acquire Ceiling Products intended for distribution in Florida and ship them to New York for resale. Id. ¶ 30. The scheme purportedly began after Matt Sutherland, president of Sutherland Group, met with and spoke to Jimmy Alderson (Alderson), the CEMEX sales representative responsible for ordering Armstrong's Ceiling Products. See id. ¶ 31. After several meetings andphone calls between these two individuals, Metro and CEMEX "conspired [] to purchase over 20 million square feet of Armstrong Ceiling Products intended for distribution in Florida and transship[] the [P]roduct[s] hundreds of miles outside of CEMEX's authorized territory for resale to customers in New York, thereby providing Metro with sufficient quantities of [P]roducts to improperly hold itself out as an authorized distributor of Armstrong Ceiling Products." Id. ¶ 33. Initially, the scheme involved Metro placing orders with CEMEX for Armstrong's Ceiling Products, CEMEX ordering the Products from Armstrong, and CEMEX later billing Metro's credit card for the purchases.³ See id. ¶¶ 32, 36. Metro would then arrange for a truck to pick up the Ceiling Products from CEMEX's Jacksonville location and haul them to New York. Id. ¶ 38. Later, "the parties" arranged for large shipping containers to be loaded with Ceiling Products and shipped to New York. Id. ¶ 39.

In furtherance of the purported scheme, Armstrong maintains that CEMEX and Metro took steps to conceal their illicit activities by, inter alia, removing SKU codes from certain Ceiling Products, misrepresenting the location of construction projects, and dealing in cash. See id. ¶¶ 34-35, 42. By way of example, Armstrong contends that CEMEX would input sales to Metro through its own "CASH 1268" account,⁴ allowing CEMEX to avoid adding Metro as an account customer which would, in turn, have created a record that the sales to Metro were intended for shipment to, and use in, New York.See id. ¶ 43. CEMEX also repeatedly failed to identify Metro on the list of its "top 10-15 accounts" which it provided annually to Armstrong, allegedly to hide all sales made to Metro, CEMEX's true largest customer. See id. ¶¶ 44-45. In other instances, CEMEX would request an SPE discount from Armstrong for use on a particular in-territory job site, "but then resell [some or all of] the material purchased under the SPE discount to Metro." See id. ¶¶ 46-50. Between 2011 and July of 2013, CEMEX ultimately sold and shipped approximately $7,300,000 in Ceiling Products to Metro in New York. Id. ¶ 40.

In July of 2013, Armstrong noticed that CEMEX placed two unusually large orders prompting Armstrong to inquire as to the destination of the Ceiling Products and CEMEX to subsequently reveal that the products were intended for Metro in New York. See id. ¶ 51. Armstrong again informed CEMEX that out-of-territory sales were not permitted, and "CEMEX falsely promised that it would not sell any more [P]roduct[s] to Metro[.]" Id. According to Armstrong, CEMEX's representatives then began making a number of misrepresentations regarding the nature and scope of its sales to Metro, including, but not limited to:

• A July 11, 2013 phone call between Joe Kirkpatrick (Kirkpatrick) - CEMEX's General Manager - and Frank Pasquerello (Pasquerello) - Armstrong's Area Manager - where Kirkpatrick represented to Pasquerello that the shipments to Metro were "for export out of the port of Jacksonville" when in reality the shipments were "transported to Metro via truck and/or railroad to New York." Id. ¶ 52.

• A July 18, 2013 phone call between Bo Salters (Salters) - another manager for CEMEX - and Pasquerello in which Salters represented to Pasquerello that Sutherland approached CEMEX on July 15 about making a cash purchase of Ceiling Products in full container quantities and threatened to sue CEMEX and Armstrong if they did not sell him the Products. Seeid. ¶ 53.

• A July 24, 2013 e-mail from Kirkpatrick to Pasquerello falsely informing Pasquerello that the only purchases

...