Court Opinion

ID: 2826274
Source: CourtListenerOpinion
Date Created: 2015-08-11 16:01:49.850862+00
Date Added: 2024-06-11T13:24:20.085054
License: Public Domain

UNITED STATES DISTRICT COURT
                    FOR THE DISTRICT OF COLUMBIA
________________________________
                                  )
3E Mobile, LLC,                   )
                                  )
                Plaintiff,        )
                                  ) Civil Action No. 14-1975-EGS
          v.                      )
                                  )
Global Cellular, Inc.,            )
                                  )
                Defendant.        )
________________________________)

                        MEMORANDUM OPINION

     3E Mobile, LLC, (“3E”) commenced this lawsuit in November

2014 based on Global Cellular, Inc.’s (“Global”) alleged breach

of the parties’ 2013 Manufacturing Agreement (“Agreement”).

Compl., ECF No. 1. In January 2015, Global asserted

counterclaims against 3E for breach of contract, breach of

implied covenant of good faith, unjust enrichment, and

attorneys’ fees. Answer and Countercl. (“Countercl.”), ECF No.

5. 3E moves to dismiss Global’s counterclaims for failure to

state a claim and to strike Global’s demand for attorneys’ fees.

Pl.’s Mot. Dismiss, ECF No. 11. Upon consideration of the

motion, the response and reply thereto, the applicable law, and

the entire record, 3E’s motion is DENIED.

                                 1
     I. Background

     3E is a manufacturer of cell phone protective cases.

Countercl. at 9-10. Global is a provider of cell phone

accessories, including protective cases. Id. In 2013, 3E and

Global settled an intellectual property lawsuit in which 3E’s

predecessor Crystal Icing, Inc. (“Crystal”) alleged that Global

infringed on several registered copyrights by marketing,

manufacturing, copying, and selling certain items, including

cellphone accessories. 1 Compl. at ¶ 7. The intellectual property

lawsuit settlement resulted in a multi-million dollar Agreement,

the terms and obligations of which give rise to the parties’

current dispute.

          A. The Agreement

     Pursuant to the Agreement, 3E agreed to manufacture certain

items at Global’s request, and Global agreed to sell those items

to designated retailers at a specified price. Agreement, See

Compl., Ex. A. The Agreement states that 3E “shall” provide the

products ordered by Global within a specified amount of time,

but that if 3E cannot provide the Product requested by Global

for “any reason,” 3E “may arrange to have the Product produced

1 Crystal commenced the intellectual property lawsuit against
Global in 2012 in the United States District Court for the
Western District of New York. Compl. at ¶ 6. In May 2013,
Crystal assigned all rights, title, and interest in the
copyright registrations at issue to 3E. Id. at ¶ 8. As a result,
3E was substituted for Crystal in that lawsuit. Id. at ¶ 10.

                                2
by one of Global’s current manufacturers.” Agreement at Section

2.C.    The Agreement anticipates Global purchasing at least $3.9

million worth of product from 3E. Id. at Section 4.A. Under the

Agreement, Global is obligated to make monthly advance payments

of $25,000 per month to 3E for thirty-six (36) months. Id. at

Sections 4.B and 4.C. The advance payments were to be applied as

credit to orders placed by Global. Id. at Section 4.D. Any

unused credit at the end of the Agreement’s term would become

“the sole and exclusive property” of 3E. Id. Section 4.F.

       During the first six months of the Agreement’s term, Global

allegedly made more than 250 manufacturing requests and paid

more than $150,000.00 in monthly advance payments. 3E did not

produce any of the products ordered by Global. Def.’s Mem. Opp.,

ECF No. 12 at 1. After Global expressed concern about 3E’s

failure to source its orders, 3E executives advised Global to

stop making the monthly payments. Id. 2 When Global stopped making

payments, 3E filed this lawsuit, alleging breach of contract.

Compl. at 2.

2  Attached to Global’s Memorandum in Opposition to 3E’s Motion
to Dismiss is an email exchange with 3E executives wherein the
executives pledge to “personally see to it that Global’s
concerns [are] addressed and resolved” and that “Global need not
make payments under the Manufacturing Agreement until 3E’s
failure to source products for Global had been resolved.” Def.’s
Mem. Opp., ECF No. 12, Ex. A.

