Evonik Corporation v. Hercules Group, Inc.

REPLY BRIEF to Opposition to Motion

D.N.J.April 17, 2017

3963031-1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY EVONIK CORPORATION, Plaintiff, vs. HERCULES GROUP, INC. Defendant. Civil Action No. 2:16-cv-07098-JMV-JBC Filed Electronically PLAINTIFF/COUNTERCLAIM-DEFENDANT EVONIK CORPORATION’S REPLY BRIEF IN SUPPORT OF ITS MOTION TO DISMISS AND BRIEF IN OPPOSITION TO DEFENDANT/COUNTERCLAIM-PLAINTIFF’S CROSS- MOTION TO AMEND CONNELL FOLEY LLP Liberty View Building 457 Haddonfield Road Suite 230 Cherry Hill, NJ 08002 856.317.7100 856.317.7117(f) Attorneys for Plaintiff/Counterclaim- Defendant, Evonik Corporation On the Brief: Patrick J. Hughes, Esquire Robert J. Norcia, Esquire Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 1 of 32 PageID: 289 i 3963031-1 TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................... iii PRELIMINARY STATEMENT ............................................................................... 1 STATEMENT OF FACTS ........................................................................................ 4 LEGAL ARGUMENT ............................................................................................... 5 POINT I ................................................................................................................ 5 HERCULES’S OPPOSITION TO EVONIK’S MOTION TO DISMISS FAILS TO ADDRESS UNITED STATES SUPREME COURT PRECEDENT AND THE STANDARDS GOVERNING RULE 12(b)(6) MOTIONS ............................................................................. 5 A. The Legal Standard ................................................................................... 5 B. Hercules’s Attachment of The Amani Affidavit is Impermissible and Must be Disregarded. ......................................................................... 6 C. Hercules’s Argument That the Supply Agreement Contains an Ambiguity is Without Merit. ..................................................................... 8 POINT II ............................................................................................................. 12 HERCULES’S CROSS-MOTION TO AMEND ITS COUNTERCLAIM SHOULD BE DENIED BECAUSE THE PROPOSED “AMENDMENTS” ARE FUTILE .......................................... 12 A. Legal Standard ......................................................................................... 12 B. Hercules’s Mere Bald Conclusions that Evonik “Overcharged” Hercules is Not Supported By Any Well-Pled Factual Information in the Proposed Amended Counterclaim. ............................................... 14 C. Hercules’s Breach of Contract Claim Under the Alleged “Purchase Orders” Lacks Sufficient Factual Detail Under Federal Pleading Standards. ................................................................................. 18 Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 2 of 32 PageID: 290 3963031-1 ii D. Hercules’s Breach of Contract Claims Under the 2012 and 2015 Agreements Lack Sufficient Factual Detail Under Federal Pleading Standards. ................................................................................. 19 E. Hercules’s “Overcharge” Claims Prior to July 25, 2015, Are Barred by the Accounts Stated Doctrine. ................................................ 20 F. Hercules’s Proposed Amended Breach of the Covenant of Good Faith and Fair Dealing Claim is Deficient. ............................................. 22 G. Hercules Failed to Meaningfully Propose an Amendment to its Tortious Interference with Contract and Prospective Economic Advantage Claims. .................................................................................. 24 H. Hercules’s Unjust Enrichment Claim Still Fails Given Hercules’s Admissions That it Executed the Supply Agreements and its Alternative Pleading that “Purchase Order” Contracts Existed. ............. 25 CONCLUSION ........................................................................................................ 27 Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 3 of 32 PageID: 291 3963031-1 iii TABLE OF AUTHORITIES Cases Aeguus Techs., L.L.C. v. gh, L.L.C., 2011 U.S. Dist. LEXIS 32838 (D.N.J. Mar. 29, 2011) ......................................................................................... 20 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................... 6, 17 Bailey v. Sullivan, 885 F.2d 52 (3d Cir. 1989) ........................................................ 13 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ........................................... 5, 6, 17 Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210 (2005) .............................................................................................. 24 Certain Underwriters at Lloyd’s v. U-Line Corp., 2013 U.S. Dist. LEXIS 147712 (D.N.J. Oct. 1, 2013) ......................................... 17 Cigarrera La Moderna, S.A. de C.V. v. Inventory Mgmt. Consultant Grp., 1998 U.S. Dist. LEXIS 11208 (D.N.J. July 20, 1998) ......................................... 21 Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95 (2009) .................................... 10 Harris v. Merlino, 137 N.J.L. 717 (E. & A. 1948) ........................................... 21, 22 Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463 (D.N.J. 1990) ........................................................................................................ 13 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) ................. 7 In re Donald J. Trump Casino Sec. Litig., 793 F. Supp. 543 (D.N.J. 1992) ............. 7 In re Intelligroup Secs. Litig., 468 F. Supp. 2d 670 (D.N.J. 2006) ......................... 17 Kowalsky v. Deutsche Bank Nat’l Tr. Co., 2015 U.S. Dist. LEXIS 133284 (D.N.J. Sep. 30, 2015) .......................................................................................... 24 Long v. Wilson, 393 F.3d 390 (3d Cir. 2004) .......................................................... 12 Massarsky v. Gen. Mot. Corp., 706 F.2d 111 (3d Cir. 1983) .................................. 