OSCO MOTORS COMPANY, LLC, d/b/a OSCO MOTORS CORPORATION, and ENGINE DISTRIBUTORS, INC. Plaintiffs,
MARINE ACQUISITION CORP. d/b/a SEASTAR SOLUTIONS f/k/a TELEFLEX MARINE and H.I.G. MIDDLE MARKET, LLC, Defendants.
REPORT AND RECOMMENDATION
MARY PAT THYNGE, Magistrate Judge.
On May 17, 2013, plaintiff, Osco Motors Company, LLC ("Osco") filed its original complaint against defendants Marine Acquisition Corp. d/b/a Seastar Solutions f/k/a Teleflex Marine ("Seastar") and H.I.G. Middle Market, LLC ("HIG") (collectively "defendants"). The complaint alleged four causes of action: (1) tortious interference with contractual relations; (2) injunctive relief; (3) breach of contract; and (4) breach of the duty to negotiate in good faith.
On July 22, 2013, defendants filed a motion to dismiss. Defendants moved to dismiss the claim of tortious interference with contractual relations pursuant to Federal Rule of Civil Procedure ("FED. R. CIV. P.") 12(b)(1) for lack of standing, and the remaining three claims pursuant to FED. R. CIV. P 12(b)(6) for failure to state a claim. In response, on August 6, 2013, Osco filed an amended complaint adding Osco Motors Corporation, the name Osco does business as, and Engine Distributors, Inc. ("EDI") (collectively "plaintiffs"), Osco's parent company, as plaintiffs. After these additions, defendants withdrew their FED. R. CIV. P. 12(b)(1) motion to dismiss for lack of standing as to the first count.
Defendants now move to dismiss the second, third, and fourth counts of the amended complaint pursuant to FED. R. CIV. P. 12(b)(6) for failure to state a claim. Defendants also move to stay the proceedings pending the resolution of an arbitration between plaintiffs and non-party Quality Mark, Inc. ("QM"), which is tentatively scheduled on January 13, 2014. Both issues are presently before the court.
Osco produces and distributes marine engines, manifolds, risers, and accessory parts. Osco is a wholly-owned subsidiary of EDI. Seastar is an end producer of finished marine boats and boating products. Seastar regularly purchases products made by Osco and utilizes these products in its finished marine boats and boating products. These products include manifolds produced by Osco. HIG is a private equity and venture capital investment firm, as well as Seastar's partner and equity sponsor.
B. Factual Background
On January 1, 2011, Osco entered into a Manufacturing Agreement with QM, where QM would produce manifolds for Osco on an exclusive basis. Pursuant to the Manufacturing Agreement, QM was not permitted to manufacture Osco products for any entity other than Osco, or to sell Osco products directly to any other entity. Additionally, under the Manufacturing Agreement, if Osco was sold during the life of the agreement, the Manufacturing Agreement would automatically renew under the same terms and conditions with the company that purchased Osco. Osco sold manifolds and other manufactured products to Seastar, which QM produced for Osco pursuant to the Manufacturing Agreement.
In early 2011, Seastar and HIG inquired about purchasing Osco. As part of this inquiry, Seastar, HIG, Osco, and EDI entered into a Confidentiality Agreement on or about July 25, 2011. The Confidentiality Agreement contemplated a "possible collaboration" between HIG and plaintiffs. The Confidentiality Agreement was signed by the HIG's President, Glenn Cummins Jr.
On or about September 11, 2012, Osco, together with Seastar and HIG, entered into a Letter of Intent,  whereby Osco agreed not to solicit or negotiate any other potential agreements regarding the sale of Osco with any other company. Defendants agreed to conduct timely due diligence regarding the transaction. The content of the negotiations regarding defendants' acquisition were not to be disclosed to any third parties, and the terms of the Confidentiality Agreement were incorporated into the Letter of Intent. In late January 2013, Osco and defendants entered into a second Letter of Intent to extend the exclusivity period whereby defendants would complete their due diligence.
