Court Opinion

ID: 6330936
Source: CourtListenerOpinion
Date Created: 2022-04-13 17:00:33.264011+00
Date Added: 2024-06-11T09:23:06.916865
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                               ________________

                                      No. 21-1381
                                   ________________

                                   THE LEVY GROUP, INC.,
                                                      Appellant
                                          v.

                       LAND, AIR, SEA AND RAIL LOGISTICS, LLC
                                ________________

                     On Appeal from the United States District Court
                                for the District New Jersey
                                (D.C. No. 3-20-cv-03839)
                      District Judge: Honorable Michael A. Shipp
                                    ________________

                         Submitted Pursuant to L.A.R. 34.1(a) on
                                    February 7, 2022

          Before: GREENAWAY, JR., SCIRICA, and COWEN, Circuit Judges

                              (Opinion filed: April 13, 2022)
                                   ________________

                                       OPINION*
                                   ________________

GREENAWAY, JR., Circuit Judge

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
 I.    Introduction

       Appellant challenges the District Court’s determination that it failed to state a

claim based on a lack of alleged economic duress. We agree with Appellant that the

Complaint alleged sufficient facts from which an inference could be drawn that the

memorandum of understanding at issue was executed under economic duress. We will

reverse the District Court’s ruling and remand for further proceedings in accordance with

this opinion.

II.    Factual and Procedural History

          a. The Levy Group, Inc. (“TLG”) Complaint alleges the following facts:

       TLG is a family-owned garment manufacturing business. The corporation

manufactures and wholesales coats, dresses, sportswear, and outerwear. Coats are 75

percent of its business. TLG’s manufacturing cycle lasts nearly a year and a half, from

August of one year to December of the next year. In August, TLG designs its coats in

New York City then commissions samples to be manufactured abroad. Three months

later, TLG receives its samples, and between November and February of the following

year, it contracts with numerous large retail clients. Once under contract, TLG begins

overseas manufacturing in December, which continues through May of the next year.

       Between May and September, TLG receives its coats from overseas. These coats

must then be stored in warehouses during the spring and summer pending shipment to

clients in the fall. Generally, TLG’s storage costs include fixed prices for each coat

received “in” and shipped “out” as well as ancillary fees. Its storage agreements require

                                              2
the warehouses to: (1) receive and hang the coats; and to (2) pick, pack, and ship the

coats upon notice. Under the terms of TLG’s retail contracts, if TLG fails to timely

deliver the coats, it may be subject to late penalties, cancellations, or forced discounts.

October through November is TLG’s busiest shipping period.

       TLG uses New Jersey warehouses to store its coats pending delivery to clients in

the New York City metropolitan area. In 2018, Apex Apparel Services Company, Inc.

(“Apex”), which TLG used for storage, had a maximum capacity of 350,000 coats on

hangers with an annual throughput of 700,000 to 800,000.1 In September of 2018, TLG

learned that Apex would be unable to provide storage. Defendant Land, Air, Sea, and

Rail Logistics, LLC (“LASR”) expressed an interest in replacing Apex; thus,

representatives from LASR and TLG met to discuss the terms of an agreement.

       At the meeting, TLG explained to LASR the terms of the Apex contract. These

terms included coats being received and stored on hangers with a railing system; TLG

notifying the warehouse when to pick, pack, and ship coats; that there was a maximum

storage need of 375,000 coats “at any given time” with an annual throughput of 700,000-

800,000 coats; the number of employees needed to complete the work; the payroll for

these employees; and current storage costs that TLG was paying. LASR was also

advised of the penalties that TLG would incur if TLG’s retail clients did not receive their

1
 The Complaint defines “throughput” as “the number of coats on hangers that [a
warehouse] had stored throughout each of the prior seasons it warehouses coats for
plaintiff.” App. II, 20.
                                              3
coats on time. In October 2018, LASR presented TLG with a rate quote, which TLG

signed that December.

       Pursuant to the agreement, the estimated annual throughput was 700,000 coats.

TLG would pay $.70 per coat received “in” and $.60 per coat shipped “out.” In

exchange, LASR was to provide storage for approximately 375,000 coats on hangers.

The intended in/out revenue for LASR was $910,000, and over a two-year term

beginning in April 2019, the period of storage would last from April through November

of each year.

       Two months into the contract—June 2019—LASR contacted TLG to complain

that it did not have space to house the contracted amount of coats. Three months later,

LASR demanded that TLG remove its coats by November, pay an “out” fee per coat, and

provide $32,000 in storage fees. As an alternative, LASR proposed that TLG pay

$675,000. LASR also initiated an action in state court suing TLG for purported contract

breaches.

       In October, LASR demanded that TLG pay the total allegedly due ($120,029.45)

and agree to other terms not a part of the initial contract. It also informed TLG that it had

stopped shipping TLG’s coats and conditioned resumption of shipping on TLG agreeing

to increase the “out” fees from $.60 per coat to $2.10 per coat; paying a monthly storage

fee of $40,000; reimbursing LASR for overtime pay; and limiting the daily maximum

output of coats. LASR then upped the demand to add a payment of $66,397.60, which

included a storage fee and other costs not covered in the initial contract.