13 Pharm. Sales & Consulting Corp. v. J.W.S. Delavau Co., 106 F. Supp. 2d 761 (D.N.J. 2000) ................................................................ 13, 14 Ripley v. New Jersey R & T. Co., 31 N.J.L. 388 (1866) .......................................... 17 Ryan by Capria-Ryan v. Fed. Express Corp., 78 F.3d 123 (3d Cir. 1996) ............. 25 State v. Hartman Steel Co., 51 N.J.L. 446 (1889) ................................................... 21 Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 4 of 32 PageID: 292 3963031-1 iv Sunset Fin. Res., Inc. v. Redevelopment Grp. V, LLC, 417 F. Supp. 2d 632 n.13 (D.N.J. 2006) .............................................................. 12 T&N v. Pennsylvania Ins. Guar. Ass’n, 44 F.3d 174 (3d Cir. 1994) ....................... 20 TIG Ins. Co. v. Combustion Eng’g, Inc., 366 F. Supp. 2d 224 (D.N.J. 2005) ......... 10 Van Orman v. Am. Ins. Co., 680 F.2d 301 (3d Cir. 1982) ................................ 25, 26 Other Authorities Restatement (Second) of Contracts, § 282 ............................................................... 20 Restatement (Second) of Torts, § 287 ...................................................................... 22 Rules Federal Rule of Civil Procedure 12(b)(6) ........................................................ passim Federal Rule of Civil Procedure 15(a)(2) ................................................................ 12 Federal Rule of Civil Procedure 8(a)(2) .................................................................... 6 Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 5 of 32 PageID: 293 1 3963031-1 PRELIMINARY STATEMENT This is Defendant/Counterclaim-Plaintiff Hercules Group, Inc.’s (“Hercules”) second bite at the proverbial apple. Hercules has now had two opportunities to bring forth a well-pleaded Counterclaim-first in its initial Counterclaim and now in its proposed Amended Counterclaim-against Plaintiff/Counterclaim-Defendant Evonik Corporation (“Evonik”). Both times Hercules has utterly failed. Hercules has not cured any of the deficiencies in its Counterclaim raised in Evonik’s initial Motion to Dismiss. Indeed, Hercules’s Opposition neglected to even address or oppose a majority of the legal arguments and pleading deficiencies presented in Evonik’s motion. Hercules likely did not address those arguments or cure its pleading deficiencies because it cannot. And it will not be able to do so if given a third bite at the apple.1 Hercules’s proposed Amended Counterclaim-similar to its initial Counterclaim-is littered with bald assertions, immaterial statements, and mere conclusions that Evonik somehow “overcharged” Hercules for quantities of superabsorbent polymer (“the Product”). These quantities of the Product were supplied pursuant to a fully integrated, mutually agreed-upon written Supply Agreement. Hercules’s Answer to Evonik’s Complaint, its proposed Amended 1 Hercules’s opposition to Evonik’s motion to dismiss was untimely filed, despite requesting and obtaining a 28-day extension from the Court. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 6 of 32 PageID: 294 3963031-1 2 Answer, and both its initial and proposed Amended Counterclaim all acknowledge that its CEO, Sara Amani, executed this Supply Agreement.2 Similarly, in every single responsive pleading before this Court, Hercules has affirmatively acknowledged that the Supply Agreement contained, at Exhibit “A,” a comprehensive equation (“Pricing Formula”) and price points that illustrated exactly how the price of the Product would be calculated. Hercules agreed to be bound by those terms and has now attempted to fashion a proposed Amended Counterclaim out of thin air. Hercules’s proposed amendments to the Counterclaim are deficient, and the Counterclaim should be dismissed with prejudice. As in its initial Counterclaim, Hercules’s statements in its proposed Amended Counterclaim that Evonik overcharged it for the Product is supported by immaterial statements and naked assertions that Evonik “failed to apply Middle Eastern Regional Pricing” or “applied the Pricing Formula incorrectly.” Hercules has not told the Court or Evonik where in the fully integrated, mutually agreed- upon Supply Agreement it says that Evonik will charge anything other than the price contained in the Pricing Formula. Instead, Hercules merely concludes that because Evonik may charge a different price to other consumers in the Republic of 2 Hercules also brings to the Court’s attention the existence of another fully integrated, mutually agreed-upon Supply Agreement entered in 2012. However, the 2015 Supply Agreement explicitly superseded and replaced “all other understandings, whether oral or in writing, if there be any, previously entered into by the parties with respect to such matter.” (Amended Counterclaim (“A.C.”), Exh. “A”). Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 7 of 32 PageID: 295 3963031-1 3 Turkey, then Evonik must have been overcharging Hercules for quantities of the Product. Yet Hercules ignores that it does not matter what Evonik charges other consumers in other countries because it explicitly agreed to be bound by the terms of the Supply Agreement and the Pricing Formula contained therein. Citing “market discrepancies”, without explanation, between Evonik’s price charged to Hercules under the Pricing Formula and the price charged in the Republic of Turkey, Hercules generated a “chargeback report” that contained amounts referred to as “overages” after applying what Hercules describes as a “regional pricing formula.” However, Hercules provides no basis for or description of the “regional pricing formula,” or how it arrived at the alleged “overages,” what mathematical equation or formula it used, or whether it took into account the cost of raw materials, or any other facts. The alleged “overages” in the “chargeback report”-and Hercules’s proposed Amended Counterclaim in general-are nothing more than red herrings that seek to distract this Court from the ultimate fact that Hercules bargained for, agreed to, and executed a fully integrated, mutually agreed-upon written Supply Agreement and Pricing Formula with which it is now apparently displeased. