Medline Indus., Inc. v. Diversey, Inc.

Decision Date27 September 2021
Docket NumberCase No. 20-cv-1579-pp
Citation563 F.Supp.3d 894
Parties MEDLINE INDUSTRIES, INC., Plaintiff, v. DIVERSEY, INC., and Peter Melchior, Defendants.
CourtU.S. District Court — Eastern District of Wisconsin

Amy Kanarowski, Daniel Lynch, James Thompson, Chicago, IL, Ralph A. Weber, Stephen T. Trigg, Gass Turek LLC, Milwaukee, WI, for Plaintiff.

Anthony S. Baish, Christie B. Carrino, Godfrey & Kahn SC, Milwaukee, WI, Robert M. Palumbos, Sean S. Zabaneh, Duane Morris LLP, Philadelphia, PA, for Defendants Diversey Inc.

Matthew W. O'Neill, Fox O'Neill & Shannon SC, Milwaukee, WI, for Defendants Peter Melchior.

ORDER GRANTING DEFENDANT MELCHIOR'S MOTION TO DISMISS COUNTS I, III AND IV OF THE AMENDED COMPLAINT (DKT. NO. 70), DENYING DEFENDANT MELCHIOR'S MOTION TO DISMISS COUNT II OF THE AMENDED COMPLAINT (DKT. NO. 70), GRANTING DEFENDANT DIVERSEY INC.S MOTION TO DISMISS COUNTS I, III AND IV OF THE AMENDED COMPLAINT (DKT. NO. 73), DENYING DEFENDANT DIVERSEY INC.S MOTION TO DISMISS COUNT II OF THE AMENDED COMPLAINT (DKT. NO. 73), GRANTING DEFENDANTSMOTIONS TO STRIKE PLAINTIFF'S REQUEST FOR ATTORNEYS’ FEES (DKT. NOS. 70, 73) AND STRIKING PARAGRAPHS 107-112 OF THE AMENDED COMPLAINT

PAMELA PEPPER, Chief United States District Judge

I. Introduction

On October 14, 2020, the plaintiff filed its original complaint, seeking injunctive relief and damages. Dkt. No. 1. The complaint alleged two counts of tortious interference with a contract. Id. at 22-26. On December 1, 2020, the plaintiff filed an amended complaint. Dkt. No. 52. The amended complaint alleged four counts: two counts of tortious interference with contract, one count of injury to business under Wis. Stat. § 134.01 and one count of common law conspiracy. Id. at 32-42. Both defendants since have filed motions to dismiss the amended complaint. Dkt. Nos. 70, 73.

II. Facts Alleged in the Amended Complaint (Dkt. No. 52)
A. Parties and Important Non-Parties

Plaintiff Medline Industries, Inc., is an Illinois corporation with its principal place of business in Illinois. Dkt. No. 52 at ¶16. It manufactures and distributes medical supplies, including disinfectant wipes. Id. at ¶¶5, 16.

Defendant Diversey, Inc. manufactures and distributes products such as disinfectant wipes across the United States, including in Wisconsin. Id. at ¶17. It is a Delaware corporation with its principal place of business in South Carolina. Id. Diversey is alleged to be the sole member of Wypetech, LLC, a company organized in Wisconsin with its principal place of business there. Id. at ¶19. Wypetech, LLC is a non-party; it manufactures wet wipe products. Id. at ¶19.

The amended complaint states that Melchior "was formerly an owner of Wypetech and its President." Id. at ¶7. He is a citizen of Wisconsin. Id. at ¶18. The amended complaint asserts that Melchior maintained his position as president after Diversey acquired Wypetech. Id. at ¶7. It avers that Melchior owned "100%" of Wypetech's membership interests. Id. at ¶131.

B. Requirements Contract

Until June 2020, Wypetech supplied all the plaintiff's Micro-Kill™ Bleach Wipes and Micro-Kill+™ Wipes under a "Requirements Contract" between the plaintiff and Wypetech. Id. at ¶6. The Requirements Contract was originally formed between the plaintiff and Wypetech's predecessor, Multi-Pack, LLC, in August 2014. Id. at ¶28. The plaintiff alleges that in April 2019, it learned from Wypetech that Wypetech had become the assignee to this contract; the plaintiff alleges that it did not object to this because Wypetech "took over" the Wisconsin-based manufacturing plant where Multi-Pack manufactured the wipes it sold to the plaintiff. Id. at ¶30. The amended complaint alleges that the Asset Purchase Agreement for Wypetech's purchase (presumably from Multi-Pack) stated the following:

2.06 Contracts. All rights, title and interest in and to contracts, agreements and other arrangements, whether written or oral ("Contracts"), relating to the ownership and operation of the Business and all other Contracts of Seller set forth on Schedule 7.09 under the heading "Assumed Contracts" (the "Assumed Contracts"). The Assumed Contracts shall not include, however, and Buyer shall not assume any Contract other than the Assumed Contracts, including but not limited to the Contracts listed on Schedule 7.09 under the heading "Excluded Contracts" (collectively the "Excluded Contracts").

