Carhartt, Inc. v. Innovative Textiles, Inc., Case No. 17-cv-13604
| Decision Date | 04 December 2018 |
| Docket Number | Case No. 17-cv-13604 |
| Citation | 356 F.Supp.3d 657 |
| Parties | CARHARTT, INC., Plaintiff, v. INNOVATIVE TEXTILES, INC., Defendant/Third-Party Plaintiff, v. Gentry Mills, Inc., Third-Party Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Erin M. Pawlowski, Carhartt, Inc., Dearborn, MI, Emily L. Turbiak, Salina M. Hamilton, Dickinson Wright PLLC, Detroit, MI, John B. Dolan, Troy, MI, for Plaintiff.
Colleen H. Burke, David C. Anderson, Eric M. Kociba, Collins, Einhorn, Southfield, MI, Jeffrey R. Hicks, The Meridian Law Group, Dearborn, MI, for Defendant/Third-Party Plaintiff.
David F. Hansma, Ronald L. Cornell, Jr., Seyburn Kahn, Southfield, MI, for Third-Party Defendant.
Innovative Textiles, Inc. ("ITI") filed a third-party complaint against Gentry Mills, Inc. ("GMI") alleging that GMI is liable for claims arising from a contract dispute brought by Carhartt, Inc. ("Carhartt") against ITI. GMI successfully moved to dismiss Innovative Textiles' first third-party complaint based on pleading deficiencies. The Court granted leave for ITI to file an amended third-party complaint. GMI asks the Court to reconsider, arguing that ITI's amendments are futile.
An outline of this case is explained in the Court's previous opinion and order granting third-party defendant, GMI's Motion to Dismiss. (Dkt. 33.) In short, Carhartt initially sued third-party plaintiff, ITI, for breach of contract based on ITI's failure to sell it sufficiently fire-resistant fabric as specified in an agreement. ITI then filed a third-party complaint against GMI alleging that GMI failed to properly treat the fabric ITI eventually sold to Carhartt. (Dkt. 8.) The original third-party complaint, which contained very few factual allegations, was dismissed pursuant Fed. R. Civ. P. 12(b)(6). (Dkt. 33.) GMI's current motion for reconsideration challenges the order granting ITI's motion for leave to amend and file an amended third-party complaint. (Dkt. 39.)
As set forth in the July 16, 2018 order granting leave to amend (Dkt. 36), the amended third-party complaint includes a much more developed set of factual allegations. ITI has set forth its relationship with GMI and detailed the specifications regarding the chemicals and treatment it purchased from GMI. The new factual allegations are explored in more detail, as relevant, in the discussion below. (Dkt. 36.)
The amended third-party complaint also includes additional causes of action. The eight counts are now: breach of contract for the sale of goods (Count I); breach of express warranties (Count II); breach of implied warranties (Count III); violation of North Carolina UCC § 25-2-314 requiring merchantable goods (Count IV); violation of implied warranty of fitness for a particular purpose (Count V); breach of contract (Count VI); negligence (Count VII); and indemnification implied-in-law (Count VIII). The Court's current review of the amended third-party complaint is limited the to the issue of futility, as set forth in an earlier order. (Dkt. 41.)
To prevail on a motion for reconsideration under Local Rule 7.1, a movant must "not only demonstrate a palpable defect by which the court and the parties and other persons entitled to be heard on the motion have been misled but also show that correcting the defect will result in a different disposition of the case." E.D. Mich. LR 7.1(h)(3). "A ‘palpable defect’ is a defect that is obvious, clear, unmistakable, manifest or plain." Witzke v. Hiller , 972 F.Supp. 426, 427 (E.D. Mich. 1997) (citations omitted).
When a party seeks to amend after a responsive filing, "leave shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). But a "court need not grant leave to amend, however, where amendment would be ‘futile.’ " Miller v. Calhoun Cty. , 408 F.3d 803, 817 (6th Cir. 2005) (quoting Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ). "Amendment of a complaint is futile when the proposed amendment would not permit the complaint to survive a motion to dismiss." Id. (citing Neighborhood Dev. Corp. v. Advisory Council on Historic Pres. , 632 F.2d 21, 23 (6th Cir. 1980) ). Thus, the Court reviews the amendments under the same standard as if there were a pending motion to dismiss.
