Zeikos Inc. v. Walgreen Co.

• Decision Date: 18 January 2023
• Docket Number: Civil Action 21cv19993 (EP) (JRA)
• Parties: ZEIKOS INC., Plaintiff, v. WALGREEN CO., Defendant.
• Court: U.S. District Court — District of New Jersey

ZEIKOS INC., Plaintiff,
v.
WALGREEN CO., Defendant.

Civil Action No. 21cv19993 (EP) (JRA)

United States District Court, D. New Jersey

January 18, 2023

NOT FOR PUBLICATION

OPINION

EVELYN PADIN, U.S.D.J.

Plaintiff Zeikos Inc. (“Zeikos”) alleges various contract and fraud claims against Defendant Walgreen Co. (“Walgreen”) stemming from agreements to favorably position Zeikos electronic accessories in Walgreen stores. Walgreen moves to transfer this action to the Northern District of Illinois based on an earlier agreement's forum selection clause, and to dismiss certain claims. D.E. 29. The Court decides the motion without oral argument pursuant to Local Civil Rule 78.1(a). For the reasons below, the Court will GRANT IN PART Walgreen's motion, transfer this action to the Northern District of Illinois, and DEFER IN PART the remainder of the motion.

I. BACKGROUND^[1]

A. The parties begin their business relationship and sign the General Agreement

Zeikos is a New Jersey corporation which imports and re-sells electronic accessories, mostly under the “iHip” trademark. D.E. 24 (“Am. Compl.”) ¶¶ 2, 4. Walgreen, an Illinois

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corporation, is a subsidiary of Walgreens Boots Alliance, Inc., one of the largest retail pharmacy chains in the United States and Europe. ¶ 2.

The parties' relationship began in 2011, with one Zeikos salesperson selling to one Walgreen store. ¶ 6. On February 29, 2012, the parties entered into a General Trade and Electronic Data Interchange Agreement. D.E. 29-3 (the “General Agreement”).^[2] The General Agreement “[s]ets forth the terms and conditions under which the parties agree to facilitate their purchase and sale transactions.” General Agreement at 2. Its terms “shall apply to all merchandise...sold by [Zeikos], directly or indirectly through its distributors, to Walgreen.” Id. The General Agreement also contained a choice-of-law/forum selection clause:

This Agreement shall be construed in accordance with the substantive laws of the State of Illinois, without regard to principals of conflict or choice of law. The parties hereby consent to the exclusive jurisdiction of the courts of the State of Illinois or Federal District Court of the Northern District of Illinois and agree to waive all objections as to venue and forum non conveniens

General Agreement 4 at § D(7).

The business relationship evolved further; eventually, senior Zeikos officers sold directly to Walgreen's corporate office buyer. Id. The sales relationship generally involved Walgreen giving Zeikos a purchase order, which Zeikos then filled. ¶ 7.

B. The Placement Agreement/Premium Space dispute

On May 14, 2019, Zeikos President Jack Saideh and Vice President James Trappani met with Walgreen's new electronic accessories buyer Albert Gehrke at Walgreen's offices in Deerfield, Illinois. ¶ 9. At the meeting, Gehrke proposed a new arrangement: Zeikos could bid

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on the right to sell its merchandise in a four-shelf fixture in highly desirable Walgreen stores sections adjacent to the cash registers (the “Premium Space”). ¶ 10. Gehrke represented to Saideh and Trappani that Walgreen had sold between $80,000,000 and $100,000,000 of private label merchandise in the Premium Space over the prior year and, before that, $250,000,000 of brand name “Tech&Go” merchandise. ¶ 12.

Negotiations culminated in Zeikos offering Walgreen $9,000,000 to place Zeikos merchandise in the Premium Space for one year. ¶ 14. The parties ultimately executed the Product Placement Agreement (Exh. A to Am. Compl., the “Placement Agreement”). ¶¶ 15-19. The Placement Agreement provided that Zeikos would credit $9,000,000 to Walgreen in exchange for placement in the Premium Space for one year, which would be re-bid to other vendors after one year if Zeikos did not achieve $100,000,000 in net sales during the first year. ¶ 18.

Walgreen promptly issued an $8,000,000 purchase order to Zeikos and claimed an immediate credit of $5,000,000. ¶ 20. However, initial projections disclosed in late October 2019 “demonstrated that Zeikos had little chance of selling $100,000,000 of its merchandise in the Premium Space.” ¶ 21. Zeikos raised its concerns to Walgreen but, “[d]espite additional communications, Walgreen did not provide satisfactory answers.” ¶¶ 21-23.

In April 2020, the parties entered into an Amended and Restated Product Placement Agreement (Exh. B. to Am. Compl., “Amended Placement Agreement”). The Amended Placement Agreement, among other things, clarified certain requirements of the original Placement Agreement. Am. Compl. ¶¶ 40-56. In 2021, the parties negotiated their future business regarding the Premium Space over email; according to Plaintiff, this constituted another agreement. ¶¶ 5765 (the “2021 Agreement”).

