Safe Step Walk in Tub Co. v. CKH Indus., Inc., 15 Civ. 7543 (NSR)

SAFE STEP WALK IN TUB CO., Plaintiff, v. CKH INDUSTRIES, INC., Defendant.

No. 15 Civ. 7543 (NSR)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 20, 2018

OPINION & ORDER

NELSON S. ROMÁN, United States District Judge

Plaintiff Safe Step Walk In Tub Co. ("Plaintiff" or "Safe Step") manufactures walk-in bathtubs and purportedly holds trademarks for the marketing of such tubs. Through a series of agreements executed by the parties, Defendant CKH Industries, Inc. ("Defendant" or "CKH"), was able to use those trademarks when marketing, selling, and installing Safe Step's tubs in particular geographic areas. Safe Step initiated this action claiming nonpayment of certain marketing and related fees by CKH, and CKH counterclaimed—alleging that Safe Step was violating the franchise laws of various states, breaching the agreements between the parties, and engaging in other unfair business practices including fraud. Safe Step now seeks to dismiss CKH's counterclaims pursuant to Federal Rules of Civil Procedure 12(b)(6) for failure to state a claim and Rule 9(b) for failure to state the circumstances of the alleged fraud with particularity. Plaintiff also moves and for summary judgment under Federal Rules of Civil Procedure Rule 56 on Plaintiff's breach of contract claim. For the following reasons, the motion to dismiss is GRANTED in part and DENIED in part, and the motion for summary judgment is DENIED.

BACKGROUND

I. Overview

Plaintiff initiated this action on September 23, 2015, for non-payment of fees associated with one of the agreements entered into between the parties, which was attached to Plaintiff's complaint ("Complaint"). (See Compl., Ex. A ("Marketing Addendum"), ECF No. 1.) The agreement at issue, an addendum related to marketing, purports to modify a pre-existing "Dealership/License Agreement" between the parties, which was not attached to the Complaint but is referenced therein. (Compl. ¶¶ 9-10, 12-13.) Plaintiff presents the business relationship between itself and Defendant as a licensor-licensee, or supplier-dealer, arrangement: Plaintiff granted Defendant license to use its trademarks and to deal in its bathtub products. (Id. ¶¶ 5, 7.)

Defendant answered Plaintiff's Complaint and asserted its own counterclaims ("First Answer," ECF No. 13); it also provided one of the underlying agreements, which Defendant alternatively refers to as a Franchise Dealership Agreement. (See, e.g., First Answer ¶ 5 & Ex. A.) Defendant filed its first amended answer with counterclaims on November 4, 2015. ("First Am. Answer," ECF No. 33.) On March 11, 2016, Plaintiff filed a motion to dismiss the counterclaims in Defendant's First Amended Answer. ("Pl. First Mot. to Dismiss," ECF No. 50.)

In an opinion filed on March 17, 2017, this Court granted Plaintiff's motion in part and narrowed Defendant's remaining counterclaims. ("March 2017 Opinion," ECF No. 59); see generally Safe Step Walk In Tub Co. v. CKH Indus., Inc., 242 F. Supp. 3d 245 (S.D.N.Y. 2017). For Defendant's franchise-related counterclaims, the Court held that, based on Defendant's allegations, Defendant's Safe Step-related operations "qualify as franchises under each applicable state's law, entitling Defendant to pursue these additional protections and causes of actions at this stage." Safe Step Walk In Tub Co., 242 F. Supp. 3d at 261. The Court also notedthat under the New York franchise law's statute of limitations, claims based on failure to provide disclosures when the parties entered into the agreements are barred in New York while claims based on the failure to renew or the constructive termination of the agreements accrued between 2014 and 2015 are not barred. Id. Turning to the Defendant's contract claims, the Court held that the Defendant sufficiently alleged that the regional franchise agreements, including oral agreements, were contracts,¹ and that breaches occurring before any potential expiration or before the modification by the Marketing Addendum is actionable. Id. at 264-65. If a breach occurred after the Marketing Addendum, it is not actionable to the extent that it is in direct conflict with the terms of the Marketing Addendum. Id. at 265-66. The Court also held that Defendant may proceed with its quasi-contract theories in the alternative. Id. at 267. For Defendant's fraud claim, the Court held that Defendant's "fraud allegations with regard to [the] negotiations and pre-agreement activities are sufficiently pleaded at this stage" but that any fraud claim related to the performance of the agreements' terms would be dismissed. Id. at ¶ 270-71. The Court declined to decide on Defendant's request for an injunction and directed the Defendant to file any amended answer in conformance with the opinion. Id. at 271.

Defendant filed a Second Amended Answer on April 3, 2017. ("Second Am. Answer," ECF No. 61.) Plaintiff filed the motion currently before the Court, the Second Motion to Dismiss, on September 14, 2017. ("Pl. Second Mot. to Dismiss," ECF No. 78.)

