PLYMOUTH YONGLE TAPE v. Plymouth Rubber Co.

683 F.Supp.2d 102

PLYMOUTH YONGLE TAPE (SHANGHAI) CO., LTD., Plaintiff, v. PLYMOUTH RUBBER COMPANY, LLC and Plymouth Rubber Co., Inc., Defendants, Plymouth Rubber Co., LLC, Plaintiff-in-Counterclaim, v. Delphi Automotive Systems, LLC, Defendant-in-Counterclaim.

Civil Action No. 08-11599-JGD.

United States District Court, D. Massachusetts.

December 29, 2009.

Steven C. Bennet, Jennifer Y. Choy, Dana L. Salazar, Jones Day, New York, NY, Jennifer B. Furey, Cooley Manion Jones LLP, Boston, MA, Alan D. Rose, Jr., Meredith Ann Wilson, Rose, Chinitz & Rose, Boston, MA, for Plaintiff.

Michael R. Gottfried, Patricia R. Rich, Duane Morris LLP, Boston, MA, Matthew P. Horvitz, Cooley Manion Jones LLP, Boston, MA, Alan D. Rose, Jr., Rose, Chinitz & Rose, Boston, MA, for Plaintiff-in-Counterclaim.

Michael R. Gottfried, Duane Morris LLP, Boston, MA, Matthew P. Horvitz, Harry L. Manion, III, Cooley Manion Jones LLP, Boston, MA, for Defendant-in-Counterclaim.

MEMORANDUM OF DECISION AND ORDER ON MOTIONS OF PLYMOUTH RUBBER AND DELPHI AUTOMOTIVE SYSTEMS TO DISMISS

DEIN, United States Magistrate Judge.

I. INTRODUCTION

The plaintiff, Plymouth Yongle Tape (Shanghai) Co. Ltd. ("Yongle"), commenced this action against Plymouth Rubber Co., Inc. and its successor, Plymouth Rubber Co., LLC (collectively "Plymouth Rubber"), to recover amounts due for goods sold and delivered. Plymouth Rubber brought claims against Yongle and a third-party, Delphi Automotive Systems, Inc. ("Delphi"). Both Yongle and Delphi have moved to dismiss Plymouth Rubber's claims against them. For the reasons detailed herein:

(1) Delphi's Motion to Dismiss (Docket No. 24) is ALLOWED;

(2) Yongle's Motion to Stay Litigation of Counterclaims Pending Arbitration, and to Compel Arbitration (Docket No. 17) is ALLOWED; and

(3) Yongle's Motion to Dismiss (Docket No. 17) is DENIED WITHOUT PREJUDICE. If Plymouth Rubber fails to amend its counterclaims in accordance with this decision within thirty (30) days from the date the stay referenced above is lifted, Yongle may renew its motion to dismiss for failure to join an indispensable party.

II. STATEMENT OF FACTS

Plaintiff Yongle is a Chinese company. Amended Complaint (Docket No. 11) ("Compl.") ¶ 3. It is engaged in the business of manufacturing and exporting PVC tapes and related products from China to the United States and elsewhere. Id. ¶ 9. Defendant Plymouth Rubber LLC, the successor by conversion of defendant Plymouth Rubber Co., Inc., is a Delaware limited liability company with a principal place of business in Canton, Massachusetts. Id. ¶¶ 4-5. Plymouth Rubber "assisted in the organization of Yongle, invested in Yongle and . . . from time to time, provided technical and marketing services." Id. ¶ 10. This court's jurisdiction over Yongle's complaint is based on diversity of citizenship, 28 U.S.C. § 1332. Id. ¶ 7.

Yongle and Plymouth Rubber are parties to a "Consignment Agreement" pursuant to which Plymouth Rubber was to order goods from Yongle. Id. ¶¶ 11-12. Specifically, but without limitation, pursuant to the Consignment Agreement Yongle, in response to Plymouth Rubber's orders, would "ship the goods to Plymouth Rubber on a consignment basis, so that Yongle will retain full title and ownership in the shipped goods until such time as Yongle has been paid in full for the shipped goods, or until they are sold by Plymouth Rubber." Id. ¶ 13. According to the complaint, Plymouth Rubber was repeatedly delinquent in its payments, and negotiations with the company to obtain payment proved futile. Id. ¶¶ 19-21. On August 14, 2009, Plymouth Rubber advised Yongle that its largest customer in the United States (who was subsequently identified as Delphi) intended to terminate its relationship with Plymouth Rubber. Id. ¶ 22. As of that date, Plymouth Rubber allegedly owed Yongle more than $5 million for goods delivered to Plymouth Rubber. Id. ¶ 23. Plymouth Rubber has allegedly failed to account for the goods, provide an inventory, return the goods, allow for an inspection, or make payments. Id. ¶¶ 25-26.

Yongle has brought suit against Plymouth Rubber, raising the following claims:

Count I: Declaratory Judgment that the Consignment Agreement has been terminated due to Plymouth Rubber's breach and is no longer in effect. (Id. ¶¶ 27-28).

Count II: Conversion due to Plymouth Rubber's refusal to return the goods. (Id. ¶¶ 29-31).

Count III: Breach of the Consignment Agreement due to Plymouth Rubber's failure to pay for the goods shipped by Yongle. (Id. ¶¶ 32-34).

