Advanced Water Techs., Inc. v. Amiad U.S.A., Inc.

• Citation: 457 F.Supp.3d 313
• Decision Date: 29 April 2020
• Docket Number: 18-cv-5473 (LJL)
• Parties: ADVANCED WATER TECHNOLOGIES, INC., Plaintiff, v. AMIAD U.S.A., INC., Defendant.
• Court: U.S. District Court — Southern District of New York

457 F.Supp.3d 313

ADVANCED WATER TECHNOLOGIES, INC., Plaintiff,

v.AMIAD U.S.A., INC., Defendant.

18-cv-5473 (LJL)

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

Signed April 29, 2020

Ronald Francis, New York, NY, for Plaintiff.

Courtney Janae Peterson, Noah Weissman, Bryan Cave Leighton Paisner LLP, New York, NY, for Defendant.

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

Defendant Amiad U.S.A., Inc. ("Amiad") moves to amend its answer and add a counterclaim relating to alleged wrongdoing by Plaintiff Advanced Water Technologies, Inc. ("AWT"). For the following reasons, that motion is granted.

BACKGROUND

This action began on June 18, 2018 when AWT filed a Complaint against Amiad. (Dkt. No. 1.) AWT and Amiad are both in the water filtration business. (Id. ¶¶ 7, 9.) Amiad manufactures water filtration products while AWT distributes, installs, and services them. (Id. ) In 2005, AWT and Amiad entered into a one-page letter agreement (the "Contract"). (Dkt. No. 1–1.) The first paragraph of the Contract designated AWT as the exclusive distributor of Amiad's water filtration products in New York City and the surrounding area but did not impose any corresponding obligations on AWT. (Id. ) The second paragraph of the Contract provided the conditions on which the renewal of the Contract would be automatic:

2) Renewal of this agreement will be automatic on an annual basis subject to the following:

AWT must purchase an agreed $ volume from Amiad on an annual basis; if AWT does not do so, Amiad may elect to continue or discontinue the exclusive nature of the distribution agreement. The annual increase in sales/quota should be a reasonable number and will be jointly agreed between Amiad and AWT. If AWT meets the quota, it has an automatic right of renewal, subject to continued creditworthiness, continuing and responsible efforts to sell Amiad filtration, and responsible maintenance of equipment it has sold.

(Id. ) The Contract set the sales quota as $55,000 for the January 1–December 31, 2005 year. (Id. ) The Contract concluded with two final provisions as follows:

AWT is also permitted to sell Amiad filtration to customers outside of New York City, on a project-by-project basis. Prior to engaging in each project, AWT must obtain permission from Amiad.

It is the premise of this agreement that Amiad and AWT will cooperate on efforts to sell Amiad filtration.

(Id. )

In April 2018, Amiad terminated the Contract based on AWT's alleged failure to pay an overdue balance of approximately $18,000. (Dkt. No. 1 ¶ 19.) AWT's Complaint asserts that Amiad's attempted termination was ineffective and a breach of the Contract because the Contract gave AWT an automatic right of renewal subject to certain conditions. (Id. ¶ 24.) Those conditions included that the sales quota be met but not that AWT be timely in its payment of invoices. (Id. ) AWT asserts that it met the sales quota that had been set in 2005 and which was never altered, such that the agreement automatically renewed. (Id. ¶¶ 14–18.)

In September 2018, Amiad moved to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted. (Dkt. No. 12.) Amiad argued that the two entities had never agreed to a sales quota for the 2017 year, such that AWT could not claim that its right to serve as exclusive distributor was renewed for 2018. (Dkt. No. 15 at 1–2.) In September 2019, Judge Broderick—to whom the case was then assigned—denied the motion to dismiss. (Dkt. No. 25.)

In October 2019, Amiad filed an answer and counterclaims. (Dkt. No. 28.) The counterclaims asserted claims arising from unpaid invoices that AWT allegedly owed and sought a declaratory judgment that Amiad properly terminated the Contract. (Id. at 6–15.) Three months later, Judge Broderick entered a Case Management Plan and Scheduling Order. (Dkt. No. 34).

On March 13, 2020, Amiad filed a motion to amend the answer and assert new counterclaims, as well as a memorandum of law in support. (Dkt. Nos. 36, 37.) AWT filed a memorandum of law in opposition to that motion on March 25, 2020. (Dkt. No. 39.) On March 26, 2020, Amiad filed a motion to amend the March 13, 2020 motion, along with a revised proposed amended answer and counterclaims. (Dkt. No. 40). According to Amiad, an exhibit referenced in the March 13, 2020 submission was mistakenly omitted "while counsel's office was transitioning to remote working due to the Covid-19 crisis." (Dkt. No. 50 at 7 n.3.) AWT filed an opposition to Amiad's motion to amend the March 13, 2020 filing. (Dkt. No. 52.)

