Safe Step Walk in Tub Co. v. CKH Indus., Inc.

• Decision Date: 16 March 2017
• Docket Number: No. 15 Civ. 7543 (NSR),15 Civ. 7543 (NSR)
• Citation: 242 F.Supp.3d 245
• Parties: SAFE STEP WALK IN TUB CO., Plaintiff, v. CKH INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

242 F.Supp.3d 245

SAFE STEP WALK IN TUB CO., Plaintiff,

v.CKH INDUSTRIES, INC., Defendant.

No. 15 Civ. 7543 (NSR)

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

Signed March 16, 2017

Filed March 17, 2017

John Sellner, Joseph Michael Windler, Robert Roy Weinstine, Winthrop & Weinstine PA, Minneapolis, MN, Sanford H. Greenberg, Greenberg Freeman, L.L.P., New York, NY, for Plaintiff.

Donald Joseph Feerick, Jr., Feerick Lynch MacCartney, South Nyack, NY, Jeffrey M. Goldstein, Goldstein Law Group, Washington, DC, for Defendant.

OPINION & ORDER

NELSON S. ROMÁN, United States District Judge

Plaintiff Safe Step Walk In Tub Co. ("Safe Step") manufactures walk-in bathtubs and purportedly holds trademarks for the marketing of such tubs. Through a series of agreements executed by the parties, Defendant CKH Industries, Inc. ("CKH"), was able to use those trademarks when marketing, selling, and installing Safe Step's tubs in particular geographic areas. Safe Step initiated this action claiming nonpayment of certain marketing fees by CKH, and CKH counter-claimed—alleging that Safe Step was violating the franchise laws of various states, breaching the agreements between the parties, and engaging in other unfair business practices including fraud. Safe Step now seeks to dismiss CKH's counter-claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. For the following reasons, the motion to dismiss is GRANTED in part and DENIED in part.

BACKGROUND

I. Overview

Safe Step initiated this action on September 23, 2015, for non-payment of fees associated with one of the agreements entered into between the parties, which was attached to Safe Step's complaint. (See Compl., Ex. A ("Marketing Addendum"), ECF No. 1.) The agreement at issue, an addendum related to marketing, purports to modify a pre-existing "Dealership/License Agreement" between the parties, which was not attached to the complaint even though it was referenced therein. (Compl. ¶¶ 9–10, 12–13.) Safe Step presents the business relationship between itself and CKH as a licensor-licensee, or supplier-dealer, arrangement: Safe Step granted CKH license to use its trademarks and to deal in its bathtub products. (Id. ¶¶ 5, 7.)

When CKH answered Safe Step's complaint and asserted its own counter-claims, it provided one of the underlying agreements, which CKH alternatively refers to as a Franchise Dealership Agreement. (See, e.g., Answer ¶ 5 & Ex. A, ECF No. 13.) CKH filed its amended answer with counter-claims on November 4, 2015, which serves as Defendant's operative counter-complaint, attaching more of the underlying agreements. (Am. Answer ("AACC"), Exs. 1–5, ECF No. 33.)

II. The Agreements¹

Reviewing the agreements provided by the parties and incorporated into their pleadings, it is evident that Safe Step and CKH entered into base or "regional" agreements, based on sales regions, with addendums specifying components of the business relationship. For example, the base agreement for the New York and New Jersey area is styled as a "Dealership/License Agreement" between Safe Step (as licensor) and CKH (as licensee) and covers specific counties in both states. (See AACC, Ex. 1 ("NY/NJ Agreement") ¶ 26 (defining the "territory" for the agreement).) It includes a list of "[t]rademarks, [m]arks, [s]logans and [n]ames" that CKH could use within the designated territory. (NY/NJ Agreement at 13; id. ¶ 7.) CKH was to be the "exclusive Licensee" allowed to market Safe Step's products in the region, and Safe Step was obligated to "[s]end all relevant sales leads in [CKH's] [t]erritory" that it garnered "through customer inquiry, advertising, website, trade shows, or any other type of media lead generation " to CKH. (Id. ¶¶ 2, 8(b).) CKH, in turn, was required to achieve either the minimum sales requirements or the advertising budget outlined in one of the agreement's addendums. (Id. ¶ 5.) The agreement also provided for the contemporaneous payment of a $10,000 "licensing" fee. (Id. at 16.)² The parties expressly agreed, however, that "Licensee [CKH] [was] an independent contractor and [had] not been granted a franchise."

(Id. ¶ 14.) The agreement took effect on May 10, 2009. (AACC ¶ 86.)