                                  3
II. Discussion 3

     A. Standard of Review

     A motion to dismiss under Rule 12(b)(6) tests the legal

sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235,

242 (D.C. Cir. 2002). A complaint must contain “a short and

plain statement of the claim showing that the pleader is

entitled to relief, in order to give the defendant fair notice

of what the . . . claim is and the grounds upon which it rests.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal

quotation marks and citations omitted). The plaintiff need not

plead all of the elements of a prima facie case in the

complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511–14,

122 S.Ct. 992, 152 L.Ed.2d 1 (2002), nor must the plaintiff

plead facts or law that match every element of a legal theory.

Krieger v. Fadely, 211 F.3d 134, 136 (D.C.Cir.2000).

     However, despite these liberal pleading standards, to

survive a motion to dismiss, “a complaint must contain

sufficient factual matter, accepted as true, to state a claim

for relief that is plausible on its face.” Ashcroft v. Iqbal,

3 As indicated by the Agreement, the parties agree that the
United States District Court for the District of Columbia “will
have sole and exclusive jurisdiction over disputes regarding the
Manufacturing Agreement” and that “Pennsylvania law will govern
. . .” Agreement at ¶ 20.

                                4
556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)

(internal quotation marks omitted); Twombly, 550 U.S. at 562,

127 S.Ct. 1955. A claim is facially plausible when the facts

pled in the complaint allow the Court “to draw the reasonable

inference that the defendant is liable for the misconduct

alleged.” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at

556, 127 S.Ct. 1955). While this standard does not amount to a

“probability requirement,” it does require more than a “sheer

possibility that a defendant has acted unlawfully.” Id. (citing

Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

     “[W]hen ruling on a defendant's motion to dismiss, a judge

must accept as true all of the factual allegations contained in

the complaint.” Atherton v. D.C. Office of the Mayor, 567 F.3d

672, 681 (D.C.Cir.2009) (quoting Erickson v. Pardus, 551 U.S.

89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007)). The court must

also give the plaintiff “the benefit of all inferences that can

be derived from the facts alleged.” Kowal v. MCI Commc'ns Corp.,

16 F.3d 1271, 1276 (D.C.Cir.1994) (internal citations omitted).

Nevertheless, a court need not “accept inferences drawn by

plaintiff [ ] if such inferences are unsupported by the facts

set out in the complaint.” Id. Further, “[t]hreadbare recitals

of elements of a cause of action, supported by mere conclusory

statements” are not sufficient to state a claim. Iqbal, 129

S.Ct. at 1949.

                                5
     B. Global states a counterclaim for breach of contract and
        breach of implied duty of good faith and fair dealing.

     Global argues that 3E’s failure to fulfill the more than

250 orders it placed during the first six months of the

Agreement’s term constitutes a breach of both the plain language

of the contract and 3E’s implied duties of good faith and fair

dealing. Def.’s Mem. Opp. at 9-14. 3E contends that the plain

language of the Agreement provides 3E with a choice——not an

obligation——to fulfill Global’s orders. Pl.’s Mem. Supp. at 11.

     Global’s breach of contract counterclaim rests on whether

the plain language of the agreement obligates 3E to produce the

Products ordered by Global. The relevant portion of the

Agreement states:

          If Global provides Manufacturer a Product to
     manufacture, Manufacturer shall have thirty (30) days
     to create a mold and provide a sample of such Product
     for approval by Global. . . . After the date of
     approval, Manufacturer shall provide the Product to
     Global within a mass product time equivalent to that
     of Global’s then current manufactures of equivalent
     products. In the event that Manufacturer cannot
     provide the Product requested for any reason,
     Manufacturer may arrange to have the Product produced
     by one of Global’s current manufacturers.

Agreement, Section 2.C(emphasis added). 4

4 Section 2.C of the Agreement is quoted in its entirety in
Global’s Answer and Counterclaim, and the text of the full
Agreement is attached to 3E’s Complaint. See Countercl. at 10-
11; Compl., Ex. A.