During the course of defendants' due diligence and investigation regarding the potential purchase of Osco, they received information regarding Osco's pricing, customers, quantities shipped, and revenues. As a result of their investigation, defendants were provided the Manufacturing Agreement entered into between Osco and QM and became aware of the close relationship between the same. Additionally, defendants learned from the Manufacturing Agreement that QM had complete control over the Osco product that was being shipped to Osco customers, and the tooling utilized to manufacture the product. As a result of this arrangement, QM could breach the terms of the Manufacturing Agreement, and ship Osco products, or products manufactured with the tooling jointly owned by Osco and QM, directly to any customer. Once Seastar obtained this information, it communicated with QM about obtaining Osco manifolds directly from QM.
In November and December 2012, QM's President, Mark Ebbenga, had multiple meetings with Seastar's Vice President of Sales to discuss the possible purchase of Osco. During these meetings, Ebbenga and Seastar's Vice President of Sales agreed QM would sell Osco products directly to Seastar without Osco's involvement. As a result of these conversations, QM contacted Osco for its approval to sell Osco products and manifolds directly to Seastar. Osco refused to grant permission pursuant to the Manufacturing Agreement, and informed Seastar all orders for Osco products must go through Osco and could not be transmitted through QM.
Nonetheless, Seastar purchased Osco products directly from QM. Defendants did not inform Osco of any direct purchase. Defendants now claim ownership of tooling that is presently jointly owned by QM and Osco under the Manufacturing Agreement,  and have entered into agreements with QM to control the production of Osco products and to use the Osco tooling, within QM's possession.
As a result of defendants' conduct, plaintiffs initiated the instant action alleging tortious interference with contractual relations, injunctive relief, breach of contract, and breach of the duty to negotiate in good faith. Shortly thereafter, plaintiffs amended the complaint to change the names of the parties in response to defendants' motion to dismiss for lack of standing. Subsequently, defendants moved to dismiss the second, third, and fourth counts of the amended complaint pursuant to FED. R. CIV. P. 12(b)(6) for failure to state a claim,  and to stay the proceedings pending the resolution of an arbitration scheduled between plaintiffs and non-party QM.
C. Pending Arbitration Between Osco & QM
The Manufacturing Agreement contains a mediation and arbitration clause requiring disputes arising from the signatories to be resolved through alternative dispute resolution. On May 30, 2013, Osco filed a demand for arbitration against QM before the American Arbitration Association ("AAA"). On June 12, 2013, QM filed its own demand for arbitration against Osco, EDI, and Glenn Cummings, Jr., EDI's Chief Executive Officer and controlling shareholder. The arbitration was originally scheduled for November 11-13, 2013, but was continued to January 13-15, 2014.
A. 12(b)(6) Motion to Dismiss Standard
FED. R. CIV. P. 12(b)(6) governs a motion to dismiss a complaint for failure to state a claim upon which relief can be granted. The purpose of a motion under Rule 12(b)(6) is to test the sufficiency of the complaint, not to resolve disputed facts or decide the merits of the case. "The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." A motion to dismiss may be granted only if, after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to the plaintiff, plaintiff is not entitled to relief." While the court draws all reasonable factual inferences in the light most favorable to a plaintiff, it rejects unsupported allegations, "bald assertions, " and "legal conclusions."
To survive a motion to dismiss, a plaintiff's factual allegations must be sufficient to "raise a right to relief above the speculative level...." Plaintiffs are therefore required to provide the grounds of their entitlement to relief beyond mere labels and conclusions. Although heightened fact pleading is not required, "enough facts to state a claim to relief that is plausible on its face" must be alleged. A claim has facial plausibility when a plaintiff pleads factual content sufficient for the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Once stated adequately, a claim may be supported by showing any set of facts consistent with the allegations in the complaint. Courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint, and matters of public record when reviewing a motion to dismiss.
B. 12(d) Matters Outside the Pleading Standard
FED. R. CIV. P. 12(d) provides "[i]f, on a motion under Rule 12(b)(6)..., matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." However, "a document integral to or explicitly relied upon in the complaint may be considered [on a motion to dismiss pursuant to FED. R. CIV. P. 12(b)(6)] without converting the motion into one for summary judgment." A document will be ...