Court Opinion

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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

9-10-2007

Chemtech Intl Inc v. Chem Injection Tech
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-3345

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                                                             NOT PRECEDENTIAL

                   UNITED STATES COURT OF APPEALS
                        FOR THE THIRD CIRCUIT

                                  No. 06-3345

                    CHEMTECH INTERNATIONAL, INC.,
                                   Appellant,

                                       v.

               CHEMICAL INJECTION TECHNOLOGIES, INC.

                  Appeal from the United States District Court
                     for the Eastern District of Pennsylvania
                            D.C. Civ. No. 05-cv-00140
                 District Judge: The Honorable Robert F. Kelly

                   Submitted Under Third Circuit LAR 34.1(a)
                                May 24, 2007

         Before: BARRY, CHAGARES, and TASHIMA,* Circuit Judges.

                      (Opinion Filed: September 10, 2007 )

*
    Honorable A. Wallace Tashima, Senior Circuit Judge, United States Court of
    Appeals for the Ninth Circuit, sitting by designation.
                                OPINION OF THE COURT

TASHIMA, Circuit Judge:

          Appellant Chemtech International, Inc. (“Chemtech”) sued Chemical Injection

Technologies, Inc. (“CIT”) for breach of contract. Under a contract dated November 18,

1996, Chemtech acted as the exclusive Southeast Asia distributor of CIT’s gas

chlorination equipment. CIT informed Chemtech on March 26, 2002, that Chemtech

would no longer hold its status as an exclusive distributor. Chemtech learned on about

April 16, 2003, that CIT had been dealing directly with Chemtech’s subdistributors and

customers of CIT’s gas chlorination equipment since March 26, 2002. Finally, on about

July 1, 2004, CIT revoked Chemtech’s distributor status as to certain products and

revoked Chemtech’s distributor status altogether shortly thereafter. Chemtech contends

that each of these actions constituted breach of contract. CIT successfully moved for

dismissal of Chemtech’s amended complaint pursuant to Fed. R. Civ. P. 12(b)(6), and

Chemtech timely appealed. We have jurisdiction under 28 U.S.C. § 1291, and we now

affirm.

I.        Factual and Procedural Background

          The November 1996 agreement (“Agreement”), by its terms, expired after one

year, but it contained a renewal provision: “This agreement will be renewed at the end of

the initial period providing that all terms and conditions have been met as stated in this

agreement, and further providing that both parties are in accord as to projected unit sales

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goals.” (App. at 36.) The first year sales goal was stated as 100 units. (Id.)

       Chemtech’s original complaint alleged only that CIT took action “in breach of the

agreement,” and the district court dismissed the complaint with prejudice for failure to

state a claim. On appeal, we affirmed the district court’s dismissal, but vacated the

judgment to allow Chemtech to amend its complaint. Chemtech Int’l, Inc. v. Chem.

Injection Techs., Inc., 170 F. App’x 805 (3d Cir. 2006). The amended complaint added

the following allegations:

       After November 18, 1997, Plaintiff and Defendant conducted themselves as
       if “all terms and conditions [had] been met” and as if they had explicitly
       agreed “as to projected unit sales goals”.

       After November 18, 1997, Plaintiff and Defendant conducted themselves as
       if the Agreement renewed itself and continued in full force and effect for
       successive one year terms.

(App. at 30.) The amended complaint also alleged that neither Chemtech nor CIT

notified the other party of an intent to terminate the Agreement, and that even after receipt

of the March 26, 2002, letter, Chemtech continued to believe that the 1996 contract

operated to grant exclusive distributor status with respect to “other of Defendant’s

products.” (Id. at 31.) The parties agree that the Agreement is governed by Pennsylvania

law.

II.    Standard of Review

       We exercise plenary review over the district court’s dismissal of a complaint under

Rule 12(b)(6). Vallies v. Sky Bank, 432 F.3d 493, 494 (3d Cir. 2006). A Rule 12(b)(6)

motion will be granted “‘if it appears to a certainty that no relief could be granted under

                                              3
any set of facts which could be proved.’” Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir.

2005) (quoting D.P. Enters. Inc. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir.

1984)). We accept all factual allegations in Chemtech’s complaint as true and examine

“whether, under any reasonable reading of the complaint, the plaintiff may be entitled to

relief.” Del. Nation v. Pennsylvania, 446 F.3d 410, 415 (3d Cir. 2006). However, we are

not required to credit bald assertions or legal conclusions improperly alleged in the

complaint, and legal conclusions draped in the guise of factual allegations may not benefit

from the presumption of truthfulness. In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311

F.3d 198, 216 (3d Cir. 2002); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,

1426 (3d Cir. 1997); see also Angstadt v. Midd-West Sch. Dist., 377 F.3d 338, 342 (3d

Cir. 2004).