                                              4
       When TLG did not comply, LASR ordered that TLG remove its entire inventory

from LASR’s warehouse within three days. LASR, once again, advised that it would

only resume shipping TLG’s coats if TLG executed another agreement. This time, the

agreement was to pay an additional $127,872.80 not a part of the initial contract; limit the

number of coats shipped and the hours between which the orders could be fulfilled; and

“release all claims it had against [LASR] for its breach of the [initial contract].” Id.

       To “preserve its reputation” and “meet its contractual obligations” to retail clients,

TLG agreed to these terms. Id. The agreement was incorporated into a Memorandum of

Understanding (“MOU”) and signed by the parties in October 2019.

          b. Procedural History:

       Six months later, in April 2020, TLG sued LASR in federal court. TLG alleged

breach of contract and breach of the implied covenant of good faith and fair dealing.

LASR moved to dismiss the lawsuit on the grounds that the MOU, releasing all claims

against LASR, was an enforceable settlement agreement. The District Court agreed, and

it granted LASR’s motion to dismiss the suit and enforce the MOU. The District Court

summarily concluded that TLG had not “plead[ed] any facts that would allow [it] to

invalidate the [MOU] based on . . . duress . . . .” App. I, 12 (first, second, and third

alterations in original) (citation and internal quotation marks omitted).

       We disagree with the District Court and will now reverse its ruling.

                                              5
III.   Discussion 2

       Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss a suit if the

plaintiff fails to state a claim for which relief can be granted. In deciding motions to

dismiss, a court must take “all well-pleaded allegations” as true, interpret the allegations

“in the light most favorable to the plaintiffs,” and draw “all inferences” in favor of the

plaintiffs. St. Luke’s Health Network, Inc. v. Lancaster Gen. Hosp., 967 F.3d 295, 299

(3d Cir. 2020) (internal quotation marks omitted) (quoting McTernan v. City of York, 577

F.3d 521, 526 (3d Cir. 2009)). To overcome a motion to dismiss, “a complaint must

contain sufficient factual matter, accepted as true, to state a claim to relief that is

plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation

marks omitted) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A

claim is facially plausible if the allegations “allow[] the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing

Twombly, 550 U.S. at 556).

       New Jersey law defines economic duress as: (1) being induced by wrongful or

improper pressure, and (2) “having little choice but to accede.” Cont’l Bank of Penn. v.

Barclay Riding Acad., Inc., 459 A.2d 1163, 1175 (N.J. 1983) (citations and internal

quotation marks omitted). Further, the “acts or threats” need not be “criminal or tortious

       2
        The District Court had jurisdiction over the proceedings under 28 U.S.C. § 1332.
We have jurisdiction under 28 U.S.C. § 1291. We review de novo a district court’s grant
of a motion to dismiss. Talley v. Wetzel, 15 F.4th 275, 286 n.7 (3d Cir. 2021) (citation
omitted). Likewise, we exercise plenary review over a district court’s enforcement of a
settlement agreement. Tiernan v. Devoe, 923 F.2d 1024, 1032 (3d Cir. 1991).

                                               6
acts;” in other words they are not required to be wrongful “necessarily in a legal, but

[instead] in a moral or equitable sense.” Id. (citations and internal quotation marks

omitted).

       The Supreme Court of New Jersey has stated that economic duress might arise

when “the payor has no immediate and adequate remedy in the courts . . . .” Ross Sys. v.

Linden Dari-Delite, Inc., 173 A.2d 258, 261 (N.J. 1961) (citations omitted). But, since

its decision in Ross Systems, the state’s high court has clarified that New Jersey cases

have “focused primarily on . . . (wrongful pressure) in determining whether economic

duress has been established.” Cont’l Bank of Penn., 459 A.2d at 1175. Thus, “the

‘decisive factor’ is the wrongfulness of the pressure exerted.” Id.

       The District Court claimed that TLG did not plead facts that would allow it to

invalidate the MOU based on economic duress.3 On the contrary, there are factual

allegations to this effect. Among other things, the Complaint’s allegations include that

LASR threatened to stop accepting and shipping TLG’s goods unless TLG agreed to

terms and fees not provided for in the original agreement. LASR in fact ceased shipping

TLG’s goods. The Complaint also states that LASR falsely accused TLG of being in

breach of the Warehouse Agreement before demanding compliance with terms not a part

3
  The District Court confined its analysis to three conclusive statements that appeared
near the end of the TLG Complaint. While a court must “disregard threadbare recitals of
the elements of a cause of action, legal conclusions, and conclusory statements,” it must
nonetheless still consider all “well-pleaded factual allegations” and “assume their
veracity.” Oakwood Lab’ys, LLC v. Thanoo, 999 F.3d 892, 904 (3d Cir. 2021) (citations
and internal quotation marks omitted).

                                             7
of the initial contract. These allegedly wrongful demands came during TLG’s peak

shipping season for its million-dollar contracts.4 Besides the unilateral imposition of

these additional terms, there is no question that TLG alleged inadequate consideration, a

cornerstone of economic duress. Quigley v. KPMG Peat Marwick, LLP, 749 A.2d 405,

412 (N.J. Super. Ct. App. Div. 2000) (“[D]uress entails inadequate consideration.”)

