Westwide Winery, Inc. v. SMT Acquisitions, LLC

511 F.Supp.3d 256

WESTWIDE WINERY, INC., Plaintiff,

v.SMT ACQUISITIONS, LLC and Palm Bay International Inc., Defendants.

2:19-cv-4371 (DRH) (SIL)

United States District Court, E.D. New York.

Signed January 4, 2021

John P. McEntee, Kathryn Mary Carney Cole, Paige D. Bartholomew, Farrell Fritz, P.C., Kevin Patrick Mulry, Uniondale, NY, for Plaintiff.

Abigail T. Reardon, DLA Piper LLP, Katharine Elizabeth Suominen, McDermott Will & Emery, New York, NY, for Defendants.

ORDER ADOPTING REPORT AND RECOMMENDATION

HURLEY, Senior District Judge:

INTRODUCTION

Presently before the Court is the November 5, 2020 Report and Recommendation of Magistrate Judge Steven I. Locke (the "R&R" [DE 46]) recommending that the Court deny Defendants SMT Acquisitions, LLC and Palm Bay International, Inc. (together "Defendants") motion to dismiss the First Claim for Relief ("First Claim") in the First Amended Complaint ("FAC" [DE 35, 36]) of Plaintiff Westside Winery, Inc. ("Plaintiff") or, in the alternative, to strike the allegations in support of the First Claim. [DE 41].

Federal Rule of Civil Procedure 72(b) provides that when a magistrate judge issues a report and recommendation on a matter "dispositive of a claim or defense of a party," the district court judge shall make a de novo determination of any portion of the magistrate judge's disposition to which specific written objection has been made. Fed. R. Civ. P. 72(b). Defendants object to the R&R, arguing (1) "Plaintiff cannot state a claim for relief under the Winston [v. Mediafare Ent. Corp. , 777 F.2d 78 (2d Cir. 1985) ] factors," and (2) "the ‘other purpose’ exception to [Federal Rule of Evidence] 408 does not apply" to a phone call in which the parties allegedly reached a settlement. Defs. Objs. at 3–4 [DE 48].

For the reasons stated below, Defendants’ objections are overruled, the R&R is adopted, and Defendants’ motion is denied.

BACKGROUND

The Court adopts the R&R's detailed Background Section, to which no objections have been filed. (R&R at 2–6). The facts pertinent to this Order are repeated below.

In May 2019, Defendants allegedly breached a settlement agreement requiring them to take delivery of and pay for certain of Plaintiff's wine. (FAC ¶¶ 20–24). In July 2019, Plaintiff commenced this action in response. (Id. ¶ 25). In December 2019, counsel for both parties arranged a phone call for their clients to discuss settlement. (Id. ¶ 33). The clients allegedly reached an oral settlement agreement. (Id. ¶¶ 34–35).

This December 2019 oral settlement agreement required Defendants to pay for and accept the wine Plaintiff delivered. (Id. ¶¶ 36–38). Defendant ultimately rejected some of Plaintiff's wine, however, which allegedly breached the terms of both the May 2019 and December 2019 settlement agreements. (Id. ¶ 39). Plaintiff then amended its complaint to include inter alia a claim for the breach of the December 2019 oral settlement agreement. (R&R at 5; FAC ¶¶ 41–48). The operative FAC thus brings breach of contract claims arising from both the May 2019 settlement agreement and the December 2019 settlement agreement. (FAC ¶¶ 41–54).

DISCUSSION

I. Motion to Dismiss

A. Legal Standard

In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court should "draw all reasonable inferences in Plaintiff[’s] favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give rise to an entitlement to relief." Faber v. Metro. Life Ins. Co. , 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted). The plausibility standard is guided by two principles. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); accord Harris v. Mills , 572 F.3d 66, 71–72 (2d Cir. 2009).

First, the principle that a court must accept all allegations as true is inapplicable to legal conclusions. Thus, "threadbare recitals of the elements of a cause of action supported by mere conclusory statements, do not suffice." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Although "legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 679, 129 S.Ct. 1937. A plaintiff must provide facts sufficient to allow each named defendant to have a fair understanding of what the plaintiff is complaining about and to know whether there is a legal basis for recovery. See Twombly , 550 U.S. at 555, 127 S.Ct. 1955.