Fed. R. Civ. P. 12(b)(6) requires the Court to "construe the complaint in the light most favorable to the plaintiff and accept all allegations as true." Keys v. Humana, Inc. , 684 F.3d 605, 608 (6th Cir. 2012). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A plausible claim need not contain "detailed factual allegations," but it must contain more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
ITI's amended third-party complaint includes two counts for breach of contract. Count I will be dismissed as duplicative. Moran v. Ruan Logistics , 1:18-cv-223, 2018 WL 4491376, at *3, 2018 U.S. Dist. LEXIS 159648, at *7 (S.D. Ohio Sept. 18, 2018). ITI does not oppose dismissal of Count I. (Dkt. 50 at 4.) Only Count VI's claim for breach of contract for goods and services remains.
Under North Carolina law1 , a party alleging breach of contract must demonstrate "(1) the existence of a valid contract and (2) breach of the terms of the contract." Martinez v. Univ. of N. Carolina , 223 N.C. App. 428, 432, 741 S.E.2d 330 (2012) (quoting Long v. Long , 160 N.C. App. 664, 668, 588 S.E.2d 1 (2003) ). ITI's first third-party complaint failed on both prongs. ITI failed to allege sufficient facts as to either the existence of a valid contract or the contractual obligations and manner of breach. In its amended third-party complaint, ITI cures this deficiency.
Because the existence of a contract depends on the applicable law, and the applicable law is determined by the nature of the contract, the Court must first examine the basic nature of the alleged contract at issue.
At law, a contract is either express or implied. ITI claims it "entered into an implied and express contract." (Dkt. 37 at 21 (emphasis added).) But "where there is an express contract between parties, there can be no implied contract between them covering the same subject matter dealt with in the express agreement." Snyder v. Freeman , 300 N.C. 204, 218, 266 S.E.2d 593 (1980). In this case, the purchase orders serve as the contractual offer that was purportedly accepted through performance. Because the purchase orders are the operative set of terms, there can be no implied contract dealing with the "same subject matter." See id. ITI's alleged contracts with GMI are express.
Whether the alleged contract is for goods or for services dictates whether the UCC will apply. As pleaded, the alleged contract is "for goods and services." When an agreement between two parties contains both goods and services, a contract's "predominant factor" or its "purpose, reasonably stated" will determine whether the UCC applies. Hensley v. Ray's Motor Co. , 158 N.C. App. 261, 265, 580 S.E.2d 721 (2003). To determine the nature of the contract, a court asks whether a contract "is the rendition of service, with goods incidentally involved ... or is a transaction of sale, with labor incidentally involved." Id. This is sometimes called the "predominant factor test." Id. To determine the "thrust" of the contract, courts may look to contract language, the general nature of supplier's business, and the comparative worth of goods versus services. Id. at 266, 580 S.E.2d 721.
ITI's initial complaint failed to allege predominantly goods were involved. The Court stated that "the complaint makes no mention of the chemical sales that ITI contends is the ‘predominant factor’ of the parties' agreement." (Dkt. 33 at 11.) In its amended third-party complaint, ITI still does not sufficiently allege a sales contract. Although ITI now makes references to "chemical goods," the contract pleaded is predominantly for services.
The amended third-party complaint states that "ITI contracted with GMI for the selection, purchase and application of several chemical additives to be used on the flame-resistant fabric that was ultimately sold to Carhartt." (Dkt. 37 at 3.) The details set forth in the amended complaint reveal the "thrust" of the contract. GMI was a "supplier of ... finishes," and was given "pre-treated fabric" to be "finished." (Id. at 4.) "After the finish process was complete," GMI would then send some of the "finished fabric" to a testing lab and the remainder to Carhartt. (Id. at 4-5.) Through these allegations, it is evident that, to the extent chemicals were purchased, they were incidental to the finishing process. Therefore, the contract's "purpose, reasonably stated," under the well-pleaded facts, "is the rendition of service, with goods incidentally involved."See Hensley , 158 N.C. App. at 265, 580 S.E.2d 721.
ITI relies heavily on the language in the purchase orders to argue that the underlying contract as one for goods. It points to the words "item," "quantity," and "description" to suggest that the predominant purpose was to purchase goods. (Dkt. 42 at 17.) This is not persuasive. The purchase orders also contain the words "finish" and "Dye Color" within the description, with specification for a "finished weight" and "finished width." (Dkt. 37-3 at 2.) Other description sections indicate to GMI: "DO NOT PUT DWR FINISH ON THIS ROLL" and "this roll is to be slit,...
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