Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-01563/USCOURTS-azd-2_09-cv-01563-0/pdf.json

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

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

M & M DISTRIBUTING, INC., 

 

Plaintiff, 

vs.

THRIFTY PAYLESS, INC.,

Defendant. 

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CV-09-01563-PHX-MHM

ORDER

Currently before the Court is Defendant’s Motion to Dismiss pursuant to Rule 12(b)(6)

of the Federal Rules of Civil Procedure. (Dkt. # 4.)

Plaintiff filed its Complaint in Maricopa County Superior Court on July 8, 2009. (Dkt.

# 1.) On July 29, 2009, Defendant filed a Notice of Removal based on diversity of citizenship

(Dkt. # 1), and simultaneously filed a Motion to Dismiss (Dkt. # 4) and a Counterclaim (Dkt.

# 5). On August 11, 2009, Plaintiff filed a timely response to Defendant’s motion to dismiss.

(Dkt. # 10.) On August 17, 2009, Plaintiff filed a response to Defendant’s Counterclaim.

(Dkt. # 16.) After reviewing the pleadings, and finding oral argument to be unnecessary, the

Court issues the following Order.

I. BACKGROUND

Plaintiff, M & M Distributing, Inc., is an Arizona corporation engaged in the

distribution of ice cream products in the State of Arizona. (Dkt. # 1.) Defendant, Thrifty

Payless, Inc., is a California corporation engaged in manufacturing ice cream products under

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the name Thrifty Ice Cream. Defendant sells its ice cream products through distributors in

various states. (Dkt. # 4.)

On September 25, 1996, the parties entered into an Ice Cream Product Sales

Agreement (“Contract”). (Dkt. # 4-4.) Under the terms of the Contract, Defendant agreed to

sell Plaintiff ice cream products for distribution in the State of Arizona. (Dkt. # 4.) Almost

twelve years after its execution, Defendant terminated the Contract by giving written notice

to Plaintiff, in accordance with the terms of the Contract, on July 28, 2009. (Dkt. # 10.) 

Plaintiff contends that Defendant breached the Contract in November 2007, when

Defendant began allowing others to distribute Thrifty Ice Cream in the State of Arizona.

(Dkt. # 1.) Plaintiff estimates that as a result of Defendant’s breach, it has lost revenue of

approximately $500,000. (Dkt. # 1.)

Defendant argues that the Contract provided Plaintiff with the right to use the Thrifty

Ice Cream trademark, but did not provide exclusive rights to sell Thrifty Ice Cream products

in the State of Arizona. (Dkt. # 4.) Defendant argues that because the Contract did not limit

it from doing business with other distributors, it has not breached the Contract. (Dkt. # 4.)

The Contract provides, and both parties agree, that California law governs this dispute.

(Dkt. # 4-4.)

II. STANDARD OF REVIEW

To survive a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6),

the plaintiff must allege facts sufficient "to raise a right to relief above the speculative level."

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The "complaint must contain

sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its

face.’" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570).

Compare Wyler Summit Partnership v. Turner Broad. Sys. Inc., 135 F.3d 658, 661 (9th Cir.

1998) ("[A]ll well-pleaded allegations of material fact are taken as true and construed in a

light most favorable to the nonmoving party.") with Sprewell v. Golden State Warriors, 266

F.3d 979, 988 (9th Cir. 2001) ("[T]he court [is not] required to accept as true allegations that

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are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.").

Importantly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere

conclusory statements, do not suffice." Iqbal, 129 S.Ct. at 1949; see also Twombly, 550 U.S.

at 555 ("[A] formulaic recitation of the elements of a cause of action will not do.").

However, "dismissal for failure to state a claim is appropriate only where it appears,

beyond doubt, that the plaintiff can prove no set of facts that would entitle it to relief."

Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). In evaluating a motion to dismiss, a

district court need not limit itself to the allegations in the complaint; but may take into account

any "facts that are [] alleged on the face of the complaint [and] contained in documents

attached to the complaint." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

III. DISCUSSION

Defendant argues that dismissal is proper because (1) the clear and unambiguous

language of the Contract does not provide Plaintiff with exclusive distribution rights, and (2)

Plaintiff’s claim is time-barred by California’s statute of limitations. For the following

reasons, the Court disagrees.