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 8 of 32 PageID: 296 3963031-1 4 STATEMENT OF FACTS Evonik incorporates the Statement of Facts set forth in its Motion to Dismiss Hercules’s Counterclaim as if set forth at length herein. Evonik adds the following. Hercules’s proposed Amended Counterclaim attempts to bring a contract action under both the 2012 and 2015 Supply Agreements. Putting aside the fact that Hercules acknowledges the existence and validity of the 2012 and 2015 Supply Agreements, the 2015 Supply Agreement also explicitly superseded and replaced “all other understandings, whether oral or in writing, if there be any, previously entered into by the parties with respect to such matter.” (Amended Counterclaim (“A.C.”), Exh. “A”). The 2012 and 2015 Supply Agreements also contain virtually identical language. (A.C. ¶¶ 87-88, Exhs. “A” & “B”). The main difference between the two Supply Agreements are the differences in base price, the quantity and types of products governed by the Agreements, and the name of the entity entering into the Agreements.3 (Ibid.). Both Supply Agreements contain identical merger provisions, at clause 15, which state, in pertinent part: “[t]his Agreement contains the entire agreement of the parties with respect to the subject matter hereof and 3 Stockhausen, LLC entered into the 2012 Supply Agreement. Stockhausen, LLC, formerly a subsidiary of Evonik Corporation, merged with and into Evonik Corporation. (A.C., ¶ 71). Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 9 of 32 PageID: 297 3963031-1 5 supersedes and replaces all other understandings and agreements, whether oral or in writing, if there be any, previously entered into by the parties with respect to such matter. (Id. at cl. 15). In addition, both Supply Agreements contained identical “Purchase Price, Orders, Shipping and Payment Terms” provisions, at clause 3, which stated, in pertinent part: The purchase price of the Product, as well as order, shipping, and payment terms are set forth on Exhibit A to this Agreement. Additional terms and conditions are as set forth on Evonik’s order acknowledgments and/or invoices. No inconsistent terms in any purchase order, acknowledgement or transmittal or confirming document shall be effective to alter the terms of this Agreement. (Id. at cl. 3 (emphasis added)). LEGAL ARGUMENT POINT I HERCULES’S OPPOSITION TO EVONIK’S MOTION TO DISMISS FAILS TO ADDRESS UNITED STATES SUPREME COURT PRECEDENT AND THE STANDARDS GOVERNING RULE 12(b)(6) MOTIONS A. The Legal Standard Entirely ignored in Hercules’s opposition to Evonik’s Motion to Dismiss the Counterclaim were the federal pleading standards established by the United States Supreme Court in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 10 of 32 PageID: 298 3963031-1 6 Iqbal, 556 U.S. 662 (2009). Hercules’s opposition cites pre-Twombly case law regarding federal pleading standards. As stated in more detail in Evonik’s initial Motion to Dismiss the Counterclaim, Federal Rule of Civil Procedure 8(a)(2) requires more than “an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do’” and “[n]or does a [Counterclaim] suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ibid. (citation omitted). Here, Hercules’s Opposition failed to specifically address a majority of the legal arguments presented in Evonik’s Motion to Dismiss the initial Counterclaim. As such, Evonik respectfully requests that the Court enter an order dismissing Hercules’s Counterclaim for the reasons stated in Evonik’s initial Motion to Dismiss. B. Hercules’s Attachment of The Amani Affidavit is Impermissible and Must be Disregarded. In addition, Hercules’s reliance on the affidavit of Sara Amani in support of its Opposition to Evonik’s Motion to Dismiss the Counterclaim is impermissible. “As a general matter, a district court ruling on a motion to dismiss may not consider matters extraneous to the pleadings.” In re Burlington Coat Factory Sec. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 11 of 32 PageID: 299 3963031-1 7 Litig., 114 F.3d 1410, 1426 (3d Cir. 1997). There is an exception to this rule if a document is “integral to or explicitly relied upon in the complaint[.]” Ibid. “The rationale underlying this exception is that the primary problem raised by looking to documents outside the complaint-lack of notice to the [Counterclaim-]plaintiff- is dissipated ‘where plaintiff has actual notice . . . and has relied upon these documents in framing the complaint.’” In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426; see also In re Donald J. Trump Casino Sec. Litig., 793 F. Supp. 543, 547 (D.N.J. 1992) (“In opposing defendants’ motion, plaintiffs have submitted considerable materials, including affidavits . . . . Plaintiffs urge that we may consider these materials, which are clearly matters outside the pleadings, without converting the 12(b) motion into a Rule 56 motion for summary judgment. We disagree . . . . The materials plaintiffs urge us to consider are the stuff of summary judgment motions, not motions to dismiss under Federal Rule of Civil Procedure 12(b)(6)” (emphasis added)). Hercules filed its Counterclaim on January 20, 2017 (Docket Entry (“D.E.”) 10). Nowhere in Hercules’s Counterclaim does it reference an affidavit from Sara Amani, Hercules’s Chief Executive Officer. In addition, the affidavit from Sara Amani is dated April 3, 2017, nearly three months after Hercules filed its Counterclaim. As such, this Court should disregard the affidavit of Sara Amani in Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 12 of 32 PageID: 300 3963031-1 8 ruling on Evonik’s Motion to Dismiss Hercules’s Counterclaim as it was not referenced in or integral to Hercules’s Counterclaim, was not executed until after Hercules filed its Counterclaim, and is, therefore, an impermissible document to be relied upon in a Rule 12(b)(6) motion. C. Hercules’s Argument That the Supply Agreement Contains an Ambiguity is Without Merit. From what can be gleaned, Hercules argues that Clause 12 and Clause 16 of the 2015 