Second, only complaints that state a "plausible claim for relief" can survive a motion to dismiss. Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. "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. The plausibility standard is not akin to a ‘probability requirement,’ but asks for more than a sheer possibility that defendant acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line’ between possibility and plausibility of ‘entitlement to relief.’ " Id. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 556-57, 127 S.Ct. 1955 ) (internal citations omitted); see In re Elevator Antitrust Litig. , 502 F.3d 47, 50 (2d Cir. 2007). Determining whether a complaint plausibly states a claim for relief is "a context specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ; accord Harris , 572 F.3d at 72.

B. The R&R and Defendants’ Objections

The R&R recommended denying Defendants’ motion to dismiss Plaintiff's First Claim. "Based on [the Winston ] factors," the R&R found, "Plaintiff's claim for breach of [the December 2019] settlement agreement is viable and sufficiently pled." R&R at 7–9. Courts employ the Winston factors to assess an oral contract's enforceability.¹ 777 F.2d at 80–81. They are: "(1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing." Id. The R&R noted that neither party "made an express reservation not be bound in the absence of a writing" and that each party partially performed according to alleged terms in oral settlement contract. R&R at 7–9. Further, the R&R stated that determinations on "whether all terms had been agreed upon" and whether settlement agreements are "typically reduced to writing" are best addressed "after discovery." Id.

Defendants’ objections target the R&R's Winston analysis. They argue that (i) Defendants expressly reserved the right not to be bound without a writing, (ii) the partial performance factor is neutral, (iii) open issues in negotiations remained, and (iv) settlement agreements are ordinarily memorialized in writing. Defs. Objs. at 8–11.

C. Analysis

The balance of the Winston factor, taken each in turn below, supports denying Defendants’ Rule 12(b)(6) motion.

1. Express Reservation Not to be Bound Absent a Writing

The first Winston factor—an express reservation of the right not to be bound absent a writing—is the most important, as "the ultimate question is whether the parties intended to be bound." Hallett v. Stuart Dean Co. , 2020 WL 5015417, at *5 (S.D.N.Y. Aug. 25, 2020) ; see Arcadian Phosphates, Inc. v. Arcadian Corp. , 884 F.2d 69, 72–73 (2d Cir. 1989). Defendants’ express reservation allegedly came in an email stating the parties "will have to paper this and of course confirm the details with our clients." Ex. 4 to Decl. of Abigail T. Reardon ("Reardon Decl.") [DE 41-6].

Defendants’ reliance on this document is misplaced at the pleadings stage. In considering a motion to dismiss pursuant to Rule 12(b)(6), a court is generally limited to the complaint and documents attached thereto. See Fed. R. Civ. P. 12(d) ; Nakahata v. N.Y.-Presbyterian Healthcare Sys., Inc. , 723 F.3d 192, 202 (2d Cir. 2013). "A district court errs when it considers affidavits and exhibits submitted by defendants or relies on factual allegations contained in legal briefs or memoranda in ruling on a 12(b)(6) motion to dismiss. Vacatur is required even where the court's ruling simply mak[es] a connection not established by the complaint alone or contains an unexplained reference that raises the possibility that it improperly relied on matters outside the pleading in granting the defendant's Rule 12(b) motion." Friedl v. City of New York , 210 F.3d 79, 83–84 (2d Cir. 2000) (internal quotation marks and citations omitted); see, e.g. , No Hero Enters. B.V. v. Loretta Howard Gallery Inc. , 20 F. Supp. 3d 421, 427–28 (S.D.N.Y. 2014) (refusing to consider an email between the parties that was attached as an exhibit to defendant's motion to dismiss papers). A plaintiff's "mere notice or possession [of the document] is not enough." Nicosia v. Amazon.com, Inc. , 834 F.3d 220, 231 (2d Cir. 2016) (emphasis in original) (quoting Glob. Network Commc'ns, Inc. v. City of New York , 458 F.3d 150, 156 (2d Cir. 2006) ).

The FAC does not attach or reference any emails, nor does the FAC "rel[y] heavily upon [their] terms." See Nicosia , 834 F.3d at 230 (internal quotation marks omitted); see generally FAC. Judge Tiscione did not consider the Reardon Declaration or its exhibits in reaching his recommendation. See R&R at 6–9. To the extent Defendants object to the R&R's failure to consider such material, that objection is overruled. See Defs. Objs. at 8. The emails are not properly considered on a Rule 12(b)(6) motion to dismiss. Reading the FAC's allegations alone, and construing all reasonable inferences taken therefrom in Plaintiff's favor, nothing reflects an express reservation by Defendants of the right not to be bound...