HL Intermediate Holdco Inc. v. N.B. Love Indus. Pty. Ltd.

191 F.Supp.3d 345

HL INTERMEDIATE HOLDCO INC., Plaintiff,

v.N.B. LOVE INDUSTRIES PTY. LTD., William Kahn, Louis Cuccia, and Bill Gerard, Defendants.

Civ. No. 15-1169-SLR

United States District Court, D. Delaware.

Signed June 10, 2016

Joseph J. Farnan, Jr., Brian E. Farnan, Michael J. Farnan, Farnan LLP, Wilmington, DE, Ian T. Clarke-Fisher, Joseph L. Clasen, Pro Hac Vice, for Plaintiff.

Joel E. Friedlander, Christopher P. Quinn, Friedlander & Gorris, P.A., Bradley Ross Aronstam, Nicholas D. Mozal, Ross Aronstam & Moritz LLP, Wilmington, DE, Robert C. Bowers, William M. Butler, Pro Hac Vice, for Defendants.

MEMORANDUM

SUE L. ROBINSON, United States District Judge

At Wilmington this 10th day of June, 2016, having reviewed defendants' motion to dismiss the complaint for failure to state a claim (D.I. 11), and the papers filed in connection therewith; the court issues its decision based on the following reasoning:

1. Background. On December 18, 2015, plaintiff HL Intermediate Holdco Inc. ("plaintiff") filed a complaint alleging breach of warranty against N.B. Love Industries Pty. Ltd. ("N.B. Love Industries"), William Kahn ("Kahn"), Louis Cuccia ("Cuccia"), and Bill Gerard's ("Gerard") (collectively, "defendants"). (D.I. 1) The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a).

2. Plaintiff is a corporation organized under the laws of the State of Delaware. (Id. at ¶ 1) N.B. Love Industries is a corporation incorporated in accordance with the laws of New South Wales. (Id. at ¶ 2) Kahn is an individual and citizen of the State of North Carolina and was the former president and general manager of the Harper-Love Adhesives Corporation (the "Company"). (Id. at ¶¶ 3, 11) Cuccia is an individual and a citizen of the State of Tennessee and was a regional manager of the Company. (Id. at ¶¶ 4, 11) Gerard is an individual and citizen of the State of Illinois and was a regional manager of the Company.¹ (Id. ¶¶ 5, 11)

3. In late 2013, plaintiff began discussions with defendants about the acquisition of the Company. (Id. at ¶ 9) The Company's facility and headquarters are located in Charlotte, North Carolina, and it designs, manufactures, and sells adhesive additives for use during the construction of corrugated boxes. (Id. at ¶ 10) On April 25, 2014 (the "closing date"), plaintiff, the Company, and defendants entered into a written agreement and plan of merger (the "Agreement"), which is governed by the laws of New York. (Id. at ¶¶ 13, 24) In the Agreement, defendants made contractual representations and warranties that defendants had not been notified of any actual or potential decrease in the Company's business with Georgia-Pacific. (Id. at ¶¶ 15, 16) Specifically, § 3.21(a) of the Agreement's disclosure schedule, which disclosed the Company's ten largest customers, listed Georgia-Pacific as the Company's third largest customer in the fiscal years of 2012 and 2013, with annual revenues of $2,804,698 and $2,945,333, respectively. (D.I. 13., ex. C at § 3.21(a)) Section 3.21(c) of the Agreement's disclosure schedules indicated that none of the Company's ten largest customers, including Georgia-Pacific, notified the Company that they may or shall stop, or decrease the rate of, buying materials, products or services from the Company. (Id. , ex. C at § 3.21(c)) The Agreement reads in relevant part as follows:

Except as set forth in Section 3.21(c) of the Disclosure Schedules, no vendor listed on Section 3.21(b) of the Disclosure Schedules has notified the Company that it may or shall stop, or decrease the rate of, supplying materials, products or services to the Company, and no customer listed on Section 3.21(a) of the Disclosure Schedules has notified the Company that it may or shall stop, or decrease the rate of, buying materials, products or services from the Company, in each case from the levels achieved during the year ended December 31, 2013.

