K7 Design Grp., Inc. v. Five Below, Inc.

540 F.Supp.3d 508

K7 DESIGN GROUP, INC. and K7 Design Group, LLC, Plaintiffs,

v.FIVE BELOW, INC., Defendant.

CIVIL ACTION NO. 21-1406

United States District Court, E.D. Pennsylvania.

Filed May 21, 2021

David B. Newman, Sills Cummis & Gross P.C., New York, NY, Frank R. Emmerich, Jr., Eckert Seamans Cherin & Mellott LLC, Philadelphia, PA, for Plaintiffs.

Charles S. Marion, Serena S. Gopal, Terry Matthew Henry, Blank Rome LLP, Philadelphia, PA, for Defendant.

MEMORANDUM OPINION

WENDY BEETLESTONE, District Judge.

In the early days of the COVID-19 pandemic, Defendant Five Below, Inc. approached K7 Design Group, Inc. and K7 Design Group, LLC (together, K7 or Plaintiff) to discuss a large order of hand sanitizer and soap. Five Below maintains that the relationship was merely that—a preliminary discussion of a potential order that never materialized. K7, on the other hand, alleges that Five Below placed an order to the tune of $2 million, which order Five Below repudiated upon realizing it had ordered far more hand sanitizer than it could sell. Five Below moves to dismiss the contract claims brought by K7. For the reasons that follow, the motion will be denied.

I. STANDARD OF REVIEW¹

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed if it fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. (12)(b)(6). To survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). In reviewing a complaint, courts must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Blanyar v. Genova Prods. Inc. , 861 F.3d 426, 431 (3d Cir. 2017) (internal quotations marks and citations omitted).

II. MATERIALS TO BE CONSIDERED

As a preliminary matter, Five Below argues that the Court should look beyond the Complaint to consider the complete chain of emails between the parties and Five Below's Vendor Manual. In ruling on a motion to dismiss, in addition to the allegations in the Complaint and exhibits attached thereto, "a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Ben. Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993) ; see also In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1426 (3d Cir. 1997) (explaining that as "an exception to the general rule" that the court may consider only the pleadings, "a document integral to or explicitly relied upon in the complaint may be considered without converting the motion [to dismiss] into one for summary judgment." (alteration in the original) (internal quotation marks and citation omitted)).

The parties’ email correspondence, but not the Vendor manual, fall within the "narrowly defined types of material" that may be considered without converting a motion to dismiss to one for summary judgement. In re Rockefeller Ctr. Props., Inc. Sec. Litig. , 184 F.3d 280, 287 (3d Cir. 1999). As K7 concedes, its breach of contract and promissory estoppel claims are explicitly based on the exchange of emails between K7 and Five Below, and that correspondence is integral to those claims. The Complaint quotes extensively from the emails attached to the Motion to Dismiss, the authenticity of which are undisputed. The Vendor Manual, on the other hand, is external to the allegations in the Complaint and will not be considered. K7's contract claims are not based on the Vendor Manual, which sets forth supplemental terms and conditions related to, inter alia , shipping, routing, packaging, testing, labeling, and insurance. To the extent the Complaint refers to paperwork found in the Vendor Manual or actions taken in compliance with the Manual, such allegations are not, in the context of this motion to dismiss, integral to K7's breach of contract and promissory estoppel claims. In fact, it is undisputed that Five Below did not send K7 the Vendor Manual until after K7 alleges a contract was formed on or about May 14th.²

III. FACTS

The relevant facts are drawn from the Complaint and the email correspondence attached to Five Below's motion to dismiss.

See In re Burlington , 114 F.3d at 1426. Five Below is a national retailer of discount consumer goods, and K7 is family-owned manufacturer and distributor of consumer goods, including hand sanitizer and soap. On April 24, 2020, Five Below solicited an initial proposal from K7 regarding the sale of hand sanitizer and soap products. To that end, the parties discussed via email details such as timing, assortment of products, supply chain concerns, and price. On May 11, 2020, Five Below responded enthusiastically to K7's proposal and expressed an interest in moving forward with the order. In the following days, K7 conveyed increasing urgency in nailing down the details as it was in the midst of allocating production capacity for the season. On May 14, 2020, Five Below provided a breakdown by product style for an anticipated order of 600,000 travel size hand sanitizers but sought to further negotiate on price. The same day, K7 responded that the quoted price was final and asked Five Below for "confirmation that we can go ahead and submit these in the production pipeline right away" and to "please confirm the costs are acceptable so we can begin and not risk losing our production." Five Below requested that K7 "please confirm based on the units ... provided," to which K7's representative replied: "Yes this is confirmed and I will work with my team in getting these in the pipeline."

The parties hammered out further details via email in the ensuing months. K7 confirmed the order was in production, requested vendor related paperwork, and mailed product samples; Five Below proceeded to set-up K7 as a vendor, including sending K7 its Vendor Manual and issuing K7 a vendor number. On September 17, 2020, K7 informed Five Below that the order was ready and requested shipping instructions. However, on September 30, Five Below informed K7 that it could not accept the items. Five Below thereafter repeatedly refused to accept the items, claiming that it did not issue a purchase order for them and that they did not pass Five Below's testing protocols.

IV. ANALYSIS

Five Below moves to dismiss K7's claims for breach of contract and promissory estoppel.³ Five Below argues that K7 fails to state a claim for breach of contract because there was no mutual manifestation of an intent to enter a binding agreement nor sufficiently definite terms to enforce. Because the agreement as alleged is a contract for the sale and manufacture of goods, it is governed by Article 2 of the Pennsylvania Uniform Commercial Code, 13 Pa. Cons. Stat. § 2101 et seq.⁴ Section 2204 of the Pennsylvania UCC, governing the formation of contracts, provides that a "contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." 13 Pa. Cons. Stat. § 2204(a). The Pennsylvania UCC has been interpreted consistently with the common law requirement of a mutual manifestation of an intent to be bound to form a contract. See, e.g., ATACS Corp. v. Trans World Commc'ns, Inc. , 155 F.3d 659, 665 (3d Cir. 1998) ("It is by now hornbook law that the test for enforceability of an agreement is whether both parties have manifested an intention to be bound" (internal quotation marks and citation omitted)); Reilly Foam Corp. v. Rubbermaid Corp. , 206 F. Supp.2d 643, 650 (E.D. Pa. 2002) (explaining that an offer under the Pennsylvania UCC "has been defined based on common law principles as ‘the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.’ " (quoting Bergquist Co. v. Sunroc Corp. , 777 F. Supp. 1236, 1248 (E.D. Pa. 1991) )).

According to Five Below, the email exchange between the parties reveals only preliminary negotiations regarding the possible future sale of hand sanitizer. See ATACS , 155 F.3d at 666 ("[I]t is well established that evidence of preliminary negotiations or a general agreement to enter a binding contract in the future fail as enforceable contracts" (citing Goldman v. McShain , 432 Pa. 61, 247 A.2d 455, 458 (1968) )). However, the Complaint plausibly alleges that Five Below placed and later repudiated a substantial order of hand sanitizer. Because "[a]n agreement sufficient to constitute a...