Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-01102/USCOURTS-cand-5_05-cv-01102-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Declaratory Judgement

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United States District Court

For the Northern District of California

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1 Pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73, all parties have expressly

consented that all proceedings in this matter may be heard and finally adjudicated by the

undersigned.

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SMITH & VANDIVER CORPORATION,

Plaintiff,

 v.

FELSEN-MOSCOE-MITCHELL &

ASSOCIATES, Inc.,

Defendant.

 /

No. C05-01102 HRL

ORDER DENYING PLAINTIFF’S

MOTION TO DISMISS DEFENDANT’S

COUNTERCLAIM

[Re: Docket No. 19]

Pursuant to Fed.R.Civ.P. 12(b)(6), plaintiff Smith & Vandiver Corporation moves to dismiss

the counterclaim for breach of contract asserted by defendant Felsen-Moscoe-Mitchell & Associates,

Inc. Defendant opposed the motion. Upon consideration of the papers submitted by the parties, as

well as the arguments presented at the July 5, 2005 hearing, the court issues the following order.1

I. BACKGROUND

This a contract action based on the court’s diversity jurisdiction. Plaintiff Smith & Vandiver

Corporation alleges that it is a manufacturer, marketer and importer of bath and body care products

which are distributed throughout the United States. In October 2002, the parties entered into a “Sales

Representative Agreement for Mass Market and Drug Chains” (Agreement) under which defendant

agreed to “act as an independent sales representative for [plaintiff’s] products for Target (excluding
United States District Court

For the Northern District of California

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Mervyn’s).” (Counterclaim, ¶ 3). Plaintiff claims that on December 1, 2004, it provided defendant

with written notice of termination of the Agreement, with the termination to be effective as of

December 30, 2004. At the heart of the instant lawsuit is the parties’ dispute over approximately

$135,000 in sales commissions which defendant claims are owed by plaintiff under the Agreement.

On March 17, 2005, plaintiff filed the instant action, seeking a declaratory judgment that it is

not in breach of the Agreement (a copy of which is attached to the complaint). It alleges that it has

fully performed all of its contractual obligations, including the payment of all commissions owed. On

May 10, 2005, defendant answered the complaint and filed a counterclaim for breach of contract

against plaintiff, as well as a request for an accounting. It alleges that during the term of the

Agreement, plaintiff sold approximately $2.7 million in products to Target without informing defendant. 

It claims that plaintiff breached the Agreement by failing to pay defendant the five percent sales

commission allegedly owed on those sales. Defendant also seeks trebled damages under the

California Independent Wholesale Sales Representative Act (IWSRA), Cal. Civ. Code § 1738.15.

Plaintiff now moves to dismiss the counterclaim pursuant to Fed.R.Civ.P. 12(b)(6). It argues

that dismissal is appropriate because defendant fails to allege any material element of the Agreement

that plaintiff has breached. Plaintiff further contends that the counterclaim allegations are broad and

conclusory and do not satisfy the pleading standards under Rule 8 of the Federal Rules of Civil

Procedure which requires, among other things, “a short and plain statement of the claim showing that

the pleader is entitled to relief.” Fed.R.Civ.P. 8(a).

II. LEGAL STANDARD

A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) tests the

legal sufficiency of the claims in the complaint. In such a motion, all material allegations in the

complaint must be taken as true and construed in the light most favorable to the claimant. See

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). “However, the court is not

required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot

reasonably be drawn from the facts alleged.” Clegg v. Cult Awareness Network, 18 F.3d 752,

754-55 (9th Cir. 1994). Dismissal is appropriate only when it “‘appears beyond doubt that the
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For the Northern District of California

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plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’” Id.

(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

Ordinarily, a court may only look at the face of the complaint and documents attached to the

complaint in deciding a Fed. R. Civ. P. 12(b)(6) motion to dismiss. See Hal Roach Studios, Inc. v.

Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). However, “documents

whose contents are alleged in a complaint and whose authenticity no party questions, but which are not

physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.” 

Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other grounds by Galbraith

v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

III. DISCUSSION

Generally, to plead a claim for breach of contract, defendant must allege: (1) the existence of

a contract; (2) performance by defendant (or excuse for nonperformance); (3) breach by the plaintiff;

and (4) damage to defendant. See generally Regan Roofing Co., Inc. v. Super. Ct., 24 Cal.

App.4th 425, 434-35, 29 Cal. Rptr.2d 413, 418 (1994). The only issue to be decided on the instant

motion is whether or not defendant has sufficiently pled facts demonstrating plaintiff’s alleged breach of

the Agreement.