(citing Cont’l Bank of Penn., 459 A.2d at 1163).

       LASR argues that TLG could have exercised “a myriad of options” during the

prior state-court proceedings. Appellee’s Br. at 11. For instance, TLG could have sought

a temporary restraining order. Id. Even though duress might arise where there is no

“adequate remedy in the courts,” Ross Sys., 173 A.2d at 261, the existence of a legal

remedy is not the “decisive factor,” Cont’l Bank of Penn., 459 A.2d at 1175 (internal

quotation marks omitted). Here, the Complaint alleges that LASR wrongfully ceased to

perform its existing contractual obligations and unlawfully demanded new terms to their

relationship. These allegations of wrongful conduct are the “decisive factor.” Cont’l

Bank of Penn., 459 A.2d at 1175 (internal quotation marks omitted).

       LASR’s brief in opposition to this appeal also suggests that TLG was not subject

to economic duress because TLG was, “at all relevant times,” represented by competent

counsel. Appellee’s Br. 1, 8, 10, 11. At this stage of the litigation, this argument is

4
  TLG also alleged consequential damages including penalties and other charges it was
required to pay to its retail clients. These alleged damages included $127,872.80 of
charges above the initially-agreed-to amount; $19,250 to ship TLG’s coats to a
replacement warehouse; $284,683.30 to store the coats at the replacement warehouse;
and $293,060.70 in late fees, penalties, and other charges from retail clients.
                                              8
unpersuasive for at least two reasons. First, on a 12(b)(6) motion, a district court must

interpret the complaint’s allegations “in the light most favorable to the plaintiffs” and

draw “all inferences . . . in favor of them.” St. Luke’s Health Network, Inc., 967 F.3d at

299 (emphasis added) (citation and internal quotation marks omitted). Here, TLG alleged

that LASR wrongfully reneged on the terms of the initial contract, stopped work at the

peak of TLG’s shipping season without lawful reason to do so, and conditioned

resumption on compliance with terms not a part of the initial warehouse contract.

Coupled with the stringent terms of its third-party retail contracts, the inference that can

be drawn in the light most favorable to TLG is that TLG was compelled to agree to the

MOU with LASR or face stiff, and perhaps even disastrous, consequences to its business.

       Second, that TLG was represented by counsel also does not change our

conclusion, because under New Jersey law the presence of counsel is not dispositive in

proving economic duress claims. S. P. Dunham & Co. v. Kudra, 131 A.2d 306, 311 (N.J.

Super. App. Div. 1957) (citation omitted) (explaining that “an opportunity to deliberate

and consult” with counsel “should be taken into account in determining whether in fact

the plaintiff made the payment voluntarily . . . [but] do[es] not of [itself] preclude relief”).

Thus, economic duress could have occurred regardless of TLG having been represented

by counsel. 5

5
 LASR cites to our ruling in Harsco Corp. v. Zlotnicki, 779 F.2d 906, 911–12 (3d Cir.
1985) for the proposition that the presence of counsel “can vitiate an economic duress
claim.” Appellee’s Br. at 10. In Harsco Corp., we reviewed a claim of economic duress
arising under Pennsylvania law, not New Jersey law. 779 F.2d at 909–10. Further, as the
word “vitiate” suggests, the presence of counsel may be relevant to analyzing whether
economic duress occurred, but it is not necessarily dispositive.
                                               9
          As a final matter, we must note that the District Court’s reliance on unpublished

cases such as Nayak v. McNees Wallace & Nurick LLC, 700 F. App’x 172 (3d Cir. 2017)

and Oliver v. Wincor Nixdorf Corp., No. 15-2921, 2018 WL 515855 (D.N.J. Jan. 23,

2018) is misplaced. First, in Nayak, we applied Pennsylvania law, not New Jersey law.

Second, in Oliver, the court disposed of the case at the summary judgment phase,

whereas here the district court was presented with a motion to dismiss.6

    IV.         Conclusion

          As required by New Jersey law, the factual allegations in the TLG complaint

sufficiently allege that TLG’s “financial difficulty” “was contributed to or caused by”

LASR’s allegedly wrongful actions. Cont’l Bank of Penn., 459 A.2d at 1175 (citation

and internal quotation marks omitted). Given our standard on a motion to dismiss, that

standard is certainly met here. St. Luke’s Health Network, Inc., 967 F.3d at 299 (3d Cir.

2020) (citation omitted). For the foregoing reasons, we will reverse the District Court’s

ruling and remand for further proceedings in accordance with this opinion.

6
 Yet, even at the summary judgment stage, New Jersey case law directs that its courts
“should be particularly hesitant in granting summary judgment where questions dealing
with subjective elements such as intent, motivation and duress are involved.” Shanley &
Fisher, P.C. v. Sisselman, 521 A.2d 872, 878 (N.J. Super. Ct. App. Div. 1987) (emphasis
added). Hence, given the procedural posture of a motion to dismiss, we should be more
circumspect in considering a dispositive resolution.

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