Dealers Supply Co., Inc. v. Cheil Industries, Inc.
| Decision Date | 13 December 2004 |
| Docket Number | No. 1:03CV00654.,1:03CV00654. |
| Citation | 348 F.Supp.2d 579 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | DEALERS SUPPLY COMPANY, INC., Plaintiff, v. CHEIL INDUSTRIES, INC., and SAMSUNG CHEMICAL (USA), Defendants. |
James H. Hughes, Hutson Hughes & Powell, Durham, NC, for Plaintiff.
J. Michael Crowell, Daniel W. Clark, Tharrington Smith, Raleigh, NC, for Defendants.
Plaintiff Dealers Supply Company, Inc. ("Dealers"), a North Carolina corporation, brings this action against Defendants Cheil Industries, Inc. ("Cheil"), a Korean corporation, and Samsung Chemical (USA), Inc. ("Samsung"), one of its California subsidiaries (collectively, "Cheil/Samsung"1). Plaintiff brings claims against Defendants for breach of an oral distributorship agreement, or in the alternative, breach of a partnership agreement; negligent misrepresentation; and unfair and deceptive trade practices pursuant to Chapter 75 of the North Carolina General Statutes. This matter is now before the court on Defendants' motion to dismiss. For the reasons set forth herein, Defendants' motion will be DENIED in part and GRANTED in part.
The following facts are presented in the light most favorable to Plaintiff.2
Plaintiff Dealers is a Durham, North Carolina, wholesale distributor of flooring and solid surface counter top and sink materials for various manufacturers. Defendant Cheil manufactures in Korea a solid surface counter top and sink product known as Staron and sells the Staron product in the United States through its U.S. subsidiary, Samsung.
In the fall of 2000, Dealers made several telephone inquiries to Cheil/Samsung about distributing Staron. Although Defendants initially were not receptive to a distributor relationship with Dealers, a meeting was later held at Dealers' office in Durham, North Carolina. Present at the meeting were various representatives of Dealers along with Kathy Lee, a Mr. Chun, and other representatives of Cheil/Samsung. As a result of the meeting, an oral distributorship agreement was entered into by the parties, providing for a seven-year distributorship of Staron and granting Dealers the exclusive territory of North Carolina, South Carolina, Virginia, West Virginia, and parts of Tennessee, Ohio, and Pennsylvania.
Subsequent to the initial meeting and agreement of the parties, Dealers inquired of Mr. Chun about executing a written contract to formalize the parties' agreement. Mr. Chun responded to Dealers that "Cheil/Samsung did not use written agreements because it [sic] believed that Cheil/Samsung were partners with their distributors and did not need a distributorship contract." (Compl.¶ 11.) Nevertheless, Mr. Chun eventually supplied Dealers with a sample written agreement that Defendants had entered into with their West Coast distributor. Dealers made several proposed changes to the sample distributorship agreement and returned the proposed agreement to Mr. Chun. There are no allegations that either Mr. Chun or anyone else at Cheil/Samsung responded to the proposed agreement.
The parties held a second meeting at Dealers' office after the proposed agreement had been circulated by Dealers. A Mr. Choi, head of U.S. operations for Cheil/Samsung, was among those present for Defendants. After the parties discussed their relationship, Dealers requested that Defendants sign the written distributorship agreement, a copy of which was on the table in front of Mr. Choi. Mr. Choi responded that he had read the proposed agreement but that the agreement did not need to be signed. Mr. Choi continued by stating that in Korea, "we do it by handshake." (Id. ¶ 13.) At that point, Mr. Choi and Russell Barringer, chairman of the board of directors of Dealers, stood up and shook hands. No written agreement was ever signed by the parties.