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C. Procedural history

Zeikos filed its first Complaint on November 15, 2021. D.E. 1 (“Compl.”). The Complaint alleged three claims: breach of the 2019 Product Agreement (Count One), breach of the 2021 Agreement (Count Two), and failure to pay for goods sold (Count Three).

The parties stipulated to Zeikos filing an Amended Complaint, which Zeikos filed on May 23, 2022. D.E. 23. The Amended Complaint alleges five claims: fraud in the inducement of the Placement Agreement (Count One); negligent misrepresentation in the inducement of the Placement Agreement (Count Two); Breach of the Amended Placement Agreement (Count Three); Breach of the 2021 Agreement (Count Four); and failure to pay for goods sold and delivered (Count Five).^[3]

Walgreen now moves: (1) to transfer venue to the Northern District of Illinois pursuant to 28 U.S.C. §§ 1406(a) and 1404(a); and (2) dismiss the Amended Complaint's Counts One and Two pursuant to Fed.R.Civ.P. 12(b)(6). D.E. 29-1 (“Mot.”). Zeikos opposes. D.E. 35 (“Opp'n”). Walgreen has replied. D.E. 38 (“Reply”).

II. DISCUSSION

A. Motion to transfer to Northern District of Illinois

The Court addresses the motion to transfer first because transfer would counsel in favor of denying and/or deferring the motion to dismiss. See, e.g. Abbott Labs. v. Roxane Labs., Inc., Civil Action No. 12-457, 2013 U.S. Dist. LEXIS 74316, at *92 (D. Del. May 28, 2013) (denying motion to dismiss as moot upon transfer); United States v. 25 Grilles, No. 2:18-cv-09324, 2019 U.S. Dist. LEXIS 239884, at *1 (C.D. Cal. Apr. 25, 2019) (deferring motion to dismiss to transferee court).

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Walgreen argues that pursuant to 28 U.S.C. § 1406(a) and Fed.R.Civ.P. 12(b)(3), any forum outside Illinois would be improper. Mot. 3. Zeikos argues that Walgreen waived this argument because Walgreen admitted in its first Answer that venue was proper, and thus waived that objection pursuant to Fed.R.Civ.P. 12(h). Opp'n 4-5.

Walgreen also argues that transfer to Illinois would be appropriate pursuant to 28 U.S.C. § 1404(a). Mot. 4. Zeikos responds that the forum selection clause does not justify transfer because the General Agreement containing that clause does not govern this action's dispute, that Walgreen also waived its § 1404(a) transfer argument, and that public and private interest factors weigh against discretionary transfer. Opp'n 7-15. Because the first two are threshold arguments regarding the forum selection clause's applicability, the Court addresses those first.

1. The General Agreement encompasses these disputes

Zeikos argues that its claims relate to agreements other than the General Agreement, and therefore that the General Agreement's forum selection clause does not apply. Walgreen disagrees, arguing that the General Agreement was meant to frame and encompass the parties' subsequent business relationship, including Placement and Amended Agreements. Walgreen argues that the General Agreement “set the ground rules for future engagements, akin to plumbing for the anticipated flow of commerce between the parties.” Reply 2. The Court agrees with Walgreen.

Forum selection clauses are generally treated as ordinary contract provisions subject to ordinary rules of contract interpretation. John Wyeth & Bro. Ltd. v. Cigna Int'l Corp., 119 F.3d 1070, 1074 (3d Cir. 1997); see also Eckhardt v. Idea Factory, Ltd. Liab. Co., 2021 IL App (1st) 210813, ¶ 15, 456 Ill.Dec. 214, 221-22 (stating that Illinois courts have long relied on federal case law as persuasive authority when interpreting forum selection clauses). In interpreting any

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contract, “a court's paramount consideration” is the parties' intent. Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1009 (3d Cir. 1980). Of course, a contract's language is the clearest indication of intent. Id. When contractual language is unambiguous, i.e., “reasonably capable of only one construction,” the court must enforce the contract as written. Wyeth, 119 F.3d at 1074.

However, when contract language is capable of more than one reasonable construction as determined by “objective indicia . . . [viewed] from the linguistic reference point of the parties,” the contract is ambiguous and the court should look beyond the four corners of the contract to extrinsic evidence, such as party negotiations, to discern and give meaning to the intent of the parties. Mellon, 619 F.2d at 1009; Sumitomo Machinery Corp. v. Allied Signal, Inc., 81 F.3d 328, 332 (3d Cir. 1996). Ambiguous contract language should be construed against the drafter. N.J. Reg'l Council of Carpenters v. Jayeff Constr. Corp., No. 11-903 2011 U.S. Dist. LEXIS 116918, at *10 (D.N.J. Oct. 11, 2011). However, courts should “avoid ambiguities if the plain language of the contract permits...[and] should not torture the language...to create ambiguities.” Wall Street Aubrey Golf v. Aubrey, 189 Fed.Appx. 82, 85 (3d Cir. 2006), citing First State Underwriters Agency of New England Reinsurance Corp. v. Travelers Ins. Co., 803 F.2d 1308, 1311 (3d Cir. 1986). There is no reasonable ambiguity here about the forum selection clause's meaning-it means precisely what...