The agreement also specified a number of items relevant to issues in this action, including areas where Safe Step could direct CKH to make changes to its business model (e.g., NY/NJ Agreement ¶ 10), the term of the agreement (id. ¶ 2 (five-years subject to renewal terms)), grounds for termination of the agreement and the effect of termination (id. ¶ 3), a mandatory arbitration clause (id. ¶ 18), and a forum selection clause in the event either party sought injunctive relief (id. ¶ 24). Finally, the provisions of the agreement specified that it, along with the attached or referenced schedules, constituted the entire agreement between the parties, that any changes to the agreement had to be made in writing, and that each provision was intended to be severable in case any particular provision or set of provisions were deemed invalid. (See id. ¶ 23.)

The other regional agreements contain the same base terms for different regions, incorporating the same trademarks that CKH could use when selling and marketing Safe Step's tubs in the region, similar minimum sales requirements or advertising contributions to be made by CKH, and the same "license fee" that CKH would pay in order to enter into a given regional agreement. (See AACC, Ex. B ("Mass./NH/VT Agreement"), Ex. C ("Albany Agreement"), Ex. D ("Hartford Agreement"), Ex. E ("Boston Agreement").) Defendant also alleges the existence of an oral agreement under the same terms covering the counties of Hampshire and Bristol in Massachusetts ("Hampshire/Bristol Agreement"). (AACC ¶ 82.) The Mass./NH/VT Agreement took effect on June 10, 2009, the Albany and Hartford Agreements on July 15, 2009, and the Boston and Hampshire/Bristol Agreements on February 10, 2010. (Id. ¶ 86.)

The Marketing Addendum, which serves as the basis for Plaintiff's action, ostensibly modified all of the regional agreements to provide a fee schedule for Safe Step's national and regional advertising efforts, and to require CKH to pay Safe Step on a monthly basis "for the unique leads received" as a result of the advertising, but left the remaining terms intact. (Marketing Addendum at 1, 3–4.) The addendum took effect January 1, 2014. (Id. at 1.)

III. Defendant's Allegations

Defendant brings twenty-two counter-claims against Plaintiff for breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, unjust enrichment, violations of various state franchise laws, violations of state laws prohibiting unfair or deceptive business practices, and fraud. Defendant seeks damages (AACC ¶ 294) and injunctive relief (id. ¶¶ 288–93).

The crux of Defendant's position is that Plaintiff was in fact a franchisor who attempted to structure the agreements between Safe Step and CKH to avoid federal and state franchise laws. (Id. ¶¶ 67, 75, 97, 100.) Defendant alleges that Plaintiff has defaulted under the agreements by refusing to honor its obligations and by terminating the agreements, or failing to renew them, despite Defendant's performance of its side of the bargains. (Id. ¶¶ 101–03, 108, 110, 119.) Defendant contends that these acts violate either state franchise laws or state laws prohibiting unfair or deceptive business practices, and constitute a fraud perpetrated by Plaintiff designed to intentionally escalate CKH's costs in order to constructively terminate the alleged franchises and unlawfully compete directly against CKH. (Id. ¶¶ 114, 116, 118.)

IV. Current Posture

Plaintiff's motion to dismiss Defendant's counter-claims was fully submitted as of March 11, 2016. (ECF No. 49.)

STANDARD ON A MOTION TO DISMISS

Under Rule 12(b)(6), the inquiry is whether the complaint "contain[s] 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) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); accord Hayden v. Paterson , 594 F.3d 150, 160 (2d Cir. 2010). "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 679, 129 S.Ct. 1937. To survive a motion to dismiss, a complaint must supply "factual allegations sufficient ‘to raise a right to relief above the speculative level.’ " ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ). The Court must take all material factual allegations as true and draw reasonable inferences in the non-moving party's favor, but the Court is " ‘not bound to accept as true a legal conclusion couched as a factual allegation,’ " or to credit "mere conclusory statements" or "[t]hreadbare recitals of the elements of a cause of action." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

In determining whether a complaint states a plausible claim for relief, a district court must consider the context and "draw on its judicial experience and common sense." Id. at 662, 129 S.Ct. 1937. A claim is facially plausible when the factual content pleaded allows a court "to draw a reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937.

DISCUSSION

Defendant's claims arise out of the relationship allegedly formed via the agreements executed by the parties. As such, the law to apply when interpreting those agreements is a threshold issue before turning to the viability of any of Defendant's causes of action. Although Plaintiff brought this diversity action³ in New York and asserts New York law applies, Defendant argues that Tennessee law governs the contract disputes based on the parties' agreements. (Compare Pl. Mem. at 9–13, ECF No. 50, with Def. Opp'n at 16–20,...