Count IV: Breach of Fiduciary Duty based on Plymouth Rubber's status as "an advisor and insider of Yongle." (Id. ¶ 36). This claim is based on the defendants' alleged "persistent refusal to cooperate with Yongle in managing the export business, their refusal to pay for goods, their refusal to account and permit inspection and their refusal to return goods." (Id. ¶ 37).

Count V: Accounting, Inspection and Return of Goods. (Id. ¶¶ 39-42).

Count VI: Violation of Massachusetts Gen. Laws ch. 93A. (Id. ¶¶ 43-45).

Plymouth Rubber filed an answer denying liability, and asserted counterclaims against Yongle and Delphi. Amended Answer and Counterclaim to Amended Complaint (Docket No. 15) ("PR Answer" and "PR Claim"). Delphi is described as a limited liability corporation organized under the laws of the state of Delaware with a principal place of business in Troy, Michigan. PR Claim ¶ 3. This court's jurisdiction over Plymouth Rubber's claims is based on diversity pursuant to 28 U.S.C. § 1332. Id. ¶ 4.

According to the Counterclaim, "Plymouth and Yongle entered into a comprehensive business deal whereby Plymouth ultimately closed its United States manufacturing facility and contributed certain of its intellectual property for, among other things, rubber-based adhesives, primers, PVC films, formulations, vendors, technical standards, and inspection methods to Yongle in exchange for the exclusive right in the Western Hemisphere to purchase and sell proprietary products, which were made with and incorporated the intellectual property and were manufactured by Yongle in China ("Proprietary Product Line")." Id. ¶ 8. This "comprehensive business deal" was reflected in several agreements executed on December 22, 2004.

The principal agreement was an Equity Investment and Transfer Agreement ("Equity Agreement") between Awesome Profits Limited ("Awesome") and Plymouth Rubber, pursuant to which Awesome and Plymouth Rubber increased their investment in Yongle. Id. ¶ 9. As a general statement, Awesome was to contribute the plant and equipment to manufacture the PVC tapes, and Plymouth Rubber was to invest its "proprietary" technical information. Id. ¶¶ 10-14. In addition to, and as "an integral part of the Equity Agreement," Awesome, Plymouth Rubber and Yongle executed a Technology Transfer Agreement pursuant to which Plymouth Rubber contributed its proprietary information in exchange for the exclusive right in the Western Hemisphere to purchase and sell the Proprietary Product Line manufactured by Yongle. Id. ¶¶ 15-16. The final agreement, which is also characterized as "an integral part of the Equity Agreement," was a Sales and Distribution Agreement between Awesome, Hebei Huaxia Enterprise Co., Ltd. ("Huaxia"), Plymouth Rubber and Yongle. Id. ¶ 17. Pursuant to that agreement, Plymouth Rubber had the exclusive right to sell the Proprietary Product Line in North America, Central America and South America, and neither Awesome, Huaxia nor Yongle could sell the Proprietary Product Line directly or indirectly in these regions. Id. ¶¶ 18-19.

Plymouth Rubber sold the Proprietary Product Line in the Western Hemisphere through its sales representative, Staffco. Id. ¶ 20. Its customers included Delphi, Lear Corp. ("Lear"), Condumex, and others. Id. Plymouth Rubber claims that disputes arose between Yongle and Plymouth Rubber regarding Yongle's business and financial operations, as well as the quality and pricing of the product being manufactured by Yongle. Id. ¶ 21. It further alleges that in or about May 2008, Yongle informed Plymouth Rubber that Yongle had been in direct contact with Delphi, which contact eventually resulted in Yongle (and/or Staffco) selling directly to Delphi and other Plymouth Rubber customers, allegedly in violation of the Equity Agreement, Technology Transfer Agreement and the Sales and Distribution Agreement. Id. ¶¶ 22-35. While Plymouth Rubber acknowledges that during the summer of 2008 it was addressing pricing concerns raised by Delphi, Plymouth Rubber alleges that during the same time Yongle and Staffco were in direct communication with Delphi, in violation of the Sales and Distribution Agreement. Id. ¶¶ 25, 26. In addition, Plymouth Rubber contends that by working directly with Yongle and each other, Delphi and Staffco also breached their respective agreements with Plymouth Rubber. Id. ¶¶ 22, 30.

On August 24, 2008, Yongle sent Plymouth Rubber and Huaxia a letter purporting to terminate the Sales and Distribution Agreement due to an alleged failure to pay by Plymouth Rubber. Id. ¶ 27. Plymouth Rubber contends that this termination was improper, and in violation of the Sales and Distribution Agreement. Id.

Plymouth Rubber has brought the following claims, all of which Yongle and Delphi contend should be dismissed:

Counts I & II (vs. Yongle) Breach of the Equity, Technology Transfer and Sales and Distribution Agreements by selling the Proprietary Product Line directly to Delphi and Lear Corp.; improperly pledging assets of Yongle for loans and improperly accounting for funds from Awesome; manufacturing and shipping defective products to Plymouth Rubber and failing to properly price the goods; selling product to Huaxia at cost, and improperly purporting to terminate the Sales and Distribution Agreement without board approval. Plymouth Rubber is seeking damages (Count I) and specific performance of the Agreements. (Count II).

Count III (vs. Yongle) Breach

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