III.   Analysis

       The issue on appeal is whether the additional allegations pleaded in Chemtech’s

amended complaint sufficiently allege breach of contract. We conclude that they do not.

       To state a claim for breach of contract under Pennsylvania law, a plaintiff must

allege “‘(1) the existence of a contract, including its essential terms, (2) a breach of a duty

imposed by the contract[,] and (3) resultant damages.’” Ware v. Rodale Press, Inc., 322

F.3d 218, 225 (3d Cir. 2003) (quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053,

1058 (Pa. Super. Ct. 1999)). Thus, in order to proceed with its claim that CIT breached

its contractual duties, Chemtech must first allege that a contract in fact existed. This it

has failed to do.

                                               4
       Chemtech contends that the one-year Agreement, which expired in November

1997, continued to govern the parties’ business relationship five years later. The

Agreement itself, however, provided that its terms would not be automatically extended.

Rather, renewal expressly depended upon two conditions:

       (1) all terms and conditions have been met as stated in the Agreement; and

       (2) both parties are in accord as to projected unit sales goals.

CIT thus had no contractual duty to Chemtech unless these two prerequisites were

satisfied. Restatement (Second) of Contracts § 225 (1981) (“Performance of a duty

subject to a condition cannot become due unless the condition occurs or its non-

occurrence is excused”); see, e.g., Suburban Transfer Serv., Inc. v. Beech Holdings, Inc.,

716 F.2d 220, 225 (3d Cir. 1983) (defendant had no obligations under contract because

condition precedent was not satisfied).

       Chemtech’s amended complaint fails to allege satisfaction of either of the

conditions precedent to renewal in 1997 or at any subsequent time. Instead, the amended

complaint states: “After November 18, 1997, Plaintiff and Defendant conducted

themselves as if “all terms and conditions [had] been met” and as if they had explicitly

agreed “as to project unit sales goals.” (App. at 30.) Thus, what Chemtech contends is

that the parties acted as if the conditions precedent to renewal were fulfilled, which is not

the same thing as claiming that the conditions were actually satisfied. A complaint that

alleges a breach of contract without averring compliance with conditions precedent does

                                              5
not state a valid breach of contract claim.1 Cf. InfoComp, Inc. v. Electra Prods., Inc., 109

F.3d 902, 905-07 (3d Cir. 1997) (written agreement was unenforceable under

Pennsylvania law because a condition precedent to agreement’s formation was not

satisfied); Franklin Interiors v. Wall of Fame Mgmt. Co., 511 A.2d 761, 762 (Pa. 1986)

(same); Jennison v. Aacher, 193 A.2d 769, 772 (Pa. Super. Ct. 1963) (if plaintiff holds

burden to prove that condition of formation has been performed, then plaintiff must aver

performance of condition in order to show satisfaction of contract). Moreover, aside from

this legal conclusion couched as a factual allegation, Chemtech alleges no subsequent

conduct that could be construed as an indication that the parties intended to waive these

conditions of renewal. Therefore, the district court’s dismissal of Chemtech’s amended

complaint was proper.2

   1
         Chemtech’s reliance on Fed. R. Civ. P. 9(c) is misplaced. It is true that under Rule
9, it is sufficient to aver generally that all conditions precedent have occurred. The
deficiency here, however, lies not in Chemtech’s failure to identify the conduct
establishing satisfaction of the Agreement’s renewal preconditions at the requisite level of
detail, but in the omission of any allegation that the two conditions precedent occurred at
all.
   2
        Even assuming the Agreement was renewed in 1997, the amended complaint still
fails to state a claim for breach of contract. Under Pennsylvania law, a sales contract that
does not specify a definite duration is terminable at will by either party. 13 Pa. Cons.
Stat. § 2309(b); Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267, 1277
n.20 (3d Cir. 1995). Consequently, CIT would have been free to terminate the renewed
agreement, unless the renewal occurred under circumstances demonstrating that the
parties intended a definite period. Chemtech’s amended complaint alleges only that
“After November 18, 1997, Plaintiff and Defendant conducted themselves as if the
Agreement renewed itself and continued in full force and effect for successive one year
terms.” (App. at 30.) But the complaint fails to identify any actual facts that, if proven,
would refute the presumption of an at-will relationship and support a finding that the

                                             6
      For the reasons we have discussed, we will affirm the judgment.

parties intended to renew the original Agreement for successive one-year terms through
2002, 2003, or 2004. Consequently, the allegation is merely a legal conclusion “draped in
the guise of” a factual allegation that we do not credit.

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