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Kable Products Services, Inc. v. TNG GP

Superior Court of Delaware

June 13, 2017

TNG GP, a Delaware General Partnership, COMAG MARKETING GROUP, LLC, a Delaware Limited Liability Company, and HUDSON NEWS DISTRIBUTORS, LLC, a New Jersey Limited Liability Company, Defendants.

          Submitted: April 17, 2017

         Upon Defendants TNG GP, Comag Marketing Group, LLC, and Hudson News Distributors, LLC's Motions to Dismiss, GRANTED.

          Leslie B. Spoltore, Esquire, Seth A. Niederman, Esquire, Wali W. Rushdan II, Esquire, Fox Rothschild LLP, Wilmington, Delaware, George J. Kruger, Esquire, Fox Rothschild LLP, Philadelphia, Pennsylvania (pro hac vice) (argued), Attorneys for Kable Products Services, LLP.

          Steven L. Caponi, K&L Gates LLP, Wilmington, Delaware, Attorney for TNG GP and Comag Marketing Group, LLC.

          Michael F. Bonkowski, Esquire, Nicholas J. Brannick, Esquire (argued), Cole Schotz P.C., Wilmington, Delaware, Attorneys for Hudson News Distributors.


          Paul R. Wallace, Judge


         Plaintiff Kable Products Services, Inc. ("Kable") filed suit against Defendants TNG GP ("TNG"), Comag Marketing Group, LLC ("Comag"), and Hudson News Distributors, LLC ("Hudson, " and collectively with TNG and Comag, "Defendants"). Kable brings three counts against Defendants: Count I - Conspiracy; Count II - Tortious Interference with Contractual Relations; and Count III - Tortious Interference with Prospective Contractual Relations.

         Before the Court are the Defendants' Motions to Dismiss. TNG and Comag assert that: (1) Kable's claims include a single allegedly tortious act that does not meet the requirement of a significant act causing the breach of contract required for Count II; (2) mere refusal to deal is not enough to support Count III; and (3) since both Counts II and III fail, there is no underlying tort to support the allegation of a civil conspiracy in Count I. TNG additionally claims that because it had no part in Comag's ultimate denial of Kable's application for wholesaler status, it should be dismissed entirely. Hudson asserts that it took no actions that would give rise to a valid claim against it, and that any facts in the complaint that include Hudson are not enough to survive a motion to dismiss.

         Because Kable has not pled sufficient facts to show that there was a valid and enforceable contract to be interfered with, has not pled sufficient facts to show a significant act interfering with prospective contractual relations, and cannot, therefore, support a claim for civil conspiracy, the Court GRANTS the Defendants' Motions to Dismiss as to all counts.


         A. Industry Background; Kable and HGR Business Model.

         Kable is in the product fulfillment and repackaging business for consumer products. It provides logistic and delivery service for the magazine publishing industry.[1] Comag is a national distributor for large publishers;[2] TNG is Comag's majority owner;[3] Hudson is Comag's minority owner.[4]

         In February 2015, Michael Duloc ("Duloc") acquired all of Kable's assets.[5]Soon thereafter, he was approached to participate in a new business model that could possibly cut costs and increase market efficiencies.[6] In anticipation of doing so, Duloc spoke with representatives from Hudson Group Retail, LLC ("HGR").[7]

          At the time of the discussion between Duloc and HGR, TNG already provided some of HGR's news distribution services.[8] But the contract between TNG and HGR was set to expire by December 31, 2015. "Upon information and belief, " HGR was not satisfied with TNG's services and the proposed economics for renewing its contract with TNG.[9]

         In or around mid-late 2015, "upon information and belief, " HGR notified a number of the major publishers and national distributors that used HGR as a distribution outlet that HGR was considering a business strategy that would result in structural changes to the news distribution industry.[10] HGR sought non-disclosure agreements with those publishers and informed them that it might seek "to have magazines shipped directly from publishers to [HGR] through an out-sourced relationship with [Kable]."[11] Kable believes several of the publishers favorably received the idea.