II. The Agreements

Based upon the agreements provided by the parties and incorporated into their pleadings, it is evident that Plaintiff and Defendant entered into base or "regional" agreements, based on sales regions, with addendums specifying components of the business relationship. For example, the base agreement for the New York and New Jersey area is styled as a "Dealership/License Agreement" between Safe Step (as licensor) and CKH (as licensee) and covers specific counties in both states. (See Second Am. Answer, Ex. A ("NY/NJ Agreement") ¶ 26 (defining the "territory" for the agreement).) It includes a list of "[t]rademarks, [m]arks, [s]logans and [n]ames" that Defendant could use within the designated territory. (NY/NJ Agreement at p. 13; id. ¶ 7.) Defendant was to be the "exclusive Licensee" allowed to market Plaintiff's products in the region, and Plaintiff was obligated to "[s]end all relevant sales leads in [CKH's] [t]erritory" that it garnered "through customer inquiry, advertising, website, trade shows, or any other type of media lead generation" to Defendant. (Id. ¶¶ 2, 8(b).) Defendant, in turn, was required to achieve either the minimum sales requirements or the advertising budget outlined in one of the agreement's addendums. (Id. ¶ 5.) The agreement also provided for the contemporaneous payment of a $10,000 "licensing" fee. (Id. at p. 16.)² The parties expressly agreed, however,that "Licensee [CKH] [was] an independent contractor and [had] not been granted a franchise." (Id. ¶ 14.) This agreement took effect on May 10, 2009. (Second Am. Answer ¶ 85.)

The agreement also specified a number of items relevant to issues in this action, including areas where Plaintiff could direct Defendant to make changes to its business model (e.g., NY/NJ Agreement ¶ 10), the term of the agreement (id. ¶ 2 (five-years subject to renewal terms)), grounds for termination of the agreement and the effect of termination (id. ¶ 3), a mandatory arbitration clause (id. ¶ 18), and a forum selection clause in the event either party sought injunctive relief (id. ¶ 24). Finally, the provisions of the agreement specified that it, along with the attached or referenced schedules, constituted the entire agreement between the parties, that any changes to the agreement had to be made in writing, and that each provision was intended to be severable in case any particular provision or set of provisions were deemed invalid. (See id. ¶ 23.)

The other regional agreements contain the same base terms for different regions, incorporating the same trademarks that Defendant could use when selling and marketing Plaintiff's tubs in the region, similar minimum sales requirements or advertising contributions to be made by Defendant, and the same "license fee" that Defendant would pay in order to enter into a given regional agreement. (See Second Am, Answer, Ex. B ("Mass./NH/VT Agreement"), Ex. C ("Albany Agreement"), Ex. D ("Hartford Agreement").) Defendant also alleges the existence of an oral agreement under the same terms covering Boston ("Boston Agreement")³ and the counties of Hampshire and Bristol in Massachusetts ("Hampshire/Bristol Agreement"). (Second Am. Answer ¶¶ 79-80, Ex. E.) The Mass./NH/VT Agreement took effect on June 10,2009, the Albany and Hartford Agreements on July 15, 2009, and the Boston and Hampshire/Bristol Agreements on February 10, 2010. (Id. ¶ 85.)

The Marketing Addendum, which serves as the basis for Plaintiff's action, ostensibly modified all of the regional agreements to provide a fee schedule for Plaintiff's national and regional advertising efforts, and to require Defendant to pay Plaintiff on a monthly basis "for the unique leads received" as a result of the advertising, but left the remaining terms intact. (Marketing Addendum pp. 1, 3-4.) The addendum took effect January 1, 2014. (Id. p. 1.)

III. Defendant's Allegations

Defendant brings fourteen counterclaims against Plaintiff for breach of contract; violations of the New York, New Jersey, Connecticut, and Rhode Island state franchise laws; common law fraud; promissory estoppel; unjust enrichment; and injunctive relief. (Second Am. Answer ¶¶ 130-227.) Defendant seeks judgment against Plaintiff on any counterclaim in an amount to be determined at trial,⁴ injunctive relief, attorneys' fees, punitive damages, costs and disbursements, and dismissal of the Plaintiff's complaint. (Id. ¶ 228.)

According to Defendant, Plaintiff was in fact a franchisor who attempted to structure the agreements between Plaintiff and Defendant to avoid federal and state franchise laws. (Id. ¶¶ 66-73, 98.) Defendant alleges that Plaintiff has defaulted under the regional agreements by refusing to honor its obligations and by terminating the agreements, or failing to renew them, despite Defendant's performance of its side of the bargains. (Id. ¶¶ 100-01, 106, 109 15.) Defendant contends that Plaintiff's acts violate state franchise laws and constitute a fraud...