Newspin Sports, LLC v. Arrow Elecs., Inc.

910 F.3d 293

NEWSPIN SPORTS, LLC, an Illinois Limited Liability Company, Plaintiff-Appellant,

v.ARROW ELECTRONICS, INC., a New York Corporation, Defendant-Appellee.

No. 18-1666

United States Court of Appeals, Seventh Circuit.

Argued November 8, 2018

Decided December 3, 2018

Rehearing Denied January 4, 2019

Peter Ordower, Attorney, Chicago, IL, for Plaintiff-Appellant.

Paul D. Swanson, Attorney, HOLLAND & HART, Denver, CO, for Defendant-Appellee.

Before Flaum, Manion, and St. Eve, Circuit Judges.

Flaum, Circuit Judge.

On January 17, 2017, plaintiff-appellant NewSpin Sports, LLC ("NewSpin") filed a complaint against defendant-appellee Arrow Electronics, Inc. ("Arrow"). In this complaint, NewSpin brought several contract-and tort-based claims against Arrow relating to allegedly defective goods Arrow manufactured and shipped pursuant to a contract between the parties. The district court dismissed the original complaint in its entirety as untimely and entered judgment against NewSpin on the same day. The district court also denied NewSpin’s motion for reconsideration and for leave to file an amended complaint. For the reasons below, we affirm in part and reverse in part the district court’s dismissal of NewSpin’s complaint. We also reverse the district court’s denial of NewSpin’s request to amend its complaint in its reconsideration motion, and we remand for further proceedings.

I. Background

A. Factual Background

We take the following facts from NewSpin’s complaint. Plaintiff-appellant NewSpin provides technology products to help athletes, like golfers and tennis players, analyze and improve their swings. In 2010, NewSpin began the process of producing and launching its flagship "SwingSmart" product. SwingSmart is a sensor module that attaches to sports equipment and analyzes the user’s swing technique, speed, and angle. To initiate the production process, NewSpin searched for manufacturers and distributors that could provide the necessary electronic components to make SwingSmart work.

Defendant-appellee Arrow deals in the type of electronic components NewSpin sought to include in SwingSmart. Arrow sales representatives met with NewSpin representatives at least seven times in 2010 and 2011; the parties discussed NewSpin’s requirements for the product and Arrow’s ability to meet these requirements. Based on these discussions, NewSpin believed that Arrow knew how SwingSmart would function and understood NewSpin’s specifications for SwingSmart. Arrow employees further represented to NewSpin that Arrow had "successfully manufactured and provided substantially similar components for other customers."

Based on these representations, NewSpin signed a contract with Arrow in August 2011 entitled "Materials and Manufacturing Management Agreement Board Assembly" (the "Agreement"). Arrow agreed to "use reasonable commercial efforts" to perform "Work" pursuant to NewSpin purchase orders. Arrow’s work as defined in the Agreement was:

[T]o procure components and other supplies (Components) and to engage a sub-assembly house for the manufacture and assembly of Products (or Boards) through a subcontractor ... on [NewSpin’s] behalf pursuant to detailed, written specifications ... which are provided by [NewSpin] and accepted by Arrow, and to deliver such products to a [NewSpin] designated location.

The Agreement left many of the specifics of each product shipment for NewSpin’s future purchase orders: "As [NewSpin] requirements dictate, and on a case by case basis, [NewSpin] will issue a purchase order to Arrow setting forth the quantities, descriptions, prices, and requested delivery dates for the Products to be supplied and Work to be performed.... Each purchase order will reference the applicable Specifications." The price for Arrow’s work was also left to be "agreed upon by Arrow and [NewSpin] from time to time as set forth in purchase orders issued by [NewSpin] and accepted by Arrow." However, the Agreement did contain provisions that addressed, among other issues: Arrow’s warranty for the products shipped to NewSpin; Arrow’s inspection of products; sales tax and shipment terms; and NewSpin’s ability to return shipped products. The Agreement further provided it would "in all respects be governed by and construed in accordance with the laws of the State of New York."

In late 2011, NewSpin sent its first purchase orders to Arrow for fulfillment, and Arrow shipped some components to NewSpin in mid-2012. NewSpin alleges, however, that the components Arrow sent were defective and did not conform to their specifications. A manufacturing expert later identified "pad cratering" as one reason for these defects. NewSpin alleges pad cratering is a common manufacturing issue that Arrow should have known about.