         Based upon subsequent discussions with HGR representatives, Kable alleges several publishers informed HGR they would support HGR's new business model. Kable further alleges additional retailers expressed interest about pursuing a possible business relationship depending on how Kable's business with HGR evolved.[12]

         Kable claims that the proposed changes would "directly challenge [HGR's] current wholesale suppliers by reducing the need for their services."[13] Kable claims the new model would directly compete with certain services provided by those traditional wholesalers and that the proposed changes posed a "direct challenge to the economic interests of a number of market participants.. ., "[14]

         B. The Kable-HGR Service Agreements.

         On November 13, 2015, HGR and Kable entered into a Master Services Agreement ("the November MSA").[15] Kable alleges that the November MSA "demonstrated [HGR's] commitment to the business relationship" with Kable and that the November MSA provided significant economic benefits to Kable.[16]

         On or about November 16, 2015, HGR formally notified Defendant TNG that it would not renew its contract with TNG after the contract's December 31, 2015 expiration.[17] HGR informed TNG that Kable would provide selected services to its account and that HGR would additionally assume any services that TNG previously provided. Kable claims that HGR's actions "represented not only the loss by TNG of a significant contract, but also a broader challenge to its business and the business model enjoyed by [the other Defendants.]"[18]

         After HGR did not renew its contract with TNG, Comag notified HGR "that it would refuse to distribute [Comag's] clients' titles to [HGR] through [Kable instead of TNG] since [HGR] was not on the '[Comag] approved wholesaler list.'"[19] Comag's removal from HGR's distribution business would directly adversely impact HGR.[20] Kable claims that by doing so, Comag intended to benefit both TNG and Hudson and pressure HGR into continuing its relationship with TNG.[21]

         Kable alleges Comag "knew that it could exert pressure on [HGR] because the [Comag] client titles . . . account for a significant percentage of [HGR's] business."[22] Soon after Comag stated it would not ship to HGR via Kable, HGR formed a separate entity, HG Wholesale Logistics, LLC ("HG Wholesale"). HGR intended that HG Wholesale, in lieu of HGR, could then receive shipments from Comag through Kable.[23]

         On or about December 4, 2015, Kable and HG Wholesale entered into a revised Master Services Agreement ("the December MSA").[24] The December MSA was intended to replace the November MSA, rendering the November MSA void.[25]

         C. Defendants Allegedly Threaten Kable and Interfere with Its Agreements.

         Kable claims that shortly after Kable and HG Wholesale entered the December MSA, Defendants "concurrently continued to urge HG Wholesale to breach the December MSA" through a series of "closely coordinated calls reflecting an agreed-upon course of concerted action . . . sought to cajole and then coerce [Kable] into forfeiting certain of its rights under the December MSA."[26] But Kable alleges no facts that sufficiently support this averment.

          What Kable does say is that on or about December 29, 2015, Michael Korenberg ("Korenberg, " vice-chair of the Jim Pattison Group, which holds TNG and Comag) called Duloc to inquire if Duloc would be available for a call with him and James Cohen of Hudson.[27] Korenberg told Duloc that Cohen wanted to discuss how Hudson could offer a solution that would: (1) allow TNG and Kable to provide distribution and logistics services to HGR; and (2) protect Kable's economic interests through the MSAs.[28]

         Duloc agreed to the call. Kable argues that Korenberg and Cohen acknowledged the existence of the December MSA during that call and understood its material terms, but again, offers no factual support for those contentions.[29] During the call, Cohen allegedly suggested restructuring certain relationships. Duloc expressed some willingness to consider such restructuring, given it was acceptable to HG Wholesale and did not cause Kable any losses.[30]

         Kable claims Korenberg and Cohen sought a standstill of the Kable-HG Wholesale relationship to "protect [Kable's] economics" and "work out issues" with Kable.[31] Allegedly, Cohen proposed that Kable provide certain services to TNG in exchange for Kable forfeiting certain rights under the December MSA with HG Wholesale. Cohen allegedly further suggested that pending Kable's decision on the offer, there should be a standstill under which TNG and Kable would continue to service HGR, under the former HGR-TNG contract that Kable's December MSA with HGR was supposedly going to replace. Duloc stated he didn't understand the standstill and said that Kable continued to enjoy a contract with HG Wholesale.[32]