A. The Contract

In order to prevail on a breach of contract claim under California law, a plaintiff must

prove (1) the existence of the contract, (2) plaintiff’s performance or excuse for

nonperformance, (3) defendant’s breach, and (4) damages to plaintiff as a result of the breach.

CDF Firefighters v. Maldonado, 70 Cal. Rptr. 3d 667, 679 (Cal. Ct. App. 2008). Defendant

argues that it has not breached the Contract because the terms of the Contract do not provide

exclusive distribution rights.

“A motion to dismiss cannot be granted against a complaint to enforce an ambiguous

contract.” Westlands Water Dist. v. U.S. Dep’t of Interior, Bureau of Reclamation, 850 F.

Supp. 1388, 1408 (C.D. Cal. 1994) (citing Consul Ltd. v. Solide Enters., Inc., 802 F.2d 1143,

1149 (9th Cir. 1986)). “A contract provision will be considered ambiguous when it is capable

of two or more reasonable interpretations.” Monaco v. Bear Stearns Residential Mortgage

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Corp., 544 F. Supp. 2d 1034, 1040 (C.D. Cal. 2008). “Where the language ‘leaves doubt as

to the parties’ intent,’ the motion must be denied.” Monaco, 544 F. Supp. 2d 1040 (quoting

Consul, 802 F.2d at 1149.)

Defendant argues that Sections 1.1 and 5.3 of the Contract support its interpretation

that no exclusive distribution rights existed. Defendant also argues that any extrinsic evidence

Plaintiff may offer to suggest the contrary is barred by the parol evidence rule.

(i) Section 1.1

The Court does not agree that Section 1.1 of the Contract clearly and unambiguously

provides that no exclusive distribution rights existed. The relevant portion of Section 1.1

states that “Purchaser is a distributor of dairy products in the Territory as defined in Paragraph

2.6 and wishes to establish a business relationship with a manufacturer of a quality ice cream

product.” (Dkt. # 4-4.) Defendant argues that the language is contrary to exclusive

distribution rights because Plaintiff is described as being “a distributor,” rather than the “sole

distributor.” (Dkt. # 4.) However, the Court finds that this section may also be interpreted

as merely describing the nature of Plaintiff’s business prior to entering into the Contract.

Moreover, Plaintiff could not have been the “sole distributor” if in fact Plaintiff still “wishe[d]

to establish” its business relationship with Defendant. Therefore, the Court finds that while

Section 1.1 of the Contract does not provide exclusive distribution rights, it also does not

clearly and unambiguously provide that no exclusive distribution rights existed.

(ii) Section 5.3

The Court also does not agree that Section 5.3 of the Contract clearly and

unambiguously provides that no exclusive distribution rights existed.

Section 5.3 provides as follows:

5.3 It is understood that if Thrifty establishes retail stores or facilities in the

Territory during the term of this Agreement, said stores or facilities will be

proprietary parts of the same corporate family as the Thrifty ice cream plant

and, therefore, will operate under ice cream product sales and price

arrangements separate and apart from and without regard to this Agreement.

(Dkt. # 4-4.)

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Defendant argues that Section 5.3 “establishes [Defendant’s] right to enter into any

other agreements for the sale of [Defendant’s] ice cream products to other business[es] in the

State of Arizona.” (Dkt. # 4.) However, the Court finds that this section may also be

interpreted as reserving Defendant’s right to establish its own retail stores or facilities, without

having to purchase ice cream products from Plaintiff. The Court’s alternative interpretation

is markedly different from providing Defendant with the right to establish other

distributorships.

Moreover, “[a]n interpretation which renders part of the instrument to be surplusage

should be avoided.” Nat’l City Police Officers' Ass'n v. City of Nat’l City, 105 Cal. Rptr. 2d

237, 239. If Plaintiff did not have exclusive distribution rights, Section 5.3 would be

surplusage because it would reserve a right that Plaintiff had no power to interfere with.

Therefore, Section 5.3 of the Contract does not clearly and unambiguously provide that no

exclusive distribution rights existed. Instead, the section implies that Plaintiff may have had

exclusive distribution rights because, to find otherwise, would require that the section be

surplusage.