Initially unaware of these defects, NewSpin used Arrow’s defective components to build 7,500 SwingSmart units. Of those 7,500 units, only 3,219 could be shipped to customers and, of the 3,219 shipped units, 697 were wholly inoperable. In sum, of the 7,500 SwingSmart units NewSpin initially built, 4,281 units were inoperable or defective. NewSpin alleges it paid Arrow a total of $598,488 for these defective and nonconforming components, and it also incurred over $200,000 in other damages in the form of customer support efforts, module testing, and repair. Furthermore, its receipt of these defective components damaged its brand equity, reputation, and vendor relationships. Additionally, Arrow never delivered over $130,000 worth of components to NewSpin, despite billing NewSpin for them.

B. Procedural History

NewSpin filed a complaint against Arrow on January 17, 2017, bringing claims for breach of contract (Count I); breach of the implied covenant of good faith and fair dealing (Count II); breach of warranty (Count III); fraud (Count IV); fraudulent misrepresentation (Count V); unjust enrichment (Count VI); and negligent misrepresentation (Count VII).

Arrow moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing all of these claims were time-barred. The district court agreed and granted the motion to dismiss in its entirety on July 26, 2017. Specifically, the court determined the Agreement was predominantly a contract for the sale of goods subject to the four-year statute of limitations for such contracts set out in Article 2 of the Uniform Commercial Code ("UCC"). It made this determination based on NewSpin’s complaint; per the court, "NewSpin’s breach of contract allegations make clear that the essence of the contract was for the components and the components’ specific parts." The district court also noted the "title" of the Agreement found in the lower left-hand corner of each page, "New Spin Golf LLC Turnkey Agreement 08-10-2011F (2)," reflected that the contract fell within Article 2 of the UCC because it demonstrated Arrow’s obligation to deliver "turnkey" goods. See Turnkey, Black’s Law Dictionary (10th ed. 2014) (term refers to a product "provided in a state of readiness for immediate use").

Because the court determined NewSpin filed its complaint more than four years after the alleged breach—the delivery of allegedly defective goods in mid-2012—it concluded the contract-based claims were untimely. And, since it determined the tort-based claims were predicated on the same allegations underlying the contract-based claims, the court also dismissed those claims as time-barred. The court entered judgment in Arrow’s favor on the same day it issued its decision.

NewSpin timely moved for reconsideration pursuant to Rule 59(e). It argued the district court erred in its decision in several ways, including by not granting leave to amend the original complaint before disposing of the case. NewSpin attached a proposed amended complaint to its reconsideration motion that, it contended, overcame the pleading defects the district court had identified.

The district court denied NewSpin’s reconsideration motion in a two-page order on January 29, 2018. The court rejected NewSpin’s claims of error in its judgment; it did not address NewSpin’s amended complaint except to state that NewSpin had improperly sought "to amend the complaint after the dismissal of the instant action." NewSpin appeals the district court’s orders granting the motion to dismiss and denying the motion for reconsideration.¹

II. Discussion

We review a district court’s grant of a Rule 12(b)(6) motion to dismiss de novo. Forgue v. City of Chicago , 873 F.3d 962, 966 (7th Cir. 2017). We accept all well-pleaded facts in the complaint as true and draw all reasonable inferences in the plaintiff’s favor. Pierce v. Zoetis, Inc. , 818 F.3d 274, 277 (7th Cir. 2016). In order to survive a motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). For fraud claims, a heightened pleading standard applies; a plaintiff "must state with particularity the circumstances constituting fraud or mistake." Webb v. Frawley , 906 F.3d 569, 576 (7th Cir. 2018) (quoting Fed. R. Civ. P. 9(b) ). A plaintiff is not required to plead elements in his or her complaint that overcome affirmative defenses, such as statute-of-limitations defenses. Indep. Tr. Corp. v. Stewart Info. Servs. Corp. , 665 F.3d 930, 935 (7th Cir. 2012). However, "when a plaintiff’s complaint nonetheless sets out all of the elements of an affirmative defense, dismissal under Rule 12(b)(6) is appropriate." Id. We review a district court’s denial of a Rule 59(e) motion for reconsideration and denial of a motion for leave to amend for abuse of discretion. Manistee Apartments, LLC v. City of Chicago , 844 F.3d 630, 633...