No Spill, Inc. v. Scepter Can., Inc.

• Decision Date: 16 December 2019
• Docket Number: Case No. 18-2681-JAR-KGG
• Citation: 429 F.Supp.3d 768
• Parties: NO SPILL, INC., Plaintiff, v. SCEPTER CANADA, INC. and Scepter Manufacturing, LLC, Defendants.
• Court: U.S. District Court — District of Kansas

429 F.Supp.3d 768

NO SPILL, INC., Plaintiff,

v.SCEPTER CANADA, INC. and Scepter Manufacturing, LLC, Defendants.

Case No. 18-2681-JAR-KGG

United States District Court, D. Kansas.

Signed December 16, 2019

Bradley J. Yeretsky, Bryce Langford, Douglas R. Dalgleish, Stinson, LLP, Kansas City, MO, for Plaintiff.

Holly A. Dyer, Jay F. Fowler, Foulston Siefkin LLP, Wichita, KS, Lisa K. Nguyen, Pro Hac Vice, Latham & Watkins LLP, Menlo Park, CA, Robert Steinberg, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, for Defendant Scepter Manufacturing LLC.

Holly A. Dyer, Foulston Siefkin LLP, Wichita, KS, for Defendant Scepter Canada, Inc.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, CHIEF UNITED STATES DISTRICT JUDGE

Plaintiff No Spill, Inc. brings this action against Defendants Scepter Canada, Inc. and Scepter Manufacturing, LLC, alleging claims for patent infringement, breach of contract, and trade dress infringement under the Lanham Act and Kansas law. Before the Court is Scepter Manufacturing's Motion to Dismiss for Failure to State a Claim (Doc. 51), to which Defendant Scepter Canada, Inc. joins.¹ The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court grants in part and denies in part Defendant's motion to dismiss. The motion is granted as to the breach of contract claims alleged in Counts III and IV insofar as they seek consequential damages; the motion is otherwise denied.

I. Legal Standard

To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, "raise a right to relief above the speculative level" and must include "enough facts to state a claim for relief that is plausible on its face."² "[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim."³ The court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.⁴

The Supreme Court has explained the analysis as a two-step process. For purposes of a motion to dismiss, the court "must take all the factual allegations in the complaint as true, [but is] ‘not bound to accept as true a legal conclusion couched as a factual allegation.’ "⁵ Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.⁶ Second, the court must determine whether the factual allegations, when assumed true, "plausibly give rise to an entitlement to relief."⁷ "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."⁸

II. Factual Allegations

The following facts are alleged in the Second Amended Complaint ("SAC") and contained in the attachments thereto.⁹ The Court assumes the alleged facts to be true for purposes of deciding this motion.

Plaintiff No Spill and Defendants Scepter Canada, Inc. and Scepter Manufacturing, LLC, manufacture, market, and sell portable plastic fuel containers to consumers in the United States. Plaintiff and Defendant Scepter Manufacturing have a contractual relationship dating back approximately six years.¹⁰ In 2013, the same year Defendant began manufacturing products at its facility in Miami, Oklahoma, Defendant recognized it had excess capacity and idle machines that could be used to increase revenue if put to use. Defendant thus sought a business arrangement with Plaintiff in which Defendant would manufacture gasoline cans for Plaintiff. In order to convince Plaintiff of the viability and likely success of this arrangement, Defendant assured Plaintiff that even though it was a competitor, Plaintiff and its products would be Defendant's top priority at the Oklahoma facility. Although Defendant manufactured competing gasoline cans, it told Plaintiff that it aspired to be Plaintiff's "Vendor of the Year."¹¹

The Parties' Contractual Relationship

On September 6, 2013, Plaintiff and Defendant entered into a Supply Agreement.¹² Defendant agreed to custom mold, test, and package Plaintiff's five-gallon fuel container body and sell it to Plaintiff under the terms outlined in the agreement. The Supply Agreement included specific commitments from Defendant as to the amount of Plaintiff's products Defendant would have available at all times. Specifically, Defendant would "stock approximately eight (8) to ten (10) truck-loads" of No Spill Product.... This stock will be used to fill new purchase orders and then replenished as used (FIFO)."¹³

Regarding "Order Procedure," paragraph 5 of the Supply Agreement provides:

Buyer shall issue purchase orders for Product based on full truck loads. Each "Order" shall provide the type and quantity of Products required, the delivery destination and the delivery date. Supplier must accept or reject an Order within one (1) business day of receipt. No order will be deemed accepted unless Supplier confirms its acceptance....¹⁴

Defendant agreed it "understands and acknowledges that time is of the essence with regard to the delivery of the Products under this Agreement."¹⁵ Plaintiff submitted regular, consistent purchase orders to Defendant by email, as Defendant requested. If Defendant did not have the required truckloads of stock available, Plaintiff would be unable to complete its sales of gasoline cans to dealers and third parties.

