Veryfine Products, Inc. v. Phlo Corp.
| Decision Date | 16 November 2000 |
| Docket Number | Civil Action No. 99-12218-WGY. |
| Parties | VERYFINE PRODUCTS, INC., Plaintiff v. PHLO CORPORATION, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Robert Ciociola, Somerville, MA, for Veryfine Products, Inc.
John Salsberg, Michael R. Schneider, Susan B. Church, Salsberg & Schneider, Boston, MA for Phlo Corp.
Robert Ciociola, Somerville, MA, for Donald E. Smallwood, Jr., Francis X. Orfanello, Sam Bowden.
This case involves a contract dispute between Veryfine Products, Inc. ("Veryfine"), a Massachusetts corporation engaged in manufacturing fruit juices and other beverages under its own label and for sale under the labels of other companies, and Phlo Corporation ("Phlo"), a Delaware corporation with a principal place of business in New York City engaged in the business of selling iced teas, lemonades and fruit flavored beverages under the label "McCoy's."
The issue that was before this Court on oral hearing on February 3, 2000, concerned the existence of a duplicative lawsuit filed by the Defendant Phlo against Veryfine on October 26, 1999, in the New York State Supreme Court, exactly one day after this action was filed by Veryfine here in the United States District Court for the District of Massachusetts. The New York State action was subsequently removed by Veryfine to the United States District Court for the Southern District of New York (the "Southern District"). Subject matter jurisdiction in both suits is premised on the diversity of the parties.
Phlo has brought this Motion to Dismiss, Transfer or Stay the action before this Court primarily on the grounds that venue is more appropriate in the Southern District of New York. On February 3, 2000, after oral argument, this Court DENIED the Motion to Dismiss, Transfer or Stay. This memorandum sets out the reasons for that ruling.
The following facts are taken from the Complaint, unless otherwise indicated. On April 27, 1999, Veryfine and Phlo entered into a written Contract Manufacturing & Packaging Agreement (the "Agreement") under which Veryfine agreed to manufacture and bottle beverages for Phlo using materials, ingredients, and supplies provided by Phlo and manufactured in accordance with Phlo's specifications. See Compl. ¶¶ 8-9. Pursuant to the Agreement, Phlo was required to provide a firm schedule of orders for the following month's production of its products (i.e. one month in advance). Once such a schedule was furnished to Veryfine, it could only be altered by mutual written agreement. The Agreement mandated a minimum production order of 200,000 cases per month. See id. ¶ 3. If Phlo did not order the minimum number in a given month, it remained liable for the manufacturing fee for the unordered cases unless Veryfine was able to replace all or part of the production (in which case the fee would be waived or reduced). Payments were due within 14 days of Veryfine's invoice date and Veryfine had no obligation to manufacture products for Phlo during any period of time in which payments were overdue. The term of the Agreement was one year beginning April 27, 1999. The Agreement provided that it was to be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed entirely within Massachusetts.
Veryfine's Complaint alleges that Phlo breached the Agreement almost from its inception. Among the alleged repeated problems encountered were failure or refusal to provide production scheduling orders by the deadline, late provision of such scheduling orders, production orders that were well below the minimum (e.g. a May production order of only 39,000 cases), and repeated manufacturing disruption due to problems in delivery of Phlo's supplies to Veryfine's facility. These failures allegedly caused Veryfine to produce only a limited number of cases of product by the monthly deadlines. In particular, production in June had to be rescheduled several times, causing disruption to other scheduled production runs for Veryfine's other customers. The Complaint sets out a pattern of late production orders or situations in which Phlo tried to reschedule (delay) delivery of portions of the product in each monthly period. Furthermore, there was allegedly a complete failure to schedule any production runs in September or October within the time specifications of the Agreement. Phlo also allegedly failed or refused to pay Veryfine's invoices.
On September 14, 1999, Veryfine sent a letter to Phlo's General Counsel, Anne Hovis, notifying her of the alleged breaches of contract and threatening to terminate the agreement if ongoing nonpayment of invoices was not cured within 30 days. As of the date of the Complaint, those payments were never made.