(iii) Extrinsic Evidence

Under California law, sales agreements are governed by the California Commercial

Code. CAL. COM. CODE § 2102 (West 2009). The Commercial Code’s parol evidence rule

provides that a contract “may be explained or supplemented (a) [b]y course of dealing, course

of performance, or usage of trade; and (b)[b]y evidence of consistent additional terms unless

the court finds the writing to have been intended also as a complete and exclusive statement

of the terms of the agreement.” CAL. COM. CODE § 2202.

Plaintiff alleges in its Complaint that on August 23, 2001, Ron Simmer, the plant

manager for Thrifty Ice Cream, “issued a letter reaffirming and confirming that M & M

Distributing is the sole exclusive distributor of Thrifty labeled ice cream products for the State

of Arizona.” (Dkt. # 1.) Defendant contends that this letter is barred by the parol evidence

rule. (Dkt. # 4.)

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The Court finds that California’s Commercial Code applies to the Contract, because

it is a sales agreement (“Ice Cream Product Sales Agreement”). Next, the Court must

determine whether the Contract was intended as a “complete and exclusive statement of the

terms of the agreement.” Section 7 of the Contract provides as follows: “This Agreement

represents all the understandings, representations and conditions between the parties and no

prior or contemporaneous statements, written or oral, serve to modify it. Any and all changes

to be made to this Agreement will be in a writing signed by both the parties.” (Dkt. # 4-4).

Accordingly, the Court finds that any evidence of consistent additional terms is barred

because Section 7 of the Contract acts as an integration clause. See Spurgeon v. Buchter, 13

Cal. Rptr. 354, 357 (Cal. Dist. Ct. App. 1961) (“If the writing...contains such language as

imports a complete legal obligation-it is to be presumed that the parties have introduced into

it every material item and term.”).

While this Court finds that the parol evidence rule prevents Plaintiff from explaining

or supplementing the Contract, Plaintiff may offer evidence of a modification. Section 2209

of the California Commercial Code permits modifications without consideration. CAL. COM.

CODE § 2209. Section 7 of the Contract requires modifications be in writing and signed by

both parties. (Dkt. # 4.) In construing Mr. Simmer’s letter in a light most favorable to the

nonmoving party, as the Court must do when evaluating a motion to dismiss, the Court finds

that such evidence may satisfy the requirements of a modification. Alternatively, if the letter

does not satisfy the requirements of a modification, it may operate as a waiver. CAL. COM.

CODE § 2209(4).

Accordingly, the Court finds that while the parol evidence rule prohibits Plaintiff from

offering evidence of consistent additional terms, Plaintiff may offer evidence of a

modification or waiver.

D. Statute of Limitations

Defendant argues that this Court should grant its Motion to Dismiss because

California’s statute of limitations bars Plaintiff’s claim. Under California law, the statute of

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limitations for breach of contract is four years. CAL. CIV. PROC. CODE § 337 (West 2009).

Defendant argues that Plaintiff “admits for the first time in its response that the Complaint is

time-barred.” (Dkt. # 17.) However, Michael McDaniel, as Vice President of M & M

Distributing, Inc., stated that he “learned that other business entities were selling or attempting

to sell Thrifty ice cream products in the State of Arizona” and that he was assured Defendant

would “take care of it.” (Dkt. # 11.) Plaintiff did not state that the breach was ongoing or

uncorrected since 2001. Instead, Plaintiff stated in its Complaint that performance under the

Contract “was satisfactory until approximately November 2007.” (Dkt. # 1.) Plaintiff filed

its Complaint on July 8, 2009 (Dkt. # 1), and therefore, is within the four-year statute of

limitations.

Accordingly, the Court does not agree that Plaintiff’s claim is barred by the statute of

limitations.

IV. CONCLUSION

The Court finds that it would be inappropriate to grant Defendant’s Motion to Dismiss

because the language of the Contract does not clearly and unambiguously support Defendant’s

argument that no exclusive distribution rights existed between the Parties. Moreover,

Plaintiff’s extrinsic evidence may be admissible as a modification or waiver, and Plaintiff’s

claim is not barred by the statute of limitations.

Accordingly,

IT IS HEREBY ORDERED denying Defendant’s Motion to Dismiss to Dismiss

Pursuant to F.R.C.P. 12(b). (Dkt. # 4.)

DATED this 15th day of January, 2010.

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