Plaintiff argues that the counterclaim must be dismissed because (1) defendant is an

independent (and not exclusive) sales representative; (2) the only logical interpretation of the

Agreement is that defendant is not entitled to commissions on sales which it did not work to secure; (3)

there is no dispute that commissions are conditioned upon and limited to sales “for warehouse ship”;

and (4) the counterclaim does not specifically allege that the $2.7 million at issue qualify as sales for

“warehouse ship.” In its reply brief, it also disputes that the California IWSRA applies such that the

Agreement can be construed as conferring “exclusive” rights upon defendant.

Defendant counters that (1) the Agreement must be construed as “exclusive” under the

IWSRA; (2) nothing in the Agreement conditions the payment of sales commissions on status as an

“exclusive” agent in any event; and (3) the counterclaim sufficiently alleges that the $2.7 million in sales

qualify for the payment of a sales commission under the Agreement.
United States District Court

For the Northern District of California

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There apparently is no dispute as to what the Agreement says – specifically, there is no

disagreement that under the Agreement, (1) defendant was an “independent sales representative”; and

(2) commissions were to “be 5% of invoiced orders for warehouse ship.” (Counterclaim, ¶ 3;

Complaint, Ex. A). Rather, the parties appear to dispute only the import and effect of the language in

the Agreement, and plaintiff essentially requests dismissal on the ground that defendant’s interpretation

of the contract is wrong. The court declines to dismiss the counterclaim on that basis. Based upon its

review of the pleadings and the Agreement, this court cannot conclude that defendant will be unable to

prove that its interpretation of the Agreement is correct. See, e.g., Falkowski v. Imation Corp., 309

F.3d 1123, 1131-32 (9th Cir. 2002) (concluding that issues of contract interpretation cannot be

decided on a Fed.R.Civ.P. 12(b)(6) motion); Consul Limited v. Solide Enterprises, Inc., 802 F.2d

1143, 1149 (9th Cir. 1986) (concluding that dismissal of claims was inappropriate where conflicting

language between the agreements in question raised questions as to the parties’ intent). Moreover,

issues as to whether the alleged $2.7 million in sales actually qualifies as “orders for warehouse ship”

under the Agreement or whether the IWSRA applies to confer “exclusive” rights (and trebled

damages) involves a determination of the proper interpretation of the contract, as well as the resolution

of factual issues which are not properly before the court on the instant motion.

Furthermore, assuming the truth of the allegations of the counterclaim (as is required on a Fed.

R. Civ. P. 12(b)(6) motion to dismiss), the court concludes that these allegations, if proven, are

sufficient to state a claim for breach of the Agreement, and to put plaintiff on notice of the conduct

which constitutes the alleged breach. Here, defendant’s counterclaim alleges that:

• Under the Agreement, defendant was to “act as an independent sales representative

for [plaintiff’s] products for Target excluding Mervyn’s” (Counterclaim, ¶ 3);

• The Agreement provides “in part, that commissions will be 5% of invoiced orders for

warehouse ship” (Id., ¶ 3);

• “During the term of the contract, [defendant] is informed and believes that [plaintiff]

sold approximately [$2,700,000] of product to Target without notifying [defendant] of

the transactions” (Id., ¶ 5);
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For the Northern District of California

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28 2 The court has not considered evidence outside the pleadings submitted by plaintiff

with its reply brief in ruling on the instant motion.

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• Defendant “was not and has not been paid commissions for the approximately

$2,700,000 of product sold to Target” (Id., ¶ 6);

• “Failure to pay 5% commission on said product is a material breach of the obligations

of [plaintiff], as provided by the written contract” (Id., ¶ 6);

• Defendant “performed all terms, convenants and conditions required of it under said

written contract” (Id., ¶ 7); and

• “As a proximate result of the failure to pay commissions as required under said written

contract, [defendant] has been damaged in the sum of approximately $135,000.” (Id.,

¶ 8).

It remains to be seen whether defendant will prevail on the merits. However, based upon the record

presented,2 the court cannot conclude that defendant will be unable to prove any set of facts which

would entitle it to relief.

IV. ORDER

Based on the foregoing, IT IS ORDERED THAT plaintiff’s motion to dismiss is DENIED.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE
United States District Court

For the Northern District of California

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5:05-cv-1102 Notice will be electronically mailed to: 

Mark B. Fredkin mfredkin@mffmlaw.com,

mramos@mffmlaw.com;siamas@mffmlaw.com;gdent@mffmlaw.com;jlira@mffmlaw.com 

Robert W. Payne rpayne@lgpatlaw.com, mcrepeau@lgpatlaw.com 

William Siamas wsiamas@mffmlaw.com

Counsel are responsible for distributing copies of this document to co-counsel who have not registered

for e-filing under the court’s CM/ECF program.