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Death (or Dismissal) By Exhibits & Admissions

A recent mid-winter decision from Central Islip Eastern District Judge Sandra Feuerstein provides a stark reminder to counsel for Plaintiffs to scrutinize documentation annexed as exhibits to a Complaint as the same may later haunt the Plaintiff as a basis for dismissal.

In Levista Inc. v. Ranbaxy Pharmaceuticals Inc., 2010 WL 438393 (E.D.N.Y. 2010), Plaintiff Levista, based in Huntington, filed an action against Ranbaxy premised upon Ranbaxy’s alleged breach of an agreement to sell and deliver 25,008 bottles of Cephalexin at $19 per bottle.  Plaintiff acknowledged that Ranbaxy sold and delivered 14,618 of the 25,008 bottles purchased, but asserted that instead of delivering the remainder, Defendant sold the 10,390 outstanding bottles to Plaintiff’s competitors at a higher price.  On that basis, Plaintiff pursued a breach of contract claim and a tortious interference with business relations claim, claiming $1,000,000 in damages.  Defendant filed a F.R.C.P. 12(b)(6) motion to dismiss for failure to state a claim.

The Standard of Review

In outlining the Standard of Review, the Court noted that it is required to “liberally construe the claims, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the Plaintiff.”  But, citing the United States Supreme Court decisions in Twombly (2007) and Iqbal (2009), Judge Feuerstein also observed that a Complaint that merely offers “labels and conclusions” or a “formulaic recitation of the elements of a cause of action” is insufficient pursuant to the Supreme Court’s recent directives, and that corresponding factual allegations “must be enough to raise a right of relief above the speculative level”.

The Breach of Contract Claim

The Court evaluated the documentation annexed as exhibits to the Complaint, including purchase orders from Plaintiff to Defendant between May 21 and May 27, 2008, along with the related invoices that Defendant sent to Plaintiff upon shipment.  It was the Court’s evaluation of the purchase orders annexed as exhibits to the Complaint which sounded the death knell for the Plaintiff’s breach claim.  Specifically, the Court noted that the May 21st purchase order for 3,668 bottles of the Cephalexin, coupled with the Defendant’s corresponding invoice, confirmed that that the product was paid in advance by the Plaintiff and that the bottles were shipped by Defendant.  Concluding that both parties fulfilled their obligations, Plaintiff could not premise a breach claim on that transaction.   The Court reached the same conclusion on another series of transactions, all premised upon the documentation annexed to the Complaint, and universally concluded that all obligations to be performed were indeed met.  Thereafter, one transaction remained in dispute.

On the disputed transaction, purchase order 242, Plaintiff claimed that it ordered an additional 10,590 bottles of Cephalexin and submitted the corresponding purchase order as an exhibit.  However, unlike the previous transactions, Plaintiff failed to allege that it paid for this particular shipment, and Plaintiff was unable to document an invoice rendered by the Defendant, as it had been able to do on all prior transactions.  In fact, Plaintiff did not even allege that the Defendant had accepted the order.  The telling hole in Plaintiff’s claim for this particular transaction is that it did not allege that it performed its payment obligation under the contract, which it had done in each of the parties’ prior transactions.  Rather, whereas the prior purchase orders indicated that an advance payment had been made, the purchase order for the disputed claim indicated that a 50% payment was required “upfront” with the remaining 50% “on the receipt of the goods.”  The Court specifically highlighted this inconsistency and noted that all prior transactions required “advance payment” on its invoices, and rejected the Plaintiff’s contention that Plaintiff’s readiness to perform its payment obligation for that particular purchase order was sufficient to meet its obligations pursuant to the Contract (which, on its face, required a 50% advance payment).  Accordingly, the Court dismissed the breach of contract claim.

The Tortious Interference Claim

Next, the Court addressed Plaintiff’s second cause of action, which it characterized as a claim for tortious interference with prospective business relations, premised upon the allegation that the Defendant, instead of selling the product to the Plaintiff, circumvented the Plaintiff and sold that same product to the Plaintiff’s customer.

An at-will relationship can support an action premised upon tortious interference with prospective business relations.  Indeed, Judge Feuerstein, in analyzing the cause of action, cited Carvel Corp. v. Noonan, 3 N.Y.3d 182, 785 N.Y.S.2d 359 (2004), which authority highlighted the distinctions between the protection of rights granted in a contract and the protection of rights inferred from prospective, extra-contractual relationships such as an at-will employment agreement.  Recovery is permissible for tortious interference with prospective business relations premised upon an at-will agreement, assuming Plaintiff can plead in accordance with its Twombly and Iqbal burdens.

To establish a claim for tortious interference with a prospective business relationship, New York Pattern Jury Instruction 3:57 provides that Plaintiff must satisfy five elements: (1) that the Defendant knew of the proposed contract between the Plaintiff and [a third party]; (2) that the Defendant intentionally interfered with that proposed contract; (3) that were it not for the Defendant’s interference, the proposed contract would have been entered into; (4) that the Defendant’s interference was done by wrongful means; and (5) that the Plaintiff suffered damages as a result.  As Judge Feuerstein concluded, to establish successfully element number four, wrongful means, Plaintiff bears the burden of demonstrating “culpable conduct” which essentially amounts to a crime or independent tort on the part of the Defendant.  Premised upon the “wrongful means” element, the death knell for Plaintiff’s tortious interference claim was two-fold: first, there was no pleading to characterize conduct which constituted “wrongful means”; second, Plaintiff admitted that the Defendant’s motive was simply “normal economic self interest … to make itself more profitable.”  On that two prong basis, Judge Feuerstein ruled that the Plaintiff’s claim in Levista was insufficient as a matter of law and the Court likewise dismissed the second cause of action as failing to state a claim.




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