                                 6
     Global argues the Agreement obligates 3E to provide the

product ordered by Global (“ . . . Manufacture shall provide the

Product . . .”) and that only under some circumstances, 3E “may”

arrange to have the product produced by another manufacturer.

Def.’s Mem. Opp. at 8. 3E maintains that because the Agreement

states that if 3E cannot produce the Product for “any reason”

and that it “may” (not “shall”) arrange for an alternative

manufacturer to fill Global’s orders, the Agreement “clearly and

unambiguously expressed their intention to create a right and

not an obligation.” Pl.’s Mem. Supp. Mot. Dismiss, ECF No. 11-2

at 11.

     “The fundamental rule in interpreting the meaning of a

contract is to ascertain and give effect to the intent of the

contracting parties.” Salem Preferred Partners, LLC. V. Diamond

Heavy Vehicle Solutions, LLC, 1:12-CV-1202, 2012 WL 5905027, at

*3 (M.D. Pa. Oct. 31, 2012) (citing Great Am. Ins. Co. v. Norwin

Sch. Dist., 544 F. 3d 229, 243 (3d Cir. 2008)). “Courts have the

responsibility to determine as a matter of law whether contract

terms are clear or ambiguous.” Haywood v. Univ. Of Pittsburgh,

976 F. Supp. 2d 606, 640 (W.D. Pa. 2013) (citing Baldwin v.

Univ. of Pgh. Med. Ctr., 636 F.3d 69, 75 (3d Cir. 2011)). “A

contract contains an ambiguity if it is reasonably susceptible

to different constructions and capable of being understood in

more than one sense.” Great Am. Ins., 544 F. 3d at 243.

                                7
“Interpretation of an ambiguous contract is for the trier of

fact; a judge may interpret a contract as a matter of law where

it is only susceptible to one reasonable interpretation.” Forum

Ins. Co. v. Allied Sec., Inc., CIV. A. 87-1186, 1987 WL 26508,

at *1 (E.D. Pa. Dec. 3, 1987) (citing Mellon Bank, N.A. of Aetna

Business Credit, Inc., 619 F.2d 1001 (3d Cir. 1980)).

     Here, the terms of the Agreement are ambiguous and subject

to more than one interpretation. The Agreement states that 3E

“shall provide the product,” but that if 3E cannot produce the

product “for any reason,” 3E “may” arrange for another

Manufacturer to fill Global’s orders. Agreement, Section 2.C.

The legal distinction between “shall” and “may” is both critical

and elementary. Shall is defined as a duty in “the mandatory

sense that drafters typically intend and that courts typically

uphold” whereas “may” is defined as “a possibility.” Black's Law

Dictionary (8th Ed. 2004) at 1407 and 1000. A superb example of

inartful drafting, the Agreement’s ambiguity is expressed by its

plain language: 3E cannot be both obligated, in a mandatory

sense, to produce products for Global while also having the

option to identify alternative manufacturers, if, for “any

reason”, it cannot fulfill Global’s orders.

     3E insists that the Agreement unambiguously provides that

it “may manufacture products for Global, it may have the

products produced by another manufacturer, and in the event the

                                8
products are manufactured, they must be provided to Global

within a certain amount of time.” Pl.’s Rep. Br., ECF No. 13 at

3. 3E’s reading of the Agreement is as untenable as it is

unreasonable because it allows 3E to collect Global’s advance

payments absent any obligation to produce any product ordered by

Global. Such an agreement is nonsensical on its face, and

unfathomable in a context such as this where the parties

expressly anticipated doing nearly $4 million worth of business

with each other. See Agreement Section 4.A. For all of these

reasons, the terms of the Agreement are ambiguous and Global has

sufficiently pled a breach of contract counterclaim.

     Furthermore, Global argues that even if 3E had the

discretion under the Agreement to decide which orders to fill,

3E’s refusal to source all 250 orders placed by Global in the

first six months of the Agreement’s term constitutes a violation

of 3E’s implied duty of good faith and fair dealing. Def.’s Mem.

Opp. at 11.

     Under Pennsylvania law, all contracts impose on each party

a duty of good faith and fair dealing in the performance and

enforcement of a contract. Bedrock Stone & Stuff, Inc. v. Mfrs.