Paragraph 9 of the Supply Agreement states "[u]pon expiration of the Term or other termination of" the Supply Agreement, No Spill "shall have the option, but not the obligation, to purchase the molding machine and ancillary equipment used in the production of the Products" under terms set forth in Exhibit D to the Supply Agreement.¹⁶ Exhibit D to the Supply Agreement identifies a Bekum blow molding machine by serial number, with described ancillary equipment, with a specified "Initial Value." Exhibit D states:

At the end of the Term of this Agreement, Buyer shall have the option to purchase the above equipment at a value calculated by reducing the Initial Value by 5% for each full year that the Agreement had been in effect; this reduction not to exceed 50% of the Initial Value.¹⁷

Paragraph 10(b) of the Supply Agreement states that Defendant "warrants and represents that ... (iii) the Products are of merchantable quality and free from defects in material and workmanship," and "(iv) the Products conform in all respects" to the Supply Agreement and No Spill's specification.¹⁸

Paragraph 13 of the Supply Agreement contains a limitation of liability provision.¹⁹

On or about February 9, 2016, the parties entered into the First Amendment to Supply Agreement, the purpose of which was to increase the volume of Plaintiff's product that Scepter agreed to provide. The First Amendment increased Defendant's inventory obligation from ten to eleven truckloads. Thereafter the parties mutually agreed that in order to ensure it could be better equipped to fulfill Plaintiff's order volume, Defendant would increase the quantity of truckloads it was required to have on hand to fifteen. Plaintiff paid Defendant in advance to maintain the requisite number of truckloads.

For the first four years of the parties' contractual relationship, Plaintiff was a valued customer and revenue source for Defendant, and Defendant was a reliable and important supplier to Plaintiff. From 2013 to 2017, Plaintiff's business grew steadily and its market share increased, making it more of a competitor to Defendant. Plaintiff's gasoline cans began to displace Defendant's gasoline cans with key customer accounts.

This change caused Defendant to begin treating Plaintiff as a competitor, rather than as a customer and partner. Thereafter, Defendant began to frustrate and obstruct the supply of manufactured gasoline cans to Plaintiff as follows:

a. failing to keep sufficient stock of No Spill products on hand so that Plaintiff's orders could not be fulfilled, and Plaintiff could not deliver the ordered products to its customers (some of whom Defendant was pursuing for sales of its own products);

b. dramatically changing the amount of machine and employee time it devoted to production of No Spill products, resulting in lowered production volumes, so that Plaintiff would receive lower volumes of product to sell to its own customers; and

c. discontinuing, modifying, or failing to properly execute quality control procedures as to No Spill products produced at Defendant's facility, so that Plaintiff would have fewer products of adequate quality to sell to its customers and so that Plaintiff's customers would potentially receive products of a lower quality.

At least one of the unmerchantable products was sent to a dealer, which returned the defective can to Plaintiff, causing injury to Plaintiff's goodwill and reputation with that dealer. And because Defendant was not maintaining at least eleven truckloads as required by the Supply Agreement, Plaintiff was unable to sell millions of dollars of product to dealers and other third parties, which damaged Plaintiff.

On August 22, 2017, Defendant provided notice of its intent to terminate the Supply Agreement effective May 23, 2018. On May 21, 2018, Plaintiff gave written notice it was exercising the purchase option outlined in the Supply Agreement ("Option Notice"). The Option Notice stated:

Pursuant to our existing Supply Agreement contract, please consider this letter as notice that No Spill, Inc. is hereby exercising the Option to purchase the blow molding machine that is currently running gasoline cans for No Spill, Inc. The Contract specifically spells out a Bekum blow molding machine, Model BM-705D, Serial Number 204705-5-053. This Option also extends to the support equipment identified in the Contract.²⁰

The serial number...