In or around September 2000, Dealers placed its first Staron orders with Cheil/Samsung and began to market Staron. Plaintiff made a considerable marketing investment, including hiring additional employees, incurring marketing expenses, and maintaining Staron inventory. However, from the very beginning, the parties' relationship was tenuous. Dealers had difficulty obtaining sufficient inventory and samples of the Staron product from Defendants, which limited its marketing effectiveness. Additionally, although the parties had orally agreed that the first three years of the distributor relationship would be used as a sales pattern for purposes of establishing sales goals, beginning in 2002, Cheil/Samsung set and aggressively increased Dealers' minimum sales levels while reducing its sales territory.3
Dealers initially protested the sales goal increases and territory reductions but eventually accepted Cheil/Samsung's requirements and continued to aggressively market the Staron product. Despite its best efforts, Dealers did not meet any of Defendants' sales goals. In April 2003, without advance notice, Cheil/Samsung informed Dealers that the distributorship agreement was terminated. Dealers' entire sales territory was immediately given to a new distributor in Charlotte, North Carolina. The sudden termination of the distributorship agreement, with more than four years remaining, left Dealers with substantial inventory of Staron, an oversized sales and marketing staff, and potential future warranty claims.
Dealers brought suit against Defendants in the Superior Court of the State of North Carolina, Durham County. Defendants removed the suit to this court. Now before the court is Defendants' Motion to Dismiss Plaintiff's Complaint for Failure to State a Claim Upon Which Relief Can Be Granted Pursuant to Rule 12(b)(6).
A defendant's motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure ("12(b)(6)") tests the legal sufficiency of the pleadings, but does not seek to resolve disputes surrounding the facts. Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992). A court must determine only if the challenged pleading fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The issue is not whether the plaintiff will ultimately prevail on his claim, but whether he is entitled to offer evidence to support the claim. Revene v. Charles County Comm'rs, 882 F.2d 870, 872 (4th Cir.1989). A pleading "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The pleading must be liberally construed in the light most favorable to the non-moving party and allegations made therein are taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404 (1969).
Plaintiff alleges in Count I of its complaint that Defendants materially breached the oral distributorship agreement by terminating it in April 2003, over four years before its agreed-upon expiration. As a result of Defendants' breach, Plaintiff alleges it was denied the profits of its Staron marketing venture while incurring substantial marketing expenses. Defendants argue Plaintiff's complaint fails to state a claim because the oral agreement is barred by the statute of frauds.4 (Defs.' Mem. Supp. Mot. Dismiss at 6-7.)
Defendants properly draw the court's attention to Chapter 75 of the North Carolina General Statutes ("Chapter 75") on monopolies, trusts, and consumer protection and its statute of frauds. See N.C. Gen.Stat. § 75-4. The statute of frauds for restraints on trade provides that "[n]o contract or agreement hereafter made, limiting the rights of any person to do business anywhere in the State of North Carolina shall be enforceable unless such agreement is in writing duly signed by the party who agrees not to enter into any such business within such territory." Id. The North Carolina Supreme Court has applied this statute to distributorship agreements, holding that "a contract whereby a person, firm or corporation is made exclusive distributor for the State of North Carolina, precluding the manufacturer from doing business in North Carolina otherwise than through this single channel, is void unless the party so limited or restricted agrees thereto in writing." Radio Elecs. Co. v. Radio Corp. of America, 244 N.C. 114, 117, 92 S.E.2d 664, 666 (1956). As Dealers' complaint alleges it was orally given exclusive rights to purchase and sell Staron within the state of North Carolina (Compl.¶ 10), Defendants correctly conclude the oral distributorship agreement between the parties is unenforceable under the statute. See Radio Elecs., 244 N.C. at 117, 92 S.E.2d at 666 () (barring oral franchise agreement under same statute).
Plaintiff admits there was no signed agreement as required by the statute of frauds, but nonetheless argues Defendants have waived their right to assert the statute of frauds or, in the alternative, are barred from asserting the defense based on the doctrine of promissory estoppel.
Plaintiff argues Defendants waived their right to a written contract by indicating the written document did not have to be signed because, in Korea, the "[Defendants] do it by handshake." (Compl.¶ 13.) Plaintiff relies on general contract waiver principles to argue that the "doctrine of waiver in proper cases is now as firmly established as the doctrine of the rigidity and inflexibility of the written word." H.M. Wade Mfg. Co. v. Lefkowitz, 204 N.C. 449, 168 S.E. 517, 519 (1933). While that may be the case for specific terms of a written contract, Plaintiff points to no cases in North Carolina or...
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