         On December 31, 2015, TNG's David Parry allegedly called Duloc with his concerns about the December MSA. Parry asked if TNG could do something "to satisfy [Kable's] business interest in exchange for [Kable's] agreement to withdraw from and/or modify its contractual relationship with HG Wholesale."[33]

         As a result of these phone calls, Duloc apparently told Korenberg, Cohen, and Parry that he was committed to being transparent with HG Wholesale. Kable alleges Duloc suggested a meeting with representatives of TNG, Comag, Hudson, and HG Wholesale to discuss the various proposals. That meeting never happened.[34]

         D. Defendants Allegedly Conspire and Interfere with the December MSA.

         Kable claims that because TNG lost its contract with HGR, Defendants wanted to prevent HG Wholesale from fulfilling its obligations under the December MSA.[35] "Upon information and belief, " but (again) with no tangible facts recited, Kable claims the Defendants "agreed to a plan of action to pressure HG Wholesale to breach its obligations under the [December] MSA."[36] And then, Kable claims, HG Wholesale did, in fact, breach the December MSA. Specifically, Kable claims HG Wholesale breached § 3.1, related to inventory management and the associated Statement of Work ("SOW"). Section 3.1 of the December MSA requires HG Wholesale to coordinate the delivery of inventory and maintain a certain level of inventory at each facility through Kable's services.[37] Kable claims these actions by the Defendants cost Kable over $4 million in losses.[38]

          Kable claims that in early January 2016, TNG contacted a number of publishers whom it believed may want to enter the distribution process with HG Wholesale. Kable alleges TNG "suggested the publishers refrain from doing so as the new business model would harm TNG and require TNG to increase the prices it charged publishers in order to offset" the loss of HGR's (and others') business.[39]Kable offers nothing more to support its claim of prospective business relations.

         On or about January 18, 2016, Kable alleges one of its representatives encountered Cohen by mere chance. Kable alleges that at that time, Cohen "made disparaging remarks" about HGR and HG Wholesale, "asserted in words and substance that [Kable] was 'trying to destroy the wholesale distribution system' and claimed that major publishers would refuse to supply [Kable] with product for distribution."[40] Kable's representative responded that Kable had commitments from publishers and reminded Cohen that Kable had a contract with HG Wholesale. Kable alleges Cohen acknowledged the existence of that contract (the December MSA), and stated "that it 'won't matter' because publishers would refuse to distribute" with Kable.[41]

          Around that same time, HG Wholesale completed its application to appear on Comag's "approved wholesaler list."[42] Kable claims that HG Wholesale properly completed the application and met all of Comag's criteria. Yet, Kable claims, "as part of the Defendants' plan to cause HG Wholesale to breach the December MSA, [Comag] rejected HG Wholesale's application on purely pretextual grounds" and "assert[ed] several deficiencies, including merchandising shortfalls, " along with Kable's software system.[43] Kable asserts Comag "licenses a similar version of this same software from Kable, " which, it surmises, evidences the pretextual nature of the rejection.[44] Kable says nothing more.

         Comag's rejection and refusal to list HG Wholesale as an approved wholesaler precluded all of its client publishers from distributing through Kable to HG Wholesale. Kable claims this was a "critical component" of the Defendants' efforts to cause HG Wholesale to breach the MSA.[45] Kable alleges Comag, acting in concert with TNG and Hudson, intentionally interfered with and deprived Kable of the benefits of the December MSA and impaired Kable's ability to expand its new business model. Unfortunately, it does not offer many, if any, practicable facts to support this.

          Kable claims the Defendants warned other publishers who previously supported Kable's new model to "refrain from entering into contractual relations with HGR, lest they suffer adverse economic consequences."[46] Kable asserts this created a hostile climate for HG Wholesale to perform under the December MSA, leading to HG Wholesale's eventual breach.


         Defendants argue Kable claims a single allegedly tortious act (Comag's denial of HG Wholesale's application) resulted in breach of the December MSA. Further, they say, Count II fails because if there was any contract at all, it was an option contract that cannot be interfered with - not a final, enforceable contract - barring Count II.