(Id. , ex. B at § 3.21(c)) The meaning of "notified" in § 3.21(c) is not defined in the Agreement. (Id. ) The Agreement also obligates defendants to indemnify plaintiff for, and hold harmless plaintiff from, any inaccuracy in or breach of any of the presentations or warranties of the defendants. (Id. , ex. B at § 6.02) Additionally, the Agreement provides that the parties made no other representation of warranty, express or implied, other than those contained in the Agreement.² (Id. , ex. B at § 3.28) Finally, the Agreement provides that all notices under the Agreement be in writing. (Id. , ex. B at § 7.02)

4. After the Agreement's closing date, Georgia-Pacific reduced its business with the Company and moved a significant amount of its business to one of the Company's competitors, Henkel AG & Company ("Henkel"). (D.I. 1 at ¶ 26) As of December, 2015, the Company's annual business with Georgia-Pacific had been reduced by approximately $2,000,000, as compared with the annual sales from Georgia-Pacific in 2013. (Id. at ¶ 27)

5. Plaintiff alleges that, in the months leading up to the closing date, Georgia-Pacific notified defendants that it would or may stop or at least decrease the amount of business it did with the Company as compared to 2013. (Id. at ¶ 28) To support this claim, plaintiff points to five separate events. (Id. at ¶ 29 a-e) First, Georgia-Pacific announced that it would be issuing a request for pricing as it was interested in cost savings that may result from changing products and distributors. (Id. at ¶ 29 a) Second, Georgia-Pacific informed Gerard and another employee of the Company that, while the Company was still "in the hunt for the Georgia-Pacific contract," its prices were higher than its competitors and Georgia-Pacific was intent on awarding a "single supplier with all the business." (Id. at ¶ 29 b) Third, defendants were notified that the "key individuals in charge of purchasing at Georgia-Pacific were changing and being replaced with individuals who did not have strong ties with the Company." (Id. at ¶ 29 c) Fourth, the Company did not receive any feedback from Georgia-Pacific on its bids, and was informed that Georgia-Pacific downsized by removing over 60 employees, including managers and regional vice presidents. (Id. at ¶ 29 d) Finally, in late March and early April, Georgia-Pacific notified defendants that Georgia-Pacific viewed Henkel favorably, that Henkel's prices were lower than the Company's, and that Henkel was providing certain Georgia-Pacific facilities with demos. (Id. at ¶ 29 e) Plaintiff alleges that defendants explicitly discussed the possible loss of Georgia-Pacific's business and concealed such facts from plaintiff. (Id. at ¶ 30) In an e-mail exchange between Kahn, Gerard, and Cuccia, dated February 23, 2014, Kahn wrote as follows:

I think it would be good to have [plaintiff's] people involved for our opening dinner... Now as I think about the meeting content I question having them sit in ... since the deal won't be final... I would hate to have the open discussion we need to have about GP [Georgia-Pacific] ... and give them something to worry about?

(Id. at ¶ 31) In another e-mail exchange between Kahn and Cuccia, dated April 11, 2014, Kahn wrote, "[t]he downsize, the demos in the SE, and the delay of the RFP are 3 separate incidents and not material to the sale. If [plaintiff's people] ask for an update on GP [Georgia-Pacific] I need to share otherwise not." (Id. at ¶ 32)

6. Standard. A motion filed under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint's factual allegations. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Kost v. Kozakiewicz , 1 F.3d 176, 183 (3d Cir.1993). A complaint must 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." Twombly , 550 U.S. at 545, 127 S.Ct. 1955 (internal quotation marks omitted) (interpreting Fed. R. Civ. P. 8(a) ). Consistent with the Supreme Court's rulings in Twombly and Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Third Circuit requires a two-part analysis when reviewing a Rule 12(b)(6) motion. Edwards v. A.H. Cornell & Son, Inc. , 610 F.3d 217, 219 (3d Cir.2010) ; Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir.2009). First, a court should separate the factual and legal elements of a claim, accepting the facts and disregarding the legal conclusions. Fowler , 578 F.3d at 210–11. Second, a court should determine whether the remaining well-pled facts sufficiently show that the plaintiff "has a ‘plausible claim for relief.’ " Id. at 211 (quoting Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ). As part of the analysis, a court must accept all well-pleaded factual allegations in the complaint as true, and view them in the light most favorable to the plaintiff. See Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) ; Christopher v. Harbury , 536 U.S. 403, 406, 122 S.Ct. 2179, 153 L.Ed.2d 413 (2002) ; Phillips v. Cnty. of Allegheny , 515 F.3d 224, 231 (3d Cir.2008). In this regard, a court may consider the pleadings, public record, orders, exhibits attached to the complaint, and documents incorporated into the complaint by reference. Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ; Oshiver v. Levin, Fishbein, Sedran & Berman , 38 F.3d 1380, 1384–85 n.2 (3d Cir.1994).

7. The court's determination is not whether the non-moving party "will ultimately prevail" but whether that party is "entitled to offer evidence to support the claims." United States ex rel. Wilkins v. United Health Grp., Inc. , 659 F.3d 295, 302 (3d Cir.2011). This "does not impose a probability requirement at the pleading stage," but instead "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary element]." Phillips , 515 F.3d at 234 (quot...