Supply Agreement4 are ambiguous regarding the alleged oral “understanding” that Evonik would apply Middle Eastern Regional Pricing for the Product because there was no “specified regional pricing clause in the Agreements.” (Defendant/Counterclaim-Plaintiff’s Br. at 7-8). Hercules makes this claim without suggesting who, what, why or any other circumstances related to that naked statement. Clause 12 of the Supply Agreement provides, in pertinent part: BUYER represents and warrants that this Product is authorized by the U.S. Government for sale and re-export to SAVAPLAST Company, Tehran, Iran, Zarrin 4 Hercules references both the 2012 and 2015 Supply Agreements in its opposition to Evonik’s Motion to Dismiss. However, the 2015 Supply Agreement is the agreement Evonik referenced in its Complaint and attached to its motion to dismiss Hercules’s Counterclaim. As such, Evonik will only reference the 2015 Supply Agreement, as the arguments addressed in this section were raised by Hercules in opposition to Evonik’s Motion to Dismiss. In addition, and as stated above, the 2015 Supply Agreement explicitly superseded the 2012 Supply Agreement. Finally, Evonik’s arguments herein would also apply to the 2012 Supply Agreement, if it were still an operative agreement. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 13 of 32 PageID: 301 3963031-1 9 Cellulose, Tehran, and Zarrin Tejarat Khavar Mianah Company, Tehran and/or any other entity that Buyer successfully obtains an OFAC license for. . . . In the event BUYER seeks to expand its sales into other countries or territories other than as set forth in the OFAC license, an amendment to this Agreement may be negotiated upon mutual agreement of the parties to include new pricing and new volume provisions. (emphasis provided by Hercules). Clause 16 provides, in pertinent part: “Evonik acknowledges that BUYER has invested considerable resources in securing market presence in Iran for the sale of consumer packaged goods produced in part with Product.” From what Evonik can discern, Hercules suggests that the above-quoted provisions mean that Hercules had “special pricing” and that there is an ambiguity regarding whether Hercules was receiving “Middle Eastern Regional Pricing” or “regional pricing,” phrases not found anywhere in the fully integrated, mutually agreed-upon written Supply Agreement. This argument is nothing more than Hercules’s desperate attempt to find something to suggest Evonik “understood” that it would charge “Middle Eastern Regional Pricing” for the Product even though the Supply Agreement clearly outlines exactly how the price would be calculated in Exhibit “A’s” Pricing Formula. To say the least, no such ambiguity exists in clauses 12 or 16 of the Supply Agreement. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 14 of 32 PageID: 302 3963031-1 10 “A basic principle of contract interpretation is to read the document as a whole in a fair and common sense manner.” Hardy ex rel. Dowdell v. Abdul- Matin, 198 N.J. 95, 103 (2009). “A contract is not ambiguous simply because both parties disagree over the construction of the terms in the contract. To the contrary, a contract is ambiguous only when the contract (or terms thereof) are susceptible to two different interpretations or more than one meaning.” TIG Ins. Co. v. Combustion Eng’g, Inc., 366 F. Supp. 2d 224, 230-31 (D.N.J. 2005). Here, reading the contract and specifically the Pricing Formula, there is no Middle Eastern regional pricing clause. This is because the precise Pricing Formula was contained in Exhibit “A” to the Supply Agreement. Hercules agreed to it, initialed every single page, and assented to all of the terms by signing the Supply Agreement. The above-quoted provisions do not even suggest an ambiguity regarding alleged “special pricing,” nor can Hercules create an ambiguity where one does not exist. Clause 12, which is entitled “Compliance,” deals with Hercules’s responsibility to maintain an OFAC license to trade with Iran. The quoted provision above merely states that if Hercules wishes to expand operations to another area or country, then the parties may re-engage in contract negotiations. There is no hidden meaning or “special pricing” provision in Clause 12 that could Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 15 of 32 PageID: 303 3963031-1 11 lead to a reasonable conclusion that Evonik would charge anything other than the clearly delineated and mutually agreed-upon terms contained in the Supply Agreement’s Exhibit “A” Pricing Formula. Hercules’s arguments relating to Clause 16 similarly fail because it makes absolutely no mention of Middle Eastern Regional pricing, pricing in general, or how the price under the Supply Agreement was to be calculated. Instead, Clause 16-entitled “Good Faith and Fair Dealing”-merely acknowledges that Hercules has expended efforts and resources to obtain an OFAC license and that Evonik will act in good faith. Simply because Hercules is now displeased with the terms of the Supply Agreement, which its CEO signed, is not a basis to “create” an ambiguity that does not exist by selectively quoting portions of the Supply Agreement that reference locations or entities in Iran. In short, Hercules has not put forward a single alleged fact suggesting any reasonable, secondary, interpretation of the Supply Agreement’s terms and, as such, its arguments should be rejected by this Court. With respect to Evonik’s Motion to Dismiss Hercules’s Counterclaim, Evonik respectfully requests this Court enter an order dismissing, with prejudice, Hercules’s entire Counterclaim. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 16 of 32 PageID: 304 3963031-1 12 POINT II HERCULES’S CROSS-MOTION TO AMEND ITS COUNTERCLAIM SHOULD BE DENIED BECAUSE THE PROPOSED “AMENDMENTS” ARE FUTILE A. Legal Standard Federal Rule of Civil Procedure 15(a)(2) governs Hercules’s cross-motion to amend and provides that “[t]he court should freely give leave when justice so requires.” Indeed, motions to amend pleadings under Rule 15(a) “should be liberally granted.” Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004). “[T]he district court may only deny leave to amend (a) if the moving party’s delay in seeking amendment is undue, motivated by bad faith, or prejudicial to the non- moving party or (b) if the amendment would be futile (i.e., the amendment fails to state a cause of action).” Sunset Fin. Res., Inc. v. Redevelopment Grp. V, LLC, 417 F. Supp. 2d 632, 640 n.13 (D.N.J. 2006). Hercules’s proposed “amendments” here are entirely futile. “‘Futility’ of amendment is shown when the claim or defense is not accompanied by a showing of plausibility sufficient to present a triable issue.” Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J. 1990). “If a proposed amendment is not clearly futile, then denial of leave to amend is improper.” Ibid. “A determination as to futility does not require a conclusive determination on the merits of a claim or defense; rather, the futility of Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 17 of 32 PageID: 305 3963031-1 13 an amendment may only serve as a basis for denial of leave to amend when the proposed amendment is frivolous or advances a claim that is legally insufficient on its face.” Pharm. Sales & Consulting Corp. v. J.W.S. Delavau Co., 106 F. Supp. 2d 761, 764 (D.N.J. 2000). The Third Circuit has held that a “trial court may properly deny leave when the amendment would not withstand a motion to dismiss under” Rule 12(b)(6). Massarsky v. Gen. Mot. Corp., 706 F.2d 111, 135 (3d Cir. 1983). “No purpose would be served by allowing [an] amendment to the complaint [or counterclaim] to add a challenge which would be dismissed.” Bailey v. Sullivan, 885 F.2d 52, 59 (3d Cir. 1989) In support of its Cross-Motion to Amend, Hercules again references the affidavit of Sara Amani. This affidavit was not cited or referenced in, nor is it integral to, Hercules’s proposed “amendments.” This affidavit is not even attached as an Exhibit to the proposed Amended Counterclaim. Indeed, many of the unsupported statements alleged in the Amani affidavit are not contained in Hercules’s proposed Amended Counterclaim. This affidavit is, for some reason, a stand-alone document submitted in support of Hercules’s opposition to Evonik’s Motion to Dismiss and in support of its Cross-Motion to Amend. As in any other Rule 12(b)(6) motion, “when making its determination to an amendment’s futility, the court looks only to the pleadings.” Pharm. Sales & Consulting Corp., 106 F. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 18 of 32 PageID: 306 3963031-1 14 Supp. 2d at 765. Therefore, the entirety of the Amani affidavit should be disregarded by this Court. B. Hercules’s Mere Bald Conclusions that Evonik “Overcharged” Hercules is Not Supported By Any Well-Pled Factual Information in the Proposed Amended Counterclaim. All of Hercules’s proposed amendments to its Counterclaim center around Evonik’s alleged “overcharging” of Hercules for the Product. Hercules’s proposed Amended Counterclaim suffers from the same systemic deficiencies that its initial Counterclaim suffered from: mere conclusions lacking sufficient factual support. The proposed Amended Counterclaim merely changes some word ordering from the initial Counterclaim and introduces immaterial statements and bald assertions regarding the purported “overcharging” that Hercules has been unable to-for a second time-plead with any level of factual support. In the interest of brevity, Evonik will address these pleading deficiencies once and will refer back to this Section throughout the remainder of this Opposition. Hercules’s proposed Amended Counterclaim asserts that Evonik “agreed” to supply the Product at “Middle Eastern Regional Pricing” and that there was an “understanding” regarding the same. (A.C., ¶ 90). There was no such term in the fully integrated, mutually agreed-upon written 2015 Supply Agreement. Despite its proposed Amendment, Hercules fails to even suggest facts related to the Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 19 of 32 PageID: 307 3963031-1 15 conclusory statement that Evonik agreed to a price other than the price calculated in accordance with the Pricing Formula appended as Exhibit “A” to the Supply Agreement.5 Hercules attempts to get around this fact by concluding, again without a shred of factual support, that Evonik miscalculated the price under the Pricing Formula. (A.C. ¶¶ 91-93). There are simply no facts anywhere in the proposed Amended Counterclaim to support this naked conclusion. Hercules asserts that because Evonik allegedly charges a different price to other consumers in the Republic of Turkey, then Evonik must have been overcharging Hercules. (A.C., ¶¶ 95-96). This assertion is illogical and is also belied by the mutually executed, fully integrated written Supply Agreement. It does not matter what Evonik may have charged other consumers in other countries, or what the market price is for the Product in other countries. This alleged fact has no bearing on the amount Evonik has charged Hercules under the terms of the Supply Agreement. The only relevant issue here is that there was a Supply Agreement in place-one that Hercules explicitly admits, several times, to executing-that outlined exactly how the price would be calculated. (A.C., ¶¶ 84- 89). Accordingly, Hercules has utterly failed to assert a single fact illustrating how Evonik has not charged pursuant to the terms of the Supply Agreement and the 5 These same pleading deficiencies apply to the 2012 Supply Agreement, which is nearly identical to the 2015 Supply Agreement. As stated elsewhere, the 2012 Supply Agreement was explicitly superseded by the 2015 Supply Agreement. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 20 of 32 PageID: 308 3963031-1 16 Pricing Formula. Hercules has further failed to plead how, where, when, and between whom such an alleged oral “understanding” occurred regarding the alleged, undefined, un-quantified, and unspecified “Middle Eastern Regional” prices for the Product. Hercules also relies on the “chargeback report,” which was allegedly sent to Evonik on June 13, 2016, and lists an amount allegedly referred to as an “overage.” (A.C., Exh. “E”). However, the “chargeback report” only contains the date of invoice, the “PO#,” the product, and an amount referred to as an “overage.” (Ibid.). The only fact alleged in the proposed Amended Counterclaim supporting Hercules’s “calculations” is that Hercules applied the “correct regional pricing formula” to arrive at the alleged “overages.” There are no allegations regarding what the “correct regional pricing formula” consisted of, how Hercules applied this formula, what base prices it applied, or whether it calculated the cost of raw materials in compliance with the Pricing Formula. To the contrary, all agreed calculations are, however, set forth in the fully integrated, mutually agreed-upon Supply Agreement’s Pricing Formula. Hercules has further failed to allege a single error in the application of the Pricing Formula to any of the scores of outstanding invoices it has failed to pay. It is apparent that Hercules simply no longer likes the terms of the Agreement that it Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 21 of 32 PageID: 309 3963031-1 17 admittedly executed. “If [it] did not like that contract, [it] should not have entered into it. But having entered into it, [Hercules] is bound by it[.]” Ripley v. New Jersey R & T. Co., 31 N.J.L. 388, 391 (1866). Asserting a claim without any factual support is exactly the type of practice that Twombly and Iqbal sought to curb. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” and Hercules, “armed with nothing more than conclusions,” should not be permitted to “unlock the doors of discovery.” Iqbal, 556 U.S. at 678. As drafted, Hercules’s proposed Amended Counterclaim “presents nothing but a ‘fishing expedition’” in the hope that it will have access to discovery in order to uncover some currently unknown fact in order to sustain its claims. See In re Intelligroup Secs. Litig., 468 F. Supp. 2d 670, 705 (D.N.J. 2006); see also Twombly, 550 U.S. at 563 n. 8 (“Discovery . . . cannot serve as a fishing expedition through which plaintiff searches for evidence to support facts he has not yet pleaded.”); Certain Underwriters at Lloyd’s v. U-Line Corp., 2013 U.S. Dist. LEXIS 147712, at *14 (D.N.J. Oct. 1, 2013) (stating that “the discovery process cannot be used as a fishing expedition to seek out the facts necessary to establish a legally adequate complaint.”). Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 22 of 32 PageID: 310 3963031-1 18 Therefore, since Hercules has failed to adequately plead even a single fact related to its “overcharge” conclusions, because there are no such facts, all of Hercules’s proposed Amendments to its Counterclaim also fail because they are futile. C. Hercules’s Breach of Contract Claim Under the Alleged “Purchase Orders” Lacks Sufficient Factual Detail Under Federal Pleading Standards. Hercules’s proposed Count I “amendment” asserts that [i]f no written agreement is found to be valid, then [Evonik] breached its oral or written contract with HERCULES under the Purchase Orders, by failing to deliver [the Product] at Middle Eastern Regional Pricing or by failing to correctly calculate the pricing of the product, as agreed upon and as was customary in prior purchase and sales of the product by and between Hercules and [Evonik] and its predecessor in interest. (A.C., ¶ 100). Hercules has pleaded no facts which would support, in any way, the conclusion that the Agreement is or should be found invalid or rescinded. Hercules has asserted breach of contract claims under the Agreement, yet it has not asserted that the Agreement itself should be voided in any way. Instead, Hercules brings a claim against Evonik, without a single fact to support the commencement of such a claim, that in the off-chance the Agreement is deemed invalid then Evonik breached a contract under various “Purchase Orders.” Hercules has not Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 23 of 32 PageID: 311 3963031-1 19 identified, referenced, attached, or reproduced any of the purported “Purchase Orders” that Evonik allegedly breached, and it has pleaded no facts supporting enforcement of purported “Purchase Order” contracts.6 In addition, the extent of Hercules’s allegations that Evonik breached a contract it had with Hercules-regardless of which contract governs-are all centered around the bald overcharge assertions. For this reason, the arguments presented in Section II(B), supra, should apply to the Court’s analysis of the futility of this proposed amendment to the Counterclaim. D. Hercules’s Breach of Contract Claims Under the 2012 and 2015 Agreements Lack Sufficient Factual Detail Under Federal Pleading Standards. Hercules’s proposed Count II and Count III “amendments” to its Counterclaim to bring breach of contract claims under the 2012 and 2015 Agreements fail under federal pleading standards because they, again, contain nothing but mere conclusory allegations. Furthermore, the 2012 Supply Agreement was fully and completely superseded by the 2015 Supply Agreement, which stated “[t]his Agreement contains the entire agreement of the parties with respect to the subject matter hereof and supersedes and replaces all other understandings and agreements, whether oral or in writing, if there be any, 6 In any event, as quoted above, the Supply Agreement’s clause 3 stated “[n]o inconsistent terms in any purchase order, acknowledgement or transmittal or confirming document shall be effective to alter the terms of this Agreement.” (A.C., Exh. “A”). Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 24 of 32 PageID: 312 3963031-1 20 previously entered into by the parties with respect to such matter.” (A.C., Exh. “A,” p. 5). “When parties to a contract enter into a new agreement that expressly supersedes the previous agreement, the previous agreement is extinguished, thereby reducing the remedy for breach to a suit on the new agreement.” Aeguus Techs., L.L.C. v. gh, L.L.C., 2011 U.S. Dist. LEXIS 32838, at *8 (D.N.J. Mar. 29, 2011) (quoting T&N v. Pennsylvania Ins. Guar. Ass’n, 44 F.3d 174, 186 (3d Cir. 1994)). As a result, Hercules cannot maintain a cause of action relating to any purported breach of the 2012 Supply Agreement. Moreover, the basis for all of Hercules’s purported breach of contract claims-regardless of which contract Hercules is allegedly suing under-stem from the merely conclusory and unsupported “overcharge” allegations. For this reason, the arguments presented in Section II(B), supra, should apply to this Court’s analysis of the futility of this amendment to the initial Counterclaim. E. Hercules’s “Overcharge” Claims Prior to July 25, 2015, Are Barred by the Accounts Stated Doctrine. Hercules’s proposed breach of contract claim also fails under the accounts stated doctrine. The Restatement (Second) of Contracts, § 282 provides that: (1) An account stated is a manifestation of assent by debtor and creditor to a stated sum as an accurate computation of an amount due the creditor. A party’s retention without objection for an unreasonably long time Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 25 of 32 PageID: 313 3963031-1 21 of a statement of account rendered by the other party is a manifestation of assent. (2) The account stated does not itself discharge any duty but is an admission by each party of the facts asserted and a promise by the debtor to pay according to its terms. Furthermore, an account stated “occurs when a debtor and creditor come to a mutual agreement as to how much the debtor owes the creditor.” Cigarrera La Moderna, S.A. de C.V. v. Inventory Mgmt. Consultant Grp., 1998 U.S. Dist. LEXIS 11208, at *16 (D.N.J. July 20, 1998). “‘It is not essential that an account stated be in any particular form. . . . Evidence of assent to an account stated may consist of express statements or inferences from conduct.’” Ibid. (quoting Harris v. Merlino, 137 N.J.L. 717, 720 (E. & A. 1948). “When payment is made, the balance may amount to an account stated.” Harris, 137 N.J.L. at 720-21. “[P]roof of an acknowledgement by an endorsee of his liability upon a bill of exchange will support a count for an account stated[.]” State v. Hartman Steel Co., 51 N.J.L. 446, 451 (1889). Here, Hercules is attempting to create a claim based on bald allegations that it made “overpayments” for the Product. However, Hercules did not plead that it challenged the invoices until June 13, 2016, when it issued its “chargeback report.” Evonik’s Complaint makes clear that between the invoice dates of July 25, 2015 and April 28, 2016, Hercules failed to make payments. (Complaint, ¶ 12). Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 26 of 32 PageID: 314 3963031-1 22 Accordingly, prior to the July 25, 2015 invoice date, Hercules had paid all of its invoices. Indeed, if Hercules had not paid all the other invoices, Evonik would have brought suit to collect payment on those invoices issued prior to July 25, 2015. Hercules’s payment of the invoices prior to July 25, 2015, and then its waiting nearly an additional year-until June 13, 2016-to challenge the price on all of the invoices it previously paid is precisely the type of conduct that the accounts stated doctrine seeks to curb. Under the doctrine, Hercules’s uncontested payment of the amounts on the invoices, without protest, is an admission of the accuracy of those invoices. See Restatement (Second) of Torts, § 287; see also Harris, 137 N.J.L. at 720-21. Thus, Hercules is barred from alleging Evonik “overcharged” it on invoices Hercules paid, without protest, for several years before June 13, 2016. F. Hercules’s Proposed Amended Breach of the Covenant of Good Faith and Fair Dealing Claim is Deficient. Hercules’s proposed “amendment” to its breach of the duty of good faith and fair dealing claim changed virtually nothing from the initial Counterclaim. Hercules’s proposed amendment, significantly, acknowledges the 2015 Supply Agreement, and then seeks to allege a breach of that Supply Agreement’s explicit good faith and fair dealing provision, which provides: Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 27 of 32 PageID: 315 3963031-1 23 Evonik acknowledges that BUYER has invested considerable resources in securing market presence in Iran for the sale of consumer packaged goods produced in part with Product. Evonik further acknowledges that maintaining the sales volumes BUYER has achieved of said goods in Iran is of vital important. As such, Evonik will act in good faith during the entire term of this agreement to reasonably inform BUYER of any planned future activity by Evonik that has direct impact on said business activity of BUYER in Iran, provided doing so does not violate any third-party contractual obligations of Evonik or of any company within the Evonik Industries AG group of companies. However, Hercules does not allege a single fact showing how, when, and where Evonik breached this particular provision in the Supply Agreement. Hercules again attempts to rely on alleged overcharges, and Evonik respectfully refers the Court to Point II(B), supra, of this Opposition. Furthermore, Hercules does not, because it cannot, allege or even suggest a breach of the above-quoted provision in any way. There is no allegation, anywhere in the initial Counterclaim or the proposed Amended Counterclaim, that Evonik failed to maintain its sales volume to Hercules, or that Evonik did not reasonably inform Hercules of any planned future activity that would impact Hercules’s business activity in Iran. This proposed amendment is simply subterfuge. To the extent Hercules attempts to assert a claim for a breach of the implied duty of good faith and fair dealing, “a complaint [or counterclaim] must establish Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 28 of 32 PageID: 316 3963031-1 24 (1) the existence of a valid contract, and (2) the defendant had a ‘bad motive or intention’ and engaged in ‘conduct that denied the benefit of the bargain originally intended by the parties.’” Kowalsky v. Deutsche Bank Nat’l Tr. Co., 2015 U.S. Dist. LEXIS 133284, at *25 (D.N.J. Sep. 30, 2015) (quoting Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2005)). Here, Hercules has not, because it cannot, plead anything that can be even remotely