         Defendants also claim that Count III is not supported, because mere refusal to deal, as Comag did, is not enough to support a claim of tortious interference with prospective contractual relations. Further, conclusory statements about prospective business and a "perception" that such business would come to fruition is not enough to sustain the Count. Lastly, Defendants argue that they were privileged to openly compete in the market against Kable.

          Defendants argue that the conspiracy alleged in Count I ultimately fails because, once Counts II and III don't survive dismissal, there is no actionable underlying tort to support civil conspiracy.

         In response, Kable asserts that the three Defendants entered into a de facto agreement with one another in order to deprive Kable of the benefits it sought to obtain from a new market structure and its contracts with HGR and HG Wholesale. Kable says that the Defendants knew of the contract between Kable and HG Wholesale and caused HG Wholesale to breach that contract. Kable says it thereby suffered damages both from loss of that contract and from loss of other prospective, similar contracts.


          In considering a motion to dismiss pursuant to Superior Court Civil Rule 12(b)(6), the Court will:

(1) accept all well pleaded factual allegations as true,
(2) accept even vague allegations as "well pleaded" if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) [not dismiss the claims] unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[47]

         If the claimant may recover under this standard of review, the Court must deny the motion to dismiss.[48]

         As noted, under Rule 12(b)(6), the Court must accept as true all well-pleaded allegations.[49] And "every reasonable factual inference will be drawn in favor of the non-moving party."[50] The Court, however, will "ignore conclusory allegations that lack specific supporting factual allegations."[51] "Dismissal is warranted [only] where the plaintiff has failed to plead facts supporting an element of the claim, or [where] under no reasonable interpretation of the facts alleged could the complaint [be read to] state a claim for which relief might be granted."[52]

         V. DISCUSSION

         A. Tortious Interference with Contractual Relations.

         In order to establish that Comag, TNG, and Hudson tortuously interfered with Kable's contract with HG Wholesale, Kable must show: (1) the existence of a valid and enforceable contract; (2) "about which the defendant knew"; (3) "an intentional act that [wa]s a significant factor in causing the breach of [the] contract"; (4) that that act was done "without justification"; and (5) that the act "cause[d] injury" to the plaintiff.[53]

         1. To Sustain a Claim for Tortious Interference with Contract, Kable Must Show a Valid and Enforceable Contract Existed at the Time of the Alleged Interference.

         For there to be tortious interference with contractual relations, there must be an underlying contract that Kable could enforce. Comag and TNG assert that the November and December MSAs were only "option contracts for the benefit of HG Wholesale and were unenforceable by [Kable.]"[54] Further, the November MSA was abandoned by both Kable and HG Wholesale upon execution of the December MSA, on or about December 4, 2015. Thus, the only contract that could have been interfered with is the December MSA. Defendants contend that the December MSA, like the November MSA, was an option contract, exercisable at HG Wholesale's sole discretion.

         The Restatement explains how tortious interference can be applied to an option contract, stating

[a] promise may be a valid and subsisting contract even though it is voidable. The third person may have a defense against action on the contract that would permit him to avoid it and escape liability on it if he sees fit to do so. Until he does, the contract is valid and subsisting relation, with which the actor is not permitted to interfere improperly. Thus, by reason of. . . conditions precedent to the obligation or even uncertainty of particular terms, the third person may be in a position to avoid liability for any breach. The defendant actor is not, however, for that reason free to interfere with performance of the contract before it is avoided.[55]

         Comag and TNG assert that the December MSA is a mere option contract by virtue of the language in a number of recitals in the document itself.[56] They claim it is an option contract because HG Wholesale/HGR and Kable knew that HG Wholesale could not get inventory that Kable wanted under the original November MSA.[57] Essentially, "absent the materializing of a contingency (approval as a [Comag] wholesaler), which was out of the control of the parties to the agreement, the [December] MSA could never be performed by either [Kable] or HG Wholesale."[58]

         On the other hand, Kable argues that the December MSA was an enforceable, finalized contract between the parties and that it ...

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