AWT was unquestionably on notice of the inadvertently omitted exhibit—for several reasons. First, the original motion to amend and proposed amended answer explicitly referenced it various times. (See, e.g. , Dkt. No. 36–1 ¶ 17 ("Attached as Exhibit A is a true and correct copy of the publication."); Dkt. No. 37 at 8–9 ("Amiad's new counterclaim arises from facts based on documentary evidence, including ... a publication by the president of AWT.")) Second, the Court credits Amiad's representation that "as soon as counsel for Amiad realized that the exhibit had not been filed, [Amiad's counsel] sent an email to Plaintiff's counsel notifying him of the mistake, telling him that we were planning to refile the motion with the exhibit, and offering to email him a copy of the exhibit. While Plaintiff's counsel complained, he did not ask for an opportunity to refile his Opposition to advance a new argument." (Dkt. No. 53.) Third, the Court notes that AWT's own president is the author of the exhibit, so AWT cannot claim surprise regarding its existence. (Dkt. No. 40, Ex. A.) For those reasons, Amiad's motion to amend the March 13, 2020 filing (Dkt. No. 36) is granted. The Court deems Dkt. No. 40 (hereinafter, the "Motion") to be the live pleading and will consider Amiad's March 13, 2020 memorandum of law (Dkt. No. 37) in support of it. Amiad filed its reply memorandum of law on April 8, 2020. (Dkt. No. 50.)

The proposed counterclaim alleges new wrongdoing by AWT. In essence, Amiad asserts that AWT breached principles of good faith and fair dealing and the Contract's requirement for AWT to engage in "continuing and reasonable efforts to sell Amiad filtration" by "denigrating Amiad products to existing and potential customers," by promoting its own competing product line (called "Omicron"), and by engaging in a variety of other conduct designed to deprive Amiad of the benefits of its bargain. (Dkt. No. 40–1 ¶¶ 65–72.) The proposed amended answer and counterclaims states that AWT "refused to agree with Amiad on the sales quota ... in order to strangle the sale of Amiad products and that AWT was required to "refrain from engaging in conduct that would deprive Amiad of the benefits of the [Contract]." (Id. ¶¶ 69–70.)

Amiad's opposition insists that AWT's proposed amendment would be futile because no monetary damages can be recovered from the counterclaim. (Dkt. No. 39 at 5–7.) Amiad also argues that the Contract did not prohibit AWT from selling competing products within its exclusive-distribution territory (the "Territory"). (Id. at 7–8.) Finally, Amiad accuses AWT of making an unjustified, bad-faith attempt to delay the prosecution of Amiad's meritorious claims. (Id. at 9–10.)

APPLICABLE LAW

Under Federal Rule of Civil Procedure 15(a)(2), "[t]he court should freely give leave [to amend a pleading] when justice so requires." See also Foman v. Davis , 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ; Grullon v. City of New Haven , 720 F.3d 133, 139 (2d Cir. 2013) ("When a party requests leave to amend his complaint, permission generally should be freely granted."). "However, it is well established that leave to amend a complaint need not be granted when amendment would be futile." Ellis v. Chao , 336 F.3d 114, 127 (2d Cir. 2003). "Proposed amendments are futile if they ‘would fail to cure prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.’ " IBEW Local Union No. 58 Pension Tr. Fund & Annuity Fund v. Royal Bank of Scotland Grp., PLC , 783 F.3d 383, 389 (2d Cir. 2015) (quoting Panther Partners Inc. v. Ikanos Commc'ns, Inc. , 681 F.3d 114, 119 (2d Cir. 2012) ). "Thus, the standard for denying leave to amend based on futility is the same as the standard for granting a motion to dismiss." Id. "When considering a motion to dismiss pursuant to Rule 12(b)(6), the district court ... is required to accept as true the facts alleged in the complaint, consider those facts in the light most favorable to the plaintiff, and determine whether the complaint sets forth a plausible basis for relief." Galper v. JP Morgan Chase Bank, N.A. , 802 F.3d 437, 443 (2d Cir. 2015).

DISCUSSION

The Motion seeks to add a "Second Counterclaim" titled "Breach of Contract and of Good Faith and Fair Dealing Under the 2005 Agreement." (Dkt. No. 40–1 at 14.) "Under New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is merely a breach of the underlying contract." Cruz v. FXDirectDealer, LLC , 720 F.3d 115, 125 (2d Cir. 2013) (quoting Harris v. Provident Life & Accident Ins. Co. , 310 F.3d 73, 80 (2d Cir. 2002) ). "New York law ... does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based upon the same facts, is also pled." Id. (quoting Harris , 310 F.3d at 81 ). Nevertheless, the Second Circuit has recognized "two paths to establish a breach of contract claim" under New York law: "breach of the express terms or breach of ‘[i]mplied contractual obligations.’ " Giller v. Oracle USA, Inc. , 512 F. App'x 71, 73 (2d Cir. 2013) (quoting Wakefield v. N. Telecom, Inc. , 769 F.2d 109, 112 (2d Cir. 1985) ). "Under New York law, the elements of a breach of contract claim are (1) the existence of an agreement; (2) adequate performance of the contract by the plaintiff; (3)...