& Traders Trust Co., 2005 U.S. Dist. LEXIS 10218(E.D. Pa. May

25, 2005); Donahue v. Fed. Express Corp., 753 A.2d 238, 242 (Pa.

Super. Ct. 2000). Good faith is defined as “honesty in fact in

the conduct or transaction concerned.” Armstrong World Indus.,

                                9
Inc. v. Robert Levin Carpet Co., 1999 U.S. Dist. LEXIS 7743, *15

(E.D. Pa. May 19, 1999). An independent duty of good faith is

generally recognized when there is a dispute about the parties’

reasonable expectations. Id. “Good faith performance or

enforcement of a contract emphasized faithfulness to an agreed

common purpose and consistency with the justified expectations

of the other party . . . .” Pierce v. QVC, Inc., 555 F. Supp.2d

499, 503 (E.D. Pa. 2008)(citing Restatement (Second) of

Contracts § 205 Cmt. a.)

     Here, the Agreement was clearly entered into for the

purpose of specifying the terms under which 3E and Global would

do business with each other. To that end, Global has pled

sufficient facts relating to its expectation that 3E would

fulfill its orders pursuant to the Agreement to state a claim

for breach of the implied covenants of good faith and fair

dealing.

     C. The Agreement’s notice and cure provision does not bar
        Global’s claims.

     3E argues that the notice provision included in the

Agreement bars Global’s counterclaims because Global failed to

give 3E notice and an opportunity to cure its default. Pl.’s

Mem. Supp. at 4. 5 Global argues that the plain language of the

5 Notably, the notice provision is triggered by default, and 3E
could only be found to be in default if it was in fact obligated
to manufacture the products ordered by Global.

                                10
notice provision applies only to termination of the contract,

not claims designed to enforce the Agreement. The Agreement’s

notice provision states:

     Upon a default of the Manufacturing Agreement, the non-
     defaulting party will provide written notice to the
     defaulting party within ten (10) days of the alleged
     default. The alleged defaulting party will have thirty
     (30) days from the date of notice to cure the default.
     If the default is not cured within thirty (30) days from
     the date of the default notice, the non­defaulting party
     may terminate the Manufacturing Agreement.

Manufacturing Agreement, ¶ 15. The plain text of the notice

and cure provision indicates that it is triggered by

default (“[u]pon default of the Manufacturing Agreement”).

Global alleges that it “raised concerns” with 3E executives

about 3E’s failure to meet its obligations under the

Agreement, and thus it should be found to have sufficiently

complied with the Agreement’s notice provision. Countercl.

at 8, ¶3. Viewing the facts in a light most favorable to

Global on its counterclaims, 3E has at best raised a

question of fact in regard to whether Global complied with

the notice and cure provision of the Agreement prior to

alleging its counterclaims. 6

6 Based on Global’s   plausible reading of the notice and cure
provision, there is   also a question of fact in regard to whether
the notice and cure   provision applies to any situation other
than termination of   the contract. Def. Mem. Opp. at 12.

                                 11
     D. Attorneys’ fees

     Finally, 3E moves under Federal Rule of Civil Procedure

12(f) to strike Global’s claim for attorneys’ fees. Pl.’s Mem.

Supp. at 15. Global argues that its claim for attorneys’ fees is

well founded under federal and Pennsylvania law, both of which

allow attorneys’ fees to be awarded where a party’s conduct is

arbitrary, vexatious or in bad faith. See 28 U.S.C. § 1927; 42

Pa. Cons. St. Ann. § 2503(7), (9). At this stage of the

litigation, the Court is unable to access whether a factual

basis exists for an award of attorney’s fees. Accordingly, it

would be premature to strike Global’s demand for attorneys’ fees

at this juncture. Therefore, 3E’s motion to strike attorneys’

fees is denied. 7

     III. Conclusion

          For the foregoing reasons 3E’s Motion to Dismiss is

DENIED.

     Signed:    August 11, 2015
                Emmet G. Sullivan
                United States District Court Judge

7 Because Global’s unjust enrichment claim was pled in the
alternative, it need not be addressed in this opinion.

                                12