FabriClear, LLC v. Harvest Direct, LLC

481 F.Supp.3d 27

FABRICLEAR, LLC, Plaintiff,

v.HARVEST DIRECT, LLC, Defendant.

CIVIL ACTION NO. 20-10580-TSH

United States District Court, D. Massachusetts.

Signed August 24, 2020

Thomas P. McNulty, Lando & Anastasi, LLP, Boston, MA, for Plaintiff.

Douglas F. Hartman, Hartman Law, PC, Boston, MA, for Defendant.

MEMORANDUM AND ORDER ON HARVEST DIRECT'S MOTION TO DISMISS (Docket No. 13)

HILLMAN, D.J.,

FabriClear, LLC ("FabriClear") filed this action against Harvest Direct, LLC ("Harvest Direct"), alleging breach of contract, trade secret misappropriation, unjust enrichment, breach of the implied covenant of good faith and fair dealing, false designation of origin, and unfair competition. (Docket No. 1). Harvest Direct moves to dismiss all claims. (Docket No. 13). For the following reasons, the Court denies its motion.

Background ¹

In the early 2000s, after seeing reports of a growing bedbug epidemic in New York City, Mark Panagiotes, the owner of FabriClear, developed a spray to treat bedbug infestations. He called his product FabriClear (the "FabriClear Product") and filed for trademark protection for use of the mark FABRICLEAR in connection with "insecticide for dust mites and bedbugs and moths." He also prepared labels and packaging featuring the FabriClear mark and incorporating red and green design elements on a bright yellow background.²

In 2013, FabriClear approached Harvest Direct, a company that engages in "As Seen on TV" marketing and sales, to discuss bringing the FabriClear Product to market. The companies executed a Confidentiality Agreement specifying, inter alia , that the FabriClear Product formula was a trade secret and that Harvest Direct could not reproduce, use, alter, or modify it without FabriClear's written permission. The agreement also provided for any "inventions, discoveries, improvements, alterations and/or modifications" which resulted from the Confidentiality Agreement to be the sole and exclusive property of FabriClear. (Docket No. 1 at 3).

With these protections in place, FabriClear disclosed "information on the formulation, sourcing, pricing and marketing of the FabriClear® Product" to Harvest Direct. (Docket No. 1 at 3). The parties then negotiated for Harvest Direct to market and sell the FabriClear Product. FabriClear prepared a written License Agreement summarizing the terms of their contract.³ Among other things, the agreement gave Harvest Direct an exclusive license to market and sell the FabriClear Product and to use FabriClear's "trademarks, trade names, copyrights, trade secrets, technical data, information, know-how, formulas, and other intellectual property rights" while doing so.⁴ (Docket No. 1 at 4). In exchange for this license, Harvest Direct committed to paying FabriClear royalties, calculated as set percentage of sales during each calendar month.

Over the next few years, sales of the FabriClear Product were robust. Towards the end of 2018, however, sales declined.⁵ When FabriClear inquired into the reason for the decline, a Harvest Direct employee privately mentioned that Harvest Direct had begun marketing and selling its own competing bedbug product (the "X-Out Product"). FabriClear subsequently learned that Harvest Direct had been working on developing this product since at least as early as 2015 and that its goal was to avoid making the necessary royalty payments to FabriClear.

The X-Out Product is indistinguishable from the FabriClear Product in all relevant respects. The label for the X-Out Product lists the same ingredients as the label for the FabriClear Product, and the packaging for the two products is similar:

There is evidence, moreover, Harvest Direct initially did not source its own product but instead repackaged existing bottles of FabriClear Product under the X-Out label. For example, an FBI investigation revealed that at least one bottle of X-Out Product contained a FabriClear label under the X-Out label:

And FabriClear alleges that it is aware of several other instances in which Harvest Direct sold FabriClear Product with X-Out labeling applied over the FabriClear labeling.

On April 12, 2019, FabriClear sent a letter to Harvest Direct demanding compliance with the terms of the parties’ agreements and the immediate cessation of Harvest Direct's relabeling activities. After receiving the demand letter, Harvest Direct stated that it wished to continue working with FabriClear. FabriClear, believing that this response signaled agreement to comply with the terms of the parties’ contracts, continued to supply Harvest Direct with FabriClear Product. Harvest Direct, however, did not (and to date, has not) stopped marketing or selling its X-Out Product, and while the Harvest Direct website still purports to offer the FabriClear Product, it lists the FabriClear Product as "out of stock."