Veryfine brought this action on October 25, 1999, alleging breach of contract and breach of the covenant of good faith and fair dealing, and requesting, in addition to monetary damages, declaratory relief that it is not obliged to furnish any further services to Phlo. Phlo's lawsuit, with its own claims brought on substantially the same facts (from Phlo's point of view), was filed in the New York State Supreme Court on October 26, 1999.
Phlo seems to have confused venue with jurisdiction, for in its motion papers it has asked, in addition to a change of venue, for dismissal of the Massachusetts action in favor of the action in the Southern District of New York. Issues pertaining to this Court's deference to the Southern District of New York are best analyzed as a venue matter. Phlo has also questioned the amount in controversy, however, a matter of subject matter jurisdiction where dismissal may indeed be the appropriate remedy.
Veryfine's Complaint alleges losses and damages including but not limited to outstanding overdue invoices in the amount of $56,869.94.1 Veryfine also generally alleges lost production, disrupted scheduling of its production lines, interference with its commitments to other customers, and lost good will. See Compl. ¶ 42. Phlo argues, quite correctly, that $56,869.94, with nothing more, fails to satisfy the jurisdictional amount requirement of $75,000.01. Veryfine rebuts that argument by indicating that the $56,869.94 amount is only one specifically identified portion of its damages. According to the Supplemental Affidavit of Mark Thurber, Veryfine's General Counsel, Veryfine is still in the process of calculating its damages. "[P]reliminary calculations indicate that the amount of damages that Veryfine has suffered as a direct result of Phlo's breaches of the Agreement with Veryfine will exceed $300,000." Thurber Aff. ¶ 4.
When faced with a motion to dismiss for failure to show the requisite amount in controversy, a plaintiff may satisfy its burden of proving jurisdiction "by showing that it does not appear to a legal certainty that its claim is for less than the jurisdictional amount [citation omitted] ... by amending the pleading or by submitting affidavits which sufficiently substantiate the alleged amount in controversy." Hardemon v. City of Boston, 144 F.3d 24, 26-7 (1st Cir.1998). The outstanding invoices alone are alleged to be over $56,000. The disruption to the business could easily constitute $19,000, and an affidavit before this Court shows that it could be much greater than that.2 Thus it does not appear to a legal certainty that Veryfine's claim is for less than the jurisdictional amount. The motion to dismiss on this ground was therefore DENIED.3
Phlo asked this Court to transfer this case to the Southern District of New York, where its own duplicative lawsuit was filed one day after the filing of this suit by Veryfine.
Resolution of the venue issue requires an understanding of the timing and circumstances surrounding procedural events in this case. According to Phlo, after the pattern of disruption in production, which each party attributes to the other, officers of the two corporations engaged in a series of telephone and written communications in an attempt to address the problems. See Def.'s Mot. at 5. On October 25, 1999, Phlo notified Veryfine that it intended to file an action in New York State Supreme Court the following day. Phlo claims that Veryfine did not indicate any intention to sue Phlo at that time. That same day, in what Phlo believes to be an apparent effort to reach the courthouse door first, Veryfine filed the instant action. Phlo filed its New York State action the next day (October 26) alleging breach of contract, tortious misrepresentation, breach of the covenant of good faith dealing, and negligence. See id. at 6. On November 24, 1999, Veryfine filed a Notice of Removal which removed the case from the New York State Supreme Court to the United States District Court for the Southern District of New York. On December 2, 1999, Veryfine filed a motion to Dismiss, Transfer or Stay the Southern District action which appeared to be pending at the time of this Court's ruling.
Veryfine admits that threats of litigation were contained in the various discussions between the principals and counsel of the corporations in their efforts to resolve their differences. See Pl.'s Opp'n at 6. Veryfine claims that such threats were made on more than one occasion and were taken as a negotiation tactic rather than notification of an imminent lawsuit. See id. at 12. Thus, Veryfine sees the timing of the lawsuits either as coincidence or as Phlo's rapid next-day response to its actually having been sued in Massachusetts.
Veryfine's Notice of Removal to the Southern District reads, "Veryfine removes this case to this court and requests that this Court assume jurisdiction of the case and take all further action as may be required to determine this controversy." Def.'s...
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