Id. at ¶31. The plaintiff understands this language to mean that unless excluded, Wypetech assumed all the contracts listed on Schedule 7.09 and it asserts that the Requirements Contract was not listed on Schedule 7.09. Id.

The plaintiff alleges that as of the date of the amended complaint, Wypetech had "continuously enjoyed the befits [sic] of the Requirements Contract since March of 2019"—not just the plaintiff's business, but business from its customer Cambridge Sensors USA, LLC, for whom Wypetech manufactured a product called "Microdot." Id. at ¶32. The plaintiff explains that Microdot uses the plaintiff's "proprietary bleach formulation" under a subregistration of the Requirements Contract. Id. The plaintiff claims that "Wypetech's ability to make Microdot wipes using [the plaintiff's] solutions arises directly from the Requirements Contract, under which, Wypetech sells Microdot wipes, then pays [the plaintiff] a 4% royalty." Id. The pertinent section of the Requirements Contract states:

i. 4% of the invoiced purchase price (exclusive of taxes, freight, storage or other similar charges) of any Licensed Product manufactured, packaged and/or sold by Seller to Cambridge Sensors USA, LLC or its affiliates, successors or assigns (the "Cambridge Royalty").

Id.

The plaintiff asserts that defendant Melchior was both a member and president of Wypetech "from the time [Wypetech] became the assignee of the Requirements Contract" until Diversey bought Melchior's membership interests; the plaintiff believes Melchior remained president of Wypetech after Diversey purchased it. Id. at ¶33. When Wypetech accepted reassignment of the Requirements Contract, it was manufacturing certain disinfectant wipe products for the plaintiff under the plaintiff's brand. Id. at ¶34. Upon reassignment, Wypetech and the plaintiff agreed to add several products to the list of products Wypetech already was manufacturing. Id. The Requirements Contract included a process through which the plaintiff communicated to Wypetech its future product demands. Id. at ¶36. The plaintiff first would provide Wypetech with " ‘non-binding rolling ninety-day forecasts ... for each of the products.’ " Id. It then could submit purchase orders to Wypetech. Id. Wypetech allegedly was obligated to fulfill the purchase orders and the plaintiff was required to purchase the fulfilled orders. Id. The plaintiff also alleges that the Requirements Contract provided that Wypetech would be the exclusive contract manufacturer of those products for the plaintiff and that the plaintiff could not contract with any other party to manufacture or package the products; the plaintiff could seek out another vendor only if its reasonable product requirements exceeded Wypetech's capacity. Id. at ¶38. The plaintiff alleges that the Requirements Contract obligated Wypetech to "dedicate its manufacturing capacity to supply [the plaintiff's] reasonable requirements for all products on [the plaintiff's] purchase orders, provided that those purchase orders do not exceed the Forecasts provided to Wypetech." Id. at ¶39.

The plaintiff alleges that the initial term of the Requirements Contract was five years, through August 2019, after which it would automatically renew in one-year terms unless a party to the contract expressly provided written notice or the contract terminated under its own provisions. Id. at ¶40. The plaintiff says the contract renewed August 2019 through August 2020 and again August 2020 through August 2021; it asserts that because neither party provided notice of non-renewal, "the next renewal term commenced on August 19, 2020 and r[an] through August 19, 2021." Id. at ¶40. The plaintiff concedes that in the summer of 2019, it had had conversations, "both internally and with Wypetech," about the contract, including "discussions of providing notice of non-renewal." Id. at ¶41. But it asserts that it never provided Wypetech written notice that it was not renewing, and states that it told Wypetech that it did not wish to terminate the relationship. Id. The plaintiff alleges that in the contract in which defendant Melchior sold his interest in Wypetech to Diversey, Melchior "expressly warranted that [the plaintiff] had not given notice that it was terminating the Requirements Contract." Id. The plaintiff emphasizes that the Requirements Contract was identified and "forwarded"—though it does not say to whom—as part of the due diligence performed before Diversey bought Melchior's interest in Wypetech.

Id. The plaintiff also asserts that Wypetech manufactured and delivered Microdot wipes through at least September 2020, and argues that this shows that the Requirements Contract remained in force as of the date of the amended complaint because Wypetech would have lost its license to manufacture that product had the Requirements Contract terminated in August 2020. Id. at ¶42.

C. Alleged Breach of the Requirements Contract

The plaintiff alleges that Wypetech and the plaintiff complied with the Requirements Contract from 2017 through 2019. Id. at ¶43. The plaintiff says it paid Wypetech more than $6 million each year for over 180,000 cases of wipes annually. Id. The plaintiff notes, however, that the COVID-19 crisis caused an "explosion" in demand for disinfectant products (particularly wipes), and that as a result, between January and June 2020, the plaintiff ordered over 600,000 cases of disinfectant wipes; the plaintiff asserts that the value of these orders to Wypetech was over $16 million. Id. at ¶44.

The plaintiff says that the increased demand in 2020 created manufacturing...

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