FabriClear filed suit in this Court on March 24, 2020. (Docket No. 1). The complaint raises the following claims: breach of the License Agreement (Count I); breach of the Confidentiality Agreement (Count II); misappropriation of trade secrets (Count III), unjust enrichment (Count IV⁶ ); breach of the implied covenant of good faith and fair dealing (Count V); unfair competition and false designation of origin in violation of the Lanham Act, 15 U.S.C. § 1125(a) (Count VI); and unfair competition in violation of M.G.L. c. 93A, § 11 (Count VII). Harvest Direct moved to dismiss all claims on May 7, 2020. (Docket No. 13).

Standard of Review

In evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Langadinos v. Am. Airlines, Inc. , 199 F.3d 68, 69 (1st Cir. 2000). To survive the motion, the complaint must allege "a plausible entitlement to relief." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 559, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "[A] plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955. "The relevant inquiry focuses on the reasonableness of the inference of liability that the plaintiff is asking the court to draw from the facts alleged in the complaint." Ocasio-Hernandez v. Fortuno-Burset , 640 F.3d 1, 13 (1st Cir. 2011).

"[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—that the pleader is entitled to relief." Ashcroft v. Iqbal , 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Fed. R. Civ. P. 8(a)(2) ).

Discussion

1. Count I (Breach of License Agreement)

Count I asserts a claim for breach of contract with respect to the License Agreement. To establish a prima facie case of breach of contract, a plaintiff must show "(1) the existence of a valid and binding contract; (2) that plaintiff has complied with the contract and performed his own obligations under it; and (3) breach of the contract causing damages." Persson v. Scotia Prince Cruises, Ltd., 330 F.3d 28, 34 (1st Cir. 2003).

FabriClear has met its pleading burden here. It alleges that the parties entered into a contract memorialized by the License Agreement; that the terms of this contract required Harvest Direct to pay royalties on all sales of the FabriClear Product and to only use FabriClear's confidential information for limited purposes; and that Harvest Direct breached these terms by failing to pay the requisite royalties and misusing FabriClear's confidential information to develop, market, and sell a competing product. These allegations "describe the alleged terms of the contract in a sufficiently specific manner to give the defendant notice of the nature of the claim." See Moore v. La–Z–Boy, Inc. , No. 07-10708, 2007 WL 1858624, at *1 (D. Mass. June 27, 2007).

Harvest Direct contends that the Court should nonetheless dismiss this claim because License Agreement is not enforceable as a matter of law. But its argument relies on entitlement to an affirmative defense, namely, the License Agreement's purported failure to comport with the Statute of Frauds. And while Harvest Direct is correct that a court may dismiss a claim on affirmative defense ground if "the facts establishing the defense must be clear ‘on the face of the plaintiff's pleadings,’ " see Blackstone Realty LLC v. F.D.I.C. , 244 F.3d 193, 197 (1st Cir. 2001) (quoting Aldahonda–Rivera v. Parke Davis & Co ., 882 F.2d 590, 591 (1st Cir. 1989) ); see also, e.g. , Primarque Prod. Co. v. Williams W. & Witt's Prod. Co. , No. 15-30067, 2015 WL 10097150, at *3 (D. Mass. Nov. 18, 2015), FabriClear's complaint does not definitively establish a violation of the Statute of Frauds. It is not clear from the face of the complaint, for example, whether the License Agreement is subject to the Statute of Frauds. FabriClear suggests that the terms of this agreement could have been performed within one year, and if it is correct, the Statute of Frauds would not govern. Even if the contract does fall within the scope of the Statute of Frauds, however, certain allegations within the complaint are consistent with the application of an exception to the Statute of Frauds (e.g., estoppel or performance). The Court thus finds dismissal inappropriate at this juncture. See Blackstone Realty LLC , 244 F.3d at 197 (noting that dismissal is only appropriate if "review of the complaint ... ‘leave[s] no doubt’ that the plaintiff's action is barred by the asserted defense") (quoting LaChapelle v. Berkshire Life Ins. Co. , 142 F.3d 507, 509 (1st Cir. 1998) ). It accordingly denies the motion as to Count I.

2. Count II (Breach of Confidentiality Agreement)

Count II asserts a breach of contract claim relative to the Confidentiality Agreement. In support, FabriClear alleges that the parties entered into a contract when they executed the...