construed as a “bad motive or intention” by Evonik, or that Evonik’s conduct “denied the benefit of the bargain originally intended by the parties.” Ibid. Again, this allegation stems from the bald “overcharge” allegation, and Hercules does not plead any of Evonik’s actions were actuated by a bad motive or intention, or denied Hercules the benefit of the bargain contained in the fully integrated written Supply Agreement. Since Hercules has failed to plead any factual support for this claim, the proposed amendment of this count in Hercules’s Counterclaim is futile. G. Hercules Failed to Meaningfully Propose an Amendment to its Tortious Interference with Contract and Prospective Economic Advantage Claims. The proposed amendments to Hercules’s tortious interference with contract and tortious interference with prospective economic advantage counterclaims are virtually non-existent. Indeed, Hercules’s amendments only added or rearranged a Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 29 of 32 PageID: 317 3963031-1 25 few words, and added a mere conclusion that Evonik “interfered” with Hercules’s “long-standing relationship with Zarrin.” Hercules failed to address and cure the deficiencies raised in Evonik’s Motion to Dismiss the initial Counterclaim. Therefore, Evonik incorporates its arguments seeking dismissal of these counterclaims in its initial Motion to Dismiss as if set forth at length herein. See Evonik’s Motion to Dismiss (Dkt. No. 15), at Point V(A), Point VI(A), and Point VII(A). For the reasons stated therein, this Court should deny Hercules’s proposed “amendments” of these claims as entirely futile. H. Hercules’s Unjust Enrichment Claim Still Fails Given Hercules’s Admissions That it Executed the Supply Agreements and its Alternative Pleading that “Purchase Order” Contracts Existed. As stated more fully in Evonik’s Motion to Dismiss Hercules’s initial Counterclaim, “‘recovery under unjust enrichment may not be had when a valid, unrescinded contract governs the rights of the parties.’” Ryan by Capria-Ryan v. Fed. Express Corp., 78 F.3d 123, 127 (3d Cir. 1996) (quoting Van Orman v. Am. Ins. Co., 680 F.2d 301, 310 (3d Cir. 1982)). In the instant case, Hercules admits that it executed the 2015 Supply Agreement. It has alleged no facts whatsoever supporting the notion that those contracts are invalid or were rescinded. “[W]ithout showing a rescission,” Hercules cannot “recover on quasi contract.” Van Orman, 680 F.2d at 311. Since Hercules has failed to plead that the Supply Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 30 of 32 PageID: 318 3963031-1 26 Agreement was invalid or rescinded, it cannot subsequently recover on an unjust enrichment theory. Therefore, Hercules’s proposed amendment of this count in the proposed Amended Counterclaim is futile. Moreover, after reviewing Hercules’s proposed Amended Counterclaim as a whole, it is apparent that the alternative pleading technique employed by Hercules is internally inconsistent. In Count I, Hercules pleads that if the 2012 and 2015 Supply Agreements are deemed invalid, then Evonik breached its contracts under the various “Purchase Orders.” Taking Hercules’s pleading to its logical conclusion, if the 2012 and 2015 Supply Agreements are deemed invalid, then there were still allegedly valid and unrescinded contracts in the form of “Purchase Orders,” the existence of which still destroys Hercules’s unjust enrichment claim, which is a quasi-contract theory in which recovery can only be had in the absence of a contract. These internal inconsistencies cannot be reconciled and, therefore, Hercules’s proposed amendment of its unjust enrichment claim is futile. Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 31 of 32 PageID: 319 3963031-1 27 CONCLUSION For the foregoing reasons, Plaintiff/Counterclaim-Defendant, Evonik Corporation, respectfully requests that this Court enter an order dismissing Plaintiff’s Counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6), and enter an Order denying Defendant/Counterclaim-Plaintiff Hercules Group, Inc.’s Cross-Motion to Amend as being futile CONNELL FOLEY LLP Liberty View Building 457 Haddonfield Rd., Ste. 230 Cherry Hill, NJ 08002 P (856) 317-7100 F (856) 317-7117 By: /s/ Patrick J. Hughes DATE: April 17, 2017 Patrick J. Hughes, Esq. Robert J. Norcia, Esq. Attorneys for Plaintiff/Counterclaim- Defendant, Evonik Corporation Case 2:16-cv-07098-JMV-JBC Document 27 Filed 04/17/17 Page 32 of 32 PageID: 320 3970574-1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY EVONIK CORPORATION, Plaintiff, vs. HERCULES GROUP, INC. Defendants. Civil Action No. 2:16-cv-07098-JMV-JBC Filed Electronically CERTIFICATE OF SERVICE I, Patrick J. Hughes, of full age, hereby certify that on Mon, Apr 17, 2017, the within Reply Brief in Support of Plaintiff/Counterclaim-Defendant Evonik Corporation’s Motion to Dismiss and Brief In Opposition to Defendant/Counterclaim-Plaintiff’s Cross-Motion to Amend along with supporting documentation has been filed with the Clerk, United States District Court for the District of New Jersey, via the Court’s Electronic Filing System (“ECF”) and that a copy of same has been served via ECF upon the following: Patrick C. Carroll, Esq. Law Office of Patrick C. Carroll, Esq. One Old Country Road, Suite 125 Carle Place, NY 11514 Attorney for Defendant/Counterclaim-Plaintiff Andrew S. Turkish, Esq. Clausen Miller, P.C. 100 Campus Drive Florham Park, NJ 07932 Attorney for Defendant/Counterclaim-Plaintiff Case 2:16-cv-07098-JMV-JBC Document 27-1 Filed 04/17/17 Page 1 of 2 PageID: 321 2 3970574-1 I hereby certify that the foregoing statements made by me are true. I am aware that if any of the foregoing statements are willfully false, I may be subject to punishment. CONNELL FOLEY LLP Liberty View Building 457 Haddonfield Rd., Ste. 230 Cherry Hill, NJ 08002 P (856) 317-7100 F (856) 317-7117 By: /s/ Patrick J. Hughes DATE: April 17, 2017 Patrick J. Hughes, Esq. Robert J. Norcia, Esq. Attorneys for Plaintiff/Counterclaim-Defendant Evonik Corporation Case 2:16-cv-07098-JMV-JBC Document 27-1 Filed 04/17/17 Page 2 of 2 PageID: 322